Local Government Finance

Lord Shipley Excerpts

Thursday 13th July 2017 Lords Chamber

[Lord Shipley (LD)]

My Lords, I should remind the House that I am a vice-president of the Local Government Association. I thank the noble Lord, Lord Kennedy of Southwark, for initiating this debate, which I think is particularly important given the absence of any mention of local government in the Queen’s Speech—a point that I will come back to. The debate gives us an opportunity to talk about the current financial crisis impacting on local government, as well as on all the people who expect and need the services that local government provides. It also gives us an opportunity to take a step back from the immediate funding crisis and take a look at the principles that should underpin local government funding after 2020.

The noble Lord, Lord Kennedy, explained the financial problems of local government very well: that is, the £5.8 billion funding gap by 2020 and the need for an additional £1.3 billion fund to stabilise the adult social care provider market. The Minister will not be surprised if I draw attention to the fact that it was not difficult for the Government to find £1 billion extra for Northern Ireland. It is broadly the same amount of money and I hope that the Government will urgently seek to solve this problem.

We need the clarity on business rate retention referred to by the noble Lord, Lord Kennedy. It was not mentioned in the Queen’s Speech. It may be that the Minister will tell us that it is going to be delivered through secondary legislation, and I hope that the matter will be clarified today. I also hope that we will hear of a commitment by Her Majesty’s Government to continue the fair funding review, which would ensure that all local councils, including poorer ones, will have enough resource to do their job properly.

We now need a national cross-party debate about the relative powers of national and local government, the consequential responsibilities that should fall on each of them, and the funding needed to deliver those responsibilities; that is, the overall funding available and the sources of that funding, be they national or local. The debate needs to be about partnership working between central and local government, based on mutual trust. I would suggest that it should not be led by slogans about excessive waste in local authorities, which today are frankly well wide of the mark.

The arrangements beyond 2020 will be a complex picture because so much in policy terms is unclear. The relationship between central and local government in terms of devolution has, as expected, become a patchwork with, for example, some combined authorities, some mayoral combined authorities, and powers in some policy areas devolved to some places but in others not devolved at all. Of course, this is what the relevant combined authorities have asked for. Broadly speaking, the level of current devolution is not really devolution at all. It might qualify as semi-devolution and it may prove to be a staging post—but, because it leaves so much power over resources with central government, it is hard to think of it as true devolution.

This picture is also complex because of the different structures in local government which can permit the duplication of overheads and occasionally conflict between tiers. Some parts of the country have unitary councils while others have two-tier structures. As the functions of local government change and budget cuts bite further, it will be necessary for councils to assess how they can reduce their overheads further, pushing ahead with, for instance, much more sharing of services—in which there are many examples of good practice.

Of course, the impact of cuts in central government support have been much greater in the poorer parts of the country, which are more dependent on the central government grant, and that has compounded the problem. Such cuts in areas of high need have become unsustainable and they no longer command public support. I would therefore urge the Government to reverse any plans they have to cut the budgets of local government even more.

I would venture to suggest that the overall crisis in funding will not be resolved until the problems surrounding adult social care are resolved, so let me start there. We need to pool budgets between the NHS and local councils. Joint but separate working is not enough; pooled working has become essential. The Dilnot review pointed to a way forward financially and I hope that the Government may still back it. I should add that I do not think it is appropriate to load the problems of adult social care funding on to council tax payers; council tax was never designed for that.

There is a crisis in local government and the reason is that it is under resourced for what it is expected to do and it is having to cut non-statutory services to pay for statutory services. There are huge stresses in policing, fire, social care and the support of children, as well as in universal services such as libraries, parks and environmental maintenance. All of this begs the question: what should happen?

First, we need to understand better what the public want. The public want greater local decision-making, so we need to be clearer about what “local” means. We used to have very small councils for a specific geographical area—often urban districts or rural districts. They had a strong local identity. There has been a tendency to amalgamate and make democratic structures bigger. The 1973 reorganisation was a case in point. Cities grew outwards and absorbed smaller neighbouring councils. But since 2010, with city deals and combined authorities, those democratic structures are getting larger. I wonder whether the time has come to look again at greater empowerment for smaller, local areas for defined services, building on towns and parishes.

In terms of money and resources, we should remember that members of the public think that they pay council tax to benefit from universal services—but, of course, it is far more complicated than that. I have come to the conclusion that we now need to address the issue of more council tax bands at the top end. That would bring in more income from council tax. I think we also have to engage much more in voluntary taxation. I am thinking in particular of expanding the role and powers of business improvement districts, many of which are now a huge success. We need to maximise the role of trusts and volunteers—the National Trust now has a role in parks in a number of councils—but I do not think that we can ever assume that they are always going to be a satisfactory replacement for public services. Councils need powers to raise other forms of taxes, too. Council tax referendum limits should be abolished and councils need greater flexibility on fees and charges, which will enable them to recover their costs, including their overheads.

There has been a lot of publicity recently about council borrowing powers. The noble Lord, Lord Kennedy, talked about the importance of councils investing in housing. He is absolutely right about that, and the removal of the cap would be a huge help. I had not realised until I read it in the Times earlier this week the extent to which local authorities are investing in commercial developments. It is one thing for people to invest in commercial developments in their own area in order to complete them; it is another for councils to become property developers. I was somewhat shocked to discover that, since 2015, councils have spent £2.7 billion on property—five times the level of the previous three years. It is almost as though something happened when the coalition Government came to an end. It is probably fortuitous, but the reasons for that fivefold increase in property deals need to be looked at, dare I suggest, by auditors—if the department is not already doing that.

I welcome the announcement by the Secretary of State of a housing infrastructure fund that will provide 100,000 new homes in sought-after areas—but, in my view, it is the responsibility of local councils to invest in their infrastructure and in housing as a priority, and not to invest in buildings sited in other local authority areas with which they have no connection.

To conclude, I understand that the Government have a problem with debt and the annual deficit, but they must now clarify how the funding gap will be addressed, their plans for business rate retention, the completion of the fair funding review and their willingness to empower councils to do more financially for themselves. It is poorer people who are suffering from the current level of cuts. I have concluded that we were right at the general election to urge a 1%—or rather 1p—increase in income tax to provide extra resource to pay for some of the services that I have been talking about. My party was right to have the courage to propose that 1p rise, of which I strongly approve.