Lord Smith of Leigh
Main Page: Lord Smith of Leigh (Labour - Life peer)Local Government: Finance Settlement
Lord Smith of Leigh Excerpts(11 years, 4 months ago)
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Lord Smith of Leigh
My Lords, I am grateful to have the opportunity to raise the issues created by the local government settlement for 2013-14 and for the wealth of talent from local government who will contribute to the debate. I look forward to that. I confess that I presented my first budget in 1983-84, 30 years ago. Those were tough times in the era of the Thatcher Government but not as tough as we have today. Last week, in Wigan, we agreed our next year’s budget proposals with some £18.9 million of cuts on top of £43 million achieved over the past two years.
I declare my interests: I am leader of Wigan Council, chair of the Greater Manchester Combined Authority, vice-chair of SIGOMA and one of the many vice-presidents of the LGA in this House. This year’s settlement was announced on 19 December but it was no Christmas present for local authorities. It is by far the most complex settlement ever—certainly, in my memory—and included the new system of local government finance, which was agreed during the autumn of last year and moved funding towards support from business rates. Of course, we do not understand the impact of the current rating appeals. As regards moving council tax benefit support to local authorities, I think that in the debates on the Bill, we talked about a 10% reduction for local authorities. For my authority, it will be just over 15%, so we have that to cope with. We have got changes to specific grants, such as the funding for academies. A local authority near me, Trafford, has lost about £5.1 million from this change but its total budget was only £3.3 million.
The new homes bonus has been cut. We have got new capping rules, which will allow local authorities to increase council tax by 2%. Unusually, this year we can add precepts, as well as levies, from transport authorities and others. Perhaps it is surprising that public health money allocated to local government was not included in the settlement although it has come through. Those are some of the changes but we have not mentioned the effect of the public spending review and the reduction in grants to local authorities.
During the passage of the Local Government Finance Bill, I made the point that we are transferring greater risks to local authorities with this settlement. Business rates are going to go to local authorities, as will the impact of business rate losses. A major supermarket catching fire could lead to the closure of that supermarket and, therefore, there will be no business rates. That cost will be on the local authority. We also debated for some time what the collection of council tax would be under the new arrangements. I do not think any of us expect that to be anywhere near 100%. There are one or two smaller local authorities which I think in future are financially vulnerable. We certainly need to keep a watch on that.
“Local government has borne the brunt of cuts to public spending and the settlement announced confirms that this will continue to be the case until 2015”.
Not my words, but words that I can agree with, in which local authorities have taken some 28% reductions while Whitehall departments have only taken an 8% reduction. Those words were stated by Sir Merrick Cockell, chair of the LGA, and I understand that he is leader of a local authority in London with which the Minister may well be familiar.
Despite the Government’s mantra about fairness—part of which I caught at the end of the previous debate—the cuts have different impacts in different parts of the country. Over the past two years, under the Government’s new measure called Spending Power—unknown two years ago—the average reduction for local authorities has been £91, but in Dorset the average reduction has been only £8.50. In Knowsley, it has been £229 and in the current settlement—I apologise to my noble friend on the Front Bench for making this comment—Luton has gained by £12.40 whereas Rochdale has lost by £57.50.
What is fair about a distribution that is treating local authorities so differently that they are having to cope with similar problems in different ways? How is local government coping with the scale of cuts that is forced on them? The answer is that they are actually coping a lot better than many central government departments, and achieving some of these savings largely on target. As a practitioner, I am the first to admit that there are still significant efficiency gains which local authorities can and must pursue. To give evidence for this, in my recent budget we were able to take £1 million off our IT services because we had gone out for a joint procurement with a neighbouring authority which saved that amount. There can be efficiency savings, but the scale of what is demanded of local authorities cannot be achieved.
The Secretary of State has recommended to local authorities that they should use balances. At best, this is only putting off the evil day. Towards the end of last year, I was acquainted with one local authority which, because it had been a hung council, had dithered for two years without making any cuts. They had used all the balances in making the budgets balance. However, come the third year balances have gone. They now have to get back on track and are in the process of making savings of £100 million in one year. As I mentioned, the risks for local authorities have risen because of the new funding regime and risks need to be protected by local authorities so inevitably will be to be a high level of reserves to cope with that.
In my own authority, I use reserves in the concept of invest to save, that is to spend money upfront now which will lead to savings elsewhere. We have got a significant capital programme to improve the basic quality of our road network, which is enabling us to save roughly £1.5 million a year on highways maintenance and the day-to-day repairs of patching up and so on. If you improve the fabric of the road, you can make savings. That is how we are using reserves.
We can try to make the savings by putting the cost upon our employees. For the past two years, we have had a pay freeze in local government. We have now reached the end of that road. It is time in the forthcoming year that local authority workers, like other workers, have some compensation for the impacts of inflation and other things. When we have done all those things, we are still left with reducing the services provided directly by local authorities. If we are lucky, some of these services may be taken up by community groups. We have been successful in transferring a small library to a community group, but that is a small library in a small location. Clearly it could not happen with a major library and that is only going to happen in one or two cases. In most cases, we will start to cut and reduce; services will disappear. Due to the scale of the cuts, no area of local authority spending can be exempt. The impact on individuals and communities will be severe.
Those who have seen the news today may have seen the report of the Coalition of Disabled talking about the impact of local authority cuts on people with disabilities. It says that a £1 billion shortfall will affect disabled people across the country. Some of the cuts that we have decided to make in our adult services and in our local authorities will reduce the cost to us in local government, but they will simply shunt costs across to the NHS. In a sense it is not a real cut in public spending, it is simply moving it from one area to another.
With the additional redundancies that we are creating we are doing damage to local economies and to local people in communities. I think that we are becoming a less civilised place. We are seeing a reduction in provision for the most disadvantaged and vulnerable in our society; we are seeing a reduction in provision of the arts; we are seeing a reduction in the provision of the local library service. The House has debated on numerous occasions—so I do not want to get into the detail of it—the forthcoming crisis in the provision of social care, simply illustrated I think by the so-called Barnet graph of doom. These looming pressures will and are already beginning to affect local authorities, but I want to remind Members that this is not a cost which will affect just social care. During the past few months, I have been scrutinising the budget for Greater Manchester transport to make sure that it has kept within its budget limits. It told us that the prospect of more pensioners coming through with free travel—not national but local travel—will have a significant impact on its budgets over the next couple of years.
We cannot simply continue with these slash-and-burn tactics that the Government are applying to local authorities. The cumulative, year-on-year, effect of cuts will and is having serious effects on services. Most of all, and perhaps worst of all, it is not working in what the Government want to achieve in cutting the public deficit. We estimate in Greater Manchester that the impact of the Government’s policies has been to cut about £1 billion off direct services, but because of the rise in unemployment, we are paying out more in welfare payments. Health costs have gone up, so public spending has gone up in Greater Manchester, not down.
There is a better way: the way of public service reform. Most public spending is still coping with the symptoms of problems rather than the cause. If we began a proper, full collaboration of services in an area, as shown by the community budget pilots, we could save—according to estimates verified by Ernst & Young—up to £22 billion over five years. Not only would we be saving public money but we would be improving the local economy, because the impact would be to get more people back into work. We would reduce dependency and improve outcomes for individuals and communities.
I recently visited a project for troubled families in my borough and was moved by the outcomes of, that project and by the extent to which those families lives had been turned round by the adoption of a different approach that looked to find ways to solve their problems rather than just assuming that the way to deal with them was to take the kids away.
Some parts of government get sufficient support, but clearly not all do so. The settlement also contained a significant reduction in the early intervention grant. My authority received a grant of £4 million. This was money to help children’s development in the crucial early years and is a way of reducing dependency, but the money disappeared.
I would like the Minister, in replying to the debate, to say that she will tear up the 2013-14 settlement, but I do not expect that she will. However, there are three things that I hope she will consider seriously when replying. First, it is a new system, so let us see whether we cannot carefully monitor the impact that this complex settlement is having and show willingness, if it is necessary—I think that it probably will be—to intervene in-year if the consequences for individual local authorities demand it. Secondly, let us begin an early dialogue with local authorities on the forthcoming settlement for 2014-15, which will, following the autumn spending review, result in more misery for local authorities. We will need to think about that. Thirdly, I hope that we can have serious conversations with willing local authorities on the reform of public services, which will produce better results for everyone.
Lord Smith of Leigh
I thank all noble Lords for their contributions to this debate, particularly the two who were so keen to contribute that they found the stamina to participate in two debates today.
The general theme that emerged in the debate concerned what the basis of funding for local authorities should be and whether it should be based on the ability to raise revenue or on need and deprivation. We shall need to come back to that theme. Noble Lords talked about the complexities and difficulties of the new system. A number of noble Lords, including myself, mentioned the problems associated with valuation appeals and the impact that that might well have in some areas. The noble Lord, Lord Tope, mentioned that issue and I agree with his comments in that regard. The provision will cause difficulties in lots of areas and London may be worst affected.
My noble friend Lord Beecham concentrated on needs. Clearly, coming from the north-east and Newcastle, that is something that he understands. None of us wants to be in an authority that is dependent and has high deprivation. We want to work to get rid of deprivation but we will not do so without support.
The interesting part of the contribution from my noble friend Lady Smith of Basildon was the Basildon letter. Presumably that letter is going to local authorities across the country and is obviously making many people worry about their jobs. It is a very difficult matter. I have been undertaking an exercise in my authority where we have been talking to front-line staff. It is not easy when you know that, as you explain the issues in local government, particularly funding, some of the people you are talking to may not be there come 1 April.
As usual, the contribution of the noble Lord, Lord Greaves, was interesting. When he talked about his seven authorities, it illustrated his point about how settlements these days seem to be skewed, as it were, towards success. Authorities that have the ability to raise business rates or get new homes or whatever will benefit, whereas areas such as his own in Pendle will have much more difficulty and will suffer. He illustrated that very well. My noble friend Lady Armstrong talked about complexity and made the point that it is not just local authorities that are impacted by the local authority settlement but the voluntary sector, which relies on local authority funding. Obviously, if local authorities are taking cuts, there will be cuts in the voluntary sector and, if we get settlements late, they will get them late too.
There was an interesting contribution from the noble Lord, Lord Shipley. He talked about fairness and raised the issue of council tax. If I understood him correctly, the problem with council tax averages—as the noble Lord, Lord Greaves, said—is that it all depends on the banding. If an authority has a huge proportion of band A properties, then its average is much lower than other areas, so maybe raising bands would be quite difficult. My authority rejected the less than generous offer from the Secretary of State to freeze council tax this year. It would have cost about £1.5 million to do it this year and would have deferred the cost into next year. I admired the courage of the noble Lord, Lord Shipley, when he suggested a referendum on increasing the council tax. I proposed in Greater Manchester that we had a congestion charge, which went to a referendum. I still have the scars, so I am not too keen on that.
My noble friend Lady Donaghy took a very brave line when she tried to take a Conservative view of what might have been said, given the absence of contributions from that side. She then spoke about reserves and at the end tried to come up with a song. Whatever song it is, I am sure it will be the blues.
My noble friend from the Front Bench, Lord McKenzie of Luton, obviously defended his own authority, quite rightly. However, I thought there was an anomaly there that I had to mention. With his experience and expertise he raised issues which we had rehearsed during the passage of the Local Government Bill and which we need to think about. He stressed—as many of us did—that we are talking not just about the impact on institutions such as councils, which is mostly ongoing, but about the impact that these cuts will have on individuals and communities.
Finally, the Minister, in her usual charming and informed response, replied as best she could about the issues raised. She talked about the role and size of local authorities. We agree that, if there needs to be a reduction in public spending, part of it will have to come from local authorities, but it should not be disproportionate. That is the issue. We will obviously disagree about whether it is a good deal or not. The good news is that we are exempted from the Autumn Statement this year, although we may not be in future. The Minister tried to explain the concept of fairness by saying that she had been attacked by all sides. Of the three points that she raised, she probably accepted that we will have more collaboration and that we will monitor what is happening in the settlement, so perhaps two out of three is not bad. It is a better strike rate than most strikers in the Premier League, other than van Persie.