Local Government: Finance Settlement

Lord Tope Excerpts

Thursday 17th January 2013 Lords Chamber

[Lord Tope]

My Lords, I begin, as I always have to do in these debates, by declaring my interest as a councillor in the London Borough of Sutton. Given the subject matter under debate, I now have to add that I am a very recent member of its pension scheme and am therefore entitled eventually to receive a tiny pension.

The noble Lord, Lord Smith, began with his confessions. If it is something to confess, then I confess to moving my first budget as a council leader back in 1987, although for the previous 12 years I had explained to the Conservative authority how it could do better; indeed, ever since Anthony Crosland declared, within months of my election, that I had missed the party.

I thank the noble Lord, Lord Smith, for today’s debate and for the rather measured way in which he introduced it, although his unprovoked attack on Luton was a little unjustified. I agree with the comments he made towards the end of his speech concerning the need for public sector reform, and most particularly the opportunities that must exist not only for budget savings but for much better and more efficient working from what is now known as community budgeting. I wish that we could move a lot faster than seems to be the case thus far. That offers considerable opportunities.

While I thank the noble Lord for the debate and well understand why the Opposition chose to highlight this subject, the timing is a little unfortunate in that the consultation has just ended. If the Government already have a settled view, it is certainly not one that the Minister will be in any position to give us today; nor, therefore, do I imagine that she is likely to give us many clues as to what will be in the final settlement announcement when it is made. However, I hope that she will be able to respond to some of the points that will be made today.

As the noble Lord, Lord Smith, said, this was the latest ever settlement announcement on record, having been announced just before Christmas. Indeed, some necessary information was still awaited only a few days ago, not least the public health funding announcement, which was made just days ago. It is hard enough in a normal year—if there ever is a normal year—but this is a particularly bad year for this to be happening given the scale of change that has to take place in local government. Local government has to deal with the effects of previous years’ budget reductions, which are still working their way through the system, although the localisation of business rates was a very radical and welcome change, and we spent many happy hours debating in this Chamber the changes in the council tax support scheme. All this is coming at once and having to be coped with by local authorities, most particularly by staff in their finance departments. I hope that the Minister will pay tribute to their work and to the achievement of local authorities generally, councillors and particularly staff, and most especially staff in the finance departments. I am fairly confident that she will do so, given her background. That would make a very welcome change, not on the part of the Minister but as regards some comments made in the other place, which, frankly, make people in local government feel even more misunderstood and unappreciated. Kind words cost nothing but sometimes reap considerable benefits.

I think we all recognise that the late settlement to which I have referred was beyond the control of DCLG Ministers. Nevertheless, it was imposed and it has made life more difficult. However, the greatest innovation occurs in difficult times. I often wish that that were not so. Probably the greatest time for innovation is wartime. None of us would wish to experience that again, although sometimes it feels a little like that for local authorities. I wish that we could achieve that innovation in a rather more measured way and with a lot less pain than is being inflicted on us now. Nevertheless, we should recognise that, largely as a result of the unwelcome budget reductions and the scale and speed of those reductions, greater innovation is emerging.

We also see at this time of the year what I regard as the annual ritual of the local government finance settlement. It seems to bring out not only the best in some but the worst in everyone. For as long as I can remember, Ministers in all Governments have always claimed that the settlement was very much better than it ever turned out to be. I have been watching this ritual every year over 40 years. Local government always claims that it is the end of the world as we know it, but the world is still here and we still survive. Councils then enter into a bitter battle. Wigan attacks Luton, the north attacks the south, we argue with each other as to who is worse off, and urban authorities attack rural authorities. All this is done to get a larger slice of a cake, the size of which is never going to change. In doing that, we know that one authority’s gain will inevitably be others’ loss. What made this worse—this is perhaps one of the reasons why some northern authorities feel that they are getting a worse deal—was the very large share of local authority funding that came from central government and local authorities’ dependence on that. Too many local authorities all over the country—I suggest that this applied to a greater extent in the north than generally in the south, excluding some in London—were heavily dependent on central government funding. Inevitably when that funding is reduced, as it has to be, they feel the effects rather more. I hope that that will start to change as local authorities become increasingly able to raise a greater proportion of their budgets.

The noble Lord, Lord Smith, referred to a 28% reduction. That was, indeed, the figure from the DCLG for the reduction in the local government finance settlement. However, as we know, other departments have also required local authorities to implement their budget cuts. I have seen estimates of the actual reduction in local authority budgets ranging certainly between 32% and 35%, and in some cases the reduction is higher than that. As we all know, as the public sector funding cuts begin to bite, local authorities will inevitably have to curtail the expectations and needs of their staff.

I have stated that I am a London councillor and therefore I want to conclude with some issues of particular concern to London councils, although they have a wider application. The first is the results of business rate revaluation appeals. According to Valuation Office Agency data at April 2012, 24% of all appeals are in London and they represent 28% of the total rateable value of the local list in England. This must mean that the value of appeals in London is likely to represent much more than 24% of the England total. However, because the Government have used an England average to adjust the estimated business rates aggregate downwards, the adjustment is not enough to reflect accurately the size of appeals that London boroughs are likely to face. In other words, London boroughs’ baselines are likely to be artificially high, thereby leaving them more vulnerable to funding shortfalls.

London Councils has asked the Government to monitor the adequacy of that sum and I hope that the Minister will at least confirm that that will happen. Of course, London Councils is also urging the Government to address any such shortfall under the new burdens procedure. I suspect that the Minister will feel unable to give that commitment today but I hope that she will take it away and argue for it elsewhere. Finally on this subject, will the Minister confirm that, if appeals are successful, local authorities will have to reimburse businesses straight away but will only get reimbursement from government over a five-year period?

Another concern for Londoners is the proposed transfer of £150 million of undamped grant from urban to rural areas. The impact of this change will fall disproportionately on London. On London Councils’ analysis, this suggests an overall funding loss of around £75 million in undamped grant for London. I know that the Minister cannot make any substantive comment on this today, but I hope she will confirm that any such changes in the final settlement will be accompanied by robust factual analysis to support them. I know that London councils have made their own representations individually and collectively to Ministers and I have no further time to add to those.

I echo the words of the noble Lord, Lord Smith, in introducing this debate. Local government generally has performed exceptionally well under exceptionally difficult circumstances. It is widely recognised as the most effective and efficient part of the public sector, and it may be that local government should be giving 50 top tips for saving money to the Secretary of State rather than the other way round.