Local Government Finance Settlement

Lord Whitty Excerpts

Thursday 9th January 2014 Lords Chamber

[Lord Whitty (Lab)]

My Lords, I will try to note that. I, too, thank my noble friend Lord Smith of Leigh for securing this debate and for his forensic analysis of the balance of the settlement. I declare my interest as a vice-president of the LGA. Although, like others, I have a feeling of déjà vu, I think that I actually participate in this debate only every couple of years. Nevertheless, the Government have shown, on the basis of the figures for this year and next, that local government will continue to take a hugely disproportionate share of the cuts in public expenditure—slightly disguised, as my noble friend Lady Donaghy said, by the treatment of health and social care provisions, but the figures are still clear. Within that, the distribution is also extremely regressive. It moves money from cities to shires and, within those groups, for example in London, which authorities face the biggest cuts over the next two years? It is Tower Hamlets, Hackney and Newham. Even within the shires, my own county of Dorset, which has fairly deprived rural areas in many respects, has a 50% higher cut than that of the county of Surrey.

As the briefing provided to us through the Library shows, there is effectively a direct correlation in the wrong direction between the level of cut and the level of deprivation, authority by authority. This is not a happy picture and, while we are all sometimes lost in admiration for how councils of all political persuasions try to cope with these cuts in their own areas, we have to face up to the fact that was well set out by the right reverend Prelate just now: the social effects of some of these cuts are dire indeed.

One issue we have to face—this is a message for all Front Benches, and all Governments and potential Governments—is that underlying all this is the terrible centralisation of local government funding in this country, which the noble Lord, Lord Tope, underlined. Even by the 1970s, we had the most centralised system of funding in Europe. Since the 1970s, successive Governments have tightened central control of local authority funding. It is also historically the highest level of centralisation for some of our great cities and shire counties, which were much freer in the 19th century and the early part of the previous century. Some of the great achievements of local authorities reflected that freedom. Local authorities are heavily dependent on the government grant. They are not allowed to raise specific taxes in their areas. The taxes they can raise, as council tax, have been capped or frozen. They have virtually no flexibility on the business tax and severe limitations on their ability to borrow, even from the public sector loan board. They have almost no ability nowadays, compared with earlier centuries, to go to the market to raise money.

Your Lordships will know that my particular interest is housing. It has become clear to all parties and interests within the housing sector—all forms of tenure and everybody from developers through to tenants—that there is a very serious crisis in housing in this country. There is a role for local authorities both as leaders and providers in this area, yet the rules that govern their ability to do anything serious about housing effectively stymie their ability to play a key role in this area. The interventions by the Government, who started by cutting social housing funding, including their positive intervention in relation to the new homes bonus, have been shown by the Select Committee in another place to be pretty ineffective. Their latest Help to Buy scheme has certainly helped a number of first-time buyers but, without effective action on the supply side, all it will do is raise the price of housing, and thereby rents, in the private and public sectors.

The fact that local authorities cannot go to the markets to raise money for housing is nonsense. That is the major bar to local authorities or ALMOs being able to build more houses. It all reflects the definition of the public sector borrowing requirement or the public sector net debt that is adopted by the Treasury and imposed on local authorities in this country.

It is a different definition from the one that applies in Europe, and it has different consequences from the situation in North America. When the Government report to international bodies such as the IMF and the EU on the national borrowing requirement, that excludes the kind of borrowing that is allowed by the public sector borrowing requirement in other European countries.

This is not an act of nature; it is a positive decision by successive Treasury officials, and one that makes a nonsense of the ability of local authorities to do anything about the housing crisis that is facing them in most areas, either on an immediate basis or on a long-term strategic one. We know, and this has been reiterated by all parties, that we need to double the level of the new supply of housing. This is an inhibition on the public sector acting directly. I am not just talking about the ability to build traditional council housing; I am talking about the ability of local authorities to engage in joint ventures with housing associations and to support developers in the private sector in building houses. If all this is barred to local authorities, there is no hope of resolving the housing crisis that faces us.

I ask the Government—I also direct this to my own Front Bench in terms of what an alternative Government would do—at the very least to review how this definition of the public sector net debt is impacting on the ability of local authorities to do their job in one very important area, one that is vital to the future health not only of our society but of our economy, since housing could provide a much needed local and national boost to economic activity. Could the Government at least commit themselves to a review? The current situation is a nonsense. It is part of the general centralisation of financing within this country but it could specifically be dealt with pretty easily, in immediate and bureaucratic terms, with the stroke of a pen. I hope that the Government, and indeed other parties, can commit themselves to such a review.