Havering Council: Funding

Debate between Louie French and Jon Cruddas

Tuesday 28th November 2023 Westminster Hall

[Jon Cruddas (Dagenham and Rainham) (Lab)]

I beg to move,

That this House has considered funding for Havering Council.

This afternoon, I want to: highlight the financial situation facing the London Borough of Havering; ask for help and support from the Government; request a joint approach to remedying the situation; and offset the dangers of a section 114 report by the council’s chief financial officer, which would effectively freeze all non-statutory spending.

There is obviously also a wider national story here. Councils continue to face increasing demands for statutory services, especially adult and children’s social care, the provision of temporary accommodation, and homelessness support. Demographic forces are driving up demand for those services, and that affects some councils more than others. Meanwhile, central Government grant funding for councils dropped by some 40% in real terms between 2009-10 and 2019-20; it has gone from £46.5 billion down to £28 billion. Consequently, councils are more and more reliant on local funding through council tax and business rates. That has not been enough to compensate for the drop in central Government funding.

Since 2021, five local authorities have declared themselves effectively bankrupt because their costs are larger than their resources. Slough, Croydon, our neighbours in Thurrock, as well as Woking and Birmingham City Council, have all issued section 114 notices. Until recently, section 114 notices were generally seen as the result of financial mismanagement or equal pay backlogs. That is changing, however. Section 114 notices are increasingly likely to be issued by a significantly larger pool of councils, due to a one-two punch of demographic changes and dramatic shifts in funding. Combined, these changes mean that a whole series of councils look likely to become trapped in a position in which the cost of social care and homelessness exceeds their resources.

Many local authorities are already issuing warnings about section 114 notices. These include city councils, such as Sheffield, Coventry, Southampton and Nottingham; district councils, such as Mole Valley, Chelmsford, St Albans and South Cambridgeshire; borough councils, such as Windsor and Maidenhead, Surrey Heath and Wokingham; and county councils, such as Hampshire, Kent, Derbyshire and Northamptonshire, alongside councils such as Medway, Bradford, Barnsley, Rotherham and Manchester.

These councils do not fall on one side of a strict party political divide. They include councils from across the country, and from north and south; councils urban and rural; and councils led from both the left and the right. For instance, one in 10 of the so-called SIGOMA group —the Special Interest Group of Municipal Authorities, which represents 47 urban local authorities—has reported considering issuing a section 114 notice this year, and 20% say it might be possible in the next year. Similarly, one in 10 members of the County Councils Network reports facing effective bankruptcy. If we look at politics, the list includes Surrey Heath Council—the local council of the Secretary of State for Levelling Up, Housing and Communities—and various Labour-led authorities across the country.

Despite local authorities’ dire financial situation, the autumn statement had no new money for social care services, or any general local government funding beyond what was announced last year. However, I note that the Government increased local housing allowance rates last week, which is to be welcomed.

Although the language of local government often appears technically complex and incredibly dull and boring, we might conclude that much of British local government—a significant portion of the British state—is in danger of literally going bankrupt. This reality stretches way beyond those authorities that have already effectively declared themselves bust, and it has huge implications for public life across a range of services, from refuse collection, housing and homelessness, to education, social care, tackling antisocial behaviour, estate management, libraries and youth services—the list goes on. It is estimated that some 90% of councils have been using their reserves to meet their statutory duties, although some are more fortunate than others in that regard. I will come to that in a minute.

Take the general situation in London. According to London Councils, the capital’s boroughs’ overall resources are about 18% lower than in 2010-11 in real terms, but the population of the capital has grown by almost 800,000 since then. London boroughs need to make some £500 million of savings for 2024-25, to meet an estimated £2 billion funding gap over the next four years.

The next few weeks are critical. Councils will shortly receive their settlement figures, probably just as Parliament goes into recess. Following consultation, the figures will be confirmed in the middle of January, and council tax will be set in early March. It is against that general backdrop that I want to consider the situation facing Havering.

I should make three initial points regarding Havering. First, Havering has been very open about its predicament. In September 2023, the leader of the council, Ray Morgon, warned that the authority could be six months away from triggering a section 114 notice because of the escalating costs of social care and housing. Although other boroughs have tried to obscure their financial position and in effect hide from the communities that put them in the town hall, Havering has levelled with residents from the outset about what is going on. I very much welcome that as a mature form of civic leadership.

Secondly, Havering is generally regarded as a well-run and efficient council. It has low borrowing, unlike Croydon or Slough, and it has no historical pay claims, unlike Birmingham. It has the lowest unit costs in London, according to the well-regarded LG Futures consultancy, and is the third most productive council in the country, according to the consultancy IMPOWER. The situation it faces is very different from that of its immediate neighbours. Thurrock, for example, provided £655 million to companies via bonds, including for the purchase of some 53 solar farms. It shares a border with Barking and Dagenham, which I partly represent, and which has an accumulated debt of £1.2 billion. Havering is in a very different situation, and has not embarked on ill advised speculative activity to try to offset funding challenges.

Thirdly—this is not a party political issue—until May last year, the borough was a Conservative-led authority. Today it is run by 22 representatives of Havering Residents Association, supported by Labour’s nine councillors on the authority. On the scale of the financial challenge facing Havering, we have to bear in mind that local government funding continues to use a distribution model dating from 2013, based on data from the 2011 census. The model is ill equipped to deal with the kind of population flows that we have experienced in outer east London over the last decade.

Attempts at establishing a revised fair funding formula based on demographic change and modern need have effectively been parked by the Government, with pretty disastrous consequences for boroughs such as Havering. Moreover, the authority has limited resources to help take the strain. Havering’s reserves are the second lowest in London, standing at some £47.8 million. Meanwhile, the borough receives the third lowest settlement funding assessment in London, yet it remains in the top quartile for income collection.

The scale of the problem becomes apparent when we consider the demographic pressures facing adult and children’s social care. Havering has the second oldest population in London on the one hand, yet it has the fourth fastest growing children’s population in the entire country among those aged 0 to 14. On the growth of the child population, the Department for Education uses more recent data to allocate children’s school place capital funding. For 2025-26, it has allocated Havering a staggering 57% of all of London’s schools basic needs capital funding. That demonstrates the extraordinary expansion in the borough’s child population. That statistic shocked me, and it shows how important it is to use the latest data in distributing our resources. The other 43% of that funding is divided up between London’s other 33 boroughs. That is just one vivid statistical example of the changing demographics in the capital, of Havering’s growth and growing numbers of young people, and the escalating demands that that places on statutory expenditure.

As for the financial situation, Havering is currently forecast an overspend of some £23 million. In terms of its recent track record of budget setting, since 2010 it has delivered a mix of £163 million in savings and income generation, most of which has been reinvested in other services. It has also sold off £160 million of assets over the last 10 years.

To illustrate the scale of reduced support from central Government, Havering received nearly £100 million in central grant in 2010-11. That was reduced, in just over a decade, to just £37 million in 2023-24. Its budget gap is currently estimated to be some £31.2 million for next year, and £77 million over the next four years, against a net budget of £182 million. Currently, it has the fifth highest council tax in London. I accept that, for 2023-24, the authority’s core spending power was increased by some £18 million, including the council tax social precept, yet the pressures from social care were already £20 million in 2022-23, so the increased funding did not address additional demand and inflationary pressures for 2023-24.

On children and adult social care costs, it is estimated that the rates paid to providers for adult social care has increased by 33% since 2019-20, and children’s placement costs have risen by 49% over the same period. Those rises are partly accounted for by care home costs charged by hedge fund owners. In Scotland, in contrast, those running care homes have to be not-for-profit organisations. Basically, for-profit care is crippling our councils. Placements for our children can cost tens of thousands of pounds a week.

To add to that, Havering is seeing a large increase in those presenting as homeless, especially families. That is partly the effect of out-of-borough placements by other London local authorities, partly the effect of the housing benefit cap, and partly due to general migration to outer east London. It is now costing the authority some £3.5 million in cumulative accommodation costs.

Despite those extraordinary demand pressures, over 80% of Havering’s core income now comes from council tax. To repeat: it received the third lowest settlement funding assessment in London.

[Mr Louie French (Old Bexley and Sidcup) (Con)]

I congratulate the hon. Member on securing this debate. Many of Havering’s challenges that he has outlined are similar to those we experience across the water in Bexley. As a former deputy leader of the council, I have great sympathy for the arguments he is making. Given some of those challenges and the growth that, as we know, is coming out eastward on both sides of the river, does he agree that one way for the Government to quickly get more money out to the likes of Havering and Bexley would be to allocate more of the funding that currently goes to City Hall directly to those boroughs?

[Jon Cruddas]

I am not playing pass the parcel here; it seems to me that, objectively—all parties can agree—there is a structural problem that is escalating across the length and breadth of this country. Havering is where the rubber hits the wall, in terms of the escalating demographic changes, especially with young people set against the long-term legacy of an older community, and this one-two punch of funding pressures on our basic statutory reserves. Therefore, I am not going to get into this game; I want to create some sort of cross-party dialogue towards greater partnership to resolve these pressures, rather than playing this little tit-for-tat political game.

Meanwhile, our health challenges mean additional budget pressures for people coming out of hospitals who need social care. In fact, it would be better for them not to go into hospital at all, but Havering has the lowest number of GPs per head of population in London.

Therefore, overall, given that Havering had the second lowest level of reserves, and given the level of its overspend and the forecast budget gap for next year, it is warning that, without additional support, it is six to 12 months away from issuing a section 114 notice.

To help Havering—and to return to the point that the hon. Member for Old Bexley and Sidcup (Mr French) made about how we resolve the situation—fundamentally, a fair-funding review must be implemented: one that better allocates resources based on modern realities of demographic change and need. I accept that that will not happen this side of an election, but may I suggest that any new money that the Government might allocate should not rest simply on the current funding formula, which is increasingly outdated and further compounds the inequalities in funding?

However, the only solution being offered seems to be capitalisation orders, which Havering will have to take if there is no new money. That penalises well-run councils with an additional 1% added to the Public Works Loan Board rate—a rate that is then fixed for 20 years—yet that blunt instrument will penalise an ever larger number of residents under well-run councils. Perversely, it will also increase those councils’ debts further each year and mean that we will go back to them year after year. Surely, as more councils are forced to use such orders, we need a more agile system—one that does not use a form of payday loan to pay for our public services. There should be different rules for good councils such as Havering. It is clear that the funding system is broken and must be fixed.

Overall, a crisis is unfolding across local government, and that is captured in well-run local authorities such as Havering. I request urgent discussions to look at these solutions between national Government and our civil leadership to help to address the looming funding crisis. I also suggest a more agile capitalisation system. The current system further penalises the residents of an increasing number of boroughs that are having to deal with the heightened level of statutory expenditure.

Havering is very much in the eye of the storm, yet it is commendably honest about the scale of the challenge it faces. I hope the Government are listening and will respond, because the clock is ticking. Otherwise, more councils will follow and our local communities will suffer. I look forward to the Minister’s response.