Local Government Funding

Marcus Jones Excerpts

Wednesday 3rd February 2016 Westminster Hall

[The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones)]

I congratulate the hon. Member for Leicester West (Liz Kendall) on securing the debate, and it is a pleasure to respond to it. Before I proceed, I want to acknowledge the hard work and dedication of councils across the country over the past five years and the contribution they have made to improving local services in challenging times. However, we need to make more savings as we finish the job of eliminating the largest deficit in post-war history.

We listened carefully to councils when preparing the provisional settlement that was recently consulted on. I thank everyone who took the time to respond to the consultation and made considered comments about our proposals. I and my fellow Ministers spoke to local government leaders from across the country and many colleagues in the House. Although the hon. Lady did not make representations to that consultation, I am pleased to be able to discuss these issues with her today. I thank all Members who took the time to respond to the consultation, and I thank councils for their detailed and considered comments on our proposals. We are reflecting carefully on them at the moment.

We have previously had one of the most centralised states in the world—almost 80% of council spending was financed through central Government grants at the start of the previous Parliament—but councils will be entirely financed by their own resources by 2020. Local government will retain 100% of the business rates, fees and charges raised by councils, leaving them fully accountable to the electorate rather than Whitehall. Those huge changes will not be made without careful consideration and consultation in the coming months. Hon. Members will have the chance to have input into the design of the new business rates retention process, which is the other side of the Government’s devolution agenda.

[Mr George Howarth]

The Minister might recall that that was almost exactly the argument that was used to justify the poll tax—[Interruption.] Oh yes, it was. Does he accept that local authorities with lower tax bases will not benefit from the changes unless there is a proper recognition of need? If anything, the situation will get worse.

[Mr Jones]

I have got very little time, but I have made my views on that point very clear to the House in recent months.

Hon. Members will have the chance to get involved in the process of business rate retention in the coming months. The Government do not underestimate the challenges. Local government representatives consistently tell me, as they told my predecessors over many years, that greater certainty about their income over the medium term would enable them to organise more efficiently and strategically, and put their safety-net reserves to more productive use. This settlement will for the first time ever offer a guaranteed budget to every council that desires one and can demonstrate efficiency savings for the next year and every year of the Parliament. Four-year settlements will give local government more certainty and confidence. Councils will also be able to spend 100% of capital receipts from asset sales to implement cost-saving reforms.

As we move to a world of full localisation of income, it does not make sense to talk simply about Government grants, as a number of Opposition Members did. As colleagues know, the revenue support grant will be phased out by 2020, but local government will still spend significant sums of money. Therefore, it makes more sense to talk about the wider measure of council spending power, which we improved after listening to the Public Accounts Committee and the Communities and Local Government Committee. We no longer include the NHS-scored better care fund or the ring-fenced public health grant in the calculation, since councils cannot spend those funds as they wish.

Overall, our proposals are fair. Councils’ core spending power will remain virtually unchanged over the Parliament—it will go from £44.5 billion in 2015-16 to £44.3 billion in 2019-20.

[Sir Edward Leigh]

Will the Minister give way on the issue of rural areas?

[Mr Jones]

I am sorry, but I have not got time to give way again. There are a number of things I need to talk about, but I will come to the issue of rural areas in a moment to address my hon. Friend’s earlier point.

Real-terms savings of 6.7% are required over this spending review period, compared with the 14% savings announced in the 2010 spending review. Even the Institute for Fiscal Studies recognises that that is substantially lower than the spending reductions that councils had to deliver between 2009-10 and 2015-16.

On adult social care, we responded to the clear call from all tiers of government and many colleagues in the House to recognise the importance of the growing cost of caring for our elderly population. The Local Government Association and the Association of Directors of Adult Social Services asked for £2.9 billion by 2020 as a contribution to the cost of social care. In the settlement, we make up to £3.5 billion available by that year. It will be distributed fairly to local authorities with social care responsibilities. There will also be a package of support for councils working with the local NHS to address pressures on care, a dedicated social care precept of 2% per year, and a fund of £1.5 billion by 2019-20 to complement the new precept. We recognise that councils providing services in rural areas face additional costs, so we have proposed that the rural services delivery grant should be quadrupled from £15.5 million this year to £65 million by 2019-20 to address those issues.

Let me cover one or two of the points that the hon. Member for Leicester West made. She and a number of other Opposition Members spent a lot of time talking about the effect that the reduction in central Government spending will have on local government. They have very quickly forgotten that their election manifesto clearly set out a path for reducing local government spending. They may wish to take that into account. The core spending power measure is the most accurate way of measuring councils’ expenditure. Leicester has a core spending power of £2,003 per household this year, compared with the English average of £1,829, so I hope that reassures the hon. Lady that Leicester is not getting a bad deal.

On the point made by the hon. Member for Croydon North (Mr Reed) about council tax, the Conservative party will not listen to any lectures from the Labour party. Council tax is 11% lower in real terms than it was five years ago. I remind the hon. Gentleman that council tax doubled under the Labour Government between 1997 and 2010, so the Labour party clearly says one thing in opposition and does something else in government.

We recognise the challenges that have been raised today and those that lie ahead. This is a time of big opportunity and expectation for local government reform. We are moving to a world long desired by local government, in which councils are financed by local sources. Whitehall’s apron strings will be cut. Central and local government are decisively addressing social care pressures, and we are beginning to design long-term integrated care and lasting local solutions.

I know that these changes require a lot of hard work from councils, but changes always do. However, I am confident that, after we have carefully considered the consultation responses before announcing the final settlement, and after we have undertaken a further period of meaningfully engaging and working with local government to design a 100% business rates retention scheme, hon. Members will agree that a better future of proper local control is becoming a reality at last.