Local Authority Funding

Nicholas Brown Excerpts

Tuesday 3rd December 2013 Westminster Hall

[Chi Onwurah]

My hon. Friend makes an excellent point, as always, and he is absolutely right. I have lost count of the number of occasions that I have heard Ministers announce funding for my local authority—I will give the example of the new homes bonus in a minute—that is actually a cut in funding more generally. If the autumn statement on Thursday is used to announce any further support for business rates or for local authorities, I am sure that the Chancellor will set out transparently exactly where the funding will come from. If he does not, I am sure that parliamentary questions will follow.

I could consider the approach to be an error, mistake or one-off, but several holdbacks have had a similar effect, and the new homes bonus is one of the most important. Money is top-sliced from the revenue budget—everyone’s budget—but then finds it way predominantly to the wealthier parts of the country. I always thought that a bonus was something extra on top of a payment.

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

As well as.

[Chi Onwurah]

Exactly. I thought that that was inherent in the term. Ministers in this Government, however, fund their bonuses not only from existing money, but from existing money that some might argue is not theirs.

The new homes bonus increases cumulatively for six years and is estimated to peak at some £2 billion. The increases are funded by deducting the increase from the revenue support grant, so it favours authorities in wealthier parts of the country, owing to their higher house prices and relatively low reduction in needs-based funding. Although Newcastle loses £5.3 million through top-slicing to fund the new homes bonus, it is given back only £2.2 million. The Minister gets to put out a press release saying that he is generously rewarding the council with £2.2 million, but nobody notices the reality that Newcastle has actually lost out by £3 million. Wiltshire, for example, will have seen a net gain of over £4 million. At the same time, my surgeries and mailbox are testament to the fact that the lack of affordable housing is a critical issue for my constituents.

The new homes bonus is unfair and does not work, which has been confirmed by the National Audit Office and the Public Accounts Committee. Does the Minister intend to press ahead with it? Newcastle city council and the Association of North East Councils have called for it to be frozen at 2013-14 levels. What is the Minister’s view? It would allow him to return some of the planned holdbacks to core funding and to relieve some of the pressures that Newcastle and other councils are facing.

--- Later in debate ---

[Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)]

It is again a pleasure to make a contribution to a debate under your chairmanship, Mr Streeter.

I congratulate my hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) on her choice of topic. In the overall context of the Department’s budget, the sum of money involved is relatively small, and the subject that we are discussing may seem rather technical, but as she has pointed out, the devil is in the detail. Furthermore, at the heart of what we ought to be considering is fairness. I have had the honour and privilege of representing the great city of Newcastle upon Tyne for 30 years in this place, and I have to say to the Minister that what the Government are doing to inner-city local authorities such as Newcastle—although we are not unique—is simply not fair.

At the heart of the argument is the fact that the statutory burdens on the authorities—in particular, people have to be cared for, whether the elderly, those in social care or in need of even more intensive care, or children taken into care—are driven by factors over which the local authority has no control. The separation of the need from the money, which is what in essence the Government are doing, is a wicked thing. What ought to be the case is that a child who needs to be cared for in Newcastle should be cared for with exactly the same energy, enthusiasm and compassion as a child anywhere else in the United Kingdom. The money should follow the need. That is not the Government’s direction of travel. What they are doing is fundamentally wrong—their broader journey is wrong, and what we are discussing today is a small signpost on the wrong way.

The Government’s new mechanism for funding local authorities, the business rate retention scheme, makes provision for a safety net, which is used to top up the funds of those authorities that have encountered a reduction of more than 7.5% in business rate income. It is funded, rather illogically, by a levy on those authorities that see an increase in their business rate income beyond a set threshold. Personally, I do not agree with any of that—a minority view, I know—and I will explain why later. For now, I will focus on the seemingly technical subject of today’s debate.

The Department for Communities and Local Government put aside £25 million to fund the safety net for the current 2013-14 financial year, but the Government have now revealed that this is not enough and that they are seeking to increase it by an additional £95 million, making a total of £120 million, which is a substantially larger sum. The Government propose, in effect, to top-slice or hold back that money from the 2014-15 local government finance allocation, even though councils have begun to draw up their budgets for 2014-15, with some already out to consultation.

If we consider the practicalities of consulting on a budget that is being squeezed year on year and the context that the needs that that budget has to meet are not heading in the same direction, we realise how unjust what the Government are doing is. Councils are not only faced with revised settlements, but have the prospect of additional cuts so that the Department can meet what it believes to be its internal budgetary needs. However, as my hon. Friend pointed out, it is not entirely clear that those needs are as the Department states them to be.

The impact of taking money from the revenue support grant is that the Government are reducing the proportion of money subject to funding formulas that account for need and deprivation. By reducing the revenue support grant to top up the business rate redistribution mechanism, in effect, the total amount of local authority funding that has been subjected to adjustments for deprivation, need and other factors is being lowered. That is fundamentally unfair. The need is there, and the money should follow the need. Consequently, deprivation factors are weakened within the totality of the local government finance settlement. With many local authorities facing increased costs and demand for statutory services, factors linked to deprivation—the parts of the finance settlement that take such elements into account—are reduced, increasing the pressures on councils. Perhaps it is an unfortunate coincidence, but the councils most affected tend to be the poorer ones, representing communities that are poorer—inner-city local authorities, which are predominantly Labour controlled. The effect of the redistribution is towards more affluent parts of the country that are not Labour controlled—they are controlled by parties in the governing coalition.

When the previous Conservative Government nationalised what was then the local business rate, I thought that they made a reasonably sound case for doing so: from each according to his abilities, to each according to his needs, as I am sure I remember Mrs Thatcher and Sir John Major saying when making this point, although memory plays tricks as we grow older. The assumption is of course that the rateable values for business, which are the foundation of the business rate, are regularly revalued. No more money is raised by revaluation, but the distribution of the burden is fairer throughout the whole of what is a United Kingdom. It would be wrong to defer a revaluation for political reasons, because doing so disadvantages the relatively less wealthy parts of England—it is more accurate to say England in this context, rather than the United Kingdom.

The Government have also altered the duty on the Department to make a revenue support grant to a power to make a revenue support grant. The purpose is to march off in exactly the same direction that is of concern to me and my hon. Friend the Member for Newcastle upon Tyne Central. That will weaken the link between the need, which local authorities have a statutory duty to meet, and the resources, which are necessary to meet the need. She talked about the new homes bonus, and the Chairman of the Select Committee, my hon. Friend the Member for Sheffield South East (Mr Betts), intervened to make a point along the same lines. All of that is heading in the same direction, and it is very much the wrong direction.

The city of Newcastle upon Tyne is on the receiving end of all this, and if I have done nothing else in my short contribution, I hope I have rammed home to the Minister how strongly we in the city feel about this issue, how unfair it is that he should proceed in this way and how impossible the situation will be for the local authority that represents people in the constituencies that my hon. Friend the Member for Newcastle upon Tyne Central and I represent, as well as other inner-city local authorities throughout England, if the Government continue in the same direction.

The Minister must do something—a range of options are open to him—to make sure that the support payments available to local authorities meet the needs to which those authorities have a statutory duty to respond. To do anything else is unfair because local authorities have no other way of getting the money to meet those needs.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Streeter. I congratulate the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) on securing a debate on a matter that is clearly important for her. It gives us the chance to air some important issues about local government more generally.

Before I turn directly to the subject of the debate, I want to put it in context. The shadow Minister commented on the size of local government, its funding and the changes in funding. He made a comment about going too far and too fast, which we have not heard for some time from the Opposition. That comment seems incredible in the light of the current economic situation, as the Government’s economic policy is clearly working for the benefit of the country.

We also have to remember exactly how we got to where we are. The previous Government left us with an unprecedented deficit, something this Government are having to deal with. Local government accounts for 25% of public expenditure, and so has a big part to play in those efforts. Unfortunately, that is a part of the legacy that we took on from the previous Government. Even today, we are still all wondering about the £52 million—and growing—cuts that Labour has stated that it would make to local government; despite what the shadow Minister said, Labour has not yet outlined where those cuts would come from, and the figure has continued to go up in some of its recent pledges. We have to put the situation in some context.

[Mr Nicholas Brown]

I do not accept the Minister’s analysis, but for the purposes of debate, I will give him the benefit of the doubt. If what he says is right, why is the burden of expenditure reduction not being shared fairly across England? If special measures to protect anyone should be taken, why are they not being taken to protect the very poorest and most vulnerable—the people whom local authorities have a statutory duty to look after? Why is the burden not being shared fairly?