Local Government Finance

Paul Farrelly Excerpts

Wednesday 12th February 2014 Commons Chamber

[Brandon Lewis]

My hon. Friend makes his case strongly, as ever.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

Fortunately, in Staffordshire the Trent has not flooded, but we are facing cuts across the board—to the police, youth services, disability services and now libraries. In Newcastle-under-Lyme the actual cash cut has been 13.6%, but under total revenue spending power it magically becomes just 4.4%. Which figure is correct?

[Brandon Lewis]

I suggest that the hon. Gentleman should look at spending power, which is what the Local Government Association prefers to use, because it outlines the amount of money and the way local councils have influence and control. It is the entire spend that a local authority has; it does not just single out one small part of its funding. That is an important change in how local government finance has worked, as we are now moving to a system in which more and more of the money is in the entire control of local authorities with their own autonomy.

--- Later in debate ---

[Andy Sawford]

If the hon. Gentleman will be patient for a moment, I will, of course, come on to what Labour will do if it forms the next Government. On sparsity, I took part in the debate that he and others led last year, which I thought was excellent. I recognise many of the issues that he raised and there is a sparse rural authority in my constituency in East Northamptonshire. The formula should of course take account of rural sparsity, as well as urban deprivation. There is always a debate to be had about fairness within the system, but what is critical is that the part of local authority funding with fairness at its heart—notwithstanding the debate that will be had—is now being eroded, so the opportunity to ensure that funding is fair and according to need is being lost.

[Paul Farrelly]

To put the cuts in perspective, in Newcastle-under-Lyme in north Staffordshire, an area of great deprivation, we will now have lost half our Government grant. We face the prospect, in the near future, of losing 75% of grant. How can councils in those circumstances be viable and address local need satisfactorily?

[Andy Sawford]

My hon. Friend makes the point powerfully. The reduction in spending power of areas with higher needs and lower resources, and the increase in spending power in the wealthiest areas, will not just close the funding difference between such areas, but in time reverse it. That is already happening.

--- Later in debate ---

[Mr Betts]

I am sorry, but if the hon. Gentleman wants me to invent a grant settlement in the course of a six-minute speech, I am not going to oblige him.

When the Minister appeared before the Select Committee on Communities and Local Government, he admitted a fundamental change of Government policy, away from a needs-based system. The only needs taken into account are those reflected in the baseline of business rates, which started with the new arrangement in 2013-14. The new term—the settlement funding agreement—is really composed of two parts: the business rate base and the revenue support grant. As the business rate base is held constant or increases with inflation each year, the totality of cuts that the Government make falls on the revenue support grant element of the settlement funding agreement. Within the revenue support grant is something called the council tax resource equalisation adjustment. That has been cut by 25% this year, yet it is the mechanism by which extra resources are given to the poorest areas with the most deprivation. Those areas have had the biggest cuts, with resources transferred away from them. That is how the mechanism works in practice.

We can add to that the new homes bonus, which of course is not a bonus from Government, but is top-sliced from other Government funding—on the basis, therefore, of the grant that authorities already have—and then transferred to authorities according to the homes they are building. The Minister might say that that is an incentive to build homes—that is not what the Housing Minister said last time he was asked—but in the end, that money comes from a top-slice of grant, which means that those authorities with the greatest need and the greatest amount of grant pay the most into the system in the first place, and most of them lose out in the totality of the process.

Reference has already been made to my authority, Sheffield. The Minister likes to make comparisons with other areas that have not had as much grant in the past, saying that the Government are only doing a bit of evening up. Wokingham does not have the same needs as Sheffield, but in 2015-16, if we exclude the ring-fenced public health and better care fund grants that can be spent only on what they are allocated for, the spending power of Sheffield will be the same as that of Wokingham. That is impossible to justify according to anybody’s definition of fairness and reasonableness. Leeds already has less spending power and Newcastle will have less in two years. That is simply unfair. Does anyone on the Government Benches want to justify the idea that Wokingham’s spending power after 2015-16 should be higher than Sheffield’s? That is the system that Ministers are creating.

As the Minister knows, I am not against bringing some incentives into the local government finance system. I understand the desire for some localisation of business rates. I am in favour in the longer term of councils having the chance to raise more money at a local level rather than being dependent on Government, as an important element of localism involves freeing councils up to raise funds as well as giving them more powers.

[Paul Farrelly]

Will my hon. Friend give way?

[Mr Betts]

I said that I would take only one intervention, so my hon. Friend will have to excuse me. Other Members want to get in.

The system is fundamentally broken and I support the proposals made by the LGA in its “Rewiring public services” document. Let us give local authorities a budget for a whole Parliament so that they can plan ahead and let us consider involving the LGA in the process of distributing grant. I want to go further than that. I want a fundamental review of local government finance based on three principles. First, we should give more powers and responsibilities to local authorities, building on community budgets and city deals and going further than they do. Secondly, let us consider giving councils more fiscal autonomy, as the Select Committee is in the context of fiscal devolution to cities. We can then see whether we can reach some agreement to enable councils to raise more of their own resources. Finally and fundamentally, when the Government distribute money to councils they must do it in a fair way that reflects needs and deprivation. That is the element that the Government have forgotten in this settlement.

[Sir Nick Harvey (North Devon) (LD)]

Last November, I joined 30 colleagues on the Floor of this House to present petitions calling on the Government to close the gap in local government funding between rural and urban areas by a mere 10% by 2020. The petitions included 1,700 signatures from my constituency. In my view, that was a modest ask and I believe that we should look to the Government to do at least that and more in brisk order.

I recognise the problems faced by the Department for Communities and Local Government in the era of austerity, the need to eliminate the deficit and, of course, the debt repayments that will follow even when the deficit has been eliminated, but I believe that local government is taking too much of the burden—more than other Departments—and that, as the hon. and learned Member for Torridge and West Devon (Mr Cox) said a few moments ago, some local authorities are now facing such difficulties that their viability is in doubt.

It is vital that the Government should face up to the crisis towards which we are heading at great speed. Fundamentally, my complaint is as follows: why should some of the poorest people in the country, on the lowest wages, pay far more in council tax and receive far less grant from central Government while at the same time local services erode around them? That is what is happening in Devon and it is certainly what is happening in my constituency. The district council grant has been halved since 2010 and the total budget has been cut by a third over that time. This year alone, the Government have sliced the grant to the district council by 13.4%.

As for the wider picture, the situation is frankly no better for Devon county council. By next year, it will have seen a 60% cut in Government grant during the lifetime of this Parliament. Our schools and our health system are underfunded and, as other Members have said, the current system is quite simply broken. Rural residents pay council tax that is on average £86 a head higher than urban residents. They receive £145 less in Government grant than their urban counterparts, and this is a funding gap as wide as 50%.

It is welcome that the Government recognise the principle of there being a problem, and that they have put in place this emergency grant for a second year running, but I am sorry to say that even at the enhanced level that has been announced for the grant today, it closes that gap by only £1.04 a head, and at this rate it will take us 86 years to put right the gap in council tax payments, and 145 years to put right the gap in Government grant. This is simply not an adequate response to the scale of the problem that is faced in many rural communities throughout the country.

The Government make much of the spending power measure and bandy that about. That is a flawed measure. It looks at the current council tax revenues and believes that it is acceptable for some areas to pay much higher council tax and sees no reason why that should not continue in perpetuity. It also obscures the scale and impact of reductions in funding and the challenges that councils now face. For example, under the spending power measure, Devon county council has lost only 1.5% as against a national average of 2.9% in the latest settlement. But that obscures the fact that it has lost 9% in revenue support grant and, as I said, the district in my area has lost 13.4% in Government grant. Similar figures can be seen throughout the country.

[Paul Farrelly]

The figures from Devon mirror the situation in Staffordshire. Does the hon. Gentleman agree that it is a funny sort of localism that imposes referendum limits centrally from Whitehall?