Communities and Local Government (CSR)

Robert Neill Excerpts

Thursday 13th January 2011 Westminster Hall

[Mr Betts]

I said at the beginning that I do not want to get into a long debate about the overall nature of deficit reduction, apart from saying that the Labour party has a different view about the scale—reducing the deficit by half, not totally eliminating it, over the four-year period—and the pace, which would not have been as great. We would not have started the cuts in this financial year, before the economy had properly started growing. There are differences.

However, I come back to the point that, whatever the average level of cuts across Government, there still has to be a justification as to why spending on local government—the money passed on by central Government to local government—is taking a hit that is much bigger than the average for all Departments. Why is that happening, particularly when local government has a good track record in making efficiency savings? If one looks at government as a whole, it was local government that led the way, even under the previous Government: 2% year-on-year efficiency savings were built into its budgets.

If one looks at the impact of government services as a whole, the services that are provided by local government are some of the most immediate to our constituents. They include services to the disadvantaged and those in need: social services care provision, aids and adaptations. They are about the quality of life: things such as parks, libraries and sports centres. They are about essential provision for daily life from which everyone benefits, whether it be refuse collection, street cleaning, highway maintenance, street lights—the kinds of things that everyone benefits from in terms of the taxes that they pay and the services that they get. Why put those immediate services for most of our constituents at more risk than the average in terms of cuts of Government spending as a whole? The Government must answer that question.

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

In fact, the figures show that revenue support for local authorities reduces by 26%, and that happens to coincide with the percentage of public sector spend that local government takes. However, the independent Office for Budget Responsibility has made it clear that because local authorities have forms of income other than the central Government grant—council tax, for example—the actual reduction in spending power is 14%, which is considerably less than that of central Government Departments.

[Mr Betts]

I accept what the Minister says about the different ways in which figures have been presented, and I shall come to that in a second. I am not going to complain about or disagree with how that was done, because it is important to look at spending power, but I come back to the point that I made. If central Government are looking to cut their spending, why have they cut the resources that they pass on to local government by more than the average cut in central Government spending as a whole? That seems a reasonable question, irrespective of the issue of local authorities’ spending power.

The second issue is: why have spending reductions been so front-loaded? Local government has rightly complained about that. There is no doubt at all that there is front-loading: of the 28%, 10% is in the first year and 8% in the second. Local authorities, not just the councillors but the officials, say that the immediacy of the actions they have to take means that decisions will be less well made and there will almost certainly be less opportunity for the transformation of service delivery, which we all agree can make savings without the need for service cuts. It also means that local authorities will be pushed back into the salami-slicing approach, which Ministers say they do not want. I am not making a party political point. Authorities of all political persuasions—Conservative, Liberal Democrat and Labour councillors in the Local Government Association—will all say the same thing: that the pressure of front-loading will lead to a less effective and less efficient use of the available resources.

The front-loading will also mean that authorities have less chance to use natural wastage to save money, and will be forced, to a greater extent, into making compulsory redundancies, which are expensive; the money used to pay people to leave and to enable cuts to be made, could have been used to provide service delivery. We know there is an argument there. In the evidence session, the Secretary of State said he thought that the LGA figure of 140,000 job losses in the next year was wrong, but we never quite got from him what the right figure was. Nevertheless, there will be significant job losses.

The Government believe that £200 million of capitalisation will be sufficient to cover redundancy costs; the LGA says £2 billion. Even if the figure is somewhere in between, local authorities will struggle if redundancy costs are of that scale, because getting rid of people in the first year might not make savings and might actually become a cost. The offer that I think the Secretary of State made, that if he had to provide another £1 billion of capitalisation he would cut the revenue grant by a further £600 million, does not seem to be the best offer that local government has ever had from central Government on such matters. Indeed, I think the rather angry response to the evidence that the Committee received from Baroness Eaton on behalf of the LGA has been circulated. In it she states that her recollection of the discussions with the Secretary of State on capitalisation was slightly different to that of which he had informed the Select Committee. She could not understand why, if local government had to make necessary redundancies and wanted to capitalise that cost further, it would be penalised by the Government’s reducing the revenue grant. It would be helpful to have some comments from the Minister, bearing in mind the LGA’s response.

There is a very big issue here of the speed of the cuts and their front-loading, and the effect of that on local authorities’ ability to digest the cuts into their systems and make sense out of them, as opposed to having to salami-slice at least an element of the cuts and having to pay quite a bit of money out for redundancy costs that would otherwise not have been necessary.

I shall now respond to the Minister’s point about how the announcement was phrased. The Secretary of State obviously tries to get the figures down in his announcements, and I happen to agree that looking at spending power rather than at simply grant allocation is the proper approach. We still should look at the grant that central Government give as opposed to what they are doing to cut spending elsewhere in central Government, but it does matter in the end how much local authorities have to spend. When we look at the figures, however, we see a difference between the 8.9% maximum reduction in spending power that any authority has to face and the 0.1% increase that Dorset has managed to receive.

As my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) mentioned, there is a significant difference in the level of cuts and the reductions in spending power between the most and least deprived authorities. The figures that came out of the Library from the Scrutiny Unit show that the 10% most deprived single unitary authorities lost 8.4% of spending power and the least deprived 10% lost 2.2%. That is a significant difference. We have had a discussion about the Scrutiny Unit’s figures, and those figures clearly show a correlation between authority deprivation levels and how much spending would be cut. I do not think it is fair, but I accept, to a degree, that it is more difficult to protect authorities that have large grants because they are deprived, when grant cuts happen. I accept that the Government have done something, at least at the beginning of the process, with the £85 million transitional money to mitigate the problem, but whether that money will be available later in the spending round remains to be seen.

--- Later in debate ---

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

It is a pleasure to serve under your chairmanship, Mr Robertson, and I will endeavour to encompass as much of this interesting, well-informed and wide-ranging debate as I can in the time available. I congratulate the Back-Bench Committee on selecting and nominating this subject for debate, and the Chairman of the Communities and Local Government Committee, the hon. Member for Sheffield South East (Mr Betts), on the thoughtful way in which he introduced it. He and I do not always agree about everything, but I never doubt his knowledge and interest in local government. I also pay tribute to that Committee; it does great work and a number of hon. Members who sit on it have spoken today.

Perhaps I can deal briefly with the background and then with some of the specifics in the contributions. I will not seek to make a lengthy issue of the economic background, save to say that it is the reality that no one can escape. In relation to the more partisan comments that were made, I have to say that it gives pleasure to no Government of any kind to find that they have to reduce the spending available for various services. However, as has been observed and, I think, accepted in varying degrees on both sides of the House, it was trailed well to everyone in local government and to the public that sadly, whatever the outcome of the general election, the country’s financial circumstances meant that reductions in public spending would be necessary.

When the coalition Government came to office and saw the extent of the problem, they concluded, rightly, that swift action was necessary to reduce the deficit. Otherwise, there were real risks to the economic health of the country and to the country’s international credibility. If that were not tackled and there were a serious economic downturn, which was a real risk, it would be an even greater threat to public services in the long term. A destroyed economy would make it all the harder to deliver the public services that we all want.

There may be a difference between us, but I say to those Opposition Members who criticise the speed and scale of the steps that we have taken that it behoves them—as they are, I regret to have to say, primarily responsible for the mess—to say what they would have done instead. Simply to criticise the Government, who are doing something that is starting to turn things around, is, in the circumstances, not good enough.

We have had to deal with the situation that confronted local government in a way that was fair and proportionate. I want to set the record straight on one or two matters that were raised. First, in relation to the settlement for local government as a whole and the picture compared to the rest of Whitehall, it is important to make it clear that against the 2010-11 baseline, the Department for Communities and Local Government will be making savings of some 33% on resource, but we will also be moving some £6.7 billion into formula grant. That is money that we are ceding to local authorities.

I think that it is some of those differences in the figures that produced the difference in the figures that the hon. Member for Sheffield South East was calculating. He referred to a 68% cut in the CLG budget. No, that is the combined total reduction in resource and capital funding by 2014-15. The resource funding was reduced by 33%, but we have chosen to devolve extra money by putting it into formula grant, rather than keeping it in the Department. So we have passed money down, within a tight settlement, to local government as a whole. In fact, our departmental resource support for local government will reduce by 22% compared with 33% for CLG as a whole, so we are protecting local government as opposed to the central Government elements of our spend. Similarly, although we have had to reduce capital support to local government, that reduces by a lower percentage than is the case for the CLG’s central departmental expenditure limit—the DEL, as it is called.

Against that background, we have endeavoured to support important programmes. We are putting £6.5 billion into the Supporting People programme. That constitutes a reduction of only 12% compared with the CLG’s 33% resource reduction overall. That is why my right hon. Friend the Secretary of State was right to tell the Select Committee that we had sought, in the circumstances, to protect Supporting People.

We have sought to make the settlement itself more progressive. I shall come to the imperfections of the formula in a minute, but within the formula that we have, we have increased the weighting given to the needs element to 83%. That is an increase from where it was before and will help more deprived authorities. Also, a number of authorities with significant problems faced the loss of the working neighbourhoods fund, which the previous Government set up but were terminating because it was a three-year programme. The present Government, recognising the difficulty, set up the transitional grant that has been referred to by hon. Members, so we have helped to cushion the loss of the WNF that the previous Government proposed to impose. Therefore, it cannot be said that we have not sought to be fair in the circumstances.

The hon. Member for Nottingham East (Chris Leslie), who is no longer in his place, made some comments about fairness and referred to the House of Commons Library paper. I am afraid that that paper was quoted selectively. The analysis also said:

“Excluding London, northern regions will receive more grant per head than their southern counterparts”.

It confirmed that formula grant per head in the north-east is, at £696, approaching double that in the south-east, which is £374, and that reductions in formula grant for the north-east and north-west were “clearly less” than those in the south-east and the eastern regions. Therefore, it cannot be said that the Government have sought unfairly to discriminate against areas where, we accept, there are difficulties. I hope that that puts some of the comments in context.

Let me deal with a couple of other points raised by the hon. Member for Sheffield South East. He specifically asked about business rates exceeding formula grant by 2013-14. For reasons that I shall come to, by 2013-14 the landscape will indeed look very different as a result of the local government resource review. As he knows, the review will consider allowing local authorities to retain business rates, and obviously we shall have to look at that in the context of the implications for resource equalisation and redistribution. There is a legal obligation to redistribute the business rate, and we do not intend to change that. The assumption was made that there would be a sudden pot of money and that there was no change to what the Government were doing. That is not the case: we have already announced our intention to make a change.

We are making the change because, as was pointed out in the powerful and impressive speeches of my hon. Friends the Members for Peterborough (Mr Jackson), for Meon Valley (George Hollingbery), for Halesowen and Rowley Regis (James Morris), for St Austell and Newquay (Stephen Gilbert) and for Harrow East (Bob Blackman), the formula no longer works. They all queued up, rightly, to say that.

We have recognised that there is a need for significant change to the formula and, rather than beating about the bush, we have established a local government resource review. I expect that the consultation documents will be sent out before the end of this month. We hope to do it from January through to June, and central to it is enabling local authorities to retain the business rates that they collect. Of course, there would also be an incentive for them to grow their tax base by growing their business rate base. That would enable us to rethink the operation of grant. Formula grant would no longer be operating in the same system. I totally accept the point made by hon. Members that in those reforms, it is crucial that we find something that is much more transparent than the Schleswig-Holstein question. Actually, this issue probably makes the Schleswig-Holstein question seem comparatively simple. So that is what we are doing.

[Mr Betts]

I hope that the Minister responds specifically to this question; it is an important one. Is he saying that when the Government go out to consultation on a new method of funding for local government, including local authorities keeping their business rate, they will also deal with the question of how, in that context, redistribution in terms of need and resources can also be achieved?

[Robert Neill]

It is intended to be a comprehensive review of local government resource. We shall have to consider all those issues. The hon. Gentleman will have to wait for the document itself. He will understand why I cannot go into detail; I am sure that we shall be laying a statement before the House about the content of the document. However, it is intended to be a comprehensive review of the resource, and I hope that the hon. Gentleman will be satisfied with what he sees in terms of its parameters. I know that the Select Committee will certainly want to discuss with the Department the way in which we carry the review forward, and we will welcome that. Against that background, the Government have sought to achieve a balance.

I accept the points made by my hon. Friends: we must be prepared to be a little less conservative with a small c in our approach to delivering local services. I do not think that small c conservatism is generally found on this side of the Chamber at the moment. Local authorities have worked hard to produce efficiencies—I accept that—but it is clear that yet more can be done. For example, the CBI has pointed out the considerable further savings that could be made by local authorities banding together to use their procurement powers. Baroness Eaton and her colleagues are up for doing that, and I am sure they will. It is not a question of chief executive pay, for example, closing the funding gap, but at times such as these, it is not illegitimate for the Government to say that if we have to prioritise, the message that pay sends is important. It is fair and proper to look at these matters in that context.

I take on board the important points made by my hon. Friend the Member for Harrow East, who was my old comrade-in-arms in the London Assembly. Given the Mayor we had, “comrade” was probably appropriate from time to time. I also agree with a comrade from the opposite side of the London Assembly, the right hon. Member for Tottenham (Mr Lammy), about support for the voluntary sector. It is hugely important, which is why the Secretary of State has repeatedly said that in these difficult times it is important that local councils do not fall back on the usual suspects in their approach to reductions, such as salami-slicing. They get rid of the voluntary sector grants first because they are the easiest, but often it is those voluntary sector groups that deliver public services in the most imaginative and innovative manner. That is where remuneration comes in and is why we are increasing transparency for the public over remuneration in the Localism Bill—that is the right way.

I hope that a director or chief executive on a six-figure salary signing off a report for a council recommending cutting a six-figure grant from voluntary groups will not feel entirely comfortable in doing so when looking at their comparative positions. That is a legitimate point in the context of this debate. We will all have to constrain expenditure that is not directed at the front line. That is not to rubbish the work done in local government, but it is right to accept that people are surprised when they see the salary inflation at that level; people are right to question whether that is the best way to spend the money. That is how the Department has looked forward.

We are, of course, keen to assist local authorities to grow their economies and to rebalance them. That is why, as well as the Supporting People programme, to which I have already referred, we are spending more than £2 billion on the decent homes programme, and continuing to support the disabled facilities grant and to facilitate the passage of the vulnerable into work in the community. The regional growth fund of £1.4 billion taken together with the local enterprise partnerships, set up with business and local councils as key partners, affords an opportunity to refocus economies. We seek to align that regional growth with the equal sum in the European regional development fund. Work is being done to channel such resource as we can afford into areas that will make the most difference.

References were made to housing funding and the benefit changes. It is worth remembering that even with the changes, a third of homes in London will remain affordable. About 17,000 households may be affected, but the choice they will be left with is no different to the choice that the low-waged who are not on benefits face. We cannot continue with a situation in which expenditure on housing benefits has risen from £14 billion to £21 billion. It is about getting the balance right. Of course, we will continue to liaise with our colleagues in the Department for Work and Pensions on those issues.

I see that time is creeping round, and I know that my hon. Friends raised other specific points. With your permission, Mr Robertson, I will respond to them by letter. Detailed matters, such as private sewers, are probably best dealt with in that manner.