Financial Sustainability (Local Government)

Robert Neill Excerpts

Tuesday 7th January 2014 Westminster Hall

[Robert Neill (Bromley and Chislehurst) (Con)]

It is a pleasure to serve under your chairmanship, Mr Crausby. I am slightly disappointed at the outcome of the debate, although I congratulate the hon. Member for Birmingham, Edgbaston (Ms Stuart) on the thoughtful way in which she introduced it. The subject of the debate deserves a little better than some of the contributions that have been made. I agree with the hon. Member for Southport (John Pugh) that we must use the debate as an opportunity to think about the sustainability of local government finance in the longer term.

Some of the matters that have been raised relate, I suggest, to symptoms rather than disease. The hon. Member for Birmingham, Edgbaston hinted at the real problem with financial sustainability in local government, which is that the state in this country is highly centralised. That needs to change. I gently say that that is not the construct of any one party; it has happened over about 50 years. In fairness, it must be said that this Government have taken important steps to seek to reverse that.

I agree with my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) that Ministers should be congratulated on the devolutionary steps they have taken at the same time as having to make significant spending reductions to meet the economic crisis we inherited. We cannot have sustainable financing for local government, which accounts for some 25% of the spend on public services, without a sustainable economy for the public finances as a whole. I do not accept lectures from Opposition Members who suggest that we should exempt local government from the necessary spending reductions.

In the longer term, we need to tackle the real problem, namely that local government has historically been too dependent on central Government grant for its finance. The Government have taken important steps to address that, but the degree of the problem is highlighted by the London Finance Commission. I represent a suburban London seat, which falls somewhere between the two poles when it comes to the matters that are being discussed. The LFC report, which the Mayor of London commissioned and endorsed, points out that some 7% of all the tax paid by London residents and businesses is retained locally, as opposed to, say, New York, where the picture is some 50%.

I am not saying that it is realistic to change those figures overnight, because we come from different constitutional and historical traditions, but we can move in that direction. In that regard, the Minister and the Government—I might have a slight interest in this—are to be commended for providing other financial levers to local authorities beyond pure dependency on central Government grant or council tax. The new homes bonus was an important additional income stream from central Government.

[Mr Clive Betts (Sheffield South East) (Lab)]

Recycled money.

[Robert Neill]

The hon. Gentleman rather misses the point. During the whole time that the Labour party was in government, it made no such devolutionary steps in local government finance. It ill behoves the Labour party to criticise the steps that the Government have taken against a background of financial stringency.

Secondly, the retention of business rates, particularly if we follow it through in due course and increase the local share, has a real opportunity to reduce dependency on central Government grant. Currently, for understandable reasons such as deficit reduction, the local share has to be constrained. The primary legislation is drafted in such a way as to permit the local share to increase as the economy grows. I hope that happens, and I think hon. Members would do better in the longer term at finding financial sustainability for local government if they were to support that growth on a cross-party basis rather than seek to make short-term points about the funding of individual local authorities.

[John Cryer (Leyton and Wanstead) (Lab)]

To some extent, the hon. Gentleman makes a fair point about the long term. The problem is that we are dealing with the situation we are in, which is that local government is dependent on grant from central Government. Waltham Forest council, which covers most of my constituency, has already faced extensive cuts and will probably face further cuts in grant from central Government of some 8% over the next two years. That reaches the stage, as Sir Merrick Cockell has said, where it is unsustainable and cracks start to appear. My local authority has wrought miracles in delivering services in difficult circumstances, but I am not sure that that can continue.

[Robert Neill]

With every respect to the hon. Gentleman—I know he thinks about such matters carefully—the problem with his analysis is that simply shovelling more money into the system that cannot be paid for in a sustainable way is not, I regret to say, the answer. A much more radical approach is needed to the way in which we deliver services, which good councils of all political persuasions are willing to undertake. We should move away from the high levels of dependency that local government in this country has on central Government bail-out.

There are things we could do. I hope we will not only increase the local share of the retained business rate and therefore reduce dependency on central Government grant, but work with the Local Government Association to deliver a genuinely sustainable market in municipal bonds, which holds real opportunities, particularly for big cities.

I hope we can extend the period of the funding settlements for local authorities. It is worth recognising, as the LGA recognises, that in the autumn statement this year we set out that local public services will get the same long-term indicative statements as central Government, which will provide more certainty. That is an important and valuable step forward, on which I congratulate the Minister. We might, in due course, roll that out to five-year settlements for local government, which will provide a sensible approach to long-term planning.

There are things that can be done, but it is not enough simply to talk about a system and to have a needs-versus-resources argument that does not recognise efficiency. We can do more in the system to recognise efficiencies and past efficiencies. Although the cities are a pressure point, it struck me when I was a Minister that we should not forget that there are financial pressures on rural authorities as well. One thing that concerned me when I first came into office at the Department for Communities and Local Government was that the then formula grant system did not recognise the cost of rural services or the particular pressures that give rise to rural deprivation. I congratulate the Minister and the Government on taking important steps to recognise that. There are positive, long-term things that we can do, and I hope the Minister will reflect on what we can build on in a constructive way.