Local Government Finance

Robert Neill Excerpts

Wednesday 12th February 2014 Commons Chamber

[Andy Sawford]

Chief officer pay is something that should, rightly, be determined locally. We would of course want local authorities to be responsible. I urge the hon. Gentleman to recognise, however, that some of the highest paid chief officers were in Conservative local authorities. We will not be taking any lectures on that point.

The Government seem to have introduced the term “spending power” to hide the true scale of the cuts. London Councils says that it is extremely concerned that the spending power calculation is misleading and incorrect. The Government say that spending power is the total amount of money available to a local authority but the LGA tells us that there is double counting, such as with health budgets that are also in the Department of Health’s figures. Rob Whiteman, the chief executive of the Chartered Institute of Public Finance and Accountancy says that

“these figures demonstrate…statement on the local government settlement this year was by any usual standards an…opaque announcement.”

The Minister says that the change to spending power is a shift in Government policy to reduce dependence. He uses that term about the begging bowl that, frankly, I find offensive. He says that this is about reducing dependence on central Government and freeing councils to encourage local growth. If that is true, we have to ask why it has taken so long for this Government to make a U-turn on business rates, which have risen by £2,000 since May 2010. Why will they not join this side of the House and go further by cutting rates for 1.5 million small and medium businesses? We agree, of course, that councils should not simply be a post-box for the Treasury, and schemes such as the local authority business growth incentive were introduced by the last Labour Government. We will look to reform any so-called incentivisation so that the system works fairly for all areas of the country and is alongside, rather than a replacement for, mechanisms for fair distribution of funding according to need.

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

First, I find it ironic that the hon. Gentleman should criticise any change to the business rates model that his party resisted for so many years. Secondly, he talks in terms of the four-block model, which is generally regarded as discredited now. Would he persist with it or not?

[Andy Sawford]

The consensus around recognising need in local authority areas existed for more than 65 years, until this Government broke it. We have been clear that we will look in the next Parliament to restore fairness in the formula, and of course we will look to ensure that the model in place recognises need.

--- Later in debate ---

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

I congratulate the Minister on his speech, and I commend his statement to the House. This is a difficult settlement for anyone to have to achieve, and my hon. Friend has done it as well and efficiently as I would expect him to. It is a settlement that I would have commended to the House when I was a Minister.

I welcome the hon. Member for Corby (Andy Sawford) to his new position, but he made a disappointing speech. Frankly, it was full of wind and rhetoric, and contained very little analysis. The truth is that the Minister has delivered the best possible settlement for local government that he could in these difficult circumstances, and he has worked tirelessly to do so. I will tell the hon. Member for Corby why he is wrong. He failed to answer a question when I intervened on him earlier. While we are wedded to a four-block formula, we will always have difficulties with the way in which we deliver resource to local government. We are stuck with it for this Parliament, however, so let us be sensible and realistic about it. The Government have done the best they can in the circumstances. The paucity of imagination among Opposition Members is striking; they will not move away from that point.

Such a paucity of imagination also exists among some of our coalition colleagues. My hon. Friend the Member for North Devon (Sir Nick Harvey) has made a powerful speech, and much of his analysis was broadly correct. However, when I was the local government Minister and I sought to reform the system by giving more recognition to rurality and bringing greater efficiency into the system, I was baulked at every turn by our coalition partners, who had no desire to make any change. That is the reality of public life; we have to live with what we have.

I believe that it is wrong when an efficient local authority such as my own in Bromley—which will, I trust, freeze its council tax tonight—is not rewarded for its historical efficiency. For years, we have started from a lower base than others, yet we get no recognition for that in the spending formula. That needs consensus to be taken on board. It is offensive that we do not adequately take on board the cost of running services in rural areas, although many of us tried to do that. I was surprised that my coalition colleagues were more concerned with protecting the position of the metropolitan authorities. Sheffield and Stockport were more important to them than protecting the issues affecting their people in the south-west of England. The reality is that they were unwilling to engage in a serious debate on the reform of the four-block formula.

That is not the fault of the Minister. He has done the best he can with the hand that has been dealt to him. In a future Parliament, however, we might have to think about what we should do with local government finance. That will not be done under these coalition arrangements, and it will not be done unless we are more honest about giving incentives to local authorities to recognise hard work.

My local authority has benefited to the tune of some £5 million through the new homes bonus, because we have worked efficiently and effectively. We have sought to do that in connection with our new business rates. We have worked hard, yet I see nothing in the formula that will reward us. In the London system, we are not rewarded for our historical efficiencies, and that is wrong.

We need to take a more sensible approach in order to get through this current period. The Minister has done that fairly and efficiently, but we now need to think more sensibly about what we do in respect of a system that rewards growth and hard work, and rewards local authorities for driving up their own economic base. Some Labour Members raise their eyebrows at that, but Newham council is a local authority that has worked hard to drive up its economic base and does not get a reward under the four block system. Unless we are prepared to deal with the four block system, we are doomed to a perpetual dance around—a bit like the last act of Eugene Onegin and the Polonaise—redressing a formula that is fundamentally flawed.

[Grahame M. Morris]

I do not necessarily agree with the hon. Gentleman’s analysis, but does he accept that it is possible to do both: we can incentivise growth, economic development and housing development, and still address need, without the requirement to destroy the equalisation elements of the formula?

[Robert Neill]

I think we all accept that there will always be an element of equalisation in the formula, but if the system becomes entirely about equalisation, rather than about incentivisation, we will be getting into the wrong place in terms of bringing in market economics and growth. I want an element of equalisation in any formula—everyone does—but I say seriously to the hon. Gentleman that he misses out the importance of recognising that efficiency should be written into the formula. We are in a binary resource-versus-needs equation at the moment in the way the four blocks operate, and there is also an inefficient means within the blocks. I worked this out once and found that about 297—I may have lost a couple along the way—bits of regression and analysis in the formula are worked out. The right hon. Member for Salford and Eccles (Hazel Blears) nods, because she had to suffer about 300 in her time—we have scaled it back a bit. This is a ludicrously complicated formula, it does not get to the heart of where need is, and very often the interactions of the bits of the regression and analysis are counter-intuitive. So unless we are prepared to sit down in the new Parliament—it will not happen in this one—to examine seriously the formulation for local government finance, we will not get anywhere.

The Minister has presented a workable, sensible and effective proposal that will take us through until the general election and beyond. This House needs to take on board the fact that we will be having these same circular debates time and again unless we are radical about the need to change local government finance for the future. Such change will come after the general election, but all of us, if we are serious about local government, need to get a grip on that and be prepared to think outside the box of where we currently are. That would be in all our interests.