Local Government Funding

Tom Blenkinsop Excerpts

Tuesday 11th March 2014 Westminster Hall

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Good afternoon, Ms Dorries; it is a pleasure to be under your chairmanship for this important discussion. I appreciate that local government financing is a complex topic and one that I cannot do justice to in this short debate, but I am grateful to have been given the opportunity to highlight the gross disparities that regions face in the financing of local government.

When looking purely at settlement funding, it may appear that the differences are fairly small, with all regions besides London seeing their local authority funding cut by approximately 40% between 2010-11 and 2015-16. However, when we look at actual revenue spending power, we see that there is extremely large inter-regional variation. Revenue spending power takes into account a range of other sources of funding to local authorities and gives a more real—in this instance—sense of the disparities between regions.

The House of Commons Library has undertaken fantastic research that highlights my point. It has calculated the cumulative percentage cut in revenue spending power faced by each region between 2010-11 and 2015-16. Regions with high levels of deprivation and need face massive reductions, while regions with significantly lower levels of deprivation and need face much smaller reductions. The north-east faces an 18% cut, London and the north-west a 17% cut, Yorkshire and Humber a 16% cut, the west midlands a 16% cut and the east midlands a 12% cut. However, although they still face cuts, the south-west and the east of England face relatively small cuts of 9% and 8% respectively and the south-east faces a 6.6% cut.

In 2014-15, the 10 most deprived local authorities in England will lose six times more than the 10 least deprived compared with 2010-11, so while more deprived areas such as Liverpool, Hackney, Blackpool and my native Middlesbrough lose most, the Prime Minister’s own local authority, West Oxfordshire—one of the wealthiest—is seeing its spending power increase, as are other wealthier council areas.

Our constituents probably do not think much about the intricacies of local government funding formulae, but the consequences of the unfairness are real, significantly affecting our constituents and local communities. Both unitary authorities in my constituency, Middlesbrough and Redcar and Cleveland, have faced significant challenges and are set to face even more owing to the cuts imposed on them by the Department for Communities and Local Government.

Under a budget recently proposed by the independent mayor of Middlesbrough, Ray Mallon, 300 jobs are set to be axed and the Clairville stadium, the registry office, the TAD centre and the Middlesbrough teaching and learning centre are set to close. Elsewhere, services will be reduced, with the opening hours of leisure centres, for example, being slashed. That is not to mention the significant cuts and job losses that have already occurred in Middlesbrough.

The situation in Redcar and Cleveland is similarly bleak, with the council forced to reduce front-line services such as youth services and to make compulsory redundancies, as so many jobs have been lost that there are very few people left who are willing to take voluntary redundancy or early retirement.

[Mr Jim Cunningham (Coventry South) (Lab)]

I had a meeting last week with the leaders of the seven districts that make up the west midlands. It is becoming abundantly clear that over the next two or three years, those authorities will no longer be able to provide even the minimum services required. The situation goes back about 25 years to when Nicholas Ridley said that the ideal local authority would meet only once a year to give out contracts.

The Government, particularly the Tories, think in generations, and when they come back into power, they pick up where they left off. More importantly, Coventry will lose 1,000 jobs over the next two or three years, and it will have to find some £50 million on top of the £20-odd million that it has already found. Children’s services will suffer as much as education. Coventry and the west midlands local authorities are in a real bind.

[Tom Blenkinsop]

The picture is similar in the north-east. For example, the leader of Newcastle city council, Councillor Nick Forbes, has talked about his fear that local authorities are fast approaching a cliff edge in terms of their ability to perform even statutory duties. I also received some interesting information from the Local Government Authority about other anomalies relating to capping, which I will come to later.

Redcar and Cleveland borough council should be applauded for protecting and supporting a local company, SSI UK—an employer of fundamental importance for Redcar, Cleveland and the surrounding Tees valley area. The firm invested heavily in Teesside Cast Products’ blast furnace, coke ovens, basic oxygen steelmaking plant and continuous casting plant.

I know the company well, having been a union official on its site. Until recently, it was unable to pay its business rates, which mounted up to some £19 million. If Redcar and Cleveland borough council had not taken on board that burden, it would have been difficult for the company to keep functioning. Fortunately, a settlement is now on the table, but if that settlement had not been achieved, the local authority would have had to cut a further £9 million on top of the cuts imposed on it, without any central Government assistance. We must praise the borough council for managing its already tight budget in difficult circumstances.

Locally, some Tories and Liberal Democrats have accused councillors of relishing and delighting in cutting front-line services, and have claimed that they are seeking to score partisan political points. That is clearly not the case. Councils are making cuts because the political settlement forced on them necessitates their doing so. If anything is partisan, it is central Government’s agenda and message, because Conservative areas generally receive much smaller cuts or even budget increases. I highlight the example of the Lord Chancellor’s local authority, Epsom and Ewell, which is receiving a 3.51% increase in non-ring-fenced central Government finance provision between 2011-12 and 2015-16. In the same period, Middlesbrough and Redcar and Cleveland face a cut of approximately 30%.

A similar accusation is often levelled at local authorities that decide that freezing council tax would leave them in an even more precarious medium to long-term financial situation. That is clearly motivated not by partisan factors but by the fear, common to many local authorities, that accepting such a freeze will leave a black hole in their finances in years to come.

[Mr Jim Cunningham]

Freezing council tax might sound like a good idea at the time, but the council tax payer will pay the price two or three years down the road. My hon. Friend must also remember that in addition to local authority cuts as we know them, cuts have been made to the fire service, to the police and to neighbourhood policing, even though the Government want to cut crime.

[Tom Blenkinsop]

I agree with my hon. Friend. There are other factors, which I will not be able to go into today, and local people often expect local authorities to pick up the slack. That slack has totally gone, however. We have gone beyond cutting into flesh, and we are now cutting into bone, as local authorities increasingly recognise. Tory-controlled local authorities feel that the Government are forcing them into a position where they have to increase council tax to secure their financial future. I believe 18 councils are in that situation. Indeed, the Prime Minister’s council, Oxfordshire county council, is proposing a 1.99% increase, as is the Foreign Secretary’s council, North Yorkshire county council, which is local to me.

We have to look across the piece. I will quote from an LGA briefing that highlights issues that the Minister must take on board. For example, the LGA says:

“Councils that have frozen their council tax could still face having to organise referendums, whether or not the increase in total council tax was a direct result of their financial decisions.”

The reason for that is:

“The extension of council tax referendums to include levying bodies risks perverse outcomes that will put growth generating investment at risk.”

That may affect things such as internal drainage boards, flood defence, integrated transport plans and pension authorities. We cannot discuss this in any depth today, but Government policy is increasingly to use the private sector rather than the state for people’s pensions. The LGA states:

“Pension authorities in some Metropolitan Counties and London operate the legacy pension schemes of the Greater London Council and former Metropolitan Counties. As with the rest of the Local Government Pension Scheme, there is little control over the costs of these which are increasing with each successive valuation.”

There will be consequences for pension policy, transport policy and floods policy.

Efficiency savings will go only so far to plug the funding black hole that central Government have imposed on local government. The scale of cuts faced by councils in the north-east has led some, such as Newcastle city council, to warn that in a few years’ time they will be unable to afford to perform all their statutory duties. I imagine that the Minister will tell us, as he and his colleagues have done many times, that the reason why local authorities in regions such as the north-east face larger cuts is that they receive more funding from central Government than do those in other regions.

That is a false argument for two reasons. First, those disparities exist not only in absolute figures but in percentage terms. Secondly, and crucially, regions such as the north-east receive more funding than those such as the south-east because their need is greater. If we were to take to its logical conclusion the Secretary of State’s argument that cutting in the north-east is fine because the region receives more to begin with, we would end up with total uniformity in per capita central Government funding to local government, irrespective of an area’s deprivation and need. Does the Minister agree that it is absurd to ignore or underweight deprivation in funding formulae, as his local government financing policies do?

I am conscious that the Minister may also say that the north-east and other deprived regions are receiving punitive cuts because of the need to rebalance the public and private sectors in those regions. Although there is a need further to develop the private sector and private sector employment in regions such as mine, does he agree that the lack of regional economic resilience is caused by long-standing structural issues that date back to the ’70s and ’80s, if not before, and that there is a real risk that disproportionate cuts to local government and the consequent job losses will reduce the aggregate demand in the region? Would that not hamper, rather than help, the development of the region’s private sector?

I realise that the problem is not purely a north-south divide; it is more complex than that, and many factors are involved. Issues such as rural deprivation affect parts of the north-east such as my constituency, while deprived areas of London are also being penalised. For example, the Government’s figures show that Lewisham, which is 31st on the index of multiple deprivation, will lose 9.6% of its spending power, or approximately £2.93 million, between 2013-14 and 2015-16. Its neighbour, Bromley, which is 203rd most deprived and Tory, will receive an extra £3.4 million over the same period.

Furthermore, there is considerable intra-regional variation. Deprived parts of the south, such as Southampton, fare much worse than areas such as Poole. That said, northern regions are more deprived, in general, than southern ones. As the Tory-led Government have made the political decision that deprived areas should face more cuts and a greater reduction in revenue spending power than well-off ones, northern local authorities are generally being hit much harder than southern ones. Currently, we do not have a one-nation system to determine how much funding local government should receive. We need a one-nation system of local government financing, in which need and deprivation are properly considered and in which local government is given the resources it requires to thrive and to help local businesses grow.

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

I congratulate the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) on securing this debate and speaking up for his constituents—that is the duty of all MPs. I also congratulate him on getting the phrase “one nation” into his speech many times. He is an Opposition Whip, so I am sure it will be noted that he is working overtime to be on message.

The hon. Gentleman mentioned the economic resilience of the north-east, as well as the good work done by a particular steel company in Redcar.

[Tom Blenkinsop]

That would be SSI UK.

[Stephen Williams]

I wanted to point out that my hon. Friend the Member for Redcar (Ian Swales) has an enormously positive track record on securing the reinvestment in and reopening of the steelworks in Redcar. Bearing in mind the employment growth at Nissan as well, the north-east economy seems quite resilient. The private sector seems to be thriving and new investment is coming into the region, which I hope the hon. Gentleman would applaud.

Over recent years, the Government have worked to reform the funding system that we inherited in 2010 to incentivise local economic growth and house building and give councils more freedom in how to spend their money and achieve savings. More recently, we have focused on how funding can support transformation right across locally delivered public sector services.

The Government want councils to do more for less so that the taxpayer gets a better deal. We have decentralised power and given local communities a range of new freedoms and powers, but there is more to do in order to save taxpayers’ money through greater joint working between local and central Government—not through higher charges or council taxes, but through innovation.

We have had to rebalance the economy, which has meant reductions in local government finance. I acknowledge the fact that local government has not been protected overall in central Government spending reviews. Other areas—such as the NHS and funding for schools—have been protected, but because local government spends a huge proportion of central Government money, the cuts that are necessary to rebalance the nation’s books have perhaps been felt more keenly in that area. Nevertheless, I acknowledge the hon. Gentleman’s points on that front.

We have had to make some difficult and tough decisions about the public finances over the past three years, but it was right that we took them. Our budget deficit is now sharply reduced. We are no longer the European Union country that borrows the most as a share of our national income—Spain currently holds that record—but there is still much more to do before we get the nation’s finances back on course.

We are encouraging local councils to go for local growth. We believe that local leaders are best placed to understand their local economies and the needs of their areas, so we are promoting strong local economies across the country and giving local areas the tools and incentives to drive up growth in their areas. The previous system made councils dependent on central Government for their income, and that relates in part to the heart of the hon. Gentleman’s comments.

Colleagues have described the previous system as giving rise to a begging bowl mentality. I have described it as a supplicant relationship between local and central Government, with local authorities beholden to central Government for income and, often, for power. What pots of money were given to local authorities were frequently ring-fenced, with lots of strings attached, by the previous Government. We have tried to sweep that all away so that over time local government can, increasingly, stand on its own two feet.

[Tom Blenkinsop]

The Minister will be aware that the Government’s growth plan involves local enterprise partnerships, which they demand apply for funding from a central pot in Whitehall. Most of that pot has not yet been given to LEPs. That has led to the Tees Valley Unlimited LEP saying only today that a radical rethink of the growth strategy for the local area is required if we are to go forward.

[Stephen Williams]

I will shortly come on to the north-east local economy and mention some of the funds that have gone to the region from central Government.

As I mentioned, savings on the ground can be achieved through the transformation of services, continuing to provide them to the public at a more efficient cost. There are 325 shared service agreements reported in local government, which it is estimated could save £280 million per annum. Our system means that councils that are open to new business will see the benefits of growth and be rewarded for building new housing through the new homes bonus, which will be worth almost £1 billion next year. In 2014-15, Middlesbrough will receive more than £1.5 million in new homes bonus funding, bringing the total earned by Middlesbrough since the scheme began to more than £4 million.

The hon. Gentleman referred many times to the differences between different authorities’ spending power around the country, but, on average, councils will have spending power worth £2,089 per household from April. There is protection for more deprived areas of the country—such as the hon. Gentleman’s constituency—and for areas that are most dependent on central Government grants. Such councils will continue to receive significantly more Government grant in 2014-15—Middlesbrough will have a spending power of £2,550. That is around a third more than Poole, an authority that the hon. Gentleman mentioned, which will have a spending power of £1,678 per household.

[Tom Blenkinsop]

Of course, that is the case now, but, bearing in mind the funding calculations for recent years and going forward, at what point does the Minister forecast that spending per household will equalise for those two authorities?

[Stephen Williams]

The Government have published their settlement for 2014-15, which includes the figure I have just given. We have given indicative figures for the following year, but, of course, no Government are able to extrapolate that far for future local government settlements. That will be an issue for whatever Government are in place in the next Parliament, but I would be surprised if local government support to Poole and Middlesbrough was equalised any time soon.

The hon. Gentleman mentioned central Government funding for local economic growth. We have provided substantial support to regeneration in his local economic area, Teesside, which has received £24 million from the regional growth fund and £8.6 million from the growing places fund. That has funded, for example, the Teesside advanced manufacturing park, where I am sure some of his constituents are employed.

The Government want local authorities to protect council tax payers in their area. Council tax constitutes a significant bill for many of our constituents. I would guess that many of the hon. Gentleman’s constituents feel very keenly about the council tax they have to pay in comparison with their energy and other utility bills. Under the previous Government, council tax more than doubled, but this Government have done everything possible to protect families from further rises.

Since 2010, council tax bills across England have been cut by 10% in real terms. Over the past three years, we offered sufficient funding so that councils could freeze council tax without losing income. We will do the same again for the next two years, with a further £550 million available to councils.

[Tom Blenkinsop]

I thank the Minister for his information, but in terms of local history, when his party ran Redcar and Cleveland with the Conservatives between 2003 and 2007, council tax was increased by 25%. In addition to that, the chief executive officer’s salary went from £83,000 in 2003 to £143,000 in 2007. Although council tax went up under the Labour Government, it was largely down to councils run by the Minister’s party and that of his coalition partners.

[Stephen Williams]

I will deal with the second point first. The Government have said that although it is up to local authorities—rightly so for all us localists—to set local government salaries, they should be aware of value for money for local taxpayers when setting chief executive and other chief officer salaries. Making a comparison with perhaps what the Prime Minister earns might be a good starting point to benchmark such salaries.

The council tax increased over the lifetime of the previous Government both in cash terms per household and as a share of the national tax base over that period. Although we can look at what happened on the ground in individual local authorities, it is undoubtedly the case that, right across England, council tax as a proportion of the total tax collected increased over that period, putting more of the burden of what is quite a regressive tax on local households. That is why the Government have been encouraging local authorities to freeze the tax, providing freeze grants to incentivise them to do so.

With the new funding, the average bill payer could have saved up to £1,100 for an average band D property over the lifetime of this Parliament. I hope that as many councils as possible will take up this offer in the last year of this Parliament to help local residents with the cost of living.

Councils can do more to transform services. Many councils have taken steps to make savings through common sense measures, but there is still much more that could be done. It is estimated, for instance, that £2 billion a year is lost through local fraud. Councils have a procurement budget, collectively, of more than £60 billion. Clearly, there are possibilities for savings to be made that would not adversely affect local residents. We want to see councils tackling issues before they start putting up tax bills or cutting back on services.

Councils also have more than £19 billion in reserves, which could be there to cushion the changes that need to take place over the next few years. That is before we begin to consider the more fundamental transformation in services through models such as the troubled families programme, which the Secretary of State oversees with Louise Casey in our Department, or the whole place community budgets where the emphasis might be on innovative ways of working, such as early intervention and prevention, which I have been keen on for most of my political life.

Such programmes promise to be more effective and more efficient over time. We have set aside £200 million from capital receipts to support service transformation. We should remember that in 2014-15 there will be a further £330 million to continue this transformation, including a £200 million expansion of the troubled families programme.

Another big change in local government finance will come from the better care fund, which comes on stream in 2015-16. There will be £3.8 billion of pooled budgets at a local level to integrate health and social care—aggregating the money, but joining up services in a more seamless way. I am sure that we have all often had constituents coming to see us about the disjoint between the NHS and social services, and the better care fund will partially deal with that.

The hon. Member for Middlesbrough South and East Cleveland mentioned other comparisons and the differences between the authorities in his constituency and the Prime Minister’s constituency, and the Lord Chancellor’s local authority of Epsom and Ewell. They are, of course, district councils, so I do not think he was comparing like with like. I suspect that those relatively small district councils will have had lots of extra income through the new homes bonus, because new houses have been built in those areas. I think he is on safer ground when comparing unitary authorities and metropolitan districts, rather than small district councils in the south of England.

The hon. Gentleman also mentioned recognising poverty and need in the system. Of course, that is to some extent embedded in the system that we have now started to change. All those past settlements are embedded in the system. We are now expecting local government to grow their local economies. We have put in place a 50% retention of business rates. There was a time when the Treasury took 100% of local business rates away from local authorities and redistributed the money according to its own priorities. That system has now ended. There is a real incentive for Middlesbrough, Redcar and Teesside to grow their local economies, so that we can indeed become one nation.

I congratulate the hon. Member for Middlesbrough South and East Cleveland on raising the issues on behalf of his constituents. Councils across the country still have a great deal to do to transform their local services, but I am sure they are up to the challenge.