Local Government Finance

Wera Hobhouse Excerpts

Wednesday 7th February 2018 Commons Chamber

[Sajid Javid]

For the hon. Gentleman’s local council in Hartlepool, there will be an increase in the core spending power of 1.9%, which is £1.5 million. He talks about fairness. It is worth pointing out that the core spending power per dwelling in his local authority is £1,931, which is significantly higher than the average for the class. I hope that that reassures him that his local authority is getting a significant amount of spending power, particularly from a per-dwelling point of view.

[Wera Hobhouse (Bath) (LD)]

I understand the thinking, which is that councils that say they are doing well in terms of business should be rewarded and retain their business rates. However, how will councils in deprived areas be compensated for the fact that they cannot do so well in terms of business? I was a councillor in a deprived local area—it happens to be the Secretary of State’s birthplace—and we tried for many years to encourage more business and enterprise, but it was incredibly difficult.

[Sajid Javid]

The hon. Lady’s local authority, Bath and North East Somerset, was part of a business rates pilot in 2017-18. As I said, we have extended that pilot, which gives the local authority the ability to take advantage of that and put in place incentives for local businesses to see growth. The council estimates that it can see millions of pounds of extra income from that, which I would have thought she would support for her local community.

The business rates pilots will help to test the system, to see how well it works in different areas and different circumstances. The purpose of the pilots was to have a broad distribution across north and south, urban and rural, and small and large. The pilot areas will keep 100% of the growth in their business rates if they expand their local economies, which is double what they can keep now. I can confirm that I will open a further bidding round for pilots in 2019-20 in due course. In expanding those pilots, we have responded to what councils have told us, and we are doing the same in other areas.

Rural councils express concern about the fairness of the current system, with the rural services delivery grant due to be reduced next year. In response, I can confirm today that we will increase that grant by £31 million in 2018-19. That is £16 million more than was proposed in the provisional settlement, taking the total figure to £81 million—the highest amount ever paid in rural grant, at a little over the sum paid in 2016-17.

We recognise that the so-called negative revenue support grant is causing concern. Changes in revenue support grant have led to a downward adjustment of some local authorities’ business rates top-up or tariff for 2019-20. We know we must address that problem, and we will consult formally on a fair and affordable set of options for doing so, with plenty of time to reflect on the findings before next year’s settlement.

Following discussions with the sector, we are continuing with the capital receipts flexibility programme for a further three years. That scheme gives local authorities continued freedom to use capital receipts from the sale of their own assets, to help fund the transformation of services and to release savings.

--- Later in debate ---

[Jim McMahon]

Council tax has an important role to play, as have business rates, but it also has significant limitations. I shall explain why a little later.

Any idea that the social care and safeguarding crisis—we should talk about safeguarding as much as we talk about social care and the NHS, because it is all-important—that can be addressed through council tax, through a property-based system that is now 27 years out of date, completely misses the scale of the challenge that faces public services.

[Wera Hobhouse (Bath) (LD)]

rose—

[Jim McMahon]

I need to make progress.

I want to touch on what the 1% additional council tax means. When we seek to raise money through council tax—through a property-based tax—that takes account of the property values in an area, but it bears no relation at all to local needs or the cost of delivering services in that area. Therefore, the more pressure that gets added to councils to provide that from council tax, the more inequality we are going to see through council tax.

In Richmond, 1% for social care would raise £36 per person over the age of 65, but in Rochdale it raises just £18, because the tax base just is not there to support an equal increase in cash being taken. So if all we do every year is come back and say that we are going to allow another 1% and another 1%—and perhaps, if things get even worse, allow another 2%—that will just take even more from people who can afford it even less, because although council tax is important, it is regressive; it takes far more from lower income families than any other form of direct taxation in this country. So as much as it is important, we ought to always have an eye on the impact on those who actually pay the bill. After all, as we often hear from Government Members, there is no such thing as Government money; it is all the public’s money. That is right, but we are quicker to take the money from some people than from others it seems. We should focus on that, too.

We know that social care and children’s services are in crisis, and we know the complexities of social care will mean there is greater demand on the public purse. The difficulty is that the Government’s approach has been completely underwhelming and has completely missed the opportunity to set the record straight. Aside from the massive increase in looked-after children and children in receipt of reviews, we also know the way that has been funded is completely unsustainable.

The transition grant and the rural service delivery grant were introduced on the basis of two concepts. First, those who were hit hardest by the reduction in revenue support grant would get greater support to help them in a temporary period of two years to adjust their baseline budgets and organise efficiencies to eventually deliver a balanced budget. Secondly, there was a recognition through the second grant that it costs more to deliver services in rural areas than in urban areas because of sparsity. I am afraid the evidence base for both of those does not hold water and has not even passed the test the Government have set. So the transition grant that was meant to be there for two years has now been extended, and the rural service delivery grant has been completely undermined by a report the Government themselves commissioned by LG Futures in 2014 to assess the additional costs of delivering services in rural as opposed to urban areas.

The report said there were differences in the cost of delivering some services in rural as opposed to urban areas but the net cost in terms of the impact on councils’ overall budgets was felt harder by urban areas as the costs in those areas were far higher. [Interruption.] That is not my report; it is a Government report published on their website that supports the revenue support grant. Given that the evidence base has been decried by the Government’s research, I am staggered that they are putting even more money into a system where the evidence base is completely contrary to the position the Government seem to be taking.

The report found that 11 service areas were affected in rural areas and that accounted for about 15% of the council spend in those areas, but when it looked at the 15 service areas that were not affected, it found that they accounted for 31% of urban local authority budgets, so there was a 15% additional cost because of sparsity in rural areas versus 31% of additional cost in urban areas for service delivery. Therefore, if there was going to be a grant designed to help councils deal with the additional cost of delivering public services, on an evidence base the Government have commissioned, accepted and published on their website, that ought to be directed to urban authorities where the costs have been demonstrated to be much higher. Yet we continue with this farce.

I find it interesting that the Secretary of State does not have the Chancellor’s ear. When he knocks on the door of No. 11 and asks for more money, the Chancellor is not particularly interested in banking that support for the future as much as the Secretary of State is determined to bank the support of Conservative Back Benchers for whatever reason. Perhaps it is to face off a rebellion today or to buy off Conservative shires—a purpose that has not yet been declared. He should be honest about why the money has been allocated.

I do not resent the argument being made by areas with service delivery costs relating to sparsity that that ought to be reflected in their settlement. I do not disagree with that at all, and I commend the MPs who have made that case and have managed to secure progress from the Secretary of State, who on most measures does not seem to understand his brief. However, he certainly understands the need to appeal to Back Benchers and to bank their support for the future.

I resent the view, however, that some councils in some areas can be funded in a fairer way—although still not fair—while others have to sink or swim depending on their council tax base 27 years ago. That is not a fair or sustainable way to fund council services. I have no confidence that the fair funding review will deliver what most reasonable people would consider to be a reasonable and fair funding formula, which would be one based on need that would take into account urban deprivation, rural sparsity, demographics and demographic change, and the difference in unit costs for delivering public services. A fair formula would take all that into account and arrive at a number, but that is not what is on the table today.

The Conservatives who will go through the Lobby later to support the motions should bear this in mind: there is no new money. Money has been moved around from departmental budgets that were set before Christmas. The money in the transition fund and the rural service delivery grant is a one-off that has been taken from the business rate safety net—the Government will not say how that will be funded in future—and from other departmental reserves. How will councils be funded between now and 2022? Do Conservative Back Benchers really want this charade at this point in the calendar every year? We know that there is not enough money to fund public services, but they hold their nose because they have been bought off with a couple of pounds. They absolutely understand, in the way that all Opposition Members do, that the cuts have gone too far and that our communities deserve better.

--- Later in debate ---

[Wera Hobhouse (Bath) (LD)]

I represent beautiful Bath. Obviously not everyone in Bath is wealthy, but on the whole it is a wealthy area. I am, perhaps, unusual, in that I lived in the north-west for 25 years, and for 10 years represented a local council area that was very deprived. I can tell Conservative Members that that was a real eye-opener. Anyone who wants to see real deprivation should visit the post-industrial towns of the north.

It is disappointing that such a partisan approach has been taken today. Yes, we should represent our own areas—I do that—but we should also make decisions in the round and look at fairness in the round, and we should make the right decisions for the whole country. The proposal we are discussing today is simply not fair. It will disadvantage the disadvantaged further, and it will increase the gap that already exists. I urge Conservative Members to think again and, if necessary, to spend a few years in local government in one of our northern towns.

I want to make a separate point about the overall proposal. The finance of local government and the way we deliver local services have changed beyond recognition in recent years, and that matters for democracy. We talk so much about taking back control these days, but the clearest evidence of democracy in action is at a local level. We deliver so much of what matters in people’s lives through local government, from bin collections and street cleaning, to planning, housing and adult care services.

Until 2014, as I said, I was a councillor for 10 years in a unitary authority. We had clear spending and decision-making powers, and there was a clear line of accountability, but even then our council budgets were dominated by two pressures: efficiency savings and ballooning adult care costs. No Government have properly addressed the problem, but this Government have led a relentless crusade to destroy local government and local democracy. Most schools have been forced to become academies and are now overseen by Whitehall, our local facilities are run under PFI contracts, and more than half of our councils no longer own any social housing stock. Meanwhile, regulatory functions such as trading standards and building regulation control services are outsourced, which is a polite word for privatisation.

Where is the commitment to new resources for social care funding following yet another NHS winter crisis? The figure announced today will not cover the annual £2.3 billion funding gap that is expected by 2020. As homelessness increases and one in 111 children spend Christmas in temporary accommodation or bed and breakfasts, where is the commitment to new social housing so that people have a home to go to? The net cost to councils of providing temporary accommodation has tripled in the past three years. Rising homelessness is costing local government more and more in the long term. The Homelessness Reduction Act 2017 increases the demands on local authorities, but does not provide adequate resources. Even in Bath and North East Somerset, an affluent area, the council’s estimated shortfall will be over £16 million by 2020. Most of the council’s budget—75%—is spent on adult social care services. Just a small increase in that bill will mean that my council faces a financial crisis, and that is in my affluent council area. The situation at Northamptonshire County Council is just the tip of the iceberg.

As with most of what the Government do, their approach is driven not by pragmatic policy, but by small-state ideology. The public sector is to be weakened and replaced at every opportunity by private providers. Local decision making is becoming increasingly powerless.

There is an alternative, and it is rooted in the belief that the public sector can provide good services for local people. Bin collections, schools and care services can be run by councils. A service that is run by local people for local people is normally better than a service managed from many hundreds of miles away. A service that is run for the public interest has different values from a service run for maximum profit.

The debate is yet another dismal display of the Government’s deliberate destruction of local government, and that will continue until crisis after crisis, and tragedy after tragedy, force the Government to rethink. My party is the champion of local government. We believe in local democracy and delivering the best possible services locally.

[Gareth Snell]

I have enjoyed the hon. Lady’s merry dance around the history of her party in government, but her party was relentless in cutting local government to the bone when it was part of the coalition. For her to say now that her party is suddenly the salvation is frankly beyond the pale.

[Wera Hobhouse]

I thank the hon. Gentleman for making that point. I was a councillor in local government. As he knows, when any party is in national government, its members include people on the ground who need to agree to the decisions it makes. Many of us often pointed out how difficult things were for us at the local level, and our party listened and did not support the cuts beyond 2013.

My party is the champion of local government; I am a champion of local government. We believe in local democracy. We believe in delivering the best possible services locally. We believe that local government should be properly and openly funded. Today’s funding proposals leave a gaping hole of £5.8 billion by 2020. This is another terrible settlement for local government, and it does not have the Liberal Democrats’ support.