Local Government Finance

Part of Oral Answers to Questions — Prime Minister – in the House of Commons at 5:39 pm on 3rd February 2010.

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Photo of Julia Goldsworthy Julia Goldsworthy Shadow Secretary of State for Communities and Local Government 5:39 pm, 3rd February 2010

My hon. Friend is right: that is an odd paradox. One would have thought that any incoming council would have been focused on meeting the needs of the people who had elected it, rather than on cutting services to them.

Let me speak a little more widely about some of the challenges councils have faced over the past three years, which is the period the settlement has covered. Councils have been feeling the pinch. The credit crunch has had an impact not only in terms of putting pressure on the services that they have to deliver-if there are more vulnerable people, councils face increased pressures in trying to meet their needs-but in terms of the fees and charges they collect. They have already been feeling the squeeze, therefore, as the Minister for Housing acknowledged last year when he said this was a tight settlement. It would therefore be unfair to say that councils are in a luxurious position, given everything else that has been going on in the wider economy.

The Secretary of State rightly highlighted in his speech his concern about the impact rent increases might have on council tenants, and the impact of council tax rises on council tax payers, but we must also remember that there are huge pressures on councils, which in turn has an impact on the services they provide to vulnerable people. A number of terrible stories have been reported in the media recently, not least the case in Edlington. The knock-on effect of that case and the baby P case has created a massive pressure on authorities' services. I know from talking to people delivering children's services in my own local authority in Cornwall that they have resulted in a massive increase in referrals, which they have to deal with, and they have also had a very negative impact on staff morale and turnover. Therefore, a lot of councils have fewer staff trying to deal with an increased burden. It looks as though those pressures will increase in the future, because the Government's proposals to give councils the responsibility for delivering free personal care to people with high levels of need living at home is a cause for concern to a lot of councils. They believe that they are being asked to part-fund that by savings that have already been accounted for, or that they may not be able to deliver that care. This is part of a long history of the Government giving councils responsibilities for something that the Government then fail to deliver on properly, such as concessionary bus fares and free swimming. The delivery of personal care will be another example of councils finding that their resources will be stretched further to cover more responsibilities, while they are not necessarily given the resources to deal with that.

I want to emphasise, too, that we face uncertainty. The Secretary of State made great play of the certainty that his Government had given to local councils through the three-year funding settlement, but he said absolutely nothing about what will happen in the next financial year-not the one that has been dealt with by the settlement, but the subsequent one. Basically, councils are completely in the dark about what kind of situation they will be operating in. The spending review was due last summer, and we do not now know when it will appear, but it certainly does not look as though it will do so until after the election. The closest we got to having any information about that was in the pre-Budget report, when the Chancellor said that public spending as a whole would be frozen between 2011-12 and 2014-15.

The Institute for Fiscal Studies has today published its "Green Budget", in which it tries to tease out some of the implications of a real-terms freeze for Departments that have not been singled out by any party for protection. The following quote from the summary to chapter 8 of the "Green Budget" points out that

"spending on debt interest, social security and other 'annually managed expenditure' is likely to grow in real terms. Keeping to these overall spending plans would therefore require deep cuts in 'departmental expenditure limits' (DELs)-Whitehall spending on public services and administration".

It also said that the Government had

"promised to 'protect' spending on priority areas, including health, schools and overseas aid".

Once one takes out the protection of those areas and the increases in expenditure, the implication is real-terms cuts. The book says

"These other areas-including defence, higher education, transport and housing"- and, of course, local government-

"would likely see their budgets cut by 12.9 per cent."- in real terms-

"on average over the two years or by £25.8 billion".

The book also extrapolated the Conservatives plans on ring-fencing over the four years, saying that

"if the Conservatives' plan to protect aid and the NHS were combined with the more ambitious tightening plan implied by their proposed fiscal targets"- that sounds like that might be slipping a bit-

"then the cuts in their unprotected areas could be more like 22.8 per cent. or £57.1 billion by 2014-15."

So I do not understand why anyone is crowing about this amazingly "stable" settlement, given that it appears that next year we are about to disappear off the edge of a cliff and nobody is prepared to talk about what that actually means for services that have not explicitly been protected. We are talking about 3 per cent. real-terms cuts every year. By not coming clean and giving us an indication about this in a spending report, the Government are taking away from councils time to plan what they need to do and what services they need to prioritise. If councils had more time-if they had had from last summer or even from last October-they would be able to plan their services more effectively and smooth out some of the impact that such cuts will inevitably have on their services. If information is not provided urgently, councils will be preparing their budgets from October and probably having to carry out a slashing exercise on current services of which Freddy Krueger would be proud. All councils will be facing a nightmare on Elm street because they are not being told what to expect.

What does that mean for council tax payers? It raises a big question as to what will happen to council tax. In the past, there have been above-inflation increases every year since the council tax was introduced, but what impact would the introduction of capping have on services? It would certainly not help to sort out the public debt, because it would provide the Government with only a marginal gain from what happens to council tax benefits, so they would not obtain any advantage. What is most likely to happen is that there will be massive pressures on the council tax system, because if councils want to do anything to prioritise an important service, the only way that they will be able to find any discretion is through terrifying increases in council tax.

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