Local Government Finance

Part of the debate – in the House of Commons at 4:45 pm on 22nd February 2017.

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Photo of Clive Betts Clive Betts Chair, Housing, Communities and Local Government Committee 4:45 pm, 22nd February 2017

Absolutely. The system in Germany may not be one that we could immediately transfer over here, but the people there said to us that 20 years ago they sat down and dealt with this on a cross-party basis and got cross-party agreement. They are now having to put up their contribution rates, but they are doing so with cross-party agreement and with general public support because they have in place a system that is standing the test of time. That is an example of how to do it. Even if we end up coming up with a slightly different solution, we should at least look at the method they used to reach that agreement so that we can put in place a system that stands the test of time. The hon. Gentleman is absolutely right on that.

The Government have given local authorities the right to increase the precept by 3% in the next financial year, and I welcome the fact that most have chosen to do that. There are problems with council tax—it is not the most progressive of taxes and we could make some reforms to improve it—but in the end, local authorities, faced with the prospect of not having enough money to pay for their elderly people, have explained to their council tax payers why an increase is necessary, and have then taken the difficult decision to do it. That is absolutely right, and they should be congratulated on that.

Nevertheless, the £543 million that the LGA estimates is going to be raised by the precept will just about cover the cost of the increase to the minimum wage, or the national living wage, as the Government call it. In other words, the money has gone straight out the door in extra pay. It is absolutely right that it goes to low-paid workers who in most cases do a superb job—they are under great stress and strain to deliver that care, so it is absolutely right that they get more pay—but the reality is that the money raised by the precept is not even going to sustain the current level of social care, given the extra demands.

Let me just mention the cut in the new homes bonus. Although I live in Sheffield, which is a unitary authority, I do reflect on the issues facing two-tier authorities. County councils, for example, are getting extra social care grant, but the money is coming from the budgets of the district councils and the cut in the new homes bonus. The new homes bonus was not officially part of the four-year settlement, but for the smaller district councils, which had factored it into their future plans, it came as a considerable financial shock to the system to have a whole element of it removed, and it was a very difficult thing to address at short notice. I have a lot of sympathy for councillors and their officials in those small district councils who are struggling as a result of this change, as it creates the very uncertainty that the Government were trying to remove with the creation of a four-year settlement, and that is something on which we should all reflect.

Let me reflect on one or two comments that have been made by Amyas Morse, the Comptroller and Auditor General. I do not know whether Members have read his article in which he talks about social care, cuts in funding, and the NHS. He calls it a lack of “joined-up thinking”. He talks about central Government making decisions. It might be appropriate for me to read the words that he uses. He says that it is easy to allocate savings

“to be made by those operating outside a department’s boundary or with a different mandate, without necessarily understanding their effect.”

In other words, Government Departments are allocating savings for someone else to make without understanding their impact. It sounds horribly true when it is put like that. He talks about central Government being slow to adjust, often acting only when serious failure occurs.

It is a very interesting article, because Morse talks about local councils initially responding to those cuts with efficiency savings—I know that Government Members have called for more efficiency savings from local councils. Morse then goes on to say that that is okay at the beginning, but, over time, while councils could initially respond with “more for less”, we have now got to the point where it is “less for less.” He says that

“during this progressive reduction in funding, I have not seen any evidence-based effort to reconcile funding to local needs. In my view, the policy objectives for local government and the local government statutory duties have not been properly weighted against potential efficiency savings.”

He goes on to say that although local authorities have tried to protect social care, there has, nevertheless, been a 7% reduction in real terms, and that

“Besides the direct effect on care service users, this reduction has a deleterious effect on the NHS... Costs are effectively being shunted from one part of the connected system to another.”

He is blaming not local councils for that but central Government for having got it so badly wrong. He also says—Government Members may not be always willing to accept this—that areas with the greatest needs have lost the most. That comes from an independent review from the Comptroller and Auditor General.

The Comptroller and Auditor General goes on to say:

“Central savings may have been secured, but significant damage has been done.”

Again, that is from a senior official looking at the public accounts of this country. It is a damning indictment of what has happened with regards to cuts to social care—I am talking about the impact on users and the knock-on consequences and damage to the NHS, including bed-blocking, which is a horrible term that I do not like. Basically, this is about elderly people who need to come out of their bed in hospital and receive care in the community not getting that care because it simply is not available. There are also individuals who could, with earlier prevention, have been prevented from going into hospital in the first place, but that earlier prevention is not there either.

Finally, all my sympathy goes to the Secretary of State on the issue of business rates. The revaluation is simply about re-allocating the total payment to different businesses. It reflects the changes in the prosperity of different parts of the United Kingdom since the last revaluation seven years ago: businesses in more prosperous areas with greater growth will find that their rates go up, while others will find that their rates go down. I understand the point that has been made: this is not a way of raising extra money but of reflecting the different changes in prosperity in different parts of the United Kingdom over the past few years.

I welcome what the Secretary of State has said about looking again at how the money raised is balanced between, say, a shop in the high street and a business on an out-of-town retail park, or between a retail business that sells directly to the public and an online business that probably has far lower rates. It will be interesting to see what the Government propose.

Although I disagree with many items in the funding settlement, I say to the Secretary of State that if the Select Committee can help to look at the issue of how business rates reform could take place to reflect more properly who should be paying what in the system, we will be more than happy to work with him.