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Local Government Finance

Part of the debate – in the House of Commons at 1:53 pm on 5th February 2020.

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Photo of Bob Neill Bob Neill Chair, Justice Committee 1:53 pm, 5th February 2020

It is a pleasure, as always, to follow the Chairman of the Select Committee, Mr Betts, whose speech was characteristically thoughtful, and I think that, across the House, we all recognise his expertise in this matter. I can start by agreeing with him on the last part of his speech, which is in urging my right hon. Friend the Minister to be ambitious in our devolution agenda. The fair funding review is necessary and right, and I urge the Government to move forward with it. However, the Minister is right, in the wording of the Government amendment, to link this to our ambitious devolution agenda, which gives us an opportunity to break out of the straitjacket that has bedevilled local government funding for many years—throughout my time in the Department and my time as a councillor.

I am delighted to be making my speech with my new constituency neighbour, my hon. Friend Mr Bacon, sitting just in front of me. He had a most distinguished career in local government—in the London boroughs and on the London Assembly. I think his expertise in this field will be very welcome to this House, and I am really pleased to see my friend here.

That comes back to the point: the pressures local government has had to contend with have been real, despite the fact that the sector is staffed by dedicated people at all levels, as the Minister acknowledged, and I very much welcome what he said about that. Historically, it has also been the most efficient part of the public sector, and we need to build on that strength. However, it has suffered, as the Select Committee Chairman pointed out, from the fact that it has, compared with most other countries, a very narrow tax base or revenue base from which to fund itself. I therefore hope that we will be prepared to think outside the box to some degree when we look at devolution.

The devolution of function is really important and the devolution of legal power is important—as my right hon. Friend the Minister will know, that is something my good friend the noble Lord Pickles, I and others sought to do in the Localism Act 2011—but the third bit of the equation is the devolution of resource. If we are going to be serious about devolution, we have to talk in terms of fiscal devolution as well. I commend to the Minister and colleagues the work of the London Finance Commission. It has published two reports, the first of which was in 2013. The commission was established by my right hon. Friend the Prime Minister when he was Mayor of London, and I know from personal experience that the Prime Minister himself is a convinced devolutionist.

I hope that we can look again at some of the sensible and practical recommendations for fiscal devolution in that first report. For example, there is the devolution of stamp duty land tax and perhaps of other property-based taxes. That also reflects another point made by the hon. Member for Sheffield South East. Yes, there are more disparities of resource in the United Kingdom than in other countries, but at the same time there are disparities of costs as well. The cost of running a local authority service in London and the south-east is exceedingly high, and perhaps a measure of fiscal devolution to a regional level would enable greater nuance in the way we approach those matters. It is an important topic, and it seems to me that we need to think that through very carefully.

Among the other specifics I want to touch on is the need to look sensibly at the formula itself. When I was the Minister I think we had 270-odd bits of regression analysis in the formula, and I pay tribute to the officials who grapple with that. However, it is complex and opaque, and we need something that is much more transparent to those who are its recipients. For example, we could look at a couple of practical issues. I very much welcome my right hon. Friend the Minister’s commitment to eliminating negative rate support grant. It seemed to me scandalous that a well-run and efficient local authority such as Bromley would, if we had not taken steps, have been penalised by negative RSG. I ask the Minister—I sure he will do this because he looks at all this carefully—to look at the London Borough of Bromley’s submission to the consultation, which set this out in some detail and with real expertise.

Another important area is that at the moment the formula is based almost entirely on a needs versus resource matrix, and there is nothing in the current arrangements that rewards efficiency. If we want to change behaviours in local government for the better, surely we can find some incentive that we can build into the funding mechanisms to reward local authorities that have a track record of being historically efficient and historically low-cost. Bromley is exactly such an authority, but it actually loses out in consequence. As it has been efficient, any reduction made on a simple pro rata basis bears more heavily on it, because there is less slack. We need to bear in mind that, in some cases, historically high spending may be the result of historically high funding, but not necessarily the consequence purely of need or of the efficient use of resource. Therefore, we need a formula that is more nuanced in capturing those distinctions.

I hope we can look seriously at the operation of the area cost adjustment. In my experience, that has proved to be rather arbitrary in a number of areas. We have an artificial distinction in London between inner and outer London boroughs. As many Members of the House will know, that does not reflect the way London has changed. There are now areas of considerable affluence in inner London, but as they are counted as inner London boroughs, they get a more generous rate of funding than outer London boroughs, whereas many of the London suburbs are facing increasing social and economic challenges. Getting rid of that distinction would be good, and moving to a more up-to-date system of calculation would also be valuable. I often wonder whether we should be looking at assessing need on the basis of disposable income and costs once housing costs are taken out of it, because housing costs are a significant distortion across the country and perhaps some element can be put in the formula to look at how we deal with that. Again, that bears heavily on efficient outer-London authorities such as mine.

We could also look at the way that benefits data are handled in this calculation. Should we be looking at benefits data making allowance for the level of take-up, which will vary? Doing it on a flat basis can, again, potentially distort the reality on the ground. That is why taking deprivation levels after housing costs may give us a better and more realistic assessment of disposable income in local authority areas.

I shall make my final point, because I know that there is much more that we need to touch upon. We have always maintained that we would honour the new burdens doctrine, but I am not sure that that has always been possible to achieve in practice over the years. There are still about 1,100 statutory obligations on local authorities and those have grown, sometimes for good reasons of social policy—the Homelessness Reduction Act 2017 is one example—but they can, again, bear heavily on some areas, particularly in London, because for a raft of reasons over which local authorities have no control, London is inevitably a magnet for new arrivals, so there will be greater pressure on London boroughs in terms of the costs of housing policy. Something that is more nuanced, which I am sure is achievable given modern data collection, would be welcome and advantageous.

I very much welcome the move back to multi-year settlements, and I hope we can look at having four-year or so settlements going forward. It was necessary to do what we did this year—I think everybody understands that—but let us get back to multi-year settlements to give greater certainty for people.

If we give local authorities more powers, as we did under the Localism Act 2011, can we look at the rules governing the way in which they can approach raising revenue for investment in capital projects? There are a number of restrictions around that at the moment? It would also encourage them to use their powers—also provided under the Localism Act—to take on more commercial activities and to do so in a more commercial manner. The take-up of that has been somewhat patchy thus far, so what can we do to encourage and assist local authorities to do more of that for the benefit of their communities?

So actually there is an ambitious agenda here, and this is an ambitious and important topic. I welcome the opportunity for us to have this debate. With respect to the Opposition, I should say that it is not simply about putting more money into a system, because, at the end of the day, the system is no longer capable of responding to the complex needs and pressures that modern local government must deal with. That is why the Government are right to have this review. They are right to be ambitious and to link it with the broader devolution agenda. Therefore, I have no hesitation in supporting the amendment.