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Local Government Finance

Part of the debate – in the House of Commons at 1:44 pm on 5th February 2020.

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Photo of Clive Betts Clive Betts Chair, Housing, Communities and Local Government Committee, Chair, Housing, Communities and Local Government Committee 1:44 pm, 5th February 2020

This is a very important debate because these services affect millions of our constituents up and down the country. The reality is that local government has had bigger cuts to its funding than any other part of the public sector since 2010, with a 50% cut in Government grant and, even by the Government’s figures, a 25% cut in spending power. No other part of the public sector has had that level of cuts. We know that the biggest cuts have fallen in the poorest areas in the north of the country. It will be interesting to see how the Government respond to the pressures on services in areas such as South Yorkshire and the north-east following the general election; perhaps they have a bigger interest in defending those areas in the future.

Clearly there are massive pressures on social care. We know from the LGiU survey, which my hon. Friend Andrew Gwynne mentioned, that the biggest pressures now identified by councils are on children’s services, followed by services for the elderly. The Housing, Communities and Local Government Committee, which I chair, published a number of reports in the last Parliament. We know that the funding gap could be up to £10 billion if it is not addressed by the end of this Parliament.

We also know the impact of the attempt to prioritise social services. Council spending on social services has risen from 45% of total spending to 60% between 2000 and 2020, which has squeezed out spending for all other important services. Spending on road safety, libraries, leisure, buses, housing and environmental services—things that are really important to the vast majority of our constituents—has been cut by 50% or more. As I have said before, there is a challenge to democratic accountability at a local level when, despite what the Minister said, people see their council tax rising every year, yet the services that most families who do not get social care use are being cut as they pay more for them. That is a fundamental challenge, and it has to be addressed; I will come on to how we might do that in a minute.

I turn to the other problems, one of which is council tax. Council tax has not been revalued for 20 years. Its bands are fixed in concrete, and it is becoming increasingly regressive and out of touch. The Select Committee made recommendations in 2019 on how to address that, and I am sorry that the Government did not feel able to accept them. Business rates are, again, determined by central Government, with no say at a local level. Last night, the Government changed the basis for calculating business rates increases from the retail price index to the consumer prices index. Do the Government really think that, in the longer term, business rates growing at 2% as the major funding source for local government can deal with the rising pressures on social care? It simply does not add up, and that message has come not from other Members of this House but from local councils—from the LGA and the County Councils Network. Paul Carter, when he was leader of Kent County Council, made this point powerfully to the Select Committee. We cannot continue to fund social care simply from a business rates increase based on CPI. It just does not add up, and the Government have to address that at some point.

More money has been put in this year, which has been generally welcomed. Sheffield City Council told me that, for the first time in many years, it is not having to make in-year cuts because of the extra money that has come in. It had about £10 million extra for social services, which has taken the immediate pressures off. But looking ahead, the council does not have certainty. It was worried by the report that came out the other day indicating a possible £30 million cut as a result of the fair funding review. I know that there is disagreement, and it depends which analysis we read, but that fair funding review has to recognise the issue of deprivation right across the formulas, including the foundation element. In the end, this is about distributing money according to need and the ability to raise money at a local level, and that has to be reflected in all elements of the fair funding review.

Looking to the future, there seem to me to be some key issues that have to be addressed. First, local government needs the certainty of a three or four-year funding settlement. That was welcomed in the last Parliament, and we need it again. As I have said, we need a fair funding review that is genuinely fair. However, we cannot have fair funding for local government unless the totality of the funding is sufficient for all councils, and that is the reality. All the reports we did on the Select Committee have shown this gap of up to £10 billion, particularly on care services, by the end of the Parliament. This is about making sure that local government as a whole gets a fair deal, not just every individual council.

If we are to sort that out, we have to say, as the joint report of the two Select Committees—the Housing, Communities and Local Government Committee and the Health and Social Care Committee—did in the last Parliament, that we need a specific agreement and settlement for social care. We cannot continue to fund social care out of business rates and the council tax. It simply is not going to work.

We recommended a social care premium, and I still stand by that. We went for a citizens’ assembly and set one up—the first time for a Select Committee—and we were told, “We don’t mind paying more, but we want to know that that money goes into social care”. Let us make it clear: we did not recommend a private insurance scheme, where people only get out what they pay in. We recommended something very similar to the German system, where people pay a premium—it could simply be an increase on the national insurance premium, or it could be a completely separate premium that goes to something like a friendly society, which administers the money on behalf of the Government—but, whatever happens, that money has to be separate, accountable and shown to go into social care. Social care would continue to be administered through local councils; this is not the centralisation of the social care system. There would be a move eventually—eventually, as money comes in—to having free personal social care. That was the cross-party recommendation, and I hope we can have cross-party discussions on that basis. I am certainly willing to enter into them, and I am sure that people across the House would do so if we look at this on that basis.

I would say to the Government that we ought to be able to improve local taxation. They should have another look at the whole issue of council tax bands. I know revaluation is a really difficult issue, but they should have a look at some reforms. Business rates retention is desperately complicated. It is so complicated that I think the Government have to separate out the mechanism for the redistribution of money within local government, which is what they are now trying to do through business rates retention, and the incentives to local councils to encourage local economic development. The two are separate, and the Government must do that.

In the end, there is a really big challenge when we come to devolution. I hope the Select Committee will go back to the inquiry on devolution that we started in the last Parliament. I am a passionate believer in more decisions being made at local level not just by councils, but by local communities. The real problem is that this should not just be about transferring powers down; it should be about transferring the ability to raise money and to make decisions at local level. The real difficulty—and it is not something that anyone has an easy solution for—is that that is very difficult to do in this country because of the great inequalities we have here. In Sweden, people have a much greater ability to raise money at local level, and they can do that because the country as a whole is much more equal. The differences in wealth and resources between different parts of Sweden are much less than they are between different parts of this country. That is the challenge: how to devolve powers, but also the ability to raise money in a country where inequality is so great that raising money at local level results in a big difference in the amount that can be raised from any individual tax. I know that is a challenge, and it is a challenge that I hope the Select Committee will now take up with a report on devolution. I hope the Government are prepared to listen and to be much more radical than they have so far indicated they are going to be.