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My Lords, back to the spending review, which is understandably a tough settlement for the public sector. The reasons for cutting the overall deficit are clear in the face of the largest budget deficit in peacetime history. Cuts, however, need to be fair and deliverable.
I declare my interest as a member of Newcastle City Council and a vice-president of the Local Government Association. This is because I wish to concentrate on the impact of the spending review on local government: the overall cut, its front-loading to the first year, 2011-12, the distribution of the cuts through the spending formula and, finally, place-based budgeting, which I believe must now be speeded up.
Councils in England will have an average loss of grant of 7.25 per cent in real terms for each of the next four years. This will be accompanied by new financial freedoms and flexibilities as part of a decentralisation and localism agenda. Those new powers will be welcome. However, the level of savings required for local government is higher than had been anticipated and the front-loading of the savings into 2011-12 makes the settlement extremely challenging. There is a real cut of 28 per cent over the four-year period, despite growth in funding for a council tax freeze and £1 billion extra for social care. The formula funding in the CSR also includes further grants which have been rolled up into the baseline. Put simply, comparing the existing formula grant with that in 2014-15 without those transfers or the new adult social care and council tax support funding shows a real cut of 36 per cent in the formula grant.
Of particular concern is what appears to be a very large reduction in the existing formula grant in 2011-12-the first year of the settlement. It is reduced by £3.5 billion, or 14 per cent in cash terms and approximately 16 per cent in real terms. This is approximately double the average cut of 7.25 per cent quoted as part of the spending review by the Secretary of State.
My concern is compounded by the abolition of the working neighbourhoods fund. The ending of this grant was not, so far as I can see, included in the Chancellor's Statement on the spending review, in the Treasury's executive summary, in the Secretary of State for CLG's letter on the spending review or in any of the regional analyses of the spending review. I am unclear whether it has been included in the impact assessment included in the spending review document. The only certain reference appears to be on page 48, paragraph 2.35, of the main spending review document:
"As a result of this settlement, programmes including the Working Neighbourhoods Fund, Growth Area Funding and the Thames Gateway programme will end, in order to rationalise funding streams, make savings and take a more disciplined approach to Government spending".
It is unclear which of these three reasons relates to the working neighbourhoods fund grant.
The fund has been used across the country to tackle worklessness by investing in voluntary sector partnerships, thus securing additional leverage and ERDF matched funding. It has helped to address community health and community safety issues. It has tackled economic deprivation and has targeted resources to those young people not in education, employment or training. The fund, worth £0.5 billion, has vanished. With substantial funds now flowing through to the voluntary and community sectors, the loss of the grant could have a serious impact on the viability of some of these organisations, which appears contrary to the desire to support and promote the big society and the third sector. As examples of the scale of this loss, Birmingham will lose £37.1 million, Manchester £27.7 million, Bradford £12.5 million and Leicester £8.3 million. There are also significant losses for London councils-Hackney at £12.2 million and Newham at £11.9 million. The north-east of England will lose £73 million, including £9.2 million from my own council. In total, 65 councils in England stand to lose. In the absence of the working neighbourhoods fund, we need to be much clearer about how the needs of areas of high deprivation will be addressed.
We have heard quite a bit recently about the need to do more with less. There is no doubt that we can, so long as we define carefully what we mean. For example, I doubt that we would do more adult social care if we had less money to spend on it. That we could do more with the same or the same with less is certainly true, but more with less in adult social care? I doubt it. As more money has been found for it-£2 billion by 2014-15-because of pressures on the service, it seems that these doubts are more generally shared.
Nevertheless, doing more for less would most certainly apply across the public sector as a whole in terms of place-based budgeting. The Local Government Association has concluded that £100 billion could be saved over five years if councils, and thus local people, were put in charge of spending on all front-line local services, overseeing economic regeneration, planning, housing and regeneration, home energy efficiency, managing flood and climate risks, adult skills, local transport, primary healthcare, policing and probation and support into employment for the long-term unemployed and workless, most of which currently lie outside local government's immediate responsibilities.
England has become too centralised and I welcome plans for the localism Bill later this month and for the first-phase pilots in 16 areas of England from April next year in community budgeting in some service areas. However, in my view, these pilots in localism are insufficient in scope and will prove too slow at meeting the challenge of budget reductions. We should never confuse localism with the atomisation of England, where central government continues to control local decisions by controlling the budgets directly through spending departments rather than handing the power and responsibility to local government. Silo central management with silo central cuts is not localism, but it is what will happen unless councils get additional powers more quickly.
There are three issues that I hope my noble friend will consider. First, there is a need to protect areas and people more deprived than others through the revenue support allocation, but how will that be done? Secondly, there is a need for real devolution to local councils to empower them to deliver more for less. How soon might this be addressed? Thirdly, why has the cut in formula grant been front-loaded in year one, well above the average of 7.25 per cent each year for four years? Is that front-loading wise?
Overall, councils will continue to have some of their income from council tax, fees and charges, which are not being cut. However, the rising costs for local councils, not least because of pension costs, general inflation and future workforce remodelling, require understanding and support to ensure that they do not compound the problems of cutting the grant and front-loading that cut into 2011-12.