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Local Government Finance Settlement — Motion to Take Note

Part of the debate – in the House of Lords at 4:13 pm on 9th January 2014.

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Photo of Lord Shipley Lord Shipley Liberal Democrat 4:13 pm, 9th January 2014

My Lords, I am grateful to the noble Lord, Lord Smith of Leigh, for initiating this debate, and I declare my vice-presidency of the Local Government Association. So far in this debate the Labour Party’s approach has been avoiding two critical issues. The first is the level of government debt because although the economy is improving, we still have major fiscal problems. This year’s deficit is forecast to be £111 billion, which is very high by any past comparator year. Over the next four years, there will continue to be high annual deficits adding more than £300 billion to our national debt. Four years from now the national debt could be £1.5 trillion, double what it was in 2010 when it stood at £760 billion.

That level of rising debt is unsustainable and has to be reduced. The Government have protected some public services from cuts. They have ring-fenced the National Health Service, schools, overseas aid and pensions. Because of that, it is inevitable that other budget heads will have to take a bigger cut if debt is to be contained—unless the Labour Party thinks that the ring-fence around the National Health Service, schools, overseas aid and pensions should be removed. In summing up, the noble Lord, Lord McKenzie of Luton, might tell us what the Labour Party’s position on that is. For local government, things are difficult. This is not a surprise since local government accounts for a quarter of public spending.

My second concern about the way in which the Labour Party is approaching this debate is that it talks mostly about cuts in government revenue support to councils and the distribution of those cuts when total government spending in an area needs to be added in, since health and schools are ring-fenced. The Labour Party also assumes that the level and distribution of revenue support was correct in 2010 when this Government took over. Large cuts would have come under Labour anyway, not least in working neighbourhoods funding directed at the more deprived areas. That is the context in which this debate is being held.

However, there is no doubt that the cuts have been steeper in the more deprived parts of the country. The Government try to justify it by talking about spending power which, as we know, includes more than just revenue grant because it includes council tax, charges and fees, and NHS funding for social care. Ministers have rightly pointed out that poorer areas still get much higher levels of support than richer areas. This then begs the question as to what the differentials should be, and here things are much hazier. Running complex formulae in DCLG simply gives us sets of numbers with absolutely no certainty that their basis is robust.

The settlement consultation documentation says that the most deprived areas in single-tier authorities will have 50% higher spending power per dwelling than the least deprived areas and that, to deliver this spending power, central government support will be three times higher per dwelling in the most deprived areas. The trouble is that it is not clear that these figures are the appropriate ones. Why are they as they are? Can they be justified in detail?

Let me take as an example our big cities which are in many ways very similar. Leeds in 2014-15will have spending power per dwelling of £1,851, but Birmingham will have much higher spending power per dwelling at £2,587. Newcastle will have £2,407; Sheffield, £2,125; Liverpool, £2,492; Manchester, £2,428; Nottingham, £2,371; and Bristol, £2,152. Can the Minister explain the basis for these differences in spending power per dwelling across our big cities, from £1,851 in Leeds to £2,587 in Birmingham?

Of course, that point is more generally applicable because similar differences arise all over the country. The problem of defining a fair distribution of grant is compounded by the decisions councils themselves take on council tax levels, which can vary considerably between councils, both at Band D and as an average payment from each household. That problem is compounded even further by sums allocated to an area but not via the council. Schools budgets and the pupil premium is a good example; DWP spending is another.

This is why we need to know how much the Government are actually spending in an area in terms of total public expenditure, and I hope that the Minister might look at how this might be done. Unless we know this across Whitehall, we shall continue to have uncertainties about how much is actually being spent, and some in local government will continue to talk only about cuts to council budgets when actually it is the total amount of public spending in an area that matters because it is all that funding that delivers local services.

I turn to some specific issues and the current consultation. First, it has been reported that 42 councils plan council tax rises rather than another year of freezing it, and that more than half of those are Conservative-led. They should not be criticised. Localism should mean that it is their business. Freezing council tax with a central grant making up the loss placed into a council’s baseline for future years is fine as a temporary measure, but I have been uncomfortable, for some time, with the view that it needs to be frozen for five years or longer. The reason is that that increases local government dependency on central Government at exactly the time we should be empowering councils—with their electorates, if it is felt that a referendum is justified—to make the right decisions for their local area. That is localism, and we will never solve the overcentralisation of England unless we get councils to raise more of their revenue locally. Many, of course, have been doing that, and many will do so next year.

Secondly, on the specifics of the consultation, I come to the £120 million safety net holdback proposed for 2014-15. I doubt that it is necessary and I would distribute it unless consultation clearly demonstrates otherwise.

Thirdly, it is unclear whether this funding settlement as proposed will enable all councils to deliver their statutory obligations. Councils have to help in this process as part of the consultation by demonstrating exactly where they may fail to meet them. Councils also have to help by pressing for single funding pots for local authority spending, health, and for expenditure by the DWP. Savings are to be made in that area by reducing duplication. I entirely agree that we need to create a place-based system of finance in England, and local government has to lead it. That could be based on the governance that is developing locally: combined authorities, health and well-being boards, joint committees, local enterprise partnerships, and so on.

Our current model for financing and running local government is not fit for purpose. The Local Government Association has proposed five-year funding settlements, wider revenue-raising powers and the wider involvement of local government establishing how grant is to be distributed. I concur with its position, but we are now in great danger of seeing some local authority services sinking to levels that are unacceptable for a civilised country. I hope very much that the Government will take on board the financial problems that many councils now face.