My Lords, I first declare my interests as president of the Local Government Association, chair of Peabody, and chair of Be First. My other interests are listed in the register.
In my contribution to this debate I will talk about two issues: first, the wider economic context to the 2018 Budget, and, secondly, the specific implications for local government. There are common features to both issues—some welcome short-term actions that demonstrate the Government have listened, but, at the same time, some very significant longer-term issues that have still to be properly addressed.
Taking first the wider context: this was necessarily a short-term and contingent Budget, given the uncertainties of Brexit. The Chancellor had the unplanned benefit of higher receipts and lower spending than originally anticipated, and he has chosen to spend all of this benefit, particularly on increased funding for the NHS and bringing forward the planned increase in tax thresholds. But we should not be in any doubt that a bad Brexit would quickly wipe away all of those gains. The Financial Times has calculated that the UK economy is already 1.2% smaller than it would have been without Brexit. That is equivalent to £870 per household per year. A bad Brexit, as others have pointed out, would dramatically increase the economic cost and require a fundamentally different approach to the Budget.
Brexit or no Brexit, however, there are deep and long-standing issues with the UK economy that the Budget does not adequately address. These were laid bare in the recent report from the Commission on Economic Justice, of which I was a member. Put simply, the UK economy has stopped working for most ordinary people. We have had a decade of stagnant earnings and low growth, as the noble Lord, Lord Skidelsky, said, along with low investment and productivity, rising house prices and widening inequalities of wealth. As the noble Lord, Lord Wood, pointed out, we do not at the moment have a sustainable, long-term taxation policy to fund our public services. To have any chance of addressing these deep-rooted issues, we will need to see many more radical policies than we have seen so far.
The commission report sets out in some detail what those policies might be. What is clear is that once we are clear of Brexit—in or out—we need to develop a long-term economic plan that promotes both prosperity and justice. It will not be a quick task. We have taken a while to reach this point, and it will take us a while to get out of it.
That brings me to the second area that I want to talk about—local government. By common consent, local government has borne the brunt of austerity. The Budget contained some welcome news for local government in the additional £650m funding for adult and children’s services over the next two years, and the additional investment in transport infrastructure. I personally was also very pleased to see the speedy lifting of the cap for local authority borrowing on housing and the increase in the Housing Infrastructure Fund. These are important steps towards building more genuinely affordable housing—necessary, if not sufficient. But we should be in no doubt again that, apart from lifting the cap, these measures are short-term and one-off.
Austerity continues for local government, and we have still to resolve the long-term funding challenge for social care. Local authorities have been able to manage the damage of austerity by moving away from annual budgeting and introducing long-term financial planning. This is welcome, but I have talked to a lot of local authorities and pretty much all of them say that their position will become unsustainable over the next few years unless there is action on funding and social care.
The LGA has calculated that social care services will still face a £5.8 billion funding gap by 2024-25 just to cover the costs of the national living wage and to maintain existing standards—so no improvement, just to stand still. Adult and children’s services combined represent over half of the local authority budget. If they are going to defend those care services, as they all want to, they have to make disproportionate cuts in other universal services such as street cleaning, street maintenance and libraries—which are the very services that the public think they pay council tax for. Bluntly, there is a democratic deficit.
The LGA has called for the forthcoming Green Paper to be bold and ambitious—it is right about that. It should build on the excellent Green Paper produced by the LGA itself. It also needs to be published soon; we are now some seven months beyond the planned publication date. We must have some indication of the Government’s intended direction of travel on social care well before the conclusion of the 2019 spending review, likely to be not until the autumn of next year. My view is that we need a hypothecated health and care tax, linked to a repurposed national insurance. If we have to spend a higher proportion of our national income on health and care—and there is general consensus in the House that we do—any party will find this hard to deliver unless it can say that the money is going towards health and care. That is why I support a ring-fence.
Finally on local government, I want to raise an issue that is in some sense tangential to the Budget but very important—the fair funding review. It is hard to argue against reviewing the funding formula to make it fairer, but it adds another huge level of uncertainty to the sector at a very difficult time. There are bound to be winners and losers in this review, and that will be incredibly hard to manage with falling, or even static, resources. The existing plans and provisional timetable look very challenging—unless significantly more funding is planned for local government. I would be very interested to hear the Minister’s view on this issue. In my view, it is a ticking time bomb.
The Chancellor may now be regretting his decision to move away from a spring Budget, as it has greatly limited his room for manoeuvre. Despite the rhetoric, there is a great deal of difference between actually ending austerity and moving towards ending it, particularly for those working in local government and in public services outside the NHS. Brexit or no Brexit, we desperately need a longer-term and more radical plan for renewing the UK economy.