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My Lords, I thank the noble Lord, Lord Scriven, for initiating this debate. On this occasion, I agree with pretty much everything he said in his very strong speech. I should also declare my interests as president of the Local Government Association and chair of Peabody, Be First and the Centre for Public Scrutiny. My other interests are as listed in the register.
When we look at what has happened to local government over the past eight years of austerity, two dominant stories emerge. The first is of a sector that has faced up to the challenge of spending reductions unmatched in any other part of the public sector. The LGA talks of councils losing 60 pence in every £1 in government grant over the 10 years from 2010 to 2020. Even if we take account of changes such as business rates retention, we still see a reduction in effective spending power of more than one-quarter and nearer one-third. This is the reality of what has happened.
Despite this extraordinary, unprecedented reduction, local government has kept the show on the road. Indeed, only one council has required government intervention due its financial difficulties. Financial planning has, by necessity, got better, and most councils now have a good medium-term financial plan in place. Effective scrutiny in the best-run councils has made a difference by providing constructive challenge. I would be very surprised if this year any council is unable to set a balanced budget for the year ahead. This is to the immense credit of local government.
The second story, though, is of a decline in local services and in public satisfaction with local government. We cannot disguise this. The National Audit Office’s report Financial Sustainability of Local Authorities 2018 shows that, between 2010-11 and 2016-17, local authorities cut cultural and highways services by more than one-third. They did this in good part to protect the statutory adult and children’s care services, but even these are now facing real and increasing pressure.
We often talk about services such as libraries, leisure service and the street scene as discretionary services, but they form an essential part the quality of life of our places, and in the end—this is the key point—they are the services that people think they are paying their council tax for, so we have an enormous mismatch that is getting bigger. Those two local government stories of effective financial management and sharply declining services, despite efficiencies, go hand in hand. At root, they result from a failure to develop a sustainable model for local government finance.
I have argued for some time that delivering the first five years of austerity did not automatically mean that local government could deliver a second five years of austerity. You could not run the same record twice. In fact, the growing pressures on adult and children’s care alone, which make up more than half of local government spending, told us that that was impossible. We could see it; we did not need to look in the crystal ball. We are now seeing the consequences of that undeliverable plan which was put in place.
To their credit, the Government have belatedly recognised that pressure and have put in a further £l billion of short-term funding for the settlement next year, and we should recognise that. However, it is just that—it is short term and one-off. We urgently need a longer-term plan to put local government on a sound footing. You can have a broad base of services and a broad set of funding sources, and you can have a narrow range of services and a narrow range of funding sources, but what does not work is a broad range of services and a narrow range of funding. It is very simple. If we do not sort this out, we will see both effective financial management and services put at risk in the future.
The plan for a sustainable financial system must be a central and core part of the forthcoming spending review. If people ask whether local government is that important, the answer is that it accounts for over a fifth of public spending and deserves central billing in the discussions about the spending review. A key part of that review must of course be the long-awaited Green Paper on adult social care. I say “long awaited” because I think that its publication is now likely to be almost a year late.
Unless there is a fundamental rethink of local government as a whole, I will have real concerns about a number of things that the Government are doing, particularly the fair funding review. I shall set out three of those concerns. First, I have never met a council that thinks that its funding under the formula is fair. This review will open up division at a time when local government needs to work together collaboratively, as we heard earlier. Secondly, it is hard to see how any meaningful redistribution can be made without significantly increased resources. Without them, you damp the system enormously, in which case the question is: why are you doing it in the first place? Thirdly, like other noble Lords, I am seriously concerned at the suggestion that has recently been reported in the Guardian that funding will be redirected away from deprived inner-city areas by removing or reducing the poverty weighting. That, to me, would simply create an instability in one part of local government to help another. It is not the answer. It seems that, without a holistic approach to both the level and the sources of funding for local government, we are heading for real trouble here. I would welcome the Minister’s reassurance on this issue.
Finally, what on earth has happened to devolution? I ask myself whether it is another Brexit casualty. This was brought home to me recently in the work that I am doing as chair of the UK2070 Commission, which is looking at the spatial disparities in this country. If you go on to our new website, you will see a brilliant article by Professor Philip McCann of Sheffield University that demonstrates pretty conclusively that, with the possible exception of Slovakia, the UK is the most geographically unequal country in western Europe—I emphasise: not just a bit but the most. It is also one of the most centralised. The OECD has proved to my satisfaction that there is a clear connection between centralisation and inequality. We need a strong, well-funded local government not just because it delivers vital services but because it plays an essential role in creating a fairer and more prosperous Britain.