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Local Government Finance

Volume 559: debated on Tuesday 26 February 2013

It is a pleasure to serve under your chairmanship, Mr Gray.

My purpose in asking for this debate is to highlight the unfairness of the financial and other support provided to local government. I am particularly concerned about Knowsley, the wider Liverpool city region and the overall rationale behind the way that resources are being allocated.

The first issue that needs to be questioned is the general support for local government. The Local Government Association made it clear that the loss of grant over the current spending review period will leave a gap by 2019-20 of £16.5 billion. That is not a small figure; it is a very significant figure in terms of local government expenditure. Indeed, the National Audit Office said that local authorities are planning to reduce spending by £4.6 billion in real terms by March this year, and after absorbing additional costs arising from increased demand for local services that means there will be real cuts in real services.

The NAO also points out that Departments did not break down their analyses to identify regional or other variations. That is an important issue, which I will return to later. If we were to go purely on what we have been told by individual Departments, and particularly the Minister’s Department—Communities and Local Government—we would not know what the regional variations are. I am particularly indebted to Knowsley council and the LGA for providing a briefing that enabled me to make that breakdown. It is pretty sobering reading.

Knowsley anticipates cuts in services—not in back-office functions or luxuries, but actual services to the public—of £17 million during the next two years, which is a 15% cut. That means that over the next three years the council must find savings of £36 million, on top of the £32 million savings it has already made. We are talking about one of the smallest metropolitan boroughs having to make cuts during the period of this Parliament of £68 million.

Like all organisations, Knowsley council sensibly looked at where it can make reductions that do not affect front-line services, and where it has been able to make those changes it has done so. It has even been able to make small improvements in some services, recognising the priorities that exist. However, the fact of the matter is that the council now has nowhere else to go in terms of efficiency savings and changes in policy that could be made without a direct impact on services.

I will give way first to my hon. Friend the Member for Sefton Central (Bill Esterson)—or is it Sefton East?

It is Sefton Central. My right hon. Friend used to represent part of Sefton Central when his constituency was Knowsley North and Sefton East.

Sefton council faces a total cut of £116 million for the period 2011 to 2014, and like Knowsley council it has no choice other than to cut services, including the library service in Aintree village, which is relied upon by many elderly and vulnerable people. The Government said that councils should resolve these problems by use of reserves. I am sure that my right hon. Friend will agree that that is an incredibly short-sighted approach, as those reserves can only be used on one occasion and once they are gone they are gone.

I am grateful to my hon. Friend the Member for Sefton Central for making that point. I have a very great affection for Aintree library, because when it was in my constituency I used to hold surgeries there.

My hon. Friend is right. If he looks at the NAO report, “Financial sustainability of local authorities”, which was produced in January, he will see that the NAO points out that although 93 local authorities

“used reserves in 2011-12, the remaining 260 either made no changes to their reserves or added to them.”

There is an argument about the use of reserves, which the Government have made, but the NAO report goes on:

“There is evidence that local authorities are reducing services, for example in adult social care and libraries”.

Certainly in the Liverpool city region, in terms of reserves there is really nothing left other than what prudentially is needed.

My right hon. Friend mentioned efficiency savings. Does he share my concern that when Liverpool city council was asked to make £141 million of cuts during the last two years, the opportunity to make efficiency savings was limited because so little notice was given that drastic and severe cuts would have to be made?

I think the Government have the illusion that local authorities are stuffed full of people with nothing useful to do, and that all anyone has to do is to identify where those people are and all the problems will be solved. However, the reality is that there is no headroom left at all in most local authorities, and increasingly we will find that that will directly impact on services. If there is a reduction in the number of social workers, it has an impact on adult social care, families under stress, children’s services and so on. There is a real problem.

To highlight my hon. Friend’s point, I will look at the latest settlement in terms of metropolitan areas as a whole and in terms of other sorts of local authority. If we deal with things by region, the Liverpool city region is experiencing a two-year cut of £166 per dwelling; in London, the two-year cut is £129 per dwelling; the English average is a two-year cut of £105 per dwelling; Wiltshire is experiencing a two-year cut of £50 per dwelling; and Surrey—that hotbed of deprivation—is experiencing a two-year cut of £19 per dwelling. There can be no doubt about where the cuts are being targeted.

My right hon. Friend talked about fairness, or rather the lack of fairness. I wonder if he has any comment to make about the fact that if we look at what is happening over a four-year period, we see that the cut for Liverpool amounts to a staggering £329 per head, putting it right at the top of the amount of cuts in local services that the Government are demanding, despite Liverpool being No. 1 in terms of national assessments of deprivation. Does he think that is fair, and does he have any kind of explanation as to why the Government would do that?

I am grateful to my hon. Friend for making that point. She is absolutely right. To be perfectly honest, I do not think it is any accident that Liverpool, which is No. 1 in the multiple deprivation ranking, is experiencing one of the highest cuts per dwelling anywhere in the country over the period. It is also significant that Knowsley, which ranks fifth in terms of deprivation and is therefore not far behind Liverpool, is experiencing a £206 cut per dwelling over the two-year period, which is one of the highest cuts—if not the highest—in the country.

Of course, that has a real impact. Knowsley council told me, and I have no reason to disbelieve it, that cuts in services and jobs are now unavoidable. It is having to anticipate cuts of £9 million to health and social care and to children’s and family services over that period. It is looking at 340 job losses, which will mean that services suffer, and that in economic terms more people will be thrown on to the scrap heap in areas such as Knowsley, where we have relatively high levels of unemployment.

Is the situation a statistical fault or deliberate policy? When system funding cuts are deepest in the areas such as Knowsley that are least able to bear them, and not in areas with relatively few problems of deprivation, we are bound to conclude that Knowsley is being targeted. As has been pointed out by my hon. Friends the Members for Liverpool, Riverside (Mrs Ellman) and for Sefton Central, surrounding areas that, at least in part, have a similar character are experiencing the same thing. It cannot therefore be an anomaly that relates only to Knowsley, a point to which I shall return in a moment.

No doubt, the Minister will make the point that the Government have brought in innovations that might help. For example, he might talk about the new business rates retention system, but the problem is that it is no longer needs-based. All the evidence is that redistribution will be to more prosperous areas, which will get to keep more of the business rates, so Knowsley will again not benefit. The National Audit Office has pointed out:

“Business rates income has been volatile across individual local authorities.”

I cannot therefore see that as the knight on a white charger that will save areas such as Knowsley.

There is also the new homes bonus, which is supposed to reward councils that boost new house building, but for every £1 lost through the top-slice, Knowsley will get back only 15p through the new homes bonus, whereas, for example, Uttlesford in Essex will get back £19 and Basingstoke will get back £18. Again, the evidence is that the benefits are being shifted away from the areas with the greatest levels of deprivation to those with much lower ones.

It is a similar case with arrangements for council tax support. The Local Government Association concluded that local authorities will have no choice but to pass on the cut in that support to the working poor. People who are in low-paid work and may be in receipt of council tax benefit will feel the greatest impact, because the Government are providing only 90% of the required funding. In fact, the Government have got their sums wrong: the average is 11.4%, but the actual cut in Knowsley is 12%. That cut is not transparent, but is taking place by stealth, even though the Government claim that the arrangement is a new and helpful innovation.

Before I finish, I want to say a quick word about welfare reform. With the bedroom tax, 5,000 households in Knowsley will lose £13 if they are considered to have one bedroom too many, or more than £20 for two bedrooms. I attended a public meeting in Northwood in my constituency on the bedroom tax, and I heard tale after tale of people who will have nowhere to go. They will have no options, because there are no two and one-bedroom properties to move into. Even though Knowsley has comparatively low rents, work done so far shows that 123 families—mainly larger ones, with four or more children, in private rented property—will be seriously impacted by the benefit cap. It is clear that the emphasis is moving away from areas with few problems compared with areas such as Knowsley, and that all the impact will be in areas like Knowsley.

I want to draw a few conclusions. The worst effects in finance and other support for local government have been targeted on areas with the highest levels of deprivation. The statistics I have presented, including those provided by the Local Government Association, point to that as an inescapable conclusion. Whichever way we look at it, frankly, it is shameful that the poorest areas in the country are asked to bear the brunt of the cuts. Without doubt, critical services—they are more critical in areas that suffer high levels of deprivation—will be cut severely.

Similar conclusions can be drawn about welfare reform, particularly in relation to the bedroom tax, the benefit cap and universal benefit. Those hit hardest will be those who work—described as the working poor—the disabled and those dependent on benefits, who are least able to bear the brunt of the cuts.

Where are we and where are we heading? I do not want to push the comparison too far, but we are very much heading back to the days of the Poor Law and the Speenhamland system of outdoor relief. With the bedroom tax, I can even imagine that we will need a modern equivalent of workhouses, because people will have nowhere to go. If we can make comparisons with the worst aspects of the 19th century, the Government should hang their head in shame at what they are doing.

Targeting the poorest areas is wrong in principle but, as the National Audit Office suggests, the Government are making no effort to monitor the effects of the changes. Before we know it, we will find families spiralling into debt or greater deprivation after April, with no plan for that when it comes about. Perhaps the Minister will not share my analysis of the problem—I am almost sure that his briefing will lead him in a completely different direction—but I hope that, at the very least, he will agree that all those matters need to be closely monitored after April, on almost a daily basis. The Government need a back-up plan for how they will respond if the sorts of problems that I have described arise. If they do not have one, frankly, they do not deserve to be in government.

It is a pleasure to serve under your chairmanship, Mr Gray. I thank the right hon. Member for Knowsley (Mr Howarth) for and congratulate him on raising an important issue. However, I was a little surprised by his choice of topic, because the settlement, as he will appreciate and other Members have commented, is for not only Knowsley, Liverpool, Merseyside, Manchester or even Great Yarmouth, but the whole of local government. It is a landmark in the sense that, after years of doffing their caps to Whitehall, all councils can now take charge of their own destiny.

I was particularly surprised that the right hon. Gentleman chose this debate and made the case he has tried to make about the situation in Knowsley, bearing in mind that Knowsley has not only been in line with the English average of changing spending power this year, but has a spending power of £3,122 per dwelling in 2013-14, compared with the average in this country of only £2,216, so credit to him for his ability to try to make a case that Knowsley is being treated in any way unfairly.

I am grateful to the Minister for giving way so early in his speech. Does he not recognise that those resources were distributed on the basis of need? My case reflects the fact not that Knowsley is standing with its hand out waiting for the Government to dispense largesse, but that there are high levels of need there.

That argument might hold more weight if such areas were not getting almost 50% more than the national average in the first place. Even a constituency such as my own, which has three of the most deprived wards in the country, gets around £2,200. I struggle to have sympathy with the right hon. Gentleman’s argument that getting almost 50% more than the national average is a hardship.

In all the deficit denial and doom mongering that some people have been engaged in, an important message is in danger of not being heard. However, the recent move by Moody’s has once again reminded us of that message. The size of the deficit and the simple fact that local government accounts for a quarter of public spending mean that local government cannot remain immune. It is one of the biggest players in the public sector and it has its part to play in reducing the deficit.

I want to make it clear to hon. Members that this settlement is a fair deal to both the north and the south. Manchester, Liverpool, Nottingham and Newcastle all have higher spending power per dwelling than the national average. I have already commented on the fact that Knowlsey has the highest settlement in its area.

Will the Minister explain how it can be fair that the areas with the highest deprivation such as Knowsley and Liverpool—Liverpool is right at the top of deprivation levels—are suffering the harshest level of cuts?

I dispute whether that is even correct, bearing in mind that the base point that such areas start from is so much higher than anywhere else. It was the previous Government who left areas with high deprivation, such as Hastings and Great Yarmouth, with a cliff-edge drop in funding of up to 20%, which this Government have had to fix. Places such as Wokingham have been mentioned before in debates on the settlement—Surrey was also mentioned today—but it must be remembered that all the councils under discussion today are at least £500 better off per household than Wokingham is in 2013-14. Knowsley itself is pretty much at the average with regard to its reduction, but it has a spending power of £3,122, compared with an average of just £2,200, so this settlement is fair. Thanks to the new efficiency support grant, the seven authorities that face the biggest hit to their spending power in 2013-14, a couple of which I have just mentioned, are eligible for a funding boost, which ensures that no council faces a spending power decrease of more than 8.8%, despite the previous Government leaving them with one closer to 20%.

Vitally, the system now works in a council’s favour. Through the Localism Act 2011 and the financial reforms in this settlement, some 70% of local authority income will be raised locally. Councils now have more power than ever before, but they need to understand the implications of this settlement and to act in their residents’ best interests and work harder on their behalf. They can do that by redesigning council tax benefit to cut fraud, promoting local enterprise to get people back into work, or redesigning services to make them more efficient and sustainable. There are still savings that can be made. I disagree with the earlier comment about the council tax support position. The money the Government have put in, the opportunities that exist for savings and the flexibilities that have been given to the sector can more than make up for what is needed to be found. Last year, local government showed commendable skill in reducing its budget while still protecting front-line services. Many residents thought services had actually improved. This is about not how much money is spent, but making sure that it is spent in the right way.

The Minister will know that the leader of Liverpool city council has extended an invitation to the Secretary of State to come to Liverpool to tell us how he thinks more efficiency savings can be found, bearing in mind that we now have to make additional cuts on top of the £141 million that have been made so far. Will the Minister also accept an invitation to come to Liverpool to see for himself the extent of the cuts, bearing in mind the levels of deprivation that exist, and tell us where he thinks further efficiency savings can be made?

I suggest to the mayor of Liverpool that some of his language has been extremely unhelpful and somewhat unfair, particularly when Liverpool starts with a per dwelling spending power of around £2,700. Many areas of the country, even deprived areas such as those in my constituency, would be keen to have such spending power. I am happy to come to Liverpool during the course of this year. In fact, I will be visiting the fire service soon, and so will be happy to visit the council as well. I suggest the council looks at the booklet, “50 ways to save money”. Part of taking that local power and being a locally directly elected mayor is about having responsibility. There is that old phrase, “With great power comes responsibility.” Instead of looking to everyone else to solve their own issues, councils should be looking at what they can do locally; that is what local accountability and local democracy are about. Through our community and neighbourhood budgets, we are rewiring the system and bringing people together from across the board—local authorities, the police and the health service. We are seeing such alignment with the whole place community budgets. Areas close to Liverpool and Manchester are finding local savings worth millions of pounds, and providing an opportunity to realign the public sector to make it more streamlined and efficient.

Thanks to the autumn statement, which exempted local government from another 1% top-slice, councils have time to put their house in order and put people first. They should start that process by freezing council tax, which rose exponentially under the previous Government—it more than doubled. We have now put money aside to put tax rises on ice for a third successive year. Already a huge number of councils are doing the right thing, including, I am glad to say, Knowsley, as well as Derby, Dorset, Northampton and Watford. Areas such as Lancashire are going further and actually cutting council tax by about 2%. In many cases, councils have far more in reserves than they are losing through cutbacks. Liverpool, Manchester and Leeds have reserves twice that of their spending power reductions. The local funding settlement used to be the end game, but now it is just the starting point.

The Minister and the Government tend to treat reserves as some kind of luxury that local authorities can easily live without. Before I came to this place, I spent several years as the chair of the finance committee on Knowsley council. I am no accountant, but I do know that a council has to have reserves to hedge against unexpected areas of expenditure—perhaps a surge in inflation that they cannot cope with or pay settlements that they were not anticipating. It is prudential to have reserves, not in any way a flagrant abuse of the system.

The right hon. Gentleman makes a fair point. It is right for a council to have reserves. However, it is also right to use those reserves at the right time and to keep only a prudent amount of reserves. Many people in this country cannot understand how local government can say that it is struggling when at the same time it has built itself up in the past couple of years, even under these changes and savings, to have the highest level of reserves it has ever had—they have increased to around £16 billion. When authorities such as Liverpool, Manchester and Leeds have reserves roughly twice that of their spending power reductions, I suspect that most residents will have some lack of sympathy with their argument that there is not enough money to protect their services.

Furthermore, councils will be able to retain around £11 billion-worth of business rates, which will deliver £10 billion extra to the wider economy. In recent years, Newcastle, Manchester and Liverpool all saw their business rates rise above the national average of 4.8%, but thanks to the old begging bowl system, they missed out on the opportunity of making the most of that money. That will not be the case in the future; they will get the benefit. It will be about what councils make and not what they take that counts. If they bring in more businesses and more jobs, they will be rewarded. With regard to the comment on the new homes bonus, with more than £650 million being allocated this year, the same applies. If councils build, they will get the money. It does not matter where they are in the country. If they build the houses, they will get the money.

In this settlement, we capture a new ethos in local government. We are looking to generate more income through the new homes bonus, business rates retention and the new transition challenge award where councils that are sharing services and management, and being innovative to ensure that they can spend money on the front-line services can make a pitch for that part of the bid.

The right hon. Gentleman mentioned reserves. What is also important for councillors and council officers to remember is that those reserves are not the council’s money to sit on and protect. The money that councils have is taxpayers’ money to be spent on services for taxpayers. If councils are willing to put people above political ponderance, to look to the future, and not in the rear-view mirror and do things because that is the way we have always done them, they have a once-in-a-generation chance to move forward, finance themselves in a new way, be genuinely local and deliver for their local residents.

Sitting suspended.