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Local Government Finance (Herefordshire)

Volume 559: debated on Tuesday 26 February 2013

Motion made, and Question proposed, That this House do now adjourn.—(Mr Syms.)

As the House will know, the Government are set to provide approximately £72 billion of grants to local authorities in England for 2013-14. Despite the enormity of that figure, there is no disputing that overall spending must be reduced. However, even though the cake is smaller—indeed, precisely because the cake is smaller—we must ensure that rural areas such as Herefordshire receive their fair share of funding. For far too long, the historical balance has been tipped against them.

Herefordshire is the fourth most sparsely populated county in England. It is made up of five market towns, villages, remote farms and hamlets, as well as Hereford city in the centre. At 42,500, the number of elderly residents in Herefordshire as a proportion of the population is well above the national average. Just over a fifth of Herefordshire’s population, 22%, is aged 65 and over, compared with just 17% in England and Wales as a whole. Rural sparsity is an expensive challenge for a small county. Costs for transport, social care, schools, ambulances and health services are all pushed up. Yet Herefordshire is not and has not been a well resourced council. The 2012-13 budget figures show that formula grant funding per capita is £311, which is 13% below the national average of £358.

What can we do? The council has just voted to raise council tax by 1.9%, because it feels that with only 1% being given by the Government, if it freezes the council tax it will fall further and further behind over time. I support a freeze in council tax, and I do not agree with increasing it, as that will have a real impact on already stretched household budgets, especially for the retired and those living on pensions. Councillors have made efficiency savings of £21 million since 2011, and a further £9.1 million of savings are due to be delivered this year, and once the fat has been trimmed the pickings are lean. Factor in a below-average level of council tax, alongside a relatively low base, and it is clear that Herefordshire is running out of options. That is a state of affairs with which many of my colleagues representing rural areas will be depressingly familiar.

We know from research that urban authorities receive far greater levels of financial assistance under the current system. Recently, the Government have taken some positive steps towards redressing the balance. Technical adjustments mean that the formula will do a better job of reflecting the additional cost of providing services in rural areas.

I congratulate my hon. Friend on securing the debate. As the other MP for the glorious county of Herefordshire, may I add my voice to his on the issue of underfunding and draw his attention and that of the House to a study that I commissioned in March 2010? It showed that the cumulative underfunding for Herefordshire in the period from 2005 to 2010, compared with comparable authorities, was £174 million over five years, or roughly £35 million a year, including a shortfall of £85 million in support for Herefordshire council. I commend my hon. Friend for drawing wider attention to the issue of gross underfunding and the important challenge that faces the country and the Government.

My hon. Friend and neighbour—it says in the Bible, “Love thy neighbour”, and he is an easy man to love and I know his constituents love him deeply—is absolutely right to be concerned. There is some good news, because on 4 February my hon. Friend the Minister announced that 95 authorities would receive a transitional efficiency support for services in sparse areas grant, of which £531,374 would go to Herefordshire. That and the technical adjustments that I mentioned are excellent news and speak of the coalition’s determination to bring about real change, and let us never forget Labour’s pledge to deliver £52 billion of local government cuts.

There is still work to be done. First, the efficiency support for services in sparse areas funding has been provided for 2013-14 only. A one-off grant cannot be budgeted for in rising to the challenges that rural authorities face when delivering services in geographically sprawling areas. Those are permanent challenges that can, and will, never be completely overcome. It is time to give serious thought to our long-term future.

Secondly, the counterintuitive damping mechanism is undoing much of the Government’s good work to date. There is undoubtedly common sense in promoting stability and protecting councils from violent change. However, there is no logic in freezing the system completely for six years, which benefits only a select few London commuter belt authorities with high house prices. The Government should look again at that time scale.

Under the summer consultation figures, Herefordshire should have benefited from an extra £6 million per annum. No less than 74% of that, or £4.4 million, was subsequently lost through damping. Across the country as a whole, that figure rises to at least £60 million. That is a huge amount. Quite simply, the mechanism is preventing money from being allocated where it is needed. Expectations were raised and sadly dashed. Herefordshire council specifically requested that the Government’s adjustments for sparsity be reflected in cash terms and excluded from the damping or smoothing effect, yet that has not happened. We now face a situation where the rural penalty has been reduced at best by one or two points from 50%, when it really needs to be down to 40%.

It is true that the changes to business rates from 1 April will mean that local authorities can keep 50% of business rate growth. That is designed to increase local employment and income by attracting new businesses to an area. However, while useful, it may be an incentive that urban authorities, with their existing infrastructure, may be better placed to benefit from than rural areas such as mine. I ask Ministers to look again at Herefordshire council’s suggestion. Alternatively, damping could be unwound or the special grant continued until the sums truly add up.

Rural communities have been chronically underfunded for more than a decade. My constituents have faced further blows from rising fuel costs, energy bills and, as has been recently in the news, turbulence for beef farmers. Approximately a fifth of households in Herefordshire live in poverty. The gap between the most and least deprived areas is widening, and there are many deprived areas in the constituency of my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) as well. The Government have recognised this need and have risen to the challenge only to be dampened down. I ask my hon. Friend the Minister to look at this again. If he cannot un-dampen or de-dampen in the immediate short term, then can he try looking at the longer term so that councils can budget wisely rather than raise council tax?

In short, I criticise the council for seeking to tax constituents further, but I congratulate it on the savings it has made so far. Our Government have made a mistake by allowing damping to undo their good intentions, and with the long periods of time that these budgets cover, I congratulate and thank my hon. Friend for what he has done to try to help—£531,374 is most welcome. We all know that budgets must shrink and I am not calling for more spending, only a fairer allocation.

I thank my hon. Friend the Member for North Herefordshire (Bill Wiggin) for raising this important topic, and for offering me the opportunity to set out what we are doing to help local government, particularly in rural areas, from April onwards.

On 4 February, I put before the House the final settlement for 2013-14. I want to be clear that behind all our thinking on local government funding is the fact that it is vital that councils continue to play their part, as my hon. Friend said, to tackle the inherited budget deficit by making sensible savings and delivering value for money for the taxpayer. As I did on 4 February, I want to make it clear that this is a new settlement for local government, one now based on self-determination and financial independence for local authorities. We are seeking to shift power from Whitehall to town hall. We are providing a direct financial incentive for councils to promote growth, something my hon. Friend touched on in his speech. Authorities will directly retain nearly £11 billion of business rates instead of returning them to the Treasury, and they will be able to keep the growth on that share of business rates. Councils that strive and deliver the benefit of growth by doing the right thing by their communities will bring in jobs and business, and will gain the financial rewards themselves.

Importantly, in this settlement we have accepted, as my hon. Friend noted, that rural areas have been comparatively underfunded. We have therefore ensured that there is proper recognition of the additional costs of delivering services in rural areas. We have made adjustments to relative needs formulae to reflect the greater cost of providing services in rural areas—one of only three formula changes in the settlement. We have increased the weight for super-sparse areas in the formula; doubled the sparsity weight for older people’s social care and the district level environmental, protective and cultural services block; reinstated the sparsity adjustment for county level environmental protective and cultural services; and introduced a sparsity adjustment for fire and rescue. As a result, funding per head is declining by less in predominantly rural authorities than in predominantly urban authorities, within all classes. The spending power of Herefordshire council is reducing by less than the England average in both 2013-14 and 2014-15.

We listened to representations from rural authorities and had good conversations with them during the consultation process. That is why, as my hon. Friend said, we have also provided an £8.5 million grant to help 95 rural authorities with sparse populations to secure efficiencies in services in 2013-14. He is right to say that this is a one-year grant, giving councils a year to go further with some of the efficiency work that many of them are doing very well. As I promised, I will continue talking to councils over the next few months about the long-term future of rural areas. As he said, Herefordshire council will also receive one of the largest allocations of that funding—£531,000—and Hereford and Worcester fire authority will receive an additional £13,000. This extra funding will support rural areas to achieve sustainable savings in the services they provide in sparsely populated areas.

Overall, the settlement provides a fair funding deal, with protections for the most grant dependent authorities, whether they are rural or urban, and leaves councils with considerable total spending power. The settlement is not about what councils can take—that is the local government finance of the past—but about what they can make. It represents a watershed moment for council finances, with the localisation of £11 billion of business rates, providing a strong incentive for councils of all types to go for growth and reducing their dependency on central grant. It means that 70% of funding will be raised locally, compared with just over 50% at the moment.

As a top-up authority, Herefordshire council gets the support of an element of funding that will stay fixed in real terms and pays no levy on growth in its business rates. That means that it keeps 49% of all the business rates it collects, with no upper limit. Herefordshire has forecast that it will collect more in business rates in 2013-14 than is implicit in its business rates baseline, meaning that it will get an immediate boost from the new business rates retention system.

Then there is the new homes bonus, which rewards councils for delivering more homes and through which more than £2 million of funding will go to Herefordshire council in 2013-14. This is a fundamental change from the old system. Councils striving for growth, building houses and delivering local businesses will find themselves rewarded with increased revenue. Local authorities can and should now move away from the “begging bowl” culture and focus their efforts on delivery, growth and efficiencies. That is also why we introduced the new efficiency challenge award of a further £9.2 million that councils, including Herefordshire, can bid for.

To be clear, councils account for a quarter of all public spending—I appreciate that my hon. Friend made this point—so it is vital that they continue to play their part in tackling the horrendous inherited budget deficit by making sensible savings and delivering value for money for the taxpayer. Many are doing that very well. We are giving local authorities that bit of extra time and the reforms necessary to allow them the freedom to deliver that. As it looks to 2014 and beyond, local government needs to continue to find better and more efficient ways of doing things, and there remains scope for sensible savings. The best councils are protecting the front line—from weekly bin collections to library services and meals on wheels—getting rid of waste and inefficiency and helping to keep council tax down.

I wish to make it clear again that we want to keep the focus on safeguarding vital public services and protecting families and pensioners in rural as well as urban areas. That is why, despite financial pressures, for the third year running we will continue supporting those who insulate residents from further council tax hikes and why we have set aside an extra £550 million for local authorities to support council tax. All councils have a moral duty to freeze council tax at a time when the standard and cost of living for our hard-working residents are tough.

I join my hon. Friend in calling clearly and firmly for Herefordshire council to reconsider finding that saving of just 0.9% in order to take advantage of the scheme and freeze council tax for the benefit of its residents. It says it needs to increase council tax by 0.9% at a time when, despite the pressure it said it felt last year, it managed to increase its reserves. I suspect that, like me, residents across Herefordshire will wonder how those two things can be married. Those who would prefer to continue with increases and see residents miss out should answer to local taxpayers and have the courage to go for a figure that would require a referendum in order to get local democratic support.

The settlement represents a fair funding deal that protects the most grant-dependent authorities, provides new opportunities for councils to benefit from the rewards of growth, and supports authorities to drive through further service reforms and efficiencies. It recognises the additional costs of providing services in sparse areas, reducing funding per head by less in predominantly rural authorities than in their urban counterparts. The additional £8.5 million of funding will support rural authorities this year in finding further savings in sparsely populated areas.

I congratulate Herefordshire on the excellent work that it has done so far in curbing its budgets and being efficient, but there is more that it can do. As my hon. Friend said, it should certainly be protecting its taxpayers by implementing a council tax freeze. Councils everywhere should now seize the opportunities that the settlement presents and focus their efforts on going for growth.

Question put and agreed to.

House adjourned.