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Funding for Local Authorities Bill

Volume 569: debated on Wednesday 23 October 2013

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to establish a commission to identify the changes in the law necessary to provide for the differing requirements for funding of local authorities taking into account the varying demand for the services they provide; and for connected purposes.

The title of the Bill mentions local authorities, but I want to focus on cities. Cities are the engines of economic growth, and one does not go for growth by switching off the engine. In the words of the Centre for Cities:

“Cities don’t follow the national economy—they are the national economy.”

Let me start by declaring not so much an interest as a bias, and a strong one. I am a Birmingham MP, and one of the landmarks of the centre of Birmingham university is a tower known as Old Joe. The Joe in question is Joe Chamberlain, founder of the first civic university with an emphasis on business, who in November 1873, almost exactly 140 years ago, accepted the nomination for mayor of Birmingham and began the two-and-a-half year term of office that has been widely acclaimed as the most outstanding mayoralty in English history. He municipalised gas, which he allowed to make profits that would be ploughed back into the city; municipalised water, which, as a public health good, was not allowed to make a profit; initiated a massive housing programme; and, together with George Dixon and others, established the principle of free education in the city. He did so in two and a half years. We would still be running pilot studies or requesting permission from Westminster to do anything.

We have devolved power, but in today’s Birmingham it is clear that we have not devolved enough. Devolution has gone to Northern Ireland, Scotland, Wales and London, but not to our cities. In Birmingham we have Europe’s largest local authority, with a population of over 1 million. We are the fastest growing young city in Europe, with 40% of the population aged under 25, yet Ladywood and Hodge Hill constituencies consistently feature in the top three national unemployment figures. England is clearly unfinished business in terms of devolution. I regret that we do not have more directly elected mayors and that we have not completely moved towards unitary authorities. One fact remains: we are still the most centrally controlled developed country in western Europe and, probably, in the G20. In the UK some 30% of public expenditure is controlled by local government, but Whitehall needs to let go of much more. In the US and Sweden, 50% is devolved; in Canada and Denmark almost 70% is spent at Länder, or city, level.

Last year’s report by Lord Heseltine, “No stone unturned in pursuit of growth”, made a powerful case for decentralising economic powers. He looked at the various regional contributions to UK gross value added over the last 30 years; it makes depressing reading. In England, in London and the south-east, contributions have steadily increased; in the east of England and the south-west they have remained roughly level; and in all the other regions to the north of that line they have continued to decline. Allowing the south to overheat and the midlands and the north to be drained of energy is bad for the whole country. Central Government talk about letting go, but when it comes to the crunch they lose their nerve. There are regional growth funds, city deals, enterprise zones, and all kinds of pilots, and all that is great and commendable, but it is simply not enough.

Things are not only not moving in the right direction; they are getting worse. The undeniably necessary cuts in spending are made in a distorted framework that hits hardest those who most need support. It is wrong to devolve responsibilities but not match the funding or the freedom to rearrange the money available. It is wrong to have the largest cuts in areas where the jobs are fewest. It is wrong to have a situation where the National Audit Office warns that 12% of councils are at risk of being unable to balance their books in the future, with potentially disastrous consequences. The Under-Secretary of State for Communities and Local Government, the hon. Member for Great Yarmouth (Brandon Lewis), who is on the Front Bench, did not challenge that figure when I raised it earlier this week. The Local Government Association calculates that in the current Parliament local government’s core funding will fall by 43%, and by 2020 there will be a £15.6 billion funding gap. The future looks worse for our core cities. For 2013-14, the difference is negligible, but for 2014-15 there is a forecast fall of 5% compared with a 3.4% fall nationwide.

Yesterday Birmingham came to the Jubilee Room to show what the city has to offer: food, music, ideas, energy and diversity. By the way, we still make things in Birmingham. However, the future could look pretty bleak. In a phone-in from local residents conducted that morning, the three areas they said they wanted local government to address were better transport, the creation of jobs, and better regional co-operation. None of those things can be done in a framework of short-term, unco-ordinated funding cuts. Over the past three years, our spending power in Birmingham has declined by 13% compared with a national average of 9.3%. There is something not right when every man, woman and child in Birmingham has had £149 taken from the money given by the Government, while people in prosperous Wokingham in Berkshire lost just £19 a head. That cannot be fair. Birmingham has calculated that from 2011 to 2017 it would need to find savings of £825 million—£210 million more than expected. Cuts of that magnitude threaten the future viability of local government. At present, only a third of Birmingham’s £1.3 billion budget is controllable. The predicted shortfalls suggest that we will have a cut of two thirds in that one controllable third of the budget.

So why are things so bad in Birmingham? First, cuts nationwide to local authorities average £74 per person, while in Birmingham the figure is £149. Secondly, there is a colossal revenue shortfall created by keeping council tax rises artificially low for five successive years—1.9% during the Tory years and frozen for past two years. Thirdly, two thirds of the city’s funding comes directly from central Government rather than taxation and other sources—a much higher proportion than in most local authorities.

But this Bill is not asking for money or putting a case of rural versus urban; it is asking for a commission to be set up that addresses the currently broken model for financing and running local government in general, and our big cities in particular. The commission should be guided by three principles. First, it must recognise the need for financial stability and sustainability; money needs to be distributed in a way that recognises the real needs and responsibilities of our cities. Secondly, money raised in our cities should stay in cities, releasing them to drive the growth and prosperity we will all share. Thirdly, checks and balances should be provided to prevent any one Government from unsettling the funding structure on a political whim.

The Chartered Institute of Public Finance and Accountancy has said:

“we are clear that the current system of local government funding allocation needs to change. The susceptibility of the local government settlement to the see-saw of political influence means that it is well overdue for fundamental reform.”

I believe that we can build on the work of the Heseltine review of 2012 and the Michael Lyons inquiry into local government of 2007. I want a third commission that looks specifically at funding structures and revenue flows and has at the core of its thinking the future sustainable prosperity of our cities and the recognition that, whether we talk about city regions or not, cities are the driving force of their regions, and if we go on cutting them, we will destroy the surroundings areas as well.

Question put and agreed to.


That Ms Gisela Stuart, Richard Burden, Mr Liam Byrne, Jack Dromey, Mr Roger Godsiff, Mr Khalid Mahmood, Shabana Mahmood, Steve McCabe, Mr Clive Betts, Mr Nicholas Brown, Paul Goggins and Fabian Hamilton present the Bill.

Ms Gisela Stuart accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 29 November and to be printed (Bill 117).