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Local Government Finance Settlement

Volume 750: debated on Thursday 9 January 2014

Motion to Take Note

Moved by

My Lords, it seems to have become something of a tradition that when the House reconvenes after the Christmas Recess I lead a debate on local government funding. The government settlement announcement usually happens later and later in December, so we do not have a chance for a debate before Christmas. I am pleased that the debate has attracted not just the usual suspects on local government, and I look forward to their contributions. I of course look forward to hearing from the Minister, who is the new face on the government Front Bench. Her predecessor, who is sitting behind her, will no doubt be listening to what I say with interest. I am glad that she does not have to respond today. I should declare my usual interests in local government. I am leader of Wigan Council, chairman of the Greater Manchester Combined Authority, and a vice-president of the LGA—as are others in this Chamber—and of SIGOMA.

Commenting upon the settlement, Sir Merrick Cockell, the Conservative chair of the LGA, said that it,

“confirms that councils will continue to be at the sharp end of public sector spending cuts up to 2016”.

He added:

“Councils have so far largely restricted the impact of the cuts on their residents. They have worked hard to save those services that people most value and have protected spending on social care for children and the elderly, but even these areas are now facing reductions. That impact will only increase over the next two years”.

I certainly agree with that statement, which was, however, made before the Chancellor said on Monday that there is another £25 billion of cuts in public spending to come.

In the settlement Statement, the Government made three interesting and key headline messages. First, they said that the cut in spending power was only 2.9%. Secondly, they said it was,

“fair to every part of the country—north and south, rural and urban, metropolitan and shire”.—[Official Report, 18/12/13; col. WS 151.]

Thirdly, they said it would be possible to deliver reductions by “sensible savings” and “eliminating waste”. I shall scrutinise each of those matters in turn. The concept of “spending power” of local authorities is an interesting, new, complex and extremely controversial way of defining spending. It includes a number of different sources of local funding—25 in total, the biggest being council tax and settlement funding. However, it also includes the highly contentious new homes bonus, to which I am sure colleagues will refer later. It also includes the relatively small amount of funding to lead local flood authorities. Members may be interested to know that funding for those authorities will decline by one-third next year. Perhaps in view of the recent weather, the Government might wish to reconsider that.

The headline figure of 2.9% is achieved by an interesting device of excluding the GLA. It may no longer be considered a local authority, but perhaps it still is. If you include the GLA, the figure increases to 3.1%. However, this time, when defining the spending, the Government have included pooled health budgets, which are the responsibility not of local authorities on their own but of local health partners. Those budgets are of course also included in the Department of Health’s figures, so there is some double counting there. If those figures were excluded, then the cut would increase to 5%. CIPFA, the respected local government finance body, says that the direct funding for local authorities has reduced by 9.4%. It also commented that the announcement was,

“stronger on spin and misleading presentation”.

The claim that this settlement is fair is simply disproven by the statistics that the Government themselves have provided. The average metropolitan area loses 4.2%, which is twice the loss in shire counties. In London, the average loss is more, 5.5%; and the contrast with shire districts is even higher. Chesterfield loses 6.9%, while the good citizens of Epsom and Ewell actually gain by 3.3%. There are huge gaps there.

The shift from direct funding through the grant system based on need to this “funny money” definition of spending power has meant that the more deprived parts of the country are losing grants at a greater rate than those less deprived parts. Surprise, surprise: the most deprived areas of the country happen to be Labour authorities.

The third contentious claim was that these cuts could be achieved by so-called sensible savings. That ignores the fact that this is not year 1 of any round of savings in local authorities. Ever since 2010, when the Government came in, there have been significant cuts, and they have continued. All the examples of low-hanging fruit—the things that people can take away—have gone. We are now into serious cuts in spending. My own local authority had to take off £66 million, will have done so by the end of this financial year, and faces a further £43 million in cuts over the next three years. Cuts at this level cannot be achieved by slicing and cutting; we are actually going to have to make significant savings in real services.

Local government, like everyone else, is facing a number of pressures to increase spending. We face inflationary pressures. Local authorities pay fuel bills, and we all know what is happening to those bills. We face demographic change, which increases the demand for services. In Wigan in the past six years, the over-65 population has increased by 19%. When you get to my age, it is good news that the population is living longer but there is a significant impact on local spending.

There are also new burdens famously being placed upon local authorities that are never fully funded. Sometimes they involve taking away existing grants and putting them into a new box. A couple of years ago, the Government cut the Social Fund and passed the responsibilities on to local authorities. Grants were provided for that, although they were inadequate compared with what had been spent previously. Next year, there is no sign of those grants in the settlement, so all the local welfare funds will now be paid for directly by local authorities.

The Government are probably not alone in misunderstanding the way that local government works nowadays and the way it has changed. Parliament, too, has not really understood the complex changes that are taking place. I come to this House and hear people asking for additional services, and putting pressures and demands on local authorities that, in themselves, may be desirable. However, we are not dealing with even a zero-sum game, whereby we have to find the money from existing resources. We are in a negative funding game, whereby we are having to find additional funding from other cutbacks.

Since Monday when I was back at work, I have spent time each day mainly on local government funding. Yesterday, I had to be back in Wigan to determine our budgets for next year. I have been a local councillor probably for more years than I would like to confess, but the language of what I am doing is now totally different from what I was doing even five years ago. In our budget we talked about “transformational change” and having really to think about whether we should continue to provide services at all. We talk about “building self-reliance” among high-dependency groups in our communities. We can no longer afford to fund those people at the rates that we have in the past. Despite all the pressures, we cannot exclude the big areas of spending in local government, which are adults’ and children’s services.

I want to refer to the system of local taxation. I think that I can see an established pattern in how local taxes change. Stage 1 is that a local tax becomes unpopular for some reason, probably fuelled by a media campaign. Stage 2 is when the Government respond by trying to mitigate the effects of the tax through a subsidy—they put in money to try to reduce its impact. On the whole, that does not work, so we get to stage 3, where the unpopularity continues. The Government therefore then move to stage 4: they abolish that form of local taxation and try to replace it with something else. We saw that some time ago with the rates, and in place of the rates we got the poll tax. However, that did not last too long and we then got the council tax.

What concerns me is that our current major forms of local funding—that is, the council tax and business rates—are both now at stage 2 of the process. Both are heavily reliant on subsidies from the Government to make them justifiable. The council tax—and I make no apologies for repeating my point—is still based on 1991 values. It is difficult to understand that when it applies to a house built last year, perhaps with a broadband connection, which an older house does not have. However, I shall put that to one side.

We now have layer upon layer of council tax freeze grants, which are effectively the Government subsidising the council tax. At what point will the Government think that they are no longer affordable? I am sure that such a point must come, so those grants will be reduced and we will get into a real mess.

I remember on several occasions, along with my noble friend Lord McKenzie and the noble Earl, Lord Lytton, debating business rates very late at night with the noble Baroness, Lady Hanham. We tried to persuade the Government not to go ahead with the change to the valuation that they were making in the then Local Government Finance Bill. We were unsuccessful. However, suddenly the Government rightly recognised that the valuation of business rates was not regarded by the business community as fair, so the Chancellor came up with a wheeze in the autumn Statement to reduce the impact of business rates. Therefore, we will again have a local tax which is heavily dependent—and will be dependent going forward—on government subsidy. I acknowledge that the Government have fully funded that but, going forward, another local tax is dependent upon funding from central government.

At some stage we are going to have to think of a system of local government finance which is really local, which really works and which has cross-party support. Perhaps the time to look at that is now, because those taxes cannot go on.

I believe that we cannot simply go on with the current approach to public services and public spending. Therefore, I welcome the Government’s announcement in the autumn Statement that they want to develop more place-based budgeting. That is the future in many areas. Also, through better healthcare funding they have recognised the importance of integration between health and social care. However, I am concerned about the pace and adequacy of those developments.

On many occasions the Prime Minister has talked about the need to do something about “troubled families”, as he calls them. We have two separate work programmes in government for dealing with troubled families. A recent report from the National Audit Office said that they were unco-ordinated and were not speaking to each other, and the DWP programme has managed to get only 4% of people back into work, which is far less than it was aiming for. This is a really important, dependent part of our population. We need to work together effectively on a local basis. We cannot do it on a national scale; it has to be done locally.

I read that over Christmas some 18,500 patients who were medically fit to go home were kept in hospital simply because no adequate care package was in place. That is a disgrace for all of us who are involved in care. I am not simply laying the blame at the door of the Government; we should all be ashamed that that happened. It meant that 18,500 families did not have a really good Christmas, but it also cost us money. If we are going to keep people in expensive acute care, we need to make sure that we serve them much more effectively and on a much more cost-effective basis.

At this point I had intended to say that I thought that 2014-15 would be a difficult and tough year for local government, but 2015-16 will probably be worse. I was then shown a news cutting from the West Midlands which said that Wolverhampton City Council had an emergency budget meeting last night at which it made cuts to avoid what it called “insolvency”. Technically, unlike the situation in America, local authorities cannot become insolvent, but there will clearly be an increasing danger in the next couple of years that local authorities will become financially unviable. Would the Minister care to say whether the Government have contingency plans in the case of local authorities becoming financially non-viable?

The seriousness of local government funding is now becoming apparent to everyone. We are not talking about peripheral services; we are talking about main public services. I hope that I can persuade my party to commit to start to reverse the system and put more money back into deprived authorities such as Newcastle, Newham and—dare I say it?—Wigan, and take the money from Surrey, Oxfordshire and Epsom and Ewell. This is a serious debate and there will be consequences. I look forward to the contributions.

My Lords, I congratulate the noble Lord, Lord Smith of Leigh, who is an outstanding and highly respected servant of local government, on securing this important debate.

I declare an interest as, and speak from the standpoint of, the leader of a London borough that may be a neighbour of Epsom and Surrey but is actually the worst resourced in London. Grants provide less than a quarter of our budget and the borough has to raise about 70% of its budget directly from council tax. Incomprehensibly, it is a tariff authority for business rates. My director of finance will be surprised—and I agree with what the noble Lord said about spending power—to discover that we are told that our spending power will actually rise in 2015-16. It does not feel like that on the ground. I think that spending power is a highly questionable measure.

All those of us who care deeply about local government will want to see efficient local councils as well resourced as is practicable, and, even if this sets me up as an Aunt Sally for this debate, I believe overall that in the present circumstances we are. Also, as the noble Lord, Lord Smith, said, in terms of the Autumn Statement, and indeed this settlement, there is evidence that the Government are listening and have listened to representations about the system. Therefore, I do not share the view that the draft settlement put before Parliament—which I agree was regrettably late in the year and without an Oral Statement—is the beginning of the end of the world. Indeed, in the context of a country that still plans to borrow £11 million every hour next year, some will say that it is arguably on the generous side.

No doubt we will hear about difficulties today. I candidly acknowledge that there will be colleagues who will have difficulties, as will we, so there will be some shroud-waving. I looked up what the noble Lord, Lord McKenzie of Luton, whom I hugely respect for his great contribution to local government, said about the 2012 settlement. We have heard about the risk of insolvency. The noble Lord said in 2012 that the then settlement would push many local authorities “to the brink” and put,

“their long-term viability in question”.—[Official Report, 19/12/12, cols. 1604-05.]

It did not turn out quite like that then and I doubt that it will this time. Indeed, Luton’s current council tax booklet tells me that Luton council,

“has kept its tax the lowest in Bedfordshire and the tax rate is well below the average of other unitary councils”.

It says that Luton,

“has kept costs down with a range of money-saving and income-generating ideas”,

and that the council,

“has been able to set a balanced budget while continuing to protect vital services”.

It speaks of £4 million of growth. If that is the brink, some of us would like to be on it.

In an immensely difficult period economically for this country as a result of the disastrous legacy of waste and unsustainable overspending which our coalition Government inherited in 2010, local government had to, and has to, share the burden, and I thank my noble friend and the Secretary of State for the efforts they have made to ensure that local government is given support financially. For example, the ludicrous farce of comprehensive performance assessment—remember all that—has been swept away, saving hundreds of millions of pounds.

We have seen consistent support through the freeze grant for councils that restrain their expenditure, which has now been extended to both 2014-15 and 2015-16. I am particularly pleased by the announcement that the funding for the next two freeze years will be built into the spending review baseline. The noble Lord was quite right to say that there were inevitable fears about a cliff-face effect when it eventually disappeared. So that was good news. Incidentally, I hope that the noble Lord, Lord Beecham, who follows me, will confirm that Labour supports and would continue the freeze of grant policy and entrenchment in the baseline.

I do not have a particular beef about overall spending. The reality is that in the easy money era of 1997 to 2010, spending by my authority—one local authority alone—rose by 50% in real terms, after allowing for inflation. Against that background we have all been able to make savings, and we still can. In our case, as with many other local authorities—there is nothing particularly special about our authority—public satisfaction with services has actually risen, as we now share services, and costs and waste have been pared. Indeed, the residents’ survey published in our authority this month is the best that we have ever had.

Central government has a great deal to learn from local government when it comes to saving money and good management. Frankly, you only have to glance for a second at the staggering waste in the NHS bureaucracy to see the truth of that. I think that I may find more common ground across the House when I say that equally, I wish central government—not only this Government but their Labour predecessor, who were in some ways even more dictatorial—would stop interfering and regulating what should be local policies. Why are local councils the only bodies banned from proposing new schools or neighbourhood plans? Why are we not more trusted?

We should consider the vital duty of promoting local business, which is absolutely central to any debate on local authority finance. Businesses need premises, but what do we get? Are we trusted to do locally what is right to secure them? No—we get the dogmatic imposition of the automatic right to convert office space to residential use. I was disappointed that, jointly with Islington’s Labour council, we were unable to persuade the High Court of the unfairness of this policy. Given the staggeringly high land values in south-west London, we are quite predictably being hit heavily by it. Already there have been 140 prior approvals for automatic permitted development. This has so far lost some 20,000 square metres of office space—a high number in our local context—dented opportunities for future business development in an area where we want to promote small IT businesses, and involved so far the eviction and termination of almost 50 existing business tenancies.

Let me share with the House an unsolicited e-mail that I saw this morning on the way to this debate from a small local specialist IT company. The managing director wrote:

“We have been operating at our address”—

in Twickenham—

“for the last eight years; at the end of July we received a letter from the Landlord giving us notice, as they put in an application for change of use; they are now building fourteen one bedroom flats and we had to move all our office equipment into storage as we have not been able to secure a lease in the area. Most of the offices we went to see are also changing into flats. We are a small company and have had to let three people go until we find premises”.

It is very sad. That is just one example of what is going on, and not only in our area.

My dismay at this back-of-the-envelope planning policy, imposed from on high over the reasoned objections of local councils, in which a short-term dash for profit is cutting an irreversible swathe through strategic provision for small business, will not come as news to my noble friend. I wish that whatever Government come—Labour, Conservative or Liberal Democrat—will be localist and will listen to advice from those with local experience and understanding in some policy areas.

My noble friend is a good listener and will not mind a little bit of “saying it as I see it” from a fellow Nottinghamian on that point, particularly when I return to my central consideration. I believe that this Government have been as fair and as supportive in financial settlements as local government can expect in these difficult times. Like many others, I remember all too well the dark years of Gordon Brown’s tenure of the Treasury, when average band D council tax bills in England more than doubled. Since 2010, by contrast, council tax has fallen as a proportion of the family budget. Many people up and down the land will share my thanks to my noble friend and to the Chancellor for that.

My Lords, I refer to my local government interests in the register.

For the past 47 years I have been a councillor for a ward that is among the 10 most deprived wards in the country. Its spiritual needs are in part met by the daughter of the right reverend Prelate, who is the vicar of St James’s church in that ward. Life expectancy is 10 years less in that ward than in the ward in which I live. The unemployment percentage is in double figures. Most of our primary school children in the ward are entitled to free school meals and the schools operate a breakfast club. We have one food bank in the ward and another within a quarter of a mile of it. Hundreds of residents have been hit by the bedroom tax and the changes to council tax support, which can take just under £4 a week from people on JSA of only £71 a week but also affect many people on low wages. Rent and council tax arrears are mounting and evictions may follow, although the council is doing all it can to help avoid them. Non-statutory youth provision is being cut, play centres are closing and another voluntary centre is under threat. The future of our successful Sure Start centre may be in doubt after 2015. Maintenance of open spaces is under severe pressure. The city’s citizens advice bureaux, its law centre and other agencies are overwhelmed with people seeking help over financial and legal issues and are themselves facing grant and income reductions.

Before the general election, the Guardian published a letter from me—it has published a few since—in reply to an article which dismissed the achievements of the Labour Government. Whatever failings that Government, like all Governments, may have had, I could identify many ways in which my constituents had benefited, from massive investment in decent homes, to school and hospital building, the minimum wage, Sure Start and concessionary travel. I ended the letter by saying that I trembled for their future if the Conservatives won the election. Those fears have been amply justified—and more—by the past three and a half years of rule by the Conservatives and their Liberal Democrat accomplices.

However, what is particularly galling is the brazen effrontery of the Secretary of State, who is in complete denial about the havoc that is being wrought throughout much of local government. This was the Minister who was first across the Chancellor’s door in 2010 to offer up local government as a sacrifice on the altar of government cuts—Salome to George Osborne’s Herod, although fortunately we were spared the preliminary dance of the seven veils.

Newcastle, like many other urban councils with high levels of deprivation, faces cuts of 40%—£108 million a year on what was a budget of £260 million. As a result of cuts in the grant and a failure to reflect rising costs and demands of the kind mentioned by my noble friend Lord Smith—whose masterly opening of this debate I applaud—especially in the fields of safeguarding children, adult social care and concessionary travel, core funding is to be cut by 25% over the next two years. The nearby authority of Durham, not the most affluent part of the country, faces cuts of £110 million a year by 2016-17, on top of the £114 million a year it has already suffered.

The story is repeated up and down the country, especially, as my noble friend pointed out, in authorities with a Labour council. Even the Conservative leadership of the LGA has been compelled to warn of the impending collapse of local government by 2020 beyond the delivery—albeit even then in attenuated form—of statutory services.

Ministers are content to rely on selected and misleading statistics to pretend, Candide-like, that all is for the best, albeit in what is perhaps not the best of all possible worlds. However, as Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, pointed out, the much delayed announcement, unusually made by virtue of a Written Statement of the settlement, was, as my noble friend pointed out, stronger on spin and misleading presentation than the technically sound explanation that councils and the public would expect.

Here it becomes necessary to delve into the arcane world of local government finance. The territory bears an uncanny resemblance to the Schleswig-Holstein question of the 19th century which, it will be recalled, was understood by three people: Bismarck, one who was mad, and another who was dead.

Thus the much vaunted new homes bonus costs a significant number of authorities , including Newcastle, more than they receive because, like the council tax freeze grant, it is effectively top-sliced out of money that should have come to councils anyway. It is a classic example of the three-card trick. In similar vein, the Government make much of spending power, carefully ignoring that this does not include a range of specific grants, many of which have been mentioned, such as the education services grant and the housing benefit administration grant, but crucially does include pooled budgets of the NHS and the better care fund, much of which will be spent not by councils but by the continuing NHS bodies, be they clinical commissioning groups or others.

The trick of the Government is to talk about spending power, not spending need—hence the ludicrous comparison, to which Ministers are addicted, between Newcastle and councils in the distressed areas of Berkshire, Wokingham, and Windsor and Maidenhead. Thus Newcastle’s children’s social costs are three times that of the latter—£226 per head higher in relation to population. Adult care costs are £206 per head higher. Homelessness and welfare is £82 per head higher and concessionary travel £59 per head higher. There is no comparison between Windsor and Maidenhead and Newcastle in terms of need and deprivation.

Unemployment is four times higher in Newcastle than in Windsor and Maidenhead. No wonder Rob Whiteman said:

“When Government ministers compare such different councils as affluent Windsor and metropolitan Newcastle in an attempt to justify the ‘fairness’ of the settlement it only serves to highlight how out of touch this process has become”.

Thus the alleged greater spending power of Newcastle, touted by Ministers, is illusory—but in time, under this settlement, even Windsor’s spending power will exceed Newcastle’s, and that of local authorities like us. Of course, there are many more victims of this cynical and callous approach. It is not a matter simply of the north-south divide. The pernicious impact of this persistent drift from needs-based distribution will be felt—is being felt—in inner London boroughs and coastal towns, as well as the towns and cities of the Midlands, the north and parts of the south-west.

Without consultation, the Government have cut, and will continue to cut, the grant for resource equalisation, designed precisely to compensate those councils with a lower council tax base, including those with large numbers of students who are exempt from tax. This will be cut by 36% over the next three years, with a huge impact on the distribution of grant, by definition hitting hardest those areas with higher numbers of lower-banded properties. Newcastle, for example, has 57% in band A—the lowest band. Windsor has just 3%. We should remember that many of those in that band who would have received council tax support will now be paying 20% or more of the local council tax, which previously would have been covered by council tax support.

Interestingly, many of the worst-affected councils under this and future settlements are those with high numbers of BME residents, such as Newham with 71% and Birmingham with 42% of the population. There appears to be no evidence that an equalities impact assessment has been made in this respect. I invite the Minister to comment on what might well be a matter for judicial review, because equality obligations appear to have been ignored. The whole way in which the Government have manipulated the system while giving airy assurances about its supposed fairness makes the American fraudster Bernie Madoff look like the Governor of the Bank of England.

During my 17 and a half years as leader of the city council, I thought I had times of great difficulty, as the city faced penalties, rate capping and the depression of the 1980s. Some of that was under the aegis of the noble Lord, Lord King, with whom I must say a civilised relationship is always possible. They were nothing like as bad as the problems facing today’s council, or the people of our city and others. If I am re-elected in May, I hope to notch up my half-century as a councillor in 2017. I can only hope and pray that by then we will have a Government who treat local government as an essential partner in the economic and social life of the country and ensure that it is supported by adequate and fairly distributed resources. If not, I will not be the only one to tremble at the consequences for our communities, our youngsters, our elderly, our economy and our environment.

My Lords, I thank the noble Lord, Lord Smith, for introducing what I think has become an annual debate in his usual and characteristically reasonable way, in spite of all the provocation that I am sure he feels has been offered to him. I also apologise that I missed the first minute of his speech. My train was cancelled due to a landslip in Surrey, which I suspect at this time is not feeling overgenerously resourced by central government. However, I think I got the main drift of his speech, much of which, of course, I and all the rest of us in the Chamber today with a local government background agree with.

I also have to start by declaring my own interest on this occasion, for the last time in this annual debate, as a councillor in the London Borough of Sutton, and, for the first time in this annual debate, as a vice-president of the LGA. Perhaps this is the point too for me to welcome the Minister to her first outing in this annual debate. I am pleased to see her predecessor, the noble Baroness, Lady Hanham, also present today, probably relishing the fact that she can sit two Benches back and enjoy the debate in a way that has maybe not been possible in the last few years.

Throughout my 40 years as a councillor—and I recognise that the noble Lord, Lord Beecham, regards me as a wimp for giving up after only 40 years, but that will be the case—this has been an annual ritual. Central government, of whichever party is in power, has always said how fair and generous the annual settlement has been, and local government, whoever has the majority there, has always said that it is not fair, not generous and that it means the end of the world as we know it. Then, sadly, local government sets about arguing among itself as to which parts of the country or which types of authority are more or less fairly dealt with. I very much regret that.

One thing that has changed over those 40 years, to which reference has already been made, is the date of the announcement of the settlement. It used to be certainly in early November, it slipped a bit to December and for the last two years it has been, in effect, Christmas Eve. I understand that that timetable is not entirely in the hands of the DCLG—of course it is not—but I think we would all wish to say, through the DCLG, “Please try to bring this timetable forward”. It makes life extremely difficult for all local government, and most especially for the finance staff trying to deal with this in a very short time, however expected the settlement may be.

In my first year as a councillor, way back, the Tory leader in local government, who happened also to be a Sutton councillor, told me that there were really only two parties. I thought that was the usual political comment being made to a Liberal in those days, but he said it was the central government party and the local government party. I have to say that I have increasingly come to recognise how right he was. If I ever have any doubts about it, that is characterised in your Lordships’ debates on local government. Most of us who take part in these debates, for whatever party, have a long background in local government, and inevitably speak in a sense on behalf of the local government party. All too often the poor unfortunate Minister who has to reply, who may indeed belong to the local government party too, has to deal with that. That will go on.

It would be going too far to say that there is good news in this settlement; that is too much to expect given the state of the national economy, the reasons for which we have rehearsed many times. However, there are certainly aspects that even the LGA has been right to welcome, and I am pleased that it has done so. The first is that it is no worse than originally expected. It is a sign of the times that that can be seen as good news. However, it is good news and is a welcome sign that central government has recognised that local government has borne the brunt of the public sector spending cuts, that it is not just the annual ritual of crying wolf and that the financial outlook for local government really is very grim.

The change of heart on the new homes bonus, limited though it is, is welcome, except in London, where the heart was not changed at all, and the new homes bonus is going to the London LEP and not to the London boroughs. I know that London Councils has made strong representations about this, and that the Minister will not be able to give a definitive answer today. However, I hope she can at least confirm that it is being considered seriously and is not the done deal that many in London believe it is.

The slight relaxation in housing revenue account borrowing capacity announced in the autumn Statement is also a welcome move in the right direction, but a very small one. I have argued many times in this Chamber—as have many others—that the HRA cap, with prudential borrowing, should be lifted altogether. In London alone, that would release funds for an extra 14,000 homes. I have no doubt that we will continue to argue for the further relaxation of that cap, but not today.

Despite this relatively good news—I stress “relatively”—it is clear that the financial year 2015-16 will be the crunch year for probably most local authorities. As other speakers have said, so far, most have been able to make significant cuts in ways that have not too seriously affected most residents who are not in receipt of direct support. That may well be one reason why public satisfaction with local councils has indeed gone up in the past two years rather than down. We experienced exactly the same phenomenon in the 1990s, when budget cuts were being made, albeit they were not as serious as the current ones. However, the cuts required for 2015-16 are of such magnitude that the public generally will be affected and will notice. Decisions on those cuts will have to be made in the coming financial year before the May 2015 general election. That is obviously bad news for the government parties, as it will come just when we are trying to convince the voting public that the corner has been turned, that austerity was worth it and that economic recovery is on the way, yet the message from their local councils will be almost exactly the opposite.

I am pleased to see that no one on the Benches opposite is smiling at that. It is not good news for any party. Wise Labour politicians will know that local residents blame their local council for the decisions that are made, the demonstrations take place outside the town halls and that in many parts of the country Labour councils and Labour councillors have to make those decisions, so it is bad news for everyone. I think that it is bad news for all of us who believe in the democratic process. We all know what the threat may be to the healthy democratic process, so the threat is there and is obvious and is getting very close to us. However, I also believe that it is a great opportunity. We are now in the situation where both the level of central government funding is such and the state of play is such that it really is time to introduce the fundamental and radical change to which the noble Lord, Lord Smith, referred towards the end of his speech, and I would like to have had more time to deal with that.

We have seen significant consensus moves right across the political parties with the LGA’s Rewiring Public Services campaign; the work of the London Finance Commission; and the long overdue but very welcome co-operation between London government and the core cities. All parties in local government want to see that fundamental reform that gives local government more independence, more financial freedom, less opportunity to blame central government and less dependence on central government. The questions now are the following. How are we going to do it? When are we going to do it? When will the parties in central government—in that I include the Labour Party as part of the wider central government role—actually come clean and say that they agree and say how it will be achieved, and what is the timetable for that? I look forward to seeing that in all three party manifestos and in any coalition agreement that may appear after the election, and I look forward to more positive debates annually in future.

My Lords, I congratulate the noble Lord, Lord Smith of Leigh, on introducing what is now his annual new year greeting. When I read the briefing from the Library for this debate, it struck me that we could all make the same speeches that we made this time last year and comment on the discourtesy of government in making the financial settlement for local government so late in the day for planning purposes, the unfair distribution and the end of local government as we know it. However, I am not sure how useful that would be.

Similarly, I listened to the interesting debate introduced by the noble Lord, Lord Shipley, in December on reviewing the Barnett formula. I remember thinking, “Good luck with that”, because the formula for distribution is only one element of our challenge. Centralisation by successive Governments—I agree with what the noble Lord, Lord Tope, has just said in that regard—is a much bigger challenge, and it is hard to take when it is carried out in the name of local government autonomy. Time and again we see evidence that one of the key engines for growth in an economy is strong regional government with real powers. If the Government are in doubt about this, why not try an experiment and give one of our cities the independence they had 130 years ago? Call it the Birmingham Independence Bill or, given the number of speakers from the north-east, the Newcastle Independence Bill. I am not talking of elected mayors, which I think are an abomination, concentrating on style over substance, but of real power for regions or cities. This is about not just the survival of local government but the future health of our economy. There is a human cost to what is going on. Half a million local government jobs have disappeared, mainly affecting women. This is the equivalent of 372 jobs disappearing every day. These people had a commitment to public service and cared about what they were doing. There is real and sustained damage to services which are vital to maintaining the social fabric and supporting community cohesion. The public are being misled about claims of a fair settlement for local government and that efficiency savings can make up the difference. Does the Minister really believe that a consultation period lasting from 18 December to 15 January, which is next Wednesday, is adequate?

The austerity measures will affect the most vulnerable in our communities. For instance, the lesbian, gay, bisexual and transgender housing advice service has reported that there has been an all-time high in calls for support, with 25% of younger LGBT people already street homeless. The LGBT officer in UNISON has reported:

“Another recurrent theme was marginalisation, guilt and isolation. People expressed concerns that their needs as LGBT people were treated as less important than others … They felt guilty for asking that their needs be met in a climate of austerity. Cuts were leading to less acceptance”.

There is a price to be paid for the loss or diminution of social cohesion, and it would be dishonest to claim otherwise. If local government is reduced to offering only the statutory social care elements of its functions, and the vast majority of the population has no interface with those services, one wonders what the impact will be on the democratic buy-in to local government in the future. We have heard at least two examples this week in this House of the potential impact of local authority cuts: first, from the noble Lord, Lord Elystan-Morgan, on how desperate the effects of the floods are in Aberystwyth, and his comment that he did not believe the Government were aware of their seriousness; and, secondly, from the noble Baroness, Lady Murphy, about cuts in social services, which meant that social services were no longer able to do preventive work which might minimise the number of troubled families.

The cuts in total support from central government and the impact on less well-off people are but one aspect of the financial pressures on a local authority to which my noble friend Lord Smith of Leigh has already referred. Local authorities face further costs due to inflation and increased demands from an ageing population. There will also be extra costs in relation to pensions, because of the abolition of contracting out, and the costs of flood damage. The Government appear to have money to splash around for bin collections, which have had virtually nil take-up, and for referenda on council tax, which the LGA has said are,

“an unnecessary and a costly burden that will put growth generating investment at risk”.

However, these are tiddlers compared with the proposals for funding the bill for care. Other noble Lords in this debate are much better qualified to speak on this but, as we know, the Better Care Fund is a pooled budget for health and social care services shared between the NHS and local authorities to deliver better outcomes and greater efficiencies through more integrated services for older and disabled people. No one would disagree that pooled funding should be an enduring part of the framework for the health and social care system beyond 2015-16, which was a commitment in the Autumn Statement in December. However, according to the LGA, the fund simply brings together local government and NHS resources that are already committed to existing activity—it does not address the financial challenges facing councils and clinical commissioning groups. Indeed, the LGA has accused the Government of double counting.

Underfunding of the reforms to social care could turn out to be the biggest con trick by this Government—perhaps even bigger than the spare bedroom tax. My fear is that it will not lead to a peasants’ revolt—which the noble Lord, Lord Heseltine, has called for in relation to local government regeneration—but will be represented by thousands of sad stories of single old people living out their lives in cold and misery and the disabled being stuck in their homes instead of having the full life to which they have been told they are entitled. Some of us have fought all our lives to improve standards of pay, standards of living and equality of opportunity for the disadvantaged in our society. One woman whose home had been flooded over Christmas told the Prime Minister, “Nobody came to help”. I wonder whether that will be the strapline under the record of this Government.

My Lords, along with other noble Lords who have spoken in the debate, I express my appreciation to my noble friend Lord Smith of Leigh for giving us the opportunity once again to discuss the latest local government settlement. Noble Lords will forgive me if I take a slightly different road from earlier speakers in order to avoid repetition of what has already been said.

I draw your Lordships’ attention to a report in this morning’s Daily Telegraph under the headline, “Councils’ ‘impossible dilemma’ over tax help”, which goes on to say:

“Local authorities in England will be forced to cut services or increase tax bills over the next two years because of a predicted £1 billion reduction in government funding for council tax support a report has warned”.

The report to which that refers, of course, was produced by the Local Government Association, which, despite the optimism of one of its vice-presidents in the form of the noble Lord, Lord Tope, was fairly scathing about the settlement that your Lordships are discussing today. I watched the noble Lord with interest as he fought during his speech between loyalty and reality. I am afraid that although, in his speech, loyalty proved to be more effective, reality shines through in the LGA report. Whether or not the LGA takes its vice-president to task for what he had to say is a matter for him and it. The LGA warns that the figure for the reduction in overall support for local authorities by 2016 could rise to up to £1 billion, creating that “impossible dilemma”, to which the Telegraph report refers,

“between charging council tax to the working age poor or extending cuts to services such as road repairs, bin collections and care for the elderly”.

The report goes on:

“But the local government minister, Brandon Lewis, said ‘the reforms give councils stronger incentives to support local firms, cut fraud, promote local enterprise and get people into work’”.

I do not know the Local Government Minister—he was born the year I was elected to a local authority, in 1971—so I looked him up on Wikipedia. To my surprise I saw that, during his time as leader of Brentwood Borough Council, he co-hosted a radio show with local MP Eric Pickles, called “The Eric and Brandon Show”. I do not know whether perhaps they were the Laurel and Hardy of Brentwood, although that is hard to imagine. The Secretary of State of course relishes his appearance and caricature as the jolly fat man who “waters the workers’ beer”, to quote an old song, although jollity is not something I would normally associate with him. The fact that the two of them had a radio show indicates that at least there is some diversity as far as newly appointed Conservative Ministers go. However, the suggestion that this settlement goes in any way to support local firms was truly undermined by the noble Lord, Lord True, who pointed out that central government refuses to relinquish any control over the sort of planning matters that are so important at local level. That surely demolishes that particular argument. It was also said that the settlement will get people into work but, of course, as my noble friend Lady Donaghy has just said, hundreds of thousands of people have lost their jobs in local government since the coalition was appointed. A succession of such settlements will guarantee that the number of people in local government out of work will continue to rise.

I ask your Lordships to look with me at what the settlement means for my own local authority. I had the honour to represent the constituency of West Bromwich East for some 27 years. It lies in the borough of Sandwell. The borough issued a press statement following this so-called generous settlement we are discussing today. It said:

“The revenue grant cut of what is now being [termed] ‘Standard funding assessment’ for 2014/15 … is £22.2 million and the provisional cut for 2015/16”—

which most of us would agree is the crunch year—

“is a further £28.9 million. These cuts will add to the cuts to date of £55 million to provide an overall cut per year in government revenue grant of £107.1 million since May 2010”.

I defy any of us to say that local authorities, and particularly one such as Sandwell, could manage cuts like that without a substantial reduction in services.

Sandwell Council has never been one of those eccentric local authorities that made all the headlines in the 1970s and 1980s. It has never gone in for festooning lamp-posts with anti-nuclear signs or other such fripperies. Under the leadership of the current leader of the council, Councillor Darren Cooper, it has continued the eminently sensible policies for which it is renowned. Yet it is being punished—I can find no other word to describe it—by the sort of settlement we are discussing today. The fact is that the council will now have to cut deeply into those resources that my noble friend Lady Donaghy referred to. The people who will suffer because of this settlement are the elderly, children in care and various other socially deprived people in areas of great social deprivation—such as the borough of Sandwell.

Of course, it is not just in Sandwell that local authorities are quite rightly saying enough is enough so far as this Government’s attitude to them is concerned. Reference has already been made by my noble friends to the meeting that took place last night in Wolverhampton, where the straight choice was between massive reductions in services or insolvency. That is the situation in which they find themselves. If next year’s settlement is along the lines that we are discussing in this debate, other local authorities—not just in the West Midlands—will find themselves in a similar position.

The city of Birmingham does now. Again, it is a city that has done its best to sell itself throughout Europe and the rest of the world, and done so enormously successfully. The transformation in Birmingham over the past decade or decade and a half has been enormous. However, the leader of the city council, Sir Albert Bore—another respected figure, I hope by both sides of the House—said:

“Birmingham City Council is a responsible local authority and we will do all we can to deliver against these figures”—

that is, the figures we are discussing in this settlement. He went on to say:

“However, to pretend that they can be delivered by traditional efficiencies and the sort of savings the Secretary of State for Communities and Local Government has highlighted is simply misleading. This council”—

that is, Birmingham City Council—

“has not sought to delude itself or its citizens that these massive budget reductions can be achieved in this way. Accordingly, we are systematically and fundamentally reviewing all of our services, working with our partners and undertaking an extensive dialogue across the city. We will protect key services wherever possible but it may be necessary to cease the provision of others altogether”.

That is the scale of the dilemma.

I conclude on what is perhaps something of a surprising note: the impact that this Government’s attitude to local governance has on Conservative representation around the West Midlands. In my own borough of Sandwell, there are 72 councillors. It has been predominantly Labour since it was created in the Heath—at the time, I called it the Heath-Robinson—reorganisation of local government back in 1974. But the Conservative Party controlled the council for a year or so in the 1970s. Out of 72 councillors on Sandwell Council, there are now only two Conservatives left. I hope the Minister will take this in the spirit that it is intended, as although I have no great wish to promote the interests of Conservative councillors—I have worked with some extremely good ones over the years; I have worked with one or two I would not describe in quite the same way—they are a dying breed outside London and the south. Again, when I was a councillor, Manchester City Council was controlled by the Conservative Party. There are now no Conservative councillors on the city council at all. In all seriousness, the sort of parsimony we are discussing in the settlements that have taken place over the past few years under the coalition—particularly this one and perhaps the one next year—will further decimate the Conservative Party’s local government base. I support this particular aspect of this: it certainly will not help the coalition get re-elected in 2015.

My Lords, I, too, am very grateful to the noble Lord, Lord Smith of Leigh, for achieving this debate and to Wigan for releasing him to make that powerful case on behalf of so many of our metropolitan districts, such as Leeds, of which we have heard much in this debate. They face particular difficulties, partly because of their size and the amount that they have to provide, in responding to the cuts being made to their budgets.

I am also very grateful to the noble Lord, Lord Beecham, for his support and encouragement of the people of Benwell over 50 years. I hear much of them and of him from my daughter Catherine, who is rector of Benwell. She also shares her concern for the spiritual and social needs of that area of Newcastle. Like the noble Baroness, Lady Donaghy, I sometimes wonder when we discuss local government affairs here why we do not simply move ourselves to Newcastle on the basis that we hear so much of the north-east. On the basis that if you cannot beat them you might as well join them, I look forward to my own retirement to the neighbouring borough of North Tyneside in the next few weeks.

Today, I want to concentrate on the crucial issue of the removal of funding for local welfare provision from April 2015, which is indicated in the local government finance settlement and to which the noble Lord, Lord Smith, made brief reference as he introduced the debate. Under the Welfare Reform Act 2012, key elements of the discretionary Social Fund—crisis loans and community care grants—were abolished and replaced by funding to local authorities, with the intention that they establish their own local welfare assistance schemes. The £178 million allocated for 2013-14 was a cut of 46%, but local welfare assistance has in the past year been of crucial benefit to those who have fallen into financial crisis through the additional pressures of this period of austerity.

It is true that the money has not been ring-fenced but, in my experience, it has mostly been used to benefit those in most need. In discussion of the Welfare Reform Bill, it was a deliberate act on the part of the Government to provide that £178 million to help those in most need and to help local authorities to make provision for them. It was in response to a number of debates, including those on the capping of benefits, which took place at that time. The integrity of the noble Lord, Lord Freud, and the Government was great in that provision for those in most need in our society.

The Children’s Society’s Nowhere to Turn report has highlighted the postcode lottery in the present, new regime and in particular its effect on low-income working families who, in a crisis, are often barred from making a claim under the new arrangements because they are working. Local authorities are, however, making a real effort to provide support in kind for those in most need. I pay tribute to those, including those in Leeds, who have worked so hard to help people by making the best use of that reduced funding through local welfare assistance.

One particular danger of the reduced provision, which will be exacerbated by its abolition, is the need for people to rely on high-interest lenders or loan sharks. If all funding is withdrawn by the Government and the DWP no longer has any responsibility in this area, there will be substantial extra pressure on that group of people who fall into crisis circumstances, who are the prey of loan sharks. Loans are already a casualty of the present system. Reasonable interest rates on loans are simply not available for those in most need in most areas. Much as I applaud the work of credit unions and the substantial cross-party support for them, they are in no position to help in these crisis cases. The alternative is the payday lenders, leading to an ever increasing spiral of debt. The removal of all funding can only make that worse. Can the Minister tell us what guidance she will give to local authorities for the continued provision of safety-net schemes when the DWP has ceased providing funding for them? Can she also tell us how she envisages that people in crisis can avoid the appalling interest rates of the high-interest lenders and, worse still, the loan sharks?

Local welfare provision is often inadequate, but it is vital. We must not push people into the arms of high-interest lenders. We must defend our ability to respond to the crises which people face in their lives and for which we need to make provision.

My Lords, I have to tell the House that although noble Lords are trying very hard, we are running a little slow on this debate, and we would like to get a couple of quick contributions in the gap.

My Lords, I will try to note that. I, too, thank my noble friend Lord Smith of Leigh for securing this debate and for his forensic analysis of the balance of the settlement. I declare my interest as a vice-president of the LGA. Although, like others, I have a feeling of déjà vu, I think that I actually participate in this debate only every couple of years. Nevertheless, the Government have shown, on the basis of the figures for this year and next, that local government will continue to take a hugely disproportionate share of the cuts in public expenditure—slightly disguised, as my noble friend Lady Donaghy said, by the treatment of health and social care provisions, but the figures are still clear. Within that, the distribution is also extremely regressive. It moves money from cities to shires and, within those groups, for example in London, which authorities face the biggest cuts over the next two years? It is Tower Hamlets, Hackney and Newham. Even within the shires, my own county of Dorset, which has fairly deprived rural areas in many respects, has a 50% higher cut than that of the county of Surrey.

As the briefing provided to us through the Library shows, there is effectively a direct correlation in the wrong direction between the level of cut and the level of deprivation, authority by authority. This is not a happy picture and, while we are all sometimes lost in admiration for how councils of all political persuasions try to cope with these cuts in their own areas, we have to face up to the fact that was well set out by the right reverend Prelate just now: the social effects of some of these cuts are dire indeed.

One issue we have to face—this is a message for all Front Benches, and all Governments and potential Governments—is that underlying all this is the terrible centralisation of local government funding in this country, which the noble Lord, Lord Tope, underlined. Even by the 1970s, we had the most centralised system of funding in Europe. Since the 1970s, successive Governments have tightened central control of local authority funding. It is also historically the highest level of centralisation for some of our great cities and shire counties, which were much freer in the 19th century and the early part of the previous century. Some of the great achievements of local authorities reflected that freedom. Local authorities are heavily dependent on the government grant. They are not allowed to raise specific taxes in their areas. The taxes they can raise, as council tax, have been capped or frozen. They have virtually no flexibility on the business tax and severe limitations on their ability to borrow, even from the public sector loan board. They have almost no ability nowadays, compared with earlier centuries, to go to the market to raise money.

Your Lordships will know that my particular interest is housing. It has become clear to all parties and interests within the housing sector—all forms of tenure and everybody from developers through to tenants—that there is a very serious crisis in housing in this country. There is a role for local authorities both as leaders and providers in this area, yet the rules that govern their ability to do anything serious about housing effectively stymie their ability to play a key role in this area. The interventions by the Government, who started by cutting social housing funding, including their positive intervention in relation to the new homes bonus, have been shown by the Select Committee in another place to be pretty ineffective. Their latest Help to Buy scheme has certainly helped a number of first-time buyers but, without effective action on the supply side, all it will do is raise the price of housing, and thereby rents, in the private and public sectors.

The fact that local authorities cannot go to the markets to raise money for housing is nonsense. That is the major bar to local authorities or ALMOs being able to build more houses. It all reflects the definition of the public sector borrowing requirement or the public sector net debt that is adopted by the Treasury and imposed on local authorities in this country.

It is a different definition from the one that applies in Europe, and it has different consequences from the situation in North America. When the Government report to international bodies such as the IMF and the EU on the national borrowing requirement, that excludes the kind of borrowing that is allowed by the public sector borrowing requirement in other European countries.

This is not an act of nature; it is a positive decision by successive Treasury officials, and one that makes a nonsense of the ability of local authorities to do anything about the housing crisis that is facing them in most areas, either on an immediate basis or on a long-term strategic one. We know, and this has been reiterated by all parties, that we need to double the level of the new supply of housing. This is an inhibition on the public sector acting directly. I am not just talking about the ability to build traditional council housing; I am talking about the ability of local authorities to engage in joint ventures with housing associations and to support developers in the private sector in building houses. If all this is barred to local authorities, there is no hope of resolving the housing crisis that faces us.

I ask the Government—I also direct this to my own Front Bench in terms of what an alternative Government would do—at the very least to review how this definition of the public sector net debt is impacting on the ability of local authorities to do their job in one very important area, one that is vital to the future health not only of our society but of our economy, since housing could provide a much needed local and national boost to economic activity. Could the Government at least commit themselves to a review? The current situation is a nonsense. It is part of the general centralisation of financing within this country but it could specifically be dealt with pretty easily, in immediate and bureaucratic terms, with the stroke of a pen. I hope that the Government, and indeed other parties, can commit themselves to such a review.

My Lords, I thank my noble friend Lord Smith for securing this debate. I confess that I am not one of the usual suspects taking part in this annual event, nor am I an expert in local government funding, and I would not dream of engaging on the detailed consideration cited by many other noble Lords who have expertise. However, I have some expertise in what cuts or inadequacies in local government funding mean to consumers, especially to caring families and to the voluntary sector. It is on this that we should focus in the difficulties that we are facing, and in each case it is evident to anyone engaged in these sectors that not supporting caring families and not supporting the voluntary sector result not in the savings that we all know have to be made but, rather, in increased expenditure. We have already heard from my noble friend about the numbers of people staying in hospital because local services were not available to enable them to be discharged.

I want to illustrate this with an example. Mandy is a woman in her 60s caring for her severely physically and mentally disabled son, who is 32—she has been caring for him since he was born—and her mother, who had a stroke three years ago. Mandy’s husband left her some years ago and she is the sole carer. She dearly loves both George, her son, and Vera, her mother, and happily accepts her role as carer, even though it is very stressful. What has enabled her to cope and to manage to keep going is that George goes into residential care one weekend a month and her mother attends a day centre run by the Stroke Association twice a week. She was told in November that George will now be eligible for respite care only for two weekends a year instead of every month, and the day centre has no funding beyond the end of March this year.

Mandy herself is a diabetic. The stress associated with losing most of the very minimal support that she has been enjoying, if that is the word, means that her blood sugar levels have gone up to a dangerous level and it looks as though she herself will have to be admitted to hospital. If this happens, both Vera and George will need residential care. So the withdrawal of a small amount of care will result in more expenditure for the state.

This is the reality of what cuts to local authority budgets mean: cuts to direct services to families and to the voluntary sector. Many of the services provided by the charitable sector are in the area of preventive work, and we have heard from many noble Lords how important that is in stopping situations developing or getting worse—the day centre for the stroke patient, the drop-in centre for someone with mental illness and family support for those coping with addiction. Many local authorities hardly engage in this work at all nowadays, since eligibility criteria have become so much stricter, so they have to rely on charities. Of course the charitable sector must play its part and take its share of financial cuts, but it would be not only unjust but counterproductive to make it take more than its fair share. Where a local authority has control of only 5% of its budget, the rest being set out in statute, and that 5% is whence comes the funding for the charitable sector, the budget may be drastically cut simply because it can be when other budgets cannot. We see this happening everywhere. Will the Minister tell the House what guidance is being given to local authorities in this regard because so many initiatives that make up the so-called big society are dependent on precisely this funding, which is now at risk?

I also want to say a word about morale. The services which support families are dependent on the dedication and commitment of hundreds of thousands of local authority and voluntary sector workers. Since the rewards and conditions are not great, their job satisfaction is an important factor in keeping them dedicated and committed. This is hard when you are constantly being told that your working conditions are only going to get harder as yet more resources are cut, and that the public sector must bear the brunt of future cuts, as we have just heard from the Chancellor. In addition, if your morale and the morale of your service are low, you are inevitably less inclined to embrace change and new ways of working, which are essential when making the best of scarce resources. You are inclined to retreat into your silo for safety. Nowhere is this more important than when considering integrated services across health and social care and the voluntary sector, which are so essential from the point of view of the patient, the user and the carer. Again it is counterproductive not to invest in staff support of all kinds to ensure that these dedicated people, on whom many rely, do not become entrenched in the so-called silo mentality.

Labour’s Total Place programme was a fine example of the benefits of integrated care. This Government’s Whole Place scheme is more limited in scope, but the potential is there. Pilot projects focused on health and social care and families with complex needs in high-cost areas show how services can be combined and transformed to produce significant savings and improve outcomes. For example, Greater Manchester estimates from pilot work that it could achieve £270 million net savings over five years, while Essex forecasts that savings of £414 million could be made over six years. Does the Minister agree that if we want to break down the barriers to integrated working, the morale of workers is of the utmost significance? Will she tell the House how the Government intend to maintain it in the face of constant threats to the public and voluntary sector as a result of pressure on the budgets of local authorities?

My Lords, I am grateful to the noble Lord, Lord Smith of Leigh, for initiating this debate, and I declare my vice-presidency of the Local Government Association. So far in this debate the Labour Party’s approach has been avoiding two critical issues. The first is the level of government debt because although the economy is improving, we still have major fiscal problems. This year’s deficit is forecast to be £111 billion, which is very high by any past comparator year. Over the next four years, there will continue to be high annual deficits adding more than £300 billion to our national debt. Four years from now the national debt could be £1.5 trillion, double what it was in 2010 when it stood at £760 billion.

That level of rising debt is unsustainable and has to be reduced. The Government have protected some public services from cuts. They have ring-fenced the National Health Service, schools, overseas aid and pensions. Because of that, it is inevitable that other budget heads will have to take a bigger cut if debt is to be contained—unless the Labour Party thinks that the ring-fence around the National Health Service, schools, overseas aid and pensions should be removed. In summing up, the noble Lord, Lord McKenzie of Luton, might tell us what the Labour Party’s position on that is. For local government, things are difficult. This is not a surprise since local government accounts for a quarter of public spending.

My second concern about the way in which the Labour Party is approaching this debate is that it talks mostly about cuts in government revenue support to councils and the distribution of those cuts when total government spending in an area needs to be added in, since health and schools are ring-fenced. The Labour Party also assumes that the level and distribution of revenue support was correct in 2010 when this Government took over. Large cuts would have come under Labour anyway, not least in working neighbourhoods funding directed at the more deprived areas. That is the context in which this debate is being held.

However, there is no doubt that the cuts have been steeper in the more deprived parts of the country. The Government try to justify it by talking about spending power which, as we know, includes more than just revenue grant because it includes council tax, charges and fees, and NHS funding for social care. Ministers have rightly pointed out that poorer areas still get much higher levels of support than richer areas. This then begs the question as to what the differentials should be, and here things are much hazier. Running complex formulae in DCLG simply gives us sets of numbers with absolutely no certainty that their basis is robust.

The settlement consultation documentation says that the most deprived areas in single-tier authorities will have 50% higher spending power per dwelling than the least deprived areas and that, to deliver this spending power, central government support will be three times higher per dwelling in the most deprived areas. The trouble is that it is not clear that these figures are the appropriate ones. Why are they as they are? Can they be justified in detail?

Let me take as an example our big cities which are in many ways very similar. Leeds in 2014-15 will have spending power per dwelling of £1,851, but Birmingham will have much higher spending power per dwelling at £2,587. Newcastle will have £2,407; Sheffield, £2,125; Liverpool, £2,492; Manchester, £2,428; Nottingham, £2,371; and Bristol, £2,152. Can the Minister explain the basis for these differences in spending power per dwelling across our big cities, from £1,851 in Leeds to £2,587 in Birmingham?

Of course, that point is more generally applicable because similar differences arise all over the country. The problem of defining a fair distribution of grant is compounded by the decisions councils themselves take on council tax levels, which can vary considerably between councils, both at Band D and as an average payment from each household. That problem is compounded even further by sums allocated to an area but not via the council. Schools budgets and the pupil premium are good examples; DWP spending is another.

This is why we need to know how much the Government are actually spending in an area in terms of total public expenditure, and I hope that the Minister might look at how this might be done. Unless we know this across Whitehall, we shall continue to have uncertainties about how much is actually being spent, and some in local government will continue to talk only about cuts to council budgets when actually it is the total amount of public spending in an area that matters because it is all that funding that delivers local services.

I turn to some specific issues and the current consultation. First, it has been reported that 42 councils plan council tax rises rather than another year of freezing it, and that more than half of those are Conservative-led. They should not be criticised. Localism should mean that it is their business. Freezing council tax with a central grant making up the loss placed into a council’s baseline for future years is fine as a temporary measure, but I have been uncomfortable, for some time, with the view that it needs to be frozen for five years or longer. The reason is that that increases local government dependency on central Government at exactly the time we should be empowering councils—with their electorates, if it is felt that a referendum is justified—to make the right decisions for their local area. That is localism, and we will never solve the overcentralisation of England unless we get councils to raise more of their revenue locally. Many, of course, have been doing that, and many will do so next year.

Secondly, on the specifics of the consultation, I come to the £120 million safety net holdback proposed for 2014-15. I doubt that it is necessary and I would distribute it unless consultation clearly demonstrates otherwise.

Thirdly, it is unclear whether this funding settlement as proposed will enable all councils to deliver their statutory obligations. Councils have to help in this process as part of the consultation by demonstrating exactly where they may fail to meet them. Councils also have to help by pressing for single funding pots for local authority spending, health, and for expenditure by the DWP. Savings are to be made in that area by reducing duplication. I entirely agree that we need to create a place-based system of finance in England, and local government has to lead it. That could be based on the governance that is developing locally: combined authorities, health and well-being boards, joint committees, local enterprise partnerships, and so on.

Our current model for financing and running local government is not fit for purpose. The Local Government Association has proposed five-year funding settlements, wider revenue-raising powers and the wider involvement of local government establishing how grant is to be distributed. I concur with its position, but we are now in great danger of seeing some local authority services sinking to levels that are unacceptable for a civilised country. I hope very much that the Government will take on board the financial problems that many councils now face.

My Lords, I welcome this debate, and congratulate my noble friend Lord Smith.

The importance of local government, as many other noble Lords have commented, is that it has a very large and direct effect on people’s lives—on their health, jobs, education, leisure, environment—and particularly on poorer areas and communities, which may not benefit to a disproportionate extent. However, they are not necessarily the people who are most reflected by opinion surveys. Therefore, the notion that because opinion surveys show that things are getting better might not, for the population as a whole, reflect the key activities of councils. Nevertheless, over the past 20 years everyone has seen a remarkable improvement and a rise in morale in many of the most depressed communities—or in some of the ones I have seen. Increased funding was very much central to that process, so I am not ashamed of the fact that the Labour Government spent considerable quantities of money, as one saw great advantages come from that.

It is also important to realise that local government’s activities are associated not just with spending money, but often with great creativity and with making improvements requiring imagination, as I learnt myself when I was a city councillor introducing pedestrianisation, which cost very little indeed. I was recently canvassing in Stoke—a very important city—where the slag heaps have been turned into green hills and an international cycling arena. However, as the noble Lord, Lord True, and others have commented, there are many rigidities in our local government compared to that of other countries. I put down a Parliamentary Question on the issue that many schools are still unable to use public parks, nor are school playing fields allowed to be used as public parks, as they are in the United States. It is quite extraordinary. I battled on that issue as a councillor years ago.

As the noble Lord, Lord Shipley, has just commented, when the facilities and services provided by local government are insufficient to maintain communities—this is not just a zero-cost effect—there will be other costs, perhaps to health, and perhaps to security and policing. There are areas in cities where we have seen the role of focused funding, in Sure Start centres, youth clubs and social health programmes, which have proved to be very effective for deprived families; those are areas which may be cut in the likely financial outturn. Of course, in richer towns there is a differential expenditure according to whether local people sue them. In a certain rather well-to-do city, which I shall not name, it was well known that pavements in certain areas were always very well maintained, because, if they were not, people would sue the council. So there is another way in which people can have a comeback.

No mention has been made in the debate of the role of the Audit Commission. When I was a councillor—and as a Member of the House of Lords—I saw reports from the Audit Commission about new ideas, progress and problems in local government. I cannot see that the demise of the Audit Commission has led to the creation of an equivalent substitute. All that we see in the Government’s documentation is that they have produced a leaflet of 50 ways in which to save money, which is not quite the same thing.

The Government’s encouragement to local authorities to stimulate new business and housing is, of course, welcome. As a former councillor and a director of a high-tech company in Cambridge, I saw at first hand how councillors working with all local organisations could be very effective in bringing in innovative business—although they could also be very effective in stopping local business—but it had to be done properly. One difficulty in the past three years is that one way in which local government was working with business was through the regional development agencies, which were clobbered when the present Government came to power, although they have now been effectively reinstated under some new name.

The other important feature, as other noble Lords have said, is that no company is going to invest in an area unless there are not only good pavements but high standards of health, environment and education. The Trading Standards Institute, in producing information for this debate, was very concerned about the loss of funding for its inspectors—and the same applies for public health inspectors. To give noble Lords a bit of history at this point, when I became a councillor in Cambridge I met the chief public health inspector, Mr Edwards, who said that Cambridge was a very dodgy place. When he first arrived in Cambridge, which I suppose was in the 1960s, he checked on all the taps in all the famous colleges. Of course, Prince William is going to one of these Cambridge colleges, and I hope that someone has checked the taps—because when Mr Edwards did so, he found that a certain college had very dodgy water. He said that that was probably why Prince Albert died three weeks after visiting a certain college in Cambridge. Those inspectors have a very important role. The Trading Standards Institute has commented on the role of fraudulent actions by people and businesses, which local government inspectors can help to prevent.

More recently, we see another role for local government, working with government agencies in dealing with the issues of floods and the coastline. How can we have businesses moving into these areas if there is uncertainty about whether they will be prevented from flooding, as the noble Lord, Lord Smith, said? There seems to be some real question as to whether there will be ongoing funding for this process and these events look as if they may become more serious and frequent.

Even the most middle-class people, whose pavements are nice and smooth and who live near parks, still have to breathe the same air as those in poorer areas of the cities. There are very considerable developments in that regard; the average air quality in UK cities, as Defra has pointed out, is now worse than the EU recommended standards, and even worse in poorer areas, with high traffic concentrations. The funding for air quality monitoring, forecasting and traffic management is apparently to be cut back. If there are a large number of unhealthy people as a result, that may involve a cost to the NHS and the community. That is just one example of where a cost-benefit analysis would seem to be appropriate when investment decisions are being made.

In conclusion, as legislators in this House of Lords with responsibilities for government, our responsibilities are for the whole of the UK and we must ensure that government looks after the people in all areas of the UK, especially those who are most reliant on government.

My Lords, it is with great pleasure that I take part in this debate, which was excellently introduced by my noble friend Lord Smith of Leigh. I declare an interest as the newly elected county councillor for the Wigton division in my home county of Cumbria, although it is not my first experience of local government. I have not as long a record as my noble friend Councillor Lord Beecham, but I was elected in 1971 as a Labour councillor to the old County Borough of Oxford when I was 23. Those were heady days for local government. Nowadays, the Conservatives think of Keith Joseph as the trail-blazer for Thatcherism, but then he was Secretary of State for Social Services and was encouraging us to increase our social services budgets by 10% a year in real terms. Well, it all had to come to an end, and it was my adolescent political hero Tony Crosland who, in 1975, told us, “The party’s over”. I am afraid that, in the late 1970s, that phrase applied not just to the increase in local government spending—my own party went pretty near the brink.

Indeed, my second spell in local government was in the London Borough of Lambeth in 1982, where I was fighting the lunacy of Ted Knight’s illegal refusal to set a rate. I hope to God that we never have to live with that kind of experience again. The contrast in local government between today and the early 1980s could not be more striking, I think, in two respects. First, the cuts now being demanded of local government are massive and unprecedented. I think that I am right that, in 2010, Cumbria’s total budget for capital and current together was £720 million and there were £88 million of cuts to be achieved by April 2014, but it will be necessary to achieve another £88 million from within that £720 million by 2016-17. Of course, if George Osborne gets his way on requiring £25 billion of further cuts over the following two years, it will be a pretty gloomy picture.

I say to the noble Lord, Lord Shipley, that I do not think that many people on our side of the House sincerely dispute that cuts had to be made in 2010, because of the impact of the global banking crisis on a very exposed UK economy. If Labour had been elected, as Alistair Darling made clear in the run-up to the general election, there would have been deep cuts in public spending. I agree with the noble Lord, Lord True, that there was fat that could be cut. The question is whether the extent is now reasonable.

My second point is about local government’s response. Think of the early 1980s and the contrast could not be starker. Local authorities, including I think virtually all the Labour-controlled councils, have behaved with realism and responsibility in this very difficult situation. Many of them have planned and pioneered innovative ways of delivering services at lower costs—I think of my old London Borough of Lambeth where I was a councillor, which is now a model of innovation in local government. That is a tremendous success for the modern Labour Party. It would be nice if, for once, Eric Pickles could at least acknowledge that local government has met this situation with realism and responsibility. Of course I would not want to equate the Minister in any way with the Secretary of State, who often lacks the ability to reach out across the party divide in order to recognise the tough decisions that local government has responsibly taken.

There is a very serious question about the sustainability of what is planned for the future. I think that the Government should now be, as the noble Lord, Lord Smith, suggested, not only thinking about what would happen if local authorities became insolvent, but carrying out a major study of whether and how a sample of authorities will be able to sustain their present pattern of statutory activities with the financial outlook that we have.

Already in Cumbria, the Labour/Lib Dem administration is being forced to pare back virtually all non-statutory services. Our budget consultation in the coming year, for instance, assumes that the authority will withdraw from providing free school transport for all post-16 schoolchildren. In a sparsely populated county, it could have extremely negative implications for equality of opportunity if children from poor homes can no longer access the best A-level provision. Similarly, we are proposing to withdraw all bus subsidies in Cumbria. Bus subsidies are the lifeblood of communication in communities made up of small towns and ex-mining and agricultural villages.

In my division of Wigton, I am facing a very tough battle with the leadership of my council, with whom I get on very well, to rescue and repair the swimming pool that has been closed. I know that if we can find the money to repair that swimming pool the county will not be able to sustain it over the future years—it will have to become a community responsibility and the community will have to take charge of running it and finding a way to finance its deficit. The big society may sound a noble aspiration, but I have to say that from the present Secretary of State all you feel is a vicious kick in the backside and a lot of disingenuous information and bluster.

The Government claim that the overall reduction in the spending power of local authorities is only 2.9% next year and 1.7% the year after. Many speakers in this debate have demonstrated how that is not so. Without the NHS money, which is not free money, coming into local government the reduction in central government support for local authorities is going to be 15.9% over the next two years. That is a huge body blow. Cumbria as a shire has done a bit better than the mets—our reduction is only 8.5%—but, frankly, the Conservatives have looked after their own in this local government settlement and I think it is a bit of a disgrace.

We are required to make savings. There is a trifling scarcity grant, but in fact the cost of providing services in rural areas is very great. The Government need to explain what they are doing with the grant for local welfare provision, which many noble Lords have referred to, because this is a serious problem. In Cumbria, for instance, we have one division in Workington where life expectancy of people is 19 years less than in the most prosperous division, next to Penrith, yet the Government are withdrawing all support for us in dealing with the circumstances of poor families.

Of course further efficiency savings could be made, but we really need from the Government a rethink of their present approach. It is time that the realism and responsibility that local government has shown in the past three and a half years are matched by a similar attitude on the part of the Secretary of State.

My Lords, I want to speak briefly in the gap, which I know is getting shorter, and therefore my speech will be shorter.

I thank the noble Lord, Lord Leigh, for introducing this debate again. I do not envy my noble friend on the Front Bench having to answer it. I can only be grateful that it is not me this time. I do not particularly want to comment on the way in which local government finance has been discussed. However, I want to point out two things. One is that I have sat on the Opposition Front Bench as a shadow local government Minister and complained bitterly about the distribution of the grant. I swore that the Conservative local authorities were being denied revenue and it was all going up to, for example, northern boroughs. So the type of debate is not changing. Everyone always believes that they are very much worse off. What I do not deny is that local government has borne a heavy burden over the past years in how it is having to manage its finances, and there are two particular areas on which I want to touch.

The first is that while local government has borne that burden, it has been given a much wider ability to deal with it. I am not talking about the level but the means. When I was leader of a borough, I would have been grateful to have the flexibility that is now available to deal with budgets. We could not have pooled budgets or worked with other local authorities. We could not have had joint town clerks or done half the things that local authorities can now do with other public authorities to make the budgets work better. This is a matter of which we do not want to lose track.

I have suggested that we have an annual moan that goes back a long way, and I am sure that we will continue to do so. However, let us not lose track of the fact that council leaders who have spoken here today have a far greater ability to manage budgets than was ever available in the past. I hope that my noble friend will address some of that. I know that this is not the easiest debate for a Minister but we must hang on to the fact that we have more flexibility to deal with the way in which local government manages and defines budgets in the future.

My Lords, I, too, with the leave of the House, would like to speak briefly in the gap. I declare my interest as a former Preston councillor and former Lancashire county councillor.

The noble Baroness, Lady Hanham, is right. I, like her, sat in council meetings with people such as her noble friend Lord Heseltine. However, what I want to say to her and my noble friend Lord Smith is that it is no good talking about giving Lancashire freedom and then telling it that money has been transferred from the DWP for care and urgent-need support schemes. At the time of the transfer, the money was cut from £270 million to £172 million. By 2015-16, that money will have completely disappeared. It is no good talking about giving freedom to leaders of local authorities if they have no resources to put into areas such as the youth service. It broke my heart when this Government came in and took away the education maintenance support grant, which the previous Labour Government had brought in. It was pioneered in Lancashire and was taken up by other authorities. To the young people in places such as Skelmersdale and Wigton, it was not a case of an additional party going on or of too much money being spent; it provided genuine help to young people who needed it.

I apologise for speaking in the gap. I agree that there will always be an argument about the allocation of grant, but it is no good allowing local authorities to be told by noble Lords opposite that they have the power to move the deckchairs on the Titanic. In the north of England, many of us feel that the services that are really needed are sinking and we want government recognition of that fact.

My Lords, like others, I start by thanking my noble friend Lord Smith of Leigh for initiating this debate and for bringing to our deliberations both his expertise on local government finance and his practical experience hitherto of dealing with some of the worst consequences of recent settlements. However, I think that he admitted to us that options are beginning to be closed off, given what is before us today. I also congratulate my noble friend Lord Liddle on his return as an elected local councillor.

This has been a powerful debate with contributions from beyond the usual suspects. As my noble friend Lady Pitkeathley said, you do not need to be an expert in local government finance to understand the consequences of cuts and the benefits of quality public services. I am also grateful to my noble friend Lord Beecham not only for his contribution today but for organising an in-depth and very timely brief from Paul Woods, director of resources at Newcastle City Council. I thank the noble Lord, Lord True, for his interest in Luton, and I will share with him the representations that the council has felt able to make, given the savagery of the cuts that are proposed for us.

We share with the LGA concerns about the timing of the provisional settlement—a week before Christmas. The process was not enhanced by the unedifying spectacle of the Minister in another place having to be dragged to the Dispatch Box to answer an Urgent Question tabled by the right honourable Hilary Benn. As we have heard, the settlement covers the upcoming year 2014-15, with provisional grant figures for the subsequent year, and it does not make for happy reading. Councils will face significant further spending reductions up to 2016 and, as others have said, if the Chancellor should have his way—although we are trying to stop him having that—beyond. The challenge to local government could not be put more clearly than by the LGA:

“The next two years will be the toughest yet for local public services. By the end of this Parliament, local government will have to have made £20 billion worth of savings”.

As many noble Lords have said, 2015-16 will be the crunch year for councils and local public services. The noble Lord, Lord Tope, clearly had that view. It is a stark message indeed. The ministerial mantra, parroted in another place, of sorting back-office services and using reserves is a grossly inadequate response to the scale of the challenge faced by local government.

We accept that the Government have not been completely deaf to the assertions of local government in framing the settlement, and we welcome the change of tack in the reduction of money held back from councils, especially the new homes bonus, but without this matters would be worse. The noble Lord, Lord Shipley, referred to the safety net holdback, and we share some of those concerns.

The Government have been pushed into action on business rates by Ed Miliband, although they could do more in cutting business rates for 1.5 million SMEs. It is only right that councils are being fully compensated for the loss of business rate income arising from these measures, although they deserve assurances about when they will receive the cash. Perhaps the Minister can provide that for us.

Local government finance remains complex and we are about to enter the second year of the business rate retention era. All the more reason, therefore, why the Government should strive for transparency in the presentation of their arrangements, and this they have failed to do. Independent commentators have described the announcement as stronger on spin and misleading presentation than the technically sound explanation that councils and the public would expect. In particular, comparing such different councils as affluent Windsor and metropolitan Newcastle in an attempt to justify fairness shows just how out of touch the process has become. My noble friend Lord Beecham made that point. Time does not permit today to take stock of how the business rate retention scheme is working, although the LGA has already highlighted a concerning, emerging issue about the level of financial risks that councils face due to appeals and business rate avoidance.

One of the bones of contention—again dealt with by my noble friend—is the presentation of the overall settlement in terms of spending power rather than the settlement funding level. The former shows cuts of only 2.9% and 1.8% respectively for the two years, whereas the latter shows cuts of 9.4% and 13.2%. These are staggering amounts. The former includes significant tranches of NHS money to support social care, which will go to social care authorities only. Pooled funding, as my noble friend Lady Donaghy said, is to be welcomed, but the fund does not address the financial challenges facing councils and clinical commissioning groups in so far as it is bringing together resources already committed to existing activity.

The settlement funding level is the local share of business rates and the revenue support grant, the money available for statutory services. The latter has been cut by 17% next year and by 41% over the two years. So it is clear that the cuts expressed in terms of spending power understate the impact of changes to government funding of council services.

We need to consider not only the overall level of the settlement: its distribution is also vital. We dispute the Government’s assertion that it is fair. My noble friend has pinpointed this problem, in particular, and has identified the technical arrangements that are driving it. His analysis is right. A simplistic comparison of total spending power per household is meaningless without an understanding of the different spending pressures that councils face in meeting statutory demands and their ability to raise revenue through council tax and business rates.

What is happening under the settlement is that the spending power of the more deprived areas has been reduced, while that of the wealthier areas is being protected. This is an inevitable consequence of the cut to the resource equalisation component of the revenue support grant, especially in an environment where the RSG component overall will be a declining part of the settlement funding assessment under the business rate retention scheme. This unfairness can be depicted in a variety of ways but, given the regional changes in spending power over the two years to March 2016, London authorities will lose 8.2%, the north-east 7.2%, the north-west 6.5%, the West Midlands 6.1%, Yorkshire and Humberside 6%, the east Midlands 4.2%, the south-west 2.2%, the east 2% and the south-east 0.6%. The figures speak for themselves. What definition of fairness justifies this distribution?

By the end of next year, compared to 2010-11, the 10 most deprived local authorities in England will have lost six times more than the 10 least deprived. We should not be surprised, given that we have a Government who have delivered tax cuts to millionaires and the bedroom tax to the poor and disabled. We should be in no doubt that these settlements are pushing some councils, inevitably those covering the most deprived areas, to the brink of financial failure. We have heard from several noble Lords about Wolverhampton’s experience.

As to the protection of individuals, can the Minister confirm that the settlement removes for 2015-16 the identified funding—some £170 million—for local welfare provision which was meant to stand in the stead of the discretionary social fund? We join the right reverend Prelate the Bishop of Ripon and Leeds in probing that matter. We should go back to our debates on the Welfare Reform Bill to revisit the assurances that were given at that time because I do not think that they are being fulfilled.

The noble Lord, Lord Snape, and others refer to the fact that council tax support funding is not transparently identified in the settlement, and the fears that councils may be forced to reduce their support in line with the reduction in their settlement funding assessment. The LGA points out that council tax has already become more progressive and that the cut in central government support, which could amount to £1.1 billion, would make this worse. As for a council tax freeze, is it not the case that an increasing number of councils, including Tory councils, are struggling to hold the line because it is difficult to balance the books? Unpalatable choices are inevitable, given the cost of living crisis that already besets so many families.

It is difficult to remain optimistic despite the historic resilience of local government, and recognising the role that councils could play in delivering jobs and growth. Councils have had to innovate and have benefited from strong and imaginative leadership; we have heard from some of those leaders today. However, this settlement will test their resilience like never before. For the future—this deals with the point made by the noble Lord, Lord Shipley—they deserve restoration of fairness in the distribution of resources. There can be no going back to 2010; I agree with my noble friend Lord Liddle on that. I agree with my noble friend Lord Whitty on the devolution of powers over housing, and would say to him that there is an independent commission that Ed Miliband has set up to look at the financing of affordable housing and council housing. There should also be devolution of powers over planning, jobs and skills. Above all, we want local authorities to have more responsibility to be able to serve their communities in the way that they think best.

My Lords, I am grateful to the noble Lord, Lord Smith of Leigh, for securing this debate today and, indeed, for his warm welcome to me in this role and in responding to this annual event for the first time. I should like to respond particularly to the remarks made by the noble Lord, Lord Beecham, about my right honourable friend the Secretary of State, Eric Pickles. All I can say to the noble Lord, Lord Beecham, is that it is such a shame because he speaks so well of you.

Noble Lords have covered a lot of ground in this debate and I may not have the opportunity to respond to all the points that have been put to me. I will do my best today. Where I am not successful, I will, of course, supplement my response with a follow-up letter which I will place in the Library of the House. I will just point out to the noble Lord, Lord Whitty, that we have a debate on affordable housing before the end of this month so we will be able to return on that occasion to some of the points that he raised.

The starting point in a debate such as this is to look at the context in which we are debating these matters and acknowledge that over the past three years the Government have had to take some tough decisions about the public finances. Tough, but these are now paying off as the economy gets back on track. My noble friend Lord True highlighted one prediction of the noble Lord, Lord McKenzie, in his contribution to last year’s debate which did not materialise. That was about councils becoming insolvent. It is worth reminding the House that the noble Lord, Lord McKenzie, also suggested last year that we were facing an environment of little growth and increasing debt, but as we look ahead, growth is forecast to be 2.4% this year. The Office for Budget Responsibility expects that jobs will be up by 400,000 and employment is at an all time high.

As the noble Lord knows, while we remain having to bring down the deficit, we still have to pay off debt but we are having to deal with less debt than we might otherwise have done had we not taken the measures that we have.

I shall return now to what we have done in terms of the changes we have made and people’s reaction to them. It is worth reminding your Lordships that, as regards the changes we have made to the way in which councils are funded, a recent survey showed that public satisfaction with council services has stayed the same or actually improved in 90% of cases. That is a real credit to local authorities. We are making progress but in order to continue to do so it is vital that we stick to the disciplined course that has been set. Like every part of the public sector, councils have had to shoulder their fair share of the responsibility to pay down the deficit and get the nation’s finances back on a stable footing. The noble Lord, Lord Liddle, acknowledged that the right honourable Alistair Darling, when Chancellor, said in 2010 that cuts would be necessary if the Labour Government were re-elected at that time. However, it is worth noting that the Labour Opposition have opposed all of this Government’s cuts to local government. My noble friend Lord Shipley was right to ask what the noble Lord, Lord McKenzie, would do if Labour were elected. I noted that he did not provide us with much information on that in his winding-up speech today.

Much of the comment today has focused on reductions in central government grant. However, concentrating on those grants misses the bigger picture. It is far more accurate to look at the overall spending power that councils have. Contrary to what has been said, spending power is the best available measure of resources available to councils. We have published the methodology and the data in full on our website. Spending power includes the money the councils raise through council tax, business rates and financial incentives. I am sure noble Lords will welcome being reminded that local authorities now retain 50% of those business rates, which is not something they were able to do previously.

This debate illustrates some stark contrasts between this Government’s approach and philosophy and those of the Opposition. The previous system made councils dependent on central government for their income. Councils got more money by painting the blackest possible picture of their area. Indeed, Andy Sawford, the opposition spokesman in the other place, said only this week that the Labour Party would return to this approach if it succeeded in winning the general election next year. The Opposition talk about so-called fair funding but what they do not say is which councils they would cut if they were to introduce their preferred approach.

In contrast, we have set up a system which inspires ambition and aspiration and rewards councils which go for growth, support businesses, attract investment, help create jobs, and which are absolutely focused on transforming their services to deliver the best possible outcomes. By that I mean the most effective and most efficient public services which best support local residents. Our system means that councils which respond to new opportunities see the benefits of their efforts. I remind noble Lords what my noble friend Lady Hanham said when she spoke powerfully about the flexibility that local authorities now enjoy. I give way to the noble Baroness.

Will the Minister please give the names of two or three local authorities which in her Government’s view have deliberately overemphasised their deprivation in the past in order to secure help? Did Windsor do that?

I am not suggesting that people overemphasise, I am suggesting that the different approaches between this Government and the noble Baroness’s Government led to authorities focusing on where they faced difficulties rather than focusing on how they could benefit from opportunities.

One of the best illustrations of this Government’s approach is the new homes bonus, an incentive that will be worth almost £1 billion next year. This year, Bradford can expect some £2 million in new homes bonus for year 4 of the scheme, Wiltshire some £3 million and Walsall £1.2 million. The Government have listened to local authorities about not topslicing the new homes bonus, which was acknowledged by the noble Lord, Lord McKenzie. I am listening to noble Lords who call for even greater localism and I am interested in what they say but I also hear some contradictions in the various analyses that have been made by noble Lords in the debate today.

One of the other major points raised by noble Lords is that some parts of the country are losing out compared to others. However, the settlement represents a fair deal for every part of the country: north and south, district and county, city and shire. On average, councils will have spending power worth £2,089 per household. The average spending power reduction is just 2.9% in 2014-15. There is protection for more deprived areas of the country, those areas which are most dependent on grant. They continue to receive significantly more government grant. Notwithstanding the comments made by the noble Lord, Lord Beecham, it is worth making the point that Newcastle, for instance, receives in the region of £900 more per household than authorities such as Windsor and Maidenhead.

We have also recognised—

Does the Minister not recall the indices of deprivation to which I referred? The required spending is much higher per head than in Windsor and Maidenhead. On that basis, how can she possibly compare the two?

This system acknowledges that there is greater need in an area such as Newcastle. That is why it is receiving considerably more per household than areas that are not in as great a need. We acknowledge that and that is what we are doing. However, we also believe, taking on board the point made by my noble friend Lady Hanham, that Newcastle, along with every other area of this country, also has great opportunities to raise more funding in its own area through the various different kinds of scheme that are there and that will increase growth in the area if the opportunities are taken. We have also recognised that services can sometimes be more difficult and expensive to deliver in rural areas and have set aside £9.5 million to help them as they modernise their services.

The noble Lord, Lord Beecham, raised questions about the inclusion of social care funding. Social care funding, or the better care fund, which is worth £3.8 billion, is jointly agreed by councils and the NHS locally. Provisional settlement figures show that authorities facing the highest demand for services receive substantially more funding.

As councils are now in the process of setting their budgets, council tax payers will be looking to them to keep bills down. When we look at the local government finance settlement, local council tax payers are very much in the front of our mind. The Opposition talk a lot about the cost of living, but it is worth pointing out that under the previous Government, as my noble friend Lord True said, council tax more than doubled. This Government have done everything possible to protect hard-working families from further rises. Over the past three years, we have offered enough funding for councils to freeze council tax without losing income. We will be doing the same again for the next two years, with a further £550 million available to councils. We also intend to roll that funding into the baseline, giving certainty that councils will not lose out tomorrow by helping council tax payers today. Where bills have been frozen, the average bill payer could have saved more than £700. I very much hope that as many councils as possible will take up this offer, passing on these savings to their residents and doing their bit to help people with the cost of living.

I do not think that any noble Lord raised the issue of council tax referendums but I am sure your Lordships will wish to know that we are still consulting on the principles of that. The threshold will be announced shortly. Noble Lords should be aware that we are open to representations about a lower threshold than that set up to now. Transparency and accountability to local taxpayers are absolutely critical. Those authorities which have been setting a 1.9% increase to avoid the 2% threshold for a referendum are simply not having an honest conversation with their residents. The money is there to freeze bills so why not take it?

I am grateful to the noble Baroness. Is she saying that you can have any increase you like under 10% as long as the Government approve of it? Why does she not allow the electorate to make its judgement as it does upon Governments, at the ballot box at elections?

The noble Lord knows very well that we are ensuring that councils can freeze council tax. We think that it is important that that can be delivered as a way to support families who struggle with the cost of living. The noble Lord, as concerned as he is about the cost of living, should support councils in freezing their council tax.

I do not agree with the noble Lord, Lord Liddle, that my right honourable friend the Secretary of State has not paid tribute to what many councils have done to try to transform services. We acknowledge that many councils have taken steps to make savings through common-sense measures, but much more could still be done. I also do not agree with the noble Lord, Lord Smith of Leigh, that nothing more can be done because only low-hanging fruit was available to them. We are not talking small change here. It is estimated that some £2 billion a year is lost through local fraud. Local authorities spend £60 billion a year on procurement. There remains plenty of room for councils to save significant sums through more joint working, sharing back-office functions and using smarter procurement practice. Council tax payers rightly expect to see councils tackle these issues before they start putting up bills or cutting back on services. As has already been mentioned, the Government published Fifty Ways To Save. I will not accept any cynicism about this because no council is yet fully realising the potential set out in that document. As one example, there are only around 20 shared chief executive posts in the country. There are plenty of other examples where local authorities have made significant strides forward in this area and demonstrated what is possible.

Councils also have more than £19 billion in reserves. People would be surprised to hear that that is increasing while at the same time local authorities plead poverty. There is also something like £2 billion-worth of uncollected council tax. Councils have varying degrees of success in their collection rates, but all need to aspire to the best. That is even before we begin to consider the more fundamental transformation in services through models like the troubled families programme or the whole place community budgets, where the emphasis is on early intervention and prevention. Over time, these programmes promise to be more effective and efficient. I could offer more examples but do not have the time. I highlight this kind of approach in response to the noble Baroness, Lady Pitkeathley, and others who raised concerns about some specific services. We have set aside £200 million from capital receipts to support service transformation. Next year, there will be a further £330 million to continue this transformation, including a £200 million expansion of the troubled families programme.

Several noble Lords raised questions about the timing of the announcement. I am sure that noble Lords will understand that the settlement must follow the Autumn Statement, which this year was on 5 December. The noble Baroness, Lady Donaghy, asked about the consultation period. I make the point to her and other noble Lords that the consultation period we are in at the moment is on top of widespread consultation during the course of the year that led to the provisional settlement. I have already mentioned in respect of the new home bonus one change that we made in light of listening to that consultation. My honourable friend the local government Minister has already had one conference call open to all local authorities. He will hold another and continues to have an open-door policy available to all those wishing to engage and discuss matters with him.

The right reverend Prelate the Bishop of Ripon and Leeds and the noble Lord, Lord McKenzie, asked about local welfare provision. Councils will continue to provide support to those in the community who face financial difficulty or find themselves in unavoidable circumstances. The LGA has raised those issues with DWP Ministers, and I understand that it is in discussion with the DWP at this moment.

As I said, I will follow up some other points in a letter that I will write following the debate. In concluding, councils have taken important steps towards modernising and transforming their services, and I pay tribute to them for their efforts, but it is possible to do more while also keeping council tax down. We have delivered a settlement that is fair to all parts of the country, and we believe that the flexibility is there to help councils to meet this challenge and, most importantly, to serve their local taxpayers even more efficiently and effectively than they have been able to in the past.

My Lords, I thank noble Lords for their contributions to today’s debate, particularly the right reverend Prelate the Bishop of Ripon and Leeds. I wish him well in his retirement. This has been his last debate; he has made important contributions to this House.

There has been considerable agreement in the House, and certainly a passionate view, that localism is the way that we should go forward. Many noble Lords referred to the impact that the cuts will have in future on vulnerable people. My noble friend Lady Donaghy talked about the impact that they will have on the workforce, some of whom will lose their jobs, but those who stay in jobs have also faced a pay freeze for three years and now a 1% rise, so their real standard of living is going down.

I hope that I did not give the impression that the noble Lord, Lord Shipley, claimed that I did: that I thought that local government did not need to change. As someone responsible for local government finance, I began to make my decisions about the future in 2009, when I realised that things were going to get tough from then onwards, so I prepared my authority to deal with that. We cannot go on simply doing the same round—I think the Minister responded somewhat to that—we need to rethink the way we deliver all public services, not just local government. We need to do it on a place-based system.

There are many ways in which I could save money for the Ministry of Justice but, frankly, I am not going to spend a penny on that unless I am sure that I will get a return for it. That is the incentive I want from the Government. Tell the Ministry of Justice that we can keep people out of prison if we give them more support, but only if we get some incentive to put our investment in.

The Minister gave a robust defence of the Government’s position; I am not sure that she was on firm ground all the time. Spending power is a very arbitrary definition of what is going on in local areas. There is much in it; there is much left out. When we had a proper place-based settlement we understood how much money was going in and it was in the control not of local authorities on their own but of local authorities working in partnership with other agencies. We need to get the DWP to recognise that we are not going to get people into jobs from offices in Whitehall or Manchester—it will be local people on the ground who get people back into work. That will have the biggest impact on public spending, because families with incomes from employment, on the whole, do not depend on public services like those who do not have jobs.

I was a bit surprised when the Minister suggested that it was in local authorities’ interest to paint things in the blackest shades. I have never done that about my authority; I have simply pointed out where there are differences in the way that authorities are run. Noble Lords gave examples of death rates in different areas, which I think adequately illustrated that.

Early intervention is the key going forward, but in many areas of local government, we have limited ourselves to critical needs. When we have a Secretary of State who seems fixated with the frequency of bin collection, I think that says it all.

Motion agreed.