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Local Government Finance

Volume 767: debated on Thursday 17 December 2015


My Lords, I wish to repeat a Statement made earlier by my right honourable friend Greg Clark in another place.

“I believe our gloriously diverse country will prosper more if the districts, counties, towns and cities that make it up have more power. If you accept that, it follows you must believe councils to be capable of exercising that power. Over the past five years, councils have shown great responsibility. When local authorities account for a quarter of public spending, it was always the case that they would have to carry their share of reducing the largest deficit in post-war history. Not only have they done so, but public satisfaction with their services has been maintained or improved. I would like especially to thank the staff of those councils most deeply involved with the recent floods; their commitment to their residents is exemplary.

I cannot credit councils with acumen and then deny them candour. More savings need to be made as we finish the job of eliminating the remaining deficit, so I have listened carefully to councils as we prepared this settlement. They asked for: the right to spend locally what they raise locally; help with adult social care; expenditure savings which recognise what has already been achieved; recognition of the higher costs of providing services to sparsely populated rural areas; encouragement for cost-saving innovation; rewards for new homes; complete transparency with regard to resource allocation; and a move beyond one-year-at-a-time budgeting.

This provisional settlement meets all those objectives. Let me explain. Local government will be transformed by localism. In 2010 councils were 80% dependent on central government grants. By 2020 they will be 100% funded by council tax, business rates and other local revenues. Retaining 100% of business rates forges the necessary link between local business success and local civic success. To support this further, we will grow the Local Growth Fund to £12 billion by 2021—a Conservative-led revolution, transforming overcentralised Britain into one of the most decentralised countries in the world. Authorities will also be able to spend 100% of capital receipts from asset sales, to fund cost-saving reforms. We will publish guidance to assist authorities in this matter.

The spending review set out that, based on OBR forecasts, overall local government spending would be slightly higher in 2019-20 than in 2015-16. Core spending power for councils will also be virtually unchanged: £44.5 billion in 2015-16 and £44.3 billion in 2019-20. In real terms, this requires savings of 6.7% over this spending review period, compared to the 14% announced at the spending review of 2010.

The unanimous view across local government is that its biggest cost pressure is care for our growing elderly population. In September, the county councils and the Local Government Association wrote to me, estimating that these costs would require an additional £2.9 billion by 2019-20. Some local government leaders proposed an innovation: a social care council tax precept of 2% a year, guaranteed to be spent on social care, equivalent to £23 per year on an average band D home. In the spending review the Chancellor and I agreed, and will ensure that the precept is transparently itemised on residents’ bills. We will go further: we knew that some councils would not raise enough from a 2% precept, so we announced a fund of £1.5 billion a year to support councils in working with their local NHS to address the pressures on care. Today I allocate that £1.5 billion to complement the new precept—that is, more goes to councils that raise least from the precept.

We recognise in the distribution of resources the particular needs of councils with social care responsibilities. Local government asked for £2.9 billion by 2020 as a contribution to the costs of social care. In this settlement we will make up to £3.5 billion available by that year, distributed fairly towards local authorities with social care responsibilities. I applaud the maturity of local government as a whole in telling me that they accept that this prioritisation implies, over the next few years, that those councils with social care responsibilities should have relatively more resources than those councils which do not have them.

Some district councils—those with low council tax bases or which serve the most rural areas—face particular pressures. So while this settlement maintains the core referendum threshold at 2%, the threshold for the lowest-cost district councils will be £5 a year, so they are not punished for being economical while those that have spent more in the past were allowed to spend more now.

I will increase support for the most sparsely populated rural areas by more than quadrupling the rural services delivery grant from £15.5 million this year to £65 million in 2019-20, by which time, when 100% business rate retention has been achieved, we can consider what further correction is due. I will also protect, in real terms, the £30 million funding for lead local flood authorities, and the £2 million for those authorities to act as statutory consultees in planning sustainable drainage systems.

The new homes bonus provides valuable funding, and, as importantly, encourages housebuilding, so I can announce today that I will extend the bonus indefinitely but with some changes, on which I am consulting. All savings will be retained by local government to contribute towards social care.

In a world in which only a small proportion of councils’ funding will come from central government grant, we require transparency on the components of financial resources available to councils. I have noted the criticism of the Public Accounts Committee and the DCLG Select Committee about previous inclusions of the existing Better Care Fund and the public health grant in councils’ spending power. I will follow their advice and henceforth report only resources over which councils have discretion.

In addition, in all the figures in the settlement I have chosen to understate the maximum resources available to councils. For example, in line with the OBR, I assume that councils will increase council tax in line with inflation rather than the referendum threshold of 2%. I expect that, as previously, councils will increase bills by less than their full entitlement. Had I assumed that maximum figure, though, over £0.25 billion extra in total resources would have been recorded as available to councils.

The main reason that councils keep liquid reserves is as a buffer against unpredictable year-to-year budgets. Local government has consistently told me, and for generations told my predecessors, that greater certainty about their income over the medium term would allow it to organise more efficiently and strategically, and put some of those safety-net reserves to more productive use. So in this settlement I do something else that local leaders have yearned for: for the first time ever, I offer a guaranteed budget to every council that desires one and which can demonstrate efficiency savings for next year and for every year of this Parliament—a four-year budget to give certainty and confidence; a settlement that maintains the financial resources available to councils in 2020 at around the same level as they are today, while giving incentives for local government to make significant savings; a settlement that directs up to £3.5 billion to care for our elderly citizens; and a historic settlement that does what campaigners for devolution thought they would never live to see, which is local councils answerable to local people, rather than central government. I commend it to the House”.

My Lords, I refer to my local government interests in the register. I extend the customary thanks to the Minister for repeating the Statement, but I can offer few thanks for the substance of the Statement or the malign effects that it will have on local communities and the services on which they rely. The Minister in a previous life was a highly respected council leader. She has earned similar respect in this House. Not for her the shocking lack of understanding displayed by the Prime Minister in his exchange of correspondence with the chief executive of Conservative Oxfordshire about the impact of government policies on local authorities—supported over the last five years, I remind the House, by the Liberal Democrats.

However, this year's settlement takes us to a new level. A week ago, I spent three hours at a meeting of Newcastle's health scrutiny committee discussing possible cuts in social care and public health provision of an unprecedented severity. The clock is being turned back by 40 years to a time when, as chairman of social services, I helped to transform provision of these key services in Newcastle. A combination of cuts in funding and cost pressures, the latter of which the Government studiously ignore, will next year be reflected in a requirement for the city to save £221 million on a council budget of what had been £280 million in 2011-12. This grim scenario is of course not confined to Newcastle. Councils of all political colours, all over the country, are facing similar pressures, as the Conservative-led Local Government Association—whose chairman is in his place today, and I welcome him—has pointed out. Such pressures are aggravated by new costs such as the so-called national living wage, which will impose a responsibility to pay £330 million extra next year, rising to £834 million by 2020, or the deprivation of liberty assessments amounting to £172 million—again unfunded, like other new burdens.

In his Statement, the Secretary of State declared:

“When local authorities account for a quarter of public spending, it was always the case they would have to carry their share of reducing the largest deficit in post-war history”—

words which the Minister has repeated. In fact, of course, local government has taken the largest cut of any part of the public sector or government departments—and, by the way, the Chancellor has still missed his deficit reduction targets.

In this year again, local government is taking a huge hit relative to other departments. One of the few positives to emerge is that, as the LGA had requested, we will now have a four-year budget. As yet, however, the funding formula remains unchanged, and while revenue support grant will disappear by 2020, it is entirely unclear how the increasing reliance on business rates will work in practice given the wide disparity of such income between different authorities. As yet there are no details of how there might be an equalisation scheme, although I understand that the Government may consult on this.

Moreover, the worrying trend of reverting to a 19th-century poor law system for income support, reflected in the localisation of council tax support, is apparently now to be followed by localising the attendance allowance paid to 1.5 million people over 65 with a disability who need personal care, which costs in total some £5 billion. What assurances can the Minister give about how this sum will be allocated and whether it will be ring-fenced? If it is to be ring-fenced, what is the point of the change?

The decision to allow councils to increase council tax by 2% without a referendum in order to support social care is welcome as far as it goes. However, it does not go very far. In Newcastle, we would raise only £1.7 million, which is a fraction of the cuts that are looming over our social care budget; and of course in a city where 70% of council tax payers are in bands A and B, the 2% yields much less than in other, more prosperous parts of the country. The Government have announced their intention of addressing that issue but it is unclear how they will do so, and after all, councils have little time before they have to announce their budgets. In any event, it is unlikely that a new formula will make a radical difference to the kind of figure I have referred to for Newcastle. Similarly, we await details of changes to the new homes bonus, under which Newcastle and many similar authorities have been net contributors to other, more affluent areas.

Public health is another area in which the Government play the three card trick. Having, rightly, restored public health responsibilities to local government, 42 years after Sir Keith Joseph removed them, this Administration imposed an in-year cut of £200 million in the current year and go on to impose in the Statement and the spending review additional cuts of 3.9% in real terms every year until 2020, which amount to a staggering £533 million. These cuts, moreover, will inevitably lead to greater pressure on the NHS, which is itself facing unprecedented financial challenges.

The Government make much of their devolution agenda. What we are witnessing and what today’s settlement exemplifies is that responsibilities for large areas of public services are being devolved without adequate resources to deliver them. Long on rhetoric, short on cash, the Government will the ends and withdraw the means.

I have sought to exemplify some the problems that my city and my constituents will face as a result of today’s announcement. However, of course, these effects will be felt to varying degrees in most local authorities across the country. The House is fortunate in having among its Members on both the Government and Opposition Benches a number of experienced former council leaders—one of whom I suspect will speak to this Statement very shortly in his capacity as the Lib Dem spokesman on local government. However, it also has several former Secretaries of State, none of whom is in their place today, and with all of whom I used to do battle as council leader and subsequently chairman of the Association of Metropolitan Authorities. I never thought I would say this but I am, to my surprise, feeling almost nostalgic for those days, given what their successors are now doing. The Statement that has been announced today will inflict great damage to local government in this country. I fear that, again, it is a case of the Government passing the buck but emphatically not passing the bucks.

My Lords, I thank the Minister for repeating the Statement and declare my vice-presidency of the Local Government Association. One figure missing from the Minister’s Statement was the reduction by 24% of central government funding support for local government over the spending review period. When taking into account the forecasts of income raised locally by councils, the overall position is a 6.7% real terms reduction over those four years. However, that is of course a national figure and will be very different in individual authorities.

I remind the Minister that during the last Government, the National Audit Office consistently warned that the department needed to understand much better the impact of its decisions on local authority finances and services. The Public Accounts Committee, in a report two years ago entitled Financial Sustainability of Local Authorities, identified that while the department collected a significant amount of data from local government, it had not made clear how it would monitor councils’ ability to cope with funding changes. Then, in November last year, the head of the National Audit Office warned:

“The Department really needs to be better informed about the situation on the ground among local authorities across England, in a much more active way, in order to head off serious problems before they happen”.

Can the Minister say what the Government have done in response to the criticisms of both the National Audit Office and the Public Accounts Committee?

Much has been made of the extra 2% on council tax to help maintain adult care services, and there has been an admission that different councils will raise different sums of money from that 2%. In London, for example, Newham will only be able to raise 4.1% of extra funding whereas Kingston upon Thames will have 11.3% extra. What has been done to equalise the cash available in the central allocation of grant to reflect this? I note that in the Statement, the Minister said there will be an allocation of £1.5 billion to complement the new precept and then went on to say,

“that is, more goes to councils that raise least from the precept”.

So far, so good, but does that mean that enough is going to those councils? Simply telling us that more is going to go to them is not sufficient. Will the Minister bear in mind that the total sum being made available falls well short of the £6 billion the Health Foundation estimated will be needed by 2020?

Much is being made of the fact that by the end of this Parliament, local government will keep all the revenue from business rates. I understand that there will be guarantees of continued comparable funding at current levels, but any growth will stay locally. One consequence of that is that poorer areas are likely to get poorer while richer areas, because they can keep an increase in business rates income, are likely to get richer. What is the Government’s policy on equalisation, given that there will be no more revenue support grant?

Finally, earlier this week we heard that inspection figures indicate that the number of children’s services departments rated inadequate outnumber those rated good. This was described by the Government as a failure of state provision, but the implication was that it was all the fault of local government. We have reached a tipping point whereby the availability of money matters, and the Government have an absolute obligation to meet National Audit Office criticisms of their lack of understanding of the consequences of their actions. Government cannot go on requiring councils to deliver more services to more people with less real cash. It is an impossible task; will the Minister care to admit it?

My Lords, I thank both noble Lords. I have been busily jotting down notes and will try to respond to them as effectively as I can.

First, I thank the noble Lord, Lord Beecham, for his gladness at seeing some certainty in the funding over the next few years. Perhaps I may address some of his concerns, particularly about the efficiencies that local government has had to make since 2010 and going forward. Nobody could deny that the efficiencies the public sector has had to make have been, by their nature, very difficult. Everybody in the public sector has had to bear the brunt of the need to reduce the deficit, and I commend local authorities for the work they have done over the last five years. They have been innovative and enterprising, and satisfaction with local authorities has been either maintained or improved.

The noble Lords, Lord Beecham and Lord Shipley, are absolutely right about the revenue support grant. It will reduce to virtually nothing by 2020 and the figure for this year shows a reduction, because of the increasing localisation of business rates. Local authorities now retain approximately 50% of their business rates and they will retain 100% by 2020. Mayoral areas will be able to increase their business rates in due course.

The noble Lord, Lord Beecham, talked about social care. A precept can be raised for social care which will be 2% above the 2% cap that triggers a referendum on council tax. The noble Lord may be interested to know that for Newcastle, this would mean £20.7 million by 2020.

The noble Lord also mentioned the comments of my noble friend Lord Porter. I am sure that in due course my noble friend will want to speak for himself. However, today he said:

“The government has listened to what councils said we need and has delivered. More independence to serve our communities, a fair financial settlement for all types of councils, more resources to help care for the elderly and the certainty of long-term budgets”.

That is really welcome and I wish that it had been in place when I was a leader. My noble friend went on to say:

“This settlement should mark the beginning of a new age of independence and responsibility for local councils. In local government we will make a success of it, building on the hard work of the last five years.

Councils will be in greater control of their own destiny. It is an exciting time to be a councillor and this reform gives us … the biggest chance for a generation to serve our residents in a way that we know best”.

The noble Lord, Lord Beecham, also asked about attendance allowance. We will be consulting on the devolution of that.

The noble Lord, Lord Shipley, talked about the concerns of the National Audit Office and the Public Accounts Committee. Within local authorities there is a Section 151 officer who, every year during the budget process, comments on the sustainability or otherwise of a council’s budget. We believe that local authorities and local areas are best placed to know the dangers or otherwise of their future funding and, to my knowledge, no Section 151 officer has made an adverse statement on sustainability.

The noble Lord also asked about the £1.52 billion to complement the precept. The local authorities that are least able to raise the funding will be protected by a greater proportion of that £1.52 billion. I think that recognises, fairly, that those local authorities still have to provide social care. Local authority leaders have said to us that they need £2.9 billion. We will be providing £3.5 billion over the next few years, so I hope that gives the noble Lord some satisfaction.

The noble Lord also talked about poorer areas being likely to get poorer because of the RSG reducing to nothing by 2020. There will definitely be some form of equalisation. Councils such as Westminster raise well over £1 billion in business rates and other local authorities may see reductions. For the latter there will also be some sort of floor protection through business rate equalisation.

My Lords, for decades many people have campaigned about the plight of sparsely populated rural areas, and I very hesitantly welcome the part of the Statement that deals with that. However, I ask the Minister to be very careful about this—it would be really cruel if it were a false dawn. Given that such areas have very little capacity for business rate retention because, by their nature, they do not collect much in the way of business rates, what criteria will the Government use to judge the further correction that she mentioned?

My Lords, in answer to the second part of the noble Baroness’s question, that will be determined in due course. As I said to the noble Lord, Lord Shipley, the Government will not let the councils that will really struggle in that area fall beneath a certain level. Regarding the rural services delivery grant, this is not a false dawn. The increase is a quadrupling, so the Government recognise some of the problems rural areas face. The more sparsely populated they are, clearly, the more money they need per head to provide basic services.

My Lords, I fear this is perhaps not the settlement local authority leaders have “yearned for”, to repeat the slightly gushy phrase used in the Secretary of State’s Statement. However, it would be extremely churlish not to welcome the four-year settlement proposal. Whatever sort of certainty it is, it is important that we have that basis, and I thank my noble friend for that.

I also thank her for recognising the efforts that local authorities, of all stamps, have made. We have made huge economies—ahead of the Government in many respects—and we will carry on doing so. However, I hope the Minister will be prepared—my honourable friend Tania Mathias made the same point in the Commons—to recognise the position of anomalous authorities. At first blush, our area stands to lose nearly 40% of our RSG at a stroke in one year, and we have more over-65s than other authorities in London that are twice the size, so there is a need for dialogue here.

I also ask my noble friend to be cautious about devolution. Some of it is genuine and welcome, but too much is illusion and some of it is an instrument of control. It would be good if, in the dialogue over the next few months, local government and central government between them could disentangle what devolution means.

I thank my noble friend for, as always, his very sensible words. I said in my previous answer that I wish that when I had been a local authority leader I had had some sort of certainty as we lurched from year to year with local government settlements. I thank him for making the observation that the certainty is welcome. It also encourages councils to look at their reserve position. By their nature, reserves are for one-off, planned spending and are never intended to prop up revenue spending. However, if you know what your four-year position is, you can use reserves for one-off measures.

My noble friend talked about the reduction in RSG and—I presume by inference—the changeover to business rates. The Government will be consulting widely on that. I hope to see people like my noble friend coming to discuss with my department how some of the anomalous situations that might arise, particularly with an older population, can be dealt with through this process.

I take his point about devolution, but he will not be surprised to hear that, as a former Greater Manchester councillor, I do not perhaps share so much of his pessimism about it.

My Lords, the Minister will be aware that in April next year we have the introduction of the single-tier state pension and with it the end of contracting out. In Budget 2013 it was recognised that, from April next year, that would garner the Government an extra £5 billion a year. It was said at that time that those funds would be used to help fund the costs of the lifetime care cap, which was to be set at £72,000 and introduced in April 2016. That of course has been deferred, so what is happening to those resources if they are not going to be applied to that?

I always know that when the noble Lord stands up he may ask a difficult question that I may struggle to answer. Could I please return to him in writing, as I quite frequently do?

My Lords, I declare a former interest as a member of local authorities. However, I rise to defend not local authorities but the people who want the services of local authorities. Local authorities can be held up as something to shoot at, whereas it is local people who will suffer. If she cannot answer now in detail, would the Minister please write to tell me how on earth there is going to be a correlation between the amount local authorities can increase in expenditure—2% on the rates—and equalising the income they get while having regard to the very different levels of need in different areas? I understand that there is to be detailed discussion on the £1.5 billion, and so, unusually, I ask the Minister not only to write to me but to keep me up to date by writing frequently.

I hope I do not have to write too frequently and that the words I write give her some comfort. To reiterate—and I think I possibly did this last year—the 10% of local authorities in the most deprived decile frequently get more spending power than the 10% in the top decile. At the moment, it is about 24% more. However, I understand the noble Baroness’s point about the changes and how we will ensure that vulnerable people are protected. I am sure I can give her comfort in the letter that I will write to her. We do not want to see the most vulnerable people in our society suffer in any way—quite the opposite.

My Lords, I declare my interest as a vice-president of the Local Government Association. The Statement comments that by 2020 councils will be 100% funded by council tax, business rates and other local revenues, but it says nothing about the centrally imposed council tax referendum threshold. Surely it must be a logical extension from 100% local funding that there is no need for such a centrally imposed threshold, something else that local government of all parties has campaigned for for years. The LGA also referred to what it calls the “cost-shunting carousel”, whereby local government has imposed upon it large numbers of obligations and responsibilities, either from legislation or other impositions such as the national living wage. It calculated that that totalled £6.3 billion. Will central government at least try to agree with the LGA a list of what those obligations are and try to see whether they can get an agreed figure, rather than as at present, when it all happens, in effect, by stealth?

My Lords, the move towards business rate retention of 100% is in itself a freedom for local authorities not having to rely on the Secretary of State to tell them what they are going to get or not get. If I was a local authority leader, I would thoroughly welcome that, particularly where local authorities are innovative. As to whether the 2% cap will be in place when we are at the point of 100% business rate retention, as far as I know as I stand here now it will be, but I cannot speak for five years hence. In terms of local government obligations, when new burdens are brought in there is generally an assessment of those and that is taken into account.

My Lords, in view of her statement that it is an exciting time to be a local councillor, would the Minister agree that it would have been an exciting time to be a passenger on the “Titanic”?

I do not think that I would have liked to have been on the “Titanic”. But I say to the noble Lord, in all sincerity, that I campaigned for years for devolution, and across different parties, in Greater Manchester. We never thought that we would get it. What is an exciting time is, as a Minister, to have been able to bring the legislation through.