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Local Authorities: Financial Difficulties

Volume 836: debated on Wednesday 14 February 2024


Asked by

To ask His Majesty’s Government what assessment they have made of the financial difficulties facing many local authorities.

My Lords, we have listened carefully to local authorities about the pressures they are facing. That is why, in January, we announced additional measures worth over £600 million. Taking into account the recently announced local government finance settlement, that makes available up to £64.7 billion, an increase of 7.5% in cash terms on last year. The department continually monitors the sector, and we stand ready to talk to any council with concerns about its finances.

My Lords, what the Minister said is of course welcome, but it is still a drop in the ocean compared to the cutbacks local authorities have faced since 2010. The Government keep talking about cutting taxes in a forthcoming Budget, but is not the real issue that council tax payers also pay taxes? Surely, council tax increases will have to make up for cuts in income tax. This is not honest.

My Lords, for many years we have had a cap on council tax increases. It remains at 2.99% for the general fund, with 2% extra for councils that want more money for social care funding. However, the department is establishing an expert panel to advise local government and the department on local government financial sustainability into the future. The panel will include the LGA and the Office for Local Government, and we look forward to its findings.

My Lords, the local authorities that have so far gone bankrupt and applied for Section 114 have, by and large, been the authors of their own misfortune. Is my noble friend the Minister aware that many well-run upper-tier authorities—controlled by all parties—are now running out of road? Will not whoever wins the next election have to undertake a major review of local government finance? The current regime of overreliance on government grants, rate capping and an out-of-date council tax is simply unsustainable.

I agree with much of what my noble friend said. In December 2022, the Government ruled out reform of the local government finance system in this Parliament in response to the sector calling for stability and certainty from local government. However, this Government are committed to reforming the local government funding landscape in the next Parliament.

My Lords, I stress the need to review the local government financial settlements and support systems. In the case of a city such as Birmingham, even if increasing the council tax were realistic, a quarter of households—some 461,000 —are eligible for council tax support, and of those, 75,000 pay no council tax at all. Over the next two years, the city is facing a budget gap of some £300 million. Does the Minister agree that the structure needs to be reviewed and that individual circumstances have to be taken into account?

I repeat that we have said that we will look at funding in the next Parliament. There is an 18% increase in budgets per dwelling in the most deprived areas, compared to the least deprived. Through the settlement, places such as Birmingham are getting a lot more money.

My Lords, councils have been receiving money from the Government’s household support fund, which has provided many thousands of families with essential sharp-end help with their bills and food, for example. However, it is due to end at the end of March. Will the Government seriously consider extending that effective and targeted support for at least another year? Have they taken into account the increase in child poverty they anticipate will result from the withdrawal of this much-needed, much-used fund?

The noble Baroness is right to say that the current household support fund runs out on 31 March. However, the Government continue to keep all existing programmes under review in the usual way.

My Lords, council tax banding for our 25 million homes in England is based on their estimated market value in 1991. So, a two-bedroom flat in London, where property values have gone through the roof, falls in the same band as its equivalent in the north of England; a £1 million home is charged 0.2% of its value; and on average, one worth £250,000 is charged 0.6%. This year, 46% of households in England will receive a bigger council tax bill than Buckingham Palace. Does the Minister think that our council tax formula is regressive and needs reforming?

As I said, in the next Government we will look at all these local government financing issues. We agree that that is long overdue, but the sector itself did not want that to happen in 2022.

My Lords, does my noble friend recall that we promised we would fix social care? The problem for local authorities is that the vast majority of their funding goes on providing social care, crowding out other vital services. Until we address the issue of social care, this problem will get worse, and it is worst in those local authorities where the tax base is lowest and the demand is greatest. This is urgently needed, not least because people are not getting the social care they need.

I absolutely agree with my noble friend. We made changes to local government financing in January, and we listened to local government and its priorities: £500 million of the £600 million extra that was given is going into social care.

My Lords, this weekend, the Local Government Association Labour Group published its latest version of 101 Achievements of Labour in Power, featuring a huge range of initiatives: street support partnerships tackling homelessness in Leeds, Food On Our Doorstep clubs in Mansfield, delivering over 83,000 square feet of lab space to support life sciences in Stevenage, new models of fostering in South Tyneside, and Plymouth City Council launching the first ever national marine park to support conservation of our seas. Remarkably, all this innovation has taken place against the backdrop of a reduction in core spending power of 11% compared with 2010-11. Is it not time the Government recognised the huge value that people place on local services and worked with the sector to deliver a sustainable funding model to support them?

The Government do appreciate what local government can do, and it is not just Labour local government that is delivering this innovation and great services for local people. At this point, I should thank local government for everything it does. As I said earlier, we listen to local authorities all the time, which is why we put in £600 million more in January.

My Lords, may I return to the issue of reforming the model? I have recently been caught up in discussions with Suffolk County Council about funding cuts it was making to its arts programmes. That drew me into detailed discussions about what its priorities were and the challenges it was facing. It said that two things would make a huge difference. The first was knowing further in advance what it might receive; it was looking for a three-year projection. The second was for the groundwork for the reform to which the Minister has been referring to be done now, rather than in the future.

The right reverend Prelate is absolutely right: local government is asking for reform of the whole system, but it is also asking for certainty for future years. Recognising the importance of this, the Government intend to return to multi-year settlements in the next Parliament when circumstances allow.

My Lords, I am sure the Minister agrees that for 10 years, the Government made very severe cuts and, as the noble Lord, Lord Forsyth, said, there was increased demand for social care services. The result is that the non-statutory services have borne all the cuts. Services for young people, family support and libraries—I could go on—have all been severely cut and continue to be so. I lend my support, for what it is worth, to the Minister. Local government finance really is in desperate need of a fundamental review.

I have already agreed that this will happen in the next Parliament under a Conservative Government. However, as we have heard from the noble Baroness opposite, not all councils have stopped non-statutory services. Many of them are running their businesses very efficiently and keeping all those services going.