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Havering Council: Funding

Volume 741: debated on Tuesday 28 November 2023

I will call Jon Cruddas to move the motion, and then the Minister to respond. As is the convention in 30-minute debates, there will not be an opportunity for the Member in charge of the debate to wind up.

I beg to move,

That this House has considered funding for Havering Council.

This afternoon, I want to: highlight the financial situation facing the London Borough of Havering; ask for help and support from the Government; request a joint approach to remedying the situation; and offset the dangers of a section 114 report by the council’s chief financial officer, which would effectively freeze all non-statutory spending.

There is obviously also a wider national story here. Councils continue to face increasing demands for statutory services, especially adult and children’s social care, the provision of temporary accommodation, and homelessness support. Demographic forces are driving up demand for those services, and that affects some councils more than others. Meanwhile, central Government grant funding for councils dropped by some 40% in real terms between 2009-10 and 2019-20; it has gone from £46.5 billion down to £28 billion. Consequently, councils are more and more reliant on local funding through council tax and business rates. That has not been enough to compensate for the drop in central Government funding.

Since 2021, five local authorities have declared themselves effectively bankrupt because their costs are larger than their resources. Slough, Croydon, our neighbours in Thurrock, as well as Woking and Birmingham City Council, have all issued section 114 notices. Until recently, section 114 notices were generally seen as the result of financial mismanagement or equal pay backlogs. That is changing, however. Section 114 notices are increasingly likely to be issued by a significantly larger pool of councils, due to a one-two punch of demographic changes and dramatic shifts in funding. Combined, these changes mean that a whole series of councils look likely to become trapped in a position in which the cost of social care and homelessness exceeds their resources.

Many local authorities are already issuing warnings about section 114 notices. These include city councils, such as Sheffield, Coventry, Southampton and Nottingham; district councils, such as Mole Valley, Chelmsford, St Albans and South Cambridgeshire; borough councils, such as Windsor and Maidenhead, Surrey Heath and Wokingham; and county councils, such as Hampshire, Kent, Derbyshire and Northamptonshire, alongside councils such as Medway, Bradford, Barnsley, Rotherham and Manchester.

These councils do not fall on one side of a strict party political divide. They include councils from across the country, and from north and south; councils urban and rural; and councils led from both the left and the right. For instance, one in 10 of the so-called SIGOMA group —the Special Interest Group of Municipal Authorities, which represents 47 urban local authorities—has reported considering issuing a section 114 notice this year, and 20% say it might be possible in the next year. Similarly, one in 10 members of the County Councils Network reports facing effective bankruptcy. If we look at politics, the list includes Surrey Heath Council—the local council of the Secretary of State for Levelling Up, Housing and Communities—and various Labour-led authorities across the country.

Despite local authorities’ dire financial situation, the autumn statement had no new money for social care services, or any general local government funding beyond what was announced last year. However, I note that the Government increased local housing allowance rates last week, which is to be welcomed.

Although the language of local government often appears technically complex and incredibly dull and boring, we might conclude that much of British local government—a significant portion of the British state—is in danger of literally going bankrupt. This reality stretches way beyond those authorities that have already effectively declared themselves bust, and it has huge implications for public life across a range of services, from refuse collection, housing and homelessness, to education, social care, tackling antisocial behaviour, estate management, libraries and youth services—the list goes on. It is estimated that some 90% of councils have been using their reserves to meet their statutory duties, although some are more fortunate than others in that regard. I will come to that in a minute.

Take the general situation in London. According to London Councils, the capital’s boroughs’ overall resources are about 18% lower than in 2010-11 in real terms, but the population of the capital has grown by almost 800,000 since then. London boroughs need to make some £500 million of savings for 2024-25, to meet an estimated £2 billion funding gap over the next four years.

The next few weeks are critical. Councils will shortly receive their settlement figures, probably just as Parliament goes into recess. Following consultation, the figures will be confirmed in the middle of January, and council tax will be set in early March. It is against that general backdrop that I want to consider the situation facing Havering.

I should make three initial points regarding Havering. First, Havering has been very open about its predicament. In September 2023, the leader of the council, Ray Morgon, warned that the authority could be six months away from triggering a section 114 notice because of the escalating costs of social care and housing. Although other boroughs have tried to obscure their financial position and in effect hide from the communities that put them in the town hall, Havering has levelled with residents from the outset about what is going on. I very much welcome that as a mature form of civic leadership.

Secondly, Havering is generally regarded as a well-run and efficient council. It has low borrowing, unlike Croydon or Slough, and it has no historical pay claims, unlike Birmingham. It has the lowest unit costs in London, according to the well-regarded LG Futures consultancy, and is the third most productive council in the country, according to the consultancy IMPOWER. The situation it faces is very different from that of its immediate neighbours. Thurrock, for example, provided £655 million to companies via bonds, including for the purchase of some 53 solar farms. It shares a border with Barking and Dagenham, which I partly represent, and which has an accumulated debt of £1.2 billion. Havering is in a very different situation, and has not embarked on ill advised speculative activity to try to offset funding challenges.

Thirdly—this is not a party political issue—until May last year, the borough was a Conservative-led authority. Today it is run by 22 representatives of Havering Residents Association, supported by Labour’s nine councillors on the authority. On the scale of the financial challenge facing Havering, we have to bear in mind that local government funding continues to use a distribution model dating from 2013, based on data from the 2011 census. The model is ill equipped to deal with the kind of population flows that we have experienced in outer east London over the last decade.

Attempts at establishing a revised fair funding formula based on demographic change and modern need have effectively been parked by the Government, with pretty disastrous consequences for boroughs such as Havering. Moreover, the authority has limited resources to help take the strain. Havering’s reserves are the second lowest in London, standing at some £47.8 million. Meanwhile, the borough receives the third lowest settlement funding assessment in London, yet it remains in the top quartile for income collection.

The scale of the problem becomes apparent when we consider the demographic pressures facing adult and children’s social care. Havering has the second oldest population in London on the one hand, yet it has the fourth fastest growing children’s population in the entire country among those aged 0 to 14. On the growth of the child population, the Department for Education uses more recent data to allocate children’s school place capital funding. For 2025-26, it has allocated Havering a staggering 57% of all of London’s schools basic needs capital funding. That demonstrates the extraordinary expansion in the borough’s child population. That statistic shocked me, and it shows how important it is to use the latest data in distributing our resources. The other 43% of that funding is divided up between London’s other 33 boroughs. That is just one vivid statistical example of the changing demographics in the capital, of Havering’s growth and growing numbers of young people, and the escalating demands that that places on statutory expenditure.

As for the financial situation, Havering is currently forecast an overspend of some £23 million. In terms of its recent track record of budget setting, since 2010 it has delivered a mix of £163 million in savings and income generation, most of which has been reinvested in other services. It has also sold off £160 million of assets over the last 10 years.

To illustrate the scale of reduced support from central Government, Havering received nearly £100 million in central grant in 2010-11. That was reduced, in just over a decade, to just £37 million in 2023-24. Its budget gap is currently estimated to be some £31.2 million for next year, and £77 million over the next four years, against a net budget of £182 million. Currently, it has the fifth highest council tax in London. I accept that, for 2023-24, the authority’s core spending power was increased by some £18 million, including the council tax social precept, yet the pressures from social care were already £20 million in 2022-23, so the increased funding did not address additional demand and inflationary pressures for 2023-24.

On children and adult social care costs, it is estimated that the rates paid to providers for adult social care has increased by 33% since 2019-20, and children’s placement costs have risen by 49% over the same period. Those rises are partly accounted for by care home costs charged by hedge fund owners. In Scotland, in contrast, those running care homes have to be not-for-profit organisations. Basically, for-profit care is crippling our councils. Placements for our children can cost tens of thousands of pounds a week.

To add to that, Havering is seeing a large increase in those presenting as homeless, especially families. That is partly the effect of out-of-borough placements by other London local authorities, partly the effect of the housing benefit cap, and partly due to general migration to outer east London. It is now costing the authority some £3.5 million in cumulative accommodation costs.

Despite those extraordinary demand pressures, over 80% of Havering’s core income now comes from council tax. To repeat: it received the third lowest settlement funding assessment in London.

I congratulate the hon. Member on securing this debate. Many of Havering’s challenges that he has outlined are similar to those we experience across the water in Bexley. As a former deputy leader of the council, I have great sympathy for the arguments he is making. Given some of those challenges and the growth that, as we know, is coming out eastward on both sides of the river, does he agree that one way for the Government to quickly get more money out to the likes of Havering and Bexley would be to allocate more of the funding that currently goes to City Hall directly to those boroughs?

I am not playing pass the parcel here; it seems to me that, objectively—all parties can agree—there is a structural problem that is escalating across the length and breadth of this country. Havering is where the rubber hits the wall, in terms of the escalating demographic changes, especially with young people set against the long-term legacy of an older community, and this one-two punch of funding pressures on our basic statutory reserves. Therefore, I am not going to get into this game; I want to create some sort of cross-party dialogue towards greater partnership to resolve these pressures, rather than playing this little tit-for-tat political game.

Meanwhile, our health challenges mean additional budget pressures for people coming out of hospitals who need social care. In fact, it would be better for them not to go into hospital at all, but Havering has the lowest number of GPs per head of population in London.

Therefore, overall, given that Havering had the second lowest level of reserves, and given the level of its overspend and the forecast budget gap for next year, it is warning that, without additional support, it is six to 12 months away from issuing a section 114 notice.

To help Havering—and to return to the point that the hon. Member for Old Bexley and Sidcup (Mr French) made about how we resolve the situation—fundamentally, a fair-funding review must be implemented: one that better allocates resources based on modern realities of demographic change and need. I accept that that will not happen this side of an election, but may I suggest that any new money that the Government might allocate should not rest simply on the current funding formula, which is increasingly outdated and further compounds the inequalities in funding?

However, the only solution being offered seems to be capitalisation orders, which Havering will have to take if there is no new money. That penalises well-run councils with an additional 1% added to the Public Works Loan Board rate—a rate that is then fixed for 20 years—yet that blunt instrument will penalise an ever larger number of residents under well-run councils. Perversely, it will also increase those councils’ debts further each year and mean that we will go back to them year after year. Surely, as more councils are forced to use such orders, we need a more agile system—one that does not use a form of payday loan to pay for our public services. There should be different rules for good councils such as Havering. It is clear that the funding system is broken and must be fixed.

Overall, a crisis is unfolding across local government, and that is captured in well-run local authorities such as Havering. I request urgent discussions to look at these solutions between national Government and our civil leadership to help to address the looming funding crisis. I also suggest a more agile capitalisation system. The current system further penalises the residents of an increasing number of boroughs that are having to deal with the heightened level of statutory expenditure.

Havering is very much in the eye of the storm, yet it is commendably honest about the scale of the challenge it faces. I hope the Government are listening and will respond, because the clock is ticking. Otherwise, more councils will follow and our local communities will suffer. I look forward to the Minister’s response.

It is a pleasure to serve under your chairmanship, Sir Charles. I first of all thank and congratulate the hon. Member for Dagenham and Rainham (Jon Cruddas) not only for raising this issue, but raising it in the tone that he did. I am grateful to him for that. I am also grateful for the work that his council leader, Ray Morgon, is doing on behalf of his residents. The hon. Gentleman raised that, which I thought was very important.

I will spend a moment or two setting the scene. It is not my intention to name and shame local authorities. I think the hon. Gentleman made an apposite point: we must all focus on the funding of the services that many of the most vulnerable citizens across the country rely on. As tempting as it is to try to play politics, I am not going to do so. Likewise, my door is open to those councils that are anxious that they are approaching the issuing of a section 114, because prevention is better than cure.

I join the hon. Gentleman in commending his council, without providing a running commentary on discussions between individual councils and my Department. I commend the openness with which the leadership of Havering and others in the borough have engaged the community and my Department. They are right to do so, and they will continue to have as much support from my officials and me as they possibly can.

The hon. Gentleman is also right, on section 114, that there is a mixed mosaic of reasons. It would be far easier if there was one geography, one political control and one reason for the trigger, but he set out a number of councils in different parts of the country that find themselves in challenging circumstances for a multitude of reasons. Irrespective of the reason, as with Havering, my Department stands ready to work alongside those councils, with the Local Government Association and others.

The hon. Gentleman mentioned SIGOMA. I was with the leader of SIGOMA, Sir Stephen Houghton, this morning, discussing the issues that his member councils are facing. That meeting was very useful. We will work alongside those councils to ensure that they can stay standing up to deliver their services.

The hon. Gentleman asked me to meet him; I am more than happy to do so, with any council officers or elected members that he deems appropriate, because we have to get this right. I recognise entirely the demographic challenges to which he alluded and how a council will need to change its mindset and policy-setting priorities to respond to those changes in pretty quick time.

The hon. Gentleman welcomed the changes that the Chancellor announced to the local housing allowance, and I welcome that. We listened to a whole variety of stakeholders, and there was general agreement that that is the right thing to do.

The hon. Gentleman talked about the timing of the settlement, which was not helped this year by the lateness of the autumn statement. I can share with him and the House that the instruction I gave to officials, who are more than prepared to meet the challenge, is to get the figures and as much information as we possibly can out of the door, on the proviso that those figures are correct and robust. I spent 11 years serving in local government as a parish councillor, a district councillor and a county councillor. I spent several years as a cabinet member on West Oxfordshire District Council putting together the budget, and I remember sitting for too many hours with the finance director when we all wanted to go home for family things, trying to crunch numbers, make savings and work out different things. There must be a better way of doing it. I am yet to identify what that is; when I do, I will share it, among the first people, with the hon. Gentleman. That is important, given these uncertain times.

The hon. Gentleman is right to point out the increasing complexity, range and quantum of demand from both ends of the age spectrum, from the needs of the very young to those of the vulnerable elderly. We must ensure that we are focused, as I know he and his council are, and remind ourselves that we can get tied up in the minutiae of the formula for this, the process for that and the probity of making announcements. We have people sitting at home wondering how, if or when their legitimate applications for support will be processed and delivered to make their lives more comfortable and better.

The hon. Gentleman talked about the social care grant. Through the 2023-24 settlement, Havering is receiving £14.2 million. That is a £5.8 million increase compared with the previous year’s settlement. The funding can be used for both adult’s and children’s social care. Additionally, we are providing £2.4 million through the market sustainability and improvement fund, £1 million through the discharge fund, and £6.8 million through the improved better care fund, which I am told is already improving local health outcomes and supporting the crucial social care sector.

Those figures are important, but—there is always a “but”, isn’t there?—I acknowledge the challenging position in which local government in England finds itself. We all know the issues that have afflicted the national economy in recent years. I do not offer them up to the hon. Gentleman as excuses, but we would be negligent if we did not put them into our mix of thinking. Just when the reverberations of the ’08 banking collapse started to be less severe, along came the pandemic and then Ukraine. They led to inflation, interest and all those pressures that people have felt in their back pocket and that council officers have felt in their budget settlements. Despite all those challenges, central Government have sought to provide big increases in funding to local government in recent years to try to address some of the reasons that the hon. Gentleman set before us. The local government finance settlement for 2023-24 made available up to £59.7 billion of funding for local government in England. That was an increase in core spending power of up to £5.1 billion on 2022-23—or, to put it another way, 9.4% in cash terms. Havering’s core spending power as a council rose to £218.7 million—a 9.2% increase on the funding for 2022-23.

Numbers and percentages are fine; we know that. But—again, there is another “but”—we are all aware, and it would be foolhardy of any Minister to pretend otherwise, that there are huge increases in demand for service. Costs are going up. It is great news that we have increases to the living wage—I suggest that nobody would challenge that as a matter of principle. However, it clearly has an effect on the pay requirements, particularly for local councils, when they are already under pressure. I know that Councillor Morgon is addressing the council’s funding pressure, and he himself has noted the unprecedented demand for both adult and children’s social care. As the hon. Gentleman said, Havering has one of the oldest populations in London, together with the second fastest growing young population in the country. There is pressure from both ends of the public sector service demand telescope, so it is understandable that the council is feeling the pressure from a growing need for social care.

I want the hon. Gentleman to understand that I get that, and to convey to anybody who is interested that we have empathy for his points. We are determined to continue working alongside Havering London Borough Council to ensure that it can deliver not just the services demanded of it, but the services that the councillors and officers themselves want to deliver, because they are true and honest public servants. It is not going to be easy. I am afraid I am not the owner of the ministerial goose that is laying a multitude of golden eggs for the local government sector, but we will continue to work with the hon. Gentleman and his council.

I will close by repeating my warm invitation for him to come in and have a conversation. We can go over the figures and think about these issues. I am almost preaching to the choir on this point. I know that the hon. Gentleman will keep at the forefront of his mind—as will I—that, whether we are Opposition MPs, Government Ministers or councillors, our primary duty is to do our very best to serve the public who put us here, and to discharge the duties that they give us in order to try to make their lives a little safer, a little more comfortable and a little easier. He and I share that endeavour, and I look forward to welcoming him and his colleagues to do the very best we can for his residents.

Question put and agreed to.