Local Government: Provisional Finance Settlement

Baroness Hanham Excerpts

Wednesday 19th December 2012 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, with the permission of the House, I would like to repeat an oral Statement made by my right honourable friend the Secretary of State for Communities and Local Government. The Statement is as follows:

“I should like to make a Statement on finance for English local authorities for 2013-14 and 2014-15.

The autumn Statement sets out how the coalition Government are putting our public finances back on track after the catastrophic deficit left us by the last Labour Government. Local government has shown great skill in reducing its budgets. Committed local authorities have protected front line services. Little wonder, then, that at a time of retrenchment, satisfaction in council services has gone up. This year’s settlement will see council expenditure fall in a controlled way. English local government accounts for £1 of every £4 spent on public services; it spends £114 billion, which is twice the defence budget and more than the National Health Service. So this settlement recognises the responsibility of local government to find sensible savings and make better use of its resources.

It marks a new settlement for local government, based on self-determination and financial independence, a move from the begging bowl to pride in locality. It begins the biggest shake-up of local finance in a generation. We are shifting power from Whitehall direct to the town hall. From April, authorities will directly retain nearly £11 billion of business rates instead of returning them to the Treasury. Striving councils will benefit by doing the right thing by their communities; if they bring in jobs and business they will be rewarded. Similarly, the new homes bonus remunerates councils for building more homes. Next year, the bonus will be worth more than £650 million and more than that in 2014-15.

Under our reforms, an estimated 70% of local authority income will be raised locally, compared to a little over half under the current formula grant system—a giant step for localism. The start-up funding assessment, which gives each council a share of the funding, confirmed in the Chancellor’s autumn Statement, will see £26 billion shared between councils across the country, with the smallest reductions for councils most reliant on government funding. We consulted local authorities on the settlement over the summer, and we have listened to what they told us. They told us that there should be less money held back from the settlement, so we have reduced the amounts that we are setting aside for new homes bonus, for the safety net and for academies funding. In total, that means an additional £1.9 billion for local authorities upfront in 2013-14.

Local authorities also told us that they wanted a stronger growth incentive. We were happy to respond, so we have made the scheme more generous, ensuring that at least 25 pence in every pound of business rate growth will be retained locally. The settlement leaves councils with considerable total spending power. The overall reduction in spending power next year is just 1.7%. A small number of authorities will require larger savings to be made, but no councils face a loss of more than 8.8% in their spending power, thanks to a new efficiency support grant. As the name implies, to qualify, councils will have to improve services. It is unfair on the rest of local government to expect them to subsidise other councils’ failure to embrace modernity. But this settlement is not about what councils can take—it is about what they can make. The settlement continues protecting fire and rescue as a blue light emergency service. Today, we have announced £140 million of capital grant money to fire authorities.

Predictably, the doom-mongers have been consulting their Mayan calendars, issuing dire warnings of the end of the world as we know it on Friday—a billion pound black hole in the local budgets. Some have shamefully predicted riots on the streets. Nostradamus need not worry, because all those Malthusian predictions have come to naught. Concerns that the poorest councils or those in the north would suffer disproportionately are well wide of the mark. The spending power for places in the north compares well to those in the south. For example, Newcastle has a spending power per household of £2,522, which is more than £700 more than the £1,814 per household in Wokingham. We have also maintained the system of damping, whereby government sets a floor below which council funding will not fall. This year’s average grant reduction for the most dependent upper tier authorities will be less than 3%, compared to 8% for the wealthiest. That is more support and protection than last year.

I can also confirm today that local authorities will be able to use the receipts from assets sales raised from 2012-13 onwards to fund outstanding equal pay claims. On top of what I have announced today, the Secretary of State for Health will in due course be confirming public health funding for local councils. In his autumn Statement, the Chancellor recognised that the sector has risen to the challenge. That is why, unlike most of central government, local government was exempted from the 1% top slice next year, worth approximately £240 million to councils. But as we look to 2014 and beyond, local government needs to continue finding better, more efficient, ways of doing things. There remains scope for sensible savings; with the exception of a handful of authorities, nobody has got to grips with procurement. More can also be done to share offices and services, cut fraud and provide more for less.

I have also asked the outgoing chief fire and rescue adviser, Sir Ken Knight, to pinpoint practical ways in which to help fire and rescue authorities to save money and protect the quality and breadth of frontline fire services. It is disappointing that the shadow fire Minister has signalled his opposition. That has been noted.

Today, true to my Yorkshire roots, I have published 50 Ways to Save, setting out practical ways for councils to save money, big and small. But it all adds up. If councils merged their back offices, like the tri-borough initiative in London, they could save £2 billion. Procurement fraud costs taxpayers almost a billion a year. Councils are sitting on £16 billion of reserves. Councils are not collecting more than £2 billion of council tax. Better property management could save £7 billion a year.

We have also announced today that further savings will be made by the abolition of pensions for councillors. Councillors should be champions of the people, not the salaried staff of the town hall state. Today’s guide gives more power to the elbow of the public to challenge crude cuts and champion sensible savings. Next year’s exemption will give local authorities time to put their house in order, but let us remind ourselves what this is all about. It is about safeguarding vital public services; protecting families and pensioners; and ending the something-for-nothing culture. That is why, despite financial pressures, we will continue to support, for the third year running, those who insulate residents from further council tax hikes. We have set aside an extra £550 million for local authorities to support council tax: £450 million over the next two years for the freeze and £100 million for council tax support will be available in the new year.

All councils have a moral duty to freeze council tax. It doubled under Labour. It became unsustainable; we have cut it in real terms. Just to be clear, this year’s freeze grant goes into base for the spending review period and has the same status as every other item in base. Those who would prefer to carry on with increases and see residents miss out should be ready to answer to their local taxpayers and not dodge them by setting the increase just below the threshold. For next year, we have set the referendum threshold at 2%. I will also introduce flexibility to support small district, police and fire authorities that have kept council tax low for years. My right honourable friend the Local Government Minister has set out the details in a Written Ministerial Statement. This is democracy in action: if you want to hike taxes, put it to the people. I would contrast the action we have taken to freeze council tax with the new housing tax being introduced in the Republic of Ireland. Tackling the deficit helps to keep taxes down. If you deny the deficit, taxes on everyday families will rise.

To those who want to play the politics of division, let me say this. This is a fair settlement, fair to north and south, rural and urban, shire and metropolitan England. But this settlement is also a watershed moment. For the first time in a generation, striving councils now have licence to go full steam ahead and grab a share of the wealth for their local areas—to stand tall, and seize the opportunities of enterprise, growth and prosperity.

I commend this Statement to the House”.

My Lords, that concludes the Statement.

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[Baroness Hanham]

My Lords, I thank the noble Lord for his response. Having been in his position, I appreciate that it is quite a task to respond quickly to a Statement after it has been made. The noble Lord addressed a huge number of detailed questions, with some of which I shall try to deal, but because I do not have in my head the figures he asked for, I shall make sure that questions I cannot answer now are dealt with.

It would be fair to say at the outset that while there is great questioning, particularly from the other side, about the reduction in grant, if the noble Lord’s party had been in power, it would have done exactly the same. We know that when the previous Government were coming to an end, they had already made provision for a substantial cut in local government grant for precisely the same reason. They were going to have to deal with the deficit they had generated but responsibility has now passed to this Government in their place. Therefore, I think it would be better if we could get that on to a more equitable plane.

The Government are shifting the responsibility for running local affairs on to local authorities. However, they are shifting not only power but also resources. I do not think that the noble Lord made any acknowledgment of that. Local government has asked for a long time to be able to retain the business rate. Although I appreciate that it cannot retain all of it, it will certainly be given the opportunity to retain at least 50% of it. That will be an encouragement to generate business and business activity because the more business local government has, the more it can grow and the more business rate it has to retain locally.

I was asked about the updating of data between resets. Data never stand still entirely so while the resets, the tariff and top-ups will remain, there will be some adjustments to data, but not such as to upset the resets that have been laid down this year.

The noble Lord referred to swingeing cuts. Local authorities hold this very much in their own hands now. As I said in the Statement, we have pointed to a number of ways in which local authorities can still make savings, including coming together and pooling resources and making adjustments in that way. Therefore, they should not be faced with having to make enormous cuts to services. We have also prevented any of the reductions in grant exceeding 8.8%. There is considerable variety across the country as regards the formula and the amount of spending power that each local authority has.

I know that we will discuss this matter further and more detailed questions will come up, but the Local Government Finance Act laid down the basis for tariffs and top-ups, which the noble Lord asked me about. Top-ups are based on a 92.5% level of finance, so local authorities expecting more than a 7.5% figure automatically get a top-up. The tariffs will be set against those councils that have more than the expected allocation of resources.

To go back to the data, the data updates will include population, so they will be changed if that varies. A range of data updates were set out in this summer’s technical consultation, which I am sure the noble Lord has read closely.

[Lord Tope]

My Lords, I join the noble Lord, Lord McKenzie, in thanking the Minister for repeating the Statement in this House. Perhaps I should thank the noble Lord for enabling her to do so. This is the first time that I can recall this happening for many years, so we must thank the Opposition for this very welcome Christmas present.

I declare my interest as a councillor in the London borough of Sutton. I gather that I must now declare an additional interest as a member of its pension scheme which I joined at the age of 60, by which time I had more than 30 years’ council service which did not count towards the pension.

I also thank the Minister, and through her the Secretary of State, for the very welcome recognition of all that local government has achieved in reducing its budgets, and that it is, indeed, the most efficient and effective part of the public sector. In view of that, does the Minister agree that local authorities would be much better advised to learn from each others’ good practice than to take any notice at all of the Secretary of State’s 50 top tips from the TaxPayers’ Alliance?

Will the Minister say a little more about the new efficiency support grant and the criteria that local authorities will have to meet to qualify for money from that grant? What sort of money we are talking about?

Finally, can she give any indication of when the Secretary of State for Health will announce the public health funding, which is crucial to many local authorities in finally setting their budgets?

[Baroness Hanham]

My Lords, I thank my noble friend for his contribution. I also thank him for acknowledging that we recognise that local government is efficient—at least most of it is, although some is not. As regards the 50 areas of good practice that my right honourable friend in the other place has produced, the noble Lord, Lord Tope, is correct: local authorities can learn from each others’ good practice, and there is good practice. There is good practice already across the piece where people are sharing services, chief executives and back office services and are procuring together. However, this applies to by no means all local authorities. This is where they need to learn from each other.

The Local Government Association has in its midst councils that are doing this and organisations within councils that are setting these good examples. I agree that local authorities can do good practice, but what they need to do is to bring it together and work together as much as they can.

The new efficiency support grant affects a very small number of councils above the 8.8%. I will let the noble Lord know the exact amount of it, but it is there to help them bring down their expenditure. Regarding public health announcements, we are still waiting for those but I cannot tell my noble friend when they are going to be announced.

[Lord Beecham]

My Lords, I declare an interest as a member of Newcastle City Council not in receipt of a council pension. I ask the noble Baroness, the Minister to explain the relevance of the comparison of Wokingham to Newcastle, given that, for example, the rate of unemployment in Newcastle is four times that of Wokingham. Does she not consider that there may well be a greater spending need in Newcastle and authorities like it than in councils in the Royal County of Berkshire, such as Wokingham, Windsor and Maidenhead, which has also been adduced in support of the Government’s position?

Secondly, given that the Secretary of State is so exercised about reserves, what are the Government proposing to say to the Greater London Authority which has added 60% to its reserves—£585 million in the past year—while at the same time receiving £27 million of damping grant? What will she say to Surrey County Council, which has received £40 million of damping grant, which it put into its reserves and added further amounts to it? Is this a matter of concern, and if so what will the Government do about it?

I have two other questions, the first of which is: will the Government reconsider their position on the cost of appeals against rating valuations for business rates, which at the moment they propose not to finance, even in respect of appeals relating to the period before the new business rate regime comes in. The Government, having had the money, apparently do not intend to contribute to the cost of any successful appeals. What is the logic behind that?

Finally, in relation to council tax benefit and the grant that is to go to local authorities, why have the Government chosen to ignore the most recent figures of benefit claims for the current year with the result that, in Newcastle for example, an anticipated 10% reduction will probably translate into more than 14% because of the failure to use the most recent figures. If it is too late to alter that figure for this year, and I hope it is not, will the Government at least use the most up-to-date figures for the remaining years of the settlement?

[Baroness Hanham]

My Lords, let us start with the reserves. The Government have a very firm position on this. They recognise that local authorities need reserves; indeed, in the current economic situation, they may have to call on reserves to help them deal with some of their finances. However, there are local authorities that are sitting on enormous unallocated reserves, and those are the ones that the Secretary of State believes ought to be challenged. Where local authorities are sitting on vast sums, they should be looking at how best they can use them to support their expenditure.

Regarding the cost of appeals, within the business rate retention scheme an allowance will be made for appeals that are already in the pipeline. Those that will come subsequently are a different matter and they will have to be dealt with at that time. The 10% reduction in council tax benefit is there to help with efficiency; to ensure that local authorities administer this in the best way that they possibly can; and to ensure that any system they set up can, if necessary, be supported by other reductions within their council tax budgets.

[Lord Bates]

My Lords, I welcome the Statement by my noble friend and the fact that it places a great emphasis on getting the housing building market going. Has my noble friend seen the statistics produced by the National House-Building Council in the past week, which suggest that new housing starts in the north-east of England, for example, are at 3,048 for the first nine months of this year? This represents an increase of 25% on the same period last year, and an increase of some 47% on the same period in 2009. Will this not funnel through the new homes bonus programme to provide important additional revenue streams to councils in the north-east? In the past few days, the House Builders Federation has said that planning applications and planning permission granted for new homes have increased by 36% on the previous quarter. For further clarification, has my noble friend’s estimate of the £650 million that will be provided through the new homes bonus next year taken account of that welcome news?

[Baroness Hanham]

My Lords, I thank my noble friend for pointing out good news relating to the housing figures. We have been very aware—everybody else in the House will be aware—that a lot of the economy needs a boost and much of that boost will come from housing and housing construction. I am very pleased about the figures in the north-east, which is perhaps one area in the country where we particularly need to see new housing—not only to ensure that there is housing but because it will stimulate the economy even more in that part of the world.

The new homes bonus is part of the funding stream. It is not ring-fenced but it does relate to the number of houses that are being built and so would add to local authorities’ revenue. If the number of planning permissions has increased in the north-east as well, that is good, as there has been a lot of criticism that planning permissions are somewhat slow in being granted. Therefore, I thank my noble friend for those points.

[Lord Kennedy of Southwark]

My Lords, I thank the noble Baroness for her Statement, although it did not give me much comfort. Can she tell the House what advice she has for the London fire authority? I think that potentially up to 17 fire stations in London could close, and up to six of those would be in south London—Woolwich, Downham, New Cross, Southwark, Peckham and Clapham. As a south London resident, I wonder where a fire engine would come from if you needed the fire services in the future. What words of comfort does the Minister have for the fire authority and what are we going to do about this?

--- Later in debate ---

[Baroness Hanham]

My Lords, the fire authorities are in the same position as everybody else in that they are having to make economies, but they have been pretty well supported. The noble Lord will know that the fire authorities have benefited from the protection in the formula used to set the base line, which used an existing adjustment to provide top-ups for the fire and rescue relative needs formula. That helps in the rural areas. The metropolitan fire and rescue authorities overall, which of course do not include London, are seeing grant reductions of 7.2%, but London has had a reduction and the noble Lord has to make up his own mind about how to deal with that. As I pointed out in the Statement, a review by the retiring chief officer is taking place, and I am sure that that will produce something useful.

[Lord Shipley]

My Lords, I thank the Minister for the Statement. I declare my interest as a vice-president of the Local Government Association and as a recipient of a small local government pension.

I should like to raise two issues with the Minister. The first concerns the tri-borough initiative in London and the basis for the statement that if councils merged their back offices, as in the tri-borough initiative, they could save £2 billion. Can the Minister circulate further details of that calculation? It is extremely important. In Tyne and Wear, where the number of residents amounts to just a little over 1% of the population, that would imply a saving of more than £20 million, which could be spent on, for example, keeping libraries open and improving services. Therefore, any information as to how that might be achieved would be helpful.

Secondly, I support the comments from other noble Lords concerning the council tax support grant distribution and the fact that the DCLG is not taking account of benefit caseload changes since the end of the 2011-12 year. I suggest that there is a case for using the unallocated transitional grant to assist councils that have faced higher caseload and cost figures in recent months, and I believe that there is a very strong case for using final outturn caseload figures for 2012-13 in the grant figure for 2014-15.

[Baroness Hanham]

My Lords, I thank my noble friend. I am very happy to ask the councils involved in the tri-borough initiative to let us have full details of the savings they hope to make. I suppose that I ought to declare an interest as having been a member of at least part of that tri-borough arrangement many years ago. However, they are very clear that they have made tremendous efficiency savings and, more than that, that they are much more efficient. As a resident of that tri-borough, I can say that they certainly demonstrate that. I shall certainly see that my noble friend receives those details.

I believe that the benefit caseload for this year is based on the figures for 2010-11 but I shall let my noble friend know if that is not correct. I shall need to write to him regarding the final outturn for council tax.

[Baroness Donaghy]

I thank the Minister for her Statement, although I realise that she is not responsible for the rodomontade contained within it. Does she appreciate that the word “need” does not appear once in the Statement? Would she also like to comment on the word “grab”, which does appear? However, there is no reference to the fact that 800,000 working people are going to be worse off under the council tax benefit arrangements or that, at the same time, better paid people—although it is not, strictly speaking, her departmental responsibility—will experience a tax cut. Would the Minister like to comment on the fact that the Statement may contain some of the truth but not all the truth?

[Baroness Hanham]

My Lords, as I gave the Statement to the House I must accept responsibility for it. I therefore take responsibility for the word “need” not appearing and the word “grab” appearing once or twice; whether this would be my way of putting it I am not sure. The noble Baroness makes the point about the 800,000 people; again, those are the figures that appear in the Statement and I am afraid I cannot comment on them further.

[Lord Cormack]

My Lords, I am not entirely sure that Malthus would be happy to be coupled with Nostradamus. To follow the previous question, it is quite clear there can be savings if local authorities combine. What precisely are the Government doing to encourage the sharing of facilities and resources to provide better services and save money at the same time? Have the Government done a detailed study on this and could we have some facts and figures in the Library?

[Baroness Hanham]

My Lords, the Government have been espousing this situation for several years and discussing it with the Local Government Association. I have addressed various elements of local government on the need to make efficiency savings and had discussions with groups of local authorities, which are already coming together to see what can be done. I am not sure there are any helpful figures I can give my noble friend. The only thing I can do is reassure him that this is very much government policy which has been promulgated to local government and that many areas of local government are already carrying it out and demonstrating that it is a valuable way of making efficiencies.

[Lord Kennedy of Southwark]

My Lords, can the Minister say when she thinks Sir Ken Knight will report on his chief fire officer review?

[Baroness Hanham]

My Lords, he has been asked to do it and I suspect I can provide the noble Lord with the date the inquiry is to start.

[Lord True]

My Lords, as no one else has, can I thank my noble friend for the transfer of the business rate to local authorities? We debated the matter in this House and many of us feel that it needs to go further. This is however a very important reform for which I thank the Minister. Will she restrain her right honourable friend in some of his remarks about reserves? For many of us reserves are the schools of the future and this issue needs to be looked at carefully. As one who joined local government when no allowances were paid, I would ask whether there will be legislation on this announcement about pensions for councillors, many of whom surrender work—sometimes all work—in order to fulfil a public function. Will that legislation cover other forms of elected representative?

[Baroness Hanham]

My Lords, I thank my noble friend for his comments. He will know that we discussed in the Local Government Finance Bill that, as the economy improves, we hope to extend the percentage of revenue that can be maintained by local authorities as a result of the business rate retention scheme. We have touched on reserves already and I accept, as does my right honourable friend the Secretary of State, that reserves in moderation are an important aspect of local government. Where reserves are allocated against particular projects, that is acceptable, but there are a number of local authorities sitting on very substantial sums of money which they could use to support their revenue responsibilities without having to say they do not have any money. Local government pensions were dealt with in a Written Ministerial Statement that came out a couple of days ago. I suspect it will need secondary legislation but I need to confirm that.

Motion to Adjourn

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