Local Government Finance

Baroness Pinnock Excerpts

Thursday 13th July 2017 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, I draw attention to my interests: I am indeed a vice-president of the Local Government Association, but more importantly, I am an elected councillor in Kirklees in West Yorkshire.

The clear message from all speakers is that funding for local government is at crisis level. The Government’s response, as we know, was—or maybe is—to set it free from reliance on central government funding of its core services by the introduction of the 100% retention of business rates. In theory, people across local government can support that aim, although with some caveats. The first is that local government has, following this divvying-up of business rates, sufficient sources of funding to deliver essential local services. The second is that central government stops delegating additional responsibilities to local government without at the same time fully funding the resources needed to do so. The third principle is “He who pays the piper calls the tune”, so that if government does not fund local government, local government is set free to fulfil the needs of the people and businesses it serves and is enabled to raise the funding it requires to do so.

We have heard a number of ideas from across the Chamber as to how that could happen, and I will throw in a couple more. First, why is local government not able to have a proportion of the VAT that is raised locally, by spending in local businesses and shops, to spend on local services? That would be relatively easy to do and could transform local government’s relationship with businesses. Secondly, why is local government not able to take a proportion of taxes raised from vehicle taxation in order to repair roads? Those are a couple of ideas for the Minister to ponder, and I hope that he will be able to respond in a positive way.

The Government’s proposal was 100% retention of business rates by local government, but the balancing act was the 100% removal of revenue support grant. The position local government now finds itself in is that the continued reduction of revenue support grant will continue for the next three years, but there will not be a replacement revenue stream of business rates—unless, of course, the Minister is able to tell us otherwise. So uncertainty reigns and, where there is uncertainty, there is inability to plan. Local service providers need certainty in order to plan. Without a local government finance Bill to deliver the business rates retention model, local government continues to be starved of the funding it needs.

However, that is not to say that the business rates model is without significant problems. The National Audit Office report of March this year drew attention to some of the stark facts. It said:

“Designing and implementing the 100% scheme will require a ‘radical overhaul’ of the local government finance system. The Department”—


of Communities and Local Government—

“faces complex design issues, which need to be addressed in the context of often competing views within the sector. At the same time, the Department is undertaking a fair funding review of the sector. This will identify relative levels of needs and resources across the sector and set the baseline distribution for funding under the 100% scheme. The Department is undertaking this work having faced some reduction in staff resource”;

a reduction of nearly 40%. It goes on to say:

“There are risks in designing and implementing the 100% scheme. These include short-term risks whereby failing to deliver the scheme on time or to provide the sector with enough information in advance could undermine local financial planning. There are also more significant long-term risks whereby poor planning and design could deliver a scheme that puts local authorities’ financial sustainability at risk or fails to create a mechanism that delivers local economic growth”.


It also says that failure to address the lack of correlation between areas of need and areas of business growth will lead to some council areas having even larger cuts in services than they have now.

That is the National Audit Office’s fairly impartial view of what the Government are—or were or may be—planning for local government funding reform. The conclusion I draw is that the business rates model for self-sufficiency as a stand-alone solution to local funding is totally inadequate. That is without even considering the increasing demands, as we have heard from all speakers today, for housing and social care or the funding of the base delivery of core services.

Local government has seen what can be described only as massive cuts in funding over the past six years. Taken as a whole, local government funding has had nearly a 40% real-terms cut. Again, as we have heard, the reduction is not shared equally across councils. Those that serve more deprived areas and relied more heavily on central support have had to shoulder the lion’s share of the cuts—how fair is that? These have been so deep that another National Audit Office report in 2014—even then, three years ago—reported district auditors as saying that some metropolitan and unitary councils may not be able to provide statutory services when the last of the grant cuts are felt in 2019. I would like to hear the Minister’s response to that statement from the district auditors.

I will use some of the figures for my own council of Kirklees as an example of what is going on. The estimated budget shortfall is £54 million this year, increasing to £104 million in 2020-21. This comes on the back of significant reductions, the revenue support grant having reduced by over 40% in the 2010 to 2016 period. That is for a council whose net revenue spend was nearly £400 million in 2009 and will be less than £300 million—around £270 million—by 2020. That gives the scale of the cuts that a big met authority such as Kirklees is facing.

The current level of revenue support grant for Kirklees is £32.7 million—that is after all these cuts that we have heard about. The assumption is that that will disappear by 2020-21. That currently funds 11% of the council’s net revenue budget, so it is significant in absolute and proportional terms. Obviously, the council continues to experience significant service pressures, in particular on support for children, providing adult social care and on environmental issues such as street cleaning and waste collection.

Obviously, the council tax will not bridge the gap and neither will the business rate, so cuts in services will continue. For instance, it is currently consulting on decommissioning half of the play areas across the borough. This is for a population of 420,000 in a big urban area. How poor is that, when we are trying to encourage children to exercise more?

The Government have a responsibility to find a solution to this situation and need to explain to council tax payers, who will find—in my borough and, I guess, many others—that two-thirds of the council’s spending will be to fund vulnerable adults, whether they be elderly or people with learning difficulties or disabilities, and vulnerable children and families. That is two-thirds of the budget on, perhaps, 2% of the population. That is what council tax and business rates will be funding. It seems to me that we have that totally out of kilter. If local government is to do what many noble Lords have said, which is to provide basic community services that local people want and need, such as street lighting, street cleaning, parks, libraries and somewhere to work and play, people, especially at the poorer end of the spectrum, will suffer, and indeed are suffering.

I thank the noble Lord, Lord Kennedy, for initiating this debate and trust that the Government, through the Minister, will find another couple of billion pounds at the back of the very large sofa, where they have already found £1 billion, so that we can have even just a small reduction in the large gap of funding for local government and its services.