Rural Councils: Funding

Chris Loder Excerpts

Wednesday 29th November 2023 Westminster Hall

[Chris Loder (West Dorset) (Con)]

I beg to move,

That this House has considered the funding of rural councils.

It is always a pleasure to serve under your chairmanship, Mrs Latham. I thank all right hon. and hon. Members for taking part in the debate.

There is nothing like a bit of competition between North Dorset and West Dorset. I would like to warmly welcome the Sherborne town clerk, Steve Shield, who is in the Public Gallery and is a finalist in the star council awards that will take place later today. I understand that Shaftesbury is also in those awards, so I wish Sherborne Town Council the best of luck; I am sure that the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for North Dorset (Simon Hoare), will make the case for Shaftesbury in a moment.

May I take this opportunity to warmly welcome my hon. Friend to his post as Minister for local government finance? I know that he is well versed in the many issues facing us not just in Dorset but across rural Britain. Many, like me, are pleased to see a Dorset MP in the Department for Levelling Up, Housing and Communities who is not purely obsessed with the north and urban areas and who can bring meaningful perspective to rural issues, particularly in the south-west.

Ten million people live in rural England. Those who work in the rural economy can expect to earn on average £2,000 less than those in urban areas. The rural fuel poverty gap is double the national average. Rural people pay on average 20% more council tax per head than those in urban areas. My other constituency neighbour, my hon. Friend the Member for South Dorset (Richard Drax) and I both represent the area with the worst social mobility in the country. I have a secondary school in that area that has been partly closed and another school where a third of the classrooms are in disrepair. We also have significant transport issues and social care challenges—in West Dorset, we have a community where a third of the population is over the age of 65.

My constituents are fed up with turning on the telly to hear levelling-up announcements for urban areas in the midlands and the north and hearing nothing about the rural south-west or rural Britain. They want to know, and have sent me here today to ask why rural hardship is not seen in the same way as urban poverty. They expect to see their representatives make the case to change that. That is why other Members and I are in the Chamber today.

It should be no surprise that rural matters are going up the agenda. Yesterday, the hon. Member for Somerton and Frome (Sarah Dyke) brought a debate to Westminster Hall about rural services. I commend my hon. Friend the Member for St Ives (Derek Thomas) for chairing the all-party parliamentary group on rural services and my right hon. Friend the Member for Suffolk Coastal (Dr Coffey), the previous Secretary of State for Environment, Food and Rural Affairs, on all the work that she has done.

I represent West Dorset, which is my home, and I am the sixth generation of a tenant-farming family, and am in the Chamber, almost 10 months on from my last debate, again to champion the cause of millions of people living in rural Britain who want a fairer system of taxation and service provision. Whereas before I focused primarily on the revenue support grant, I am here today to address the funding of rural councils more broadly, and particularly to speak in favour of my own, Dorset Council. That funding is perhaps more important today than it was at the time of the previous debate in January, given that little has changed to improve the situation for rural councils since then. It is nearly a decade since the local government funding formula was locked in. That means it is also a decade since the faulty distribution of the revenue support grant and the corresponding increase in council tax to compensate for the unfair—in my opinion—national distribution of Government resources. As the years have passed, the situation for rural councils, exposed relentlessly to the frozen funding formulas, has deteriorated, and the rural tax burden has increased for millions in England, including my West Dorset constituents.

A recent survey carried out by the County Councils Network and the Society of County Treasurers found that their members face overspending on their budgets by an enormous £600 million per annum. It found that 20 county councils and 17 unitary authorities right across the country will collectively overspend in 2023-24. There is no clear road map for improvement, so those councils are running out of time to find solutions to prevent insolvency. That is one of the reasons why it is important for me to bring this matter to the House.

Against that backdrop, it is a surprise that only one in 10 of those surveyed running well-managed councils are unsure or lack confidence that they will be able to balance their budgets this year—I hasten to remind hon. Members that it is a legal requirement for councils to do so—but without urgent action or reform, that number will increase to four in 10 next year and six in 10 by 2025. That is an unprecedented majority of our rural councils, and the County Councils Network is concerned about whether councils will meet the legal requirements within the next two years.

Why is that the case? What is causing the situation to be so difficult? Why is there an excess burden on rural people? It is due, first, to the formula that dictates the distribution of the revenue support grant from the Government to local authorities; and, secondly, to the corresponding levels of council tax that councils are forced to levy to cover their increasing social and services cost. As the Minister said to the Levelling-up, Housing and Communities Committee earlier this month, the unique characteristics and challenges of each local authority make it difficult to implement a national fix, as they often require bespoke solutions. I fully understand and support that idea.

I have spoken a great deal in this Chamber and on the Floor of the House about the revenue support grant formula and council tax, so I will touch on them only briefly for Members’ information. In 2013-14, we locked in a local government funding formula that distributed an unfairly low proportion of central Government resources and grants to rural councils; today, urban councils receive 38% more in Government-funded spending power per head than rural councils. This year, my local authority, Dorset Council, received just £700,000 from central Government, which accounts for just 0.2% of funding. Although my hon. Friend the Minister, who was on the Back Benches at the time, and I made the case very strongly for Dorset in the local government funding debate, the local council would probably say that other adjustments were made that offset that, so there was little if any net benefit. The rest must be sourced elsewhere—often through the council tax mechanism—or the council will enter an insolvency situation.

As a result, councils in the predominantly rural areas of the country that are overlooked when it comes to Government support must increase the rate of council tax, irrespective of their individual demands on services and demographics. Rural residents across the country pay an average of 20% more council tax. Across the County Councils Network, 68% of funding was received from council tax alone, compared with an average of 56.8%—it is, of course, lower in most urban boroughs. In everyday terms, that means that the typical band D council tax bill for someone living in Dorchester, Sherborne, Bridport or Lyme Regis—or any of the 132 parishes in West Dorset—will be over £2,000 a year.

While focusing on our situation in West Dorset, I should explain why the existing system of rural council funding cannot continue unamended. In West Dorset, a third of residents are over 65. It is a vast geographical territory, covering over 400 square miles of the most beautiful and picturesque part of the country. Although that may sound idyllic, it is tremendously difficult to travel without access to a car or the ability to drive, especially as local public transport options have become more and more restricted. Sixth formers in Dorset— 16 to 19-year-olds—have to pay to get the bus to go to sixth form. Why is that the case, when the Government pump billions into TfL and Londoners get travel for free? That cannot be right.

These three factors—the revenue support grant, council tax and local characteristics—regularly combine to disadvantage rural communities and people, imposing barriers where there need not be any. That can be felt across society. Taking them together, it is fair to say that rural councils continue to be placed under unique pressure.

This has a knock-on effect on households and businesses. We have seen it clearly during the cost of living crisis, where three in four councils, many of them serving rural residents, have increased their council tax by the maximum permitted rate. Accounting for the increase, a typical band-D council tax bill for rural residents is 27.5% higher than that faced by London residents.

It is fair to say that the high rise in energy prices has disproportionately affected rural households and businesses. That is against the backdrop of a rural fuel poverty gap that is already double the national average. In West Dorset, more than half of households are off grid, meaning that they have less access to energy support than people on the mains gas network. This is one of the primary reasons why, when Dorset Council established its household support fund for applications, its funding allocation was gone within a matter of hours.

Business rates are a very topical issue for rural councils. The simple nature of our local economy in West Dorset means that 97% of businesses are small or micro sized. They are not conglomerates; they are not transnational. They are often run by people, perhaps from home or from a small premises at the local trading estate, employing one, two, three, four or five people who are attempting to make a modest living. It means, however, that income derived from retained business rates by the council in West Dorset is 14.5%, whereas Tower Hamlets, for example—to make a comparison with London—receives over 50% from its retained business rates. To put that into financial terms, it is £50.2 million for Dorset, but £176 million for the borough of Tower Hamlets.

We ought not to forget the importance of social care. I recognise that this area is often debated in the Department of Health and Social Care, but the reality is that local government has an important responsibility for delivering social care and services. Residents across the country would be forgiven for overlooking the acronym for adult social care—ASC—on their council tax bill, but rural councils are forced to derive huge amounts of their income from the adult social care precept. In total, people would expect three quarters of the amount they pay in council tax to go towards social care support, simply because older people tend to reside in more rural areas. As I mentioned earlier, a third of our population in West Dorset is over 65, compared with just 10% in some London boroughs. The matter of an ageing population of concern for all rural councils, as rural residents get 13% less per head in social care support overall. That is one of the main drivers for the council tax increase. The matter of social care becomes sharper when we make a comparison between urban and rural. Residents in an average band-E property in West Dorset will pay an annual social care precept of £204.04. For the same property in the borough of Westminster, the precept is a mere £3.20. The difference is absolutely enormous.

The dividends are especially visible in funding for young people’s services and schools. Across Dorset, there is core school funding per pupil of £5,728, which places the council in the upper third of upper-tier local authorities for education spending. Other rural authorities fare just as poorly or even worse. Leicester, Cheshire and Bedfordshire are all ranked in the top 10 upper-tier local authorities for core school funding per pupil. Looking again to the capital for our rural to urban comparison, it is possible to see that London boroughs occupy all 10 of the top 10 spots for core school funding. Islington, Westminster, Camden, Southwark and Hackney all spend over £7,500 per pupil when it comes to education funding. Tower Hamlets is top of the list; it spends £8,122 per pupil. That is 40% more than is spent on a child in education in rural Dorset. That disparity is simply unfair and is not acceptable for those who are being educated in rural Britain.

[Alicia Kearns (Rutland and Melton) (Con)]

My hon. Friend is making an excellent speech, and I am grateful to him for bringing us together on this important topic. On the matter of disparity in funding, does he recognise that, on top of the ludicrously exaggerated funding that London councils get, they each make millions more on parking fines that they are then able to put back into their communities? That is not taken into consideration, so their budgets are inflated beyond even that which we see in the basic figures.

[Chris Loder]

I wholly agree with my hon. Friend, but it is worse than that. One of my asks for the Minister is to take away and investigate this: it is important that we all note that London is getting £236 million a year more of Government grant than the formula says it should, and that £166 million goes to five London boroughs alone. I very much appreciate that my hon. Friend and neighbour is very new in his ministerial post, and I am not expecting him to answer some of these very tricky questions, but I would appreciate it if he would ask his officials to look into that and gain an understanding of some of these matters, because for those of us representing rural constituents this is simply unacceptable. I thank my hon. Friend the Member for Rutland and Melton (Alicia Kearns) again for her kind intervention.

It is not just education, businesses and social care that this unfairness pervades, but transport too. The stark reality is that urban councils are in the privileged position of spending three and half times more on public transport than rural councils. We can see that demarcation clearly between London and West Dorset; I have given enough comparators to make the point. If anything, it should be the other way around, because of the rural disparity.

Something is not right in the formulas and the understanding of them. We do not have a dedicated or overfunded public body to oversee our transport network in Dorset, as other areas do with Transport for London, Transport for Greater Manchester and so on. In West Dorset, unlike many urban areas, further education students do not receive a free or subsidised travel pass to get to their places of study. Residents are not in the luxurious position of receiving eye-watering grants for public transport in rural Britain, and definitely not in West Dorset. Instead, they have to rely on the good will of community operators to keep running. That is not sustainable; I hope that Transport Ministers will consider that point. It is evident that the disparity in national mechanisms for council funding between rural and urban areas is far-reaching, cross-cutting and very difficult for councils on the wrong side of the formulas.

Almost 10 million people live in rural England. Most hon. Members present represent rural constituencies, and many of us are rural residents ourselves. We want action to address the challenges and financial difficulties that our local councils face. It is important that we see the continuation of the excellent Government work across the board to improve the fairness of this crucial aspect of Government policy—something that I, the Minister and others have been attempting for some time. Primarily, we need fundamental reform of the frozen funding formulas, which in my view constitute a levy that penalises rural residents simply for where they live. That strikes at the heart of fairness, which is not on.

This country has moved a long way in the decade since 2013-14. It is fair to say that the funding formulas and the revenue support grant formula were geared to a very different climate in 2013-14. We know that many things have changed; many have improved and some have got worse. Other models such as the Green Book should also be amended to ensure that fairness is realised. If we continue with rural councils not receiving the fairness that they deserve, county authorities will have no choice but to cut back on some of the services that they have to provide. It is important, and only fair, that I let the Government know that that is not acceptable.

I am pleased that my neighbour and hon. Friend the Member for North Dorset is the Minister for local government finance. He brings a level of understanding and insight from Dorset that I do not think we have seen in that role before. I had the same debate 10 months ago with one of his predecessors, in whose constituency council tax was £800 lower than in the Minister’s and mine. It is a difficult situation for an MP to comprehend unless we see it day to day with our constituents, as the Minister and I both do.

I wish the Minister well in making progress. Rural England is crying out for his help. I look forward to him being the messiah of local government finance. The February debate on local government finance is always an interesting one. I look forward to it and hope that we will have a further conversation then, and much more progress in the meantime.

[Several hon. Members rose—]

--- Later in debate ---

[Jim McMahon]

The debate is not about the levelling-up fund as much as about the debate around it. It is not for me to highlight which seats are or are not in scope of the target priorities of the Conservative party, but I do say that we need to move on from a system in which we shift around the country a diminishing resource that does not meet the need and when, one year, one council benefits but the next year, it may be disadvantaged. There has to be a funding formula that shows that every community gets the funding it needs and that takes into account the cost of need, the cost of demand and the cost of delivering those services.

We have heard a range of other contributions that I will not go into because of time, after taking that intervention. However, we must all acknowledge that the system we have is unsustainable. Several Members have said that there is no more money than there is in the envelope, and we have to accept that. The public finances are not in a good position. There is no wand that will magic up new money, but just looking at the local government purse without looking at the whole of the public sector would be an error.

We know that councils are best placed to deliver a wide range of services and that they are absolutely best placed for early intervention. We should not just look at local government; we should ask what we can do for worklessness, transport, and health and social care services, where earlier intervention by a local authority overall would cost the taxpayer far less and deliver a better outcome for local communities too.

There is no doubt that residents in local rural communities acutely feel the cuts that are being borne. That casts a unique shadow on our rural communities. We know, too, that there is hardship in those centres in relation to connectivity, schools and transport. It is not the fault of those councils, which are desperately trying to make it all work; in the end, it is about the overall funding settlement not being fit for purpose. We recognise that different councils have bespoke challenges that we need to address, and we have heard about some of those today: rural housing, social care and the cost of delivering services in very remote areas, whether those are schools, bin collections or public transport and their operations.

What does it mean in practice, if we do not get that right? It means, in the end, that the places that people care about and have invested in are ultimately disadvantaged. It means that town centres and village centres are no longer financially viable, and then we see shops being boarded up because the population cannot afford to stay there. Generations have to move further away, because they cannot afford to stay in their local areas.

The fact is that we have seen a lot of change in Government; we have seen a lot of change in ministerial positions and in the Secretary of State, but councils have just carried on going, waiting for a long-term funding settlement that never seems to arrive. The Rural Services Network found that the local government funding settlement for 2023-24 meant that urban councils were receiving 38% more per head from the Government funding formula than rural councils, which equates to about £135 per person. It is not difficult to see how that is arrived at, and the Government have said that they would fix what they have said was a “broken system”. At the Local Government Association conference in July, the Secretary of State for Levelling Up, Housing and Communities said that the system was “out-of-date” and needed “to be fairer”. We agreed with that, and we also accept that we cannot carry on.

We cannot continue to set one area against another. We see absolute deprivation in our rural communities, although it is sometimes quite hidden. If we look behind the net curtains in pretty, picturesque villages, we see people living in absolute desperation, struggling to make ends meet. We only have to walk across the road from Parliament, in one of the richest capitals in the world, to see people living in absolute poverty and desperation, too. Surely a fair funding formula would follow that need wherever it exists and be agile enough to make sure that it roots that need out. That speaks to a wider issue about the power balance. Far too much of the relationship is one of dependency of local government on central Government, and the funding regime massively contributes to that. The idea that councils are pitched against each other in a format like “The Hunger Games” is not a healthy relationship; it is not one of an empowered local government and it is certainly not very efficient, so we need to change it.

We know that the underfunding of our rural councils stunts growth, and Labour is prepared to sow the seeds of transferring power, so that our rural councils can determine their own fate. What should that look like? It is about local communities deciding for themselves what is right for their area; it is not about Ministers and civil servants in Whitehall, who are often miles away from the real impact. More than that, that new-found partnership with rural communities comes from a mission-led Government; a Government with a purpose, and a determination to see that purpose through.

We want our rural communities to have higher growth, to end the cost of living crisis, to have an NHS that is fit for the future, to have community energy where people have a stake in the future and where we all have energy security, and, of course, to have safer streets, with a commitment to have a further 13,000 police officers, many of whom will be deployed in our rural and coastal communities to tackle crime hotspots, where they exist. We also want our rural communities to have more opportunities for young people in schools in our rural communities, and we have heard much about that today and about how, in many ways, that actually goes beyond local government to the classroom, the local GP and to whether there is a bus service in place at all. That is a partnership that councils will have under a Labour Government.

We have heard a lot about Labour’s plans, our mission-led Government and what we want to do. We do not hear as much about a comprehensive plan from the Government, which I hope we hear in the Minister’s response today. It is a matter of fact that after nearly 14 years of austerity, the system is creaking to the point of being broken.

[Chris Loder]

I thank the hon. Member for his apology for being late; it is accepted. Does he agree that we should not be fooled that Labour cares about rural Britain? Where are they? The Labour Benches are empty. Not one single Labour MP was in this room when I started my debate. I say respectfully to the hon. Gentleman that I have sat here and listened to a lot of what he has had to say, and I am afraid the realities are that the current mechanisms benefit Labour areas far better than they do Conservative, or indeed Liberal Democrat, rural areas. I say respectfully to him that I think some of the points he is making are not well-founded.

[Jim McMahon]

If I can say so respectfully, that was a slightly cheeky intervention. The hon. Gentleman may well find that the Opposition Benches are populated by far more Labour rural MPs after the election. I also draw his attention to the Co-operative party rural commission report, in which I suspect there is a lot of common ground. Outside of the politics, the back-and-forth, and the rest of it, I find that we agree more than we disagree on the fundamental issues affecting rural and coastal communities at these times.

--- Later in debate ---

[Chris Loder]

Let’s see, my hon. Friend.

[Simon Hoare]

Let us see.

Let me turn to some of the points that were made in the debate. Although levelling up is often portrayed in the media—and, indeed, sometimes in this place—as being something that is solely about the industrial north and midlands constituencies, it is not. There are strategies in place for coastal and for rural levelling up. As a one nation Conservative, I could support nothing other than that. We have to have policies that are of benefit to all our people, irrespective of where they live.

[James Gray in the Chair]