Local Government Budgets

Emma Reynolds Excerpts

Wednesday 12th January 2011 Westminster Hall

[Mr Jim Cunningham (Coventry South) (Lab)]

May I take this opportunity to thank Mr Speaker for granting this debate on an important subject? I notice that the Minister is looking serious, to say the least. I want to start by mentioning the world economic situation that existed before the current Government came to power. It is worth reminding people that the economic difficulties were worldwide and started in America with Lehman Brothers. As hon. Members will recall, the then American President could have taken action to bail out Lehman Brothers, but chose not to. That obviously had a knock-on effect on the banking system, particularly in this country.

Hon. Members will also remember looking at news bulletins that showed people queuing up to withdraw money from banks such as Northern Rock. Had the then Government not taken action across the whole economic fabric of this country, that bank may well have collapsed. Despite all their faults, the previous Government introduced a number of measures to address the situation, such as the car scrappage scheme. Last week’s figures from the motor car industry show that sales have gone up by 2 million this year, which demonstrates that the measures taken by the previous Government to address the problem have paid off. It is worth reminding ourselves that in 1997 when Labour took office, 50p from every £1 of taxpayers’ money was used to pay off the national debt. During their first two years, the previous Government spent a lot of time doing exactly that—paying off the national debt.

Measures implemented by the present Government will certainly have an effect on places such as Coventry, and on a number of local authorities up and down the country. A number of west midlands MPs are present in the Chamber, and they will want to talk about how the Government’s policies for local government will affect their particular situations. The details in the provisional local government settlement have created a lot of problems for many local authorities, and brought further bad news as far as Coventry is concerned. The £19 million cut in the formula grant is most worrying, as are cuts to other specific grants of £17 million. Incredibly, at this late stage we still await the details of some grant funding streams from the Government that have not yet been clarified.

At present, Coventry city council is trying to manage the massive and inequitable reduction in resources announced on 13 December. In fairness, it has tried to take sensible steps to anticipate part of that reduction, and to its credit it has redesigned its services and introduced modern procurement practices. The Minister has praised Coventry for its efforts to look for value for money; nevertheless, I want to highlight the scale of the grant reductions facing the city. Because of the cuts, the council has been forced by the Tory-led Government possibly to cut more than 500 posts over the next 18 months. The amount of money the council spends on the local economy will also reduce dramatically, and if we add to that the capital proposals for the Building Schools for the Future programme, that is another £300 million that could leave Coventry’s economy. We are not yet clear what the capital allocation will be for repairs to school buildings and the rebuilding of schools. We should have received information on that this month, but we are still waiting for the Secretary of State for Education to provide it. That has an impact on staff in Coventry city council. The front-loading of cuts means that staff losses will be required at an early stage of the spending cuts, which will affect not only staff but families across Coventry. The overall impact of the measures means that Coventry council is expected to lose about £45 million.

Let me turn to the impact on the west midlands economy. The cuts will have a significant knock-on effect on local businesses and employment in the region, and we can see what is happening in other sectors as cuts and reforms begin to bite. In the health sector, for example, possible cuts were announced last Monday in the local press—in Coventry and Warwickshire, some 450 jobs could go in the national health service. Cuts of over 20% are projected for the West Midlands police force, which will have an impact on the fight against crime. As I have indicated, we do not know what will happen with the Building Schools for the Future programme.

The public and private sectors will not be able to invest in the regeneration and infrastructure of the region. We are still awaiting a decision on the Knuckle project, which could help the employment situation in Coventry. Over the years, Coventry MPs have lobbied various Governments in order to get that project off the ground. I will not go into great detail about that, but I hope the Minister will tell his colleagues that we need a decision that can help to mitigate unemployment in Coventry.

The abolition of funding from regional development agencies has meant that there is little funding to lever in private sector investment for large-scale redevelopment projects. There are two parts to local government cuts for Coventry city council. First, the formula grant will lose in excess of £19 million, and secondly, specific grants will lose in excess of £17 million. There will be a 27% cut to local government funding over four years, which in real terms equates to a cut of 8% per annum to the formula grant.

As I said earlier, there will be further cuts to specific grants, but—unbelievably—we will not know the final grant settlement until the end of January 2011. That puts Coventry city council under further financial pressure and it will not be able to continue providing services at the same level. There will be far fewer grants and they will have a lower overall value. It is a great concern that many grant streams will end. That will have a significant impact on Coventry—some 58% of the council’s gross expenditure for 2010-11 is resourced through specific grants, and £19 million of grant funding is likely to fall out, including a large number of former area-based grants such as local enterprise growth initiatives and a number of children-related grants. The future is unclear for Connexions and adult education.

Some grants that will end immediately include various education grants aimed at raising school standards; employment activities that help people back to work and, as a consequence, strengthen the local economy; community services; one-off grants to the homeless; sporting futures and football foundations; youth crime action; dealing with fly-tipping; and environmental grants for safer communities. We must consider other measures that will affect the disadvantaged. The front-loaded cuts proposed by the Government, combined with the impact of the VAT increase, will mean fewer services, of a lower quality, although people will be expected to pay more for them. That will be this Government’s legacy.

[Emma Reynolds (Wolverhampton North East) (Lab)]

I could not agree more with my hon. Friend that it is the poorest who will be hit hardest. In Wolverhampton, the 28th most deprived local authority in the country, we are expecting cuts to the city council budget of 24%. Does my hon. Friend agree that such cuts are too fast and too deep and will hit the poorest hardest?

[Mr Cunningham]

Obviously, I have to agree with my hon. Friend. As she will know, the Building Schools for the Future programme certainly affects her constituency, and there will be an economic impact on it in that regard. The Government, although there was an economic problem, have gone over the top in addressing it. That has become apparent as they have rushed into all these local government cuts.

Capital funding has all but dried up. We are seeing the abolition of Building Schools for the Future where money has been lost, there is no replacement work and schools are in desperate need of repair. Notwithstanding the cuts to housing benefit and council tax administration costs, in real terms central Government will be cutting 5% of support at the time when administration is most needed. There are more claimants than ever before. The unavoidable conclusion of those actions is that many of the poorest will be affected disproportionately. That includes the proposals relating to legal aid, which is not part of this debate.

We were preparing a four-year plan to deal with the situation, and obviously there would have been a certain amount of rationalisation as far as we were concerned, but we certainly would not have been rushing in all directions, as the present Government have been doing over the past seven or eight months, to inflict cuts on people.

There is a new word for cuts these days: I am talking about the thing called “damping”. No doubt the Minister will enlighten us on that one. The coalition’s damping methodology throws up a number of concerns for the people of Coventry, which I shall briefly discuss. Once again, Coventry has lost resources. We did so in the 1980s under the previous Conservative Government. Our capital programmes were capped in those days. People have short memories. What the present Government are doing is not new; the then Government were doing it way back in the ’80s. For the period of 2011-12, Coventry is set to lose £8 million through that process alone. That leaves the authority with a reduction in resources of 6%, which is 1% worse than the national average. The coalition has tried to defend the damping process by saying that the money is being given to the more needy authorities. However, that is simply not happening in many instances.

Let us consider the main problems with damping as many authorities see it. On closer inspection of the actual effects, the damping in the provisional settlement considers only authorities’ formula grant; it does not consider the authorities’ change in overall resources. Relative spending power combines the impacts of formula grant, council tax and other revenue grants.

Although the average is a 5% reduction, there is wide variation in the outcomes for individuals. The Government have tried to disguise how deep the cuts are by including in their calculations money that councils raise themselves. Their own statistics reveal that councils will lose on average 12.1% of their core central Government funding this year. Perversely, six of the most affluent local authorities will gain a joint total of £130 million from the damping process. For example, West Sussex gains £6 million, with a reduction of less than 1%. Richmond upon Thames gains £15 million, with a reduction of less than 1%. Alarmingly, Surrey will gain £62 million from the damping process. Clearly, this damping is not fit for purpose—to coin a phrase from a former Home Secretary and colleague of ours—and should not be used to allocate formula grant.

We suggest a change to the damping system. Many councils raise far more from council tax than they receive from the Government. Therefore, a comprehensive assessment of each authority’s overall resource position should be examined. The current unfairness is taking money and jobs out of Coventry and 77 other authorities across the country. I urge the Minister to consider changing over to that approach, which, as I understand it, has been suggested to civil servants by officers from Coventry city council.

There is an overwhelming lack of clarity from the coalition Government about the time frame. Councils across the west midlands and beyond are being forced to make rushed decisions, with no time to plan for the consequences. That could end up costing more than it saves. There is a lack of information. Councillors and officers are in no way information-rich as they go into this unfamiliar process. There is little guidance from the Department and there is great uncertainty. The Secretary of State for Education’s capital spending review is not expected until later this year. We thought that it would be January and, as I have said, I am not clear now on when we shall know what the settlement will be.

For all the coalition’s talk of localism, it has dumped its cuts on local councils. The coalition’s plans for local government do not include growth or jobs: it is merely a deficit reduction policy. The coalition must make up its mind. Is it dealing with a new economic situation, which was the original argument, or is it rebalancing the economy, which is the new one? The solution is the same, but the approach and the reasons are different.

--- Later in debate ---

[Richard Burden (Birmingham, Northfield) (Lab)]

It is a pleasure to follow the hon. Member for Nuneaton (Mr Jones). I could, perhaps, characterise his speech as a bit of an each-way bet, but he will have to answer to his constituents over how he actually feels about large amounts of cash being trimmed off the local budget.

I congratulate my hon. Friend the Member for Coventry South (Mr Cunningham) on securing this debate and a number of debates since the election on matters pertinent to the west midlands. Understandably, he has majored on the situation in Coventry, although the title of today’s debate covers the broader west midlands, which we heard about in the hon. Member for Nuneaton’s speech.

The previous debate that my hon. Friend secured on this matter was on 16 November 2009 on cuts to the police service. Those cuts had a serious impact in all parts of country, but in the debate a succession of hon. Members from the west midlands drew Ministers’ attention to the disproportionate effect of the police cuts on our region due to how Government grants interrelate with the precept. In that debate, we were told that Ministers were listening, but when the announcement came just before Christmas of the settlement for police authorities, we found out that listening had not been matched by action. As a result, a number running into the hundreds of experienced officers will lose their jobs and the back-up support that is vital. In that debate, I said that not only were the cuts to the police service serious, but that we will only see their impact in the round if we relate them to cuts taking place to other public services and, most particularly, to local government.

On 13 December, we heard what the provisional local government settlement would be, and it confirmed all our worst fears. I asked the Secretary of State for Communities and Local Government about Birmingham when he made his statement in the House. His response was significant:

“I am delighted to tell the hon. Gentleman that Birmingham faces a cut in its spending of 8.3%, and 4.3% for next year.”—[Official Report, 13 December 2009; Vol. 520, c. 692.

I think he meant 8.3% next year and 4.3% the year after, but we will allow him that slip of the tongue—I know that Government Members are fond of quoting slips of the tongue at the moment, which can happen from various quarters. The Secretary of State said that he was “delighted” that there would be an 8.3% cut in spending in Birmingham, but there is no delight in Birmingham about an 8.3% cut in spending. According to figures from Core Cities Group, the cuts required to balance the budget in Birmingham in the 2011-12 financial year will be £139 million, with a further £53 million the year after. As with the police cuts, the impact will be much greater in Birmingham, and in other core cities and urban areas, than—surprise, surprise—in more affluent areas, particularly the south-east.

According to the Core Cities Group, Wokingham faces a loss in formula grant of 14.3%, which is a higher percentage than Birmingham. The real impact on real people on the ground in Wokingham is a cut per person of £20.83. In Birmingham that is a cut per person of £75.19. We can then transfer that figure to the spending power per person, which my hon. Friend the Member for Coventry South mentioned. In Wokingham the cut is £4.46 and in Birmingham it is £101. That £101 equates to 8.3%, the precise figure about which the Secretary of State expressed delight in his 13 December statement.

[Emma Reynolds]

Does my hon. Friend feel that the delight in the quote from the Secretary of State for Local Government is due to an ideological commitment to make the state at both central and local government level smaller, because that is what Conservatives have always believed and continue to do so? If they were frank and open about that, we would obviously still have a problem with it, but why should they not come out and say so?

[Richard Burden]

My hon. Friend makes a valid point. I also think we need to question when they talk about making the state smaller. What they really want to make smaller is the benefit that the state can provide to the citizen; the support the state provides; and the way the state can enable the citizen to improve his or her quality of life. I do not get the impression either from this or the previous Conservative Government—if we go back that far—that there was actually much of an attempt to shrink the state in terms of central control. An interesting thing about what they are doing in practice—not the rhetoric—is the increase in central control, not only over local government but also over local communities. I will give a couple of examples of that in a minute.

I chaired the West Midlands Regional Committee before it was scrapped by the Government. Clearly, they found it uncomfortable to have a Committee of this House focusing on our region. That is something that in due course they will have to answer: why they thought it was so much of a problem to have a Committee looking at the strategic issues of our region. The reports we produced on that Committee looked at the impact of the recession on the region and the fragility of the recovery in the west midlands. When cuts come in local government and in other areas of the public services, that is serious. It is really serious for the west midlands, so serious that it makes it even more important that the targeted funds that the previous Labour Government made available to our region are employed effectively.

Birmingham city council’s ruling Conservative-Liberal Democrat coalition was criticised before the election about its use of targeted funding, in particular the working neighbourhoods fund. With the needs of a city such as Birmingham, it was surprising that the Conservative-Liberal Democrat coalition managed to underspend in the 2009-10 financial year to the tune of £28 million on its working neighbourhoods fund spending. It has a lot of questions to answer about that. The council still received from the Labour Government an additional allocation of £41 million under the working neighbourhoods fund for the 2010-11 financial year. It could use the underspend from the year before and the extra £41 million provided by the Labour Government to help those affected by the cuts that the current Government are implementing. It could be doing that, using it to tackle worklessness and to ensure that the resilience of the region is maximised after the recession. That is not happening. In July, the city council froze initiatives for using that underspend from 2009-10, and it cut £7 million from the 2010-11 budget.

I raised that with Ministers at the time and I was told that it was a good thing, because there was now a new-found freedom for local government, ring-fencing was going and local authorities were free to use area-based grants according to local circumstances. The result in Birmingham has been this. In the week before the Localism Bill receives its Second Reading and at a time when the Government talks about the big society—we may hear of it from the Minister—and empowering local communities and giving them a say, on Friday in Birmingham city council, neighbourhood managers and neighbourhood co-ordinators throughout the city, including my Northfield constituency, were issued with redundancy notices and will no longer have jobs from April.

One of the most positive and creative responses to the MG Rover crisis of six years ago was the setting up of a one-stop advice shop in Northfield town centre. That not only provided much-needed advice for local people but brought together in a real partnership, local businesses, residents and the local authority, to improve the suburban shopping centre of Northfield. Key to that, the glue that held it together, was a town centre manager, initially funded by Advantage West Midlands, which is also being scrapped. Now that town centre manager post is being scrapped under the cuts brought in by Birmingham city council. Those neighbourhood managers and neighbourhood co-ordinators were engaged in incredibly creative work in building local resilience and community self-reliance. Getting those redundancy notices on Friday was a slap in the face for them. It undermines the resilience and self-confidence in communities that—if the verbiage of the big society is to be believed—we should be trying to build.

It will also sap confidence in that local suburban shopping centre at the very time we should be trying to attract investment to it, trying to build confidence, and trying to cut crime and the fear of crime. When I say it is a slap in the face for those local neighbourhood managers and co-ordinators and the town centre manager, it is not just a slap in the face for them. It is a slap in the face for the people of Northfield and Birmingham. It is also a slap in the face for the ideology of the big society.

It will be said—as it was by the hon. Member for Nuneaton—that the cuts are inevitable and that savings would have had to be made anyway. To some extent, that is true: some savings would have had to be made. He says it is all Labour’s fault. Maybe he should listen not just to what comes out of central office but to what Conservative councillors say. At the start of last year, when Labour was in power in central Government, Birmingham city council, despite having had year-on-year increases in grant, was already facing a massive overspend, even though the Conservatives and Liberal Democrats had been in power there since 2004.

When a number of people questioned the council with some force about whether that said something about its financial management, it said, “Absolutely not. The trouble is we do not get enough money from the Government. Labour starves us of money.” It is time for the Government to ask whether it was right or wrong to say that. If those Tory councillors were right that Labour was starving them of money, despite the year-on-year increases, how can the Government justify the extra swingeing cuts to financing Birmingham city council? If they are wrong about that, are they saying that Birmingham city council, run by their friends —a Conservative-Liberal Democrat coalition—was mismanaging the finances of the council? They cannot have it both ways. They have to say in fairness to the people of Birmingham which of those positions is right. The people of Birmingham need to know these things if their neighbourhood co-ordinators are to be cut and when they see rubbish piling up in the streets of Birmingham because the city council is trying to cut the pay of refuse collectors by between £4,000 and £6,000. They need answers from the Government about what they are going to do about listening to the real concerns of real people in Birmingham.

There are things that the Government could do to make matters a little better. They could structure the transitional grant to local authorities differently. They could ensure that transitional grant is available to local authorities that face a cut in their revenue spending power of 7.5%, rather than the 8.9%, which is proposed in the provisional settlement. They could change the resource equalisation formula, so that it does not take money away from poorer areas and give it to richer ones, as is happening at the moment. A number of other suggestions have been made by the Core Cities Group.

When the Minister responds, will he say whether he is considering what Core Cities is saying and, if so, what the response will be? Could he give me a bit more comfort than I received in the debate about police cuts, when I was told that the Government are listening, only to find that listening led to absolutely no action in the final announcement? Will the Government listen this time and match their listening with action when we have their final figures?

One thing is clear. Whatever the Government do, is it not true that people in Birmingham and the west midlands as a whole, including Coventry, deserve just a little better from the Secretary of State for Communities and Local Government than a pat, off-the-cuff remark expressing delight at the fact that spending power in their area will be cut by more than £100 for every citizen or by 8.3%?