Local Government Finance

Hilary Benn Excerpts

Tuesday 10th February 2015 Commons Chamber

[Hilary Benn (Leeds Central) (Lab)]

That was an interesting speech. I pay tribute to the Minister for his generosity in giving way to Members, but councillors up and down the country listening to what we have just heard—in particular the part where he talked about giving authorities the ability to grow their resources—will look at their circumstances today and ask whether the Minister really understands what is going on in our authorities.

I want to begin with the scale of what is happening, because the Minister queried the figure given by the hon. Member for Brighton, Pavilion (Caroline Lucas), which was the Local Government Association’s calculation of a 40% reduction in core Government funding to councils since 2010, as a result of which councils have had to make reductions or savings worth about £20 billion. Would the Minister argue, however, with the National Audit Office, which said in its report “Financial sustainability of local authorities 2014”:

“The government will reduce its funding to local authorities by 37% in real terms between 2010-11 and 2015-16”?

[Kris Hopkins]

I would disagree, because neither the LGA nor the NAO includes the money for public health or the better care fund.

[Hilary Benn]

I shall come to that point directly, but the Minister did not actually contest the NAO figure. The reduction in resources of 1.7% that he has talked about today is a selective figure, because it does indeed include council tax, the better care fund and other ring-fenced funding, but if that is excluded the LGA says that the reduction is actually 8.5%. Whatever the statistics that the Minister wants to argue about, the truth is that local government has faced the biggest reductions in the whole of the public sector, as we heard in an intervention.

We should first pay tribute to councils for the extraordinary job that they have done—councils up and down the country, of all political parties—in trying to deal with the consequences of the cuts, because their effort has been herculean. I pay tribute to the Minister for his tone, which is slightly different from that of his predecessors, but councils really resented the Secretary of State once famously describing the cuts as “modest”—which I bet he now regrets—and the LGA’s fears for the future of local government as “utterly ludicrous”.

[Mr Graham Stuart]

If we are talking about making admissions, will the right hon. Gentleman now accept that his Government, at what seemed to be a time of relative plenty, skewed funding to urban areas at the expense of rural ones? Now that we are in a period of austerity, which will continue whoever is in power, it is those poorer, more highly taxed and yet lower-serviced rural areas that are suffering most. Will his party pledge to do something about that, or will it carry on putting its own party interests ahead of fairness for the British people?

[Hilary Benn]

I have to say to the hon. Gentleman that I resent that suggestion. I make no apology for the fact that the last Labour Government provided funding on the basis of need and that local authorities saw an increase in resources under Labour. I do not recall hearing any complaints about that from the then Opposition when those decisions were being made.

[Mr Stuart]

rose—

[Hilary Benn]

I am going to make some more progress; the hon. Gentleman has had his answer. I accept the point he has made in a number of these debates about the particular challenges facing rural areas. I want to see a fairer funding formula, and I shall address that a little later.

Ministers are in denial about the scale of the challenge that authorities face and are still claiming that the settlement is fair—this is my first and fundamental point. The Minister told the House in December that the settlement is

“fair to all parts of the country, whether north or south, urban or rural.”—[Official Report, 18 December 2014; Vol. 589, c. 1590.]

He said that again today, but let me tell him that nobody else believes it because it clearly is not true. He does not need to take my word for it; all he has to do is listen to what others have had to say about what Ministers have done. The Audit Commission has said that

“councils in the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure than councils in less deprived areas.”

The Joseph Rowntree Foundation has said that

“cuts in spending power and budgeted spend are systematically greater in more deprived local authorities than in more affluent ones”.

The Public Accounts Committee report on the financial sustainability of local authorities said:

“local authorities with the highest spending needs have been receiving the largest reductions.”

The Chair of the PAC, my right hon. Friend the Member for Barking (Margaret Hodge), said:

“These cuts have not hit all local authorities equally, with reductions ranging between 5% and 40%.

Councils with the greatest spending needs—the most deprived authorities—have been receiving the largest reductions.”

At least the former local government Minister, the hon. Member for Bromley and Chislehurst (Robert Neill), had the honesty some time ago to say:

“Those in greatest need ultimately bear the burden of paying off the debt”—[Official Report, 10 June 2010; Vol. 511, c. 450.]

Today’s Minister mentioned council tax, but the one group of people who have not benefited from any freeze in council tax are those on the very lowest incomes, who have been affected by the changes to council tax benefit. There has been no freeze for them.

[Robert Neill]

It is a pity that the right hon. Gentleman quoted selectively, forgetting that I said that that would be because the Labour party would ruin the economy, and only by growing the economy would the poorest benefit. He has said there would be no new money for local government were Labour to come into office, so will he help us by coming clean as to which local authorities he will then penalise so he can distribute money to his political friends and on what basis?

[Hilary Benn]

Once again, I do not accept the charge that this is about distributing funds to friends; it is about having a fair funding formula. I remind the hon. Gentleman that when the coalition Government took office unemployment in this country was falling and the economy was growing—[Laughter.] It is no good Government Members laughing, because the evidence, the statistics, the facts will show that that was indeed the case.

On council tax increases, Ministers have frequently made reference to what happened under the last Labour Government, so I have taken the trouble to look at what actually happened then. The truth is that the biggest increases in council tax between 1997 and 2010 were put in place by Conservative-controlled authorities and the smallest increases were under Labour. Indeed, 11 of the top 15 increases in council tax during that period came under Conservative-controlled authorities, two were under authorities with no overall control and one was under a Lib Dem-controlled authority. I suppose that was a coalition.

[Mr Stuart]

Will the right hon. Gentleman give way?

[Hilary Benn]

No. The hon. Gentleman may not like the fact, but the truth is that Conservative-controlled authorities were leading the way in raising council tax. What I am interested in, in this debate, is what the figures show. Why is it that by 2017, as we heard a moment ago, the city of Liverpool, with the most deprived local authority in the country, will have lost half its Government grant since 2010? I have nothing against Wokingham, but why is it on course to have higher spending power per household than Leeds or Newcastle, despite the greater needs of those two cities? Why is it that, having claimed that those with the broadest shoulders would bear the biggest burden, Ministers have done the very opposite to local government? Will the Minister explain why Elmbridge, Waverley and Surrey Heath have been given an increase in spending power over the past five years although they are among some of the very wealthiest parts of the country? They rank among the 10 least deprived local authorities in England. There is a lot of austerity elsewhere, but it does not appear to apply in those places.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Does my right hon. Friend agree that the way the Government have approached local government finance is putting councils between a rock and a hard place? My own council in Hounslow will have to make cuts of around 40% on what it had in 2010. To raise council tax even by 2% would generate about £2 million. To go over that would cost between £300,000 and £400,000 in terms of running a referendum. The council is concerned about what will happen to services, which will have to be very deeply cut.

[Hilary Benn]

My hon. Friend makes an important point about the difficult choices faced by local authorities up and down the country. I know that councils will do their darnedest to try to minimise any increase in council tax because of the pressure on people’s finances and because of what has happened over the past five years.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I wish to give one example to show that this is all about the political nature of an authority rather than the previous funding formula. In Redcar and Cleveland between 1999 and 2003, when the council was Labour-run, and 2007 and 2011—eight years—the council tax under Labour did not go up cumulatively by the amount it did under the Tories between 2003 and 2007, who raised it by 24% in four years.

[Hilary Benn]

I am grateful to my hon. Friend for putting the record straight, given the charge that has been laid against us by the Government. The fundamental question today is why the system has been moving away from one where funding properly reflected need to one where the principle is being lost. That question was put by my hon. Friend the Member for Sheffield South East (Mr Betts), who chairs the Select Committee, in this debate last year, but so far there has been no answer.

[John Healey]

My right hon. Friend is making a powerful and principled point about the way that funding has moved against those areas with greatest need. He is making that case with great clarity, but does he accept that using spending power, as he just did, disguises the depth of the cuts that many councils face? It really cannot be the case that we can accept £1.8 billion of a better care fund in next year’s budget as an increase in councils’ spending power when the power to approve the spending decisions lies not with councils but with the health service in those areas?

[Hilary Benn]

My right hon. Friend makes an extremely important point. That is why the attempt that the Minister made to include that spending power, when we know that a goodly portion of that money is not in the hands of local authorities, is not a fair reflection. The point I put to the Minister is simply this: the NAO said that the Government should publish figures detailing the change in individual local authority income in real terms since 2010-11 so that the cumulative impact of funding reductions could be plain for all to see. The question is why have the Government refused to do it, and why are we relying on the finance department of Newcastle city council to do the work of the Department for Communities and Local Government?

[Sir Oliver Heald (North East Hertfordshire) (Con)]

The right hon. Gentleman will appreciate that in a constituency such as mine in Hertfordshire we are facing a lot of new building of homes and we need infrastructure. If he deprives my council of the new homes bonus and its community infrastructure levy, how will we provide for all these people in our part of the world? It just does not add up.

[Hilary Benn]

I have no intention of depriving the hon. and learned Gentleman’s local authority of CIL income, but as he raises the new homes bonus, I shall be straight and direct with him. I shall come on to this in a moment—in fact, if he will bear with me, I shall come to that point about the new homes bonus and set out why it needs to change.

[Mr Jim Cunningham]

A good illustration of what is happening in local government can be seen in Coventry, at University hospital. Cuts in the care budget have led to bed blocking, and now there are also cuts in the welfare budget. The Government say that they are trying to be gentle with local government, but does my right hon. Friend not agree that they are actually putting the boot in?

[Hilary Benn]

I agree and I shall come to that point, too, when I talk about the consequences of what has happened for health and social care more generally.

[Mr Redwood]

The shadow Secretary of State is usually very fair-minded, so does he agree that the largest local authority service is education, which has over the past five years had cash increases and small real increases in spending, and that the biggest local public service is the NHS, as administered locally, which has had real increases as well? Were they not the right priorities and would not his party have shared exactly that priority of protecting health and education?

[Hilary Benn]

Indeed. If one looks back at the record of the previous Labour Government, one can see that that is precisely what we did. In fact, we increased investment in those two things as that reflects public priorities. Of course, Government life is about the choices one has to make and one of the choices the Government have not made is to publish the figures that the NAO has asked them to publish. I suspect that Ministers know what the figures are and know that they will damage their argument that this is a settlement that is fair to all, north and south, and therefore do not want to reveal what is happening. We also know that the NAO has criticised the Department and Ministers for not paying close enough attention to what is going on. Again, those are not my words but those of the National Audit Office, which said:

“The Department has a limited understanding of the financial sustainability of local authorities and the extent to which they may be at risk of financial failure.”

That is why the Public Accounts Committee said:

“The Department does not understand the impact over time of reductions in funding to local authorities, and the potential risks of individual authorities becoming financially unsustainable if reductions continue.”

On current trends, the revenue support grant will disappear entirely by 2019-20. When the Minister replies, will he confirm that that is the case? What assessment have the Government made of the impact of that on the viability of local authority services, particularly in the areas most reliant on Government support? Indeed, I ask Members to pause for a moment and contemplate their local authority’s budget without any revenue support grant whatsoever. The Chair of the Public Accounts Committee was very clear when she said recently:

“Further cuts could not just undermine the entire viability of most optional services, but might threaten some statutory services in these areas.”

[Dame Angela Watkinson]

I am sure that the shadow Secretary of State is aware that the 12 inner London boroughs hold more in reserves collectively than the 20 outer London boroughs. Does he think that that indicates that funding is going where the greatest need is or does he agree with me that the balance of funding between inner and outer London needs to be reviewed?

[Hilary Benn]

The size of the reserves held by authorities across the country—they have been criticised by Ministers for doing that—shows the scale of the challenge they face. Councils are doing exactly what families do if they have any money to put by when times are hard, as they do not know what is around the corner or what difficulties they will face. That is my first point. Secondly, a lot of those reserves are earmarked for capital investment, including invest-to-save projects to help deliver savings further down the line. Thirdly, if councils decided today just to spend all of their reserves, that would pay for local government services for about a month and then they would all be gone. Then what should they do? It is no good criticising local councils for having reserves when they are trying to manage their money prudently.

I want to come to the point raised by my hon. Friend the Member for Coventry South (Mr Cunningham) about social care, which is under particular strain because of the growing number of older people. Will the Minister, in replying, tell us what percentage of the better care fund, about which we have heard today, is flowing into local authorities to support social care as opposed to going to the health service? He will be well aware of the pressures faced by local authorities and, as we have just heard and as all hon. Members know, part of the reason for the rising pressure in A and E departments, and for the growing number of elderly people in hospital beds when there is no medical need for them still to be there, is the reductions, in some cases, that have had to be made by local authorities, despite their best endeavours, in entitlement to social care. The Local Government Association estimates that adult social care faces a funding gap of £1.6 billion in 2015-16 and that that is expected to rise to £4.3 billion in 2019-20. Is that a figure that Ministers accept? If so, what do they intend to do about it?

Will the Minister confirm that the new homes bonus takes money away from the most disadvantaged communities and gives it to areas where, in all probability, the new homes would have been built anyway? What does he have to say about the NAO’s conclusion that there is little evidence that the new homes bonus has yet made significant changes to local authorities’ behaviour towards increasing housing supply? Even two of the Ministers on the Front Bench are not wildly keen on it. The Under-Secretary of State for Communities and Local Government, the hon. Member for Bristol West (Stephen Williams), has admitted that he is “not a fan”, and the Under-Secretary of State for Communities and Local Government, the hon. Member for Keighley (Kris Hopkins), was even more frank because he told the House back in November 2013:

“I am afraid the new homes bonus is not about encouraging people to build homes.”—[Official Report, 25 November 2013; Vol. 571, c. 11.]

Given that, why are Ministers so opposed to funding being allocated on a fairer basis, based on need, as we are proposing?

We are lectured frequently about the need to take tough decisions in tough times. If one accepts the argument—those on the Government Benches do not—that the way in which the cuts have been applied is fundamentally unfair to some authorities, one of the things one can do is to redistribute, and the new homes bonus provides an opportunity to do that.

[Sir Oliver Heald]

So what the right hon. Gentleman is saying is that we have to take the homes and he gets the bonus. What is fair about that?

[Hilary Benn]

There is section 106 and there is CIL in order to raise financing. There are also the changes that we are proposing in order to give local authorities, such as the hon. and learned Gentleman’s, greater power over the construction of new homes so that communities can determine where homes are built, but when it comes to the new homes bonus, if one accepts the argument that it is regressive in its impact because it is top-sliced from revenue support grant which is supposed to reflect need and therefore goes towards areas where people want to build homes which tend to be less disadvantaged than others, it is a tough choice. But when people say, “What are you going to do to redress the unfairness of what the coalition has done?”, that is part of my answer.

I know that other Members want to speak so I shall make progress. In these difficult times, what councils want is, first, fairer funding, which we are committed to; secondly, help with longer-term funding settlements so that they can plan ahead; and thirdly, more devolution of power so that they can work with other public services to get the most out of every pound of public funding. We have heard Ministers argue in the past that the relationship of old was based on a begging bowl mentality. A former local government Minister used to talk about that. That is pretty insulting to local authorities which, over the years, have worked hard to grow their economies and create jobs. One cannot look at the growth and success of the city of Leeds over the past 30 years and say that that is the result of a begging bowl mentality. It is because the council, businesses and local people have worked hard to grow the economy, create jobs and improve people’s lives. It was a question of leadership.

That brings me to what is absent from the statement today—devolution of funding to local authorities. I support the city deals that the Government have put in place and I welcome them. I have said that before, but progress has been slow and timid. We had been promised a further deal for the Leeds and Sheffield city regions, following the recently agreed deal with Greater Manchester, but there is no sign of it. Who is running that policy? Is it the Secretary of State, the Chancellor of the Exchequer or the Deputy Prime Minister?

Everyone in the House knows that the reason why the deals are being held up is that the Chancellor wants to impose a metro mayor as part of the deal and the Deputy Prime Minister does not. I am not sure what the Secretary of State’s view is, but he is clearly no particular fan of combined authorities because he said not long ago that he is afraid that they

“will suck power upwards away from local councils”.

In case the Secretary of State has not noticed, combined authorities are local councils coming together freely, voluntarily, in the interests of co-operation, because they see the benefit for their residents. When the Minister replies, will he tell us when Leeds and Sheffield are going to get the same deal as Manchester?

The last point that I want to come on to is about the counties of England. We have heard some voices in the contributions today. It was noticeable that at the recent county councils network conference, for some reason not one of the Department for Communities and Local Government House of Commons Ministers was able to turn up to address the representatives of the county councils. It was extraordinary. I suspect the reason is that county leaders feel wholly ignored by this coalition Government because they see the devolution that has been offered to cities. Where is the devolution to counties and county regions? There is none. If we get the opportunity, we will change that. We would offer economic devolution to every part of England—county regions as well as city regions—to give them greater control over their economic future. On that, I am in agreement with the Minister. We would devolve decision making on transport investment and on bus regulation. If that is good enough for London, it is good enough for the rest of the country.

We would offer funding for post-19 skills, working with businesses and co-commissioning a replacement for the Government’s Work programme to help the long-term unemployed back into a job. We would offer new powers over housing so that communities can build the houses they want in the places they want, and the houses go to the people who need them. By devolving £30 billion-worth of funding—much more than the Government are offering—we would give combined authorities the ability to retain 100% of business rate income growth. The Prime Minister has said that he wants to move towards two thirds, so if he hurries up a bit, he will finally catch up with Labour policy.

[Mr Graham Stuart]

The right hon. Gentleman said that he would bring in a new, fairer funding formula for local government. Does he accept that in the formula introduced by the previous Government, weighting was put in for density—four times that for sparsity—which has absolutely no link to need, and that is partly why certain parts of the country, even under this Government, have unfairly benefited? Will he unpick that so that sparsity is given greater weight than density, which has nothing to do with need?

[Hilary Benn]

If we get the opportunity after a certain event on 7 May, I would be very happy to receive representations from the hon. Gentleman and everyone else, because when I say that we want to achieve a fairer funding mechanism, that is what I mean.

In return for this economic devolution deal, all we ask is that local government comes together to form combined authorities across England. Their shape will vary from place to place, because economic geography and travel-to-work areas vary. This is a challenge to local government. Local government says to all politicians, “Trust us more.” Well, we would trust local government more. We would say, “Get organised, and significant devolution of funding is on offer in return.”

[Mr Redwood]

rose—

[Sarah Newton (Truro and Falmouth) (Con)]

Will the right hon. Gentleman give way?

[Hilary Benn]

I have been generous in giving way, but I am going to bring my remarks to a close because many other Members want to speak.

Councils want fairer funding, longer-term settlements, and devolution of power. They have worked really hard to reduce the impact of funding reductions on their residents, but they are now saying that this settlement could mark a turning point where the things they have worked hard to protect will be more difficult to protect in future. If the loss of services that we have seen—in the case of social care, that is largely hidden, because someone has no idea what they would have got before, as they only discover what they will get at the time when they need social care—is only part of what the Chancellor, the Secretary of State and the Prime Minister have in mind for local government in the years ahead, I say to the Minister that Labour Members will certainly not be joining him in a headlong rush back to the 1930s. Hard-working councillors want a Government who acknowledge that they have had a tough time and face stark choices, and Ministers who give an appearance of knowing what is going on.

Labour Members recognise that local government has to make a contribution to tackling the deficit—tough times do indeed require tough decisions—but there is no justification whatsoever for taking the most from those who have least. However many “Fair to all, north and south” speeches we may hear from Ministers, they can no longer pretend that that is the case. For that reason, while we do not oppose the referendum report, we will vote against the local government finance report.