A longer read for the weekend: Nick Harvey on how “the whole model of local Government funding is now fundamentally broken”

There was a mini-Lib Dem rebellion this week, when five MPs – Tim Farron, Nick Harvey, Andrew George, Stephen Gilbert and Adrian Sanders – all voted against this year’s funding settlement between the Treasury and local government.

As the New Statesman’s George Eaton points out here, “By the end of 2015-16, the budget of the Department for Communities and Local Government will have been reduced by a remarkable 60.6 per cent, with several years of austerity still ahead.” But Whitehall will have been emboldened by this recent ICM poll highlighted by the BBC showing 60% of the public think service quality has been maintained or improved.

Here’s Sir Nick Harvey’s speech, via Hansard. Below that, we’re publishing the ministerial response – which came from Sir Nick’s Lib Dem colleague, Stephen Williams, as Parliamentary Under-Secretary of State for Communities and Local Government.

Nick HarveyMP-2276 crop

Sir Nick Harvey (North Devon) (LD): Last November, I joined 30 colleagues on the Floor of this House to present petitions calling on the Government to close the gap in local government funding between rural and urban areas by a mere 10% by 2020. The petitions included 1,700 signatures from my constituency. In my view, that was a modest ask and I believe that we should look to the Government to do at least that and more in brisk order.

I recognise the problems faced by the Department for Communities and Local Government in the era of austerity, the need to eliminate the deficit and, of course, the debt repayments that will follow even when the deficit has been eliminated, but I believe that local government is taking too much of the burden—more than other Departments—and that, as the hon. and learned Member for Torridge and West Devon (Mr Cox) said a few moments ago, some local authorities are now facing such difficulties that their viability is in doubt.

It is vital that the Government should face up to the crisis towards which we are heading at great speed. Fundamentally, my complaint is as follows: why should some of the poorest people in the country, on the lowest wages, pay far more in council tax and receive far less grant from central Government while at the same time local services erode around them? That is what is happening in Devon and it is certainly what is happening in my constituency. The district council grant has been halved since 2010 and the total budget has been cut by a third over that time. This year alone, the Government have sliced the grant to the district council by 13.4%.

As for the wider picture, the situation is frankly no better for Devon county council. By next year, it will have seen a 60% cut in Government grant during the lifetime of this Parliament. Our schools and our health system are underfunded and, as other Members have said, the current system is quite simply broken. Rural residents pay council tax that is on average £86 a head higher than urban residents. They receive £145 less in Government grant than their urban counterparts, and this is a funding gap as wide as 50%.

It is welcome that the Government recognise the principle of there being a problem, and that they have put in place this emergency grant for a second year running, but I am sorry to say that even at the enhanced level that has been announced for the grant today, it closes that gap by only £1.04 a head, and at this rate it will take us 86 years to put right the gap in council tax payments, and 145 years to put right the gap in Government grant. This is simply not an adequate response to the scale of the problem that is faced in many rural communities throughout the country.

The Government make much of the spending power measure and bandy that about. That is a flawed measure. It looks at the current council tax revenues and believes that it is acceptable for some areas to pay much higher council tax and sees no reason why that should not continue in perpetuity. It also obscures the scale and impact of reductions in funding and the challenges that councils now face. For example, under the spending power measure, Devon county council has lost only 1.5% as against a national average of 2.9% in the latest settlement. But that obscures the fact that it has lost 9% in revenue support grant and, as I said, the district in my area has lost 13.4% in Government grant. Similar figures can be seen throughout the country.

Paul Farrelly: The figures from Devon mirror the situation in Staffordshire. Does the hon. Gentleman agree that it is a funny sort of localism that imposes referendum limits centrally from Whitehall?

Sir Nick Harvey: I agree, just as I think it is a funny form of localism that then starts trying to tell local authorities how often the bins should be emptied.

As the Chair of the Communities and Local Government Committee said, the whole model of local Government funding is now so fundamentally broken that there needs to be a cross-party endeavour to rebuild something from scratch on a blank sheet of paper. The situation that we are in now is untenable. Somehow or other, Whitehall convinces itself that by putting this degree of hardship on to local government, the public anger at seeing some of the services that impact on their daily lives most directly will miraculously be focused solely upon the local authorities that send out the bill. I say to my right hon. and hon. Friends that I simply do not believe that that is a sound political calculation. The public are not stupid and they will see the difficulties that local government, regardless of the party running any particular council, is facing at this time, and they will hold central Government to be responsible for it.

We have already heard from my hon. and learned Friend the Member for Torridge and West Devon (Mr Cox) in the next-door seat about the parlous state of the highways and roads, but Devon county council is now consulting about a programme of cuts that will end all its non-statutory obligations: ending the subsidy on meals on wheels; closing its day centres; getting rid of all its residential care homes; axing mobile libraries and the smaller local libraries; and doing away with the youth service, except for young offenders. This will cause absolute fury on the part of voters. I do not think that it is acceptable. We have people moving into our area who are aghast at the low level of public services that they find in comparison with other parts of the country that they have come from. This is just not acceptable. It cannot go on like this. I made a speech similar to this last year. I told Ministers that they needed to do something about it if they wanted my support in the Lobby. A year has gone by, they have done nothing about it and they will not have my support in the Lobby this evening.

Stephen Williams MP

The Parliamentary Under-Secretary of State for Communities and Local Government (Stephen Williams): We have had 15 interesting speeches, plus other speeches from the Front Bench. I remind Members of the context in which the debate is taking place. The Government came to power with the pressing need to balance the nation’s books, and that meant reductions in all areas of Government spending, and local government has had to pay its fair share. Over the last few years the Government have had to make some tough decisions about public finances—tough decisions that the last Government shied away from in their last two years in office. The crash, remember, was in 2008.

But those tough decisions are now paying dividends. The national deficit has been reduced by a third, unemployment has fallen and employment is at an all time high, so it is vital that we stick to the disciplined course that we have set for ourselves. Like every part of the public sector, local government has had to pay its share to reduce that deficit and get the nation’s finances back on a stable footing. If I can characterise the comments made by most Labour Members, with some exceptions, this has all led to total unfairness to all of their cities and constituencies.

To remind Members again about the context, this Government have decided to protect the national health service budget in real terms. This Government have protected the schools budget in cash terms. This Government have put huge amounts of money behind children who, like me, were on free school meals. All of that money will benefit Salford, Liverpool, Sheffield and other places. We have also taken the poorest in society who are working out of the income tax threshold. We have raised the national minimum wage. We have raised the apprentice wage. We have raised the state pension. We have built more social houses than the last Government, and this Government will be the first in 30 years to leave office with more affordable and social housing in the housing stock. Together, we are building a stronger economy and a fairer society, in which everyone can get on in life.

Mr Betts rose—

Stephen Williams: I will take one intervention, from the Chairman of the Select Committee.

Mr Betts: The Minister mentioned Sheffield and fairness. Given that he is a Liberal Democrat, I should be interested to hear whether he thinks it fair for Wokingham to have the same spending power as Sheffield.

Stephen Williams: Many Members have contrasted the spending power of cities with that of southern authorities. However, it is absolutely clear that the spending power of authorities such as Newcastle is far in excess of that of many other authorities with similar responsibilities but entirely different demographics. It is completely wrong to say that unfairness is built into the system, given that the top 10% of the most deprived authorities in the country are the authorities with the most power to spend on their citizens.

As has been acknowledged during the debate, we are moving to an entirely new system of local government finance. I accept that there is more to be done and that there is a need for reform in the system, but I am sure that that reform will come when the economy has fully recovered.

Reference has been made to the amounts that are raised through council tax, and the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis), was criticised for his “language of begging bowl”. As someone who, when I was a council opposition leader in Bristol, went on deputations to local government Ministers in both the other parties, let me put it this way: local government had a supplicant relationship with central Government, and that is what this Government are trying to change. We are putting more incentives in the system for local authorities to build more houses. The business rates retention will encourage local economic growth: for the first time, local authorities will retain more of the benefit from economic growth in their own areas rather than handing 100% of it to the people in the Treasury, so that they can decide how much should be distributed around the country according to their own formulas and principles.

Another of the new incentives is the new homes bonus. I am sure that the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Keighley (Kris Hopkins), will be pleased that his authority in Bradford is to receive £2 million in new homes bonus. Leeds will receive £3 million in new homes bonus, and my city of Bristol will receive £2.2 million.

The other major criticism that we have heard today is that some parts of the country have lost out at the expense of others, either as a result of this settlement or over a long period. However, the settlement represents a fair deal for every part of the country—north and south, district and county, city and shire. As I said a few moments ago to the Chairman of the Select Committee, councils have an average spending power of £2,089 per household, and the average spending power reduction will be just 2.9% in the forthcoming year. Moreover, protection is built into the system for the most deprived areas of the country, which are the most dependent on grant.

We have also recognised that services are sometimes more difficult and expensive to deliver in rural areas. Many Members, particularly those on the Government Benches, recognised the real difficulty that rural authorities experience in delivering services to their constituents. I certainly recognise that poverty is found in all parts of the country. It is not necessarily concentrated only in city-centre constituencies such as mine; it is found in Barnstaple, in St Austell, and in many other rural and sparsely populated parts of the country. That is why we have already set aside £9.5 million—£1 million more than last year—to help the authorities in the most sparsely populated rural areas.

I thank my hon. Friend the Member for North Devon (Sir Nick Harvey)—there were many Devonian speakers in the debate—for saying that we ought to go a little further. In fact, today we have announced a significant amount of extra money: £2 million. That means an extra £44,000 for North Devon district council. My hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) said that the average per authority was £30,000, but Cornwall’s unitary authority will have just over half a million pounds extra.

Local authorities need to protect taxpayers by keeping their council tax down. For many of our constituents, the council tax bill represents a huge part of their monthly outgoings. In many cases, it is much more significant than other utility bills, so to denigrate the Government’s policy of encouraging local authorities to freeze council tax is to miss a major point of what the Opposition call the cost of living crisis. If they do not recognise that council tax is part of the cost of living pressure that all our constituents face, they are living in another world.

It is no surprise to find that Labour Members live in another world. Under the previous Government, council tax more than doubled, pushing a typical bill up to £120 a month for hard-working people and pensioners. This Government, however, have done everything possible to protect families from further increases. Over the past three years, council tax bills have been cut by 10% in real terms across England, and we are encouraging local authorities to continue to freeze their council tax. We will further incentivise them to do that not only by offering them a grant but by putting that grant into the baseline so that can have certainty for future years.

Already, 137 local authorities have confirmed that they intend to reduce or freeze their council tax bills, including—as my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) pointed out—almost all the Liberal Democrat local authorities. They include the local authorities led by directly elected mayors in Watford and Bedford, and the Liberal Democrats in my own city of Bristol want our city’s mayor to follow their example.

The referendum principle has been mentioned by many speakers today. The hon. Member for Sheffield South East criticised the Government for taking time to announce what the referendum threshold should be. We confirmed on 5 February that it will remain at 2%, which was the assumption that the local authorities were working on when planning their budgets. The hon. Gentleman was around during the last Parliament, and I must gently remind him that the previous Government frequently capped local authority council tax increases without announcing the cap until March, after the local authorities had set their budgets and started to prepare the bills to pop through people’s letter boxes. We have certainly improved on that situation.

There are many things that local authorities can do to balance their books in an efficient way. The Government are encouraging such efficiencies, and there is still plenty of scope. For instance, the Liberal Democrat council in Kingston-upon-Thames is investing in a combined heat and power system that will benefit its council buildings and private sector buildings, saving money and carbon at the same time. Cambridge council is protecting and enhancing local shops, which is good for local residents, good for tourists and good for local economic growth. The process is now being incentivised by the retention of business rates.

Mr Graham Stuart: Further to the speech that my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) made earlier, will the Minister confirm or deny that the Liberal Democrats stood in the way of a fairer deal for rural areas?

Stephen Williams: I am not privy to every conversation that takes place, as my hon. Friend knows. I can assure him, however, that possibly the most powerful person in the Government with his hands on the purse strings from our side of the coalition, the Chief Secretary to the Treasury, is most certainly a friend of rural areas. He has pushed for the freeze in fuel duty, which is another example of the Government listening to the cries for help from rural communities. There is a danger, in these debates, that we see matters purely in the context of the silo of our own Department. I agree entirely with the right hon. Member for Salford and Eccles (Hazel Blears)—the former Secretary of State for this Department—that it is a mistake for Governments to do that, and we have not done it. Across the piece, we are doing our bit to help rural areas, including through freezing fuel duty. Had Labour’s plans been put into effect, rural motoring would have cost much more.

There is more that local government can do to hold down costs. An example can be seen in the tri-borough initiative in west London, involving Hammersmith and Fulham, Kensington and Chelsea, and Westminster councils. The leader of Kensington and Chelsea council told me recently that the initiative was on track to save £40 million by combining back office and management services.

In conclusion, this coalition Government are all about building a stronger economy and a fairer society in order to help people to get on in life by giving them more power to decide what happens in their community and supporting their local area in ways that will allow their community to thrive and prosper. There is no doubt that some difficult decisions have had to be made about public finances, and councils cannot be exempted from that process. But councils have taken important steps towards modernising and transforming their services, and I certainly pay tribute, on behalf of all of my colleagues, to the efforts that many councils have made to live within their difficult budgets. I also think we must all acknowledge that more could be done to reduce the costs of delivering their services while keeping council tax down, and I have every confidence that they will rise to the challenge.

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9 Comments

  • Matt (Bristol) 15th Feb '14 - 10:45pm

    Stephen Williams: ‘local government had a supplicant relationship with central Government, and that is what this Government are trying to change’.

    Stephen, you can often talk a lot of sense, but that statement is profoundly c*bblers. It is just possible that it is true that the Lib Dems in government may perceive that that is what they would like to do if allowed, but I really don’t think that it is true of your friend Mr Pickles, and you will find very few people in or near local government who would be prepared to accept that statement at face value.

  • Cllr Martin Hunt 15th Feb '14 - 10:55pm

    Local government is about to implode within the next 3 years, Lib Dems who voted for the settlement should be ashamed at stabbing their local government colleagues in the back.

  • If Stephen Williams were being upfront, he would be saying how Liberal Democrats propose to change local government finance to reduce the “supplicant” effect. We always said “Axe the Tax” (Council Tax), and replace it with a Local Income Tax. Unfortunately that in its turn was axed, along with Charles Kennedy.

    Since then, we seem to have existed on slim pickings in terms of proposals for real change to local govt finance. Is it any wonder we are now suffering hugely from starved, and disintegrating local services? “Combining back office services” is always lauded as a way of saving money. Unfortunately schemes often come to little when Councils can’t agree, and at worst undermine principles of local democracy.

  • David Lowrence 16th Feb '14 - 7:49am

    @Tim13 “Unfortunately that in its turn was axed, along with Charles Kennedy.”

    Surely not? We have all been led to believe that CK never existed.
    Stephen Williams will soon discover, along with others of Clegg’s yes men, that the Kings shilling does not go far when a new set of vales is needed.

    I weep for the party when coalition has become – “Yes my Lord, more coal on the fire?”

  • Steve Coltman 16th Feb '14 - 12:09pm

    I agree with Nick Harvey, we need to look at local government finance from a clean sheet of paper. We should start with looking around the world at other countries and how they fund local government, how do Sweden, Switzerland, Canada, S. Korea etc manage this? I suspect local government needs to be funded not by one tax but by a basket of different taxes. No one tax is ever fair to everyone, any given tax always bears harder on some than others, so a basket of taxes stands a better chance of being fair to all.
    This is, however, just one part of a larger problem. The UK is a constitutional basket-case and the relationship between local and national government is just part of the problem. I know people say the electorate don’t care about constitutional matters but they would if they could see how much it matters.

  • Oh dear, oh dear. As if things were not bad enough already. We are a few weeks away from London Borough elections and. lib Dem minister things it is a good idea to say this — “There is more that local government can do to hold down costs. An example can be seen in the tri-borough initiative in west London, involving Hammersmith and Fulham, Kensington and Chelsea, and Westminster councils. The leader of Kensington and Chelsea council told me recently that the initiative was on track to save £40 million by combining back office and management services.”

    Well Stephen Williams how would you feel if a Lib Dem minister announced in parliament that your political opponents in Bristol (Con or Lab) were doing a grand job on local council finance. Imagine if you had been struggling to get people elected only to have the rug pulled out from under your feet. I don’t know who is writing your speeches for you, but I do sincerely hope you did not write this one yourself.

  • It deeply worries me that a person elected as a Liberal Democrat can deliver a speech which a Tory would have been proud of -we have little prospect of keeping many councillors while we decimate local government at a national level. It appears to me that Mr Williams fails to be aware of the statutory and non statutory responsibilities of local authorities and their role in assisting those at the bottom of the pecking order. There is a lot more to local government than housing and the council tax rate. In fact what kind of Lib Dem believes that the council tax is a fair method of funding local government

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