Goldsworthy on Local Government Finance

• [Feb 03] Julia Goldsworthy (Falmouth & Camborne, Liberal Democrat): ' . . SO I do not understand why anyone is crowing about this . . settlement, given that it appears that next year we are about to disappear off the edge of a cliff . . We are talking about 3 % real-terms cuts every year. By not coming clean . . the Government are taking away from councils time to plan what they need to do . . '

I welcome the opportunity to discuss the settlement. When I saw that the Secretary of State in his place I thought that his presence might raise the tone of the debate, but so far it has not really done so, although I am sure that the hordes of Labour Members sitting opposite me have contributions to make.

The debate concerns the third year of a three-year settlement. Notwithstanding the banter that we have heard, it contains nothing particularly controversial. Many councils were very happy to have a three-year settlement. It has been delivered according to plan, and given what has been going on in the wider economy, I think that a number of them were grateful for the stability that it offered.

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David Heath (Somerton & Frome, Liberal Democrat): We would have been very pleased to have had that stability in Somerset, were it not for the incoming Conservative county council deciding that an increase in the money from the Government was a signal for it to cut massively the services it provided to Somerset residents. I cannot quite work out that paradox.

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Julia Goldsworthy (Falmouth & Camborne, Liberal Democrat): My hon. Friend is right: that is an odd paradox. One would have thought that any incoming council would have been focused on meeting the needs of the people who had elected it, rather than on cutting services to them.

Let me speak a little more widely about some of the challenges councils have faced over the past three years, which is the period the settlement has covered. Councils have been feeling the pinch. The credit crunch has had an impact not only in terms of putting pressure on the services that they have to deliver-if there are more vulnerable people, councils face increased pressures in trying to meet their needs-but in terms of the fees and charges they collect. They have already been feeling the squeeze, therefore, as the Minister for Housing acknowledged last year when he said this was a tight settlement. It would therefore be unfair to say that councils are in a luxurious position, given everything else that has been going on in the wider economy.

The Secretary of State rightly highlighted in his speech his concern about the impact rent increases might have on council tenants, and the impact of council tax rises on council tax payers, but we must also remember that there are huge pressures on councils, which in turn has an impact on the services they provide to vulnerable people. A number of terrible stories have been reported in the media recently, not least the case in Edlington. The knock-on effect of that case and the baby P case has created a massive pressure on authorities' services. I know from talking to people delivering children's services in my own local authority in Cornwall that they have resulted in a massive increase in referrals, which they have to deal with, and they have also had a very negative impact on staff morale and turnover. Therefore, a lot of councils have fewer staff trying to deal with an increased burden. It looks as though those pressures will increase in the future, because the Government's proposals to give councils the responsibility for delivering free personal care to people with high levels of need living at home is a cause for concern to a lot of councils. They believe that they are being asked to part-fund that by savings that have already been accounted for, or that they may not be able to deliver that care. This is part of a long history of the Government giving councils responsibilities for something that the Government then fail to deliver on properly, such as concessionary bus fares and free swimming. The delivery of personal care will be another example of councils finding that their resources will be stretched further to cover more responsibilities, while they are not necessarily given the resources to deal with that.

I want to emphasise, too, that we face uncertainty. The Secretary of State made great play of the certainty that his Government had given to local councils through the three-year funding settlement, but he said absolutely nothing about what will happen in the next financial year-not the one that has been dealt with by the settlement, but the subsequent one. Basically, councils are completely in the dark about what kind of situation they will be operating in. The spending review was due last summer, and we do not now know when it will appear, but it certainly does not look as though it will do so until after the election. The closest we got to having any information about that was in the pre-Budget report, when the Chancellor said that public spending as a whole would be frozen between 2011-12 and 2014-15.

The Institute for Fiscal Studies has today published its "Green Budget", in which it tries to tease out some of the implications of a real-terms freeze for Departments that have not been singled out by any party for protection. The following quote from the summary to chapter 8 of the "Green Budget" points out that

"spending on debt interest, social security and other 'annually managed expenditure' is likely to grow in real terms. Keeping to these overall spending plans would therefore require deep cuts in 'departmental expenditure limits' (DELs)-Whitehall spending on public services and administration".

It also said that the Government had

"promised to 'protect' spending on priority areas, including health, schools and overseas aid".

Once one takes out the protection of those areas and the increases in expenditure, the implication is real-terms cuts. The book says

"These other areas-including defence, higher education, transport and housing"-

and, of course, local government-

"would likely see their budgets cut by 12.9 per cent."-

in real terms-

"on average over the two years or by £25.8 billion".

The book also extrapolated the Conservatives plans on ring-fencing over the four years, saying that

"if the Conservatives' plan to protect aid and the NHS were combined with the more ambitious tightening plan implied by their proposed fiscal targets"-

that sounds like that might be slipping a bit-

"then the cuts in their unprotected areas could be more like 22.8 per cent. or £57.1 billion by 2014-15."

So I do not understand why anyone is crowing about this amazingly "stable" settlement, given that it appears that next year we are about to disappear off the edge of a cliff and nobody is prepared to talk about what that actually means for services that have not explicitly been protected. We are talking about 3 per cent. real-terms cuts every year. By not coming clean and giving us an indication about this in a spending report, the Government are taking away from councils time to plan what they need to do and what services they need to prioritise. If councils had more time-if they had had from last summer or even from last October-they would be able to plan their services more effectively and smooth out some of the impact that such cuts will inevitably have on their services. If information is not provided urgently, councils will be preparing their budgets from October and probably having to carry out a slashing exercise on current services of which Freddy Krueger would be proud. All councils will be facing a nightmare on Elm street because they are not being told what to expect.

What does that mean for council tax payers? It raises a big question as to what will happen to council tax. In the past, there have been above-inflation increases every year since the council tax was introduced, but what impact would the introduction of capping have on services? It would certainly not help to sort out the public debt, because it would provide the Government with only a marginal gain from what happens to council tax benefits, so they would not obtain any advantage. What is most likely to happen is that there will be massive pressures on the council tax system, because if councils want to do anything to prioritise an important service, the only way that they will be able to find any discretion is through terrifying increases in council tax.

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Andrew Pelling (Croydon Central, Independent)

The hon. Lady talks about uncertainty. If the Liberal Democrats had leverage over an incoming Government in a hung Parliament -[Interruption.] You have no reason to smile, because that is a possibility. In such a circumstances, what timetable would you have for introducing a local income tax?

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Julia Goldsworthy (Falmouth & Camborne, Liberal Democrat): I will come to that, but the point I am trying to make is that this situation is urgent. Council tax payers will end up with council tax bill increases every year even though services are being reduced-that already occurs, but the extent of it will be more extreme. On the kind of extrapolations that the IFS has produced, there will be massive increases in council tax in return for massive cuts in local services. That will test the local government finance arrangements to breaking point.

We already have a system of gearing, which means that 75 per cent. of what councils spend is funded through central Government grants. That makes things difficult, but the situation will get harder.

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Alan Whitehead (Southampton, Test, Labour): I congratulate the hon. Lady on her relatively numerate presentation, in comparison with what was said by certain people sitting elsewhere in the Chamber. Would she care to speculate on the result for gearing of artificially holding down possible national increases in council tax so that a cumulative additional amount of central Government grant would have to go in to make up the gap and, thus, keep the total stable? As she has suggested, that would increase gearing still further over the years of that increase.

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Julia Goldsworthy (Falmouth & Camborne, Liberal Democrat): I shall be coming to that point later, but basically the Conservative proposals would have the effect of disproportionately benefiting the people in the best position. They would make it more unfair. There are Conservative-run and Conservative-led councils, such as my own, that are unable to deliver the council tax freeze that their national party is asking them to. Those proposals would perpetuate those unfairnesses and could result in the system being even more centralised.

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David Heath (Somerton & Frome, Liberal Democrat): I am very worried about one of the two district councils in my constituency, Mendip district council. South Somerset is happily well-run and has shown that it is very good at running its resources. Mendip district council has, over the years, massively cut its services and then massively increased both council tax and charges. It is now considered by the Audit Commission to be one of the worst-run councils in the country. I am not sure that it could survive that sort of impact. The problem is, of course, that the one-time leader of Mendip district council, Councillor Ken Maddock, is now leader of Somerset county council, which has hitherto been a top-rated authority. I am worried not only that Mendip will go down the pan but that Somerset county council will deteriorate.

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Julia Goldsworthy (Falmouth & Camborne, Liberal Democrat): That prompts a question about the motivation of such individuals in wanting to control a council. Is the aim to reduce council tax as much as possible, whatever the cost, or to provide value for money? They are very different things and it seems that the primary motivation is purely headlines rather than providing services in the best interest of local residents.

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Andrew Pelling (Croydon Central, Independent)

The hon. Lady was quite right to underline how she is talking about the urgency of reform. She mentioned gearing, and a strong example of that is the London authority, where the gearing is one in 12-the system there is ridiculous. As there is urgency, do you feel that a Liberal Democrat-influenced Government would seek an urgent change to the local government financial system in the first year?

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John Bercow (Speaker)

Order. As this is the third time, may I remind the hon. Gentleman that the debate goes through the Chair? I do not feel or think anything on these matters, but I am sure that the hon. Lady does.

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Julia Goldsworthy (Falmouth & Camborne, Liberal Democrat): As I was saying, one of the weaknesses in the current system is the fact that 75 per cent. of what local councils spend is not raised locally. A number of things can be done-some more quickly than others-to try to reverse that ratio. Another weakness in the system is the fact that taxpayers and business rate payers see no correlation between what they pay to their local council and what they end up getting from their local council. Again, when we end up with significant cuts and very difficult decisions, it makes matters even more painful. I know that in the period leading up to my election, I was told increasingly on the doorstep that the current system was unsustainable and that council tax was hated. I think that that problem will be magnified as we go through this process.

We must not forget, too, that the council tax system is incredibly inefficient. We need only look at the successful application rates for council tax benefit, for example, and at how many people are entitled to it who do not receive it. What will happen in a situation where there might be potentially significant increases in council tax? On top of all that, a range of public services are delivered locally outside local government that might well be subject to similar pressures for which there is no accountability. There is a fundamental question about the other services that are delivered locally outside the local authority. This will lead to the unsuitable state of affairs that we have seen for a long time becoming completely unsustainable. The kind of changes that we need do not simply involve providing longer funding horizons for local authorities, although of course that is helpful. It is not just about getting the funding formula or equalisation measures right or about fully funding any additional responsibilities that central Government pass on to local government. It is about a much bigger issue, for which this situation might provide a catalyst.

We have a massive disconnect between the people who are accessing public services locally and the organisations that deliver them. Changes need to be more than bureaucratic; they need fundamentally to alter the relationships not just between central and local government but with the people who use those public services. That is why it is depressing when there is an amusing bit of knockabout in the Chamber on familiar issues-revaluation being the obvious one-when the subject is a complete red herring, with people arguing at cross purposes and both sides holding intellectually unsustainable positions. It is not possible to say, "We think that the council tax system is great, but we think that revaluation is bad." If we want to keep the council tax system then we must, as my hon. Friend Mr. Heath has said, have regular revaluations. That is part of the system. If we do not like revaluations, we must rethink the matter and decide what is the most suitable way of raising taxes locally. It is embarrassing to hear the fake arguments about what is being considered and what is being done. If people really believe that council tax is the right system, they should stand up for the revaluation system.

In our previous debates on this issue, the most recent of which was on a Conservative Opposition day, the Conservatives have done an absolutely fine job of analysing the problem, but if they think that they will be in a position to run a Government, they need some ideas. Just being able to tell a good story is not enough. Their stance on the council tax freeze is a prime example of how they really do not get it. They are quite happy to talk about localism and to use some of the rhetoric that they think sounds great, but a council tax freeze would mean more centralised funding for local government and less local discretion over the delivery of public services. Their stance on that issue completely contradicts what they say they believe, and is nonsense.

The Conservatives' proposal on planning is also nonsense. They want to replace central pressures on house building with financial pressures. If one sets that idea in the context of what I said about the IFS "Green Budget", we are again talking about massive financial pressures on councils to approve huge developments because that is the only way in which they will get additional income. In my view, housing policy should be based on what the local population needs, not on centrally driven targets or what are basically financial bribes. The priority should be local need, and policy should not be driven by financial incentives or central targets.

As far as I can work out, the Government's approach to this issue has been displacement activity. There has been a bureaucratic response, but what really needs to be addressed is how people are consulted, how decisions are taken about the delivery of public services and how money is raised. A classic example of the situation is provided in a document published by the Cabinet Office, rather than the Department for Communities and Local Government, which exemplifies the kind of approach that the Government take. I shall be interested to hear from the Minister how effectively she thinks the "Smarter Government" document and its implementation will help to engage communities on what will be difficult issues. There is a chapter on dealing with local priorities, and page 38 talks about how the Government will improve such relationships. One section states:

"We will align the different sector-specific performance management frameworks across key local agencies-the NHS, police, schools and local government-thereby increasing the focus on indicators relating to joint outcomes. We will set out in Budget 2010 the key areas where frameworks for specific frontline sectors can be further aligned."

If that is a good example of engaging people, sorting out local government and making it more accessible, and if that is the kind of bureaucratic approach that will be taken, then we have a depressing world to look forward to.

Another area in which such ideas are being investigated is Total Place. I have a particular interest in this issue because of the many similarities to the Sustainable Communities Act 2007, which I presented as a Bill to Parliament in 2006, following up the excellent work of Sue Doughty, the former MP for Guildford. A key strand of the Act involves the provision of easily digestible local spending reports that contain details of all public spending at local level. The idea behind the reports was that once that information was in the public domain, members of the public would want to have a say in how it could be better spent. It was part of a process to turn decision making around and make it work on a bottom-up, rather than a top-down, basis. The Government have decided, perhaps because that idea did not come from the DCLG, that they do not want to implement it as quickly as the tens of thousands of people who supported that campaign wanted it implemented. However, Total Place provides a way in which that information can be made available in a better way than is being achieved in the local spending reports under the 2007 Act.

Again, the Government have missed the point. They are making localism a worthy way of having local area agreements with knobs on, but they are not thinking about how to use it as a tool for engaging people, and are not using their expertise to ensure that the right things are prioritised and that money is spent effectively. It is very frustrating that the Government have missed the fundamental point of adopting a localist approach in the first place.

Instead of inertia and denial about the terrifying future facing a lot of Departments, we need radical action. We need a simplified, localist system of public services that is easier for people to understand and influence. The current difficult financial situation makes that more important, not less.

The Liberal Democrats have put the localist agenda at front and centre of what we want to do, and that stands in direct contrast to the approach taken by Labour and the Conservatives. The Government's compartmentalised approach spreads across departmental silos, but it is also evident within Departments: today's debate has made it clear that the section of the DCLG that deals with localism and participation does not feel any need to work with the section that deals with local government finance. The localist agenda must cut across both this and other Departments, although I am not convinced that that happens. It is beginning to happen with the Total Place initiative but, unfortunately, as with a lot of things, that is driven by the Treasury.

We need to encourage more cross-departmental thinking. The localist agenda is important now because some painful, difficult and controversial decisions will have to be taken on the delivery of local public services. Inevitably, they will have an impact on the front line in one way or another. We hear a great deal about how problems can be dealt with by efficiency gains, but that is not so-there will be dramatic cuts.

The IFS has shown how deep those cuts will have to be if we get a Labour Government after the general election, although a Conservative Government is likely to be even worse. The cuts will be really painful if the current set-up does not change. They will be imposed on communities, without involving or being properly accountable to the people in them.

The interim findings of the Total Place pilot revealed that councils spend an average of £7,000 per person on public services, of which only £350 is discretionary spending. There are likely to be a huge number of changes over which people will feel that they have no influence or say. It is important that that does not happen.

We need public services that are designed for, and accountable to, the people who use them, whereas currently we have a system that is designed for the benefit of the organisations involved in delivering them. The emphasis seems to be on administrative convenience, not on the interests of the people who use the services. A fundamental shift needs to happen, and it must cut across a variety of different areas. The tax system must change, so that the taxes that we pay locally no longer disappear into the Treasury to be spent elsewhere. We can achieve that by localising business rates and moving to a system of local income tax, although we would like to allow the councils that are keen to trial that system to pilot it first.

Money that currently goes to remote and unaccountable organisations could be redirected towards putting local communities in charge of economic regeneration. In addition, the housing revenue account needs to be sorted out, so that councils have greater freedom to borrow and invest in council housing. We also need to give people a proper say on decisions that affect them in other areas.

The approach that I am outlining would get rid of unaccountable quangos, but it would also have implications for electoral reform. The Prime Minister may have had a deathbed conversion to that yesterday, but he seems to be interested only in the Westminster Parliament. If we are serious about engaging people in politics, we must realise that there are thousands of politicians around the country who are in the same boat as we are.

People will have their faith and confidence in politics restored if politicians of all kinds go out and prove to them, on their doorsteps, that their vote counts and will make a difference. I was therefore very disappointed that yesterday we saw only baby steps taken for the Westminster Parliament. No such steps were taken at the level of local government, even though some progress in that direction has been made in Scotland. We should remember that the crisis in confidence in politics is not exclusive to Westminster.

That is the kind of debate that we should be having about the future of local government finance, and of local government more widely. I am disappointed that the Government have not proposed ways to deal with the fiscal crisis that we face and to ensure that people have a say and a stake in the process. The Government continue to assume the worst of local authorities and local people, while presuming that every action taken by central Government is in the best interests of those people and is the best possible outcome, which is certainly not the case. As we go forward into a fiscally tight situation, that is even more important.

Labour should have come clean on what their proposals will mean for local government, instead of denying that there is any problem with the current set-up. It seems that the Conservatives are intent on cheering them on in that double delusion. We need real change for a fairer, greener and more local system of politics.

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