This settlement is a landmark for local government. After years of doffing their cap to Whitehall, councils throughout the country can now take charge of their destiny. That message has been in danger of being lost amidst the fog of deficit denial and doom-mongering. There are real reasons why people will soon see the benefit of this settlement as plain as day.
Change was inevitable, so let us not forget the mess we inherited and the size of our economic overdraft. In such circumstances, local government simply could not remain immune. It is one of the biggest players in the public sector, accounting for a quarter of public spending, and it has a budget twice as big as the defence budget and bigger than our budget for the NHS. This year it will spend £114 billion.
Councils clearly have a part to play in reducing the deficit. Opposition members should not kid themselves, residents or us about their position. They would not have done anything different. In fact, their party was planning to make spending cuts of £52 billion by 2014 to 2015, and given that they have opposed every single saving that the government have made, they still have £52 billion of cuts to outline. I hope that they will do so today.
Another point that members should consider, which is relevant to the question from the right hon. member for Birkenhead (Mr Field), is that this is a fair deal. It is fair to north and south. Manchester, Liverpool, Nottingham and Newcastle all have more spending power per dwelling than the national average. They are all at least £500 better off per household than, for instance, Wokingham in the south-east. The settlement is also fair to all councils, even those left facing a massive financial cliff edge, such as Great Yarmouth and Pendle. Thanks to the new efficiency support grant, the 7 authorities that face the biggest hit to their budgets - Burnley, Barrow-in-Furness, Bolsover, Hyndburn, Hastings, Great Yarmouth and Pendle - will be protected.
Thanks to the grant, the councils that I listed will not face those cuts. Councils that deliver extra efficiencies by the end of the financial year will not just receive the efficiency support grant money that was outlined in the provisional settlement of 19 December, but will gain an extra 25% on top of the money that they are expecting in year one.
We introduced a transition grant which, during the last 2 years, allowed those authorities some leeway and enabled them to get into a position that would allow them to move forward. Seven are still heavily affected, including the authority in the hon. gentleman’s constituency, as I know from an adjournment debate that took place not long ago.
The efficiency support grant involves a 2 year programme. As I have said, in year 1 councils will potentially receive 25% more than they were expecting from the provisional grants. In that first year, they will work with the department to increase their efficiency across the board by means of, for instance, shared management and shared services, so that at the end of the 2 year period they will no longer need the grant. We made the position very clear to the councils, and they have been sent information describing the kind of work that they need to do in order to receive year 2 money as a result of the efficiencies that they are achieving in year 1.
In December we said councils were facing an average cut of about 1.7%. We now know the impact of the public health grant, however, because that figure has dropped to just 1.3%. People would expect us to say the settlement is even-handed -[interruption]- and the mumbling from the opposition benches confirms that, but a report produced by this House concurs with our view.
“Excluding London, northern regions have larger start-up funding assessments and revenue spending power per dwelling than their southern counterparts and the more deprived areas generally receive higher per dwelling allocations than less deprived areas”.
The heat maps (pdf, 58kb) we are publishing today back up the fact that this settlement is fair for all.
The previous government were so busy doling out grants without a care in the world - handing out money hand over fist in different bail-outs - that they failed to pay attention to local people and local authorities. By contrast, we are listening, learning and improving. We have received 200 written responses to our consultation on the provisional settlement. I have met individual authorities, leaders, chief executives and treasurers, and the LGA, London Councils and other representatives, and I spoke to about 200 councillors in a telephone conference call the day after the provisional settlement. Because we are listening, we are going to do more to support rural areas and manage the extra costs of delivering services in those areas.
As well as confirming the increases to the sparsity weighting and top-ups proposed in the provisional settlement, we have announced £8.5 million of additional funding for 2013 to 2014 in a separate new grant for areas with the sparsest populations to get some extra help to achieve the efficiencies they want.
Council areas such as Breckland, Mendip and South Lakeland will feel the benefit of the increased opportunities for rural areas in these changes, and I know members representing rural areas will want to continue talking to us about the future over the summer.
As I said, areas such as Breckland, Mendip and South Lakeland will feel the benefit of this grant, and that brings me to my next point. This system now works in favour of local councils. Through the Localism Act 2011 and the financial reforms in this settlement, which mean that 70% of local authority income will now be raised locally, councils have more power than ever before. However, they need to understand the implications, act in their residents’ best interests and work hard on their behalf, as I know many authorities across this country do. That could be done by redesigning council tax benefit to cut fraud, promote local enterprise and get people back into work, or by redesigning services to make them more efficient and sustainable. Town halls should not be constructing Maginot line defences against the deficit.
We need to move away from what we have seen from local authorities such as Lambeth council, whose residents must have wondered what on earth it was doing with their hard-earned money when it wasted thousands of pounds on propaganda posters attacking cuts. Unfortunately that council is not alone.
Authorities across this country, particularly small district councils, have to start looking carefully at how they structure their management and how they share management to get best value for their residents’ money. I will come back to that issue in a few moments.
I have been appalled by things such as we have seen in Lambeth, especially where there are still savings to be had. Last year, local government showed commendable skill in reducing its budget in many areas while protecting front-line services; many residents actually reported that their services had improved. That goes back to this core point about how we spend money rather than just how much we think we can get from a begging bowl. It is not about how much we spend; it is about how we spend it.
Let us examine our approach to troubled families. Instead of having multiple people dealing with a family, we now have just one no-nonsense worker telling them how it is. For example, Barnet council has worked out that the cost of an effective intervention for an average troubled family has reduced from almost £100,000 to just £10,000, so through our community and neighbourhood budgets we are rewiring the system.
Our community and neighbourhood budgets are rewiring the system and bringing people together across the board - local authorities, the police and the health service. They are a new way of looking at the public sector, and they stop duplication so that money is spent wisely for the benefit of residents across the country. They are making local savings in millions, which could nationally add up to billions. Ernst and Young said that the potential 5 year net benefit of community budgets is between £9.4 billion and £20.6 billion. Community whole place budgets provide an opportunity to align the public sector and make it more streamlined and more efficient and, most important, to give a better service for our residents. We want to do everything we can to help councils to spend the cash of hard-working taxpayers more wisely.
To help local authorities, we published 50 ways to make sensible savings.
Councils should take a leaf from the book of an Olympic hero - Sir Dave Brailsford, the head of British Cycling. His philosophy is the aggregation of marginal gains; tiny changes across the board that add up to the difference between silver and gold. That is what we should be doing. We should not scoff at small savings, because they add up to large amounts.
Thanks to the autumn statement, which exempted local government from the 1% top-slice in 2013 to 2014, councils have time to put their house in order and put people first. They should start by freezing council tax, as Nottinghamshire county council and many others are doing - we know of about 150 already.
Once upon a time under the previous government, council tax rose exponentially: it more than doubled. We have put money aside to put tax rises on ice for a third successive year. Councils should take advantage of that for the benefit of hard-working people who can ill afford to pay more. Already, 150 councils are taking that high road - councils from Derby to Dorset, from Northampton to Norfolk and Wolverhampton to Watford; but if councils take the low road and put up taxes, they should be aware of the wrath of the taxpayer. We are setting a 2% referendum principle for all principal local authorities, police and crime commissioners and fire and rescue authorities. That is direct democracy in action.
If an authority wants to raise council tax by more than 2%, the local electorate will have the right of veto in a binding referendum. I am sure that some councils may have a case - personally, I cannot see it - but if they do they should put it to the vote. They should stand up before residents and state their case. If they win the argument, so be it, but we will take a dim view of democracy dodgers trying to sneak in under the democratic radar, especially those using levies as places such as Manchester and Rotherham are doing.
I urge hon. members to think about what we are saying. The government grant is equivalent to 1%, so councils that are seeking to increase council tax and avoid a referendum are doing so, in effect, for at most 0.99%. What a kick in the teeth for local taxpayers. Any council leader that cannot get their officers and members to work together to find 0.99% of savings should look again.
This is a new dawn for local government. The local funding settlement used to be the end game, but this year it is just the starting point. Councils are no longer tied to the settlement figures, and they can earn their keep and retain £11 billion of business rates, which could deliver around an extra £10 billion to the wider economy by 2020. In recent years, Newcastle, Manchester and Liverpool all saw their business rates rise above the national average of 4.8%, but thanks to the old begging-bowl system, they missed out on the opportunity of making the most of that money. The old formula grant paid to fail, but from here on in, it will be what councils make, not what they take, that counts. If they bring in more business and more jobs, they will be rewarded. If they build more homes they will get the new homes bonus, worth more than £650 million this year and even more in 2014 to 2015. Almost two thirds of authorities are expected to gain from the scheme in the first year alone.
This is about local authorities getting money for what they do; we are moving to a new way of working. Under the business rates scheme, they will get more money if they bring businesses and jobs in. If they build houses, they will get more money from the new homes bonus. The message to authorities that do not like it is that they should go out and build some houses. Two thirds of authorities are expected to gain, so the message to councils is clear: if they oppose the settlement, they oppose the opportunity for a brighter future. However, if they are self-reliant and ambitious, and work hard on behalf of local people, they will win the day.
This government are keen to do everything they can to reward radical, forward- thinking councils, so today I am pleased to announce a new incentive for councils to join forces to bring management together, not just sharing the usual back-office functions and services that we hear of, but real front-line changes for the benefit of citizens as well. This is about looking at some of the excellent work done by great authorities and following in the footsteps of some - for example, the tri-borough initiative. Hammersmith and Fulham, Westminster, and Kensington and Chelsea are on track to save around £40 million by 2015 to 2016. We are bringing in a new £9.2 million challenge award to help other councils to follow their lead.
I hope that areas such as West Somerset will move forward and see this as an opportunity to help them to do the right thing. The same applies to other authorities as well, particularly small district authorities, which should be looking at bringing together their management to make sure that they are spending the money in the best way possible for their local residents.
Through the consultation process we were looking at how we reward councils that are doing the right thing for their residents and moving away from the begging bowl of the past, highlighted by some of the questions and interventions from the opposition benches. I am happy to look at bids and will be announcing details of the scheme next week for authorities which are doing this or have done it. It is an opportunity for small authorities that have done good work.
We want authorities to go further and faster so that residents see and feel the benefits. We want to help and reward those who are doing things right. The evidence shows that it is good to share. South Oxfordshire and Vale of White Horse have a joint chief executive and management structure. South Holland is sharing its chief executive and officers not just with Breckland but with Luton, showing that this works well across different counties without shared boundaries and across parties, despite the views of some opposition members. Babergh and Mid Suffolk are sharing not just a chief executive but service delivery across the whole range of their councils’ functions and looking to go further. Those who follow suit will now get extra credit - literally.
This settlement should silence deficit deniers. It is fair to north and south, fair to urban and rural, fair to poor and rich authorities. It is a settlement that rewards innovation, imagination and delivery for residents. It is a settlement that gives councils more power than they have ever had before. It is a settlement that captures a new ethos within local government, generating more income through the new homes bonus, business rate retention and a challenge fund. If councils are willing to put people above political grievance, as Luton has done - I hope opposition members will join me in supporting it - and if councils are willing look to the future, not in the rear-view mirror, they have a once-in-a-generation chance to step out from the shadow of Whitehall, and to expand, energise and electrify their local communities and their local economies. I hope they will grasp the opportunity with both hands and deliver on it.