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7 Jan 2003 : Column 80—continued

Mr. Andrew Turner: I hope that I do the hon. Gentleman no disservice if I say that I recognised a note of irony in the letter from which he quoted. However, I am not sure where the irony began or ended. Will he tell the House whether he believes that capacity building, which is a terrific objective, is the same as community building, and whether the great problem with communities is the fact that it is easy to destroy them but difficult to build them?

Mr. Battle: I basically agree, but assumptions are made about communities that already exist. I am suggesting that we must start by addressing supportive capacity within communities.

In recent years, a key concept in encouraging engagement and local rethinking about funding has been match funding: central Government grant matched by a similar amount from elsewhere—sometimes, it is assumed, the private sector. In inner-city neighbourhoods, where there is not much private sector investment to start with, the matching has come from other sources, and the result has been a virtual matching from local government or other public resources. They are forced to meet half the costs, with little say in the delivery, and usually without any extra resources to fund the matching. Increasingly, matching means that central and local government resources are put together, but with a mass of bureaucratic form-filling in between. The results are insecure projects, a waste of time and inefficiency.

Can we look again at the purpose and reality of matching, and have enough confidence in local government to agree that, if it has to provide the resources to keep projects going, it ought to play a proper role, rather than being a late-in-the-day funder of last resort? The Youth Justice Board, and the schemes for youth offending teams and youth inclusion programmes are classic examples. The need for real grants, rather than phoney matching with leftover allocations of single regeneration budget grant, could be sorted out in the Bill.

Turning to insensitive analysis, what do we mean by a best-value authority and prudent financial systems? Again, top-down approaches often ignore detailed local analyses of need. Leeds, my city, is acknowledged as thriving and is undergoing renewal, not least as a result of the prudent and visionary management of the Labour council during the hard times of the 1980s and early 1990s. Yet the indices of need for the city as a whole—a city of 750,000 people—can disguise the needs of the 230,000 people who live in the inner city, 160,000 of whom live in 10 of the poorest wards in Britain. Life between the prosperous central business area and the thriving suburbs beyond the ring road can be disguised by averages. Average and mean figures, and the greatly misunderstood difference between them, completely disguise deep pockets of poverty, ill health, social isolation, lack of training and work opportunities, and the prospects of inner-city neighbourhoods.

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In inner-city areas, average figures from cake-slice shaped wards radiating from the city centre, such as Kirkstall, Armley, Wortley and Bramley in my constituency, bury the deep needs of the poorest who live near inner-city prosperity. Statistics from the outer areas disguise the problems of the inner city, smoothing over need in a general trickle-down theory. The theory that the rising tide of economics will lift all boats does not work—in particular, it does not lift holed boats. Recently, our local paper, the Yorkshire Evening Post, has featured vignettes of divided Leeds—inner-city neighbourhoods are missing out on initiatives in the shadow of a thriving retail and business centre.

Where I live in the inner city, a ward may not qualify for a single regeneration budget grant because of the weighting of the better-off who live out near the ring road. Instead of the usual ward indices, we need subtler, more detailed analysis and a more localised response to tackle the complex clusters of inner-city poverty and need. If we are to try to root out urban poverty and close the widening gap between the better-off and the poor, we should accept that there is a dangerously divisive scar in inner-city neighbourhoods.

On the analysis of league tables, I could argue that my city of Leeds is penalised for doing rather well. In recent years, because of prudential financial management of precisely the kind advocated in the Bill, the redistribution of grant formula—the gearing that was referred to earlier—has resulted in Leeds receiving an increase of 5.7 per cent where other metropolitan districts received 7.3 per cent.

That was a welcome increase, unlike our experience under the Tories. However, because council taxes were not pumped up to force its citizens to compensate for deep Tory cuts, the council is caught in a double bind: a great unacceptable council tax hike, or being unable to spend as much as the Government are encouraging it to spend. In those circumstances, how can the city break out of the box and start using resources to tackle those deep pockets of poverty that are disguised by the average and need extra support and investment?

We are not calling for a recasting of a complex formula that has been worked out well by the Government but simply suggesting a more sensitive local analysis and an acknowledgment of what is really needed. In practical terms, I suggest a more imaginative approach. For example, use of the enhanced neighbourhood renewal funds may be a means of addressing local poverty pockets and engaging people at the local level. It might also provide opportunities for exploring new capital investment in genuine basic community capacity building, and for exploring the possibilities of local neighbourhood provision of services, such as care of the elderly, cleaning and meals services, care of the sick, child care and family support. Such services could all be provided locally, at the street level, employing local people instead of resources bought halfway across the city.

We could explore investment in the local environment, recycling potential, waste and energy management, investment in the local provision of basic needs, shopping and finances, and better use of derelict land and property, using the new business improvement district idea as an innovative template for getting down to the micro level and promoting long-term change.

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At the urban summit in Birmingham on 31 October last year, the Deputy Prime Minister said:

I welcome the Bill. It could be a catalyst for such a step change in thinking, and contribute to developing a local neighbourhood perspective to the rebuilding of much-needed basic supportive communities, building sustainable local economies, and perhaps equally important, restoring confidence in local government and in local representative democracy. The Bill should kick-start that process.

7.2 pm

Sir George Young (North-West Hampshire): The hon. Member for Leeds, West (Mr. Battle) made a thoughtful speech about the needs and challenges of local communities on the one hand, and the resources of Government on the other—a subject on which he has strong and clear views. I do not share his optimism that the Bill will unlock the new vision that he described, but he delivered his speech with great conviction. I hope that he will excuse me if I do not follow him down that path.

Another new year, another Local Government Bill. I find this a Bill without any theme. Bits of it are deregulatory and welcome; bits of it are highly regulatory and less welcome. Bits of it are decentralising, but most of it is centralising. Even the general secretary of the Labour party made a speech last month criticising the amount of ring-fencing and the use of specific grants, and said that the Government have not done what they could to reverse the trend.

Not only does the Bill suffer from having no theme, but in parts it is very boring indeed. Many of the clauses contain unexciting provisions that the Department has been trying to get on to the statute book for some time—I believe that I recognise one or two from my days there a decade ago. Ministers should not claim too much for the Bill. I fear that it will not re-ignite interest in local government, as the hon. Member for Leeds, West suggested. It will not bring forward a fresh generation of local councillors or increase the turnout in May's elections, and our debate this evening may not engage the attention of the nation's press. However, there are some important points that need to be made.

Before turning to the detailed provisions, I shall pick up something that the Minister said right at the beginning. It is worth making the point that he has a more benign environment, where local authorities are not challenging the elected Government of the day. In the 1980s, a few local authorities decided to take on the Government. Commissioners were put into Norwich, which refused to implement the right to buy. Councillors were threatened with suspension for not fixing a legal budget. The Government contemplated suspending Lambeth and Liverpool as they faced financial meltdown. Indeed, some of the provisions in the Bill dealing with the evasion of capital controls date back to those days of confrontation—confrontation certainly not sought by the Government of the day. The present Government are fortunate that local authorities are more compliant now and more willing to work with the elected Government than some of the more bloody-

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minded and extreme authorities that were around in the 1980s, so the background for a Local Government Bill is more favourable.

I welcome in general terms the thinking behind clauses 1 to 11 relating to capital finance. The clause in the original draft Bill that would have allowed the Secretary of State to require non-housing capital receipts to be paid to the government has been withdrawn. That is appreciated. The major change brought about by this part of the Bill is the duty in clause 3 imposed on a local authority to determine how much money it can afford to borrow. That is a welcome change, providing more scope to incur short-term borrowing costs on investment in projects that will be self-financing in the medium term, either by saving running costs or by enabling the generation of capital receipts.

I wonder whether clause 4, which nationalises, as it were, local authority debt, is really necessary. Surely the Government do not anticipate a return to boom and bust. I thought that we had so many golden rules, so many self-correcting mechanisms, and so many independent monetary regulators that an economic crisis was unthinkable. It is not quite clear how the country's economic interests would be challenged by clause 3. Is local government to be singled out for special treatment if and when the crisis comes? Will the Government's own capital programme be subject to the same sort of restrictions as those envisaged for local government?

Ministers may have overestimated the impact of clause 3 on the freedom to manoeuvre of many local authorities. Given all the pressures on budgets and the necessity of increasing the council tax way beyond the rate of inflation to get the investment in social services and education that the Government want, I do not think that local authorities will conclude that they can use the freedom under clause 3 to afford additional costs for servicing borrowing that is not backed by Government grant. Certainly in Hampshire, where we got the minimum cash uplift in grant for next year, and where a big increase in council tax is inevitable, there is no scope to go on a capital spending spree.

The position is made more uncertain because the Government have yet to decide how to support new local authority capital investment—whether by capital grant or by revenue grant towards borrowing costs. Knowing how the Treasury operates, I see a risk. Once the Government no longer have to approve local authority borrowing, they may well no longer provide adequate grant aid for capital investment, so further burdens may be placed on the council tax payers.

Clauses 7 and 8 seem to introduce one rule for local government and another for central Government. We are told in the notes that local authorities used to engage in innovative deals to evade controls on borrowing. Clauses 7 and 8 will stop that. We are told that the definition of a credit arrangement will rely on the accounting concept of long-term liabilities. I hope that the same concept will apply to Government borrowing, and that where the Government stand behind Network Rail, the private finance initiative for the tube, or the channel tunnel rail link, those long-term liabilities will also be brought within the definition of borrowing

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controls. What is sauce for the local government goose should be sauce for the Chancellor's gander. Clause 18 is also relevant because it stops local authorities getting round capital controls by operating through companies that they own or influence. Network Rail is a similar ruse used by central Government.

Clause 11 deals with capital receipts, and I have several concerns about that. I am not sure that the new system is fairer for different groups of council tax payers than the old one. It is indeed the case that housing capital receipts accrue faster in the shire districts, where the right to buy has taken off, than in the inner cities, where the right to buy has generated less in capital receipts. Under the old system, we dealt with that by obliging the shire districts to use the right-to-buy receipts to pay off debt, and we increased the borrowing powers of the inner-city areas so that they could invest in housing. Under that regime, ratepayers in the shire districts benefited because their local authorities' debt was paid off. Under the new system, if I have understood clause 11(2)(b) aright, the cash receipts are to be paid directly to the Secretary of State. If that happens, there will be no benefit to the ratepayers who provided the capital asset in the first place. I think that that needs explaining, as it strikes me as unfair.

There is a second problem with the proposed new regime. It will hit constituencies such as mine hard because housing costs are high and more affordable homes are desperately needed for teachers, nurses, policemen and other key workers. The proposed pooling of housing capital receipts destroys the current regime, under which the capital receipts of Test Valley borough council and Basingstoke and Deane district council are focused on local housing priorities. If the Minister looks across the south, he will see that approximately two thirds of the affordable development programme funding comes from local authority social housing grants; only one third comes from the Housing Corporation's ADP. Pooling the capital receipts knocks away the foundations of the local affordable housing programme. In no way will the Housing Corporation make good the deficit, because it has a regional agenda and has already stated that it will direct its future funding at specific areas of growth such as the Thames gateway.

Prior to the transfer of its housing stock, Test Valley council could produce only 30 affordable housing units a year through the Housing Corporation's ADP. With a combination of the local authority social housing grant and the ADP, it now produces 100 affordable housing units a year. That increase in investment in the provision of new dwellings was one of the main reasons why the council decided to take the route of large-scale voluntary transfer. However, if it can no longer access its capital receipts, the affordable housing programme will dry up.

Indeed, the change compromises the basis of the deal with the local authority tenants. Part of the deal and understanding with tenants was that the money received from the sale of the housing stock would be used to provide affordable housing in the borough. As has been mentioned in relation to part 2, the Government have underestimated the impact on future large-scale voluntary transfers. The programme may die, as there will be little motivation for any council to consider

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LSVT if one of the major benefits of the capital receipt is removed. I have deep concerns about that part of the Bill.

Even if the Government could claim that part 1 is deregulatory—I have some doubts about it—they certainly cannot say the same about part 2, which creates a wholly new and unnecessary regulatory burden with controls on the adequacy of reserves and the monitoring of budgets. The Bill would be improved if the whole of part 2, which contains clauses 25 to 30, were omitted.

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