Local Government Finance Special Grant Report No. 113 (Hackney)

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Peter Bottomley (Worthing, West): Often during the past five or six years we have heard the colour of the parties involved in local government. Would the Minister care to tell the Committee which parties have been in control—or out of control—in Hackney?

Mr. Raynsford: Hackney is an interesting example of a council that has been under various political control, with Labour in control in the 1980s and early 90s, the Liberal Democrats in control for much of the 1990s, and the Conservatives in alliance with the Liberal Democrats in control for part of that time. As I said, it has had a chequered history, as have several other councils that have faced real difficulties, in which there has not been a stable political position and it has, for whatever reason, not been possible for the normal transfer of political power from one party to another to be accomplished in a sensible and mature way, without causing disruption to services.

Jules Pipe, who demonstrated clear determination to turn Hackney council around in his period as council leader, was elected mayor last October. He is now working closely and energetically with chief executive Max Caller and the new senior management team to embed a new culture of efficiency and performance in the authority. Everyone who is concerned about restoring good governance and efficient service delivery to Hackney must wish them well.

As I said, there is still a long way to go but, with the help of the special grant funding, the spur and discipline of the accompanying conditions and the other measures being taken to support recovery, the council now has the ingredients to make lasting changes for the future. Without the grant support, that would not be possible. I commend the special grant to the Committee.

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2.46 pm

Mr. Pickles: I was a little disappointed that the Minister did not put on the record where the money is coming from. Is it part of the financial settlement? If so, are there contingencies in the settlement for this? Perhaps he can elucidate when he winds up.

I was also a little disappointed because it was not made clear what strings are tied to the grant. I refer to paragraph 4 of annexe C. The only control that I can see there is in the case of ''any overpayment of grant''—if the pen slips and we suddenly hand over to Hackney £250 million or £2.5 billion instead of £25 million, we get our money back. I notice that a significant portion of the grant—£10 million—is supposed to go into balances. If at the end of the year that £10 million remains in balances, is it repayable to the Exchequer?

The general theme today is outlined in Hackney's own report, from February, which says:

    ''This is the first time in many years that Hackney has not been issued with a formal report requiring a public response to the District Auditor's letter . . . it is a big step for Hackney to be treated like a normal authority.''

I am not sure that Hackney has arrived at that position.

The Minister rightly said that Hackney was the first council to be subject to intervention under section 15 of the Local Government Act 1999. It is one of only four councils in London to have received a ''poor'' rating from the Audit Commission. I am particularly struck, however, by the improvement and recovery plan, which the Minister says he will receive in April. It is available to everyone in draft. I hope that when the Minister starts to go through its various points, he will notice what I found really quite depressing, which is that it is all about structure and the like. There is very little in it on delivery of better services for the people of Hackney. I think that there should be a much greater emphasis on service improvements, rather than on the various procedures recommended here. I recognise that there have been problems of bad accounting, fraud and the like. Nevertheless, we want to take the community with us in such circumstances—the community have to see what is in it for them.

The Audit Commission issued the annual letter from the district auditor on 28 January. The assessment of Les Kidner states:

    ''services are still mostly poor and much remains to be done if the improvements in the underlying process are to feed through into real changes for the residents of the Borough''.

That underlines much of what I have to say.

I am a little confused about the budgetary gap, but I am sure that the Minister will be able to clear that up. The Hackney Live website refers to a budgetary gap of £7.9 million for this year and £25 million for last year. I am not entirely sure what the projections are based on. Surprisingly, in the light of what the Minister said, Hackney Live states:

    ''The fact that services are not expected to overspend in the current financial year means that the reserves and contingencies provided by the Government continue to be available to guarantee''.

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Is that an assumption that the Government are going to bail the council out, or is it a bit of unfortunate drafting by the good folks at the Hackney website? There needs to be a degree of precision in the explanation of why the £25 million is needed.

The medium-term financial plan seems to rely on three factors: first, an anticipated steady increase of income via revenue support from Government; secondly, an assumption of a relatively high level of council tax increases; and, thirdly, a strong element of risk. The district auditor identified one area of risk, referring to:

    ''ensuring plans for the delivery of savings in relation to parking and waste management are robust''.

I am not sure whether the Minister mentioned parking problems. I think the deficit in that case is £13 million.

The Minister referred to the poor rates of income collection, and they are not especially impressive. I shall not repeat the Minister's points. Some London councils have a 97 per cent. collection rate, but given Hackney's current position, it seems ridiculous to think it could achieve a 97 per cent. rate in one year. None the less, I would like to think that it could attain a percentage rate in the mid 90s in a few years.

It is necessary to show a degree of understanding. Rent collections are not particularly good. The collection rate is about 85 per cent., and the December figure has been revised below that, so performance seems to have worsened. The district auditor has said that the level of rent arrears has reduced significantly, which is largely due to the clearance of benefits backlogs and write-offs. The increase of £1.6 million in the level of cash collected has shown little variation. I do not think that it is unreasonable for us to see some progress in that case.

I am worried about the funding of Hackney's capital programme, which is a ticking time bomb. I admit that I have not read the improvement and recovery plan word for word, but skimmed through it, so the matter may have been mentioned and I missed it. However, the capital programme is a big element. There is a £38.7 million funding gap in the next financial year, and £47.4 million in the following year. That is worrying, and I should be grateful if the Minister told us what will be done to bridge that enormous gap.

The district auditor's report discusses at length the corruption and fraud in the borough resulting from the various accounting mechanisms. It states:

    ''Overall, the Council's arrangements for ensuring effective systems of internal financial control are still inadequate and afford little protection against either fraud or corruption.''

Even now, there does not appear to be paperwork of a quality sufficient to provide an adequate audit trail.

The process has not been helped by the council's failure to make adequate claims to money that may be owing to it. The Minister's comments about the backlog of processing were most interesting, and it is no consolation to us that the council is just as bad at claiming sums of money. The report discusses the inability to obtain money from the European regional development fund and then goes on to state:

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    ''Efforts have also been made to clear the significant backlog of Housing Subsidy and Housing Benefit claims, which represent a significant source of funding for the Council. However, procedures for the submission of, and supporting working papers for, these claims, remain poor.''

I hope that the Minister will say something about the process of agreeing the improvement and recovery plan and exactly how open it will be. We should not underestimate the progress that has been made, but some of the documentation indicates that we have been looking through rose-coloured spectacles. The district auditor's report stated that this year the importance of performance indicators has been emphasised because of the inclusion of the comprehensive performance assessment. The report continued:

    ''Our audit resulted in reservations being expressed on some 14 indicators and a significant number (35) needing amendment, mainly as a result of basic errors in working papers. This represents a worsened position from the previous year'',

although the number of reservations was the same.

The recovery plan relies very much on optimism and, to an extent, serendipity—hoping that things will line up in ways that I am not convinced they will. It also relies on increases in Government grant and in council tax. One way or another, the good people of Hackney and the rest of us will have to dip deeper into our pockets.

2.59 pm

Mr. Edward Davey (Kingston and Surbiton): In considering whether the Committee should agree to the £25 million for the London borough of Hackney, we must first thank the Minister for his balanced and clear explanation of why the Government believe that we should. However, we must also ask him a few questions about whether the Government are considering imposing extra controls and conditions if the money is paid over, and if so, what they will be; or will the money be paid over and that will be it?

What monitoring, as set out in annexe B, paragraph 3 will happen at different stages? To be concrete, if in six months various targets have not been met and project plans not been implemented to provide the promised savings, will the flow of funds from the £25 million stop? Will the Minister say that the council has not achieved the agreed targets so it cannot have the rest of the cheque? It is important that we know the answer. Will the Minister describe how the money will flow? When will the £25 million be paid? Will it be in quarterly instalments? We need to ensure that the special grant that Hackney and other London boroughs and councils up and down the country are going to enjoy will be properly spent.

The Minister was quite right in his judgment that all political parties share some responsibility for how Hackney reached its current position. Going into the history of Hackney is not a pleasant experience, and none of us in this Room can be terribly proud of the series of actions taken by our party-political colleagues in Hackney. The wider issue that that raises is the failure of local democracy. The Minister will know that, time and again, the Liberal Democrats have argued in favour of local democracy and against central interference. It is therefore worrying to us that

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local democracy has not worked in Hackney. If we had waited a little longer, would the good people of Hackney have elected the right people, of whichever party, to steer Hackney out of the mess? Is it important that the Government, through this place, gave Hackney the option to choose a mayoral system, which is able to provide clear leadership in one person of whatever political persuasion to steer the way forward?

I shall be interested to hear the Minister's response to that, because we all have to learn lessons and re-examine our views on such issues. The fact that Jules Pipe, the former council leader, is now mayor and able to give that strong political direction might enable Hackney to find a way forward. Perhaps certain models are appropriate in certain circumstances. I emphasise that because, as I am sure the Minister will be the first to admit, £25 million and an intervention by the Office of the Deputy Prime Minister are not all that a solution requires. Above all else, political leadership is required in Hackney. Without that, however much interference and cash there is from central Government, Hackney will not solve its problems. We need to learn from Hackney if we are to deal with future failures of local democracy to provide the local civic leadership required to deal with difficult issues. I try to be as open-minded as one can be on the matter, but I remain to be convinced that the model now underway in Hackney was the only democratic way forward.

Perhaps the Minister, in commenting on that, could say whether the fact that Hackney now has clearer political leadership and might be beginning to face up to the issues has been a trigger for the money from the Government. That is significant to the wider political debate. I would be concerned—as would the Minister and everyone in this Room—if money were being given from the central pot to political leadership that was not facing up to its problems. It would not be fair to ask the taxpayers of other areas to put in money if the political leadership was not being responsible

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Prepared 12 March 2003