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The noble Lord, Lord Fowler, is assiduous in raising the issue of investment in sexual health and he has raised it again. We debated it recently and I acknowledge his outstanding work of 21 years ago and the impact of that campaign. I know that there is an argument regarding general national campaigns versus targeted campaigns. What is not in doubt is that there should be campaigns. I know that there is an issue of funding. There is no question that PCTs had to make some difficult decisions in the past financial year. I do not agree with the noble Lord on ring-fencing. I understand why he proposes it, but we must trust the local primary care trusts. It is, however, important that strategic health authorities monitor what PCTs are doing in the area of sexual health and I do not doubt that it is an important matter to prioritise at a local level.
On finance and financial deficits, which is what the debate was billed to be about, action had to be taken. I say to the noble Lord, Lord Dykes, that, at the end of 2004-05, we were facing a net deficit of £221 million. That increased to £547 million by the time of the 2005-06 final accounts. If that trend had continued on a straight line, we could have expected a net deficit of around £750 million. As I said, action had to be taken. There have been no large-scale redundancies. The current compulsory redundancy figure is 1,446.
When the noble Lord, Lord James, talked about the difficulty of finding one’s way through NHS finances, I sympathised. When I was director of the NHS Confederation, I found it very difficult to find my way through the annual financial announcements by the previous Government, although I usually found that the Government were not providing enough money to the health service, even under the stewardship of the noble Lord, Lord Fowler. I accept that we have to improve reporting, which must be transparent and understandable. My reaction to the speech of the noble Lord, Lord James, was, “My goodness, we have to help people to understand healthcare finance”. We have introduced quarterly financial reporting and we constantly review the reporting of our accountancy information in order to improve transparency. However, we believe that the financial position as reported properly reflects the finances of the NHS.
The north/south question was raised in relation to SHAs. Underspendings generated in one part of the country are not being transferred to SHAs in other parts of the country where there may be overspendings. Indeed, where there were any underspendings in 2006-07 in the north, that funding
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The £450 million contingency fund was not new money for the NHS. It was created locally by strategic health authorities, which identified savings against NHS central programme budget funding. The additional £100 million identified by SHAs between the quarter 2 and quarter 3 reports was the result of ongoing prudent management of expenditure. That was essentially a local matter led by the SHAs.
The noble Lord, Lord James, asked about the cost of the redundancy programme. We estimate that the total redundancy cost arising from the Commissioning a Patient-led NHS initiative is £325 million. These figures are difficult to estimate and will become firmer as new structures are put in place in SHAs, PCTs and ambulance trusts. However, the reconfiguration of PCTs and SHAs allows us to make savings, which can then be used for better patient care. The noble Lord was absolutely right that the £1 million shortfall is due to roundings. I will write to him on some of the other matters that he raised.
My noble friend Lord Haskel said that there were too many accountants. The official view of my department is that there are not too many accountants in the NHS. Of course, I accept what he says: the question is not how many accountants you have, but the quality of financial management. I pay tribute to the profession in the health service, but we know that the NHS has found it difficult to get enough people of the right calibre to be financial managers rather than—I do not say this in a pejorative sense—to take on the traditional bookkeeping role, as some NHS financial people have done in the past. I accept that we have to strengthen financial management. The appointment of the NHS financial controller in 2006-07 has greatly strengthened our strategy to improve the financial management and performance function of the NHS. We are committed to developing those skills so that NHS trusts, PCTs and SHAs have the highest-calibre advice on financial management. I say also to my noble friend Lord Haskel that, although there are issues around the impact of restructuring on staff and staff morale, the current structure of regions in the framework of SHAs and larger PCTs is the best way of getting the kind of expertise that we so much require.
The noble Baroness, Lady Murphy, put the argument very well when she said that, to get the right financial system, we have to ensure that clinicians are engaged and have much more ownership. I agree with her and I fully agree that the foundation trust regime is the right model. We want many more trusts to go
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I say to the noble Lord, Lord Dykes, and to the noble Earl, Lord Howe, that we have read and taken on board the PAC and Health Select Committee reports, which looked into these important areas. We have set out some key principles underlying the new financial regime: improved transparency; more consistency; greater independence for NHS organisations; and fairness, ensuring that all organisations carry the financial consequences and enjoy the financial benefits of the management decisions that they make.
This has been an excellent debate, which has raised some substantive points on financial management and the NHS as a whole. I will respond in more detail to the specific points raised by the noble Lord, but I am confident that, with the resources that we are putting into the health service, with the expertise, with the changes in the management structure and with payment by results, we will have an excellent foundation for achieving the kind of service in the NHS that my noble friend experienced and described so well and which we want all patients to receive.
12.28 pm
Lord James of Blackheath: My Lords, I am hugely grateful to everyone who has participated in this debate, especially for their close focus on the debate’s subject—resources and how they are deployed and, in particular, reported. I am especially grateful to the Minister for the good humour with which he confronted an oncoming steamroller and dealt with the points raised. I greatly appreciate his offer of a letter and further information, particularly because I have not yet heard him say that I was wrong on a single figure. I shall certainly look forward to his response.
I am also grateful to the Minister for indicating that he may now look towards amending the process of reporting. He has sympathised with those who have to understand what the present reporting package is meant to imply. I look forward to seeing that change and I hope that the debate has achieved its purpose.
I have two small personal points on which to conclude. First, I was extraordinarily grateful that only two of the 13 speakers said that they did not understand what I was talking about. That is only 15 per cent; I am used to a far higher percentage. Secondly, because people from the tabloids may be listening, I should say one other thing. I have not said
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I understand that the convention of these debates is that one moves to withdraw the Motion. I am happy and pleased to do that, although I recognise that I am to have a continuing dialogue with the Minister arising out of the data that have been forthcoming. On that basis, I beg leave to withdraw the Motion for Papers.
Motion for Papers, by leave, withdrawn.
Local Government: Lyons Inquiry
2.30 pm
Lord Bruce-Lockhart rose to call attention to the recommendations of the Lyons inquiry into local government, and the future of local government funding; and to move for Papers.
The noble Lord said: My Lords, your Lordships’ House has many times advocated a renaissance in local democracy and has called for a stronger and wider role for local government. Therefore, I am grateful to have the opportunity of this debate, and I declare my interest as chairman of the Local Government Association.
The Michael Lyons report, which involved valuable work on the role, function and funding of local government, has taken five years to complete. It started in March 2002, evolving into the Lyons inquiry and was finally published last month. Despite five years of professional and valuable work, on the day of publication the Government dismissed out of hand, in a press statement only, many of Sir Michael’s recommendations. That was most unfortunate, as there are very important issues here. I shall attempt to draw out eight questions on which I trust the Minister will clarify the Government’s position.
The report starts by dealing with the role of local government. It rightly emphasises a council’s unique role in the democratic representation and leadership of the area that it represents; in what Sir Michael calls “place-shaping”; in securing high-quality, value-for-money services; and in its wider responsibility for the social, economic and environmental well-being of the area that it represents.
However, Lyons goes on to conclude that the improvement in public services, the prosperity of our cities, towns and villages, and the public’s trust in governance are being held back by one single fact: over-centralisation by the state. Indeed, of all the major democracies and economies of the world, the United Kingdom Government exert a unique degree of central control over public services and local government. This stifling burden of control has simply wasted the public’s money; it has sapped the initiative, enterprise and commitment to public service of many front-line staff; and it has denied the
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There is now widespread recognition that radical devolution in England must take place. Last summer, the Secretary of State and the Chancellor made clear commitments to what they called “an era of devolution”. The Local Government and Public Involvement in Health Bill is an ideal opportunity to turn this rhetoric into reality. The Local Government Association has welcomed the democratic and deregulatory steps set out in the Bill. However, I must make it clear that we are deeply concerned about the Government’s commitment to devolution and the lack of steps set out in the Bill on the devolutionary front.
Devolution has taken place in Scotland and Wales, but to whom will the Government devolve in England and what will they devolve? Sir Michael Lyons’s report rightly focuses on economic prosperity, and the Treasury’s own report, the sub-national review, seeks to ask what the natural economic areas are. The Local Government Association produced a report on this. Our consultants analysed the market areas, the labour, retail and housing markets and the travel-to-work areas, and it looked at the clustering of businesses in high-tech sectors. It saw that the natural economies are not regional—not the nine regions as now—but sub-regions, very often matching the great cities and shire areas of England. Sir Michael Lyons supported this and said that devolution should be to sub-regions and to their cities and shires.
Nowhere is the evidence for that clearer than in the great cities of England. The Treasury's Devolved Decision-Making Review Report of March 2006 drew attention to this. It looked at the prosperity of our great cities of England—Manchester, Birmingham, Sheffield, Liverpool and Newcastle—and it saw that they have only half the GDP prosperity of the major cities of Europe. The report went on to say that part of the reason for the success of European cities is that they enjoy far stronger devolved political autonomy over the economic levers of transport, planning and economic development, while English cities remain largely dependent on central government decision-making. So the first question is: to whom will the Government devolve? Will they continue to shuffle and add to regional quangos or will they devolve, as the economic evidence and analysis indicate, to the sub-regions, the cities and the shires?
I wish to make a final point on powers, economic prosperity, our cities and social justice. We must strike the right balance between the role of the state and the issue of community and social responsibility. It is a tragedy that, after a decade with the luxury of a strong economy, the social divisions in our country are now wider. Certainly, the super-rich are richer, and the affluent are more affluent, but the 20 per cent or so who are least well off, are less well off today. Many people in our cities are living in very hard-pressed communities with areas of high crime, high welfare dependency, high drug use, low education aspirations and low expectations.
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It is therefore immensely important that both central and local government recognise their limits and that we understand that, ultimately, it is community capacity and the human spirit that provide a self-generating force for social and physical renewal. Indeed, I believe that the Leader of Her Majesty’s Opposition is right to focus on social and community responsibility.
In addition, there is a question not only of powers and roles but also of funding. First, to help local economies, the return of the business rate with the same RPI cap as at present would incentivise local authorities to drive forward house building, commercial development and regeneration. It would create a buoyant tax revenue stream and, at the same time, build a stronger relationship and partnership between the public and private sectors. Business would pay no more than it does at present because of the RPI cap. Therefore, will the Minister say whether the Government support Sir Michael Lyons’s view and analysis about the advantages of the return of the business rate with an RPI cap? If not, can she say whether there is a problem of indecision or what the arguments against it are?
The proposals on the supplementary business rate are a small step in the right direction but they are not the core issue. We need to remember that, if business rate still paid the same proportion of local government funding today as it did in 1997, every household’s council tax would be £250 lower. We also need to remember that, with the business rate this year at RPI, set at a higher rate than the increase in grant to local authorities, the Treasury has kept a significant profit itself.
We also need to consider why council tax has increased in unpopularity. Part of the reason is that over the past decade the increase in government grant to local authorities has been lower than the demand and cost imposed on local government by the centre. Whereas NHS real-terms spending has increased by 90 per cent, the real-terms increase for local authorities has been just 14 per cent. In 2002, the Audit Commission found that council tax had been forced up as a direct result of a shortfall in government grant. Therefore, we need to consider other existing buoyant tax streams.
Michael Lyons has rightly—apart from the business rate—pointed us to a shift to an assigned income tax. That means the first one or so pence of existing income tax goes straight through to the local authority. According to the Treasury, over the past five years income tax has grown by 27.2 per cent, which is about 5.25 per cent a year, far ahead of the growth in grant to local authorities. Will the Government consider the option of an assigned income tax?
At the same time, Michael Lyons has talked about specific grants. To make the Government's commitment to devolution real, local authorities must have the ability to spend on what local people and local authorities regard as local priorities. At present, some 21 per cent of local government funding comes in specific grants, tied by the Government to national not local priorities. As the Lyons report says, the
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I think we would all agree on council tax benefit. Michael Lyons reports that £1.8 billion of council tax benefit goes unclaimed each year. The take-up has fallen by 11 per cent since 1996-97. We believe that council tax benefit should be changed to an entitlement and become automatic. Indeed, if council tax benefit were a 100 per cent entitlement, people in the lowest decile of income would pay 2 per cent of their income on council tax rather than 8 per cent as they do now.
The Local Government Association believes that the savings limit on council tax eligibility should rise to £50,000. Michael Lyons supports that, so the question is: when will the Government move to an automatic entitlement to council tax benefit? I understand from the DWP that that is possible. Do the Government also support the rise in savings limits?
Other urgent funding issues remain unresolved because we have not moved to reform. Today, despite our pressing government for more than two years, there is still a considerable shortfall from the European legislation on waste and rising landfill taxes imposed on councils. At the same time, we have continually sought clarity and a resolution from the Chancellor about who is to pay for the ever-increasing cost of social care from the increasing demographic change in the number of elderly people. We simply must have a straightforward answer from the Chancellor. Is government grant to be matched to demographic change and population change, or is the Chancellor expecting council tax payers to pick up the bill, or expecting councils to impose stealth taxes on elderly people and acquire the money through increasing charging systems, as we have seen in other spheres?
One of the most important issues is to restore confidence in funding local government to ensure that its allocation and distribution and the balance of funding between the council tax payer and central government is seen to be fair and transparent, and that there is absolute clarity about responsibility and accountability for council tax increases. We have had too many arguments from local and central government about whose fault it is. The Local Government Association has, therefore, proposed to Michael Lyons, as he in turn proposed in his report, that the Government should consider an Independent Grants Commission like in Australia and Denmark.
Such a commission could start by allocating a base inflation increase to every council. On top of that, an independent commission would have responsibility for overseeing distribution and equalisation and bringing that up to date with the latest reliable population and demographic change statistics. In Australia, on top of that, the independent commission has what it calls a “new burdens regime”, which it oversees, and ensures that any new legislation and government policy that have a cost impact on local authorities are paid for by the sponsoring government department not by council tax payers. A
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I believe that an independent commission would be seen to be impartial and fair. It would make the Government's role transparent and clarify who is responsible for council tax increases, which would thus strengthen accountability and local democracy. Will the Government consider an independent grants commission?
There is much of value in Sir Michael Lyons’s report. I am very grateful for his professional work and that of his officers and everyone across the country who made a contribution. I look forward to hearing the Minister’s response. I beg to move for Papers.
2.46 pm
Baroness Hollis of Heigham: My Lords, I am sure we are all most grateful to the noble Lord for introducing today’s debate and for doing so in such a thoughtful and generous-spirited way.
Most people, most of the time, cannot choose to go elsewhere for local authority services—roads, refuse collection and the like—unless they are very rich, very rural or very misogynistic. Local authorities’ relations with their citizens, therefore, need to be based on trust: a belief that city halls fairly—a word I want to emphasise today—assess finances and deliver services and that their judgments are underpinned by democratic accountability.
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