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CSR: Challenges and Opportunities for Local Government

Date of speech	1 November 2007
Location	Hilton Metropole, London
Event summary	New Local Government Network (NLGN) Conference

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Transcript of the speech as delivered.

This is a well-timed event to consider the Comprehensive Spending Review and its implications for local government.

I was heavily involved with the CSR in the Treasury, prior to taking up my new post four months ago. Now I am seeing it from the other side of the fence.

I always knew part of my new job would be to translate CSR into local government's own version. But no one told me that I would be legally obliged to see every local authority which wants to make representations and I was obliged to take account of those representations - a possible 388. If I allow half an hour each for you, and allow myself 4 hours sleep, that's two full working weeks. So if you say you want to see me, don't be surprised if I say I would be delighted - at 6:00 in the morning!

Turning to the Comprehensive Spending Review the first question asked of the CSR is of course - what are the numbers?

A 1 per cent rise above inflation, across the CSR period for local government in core grant is indeed central - but it is only part of the picture.

I want to put the case to you that CSR is not just about the money you get from central government. I hope my speech can be the starting point for a far-reaching debate for far-reaching reform throughout the CSR period.

And as a basis for such discussion and further work, we are today publishing:

• New business improvement guidance, including updates from the national process improvement project
• New figures on the progress English local authorities are making with efficiency gains
• New research from the University of Birmingham on how far local councils are using their trading powers
• A revised implementation plan for the Local Government White Paper, which also marks to the week its first anniversary and the very week of Royal Assent being received for the Local Government and Public Involvement in Health Bill.

The implementation plan, like CSR itself, is essentially about policy and delivery priorities, both national and local. It shows some good progress over the year:

• The Action Plan on preventing violent extremism 'Winning Hearts and Minds' published in April.
• The new code of conduct for councillors published in May.
• The Quirk review on community assets on which we are now acting.
• The first phase of guidance on the new local area agreements published in September.
• And, of course, the passing of the new local government Act.

And the plan shows some very significant challenges ahead, like the new local area agreements, community empowerment ambitions, and also the conclusions of the Councillors Commission.

Essentially, the White Paper vision is about local councils working with partner agencies in your area. It is about the changes we are putting in place through the new local government Act, through CSR, through the new local area agreements and through the Sub-National Review - all aim to bring decisions more into local areas.

They all aim to break down the artificial boundaries and policy or funding silos which have held places back for too long.

Now, the event today is called 'CSR: challenges and opportunities for local government'. Your title captures the right mix and two very important elements.

Just as apt, as a subtitle, might be:

• CSR: building on local government success
• CSR: much more than money
• CSR: over to you now in local government.

Let me take each of these three themes in turn.

First building on local government success.

It seems to me that the strong record of investment in local government combined with the strong drive for performance improvement has brought an impressive response from local government and led to better services and better value for money. That's why the Audit Commission has found that now four out of every five councils now achieve good or excellent performance.

As a result of that improved performance we can now put in place a more mature relationship between central and local government. One which, as Lyons recommended, eases the financial pressures on councils, giving them greater flexibility to respond to local priorities, to plan ahead and to find innovative ways of achieving better value for money.

So alongside our first - the first - three year settlement for local government we are mainstreaming at least £5 billion a year of grants over the next three years, removing ring-fencing, and have also delivered on our promise to slash Whitehall targets and controls. On top of that we are setting up a system which means local authorities can select their own priority areas to tackle.

This means that local government can focus its efforts on delivering what matters most to your area, whether tackling anti-social behaviour, providing more homes or generating more jobs. It also means you will spend far less time reporting to the centre, and far more time answering to the local people you serve. That's building on success.

CSR: it's more than just the money.

This is the heart of the case I want to make to you this morning. But let's deal with the money first.

A 1 per cent real terms rise for local government core grants over the next three years is the central feature, but it's only the starting point. Of course it follows a 39 per cent real terms increase in funding to local government over the last 10 years. And it continues our commitment of increases above inflation each year, and for each year since 1999, when the Labour government moved beyond the spending plans of the former Conservative government.

Nevertheless it is a tight settlement. But then these are tight years for both central and local government.

In the Treasury I was the departmental minister for OGC, the old Customs and Excise and for the Treasury itself - all those are facing not a 1 per cent real terms increase but a 5 per cent real terms cut.

It is a tough settlement for local government but the detailed work we've done with the sector and other Government Departments means I can say, with confidence:

• It is fair
• It is affordable and
• It is, after all, what the LGA called for on the day before the CSR.

They said, rightly, as well as funding for new burdens and investment in preventative services, I quote "At least a 1 per cent real terms funding increase … is needed to ensure decent care for the elderly and to deliver everything promised by Ministers."

Of course the funds that we announced overall for the revenue support grant and business rates don't cover the full extent of funding relevant to local government.

I aim to be in a position to set out alongside the provisional local government settlement, authority by authority, both allocations for £2 billion in CSR regeneration funding, and allocations of specific grants from other departments.

In some areas, of course, there are very significant pressures - pressures which we assessed over the last 18 months or so with local government - and there will be significant rises well above the 1 per cent.

On social care - the Department of Health grant funding for carers, mental health, for health services and the social care workforce increases an average 2.3 per cent above inflation each year over the CSR period.

On waste - PFI allocations via DEFRA for waste and recycling more than double, with over £2 billion available between now and 2010.

On housing and planning - a 50 per cent increase in funds for new social housing over this year's levels. £500 million over the next three years.

It is more than money. CSR delivers for local government, alongside the settlement three important things:

• Major new freedoms
• Power to decide your own priorities in your area
• Scope for continuing efficiencies.

I'll look at those three in turn.

To allow councils to spend money on the issues that matter most to local people and their local area - at least £5 billion a year previously paid through specific grants, including those in the LAA grant, will now be moved into general grants that are not ring fenced. As a result of moving specific grants into Revenue Support Grant and the new Area Based Grant:

• We remove the ring fence on 29 specific grants
• We reduce the number of specific grants by over a third.

The new Area Based Grant will be paid via Communities and Local Government, without component parts coming direct from different departments. It will be simpler, without the need for councils to track small amounts of money. And it will be harder for departments to put in place soft controls.

On increasing your power to set your own priorities.

I don't think it's an exaggeration to say that we've done what few really believed we could do - cut around 1200 indicators down to 198. And on top of that there will be no mandatory targets from the centre among the maximum 35 to be agreed as part of LAAs.

This is what Sir Simon Milton described as:

"An excellent step that will help free councils to deliver what local people want and need."

The overall CSR settlement was determined by considering

• Both the cost pressures, and indeed the new burdens
• And the scope for further efficiencies in local government.

Precisely the same approach we took to other parts of the public sector.

The target is for councils to achieve £4.9 billion cash-releasing efficiency gains by 2011 - that's money that helps you to invest more in your frontline services and keep council tax pressures under control.

This is 3 per cent efficiency savings each year - some say that's tough. Some say that's going to be a real test for local government but let's be clear it is exactly the same expectation we have set across the whole public sector.

Importantly however, we have worked up these plans with local government. You said you wanted the efficiency programme to work in certain ways, to help you deliver it best.

So - as you argued - there will be:

• No automatic efficiency targets for individual councils
• No service specific efficiency targets.

There will be:

• A streamlined monitoring regime
• Ability for councils who significantly over-achieve in the current spending review to make that count and carry over towards the efficiency gains we expect in the next spending review period.

Alongside the CSR three weeks ago, we also published a map for local government in meeting the efficiency challenge over the next three years.

In many ways I think we should see 'efficiency' as too limited an approach and too limited a concept.

I think what's much more important is 'value for money'. For me 'value for money' demands a definition and vision of the right services, based on what customers need, say and experience - delivered in an efficient way.

This is why it is now a 'National Improvement and Efficiency Strategy' that we are developing with the LGA and other government departments. The strategy is designed to provide a framework for supporting councils, and supporting the agencies you work with in your area, to deliver both:

• Excellent services and results through your local area agreements and
• Greater efficiency in doing so.

This is why the extra £150 million we will invest during CSR to promote greater efficiency - that's a total of six times the current level of funding by the way - will not work in isolation but will work alongside the extension of the investment we are already making in performance improvement and innovation. A total of £380 million over the next three years. And brought together via the new Regional Improvement and Efficiency Partnerships, which I expect to develop projects in key areas for local government like adult social care, construction, shared services, e-procurement.

What we do know is that the potential is very significant for an approach that goes deeper and beyond simply greater efficiency in the way things area done now.

Recent research suggests scope for efficiency gains through business process improvement led projects not of 3 per cent but of potentially 20 per cent.

So to help all councils benefit from the work of the best we launch online today our new business improvement guide with practical advice and examples of transforming services and creating a culture of continuous improvement.

The councils which are pathfinders in business process improvements really do point the way for others.

Three London boroughs looked at their child protection process from assessment to referral. They showed high quality assessment at the outset reduces costs later. Not only that they showed it can lead to better outcomes for their most vulnerable children and a better job for staff.

Cambridgeshire looked at sharing corporate services with other authorities.

Greater Manchester e-procurement partnership looked at new technology and returns of up to 15 times their investment in work on revenues and benefits, public protection, highways and transport.

Let me tell you - the onus of proof will shift. The questions asked of you will change. Councils increasingly won't be answering the case for why they should be making such changes, but the case for why they have not doing so already.

The central point about efficiencies is that you have to secure them in local government - not to satisfy central government or get that tick from the Audit Commission. But because efficiencies give you - in each and every council - the scope to do more to improve your services and do more to keep under control your council tax pressures. I also think the reason you should take efficiency gains seriously is because the public increasingly come to expect you to be able to report on how you provide good value for money.

Consider this, if you haven't done it this way already. The yield from 3 per cent cashable efficiency gains will give you in effect not 1 per cent real terms increase, but a 4 per cent increase for your priorities.

Now the figures published today on efficiencies confirm more than £3 billion efficiency made since 2004, and confirm that the sector is on track to realise £1 billion more by March next year.

I do recognise a further £4.9 billion by 2011 is tough - but we expect the same of the rest of the public sector and I am ready to work with you to consider new ways in which this can be achieved. And the best ways we can use the £380 million we've set aside to support your improvement and efficiency drive.

The final word on finances must rest with council tax.

Of course it is local authorities, not central government, that set council tax. But keeping council tax under control remains a high priority for Government.

We expect the average council tax increase in England for the next year to be substantially below 5 per cent.

We will not hesitate to use our capping powers if we find that council tax payers are in line for excessive increases.

So finally 'CSR: it's over to you in local government'.

Now in response to the case put to us by local government - but also because it is a necessary underpinning of progressive devolution - we are putting in place more policy and funding options for you to do what your area needs, particularly to secure what you need for the long term, as well as to balance your books.

But all the evidence suggests that there is much more use that councils could do to make use of powers already in place, and there is a great deal more you can do with the powers we plan to put in place.

On trading, new research we publish today shows councils generate about £1 billion a year in trading income on services like legal, financial, security, IT, construction, property, sports and leisure, vehicles, highway maintenance.

But only a quarter aim to make profits that could be used to improve services. And revenue generated from trading has been decreasing not increasing over recent years.

On prudential borrowing, introduced in April 2004 - I was involved at the time in the Treasury. This totalled nearly £6 billion by the end of the last financial year, doubling over three years. It is being used by councils to support a very wide range of services and developments.

Our aim now is to create the scope and the financial instruments - funding instruments if you like - for local authorities to raise the investment needed to support the long term interests and needs of their area.

For transport through scope for congestion charging or workplace parking charges.

For economic development through business rate supplements.

For housing and the environment through the new planning charge.

These are all ideas developed in discussion with local government, just as the implementation will be too.

We in central government will work with you on the development of the policy and funding methods but the decisions and the vision for your place, and the people who live and work in your area, are yours not ours.

Now I don't think I can let the LGA's challenge today on immigration figures pass without comment. I will do so by setting it in the context of what I have just set out for you this morning.

We know that some communities are changing fast. We know and you know that many migrants are self-sufficient, they are employed and they make a strong contribution in many cases to local society and in most cases they don't put special pressures on public services.

We know, we recognise, however, that there are some groups of migrants, like unaccompanied minors, that do create complex service challenges and funding pressures. And we also know that a large movement into one area over a short period of time can create challenges for some authorities, just as the LGA says.

We have been assessing these trends, with the LGA and local councils, for a couple of years. Based on the latest and the best population data available - which was published only in September - we have taken account of changes in residential populations in the CSR settlement.

Three weeks ago in that CSR we announced an increase of almost £1 billion - that's four times what the LGA has called for today.

We also announced three weeks ago a top up of £50 million for community cohesion designed to help local authorities deal with special challenges in their area, including - as we said at the time - new migration.

And we're about now to go into detailed discussion and negotiation, area by area, with local authorities on your priorities and your pressures in the new round of local area agreements.

This is the opportunity to examine the evidence local authorities have in their area of such pressures and the opportunity for each council to determine whether it is a sufficient priority for them, and the agencies they work with in their area, for it to form a part of the local area agreement they strike with central Government.

Now, of course, we don't rule out further support in some places but this would have to be based on specific evidence and the priorities set in local areas.

So I will just say to you that with the certainty of a three year funding settlement and a performance and reward framework which allows local areas to set their own priorities, simply calling for more Government cash every time councils see a problem or a pressure arising is not an acceptable answer.

You, local government, said to us you wanted:

• Fewer targets
• Fewer inspections
• Priorities negotiated with government but largely set in your local area
• Increased funding throughout the CSR period
• Greater financial freedoms.

You've got just this in the CSR.

You said you wanted:

• A three year settlement
• Funding instruments like business rate supplements and the planning charge.

We announced at CSR that we are working on those things.

We said we expect:

• Continuing efficiencies and tight control of costs
• Help to deliver government priorities - schools, housing, care of the elderly, boosting jobs.

These are the terms of the debate, this is the deal. Thank you.