Rural Councils: Funding

I beg to move,

That this House has considered the funding of rural councils.

It is always a pleasure to serve under your chairmanship, Mrs Latham. I thank all right hon. and hon. Members for taking part in the debate.

There is nothing like a bit of competition between North Dorset and West Dorset. I would like to warmly welcome the Sherborne town clerk, Steve Shield, who is in the Public Gallery and is a finalist in the star council awards that will take place later today. I understand that Shaftesbury is also in those awards, so I wish Sherborne Town Council the best of luck; I am sure that the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for North Dorset (Simon Hoare), will make the case for Shaftesbury in a moment.

May I take this opportunity to warmly welcome my hon. Friend to his post as Minister for local government finance? I know that he is well versed in the many issues facing us not just in Dorset but across rural Britain. Many, like me, are pleased to see a Dorset MP in the Department for Levelling Up, Housing and Communities who is not purely obsessed with the north and urban areas and who can bring meaningful perspective to rural issues, particularly in the south-west.

Ten million people live in rural England. Those who work in the rural economy can expect to earn on average £2,000 less than those in urban areas. The rural fuel poverty gap is double the national average. Rural people pay on average 20% more council tax per head than those in urban areas. My other constituency neighbour, my hon. Friend the Member for South Dorset (Richard Drax) and I both represent the area with the worst social mobility in the country. I have a secondary school in that area that has been partly closed and another school where a third of the classrooms are in disrepair. We also have significant transport issues and social care challenges—in West Dorset, we have a community where a third of the population is over the age of 65.

My constituents are fed up with turning on the telly to hear levelling-up announcements for urban areas in the midlands and the north and hearing nothing about the rural south-west or rural Britain. They want to know, and have sent me here today to ask why rural hardship is not seen in the same way as urban poverty. They expect to see their representatives make the case to change that. That is why other Members and I are in the Chamber today.

It should be no surprise that rural matters are going up the agenda. Yesterday, the hon. Member for Somerton and Frome (Sarah Dyke) brought a debate to Westminster Hall about rural services. I commend my hon. Friend the Member for St Ives (Derek Thomas) for chairing the all-party parliamentary group on rural services and my right hon. Friend the Member for Suffolk Coastal (Dr Coffey), the previous Secretary of State for Environment, Food and Rural Affairs, on all the work that she has done.

I represent West Dorset, which is my home, and I am the sixth generation of a tenant-farming family, and am in the Chamber, almost 10 months on from my last debate, again to champion the cause of millions of people living in rural Britain who want a fairer system of taxation and service provision. Whereas before I focused primarily on the revenue support grant, I am here today to address the funding of rural councils more broadly, and particularly to speak in favour of my own, Dorset Council. That funding is perhaps more important today than it was at the time of the previous debate in January, given that little has changed to improve the situation for rural councils since then. It is nearly a decade since the local government funding formula was locked in. That means it is also a decade since the faulty distribution of the revenue support grant and the corresponding increase in council tax to compensate for the unfair—in my opinion—national distribution of Government resources. As the years have passed, the situation for rural councils, exposed relentlessly to the frozen funding formulas, has deteriorated, and the rural tax burden has increased for millions in England, including my West Dorset constituents.

A recent survey carried out by the County Councils Network and the Society of County Treasurers found that their members face overspending on their budgets by an enormous £600 million per annum. It found that 20 county councils and 17 unitary authorities right across the country will collectively overspend in 2023-24. There is no clear road map for improvement, so those councils are running out of time to find solutions to prevent insolvency. That is one of the reasons why it is important for me to bring this matter to the House.

Against that backdrop, it is a surprise that only one in 10 of those surveyed running well-managed councils are unsure or lack confidence that they will be able to balance their budgets this year—I hasten to remind hon. Members that it is a legal requirement for councils to do so—but without urgent action or reform, that number will increase to four in 10 next year and six in 10 by 2025. That is an unprecedented majority of our rural councils, and the County Councils Network is concerned about whether councils will meet the legal requirements within the next two years.

Why is that the case? What is causing the situation to be so difficult? Why is there an excess burden on rural people? It is due, first, to the formula that dictates the distribution of the revenue support grant from the Government to local authorities; and, secondly, to the corresponding levels of council tax that councils are forced to levy to cover their increasing social and services cost. As the Minister said to the Levelling-up, Housing and Communities Committee earlier this month, the unique characteristics and challenges of each local authority make it difficult to implement a national fix, as they often require bespoke solutions. I fully understand and support that idea.

I have spoken a great deal in this Chamber and on the Floor of the House about the revenue support grant formula and council tax, so I will touch on them only briefly for Members’ information. In 2013-14, we locked in a local government funding formula that distributed an unfairly low proportion of central Government resources and grants to rural councils; today, urban councils receive 38% more in Government-funded spending power per head than rural councils. This year, my local authority, Dorset Council, received just £700,000 from central Government, which accounts for just 0.2% of funding. Although my hon. Friend the Minister, who was on the Back Benches at the time, and I made the case very strongly for Dorset in the local government funding debate, the local council would probably say that other adjustments were made that offset that, so there was little if any net benefit. The rest must be sourced elsewhere—often through the council tax mechanism—or the council will enter an insolvency situation.

As a result, councils in the predominantly rural areas of the country that are overlooked when it comes to Government support must increase the rate of council tax, irrespective of their individual demands on services and demographics. Rural residents across the country pay an average of 20% more council tax. Across the County Councils Network, 68% of funding was received from council tax alone, compared with an average of 56.8%—it is, of course, lower in most urban boroughs. In everyday terms, that means that the typical band D council tax bill for someone living in Dorchester, Sherborne, Bridport or Lyme Regis—or any of the 132 parishes in West Dorset—will be over £2,000 a year.

While focusing on our situation in West Dorset, I should explain why the existing system of rural council funding cannot continue unamended. In West Dorset, a third of residents are over 65. It is a vast geographical territory, covering over 400 square miles of the most beautiful and picturesque part of the country. Although that may sound idyllic, it is tremendously difficult to travel without access to a car or the ability to drive, especially as local public transport options have become more and more restricted. Sixth formers in Dorset— 16 to 19-year-olds—have to pay to get the bus to go to sixth form. Why is that the case, when the Government pump billions into TfL and Londoners get travel for free? That cannot be right.

These three factors—the revenue support grant, council tax and local characteristics—regularly combine to disadvantage rural communities and people, imposing barriers where there need not be any. That can be felt across society. Taking them together, it is fair to say that rural councils continue to be placed under unique pressure.

This has a knock-on effect on households and businesses. We have seen it clearly during the cost of living crisis, where three in four councils, many of them serving rural residents, have increased their council tax by the maximum permitted rate. Accounting for the increase, a typical band-D council tax bill for rural residents is 27.5% higher than that faced by London residents.

It is fair to say that the high rise in energy prices has disproportionately affected rural households and businesses. That is against the backdrop of a rural fuel poverty gap that is already double the national average. In West Dorset, more than half of households are off grid, meaning that they have less access to energy support than people on the mains gas network. This is one of the primary reasons why, when Dorset Council established its household support fund for applications, its funding allocation was gone within a matter of hours.

Business rates are a very topical issue for rural councils. The simple nature of our local economy in West Dorset means that 97% of businesses are small or micro sized. They are not conglomerates; they are not transnational. They are often run by people, perhaps from home or from a small premises at the local trading estate, employing one, two, three, four or five people who are attempting to make a modest living. It means, however, that income derived from retained business rates by the council in West Dorset is 14.5%, whereas Tower Hamlets, for example—to make a comparison with London—receives over 50% from its retained business rates. To put that into financial terms, it is £50.2 million for Dorset, but £176 million for the borough of Tower Hamlets.

We ought not to forget the importance of social care. I recognise that this area is often debated in the Department of Health and Social Care, but the reality is that local government has an important responsibility for delivering social care and services. Residents across the country would be forgiven for overlooking the acronym for adult social care—ASC—on their council tax bill, but rural councils are forced to derive huge amounts of their income from the adult social care precept. In total, people would expect three quarters of the amount they pay in council tax to go towards social care support, simply because older people tend to reside in more rural areas. As I mentioned earlier, a third of our population in West Dorset is over 65, compared with just 10% in some London boroughs. The matter of an ageing population of concern for all rural councils, as rural residents get 13% less per head in social care support overall. That is one of the main drivers for the council tax increase. The matter of social care becomes sharper when we make a comparison between urban and rural. Residents in an average band-E property in West Dorset will pay an annual social care precept of £204.04. For the same property in the borough of Westminster, the precept is a mere £3.20. The difference is absolutely enormous.

The dividends are especially visible in funding for young people’s services and schools. Across Dorset, there is core school funding per pupil of £5,728, which places the council in the upper third of upper-tier local authorities for education spending. Other rural authorities fare just as poorly or even worse. Leicester, Cheshire and Bedfordshire are all ranked in the top 10 upper-tier local authorities for core school funding per pupil. Looking again to the capital for our rural to urban comparison, it is possible to see that London boroughs occupy all 10 of the top 10 spots for core school funding. Islington, Westminster, Camden, Southwark and Hackney all spend over £7,500 per pupil when it comes to education funding. Tower Hamlets is top of the list; it spends £8,122 per pupil. That is 40% more than is spent on a child in education in rural Dorset. That disparity is simply unfair and is not acceptable for those who are being educated in rural Britain.

My hon. Friend is making an excellent speech, and I am grateful to him for bringing us together on this important topic. On the matter of disparity in funding, does he recognise that, on top of the ludicrously exaggerated funding that London councils get, they each make millions more on parking fines that they are then able to put back into their communities? That is not taken into consideration, so their budgets are inflated beyond even that which we see in the basic figures.

I wholly agree with my hon. Friend, but it is worse than that. One of my asks for the Minister is to take away and investigate this: it is important that we all note that London is getting £236 million a year more of Government grant than the formula says it should, and that £166 million goes to five London boroughs alone. I very much appreciate that my hon. Friend and neighbour is very new in his ministerial post, and I am not expecting him to answer some of these very tricky questions, but I would appreciate it if he would ask his officials to look into that and gain an understanding of some of these matters, because for those of us representing rural constituents this is simply unacceptable. I thank my hon. Friend the Member for Rutland and Melton (Alicia Kearns) again for her kind intervention.

It is not just education, businesses and social care that this unfairness pervades, but transport too. The stark reality is that urban councils are in the privileged position of spending three and half times more on public transport than rural councils. We can see that demarcation clearly between London and West Dorset; I have given enough comparators to make the point. If anything, it should be the other way around, because of the rural disparity.

Something is not right in the formulas and the understanding of them. We do not have a dedicated or overfunded public body to oversee our transport network in Dorset, as other areas do with Transport for London, Transport for Greater Manchester and so on. In West Dorset, unlike many urban areas, further education students do not receive a free or subsidised travel pass to get to their places of study. Residents are not in the luxurious position of receiving eye-watering grants for public transport in rural Britain, and definitely not in West Dorset. Instead, they have to rely on the good will of community operators to keep running. That is not sustainable; I hope that Transport Ministers will consider that point. It is evident that the disparity in national mechanisms for council funding between rural and urban areas is far-reaching, cross-cutting and very difficult for councils on the wrong side of the formulas.

Order. As so many Members wish to speak, I will impose a five-minute limit.

It is a pleasure to serve under your chairmanship, Mrs Latham. I congratulate the hon. Member for West Dorset (Chris Loder) on a well-informed and passionate speech. I am going to talk about local government in Scotland, which is a devolved matter but which I believe impinges on what the United Kingdom Government do in England and Wales.

I had the honour of serving twice as a member of the Highland Council. The word “messiah” rang a bell with me, because there is that wonderful chorus from the “Messiah” about “Wonderful, Counsellor”; I always regard it as my personal tune. The Highland Council is the biggest council in the entire United Kingdom. It is 20% larger than Wales. We have 7,000 km of road, 200 schools—the most of any local authority in the UK—and extraordinary diversity, from the conurbation of Inverness to very remote areas with very sparse populations. These bring particular challenges that all rural Members here will recognise: distance, inclement weather and everything else that makes funding those councils much harder.

In my brief contribution today, I want to highlight a cautionary tale. I am sorry that no Scottish National party Members are present, because this is an issue for them and their Government in Scotland. The Scottish Government in their infinite wisdom have seen fit to impose a council tax freeze. For the Highland Council, that means that £108 million of savings will have to be found over the next three years. That is incredibly difficult for my former colleagues, because £108 million represents slightly more than half the annual education budget for the Highland Council—that is how massive it is. I do not envy those good people of all parties: Conservative, Liberal, Labour, independent and, indeed, Scottish nationalist. I do not know how they will do it.

I believe that there is a cautionary tale here for the United Kingdom Government. We talk about what exactly is meant by levelling up. The first point is that this sort of thing happening in the highlands of Scotland or in other parts of rural Scotland amounts to a form of levelling down. Services will be cut, investment will be cut and—this is my message to the Minister—that sits unhappily with the Government’s policy of trying to ensure levelling up. If we have part of the United Kingdom going in the opposite direction, it makes the equation that much harder for the UK Government to square, notwithstanding the good intention and efforts that might lie behind the initiative.

I thank my hon. Friend the Member for West Dorset (Chris Loder) for giving a great opportunity to speak in support of our local rural areas and councils, and for raising this timely issue.

As we have heard, it does not take an economist to recognise that the pressure on Government Departments to find savings in public spending will mean that local authorities do not get what they need to deliver the services that they want to deliver. In that context, it is more rather than less important to distribute the available resource fairly between different areas. I am here to press the Minister and his Department to ensure that the 2024-25 local government finance settlement is fairer for local authorities. I say that as an MP who represents a remote island community with its own unitary authority, the Council of the Isles of Scilly, which has had discussions with Government Ministers and me for every year I have been an MP to try and resolve their funding challenges.

I also speak as an MP who represents a sparsely populated rural area served by the large unitary authority of Cornwall Council. It is a great delight to be joined by my hon. Friend the Member for Truro and Falmouth (Cherilyn Mackrory) to campaign for this together. I also speak as the chair of the all-party parliamentary group on rural services.

I remind the House that urban councils receive 38% more per head in Government-funded spending power than rural councils. As we have heard, rural residents will get 13% less per head in social care support. Rural councils have to increase council tax to balance their budgets, and that means that rural residents now pay on average 20% more in council tax per head. That additional tax on rural residents is a result of Government underfunding over many years. The cost of living in rural areas is higher than in urban areas, and that rural earnings are lower. The cost of service delivery is also higher in rural areas.

Order. Because of the number of Members who want to speak, any Member who did not notify me that they wanted to speak will not be called.

It is a pleasure to serve under your chairmanship, Mrs Latham. I congratulate the hon. Member for West Dorset (Chris Loder), my neighbour, on securing the debate.

I must first declare an interest as a proudly active Somerset councillor. My colleagues and I at Somerset Council and across local government know how difficult times are for councils right across the country. We must not forget the crucial role that local authorities play. They provide essential frontline services to the residents they serve. To do so, and to survive, they must have the necessary support from central Government. In 2018, when the Prime Minister was Under-Secretary of State for Local Government, he claimed to understand just how important local authorities were, so I have been disappointed that more support has not been forthcoming during his premiership to enable local authorities to deliver services to their communities.

Local authorities need to be able to provide first-rate social care for adults and children. The Conservative former leader of Somerset Council has regularly recognised that adult and children’s social care is broken. He has called for immediate investment by Government in social care. Somerset Council is facing a £100 million black hole in its budget, with a significant overspend in social care. The latest estimates show a £70 million increase in costs for 2024-25. The stark reality is that inaction now will cost lives.

The cost of providing services in rural areas, like the majority of Somerton and Frome, is more than in urban areas, yet rural residents will receive 13% less in spending per head on social care support. As a result of underfunding, rural councils are forced to increase council tax to its highest rate in order to balance their budgets. The system is grossly unfair, as we have heard. An increase of 1% in council tax in a largely rural county like Somerset would bring in only £3.4 million, whereas in Surrey, for example, the figure would be about £8 million.

I thank my hon. Friend the Member for West Dorset (Chris Loder) for securing this very important debate. I could waste time setting out the problem that he has made very clear, but what we should be doing is focusing on the solutions. Some 21% of the population—12 million people—live in rural areas. Too often, they are ignored, forgotten and marginalised. What we really need is a proper strategy for rurality. Wouldn’t it be nice to have a Minister responsible for rurality across Government Departments?

Today, we seem to be focusing much more on the exact amount that goes to local government, instead of looking across the piece at the totality of money that goes through the funnel of local government for health, education and transport. What we need is an approach that looks at that in the round. The Government have to accept that the original plan in 2010, which effectively tried to shift the balance of funding away from central grants and towards council tax and business rates, is fundamentally flawed. The problem is that it has baked in underfunding, which has just got worse and worse each year.

A courageous Government would recognise the imbalance and do something that sounds almost impossible: cut what we give urban communities. We all know that times are tough. Asking for more for rural without cutting urban ain’t gonna work. It will be a brave but fair move, and this Government are all about fairness.

Devon is in exactly the same position as has been described for Dorset and Somerset, and the fear of a section 114 notice hovers. It paralyses action. It is not right for our communities, because their lived reality is that the life chances of children are considerably reduced. A primary school in my constituency is looking to lay off six teachers—think what that will do. It is a small school, and children in their first proper year of education are predominantly in nappies; one teacher’s full-time job is changing nappies. That cannot be right. Housing is in short supply, and it is not just the challenge from tourism and Airbnb. Even the Campaign to Protect Rural England launched a cry for help last night —a cry for more affordable housing from an unusual ally.

It is an absolute honour to serve under your stewardship this morning, Mrs Latham. I pay tribute to the hon. Member for West Dorset (Chris Loder), who made a very good speech. It is great that he introduced this topic for us to coalesce around, although I will say something that right hon. and hon. Members might not like to hear: I have analysed the 6,366 words that the Chancellor used in his autumn statement last week, and not a single one of them was the word “rural”. That might be an accidental and pedantic omission, or it might tell us more than the Chancellor intended. It certainly rings bells with rural communities in Westmorland, who feel ignored and taken for granted.

I want to make two or three quick points about the formula for funding rural councils. First, authorities such as mine are inadequately funded to take account of the number of temporary residents in our communities. Some 227,000 people live in the area administered by Westmorland and Furness Council, and we have something like 20 million visitors to the lakes and dales every year. Some stay overnight, but most come as day visitors. The pressure they put on the roads and other parts of our infrastructure is significant. Every single one of them is welcome, but it seems wrong that we are not in any way compensated, particularly with highways funding, to acknowledge the fact that we are the biggest visitor destination in the country outside London. I congratulate the council on doing its job and making a methodical, good effort to tackle the state of our roads, but it is not fair that it is not funded for the people who visit.

Secondly, others have mentioned sparsity. I have a mere 130 schools in my constituency, unlike my hon. Friend the Member for Caithness, Sutherland and Easter Ross (Jamie Stone), but they cover a huge area, with many primary schools with fewer than 20 children and many high schools with fewer than 200. Of course it is more expensive to provide services in such dispersed areas, and sparsity is not a sufficient part of the funding formula. All that is against the backdrop of unfair funding for rural councils in general. On average, a person living in a rural community such as mine receives £105 less in central Government funding than their urban counterpart, and pays £104 more in council tax.

It is an honour to serve under your chairmanship, Mrs Latham. I congratulate my hon. Friend the Member for West Dorset (Chris Loder) on not only the time we worked together at the Department for Environment, Food and Rural Affairs, but his excellent speech. I have learned that we share a lot of characteristics in our different counties, and many of the same concerns.

Suffolk County Council is a well-run council. It has not gone off speculating about property and other crises that other councils have found themselves in. It has also tried to innovate over the years, recognising the financial challenges that the country was left with in 2010 when the last Labour Government were in power. Suffolk Libraries is an example of that innovation. While many other councils around the country were closing libraries, Suffolk took the opportunity to effectively create a community interest company—or a charity, as it is now. That is an even better service than when it was run by the council, so Suffolk is not averse to innovation and bringing the communities in.

However, from some of my discussions with the county council leader, I am concerned that the basic costs are rising, particularly those associated with special educational needs and disabilities. I can think of several children who, per individual, cost about £1 million a year to support. I know that we have to support those children—of course we do—but this should be recognised more strongly in the local government finance settlement.

Another big surge in costs has been from home-to-school transport. As has been said by many, that is really challenging. One of the costs for people living in these wonderful parts of the countryside that we represent is having to travel much further for services, or it costs more for councils to provide the services directly to the local communities. That issue is worrying not just Suffolk County Council but councils right across the country.