A new row is brewing in the Labour Party. MPs are concerned that a new funding formula for councils will hurt deprived northern areas while benefiting London.
A number of them are lobbying the Housing Secretary, Steve Reed, in a last-minute attempt to change his mind. On Wednesday, Reed will publish the provisional finance settlement for local government. The New Statesman understands that a number of Labour MPs and councillors are “ready to go” with public condemnations of the settlement. It could develop into an unseemly end-of-year spat between the government and the Parliamentary Labour Party.
A regional disagreement over council funding has threatened to break out in the party for some time. In June the then housing secretary Angela Rayner unveiled a radical new funding formula for councils. At that time, more than a dozen London Labour MPs made private representations to the government because they did not think the capital’s councils would get enough in the finance settlement.
After her resignation, Rayner was replaced by Reed, who in November announced an updated funding formula. There are two major changes from the version drawn up by Rayner. First, the new formula measures income deprivation after housing costs are taken into account, rather than before. Areas with higher housing costs, like London and the south-east, do much better.
Second, the new formula removes remoteness as a factor in the cost of delivering services (with an exception for adult social care). This is expected to mean sparsely populated deprived areas will do worse than densely populated cities, which can theoretically deliver services much more efficiently.
Since Reed announced his formula in late November, MPs and councils have frantically undertaken their own modelling of the new proposal. Many found that their local authorities are set to lose millions of pounds from the new projections than they had in June under Rayner’s. One Labour MP realised their local council would likely lose tens of millions in core spending power. London boroughs are expected to do best out of the settlement, particularly those in outer London. Taken together, this has produced an impression among MPs that the government altered the funding formula to benefit the capital.
Reed’s team has tried to reassure concerned MPs. One, who has been urging the Housing Secretary to think again, said: “They say it’s all going to be OK, it’s just that the modelling doesn’t show that.” Another told the New Statesman that they and their colleagues are “seething” over the formula change. Another said, “I’m very angry. I will be speaking out about this after Wednesday.” A third expressed concerns and suggested the changes were “London-centric”.
Reed’s team has argued that it is not a case of London vs the rest, and that crippling housing costs had to be factored into the funding formula. The focus, the team has repeatedly said, is on helping the most deprived areas.
Despite the anger, worried MPs have broadly praised Reed and his team for being cooperative and engaging with their concerns in recent weeks. They have been urged to wait for the finance settlement before speaking against the government on the issue. Two MPs suggested that the fall of Angela Rayner has contributed to the government’s change of approach on council funding. “There has been a shift since Angela went,” said one.
It is the second instance in recent weeks of Rayner’s name being evoked by MPs annoyed at the government. At the end of November, when parts of the employment rights agenda were suddenly junked, angry Labour MPs told this magazine that it would not have happened had Rayner still been in post. But the former deputy PM continues to be largely silent while awaiting the outcome of her stamp duty case with HMRC. It is expected to be resolved soon. Public interventions from Rayner may follow.
[Further reading: Greens take in another wave of defections from Labour]
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