PARLIAMENTARY DEBATE
Northamptonshire County Council - 27 March 2018 (Commons/Commons Chamber)

With permission, Mr Speaker, I would like to make a statement about the independent inspection report on Northamptonshire County Council. Everyone in the House, regardless of party, appreciates the crucial role that local government plays at the frontline of our democracy, delivering vital services on which we all depend and helping to create great places to live, and, in doing so, making the most of every penny it receives from hard-pressed taxpayers to secure better outcomes, all of which builds confidence and trust between local authorities and those they serve. That is why the situation in Northamptonshire County Council is of such concern.

Prior to my instigation of the report, there were signs that the situation in the council was deteriorating. External auditors had lodged adverse value-for-money opinions in audit reports, suggesting that the council was not managing its finances appropriately. The former leader resigned in May 2016, which also signalled the need for change. As late as last year, the Local Government Association conducted a financial peer review, which concluded that there were issues with delivering the Next Generation reforms and, again, with the mismanagement of finances. The then chief executive, Paul Blantern, resigned in October 2017.

Those reports, along with concerns raised by district councils in Northamptonshire and by hon. Members who represent local constituencies, prompted me to act, as I was concerned that there were potentially fundamental issues within the council. On 9 January I informed the House that I had concerns regarding the financial management and governance of the council. I therefore decided to exercise my powers under section 10 of the Local Government Act 1999 to initiate a best value inspection of the council. I appointed Max Caller, an experienced former chief executive and commissioner, to conduct the inspection and report on whether the council was complying with its best value duty.

Mr Caller submitted his report on 15 March—I placed a copy in the Library of the House so that everyone could see what he had found and his recommendations. Before I go any further, I would like to thank Mr Caller and his assistant inspector, Julie Parker, for their dedication and focus in conducting such a thorough and prompt review.

When I commissioned the best value inspection, I asked the inspector to consider four things in particular: first, whether the council has the right culture, governance and processes to make robust decisions on resource allocation and to manage its finances effectively; secondly, whether the council allowed adequate scrutiny by councillors; thirdly, whether there were strong processes and the right information available to managers and councillors to underpin service management and spending decisions; and fourthly, whether the council was organised and structured appropriately to deliver value for money.

I have reflected on the contents of the Caller report. It is balanced, rooted in evidence and compelling. The inspector has identified multiple apparent failures by Northamptonshire County Council in complying with its best value duty—failures on all counts. While I recognise that councils across the country have faced many challenges in recent years, the inspector is clear that the county council’s failures are not down to a lack of funding or because it is being treated unfairly or is uniquely disadvantaged compared with other councils. His report concludes that

“for a number of years, NCC has failed to manage its budget and has not taken effective steps to introduce and maintain budgetary control”.

Furthermore, the complex structure of financial support meant that oversight was difficult and accountability was blurred. The report says that Northamptonshire’s Next Generation approach, which envisaged outsourcing many of the council’s functions, had no

“hard edged business plan or justification to support these proposals”.

That

“made it difficult to ensure a line of sight over costs and operational activity”

and

“made it impossible for the council, as a whole to have any clarity or understanding as to what was going on.”

Similarly, the inspector found that Northamptonshire County Council used capital receipts to support revenue spend

“without documentary evidence demonstrating compliance with the Statutory Guidance and Direction.”

Furthermore, until this February, there was no report to full council on the proposed projects and their benefits. He says in his report:

“Savings targets were imposed without understanding of demand, need or deliverability and it is clear that some Chief Officers, did not consider that they were in any way accountable for the delivery of savings that they had promoted.”

On the question of scrutiny, the report says:

“The council did not respond well, or in many cases even react, to external and internal criticism. Individual councillors appear to have been denied answers to questions that were entirely legitimate to ask and scrutiny arrangements were constrained by what was felt the executive would allow.”

I want to emphasise that the report also indicates that the hard-working staff of Northamptonshire County Council are not at fault and have worked hard to provide quality services.

With all this in mind, it is clear that I must consider whether further action is necessary to secure compliance with the best value duty. In doing so, I want to reassure the residents of Northamptonshire that essential services will continue to be delivered. The inspector is clear:

“The problems faced by NCC are now so deep and ingrained that it is not possible to promote a recovery plan that could bring the council back to stability and safety in a reasonable timescale.”

He recommends:

“A way forward, with a clean sheet, leaving all the history behind, is required”.

I am therefore minded to appoint commissioners to oversee the authority, using my powers under section 15 of the Local Government Act 1999. From day one, I propose that they take direct control over the council’s financial management and overall governance. Getting these basics right must be the first step in stabilising this authority. I also propose giving them reserved powers to act as they see fit across the entirety of the authority’s functions if they consider that they must step in. My officials are writing to the council and to the district councils today to this effect, and they can make representations on this proposal. I will consider any representations carefully before reaching a final decision.

The Caller report makes a clear recommendation on restructuring, and notes that there are a number of options available. So, in addition, I am inviting Northamptonshire County Council, and the district and borough councils in the area, to submit proposals on restructuring their local government. I would like those councils to think about what is right for their community and the people they serve, and to come forward with proposals. This invitation and the letter to Northamptonshire that I mentioned earlier have been published today, and I have placed copies in the Library of the House.

It is clear to me that any proposals from the councils should seek to meet the criteria for local government restructuring that I have previously shared with the House. They are that the proposals should improve local government; be based on a credible geography; and command a good deal of local support. I will be particularly interested in hearing how the councils have consulted with their communities to ensure that Northamptonshire’s future is truly locally-led.

The findings of Mr Caller’s inspection report on Northamptonshire County Council are extremely serious, which is why this Government are prepared to take decisive action to ensure that local people receive the high-quality services they need and deserve, and to restore faith in local government in Northamptonshire. I commend this statement to the House.

I thank the Secretary of State for advance sight of his oral statement and for bringing to the House a much-awaited response to the sorry crisis in one of his own party’s councils.

The best value inspection of Northamptonshire County Council of 15 March makes very sorry reading and is an indictment of not only mismanagement locally, but eight years of intransigence and austerity nationally. The Secretary of State will know that Northamptonshire’s problems have been building over a number of years, yet the council bragged about its “pioneering” approach to council services, running them as a business and operating “almost like a PLC”, according to the former chief executive. It did not take long before it became clear that just like the public sector, the private sector cannot deliver adequate services when there is still too little funding.

In 2015, the Local Government Association warned that forcing councils to spend reserves to plug funding gaps—something the Secretary of State’s predecessor, Sir Eric Pickles, used to demand of all councils—would be a “reckless gamble” and

“would put local communities on the fast-track to financial failure.”

As we have heard, back in September last year, the LGA conducted a financial peer review, warning that Northamptonshire would be the first to collapse. I am not sure whether the Secretary of State had read that report because he was soon cutting the ribbon at the new £53 million headquarters, as the authority was preparing the paperwork to declare itself bankrupt.

Worse, the Local Government Chronicle has suggested that there are already at least 10 authorities preparing to issue section 114 notices, and now the National Audit Office has warned that one in 10 councils with social care obligations will have exhausted their reserves within the next three years. So can the Secretary of State tell the House: what contingency arrangements have been put in place should other authorities follow Northamptonshire over the cliff edge?

I hope that the Government will learn from the failure in Northamptonshire. Even now, we are still learning more; we found out just this week that the ex-chief executive was paid more than £1,000 a day, while people were losing their jobs and services. That is why it is so crucial for commissioners to be sent in. The problems at Northamptonshire are so deep-seated that the residents of the county should not expect more of the same mismanagement from the Tory councillors who have driven it into the ground.

The Secretary of State says that he is minded to appoint commissioners. The Labour party has been calling for that for some time. Can he give a timescale—when will he make a formal decision? Should he decide to appoint commissioners, how soon does he expect them to be in place following that decision? Does he expect that their remit will be as extensive as that recommended in the report? If he does, he will have our full support.

On the budget, it is clear that Northamptonshire’s problems continue. Creative accounting may have got the county through the year end and through the budget setting for 2018-19, but Northamptonshire’s finances remain in a precarious state, and the principal pressures in children’s and adults’ services remain serious issues for the authority. What certainty does the Secretary of State have that Northamptonshire will be able to meet those cost pressures in the new financial year without additional central Government resource? What level of direct budget monitoring will be taking place by his officials in the Ministry throughout the year and will he be recommending that Northamptonshire undertakes additional in-year budget-setting exercises should it need to?

We give a cautious welcome to the reorganisation of local government in Northamptonshire, but changing lines on a map does not, in itself, resolve the deep- seated problems facing local government. In asking Northamptonshire’s councils to make suggestions to him, does the Secretary of State agree that any proposals for new councils must have the widest possible degree of consent from the communities they seek to represent? What resources will be made available to the new authorities to start them off on a sustainable footing? Does he envisage a Northamptonshire residuary body that will be established to take on the historic problems associated with the county’s finances, so that the new councils can start with a clean slate? And what assessment has he made of the financial capability of unitaries to run the functions of local government in Northamptonshire?

Northamptonshire is the first but it will not be the last. Given the assessments by the NAO and the Local Government Chronicle that other councils will follow Northamptonshire in the coming years, what assessment is the Secretary of State making and what resource is he going to make available to ensure that that does not happen? This is what happens when a Government have created a £5.8 billion gap in local government funding. Everyone is saying that social care is on its knees and when children’s services need an additional £2 billion. Local government cannot be allowed to collapse on this Government’s watch.

I thank the hon. Gentleman for his comments, but I must say that I do not think he listened to a word of my statement. Once again, he appears to have come to the Dispatch Box with a pre-prepared statement. It is clear that he is very disappointed indeed by the report because it is not what he wanted. He wanted a report that he could use for party political purposes, so that he could play his favourite game, political football—a game that has no respect for the people of Northamptonshire.

The hon. Gentleman wanted to claim that what has happened in Northamptonshire was due to a lack of funding. He did not listen to what I said in my statement and he clearly has not read the report. He comes to the Dispatch Box having not even read the report—and he calls himself the shadow Secretary of State for Housing, Communities and Local Government. Had he read the report, he would have seen that the independent inspector is crystal clear that it is not an issue of lack of funds; it is to do with poor governance and poor financial management.

The hon. Gentleman must have been very disappointed that the report did not allow him to make his party political arguments. I noticed that he conveniently ignored the history of local government interventions, so let me remind him: in 2001, Hackney, Labour-controlled; in 2003, Hull, Labour-controlled; in 2008, Stoke-on-Trent, Labour-controlled; in 2009, Doncaster, Labour-controlled; in 2014, Tower Hamlets, Labour-controlled; and in 2015, Rotherham, Labour-controlled. Perhaps he can detect the pattern, but if he cannot, let me help: all those councils were Labour-controlled. He has conveniently ignored that.

The hon. Gentleman did manage to get round to a few questions, so let me try to answer them. He asked about the timescale for the decision that I am considering on sending in the commissioners. It is a “minded to” decision at this point. I will take representations, as I rightly should, up to 12 April, after which I will make a final decision. If the decision is to send in commissioners, they will be in place by the end of April.

The hon. Gentleman asked whether there will be more funding for the council. As I have said, the inspector has said that lack of funding is not the issue. Simply to give the council more funding would be to reward mismanagement and would clearly be wrong.

The hon. Gentleman asked about reorganisation. It is of course necessary to consider reorganisation, because that is one of the inspector’s central recommendations. I do not want to predetermine the outcome. The inspector has recommended two new unitaries. We are open-minded about the proposals and I will consider them carefully, to a timeframe that allows us to look at them properly and to make sure that any options are consulted on properly.

Finally, I suggest kindly to the hon. Gentleman that, if he wants to come to the Dispatch Box and be taken seriously, can he listen to my statements in future, instead of appearing and talking about fiction?

I thank the excellent Secretary of State for his statement and agree entirely with its content. I share the sense that the shadow Secretary of State, the hon. Member for Denton and Reddish (Andrew Gwynne), does not seem to have read the report. Had he read it, he could not possibly have considered the situation to have anything to do with funding.

We must look to the future. Does the Secretary of State agree that the locally led initiative for the new structure must come from people locally and must come urgently? Can we ensure that we look into whether the council’s having a cabinet system rather than a committee system was one of the reasons for the failure? The new authorities should have not a cabinet but a committee system.

I thank my hon. Friend for all the work that he has done and continues to do to help his constituents in Northamptonshire, which he has demonstrated so ably again now. I agree that any reorganisation must be locally led, which means including the districts and local people themselves in any consultation. I heard what he said about the cabinet system; I am sure those are the kinds of things at which we will look carefully.

Will the Secretary of State confirm exactly how many local authorities have contacted him to warn him of a current or impending financial crisis?

I am not aware that any local authority has contacted me, and I am certainly not aware of an impending financial crisis. That is not to say that local authorities do not contact the Department all the time, with all sorts of issues and concerns, as they should, because that is why the Department is there.

As a former leader of Derbyshire County Council, it was particularly disappointing to read in the report of the local mismanagement, which the report indicates is obviously the cause of the crisis in Northamptonshire County Council. Notwithstanding that, does the Secretary of State accept that the pressures on adult care nationwide are such that both fairer funding and the tackling of health and social care integration need to be Government priorities in the years ahead?

I thank my hon. Friend for the work that he has done and continues to do for the people of Northamptonshire. He is right to raise the pressures being felt by Northamptonshire County Council and many other councils, particularly on adult social care and children’s social care. He will know that at last year’s spring Budget there was a record settlement, with an additional £2 billion going into adult social are. Looking to the long term, that is exactly why we have the Green Paper, and I hope that he will provide input into that process.

The Secretary of State talks about being crystal clear. What is crystal clear is the mess that Northamptonshire County Council finds itself in as a result of the incompetence and mismanagement of local Conservative politicians. Will he therefore issue an apology to the electors of Northamptonshire, on behalf of the Tory party, for the mess that they have found themselves in?

First, I highlight the fact that the new leader of the county council has made an apology. I say to the people of Northamptonshire that what they are looking for and have contacted us about, either through their MPs or directly, is decisive action, and that is exactly what they are getting from the Government.

The inspector’s report is clear about the issue of national funding, but in any event the shadow Secretary of State, the hon. Member for Denton and Reddish (Andrew Gwynne), and the Labour party voted against the local government finance settlement, which gave extra money to local government in Northamptonshire. I welcome the robust steps my right hon. Friend has taken to address the concerns that we Northamptonshire MPs have raised. When it comes to reorganisation, I note that any proposal has to be bottom-up—it has to come from local government in the county. Will he keep in mind the importance of the reserves that have been diligently accrued by the districts and boroughs being spent in the areas in which they have been accrued; the need for strong area representation; and the committee system, which I think would be hugely beneficial?

I commend my hon. Friend’s work for his constituents in Northamptonshire. For that matter, I also commend the Under-Secretary of State for Digital, Culture, Media and Sport, my hon. Friend the Member for Northampton North (Michael Ellis), for the work that he continues to do. I commend the interest that they have both taken in the report. I very much agree with the issues that my hon. Friend the Member for Corby (Tom Pursglove) raised, particularly in respect of reserves, which of course belong to those local councils and districts. That will not change in any reorganisation. When the proposals for reorganisation come through, it is important that all the options are looked at properly so that we get the best outcome for the people of Northamptonshire.

I say gently to the hon. Lady that, if she wanted to see local authorities get more funding, she should have voted for the local government financial settlement. With that vote, we increased funding for local councils throughout England in real terms for the next two years. I believe she did not vote for that.

I have some experience of unwinding creative accounting in local authorities, but the serious business that I am concerned about is the decision that was made to use capital funds for revenue funding. What action is my right hon. Friend taking to make sure that that does not happen, not only in Northamptonshire but in other local authorities? Will he review what is going on elsewhere in the country to find out whether other authorities are involved in such creative accounting?

My hon. Friend makes a good point. He will know that there are legitimate ways for local councils to use capital for resource, but under very strict rules. What the inspector has highlighted here is his concern that those rules were not followed, and that does require further work, which is exactly what we are doing.

If this situation is not due to a lack of funds, then, obviously, it follows that the Secretary of State’s position is that the council has enough funds to fulfil its statutory obligations, which includes providing a comprehensive and efficient library service. Currently, the Secretary of State for the Department for Digital, Culture, Media and Sport is formally investigating a complaint about the cuts, which means that the council is not providing a comprehensive and efficient library service. Therefore, does the Secretary of State for Housing, Communities and Local Government agree that those cuts should be stopped and that the Secretary of State for DCMS should report as quickly as possible on whether that complaint should be upheld?

The hon. Gentleman has highlighted the fact that it is the responsibility of DCMS to look at the statutory requirements around libraries. I will make sure that my right hon. Friend, the Secretary of State there, hears his concerns.

I thank the Minister for his statement and agree with his recommendations on what is a sad day for Northamptonshire. We now enter quite a dangerous period between the Secretary of State’s statement and the potential sending in of commissioners when, perhaps, some wrong decisions can be taken by the county council still in existence. May I ask him to look at three things: first, the sale of the Angel Square headquarters, which, if it goes through, could saddle future authorities with a 25-year rental liability; secondly, sending in the Government’s library taskforce to sort out the disgraceful proposed closure of 21 libraries in the county; and, thirdly, liaising with the Home Office to transfer the fire service as quickly as possible out of the county council before further cuts are levied?

Again, let me thank my hon. Friend, who represents a constituency in Northamptonshire, for all his work and caring concern. He has raised three very important matters. On the question of the headquarters, he will know that Northamptonshire is an independent council—independent of central Government—that has to take its own decisions, but we are very alive to that situation and we are in touch with the council. It knows that there are certain requirements that it must meet. I am sure that if anything happened, it would be something that the commissioners would want to look at carefully. On the library, it is the responsibility of DCMS, but we are in touch with that Department, too. I will certainly get in touch with the Home Office on the other issue that he raises.

The Secretary of State continues to use core funding as a way of masking the eight years of cuts that have been levied on councils across the country. Even the Local Government Association says that it does not correctly represent the cash that is available to fund public services, so will the Secretary of State please stop using that number? But what I wish to ask is this: when will he meet trade unions? As he talks about reorganisations of districts, councils and county councils, there will be a number of staff who face a period of uncertainty and insecurity in their work. It is only fair that they, as well as elected Members, know what is happening during this process.

I must tell the hon. Gentleman that core funding is absolutely correctly used, because that is what it refers to—all the different sources of funding that local authorities have. If I am not mistaken, I think that that approach was actually determined by the previous Labour Government, and so I would have thought that he would welcome that. He mentioned the role of trade unions. As I have said, if there is any reorganisation—and I think that it will certainly be looked at now—then of course everyone should be involved. If trade unions have certain concerns, they should raise them during the consultation period. My understanding at the moment is that the local trade unions have come out in favour of a unitary system.

I commend the Secretary of State for his swift action with regard to Northamptonshire Council. Does he agree that this shows the importance of an open and transparent culture in local government right across the country?

I very much agree with my hon. Friend. Indeed, the independent inspector, Mr Caller, has highlighted the importance of culture and how, in this case, it failed. It is something that we need to keep in mind in the future with regard to other councils, and certainly as we reorganise this one.

So, we have a Conservative Secretary of State and we have a Conservative council that is in a mess. Can the Secretary of State tell us how things got to this point on his watch, and does he think that there are any other Conservative-controlled councils that are not fulfilling their responsibilities?

I have only a few things to say to the hon. Lady: Hackney, Hull, Stoke-on-Trent, Doncaster, Tower Hamlets and Rotherham.

As someone who used to have responsibility for my local council’s finances, I know that swift action has been critical, so I commend my right hon. Friend for taking it and for his open mind on what the new local government arrangements might look like. As he approaches this issue, will he make sure that the voices of local residents and existing councillors at district level will be taken into consideration as he plans that reorganisation?

I can give my hon. Friend that reassurance. As my hon. Friend the Member for Kettering (Mr Hollobone) has just said, this is a sad day for the council. Residents will reflect on this, but it is now important that we make the most of this difficult situation and that, when we have that reorganisation, we ensure that we listen to local residents, including, of course, the borough councils.

During the local government funding settlement statement, I asked about local government funding, and the response that I got from the Chief Secretary to the Treasury was that local government had plenty of reserves. She pointed out that it had £23 billion of reserves that could be used. First, has that set a dangerous tone to local authorities that they should be spending their reserves? Secondly, does the report suggest that the privatisation of services has meant that councils cannot properly control them?

No on both counts.

I also commend the Secretary of State for his swift action in response to this problem. I am pleased that the inspector has said that these problems are not centred on funding. Is the Secretary of State concerned that there are other councils at risk of not being able to meet their best value duty, and what steps is he taking to identify such councils?

If we had concerns that a level existed similar to the one that materialised in Northamptonshire, I certainly would have taken action by now. That is not to say that there are not councils that we are working closely with, that we are keeping an eye on and that we provide advice to. It is important that we continue to operate in that way, that we continue to have a high hurdle for intervention, but that we do not fail to intervene whenever necessary.