Keir Starmer is facing another potentially damaging rebellion, as Labour MPs from north-west towns urge the government to give their local councils more money over the next three years.
Labour MPs from the Liverpool city region have written to the local government secretary, Steve Reed, urging him to change the recent three-year local funding settlement, which they say unfairly penalises northern towns.
Their letter has been bolstered by a similar one from Steve Rotheram, the Labour mayor of the Liverpool city region, also urging Reed to put more money into northern towns such as Wigan, Warrington and St Helen’s.
The settlement will be put to a vote in the Commons, and some MPs are warning they could vote against it in an attempt to force the government’s hand.
One MP said: “This is causing a lot of angst among north-western MPs, a lot of whom are facing a challenge from Reform UK at the next election and need their constituents to be able to feel the effect of the investment the government is putting in.”
Anneliese Midgley, the MP for Knowsley, told the Commons last week: “In Knowsley where deprivation is driven by low incomes, the provisional local government settlement doesn’t meet the needs we face.”
Ministers announced a provisional three-year settlement last year, which redistributed money away from the south and towards major cities in the north and the Midlands.
MPs and council leaders in northern towns, however, say their councils have lost out because the government has allocated money based in part on housing costs. They argue their areas are deprived because of low incomes, rather than high housing costs, which are more of a problem in London.
Jim McMahon, the MP for Oldham West and a former local government minister, told the Local Government Chronicle earlier this week: “Everybody accepts that the government has done a significant amount to stabilise local government and reflect that deprivation is a driver of cost and need.
“Where MPs see there is a gap is when they go back to their local authorities who are taking budgets to council that will see more cuts, as rocketing demand for children services, adult social care and temporary accommodation are still eating into budgets.”
McMahon called for an additional £400m each year to be put into the “recovery grant” for councils with the highest level of need.
Stephen Houghton, the Labour leader of Barnsley council, said: “The inclusion of housing costs in the deprivation index has moved money that should have been going to the north back to the south.”
According to calculations by the Special Interest Group of Municipal Authorities, which represents 49 urban authorities, dozens of councils face real-terms cuts in their funding from central government over the next three years.
A separate calculation by the Local Government Association shows about 15 top-tier councils and 115 district councils in England – many in London and the south-east – will receive real-term reductions in total funding over that period.
The analysis suggests increasing numbers of councils will try to avoid effective bankruptcy by applying for hundreds of millions of pounds of special “bailout” loans to prop up day-to-day services, local authority leaders have warned.
Last year a record 30 councils in financial distress relied on so-called exceptional financial support (EFS) amounting to £1.5bn. More are expected to apply this year amid rising demand and soaring costs in areas such as social care and homelessness.
EFS is granted to councils to enable them to meet their legal requirements to balance the books, through loans, asset sell-offs or cap-busting council tax rises. Recent recipients include insolvent councils such as Birmingham, Thurrock and Croydon.
Louise Gittins, the chair of the LGA, said: “Government should urgently provide additional new funding to protect councils from real-terms cuts and work with councils on deeper, long-term reform so local services remain financially sustainable and communities get the support they need.”
An spokesperson for the Ministry of Housing, Local Government and Communities said: “We’ve made almost £78bn available to England’s councils this year and radically overhauled the broken funding system we inherited, so the most deprived communities benefit.
“By the end of the multiyear period, we will have provided a 15.1% cash-terms increase for local authorities in England to help them deliver high-quality public services.”
