My constituency of Mid-Dorset and North Poole is covered by four principal councils—Poole unitary authority, Dorset county council, Purbeck district council and East Dorset district council. I hope that the Under-Secretary of State, Office of the Deputy Prime Minister, Mr. Leslie will bear with me when I mention those different councils.
I should make it clear at the outset that I am a Poole councillor. All of my constituency is served by Dorset police authority. I called for this debate because I have received a large number of representations from my constituents, who do not know how they will cope with predicted rises in their council tax. Those representations are largely from pensioners, but the points that I am going to make apply equally to people on fixed or low incomes, particularly pensioners and others who just miss qualifying for benefits.
I shall quote from some typical letters, one of which says:
"It is truly outrageous, the proposed increase in council tax, it is indeed bad enough for people earning a living wage but to aged pensioners on a low and fixed pension, it is crippling and a cause of great concern. A great many of us served this country well in 6 long years of war and today we are treated as 2nd and 3rd class citizens, central government and local government impose these extreme hardships on the most vulnerable, without any concern or remorse."
Another correspondent writes:
"You will have noticed that a lot of us are lone pensioners, some with just one single state pension. I live in a modest flat. I have to pay insurance, telephone, half bus fare travel, food, clothes, council tax at £70 per month, flat maintenance of £70 per quarter, and so on—all of this out of £75.50 per week."
I am sure that the Minister will tell me by how much the Government have increased pensions, as well as introducing the minimum income guarantee and the winter fuel allowance, but pensions are the same across the whole country, in contrast to levels of council tax and percentage increases in council tax, as I shall demonstrate.
More than 26 per cent. of Dorset's residents are pensioners, and even in Poole, where there is new development, 23 per cent. of the population are pensioners. Yes, there are some pensioners who might be regarded as affluent, but the vast majority are not, and even those who have private pension schemes are likely to have lost income with the fall in the stock market and its knock-on effects on pensions. Dorset and Poole have relatively low-wage economies, which means that local people are not likely to receive large additional pensions.
I recently asked some parliamentary questions and established that the real increase in the state pension since 1996 equates to 7 per cent. I also established that percentage increases in council tax in real terms over the same period varied from a reduction of 20 per cent. in Wandsworth to a rise of 66 per cent. in Brent. The percentage increases in real terms over the same period for the billing authorities in my constituency are 37 per cent. in Poole, 49 per cent. in East Dorset and 54 per cent. in Purbeck. It is easy for Ministers to suggest that the increases are all the fault of local councils, but the truth is that it is due to a combination of factors, and the largest influences by far are the level of Government grants and Government requirements on local councils. That is taxation by postcode, determined primarily in Whitehall.
Wandsworth's band D council tax this year is £403 and Brent's is £878, and I suspect that pensioners get free bus travel in both those places. In Poole, it is £936. I am proud that in Lib-Dem Poole, people get more for less, taking account of the local influences. In East Dorset the figure is £1,045 and in Purbeck £1,023. I could choose billing authorities' increases and actual council tax in different parts of the country to prove almost anything that I set out to prove. As a further example, in Trafford there has been a 19 per cent. increase since 1996, and band D tax is £817. In Westminster, where there has been a 30 per cent. increase, the band D tax is £445.
A good tax ought to be easy to understand. It is impossible for people to understand the variations that exist. A good tax should also be related to ability to pay, and that is clearly not the case. A real increase in pensions of 7 per cent. from 1996 to date against the best case in Dorset—that is, Poole—where there has been a 37 per cent. real increase in council tax over the same period, is clearly placing a huge burden on pensioners and others on fixed incomes.
The Government, as the Minister well knows, are currently consulting on a new financial formula, and so far, right across Dorset, the application of the formula has brought forth from the various councils predictions of even larger increases. I am aware that the county council is considering a 16 per cent. increase and that Poole is considering 13 to 14 per cent. Dorset police authority is proposing a 20 per cent. increase in its part of the council tax just to stand still.
How does that compare with the increase in the state pension? That, I believe, will be increased by a massive 2.58 per cent. in April—that is, £1.95 per week for a single pensioner. The quality of life for pensioners in Dorset is being further attacked in the coming year. People are frightened and do not feel that they can or will take more of this medicine. Some of my constituents have told me that they want to march on Parliament to express their views.
I know that my local council has agonised over expenditure and endeavoured to make £3 million-worth of cuts, which is a great deal for a small unitary authority, but as education and social services make up the largest part of the budget, cuts are difficult to make without hitting the vulnerable any more, depriving our already poorly funded schools and possibly even incurring the wrath of the Secretary of State for Education and Skills by not passporting all the funds as required. Representatives of both Dorset and Poole councils have met Ministers to put their case, but I fear that their pleas have fallen on deaf ears. That is why I am pleased to have this opportunity to explain to the Minister how actions in Westminster are affecting my constituents.
The past was bad enough for pensioners in my constituency, but the Minister could take action for the future. I should like to make three points about that. Will the anomaly in the new formula, which is adversely affecting all the councils in Dorset, be looked at prior to the final announcement on the financial settlement? Our councils have lost out on the resource equalisation aspect of the new formula, but have received no help from the area cost adjustment.
The anomaly appears to occur because Dorset and Poole authorities have high house prices but relatively low wages. A recent survey put Poole at No. 14 in the list of places that are most expensive to buy a home in comparison with average wages. The gap is growing and putting more and more pressure on the recruitment of staff for essential services such as teaching and social services. Council wage costs are the same as elsewhere, if not higher. The situation is similar for Dorset: average house prices are slightly lower, but average wages are also lower. Therefore, among the shire counties, Dorset is the second highest ranked in terms of the number of hours worked to buy an average house.
It would help if the Government were prepared to moderate the effect of the resource equalisation and allow councils in Dorset to benefit from the area cost adjustment. That would mean taking on board house prices. I know that we have made that plea before, but it is so important to many people. I fear that the Minister is likely to say, "You are protected by the floors", but that fills me with even greater dread, as it would appear that things will just get worse in future years. There is also uncertainty because we do not know how long the Minister anticipates that ceilings and floors will exist.
Secondly, given the burden on pensioners throughout the country under this absurd system—I do not think that anybody could describe all the different council taxes that are quite unrelated to the level of services provided in any other way—will the Minister consult his colleagues and, if there is no more money in the local government financial settlement, consider some additional support for pensioners?
Thirdly, in the longer term, surely a new local taxation system should be considered, so that taxation is related to ability to pay. I suggest a local income tax as the answer. There would always need to be some equalisation by central Government and a centralised financial settlement, but a local income tax, as recommended by the Layfield committee way back in 1974, which I am sure the Minister will not recall, would allow local decision making and make councils more accountable to their electorate.
There is a blame culture surrounding the council tax. The ruling party on a council is likely to identify the role of the Government in determining council tax as the prime reason behind the high percentage increase. The opposition parties often try to pin the whole blame on the ruling party. That is the basis of many elections; it is ridiculous and not good for local democracy.
I have no objection to taxes varying by postcode as long as there is clear and accountable decision making, which, frankly, there is not at the moment. Finally, taxes need to be related to ability to pay. Otherwise, we need some more protection to be put into the system.
I am grateful to the hon. Lady for giving way. She is to be congratulated on securing this Adjournment debate in the ballot. Almost every hon. Member representing a Dorset constituency has been trying to secure such an opportunity.
Does the hon. Lady share my concern about what happened yesterday when I raised the issue under discussion with the Minister for Local Government and the Regions? He said that the prospect of a 19 or 20 per cent. council tax increase in Dorset had nothing to do with the Government and that it was all the fault of the county council. Was that not absurd? Does she agree that it is a big problem that the Government seem to think that the value of one's house is a proxy for one's ability to pay council tax, when it manifestly is not?
I thank the hon. Gentleman for his intervention. I heard part of the answer to which he refers, which emphasises the point that I have been making: there is a blame culture, which does nobody any good. It is clear that council tax forms far less than a third of the amount that pays for local services. When there is a shortage of funds, the leverage or gearing effect puts extra pressure on council tax. I repeat that my colleagues way back in Poole are having sleepless nights while deciding whether to cut social services—the most obvious area in which to make cuts because of the amounts that are spent and as there are fewer restrictions than apply to education—or to increase council tax. In both cases, it is the vulnerable who will be hurt, which fills me with great horror. At the end of the day, the decision will result in high council tax increases for pensioners and others.
I shall conclude by drawing those points together, as I want to give the Minister plenty of time to provide a full explanation to me and to Mr. Chope. I ask him to ensure that we can go back to the people who visit our surgeries and who are writing letters and give them the Government's answer. Will he give serious consideration to the three points that I have made: the formula; something to help pensioners; and, finally, the suggestion that the Government must surely make some changes to this absurd system in the long term?
May I congratulate Mrs. Brooke on securing this debate? Her honourable colleague on the Back Benches, Mr. Chope, was right to say that many Members have been trying hard to secure a debate on the local government finance settlement. We will have more general opportunities for other Members to discuss the matter, but the hon. Lady has done very well to secure this debate.
In my short time as a Minister with responsibility for local government, I have received representations from almost all hon. Members regarding how much grant goes from the Government to local authorities. Very rarely have I ever heard any hon. Member say that they are delighted and ecstatic about the grants that they get, even though, in some circumstances, the increases go into double figures. Every year, local and national newspapers are full of stories forecasting doom and gloom about high council tax increases. Sadly, this year is no exception. However, I believe that when one considers the settlement that we have managed to put in place and the extra resources that we have found for local government—an issue to which I shall return in a moment—one sees that there can be very few excuses for excessive council tax rises, especially this year.
I shall try to address the hon. Lady's three points in particular, but it may be helpful if first I give a quick background to the council tax system and the local government finance arrangements. Decisions rest with the councils and councillors, and it is for the local authorities in Dorset to decide how much council tax local people should pay. The Government do not say at what level council tax should be set or what money should be spent on. Decisions about council tax levels are for individual local authorities, and accountability is the key. Local authorities are answerable to their local electorate about the council tax rate, and we believe that they should take into consideration the views of local taxpayers. Elected councillors—I understand that the hon. Lady is one herself—have a responsibility and accountability in that regard.
Contributions from central Government form the greatest portion of the money that goes towards local services. Given that the Government require local authorities to provide a good standard of services, how can local councils have total control over the level at which they set the council tax? Dorset was classed as very good in its comprehensive performance assessment, and Poole, a small unitary authority, was classed as good, so we are talking about efficient councils that have scored highly throughout every test. If the majority of funding comes from central Government, how can the local authority be the sole determinant?
I was about to say that it is true that councils' resources come not only from council tax, but from central Government grant that is allocated to them. All elected councillors face a series of difficult decisions, not only in prioritising where that money should go, but in setting the level of council tax year on year, and we carefully consider the representations that we receive. Ultimately, it is not rocket science. We have a finite pot of money, and we have to apply a formula. It is the best and fairest way of distributing grant to all authorities across the country, and that system should continue. We have reformed the formula system, which has led to improvements, but I understand that it affects different authorities in different ways.
The Minister is being a bit disingenuous. The Government make assumptions about the presumed level of council tax that will flow as a result of the settlement. Is it not correct that the assumed council tax is rising from £769 this year to £1,001 next year—an increase of 30 per cent. on the Government's own assumptions?
There are various statistical assumptions about council tax. I shall come to that when we discuss the part of the formula known as resource equalisation. We believe that we have put in place a formula for distributing grant that will ensure a fair distribution between authorities. It is necessarily detailed, but we have been able to simplify the structure, which is now based on a basic level of funding per head, with top-ups for various factors such as deprivation, high labour costs and scarcity.
The settlement across the country is a good one. We have been able to ensure that every single authority is getting more money—not only that, but an increase above the cost of living and above inflation. It is important to put that on the record. Since this Administration came to power, there has been a 25 per cent. real-terms increase in money to local authorities. That compares very favourably with the cuts that took place under the previous Administration.
We have set up the system known as floors and ceilings to temper some of the excessive data changes in some authorities—lost population, for example. For some local authorities that have responsibility for providing education and social services, such as Dorset and Poole, the floor is 3.5 per cent. and the ceiling is 8 per cent. For all other authorities, the floor guarantee is 3 per cent.
We shall announce the final settlement figures next week. Dorset county council is provisionally due to receive £181.1 million in grant—an increase of £66.7 million, or 3.7 per cent.—and Poole borough unitary authority is due to receive £74.5 million, an increase of £2.7 million, or 3.9 per cent. Of the two district councils in the hon. Lady's constituency, East Dorset district council is pencilled in to receive £3.5 million in grant—an increase of £100,000, or 3.6 per cent.—and Purbeck district council receives £3 million in grant, an increase of £800,000, or 3 per cent.
I can say for the benefit of authorities in Dorset that we intend to keep the system of guaranteeing a certain level of grant for the foreseeable future. We do not, however, believe that it is appropriate to set the level of the floor guarantee for future years, because factors such as data on pupil numbers can vary considerably each year, making it difficult to make a firm decision now on the level of floors and ceilings.
The hon. Lady asked me to consider what she called the Dorset anomaly—the interplay between the area cost adjustment, which is the top-up system that covers higher labour costs, and the complex but important part of the formula known as resource equalisation.
The area cost adjustment is now more sensitive to local circumstances. It recognises high costs on a consistent basis nationally, rather than being arbitrarily confined to London and the south-east. We consulted about a house price approach to the area cost adjustment, but that received little support from local government and the local government community.
We concluded that wages—what is paid to people in each area—are a more robust basis for the area cost adjustment than house prices. That does not imply that house prices do not matter. If they are sustained at a high level in an area, they may lead employers to increase wages to tackle recruitment and retention problems. The area cost adjustment will be updated every year to incorporate the latest wages data.
Authorities that receive the area cost adjustment are determined directly by wages data. After adjusting the average wage figures to make like-for-like comparisons, we set a threshold. Authorities with relative wages above the threshold receive the area cost adjustment.
Average wages in Dorset are currently 1.7 per cent. below the cut-off. However, the new methodology protects lower wage areas by bringing those authorities that are below the threshold up to its value. That benefits Dorset and recognises national pay scales for staff such as teachers that do not vary with local wage pressures.
The hon. Lady asked about resource equalisation. It aims to reflect fairly authorities' relative ability to raise income from their tax base. For grant distribution purposes, we assume that all authorities set a council tax that is the same for every authority in the same class. Mr. Chope made that point. We do not assume that some authorities can set a higher council tax than others. The number of band D equivalent properties varies between authorities.
Resource equalisation is the means whereby we recognise that authorities can raise differing amounts from a given level of council tax. That is because some authorities have higher tax bases than others. Resource equalisation is not new; it was a key part of the old standard spending assessment system. We have brought it up to date so that it reflects more recent information on the national average level of council tax. That clearly improves the fairness of the grant distribution system.
The hon. Lady mentioned fairness and asked me to consider the underlying principles of the council tax and whether it was fair for house prices—rather than, for example, local incomes—to determine council tax. That has more to do with whether a local property tax is fair in principle than with grant distribution. The council tax system uses house valuation to establish the relative value of all dwellings in an area. That means that the system can operate effectively and that the burden of taxation is distributed fairly and reasonably.
The hon. Lady favours a local income tax, but I am curious to ascertain how that would work. Would it be levied according to the person's place of work or residence? Would it disadvantage city areas over suburban areas? Many local authorities, such as Liberal Democrat-controlled Liverpool city council, would not necessarily be happy with such a system.
I have no time because I have only a minute left, in which I should like to reassure the hon. Lady that we are giving pensioners extra support. We are giving significant discounts: for example, we are making a 25 per cent. reduction for single people. However, I do accept that more needs to be done, and we shall continue to work on that basis. Basic pension increases have been significant, and there is other support for pensioners as well, as the hon. Lady said. There is the minimum income guarantee, the cut in VAT on all domestic fuel bills, winter fuel payments for pensioners, and free TV licences for the over-75s. We have also increased the amount of savings that pensioners may have before they are taken into account when calculating entitlement to income-related benefits, including council tax benefit.
The pension credit, which will be introduced from October, will build on the improvements already made to the minimum income guarantee. However, it will go further by simplifying benefits for pensioners, and by directly rewarding savings. It will have two elements: the guarantee credit and the savings credit. The pension credit will ensure that, for the first time, saving will be rewarded instead of being penalised, and that pensioners will gain from having done so.
In the light of the issues raised by the hon. Lady and the hon. Member for Christchurch, I believe that the system that is in place provides a more generous level of support for pensioners than that provided under the previous Administration. We want to ensure that we distribute grant to local authorities fairly, so that councils get not just a cash increase, but a real-terms increase in grant. The hon. Lady's local authorities are receiving those sums, and as I said, I do not believe that many excuses exist for excessive council tax rises. I accept that local councillors face difficulties, and it was interesting and useful to meet elected members and officers from the Dorset authorities in undertaking local consultation on the grant distribution process. However, I believe that the council tax system is working reasonably well as a local tax. The hon. Lady should not forget that its predecessor was the poll tax; sometimes, people have short memories in respect of that tax. The current tax is largely accepted and understood by local taxpayers. It is generally regarded as related in some respect to the ability to pay, in that it is linked to the property lived in by the person paying.
We have given local authorities real increases in grant, but what councils choose to do about council tax is their final decision. I understand the hon. Lady's concerns, but I believe that Dorset is getting a reasonable deal. Councillors have to be held to account, and at the end of the day the council tax is a matter for locally elected councillors.
Question put and agreed to.
Adjourned accordingly at twenty-eight minutes to Seven o'clock.