[Relevant document: The First Report from the Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Committee, HC 164—1, on Local Government Finance: Formula Grant Distribution.]

I beg to move,

That the Local Government Finance (England) Report 2003–04, a copy of which was laid before this House on 3rd February, be approved.

With this it will be convenient to discuss the following motion:

That the Local Government Finance (England) Grant Report 2001–02: Amending Report 2003, a copy of which was laid before this House on 3rd February, be approved.

I should like to draw Members' attention at the outset to a typographical error in annexe F, on page 83 of the report. A number of scaling factors are shown in that annexe, but the one for debt charges, which appears about two thirds of the way down the column, should read 0.96345941120985. I should add that that Amendment has no effect whatsoever on the grant distribution to any local authority, as the calculations in section 3 of the report are fully consistent with the value that I have just given to the House, as are all the grant figures provided in the supporting documentation. I apologise for bringing this error to Members' attention at this very late stage, but it came to light only this afternoon.

I am grateful to the Minister, whom I know to be a man of great integrity. He may like to draw the House's attention to another typographical error. It appears that Leicestershire LEA is to receive the lowest amount of central Government money per pupil of every LEA in the entire country. That is presumably a typing or a printing error, as Leicestershire should not be the bottom county, but well up the list. Can the Minister get the printers to do it again?

That is a good try, but I have to tell the hon. and learned Gentleman that the only typographical error is the one to which I drew the House's attention. The document sets out the distribution of grants correctly. I shall come in due course to the individual issues, including education elements.

The Minister says that the figures are accurate. Durham county council's social services department originally received an awful settlement that was totally inadequate to meet its needs. Now, Durham county council's formula spending share for 2003–04 is to be set at £447.129 million, which is £0.114 million less than the provisional figure. Moreover, rate support grant has been reduced by £0.198 million. The end result is that Durham county council has lost £0.198 million just like that. Will the Minister tell us why?

I have to tell my hon. Friend that he is incorrect. There is no loss. Durham county council has received a 6.8 per cent. increase in its grant, and most people would regard that as a very good settlement by any standards. I shall deal with individual issues in due course, but I should like to make a little progress and to talk about the principles behind the settlement.

On 5 December, I announced to the House our provisional local government settlement, incorporating a series of proposals for changes to the way in which formula grant is distributed. The settlement that we are debating is only part of the wider picture. It is part of a sustained year-on-year increase in funding for local authorities. That sustained core funding provides the base on which councils can build better service delivery. Over the past 18 months, I have heard a good many representations about the pressures that authorities are under and the difficulty of coping with the grant increases that are available. I understand that local authorities must make difficult decisions—it has ever been thus—but I have some difficulty with the proposition that the settlement is inadequate in general or for any particular authority.

Will the Minister give way?

I shall recall a few basic facts, then give way, but it is important that the hon. Gentleman should hear those facts to start with.

First, I am confirming the overall increase in formula grant of 5.9 per cent.—more than double the rate of inflation. That is only part of the picture. The total formula grant for 2003–04 will be £43.9 billion, including police grant, which the House has debated. On top of that, there will be increases in specific grants. Overall, Government grant going to local government will be £51.2 billion, an increase of no less than 8 per cent.

Secondly, that means that for the first time ever, every local authority in England will receive a grant increase that is more than inflation.

Thirdly, that real terms increase for every council contrasts starkly with the position before 1997, when the total amount of formula grant could, and did, decrease from one year to the next. In those days, individual authorities often expected substantial cuts in grant—actual cuts, not the entirely misleading and false cuts claimed by some councils in recent weeks.

Finally, the effect of the settlement, building as it does on what the Government have achieved over the past five years, is that local government in England has benefited from a 25 per cent. real-terms increase since we came to power. That contrasts with a real-terms cut in grant of 7 per cent. over the last four years of the previous Conservative Government. If anyone asks for a single indicator of the difference that this Government have made to local government finance, those figures—a 25 per cent. increase after a 7 per cent. cut—speak volumes.

On that note, I am happy to give way to Mr. McLoughlin.

When the Minister started the consultation process, he said that the Government intended to try to make the new grant formula system more understandable. Will he help me make it more understandable to my constituents? Why will the people in Tansley, part of the area covered by the Derbyshire Dales council, get an increase of £1.91 a head, when the people a mile away in Lea in Amber Valley borough will get an increase of £7.50 a head, and those who live a mile away in the opposite direction, in Ashover, will get an increase of £6.78 a head? There is some confusion about that.

I notice that the hon. Gentleman did not mention his county council, the body responsible for social services and education. I am happy to tell the hon. Gentleman what his constituents already know—that this Government are giving his county a 7.8 per cent. increase. It is not surprising that he did not want to mention that. All the districts in his area, including the ones that he mentioned, are getting an increase of more than 3 per cent. There will be an above-inflation increase for every person in Derbyshire, and a 7.8 per cent. increase for the county council.

Will the Minister give way?

Yes, I am very happy to take more interventions from Opposition Members.

Does the Minister accept that, before the changes were introduced, elderly people in homes in Kent were resourced by London to an extent that was up to two and a half times as much as Kent was given to pay for them? Now, however, the settlement being given to Kent is, at 3.9 per cent., one of the lowest in the entire country. The pensioners and schoolchildren of Kent are being robbed by a settlement far below the national average.

I hope that the hon. Gentleman will return to the real world. He may have heard the radio debate that I had last week with the leader of Kent county council, Sir Sandy Bruce-Lockhart, for whom I have great respect. The impression that Kent is being robbed is complete nonsense. Under this Government, Kent has received an average increase each year of about 5 per cent. This year the increase is slightly lower, at 4 per cent., but it is still well above inflation. In the last four years of the previous Conservative Government's period in office, Kent received grant increases of less than 2 per cent. That is the difference between a Labour Government who resource local government properly, and a Tory Government who cut local government resources in real terms—and, in some cases, in actual terms.

Will the Minister give way?

I give way to another Kent MP.

The Minister talks about Conservative Members not living in the real world, but he is living in fantasy land. A granny in Kent is worth one third of what a granny in Islington is worth. Our ratepayers must top up the school bill by 2.5 per cent. because the Government have short changed them. That is the reality.

The reality is that Kent county council has £31 million more this year, as a result of this Government. I am afraid that those Opposition Members who try to pretend that night is day and that an increase in grant is a cut are the ones who are not living in the real world.

If the Government are being so generous, why do figures from his Department show that assumed council tax yield for next year will go up by 9 per cent?

The figures do not show that. The documents make assumptions for the sake of calculations. They do not imply that any assumptions are being made about council tax levels. However, if the hon. Gentleman bears with me, he will hear me explain about the adjustments that we have made, as part of the new system, to the level of council tax and the formula spending share. Assumptions have been made as part of that process, but they have no implications for the future. The hon. Gentleman's authority will receive an increase in grant of 4.9 per cent. I hope that he is grateful for that, and that the authority appreciates that it is a decent above-inflation increase and that we are putting in place an arrangement that will ensure that every authority can budget sensibly, with the confidence of floors and ceilings. They will not be subject to the huge increases or reductions—mostly reductions—that applied during the years when the Conservatives were in power. All too often, authorities found that their budgets were cut, whereas this year, in every case, they are receiving an above-inflation increase.

I do not envy my right hon. Friend many aspects of his task. My local authority, Gateshead, hoped for great things under the new system, as for several years it had done badly under the previous one. Our settlement is the lowest in Tyne and Wear and has recently become even lower, so I need to give my electorate an explanation. Can my right hon. Friend provide one?

My right hon. Friend visited me, on behalf of her local authority, and we discussed that matter. In the light of the representations that we received from her and her colleagues, we looked carefully at the figures. The overall increase of 4.3 per cent. for Gateshead is above inflation, even if it is not at the same level as for other north-east authorities. That is one of the consequences of a major change in the funding system, whereby the effect of a large number of different factors feeding into the final conclusion produces results that are not wholly consistent from area to area due to the weighting given to those individual factors. We have examined the figures for Gateshead closely and are satisfied that there is no mistake in the calculation, but I understand my right hon. Friend's anxieties and will be more than happy to hold further discussions with her and her colleagues in the months ahead about the impact of the new formula on her authority.

Several hon. Members:

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I shall give way to my hon. Friend Mrs. Campbell, but then I want to make some progress.

On behalf of Cambridgeshire county council, may I express our extreme gratitude to my right hon. Friend for the high increase that we received this year? At 11.5 per cent., it was one of the highest.

Will my right hon. Friend explain clearly to the Liberal Democrat leader of Cambridge city council that a 3 per cent. increase does not represent a cut and that he was not promised 4.6 per cent., as he claims? The leader of the council seems to have translated an average increase in the 2000 spending review into a promise. Can my right hon. Friend set the matter straight?

I am pleased to confirm that the settlement for Cambridgeshire county council is indeed a good one, as my hon. Friend says. Cambridge city council is receiving an above-inflation increase of 3 per cent., guaranteed by the floor. That is certainly not a cut and the council was certainly never promised any other figure. If the leader of the council believes that there was such a promise, he is deluding himself.

I understand that the difficulties in Cambridge are attributable to the census, which has affected several authorities, and that representations are being made to the Office for National Statistics. If the ONS were to take a different view, we should take that into account, but while it continues to hold that the census figures are robust we have to be guided by that—as we were in the settlement.

I have given the right hon. Gentleman notice of my question. I entirely agree about the problems caused by the census. However, the Office of the Deputy prime minister: Housing, Planning, Local Government and the Regions Committee recommended that in such circumstances we should be able to look at electoral registers or school rolls and check service use. The Office for National Statistics seems to be unwilling to give information and to justify the figures. Will the right hon. Gentleman tell us what representations he has made to the ONS to try to sort things out? We should base the calculations on proper statistics.

We have discussed with the ONS not just this year's census figures but those that it provides for us otherwise, which are always the basis for settlements. When we have evidence that there might be questions about the validity of some of the data, we always ensure that they are passed to the ONS, although it is ultimately for it to reach a judgment. I know that the ONS is considering such factors. I have personally spoken to the Treasury Minister responsible for these matters and have been assured that the ONS is giving them serious consideration. As I said, while the ONS remains confident that the census figures are robust, we must apply them and there can be no question of us substituting our judgment of the appropriate figures for theirs.

Several hon. Members:

rose—

I shall take one more Intervention and then I must make progress.

My right hon. Friend will be aware that the two boroughs in my Constituency, Westminster and Kensington and Chelsea, both suffered as a result of a sharp discrepancy between the census and the previous population estimates. Does he accept that there might now be an argument that a door-to-door head count in inner-city communities is no longer the most appropriate way of measuring population and making decisions on service allocation, and that it is time to move to a more flexible and meaningful way of assessing population?

I am not responsible for the census or the ONS and therefore cannot give my hon. Friend the assurance that she seeks. However, I can assure her that her comments will be relayed to the ONS, which as I have said, has given a lot of thought to the matter. It is right that representatives of local authorities who are concerned about the implications of the census data should continue a dialogue with the ONS.

Will the right hon. Gentleman give way?

No, I need to make a little progress.

The application of the floor in my hon. Friend's case has properly protected both her local authorities. Under the system operated by the Conservative party, those authorities would have suffered serious, genuine cuts in grant rather than receiving an increase of 3 per cent., which is above inflation.

I have referred to floors and ceilings, and those have two main uses: they help to phase in the system changes, and in any year bring a degree of predictability and stability to a system under which previously there could be large swings in grant allocation from one year to the next. That continues to be generally welcomed by local government, and that is why I intend that such a damping mechanism should continue to be a feature of the grants system indefinitely.

For 2003–04, I can confirm that, for authorities with education and social services responsibilities, the floor will be 3.5 per cent. and the ceiling 8 per cent. For police and fire authorities, the floor will be 3 per cent. and the ceiling 4.9 per cent. For shire districts, the floor will be 3 per cent. and the ceiling 12.5 per cent. As I have made clear, every council in England is guaranteed an above-inflation increase.

Will the Minister acknowledge that in the wider world the use of terms such as "a floor increase" and "real terms" suggest that a local education authority will receive an increase in grant of at least 3.5 per cent. However, when one expresses the grant in terms of grant per pupil educated in Leicestershire, for instance, where there has been substantial growth in the number of three-year-olds, one sees that the grant can fall beneath the floor into the cellar, where the increase is 2.5 per cent. or less. Is that not a possibility?

Leicestershire is receiving a 6.6 per cent. increase in grant, which is significant. That represents very many millions of pounds. It is for local authorities to work out how they set their budgets in the light of the increases. As I said at the outset, I do not for a moment deny the pressures with which local authorities must work. It was always thus. That applies everywhere in our world—to businesses, public authorities and the Government. Hard decisions have sometimes to be taken. I once again stress that every local authority in England is receiving an above-inflation increase, and that is the first time that that has happened.

Since 5 December, I have had the benefit of views on the provisional settlement both in writing and in meetings. The Under-Secretary of State, Office of the Deputy prime minister, my hon. Friend Mr. Leslie, other ODPM Ministers and I have met 55 delegations to discuss the proposals. I have considered carefully all the points made. For the most part, I have decided to confirm the proposals that I made, with one substantive modification to the area cost adjustment, to which I shall return. In addition, as usual, the final figures reflect the more accurate data and resource totals that have become available since we published our proposals, and also data corrections to reflect errors discovered by the Office of the Deputy Prime Minister or notified to us by local authorities.

I shall deal briefly with certain points made during consultation. On resource equalisation, our proposals to take more account of the ability of councils to raise council tax attracted a lot of comment, much of which was based on a misunderstanding of our aims. Resource equalisation is not new; it has been part of the grant distribution system for decades. Nor are our proposals radically different from what went before. Like previous arrangements, we take account of a council's ability to raise council tax—our estimate of the national average band D. As under the old standard spending assessment system, we are doing just that. However, because the assumptions underpinning the old SSA had been allowed to slip behind changes in the real world, its calculations were based on an unrealistically low council tax figure. We are therefore bringing the data up to date to reflect today's realities. That is why the calculations that Mr. Davey has seen are in the report.

Will the Minister give way?

No, I must make progress.

The report, however, makes no assumption whatever about what would be an appropriate council tax increase for individual authorities. That is a matter for them to decide. We are bringing the data up to date to reflect today's realities. I should emphasise that we are not seeking to reflect individual authorities' spending decisions. That is rightly a matter for them, and it should not, and indeed does not, influence their grant entitlement.

The new level of resource equalisation has distributional consequences, giving lesser increases to those authorities with a low formula spending share and a high council tax base, and larger increases to those with a high formula spending share and a low tax base. I make no apology for that; it is quite deliberate. It makes the system fairer.

Greater resource equalisation means that the formula totals also increase, from the historic level that SSAs had reached to something much closer to actual average figures.

The Minister has said that what he has done is quite deliberate and he makes no apology for that. The people of Essex will have heard clearly what he has just said. Our county council received the worst grant settlement of anywhere in county and many people in the county will suffer as a result. The Minister has said that that is deliberate and he has made no apology for it. The people of Essex will be very angered by what he has said.

I am astonished that the hon. Gentleman should be angry that his county council should receive an additional £27 million. I hope that he will reflect further on what he has said. Given the increase that we are giving to every council in the country—that did not happen when the Conservative party was in power—he should reflect on the fact that the Government are funding local authorities and giving them a greater ability to respond to local needs.

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I will give way once more.

Will the Minister confirm one point about resource equalisation? Before he quotes the figures back to me, I point out that Shropshire has had above inflation increases in grant and, for the first time, the formula spending share reflects some of the real costs that the SSA did not. However, the increase in the formula spending share over the previous SSA is far greater than the increase of the formula grant. The result is that the Government's figures suggest that the council tax should go up by at least 12 per cent., which is more than twice the increase in the grant level. We welcome the extra money, but will he confirm that what I have said is true?

There are no assumptions in the system; I have just been saying that. I am surprised that the hon. Gentleman has not been listening. We are setting out a system that is designed to distribute grant fairly between authorities. There is no assumption in the system, as there was under the old SSA, about what the Government—[Interruption.] No, I hope that he will listen. I have already had to say this twice, because he did not listen the first time. We are not making any assumptions about what individual authorities should spend other than in the one area of education to which I shall turn shortly. Decisions are for the authorities themselves to take. We are putting in place a fairer system to distribute grant. If he has considered what happened in the last years of the Conservative Government, he will know that Shropshire received an average increase of 2 per cent then. It has had an average increase of 5.5 per cent. in the years that we have been in government. As in virtually every other part of the country, it has received significant increases compared to what happened under the Conservative party.

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I shall give way to Mr. Pickles.

I merely wish to tell the right hon. Gentleman that one of his colleagues has been trying to get his attention for some time.

I am grateful for the hon. Gentleman's self-sacrificing response, and shall give way to my hon. Friend Mr. Dismore.

On education, schools in my Constituency have been told that they will receive a passported 7.6 per cent. increase at the ceiling, without which they would get more, as school rolls are rising. At the same time, however, the amount in cash terms is £2 million less than the local authority has been told to pay. I know that my right hon. Friend has talked about the census before, but school rolls are rising. With the best will in the world, the sum passported by my education authority will be at least £2 million light.

I shall deal with education funding in a moment, but my hon. Friend should reflect that in the last years of the Tory Government, Barnet council—[Interruption.] I know that Opposition Members do not like it, but it is the truth, however unpalatable they find it, and I shall make sure that they hear it.

Barnet only received an average grant increase of about 1 per cent., well below inflation, during the years of the Conservative Government. By contrast, under Labour, Barnet has enjoyed an average increase of about 5.5 per cent. over the past five years. This year, it received an extra £7.3 million. I accept entirely that there are important issues to do with education, and I shall come on to them in a moment.

Several hon. Members:

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I shall never get to education, however, if Members continue to try to intervene. I believe that most Members would like me to make a bit of progress.

The total for formula spending shares—FSS—is therefore some £4 billion higher than the total for standard spending assessments, purely because of greater resource equalisation. That does not mean that local authorities should increase their budgets by this amount. FSS figures are not spending targets, and with the exception of education, to which I shall return in a moment, they do not imply an overall Government judgment about the spending levels of individual councils. In that respect, they are quite unlike the old SSAs, which were originally designed to represent appropriate levels of spending across all council services. That was the product of an era in which the Government thought that they knew best and could dictate to councils what they should spend. We do not agree. A council's budget decisions are for it, not for us.

Turning to education, the Government do, of course, have a long-standing interest in the increases of schools' spending from year to year, which authorities with education responsibilities will want to take into account when setting their budgets. I readily accept that that is the one exception to the principle that I have previously outlined. I understand that almost all authorities have notified the Department for Education and Skills of their proposed schools budget. A substantial Majority intend to pass to schools at least the target amount suggested by the Department for Education and Skills. I know that a number of authorities have considered making representations and discussing those matters with my colleagues in the Department for Education and Skills, who have told me of their willingness to consider such representations.

My right hon. Friend has received my colleagues from the county of Durham and myself very courteously. He will tell me that Durham will receive an increase in grant of 6.9 per cent, but we come to the nub of the problem in education. As the Majority of the education budget is passported, there is very little flexibility for councils on other services. In the county council, the budget for social services is under great pressure, as it has had an increase of only 4.6 per cent., following two or three tight settlements in recent years. My right hon. Friend will understand the dismay and disbelief in the county of Durham at the settlement.

I say to my right hon. Friend, as I did when I spoke to him about these matters, that the overall increase for Durham county council of 6.9 per cent. is a good settlement. I understand the pressures the county faces with regard to social services. Many other authorities face similar or different pressures in particular service areas. I am sure that Durham county council, which has a good record of meeting local needs in a cost-effective way, will do everything it can to respond very positively. I am also sure that my colleagues in the Department of Health, who have a particular interest in these matters, and whom I suspect my right hon. Friend will probably approach, if he has not already done so, will be only too happy to discuss the specific implications and working of a number of the elements in the settlement that relate specifically to social services.

I turn now to the environmental, protective and cultural services. This too has been a controversial block. The difficulty with EPCS is that it is a complicated area, covering many services. Research showed that it was not possible to construct a meaningful formula from a bottom-up analysis of the cost of all those services. It was simply too complicated. We instead used the available evidence to inform the most appropriate choice of factors and ratings for the service area as a whole. We accepted the arguments put forward in the summer that the costs of many of the more important EPCS services, such as waste management, fall relatively evenly on councils. The new formula, therefore, has an enhanced per head allocation.

I appreciate the points that my right hon. Friend is making about the overall level of settlement and how it compares with what we had to deal with for many years before the present Government came to power, but there are authorities facing serious problems. My own authority, Waltham Forest, as a result of the area cost adjustment, is at the floor: 3.5. per cent. Yes, it is an above-inflation increase, but the authority also has to cope with increased national insurance payments and the passporting of money to education, which means that other services face serious problems, because the money is simply not there to passport to education and avoid cuts elsewhere. It will be extremely difficult to explain to people in that borough why they are looking at a possible council tax increase of 20 per cent. at the same time as cuts of £7 million or so will be made in EPCS and social services.

My hon. Friend recognised that there is an overall 3.5 per cent. increase for Waltham Forest. I hope that the authority will do its best to manage its affairs efficiently. The comprehensive performance assessment has suggested that there is scope for improvement. I hope that the authority will be able to work positively based on the Audit Commission's findings and with the help of our Department. We shall be more than happy to assist in this—

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I am trying to respond to the Intervention of my hon. Friend Mr. Gerrard. It will be difficult to make progress if I constantly have to deal with interventions.

We hope that the authority will do its best. As I have said, I understand the pressures, but by no stretch of the imagination can a 3.5 per cent. increase, an above- inflation increase, be treated as a cut.

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I give way to the right hon. Gentleman, who has been pressing for some time.

The Minister is talking about the services that district councils provide. Does he not realise that their provision is very expensive in areas which have a very sparse population and where the population multiplies many times over during the tourist season? Those are the very factors that have been either taken away or reduced in significance, leading to floor-level increases for district councils like Berwick and Alnwick in Northumberland.

I hear what the right hon. Gentleman says, but this is the first year in which all district councils have been guaranteed an above-inflation increase. That is a step in the right direction. We have included in the formula a factor to take account of the particular problems facing small authorities, because the cost of being in business was not previously reflected. It now is. While I understand that the right hon. Gentleman is disappointed that his districts did not do better, they have at least had increases of at least 3 per cent.

Many respondents argued for more consistency—

Will the Minister confirm that half the 5.9 per cent. increase is to be taken up by the imposition of national insurance contributions, pension fund payments and an above-inflation local government pay settlement?

I am afraid that the hon. Gentleman is making rash assumptions. It is for individual authorities to decide on issues such as pay settlements. That is a matter not for the Government, but for local authorities. We take account of the pressures on local government—

We do not have a choice.

The hon. Gentleman parrots that phrase, but I am afraid that he is wrong. Local authorities have a choice and they must live with the decisions that they take. We expect them to act responsibly. We do our best to look at and reflect the pressures that individual authorities face. There is an allowance for increases in national insurance, but I am afraid that his figures are wrong, as is the concept behind his question.

Many respondents argued for more consistency across service areas in the measures of deprivation used in the formulae. There was not, however, broad agreement on which measures to use. In any case, I do not think that that would be the right course of action. If the system is to be based on the costs and pressures that authorities face, as local government has consistently said it should be, it follows that the indicators that are used should be reasonably related to the particular service that the formula is concerned with, instead of being a broad generalisation. The factors that are relevant for social services for the elderly are not the same as those that apply to education or highways maintenance.

The more discriminating approach proposed for the area cost adjustment, which better reflects local evidence on pay costs, was broadly welcomed. Of course, those who benefited more from the old and much cruder approach argued for its retention. Set against that is the argument that the ACA should be based only on the actual pay costs of employing staff. However, I am clear that there are recruitment and retention issues that justify setting the ACA differential higher than the level that would derive from the direct costs of local authority pay alone. We have set a threshold to the ACA that explicitly recognises that many local government employees are on national pay scales.

I have made one substantive change to my original proposals and decided that the Isle of Wight should receive the same area cost adjustment as Hampshire. I have accepted the argument that, on balance, the new earnings survey sample size for the Isle of Wight is such that its labour costs cannot be estimated with the same degree of precision as those of other more populous areas.

Where is he?

My hon. Friend asks where Mr. Turner is. I am sorry that he is not here to hear the good news about his local authority.

The Isle of Wight's sample size is no larger than those of other unitary, metropolitan or London boroughs that we have combined with other authorities for the purposes of the ACA in order to avoid small samples. By making the change, I believe that we are treating all authorities more consistently.

I thank my right hon. Friend for giving way. In the past, we in Suffolk have had to accept a funding discrepancy of about £180,000 between a high school in south Suffolk and one in Essex. The changes that he has made to the area cost adjustment approach in spreading it out more gently outside London has gone some way to reduce that disparity. I am sure that colleagues in Suffolk and beyond will welcome that change.

I am grateful to my hon. Friend for his entirely sensible observations. I am pleased that we have been able to assist and I am sure that he is extremely pleased with a settlement that ensures an increase of more than 6 per cent. for Suffolk county and more than 11 per cent. for Ipswich district.

I thank my right hon. Friend for giving way. When Enfield's three Members of Parliament visited my right hon. Friend in a delegation, we told him that Enfield was directly affected by its being placed in east London, rather than west London, and said that that had gone down very badly locally. We also pointed out that, as a result, Enfield had received an overall increase of only slightly more than the floor level. That has left the borough in a very difficult position in managing its budgets. Even at this late stage, will he look again to see whether the Government can do something in that regard?

I acknowledge my hon. Friend's concerns about the impact of the changes in the area cost adjustment. As I said, the authorities that benefited from the cruder previous system were obviously unhappy about the change. Following the representations that he and his hon. Friends made, I looked closely at all the factors affecting Enfield. I am afraid that I could not justify making a change simply because, looking at the evidence, there was no objective basis to justify a different allocation of authorities in the various blocks. Of course I should be happy to have further discussions with him about future years' settlements, but I am afraid that I cannot change the settlement that has been presented to the House today.

There has been much lurid publicity in recent weeks about the claim by certain councils that I am robbing the south-east or cutting the amount of grant received by councils in the south. That is simply untrue. The whole south-east will receive an extra £255 million—4.5 per cent. more grant in 2003–04 than in the current year. That is not a cut by any stretch of the imagination.

Will the Minister give way?

No, I will not.

The hon. Member for Brentwood and Ongar has been sounding off in recent weeks to the effect that I am mugging middle England. May I ask him therefore when he last came across a mugger who not only gives his victim a sum equal to the entire contents of his wallet, but adds an interest bonus of at least 3 per cent. on top? He has not encountered any mugger like that in the past; I hope that he does in the future, and his authority should be grateful for the increase that we are paying it.

As we said in the December 2001 white paper, we do not expect to make major changes in the formula grant system again for a time—at least not in 2004–05 or 2005–06. We will however make adjustments where necessary to incorporate the latest data, or to reflect changes in the function or funding of local authorities. This period of stability will make it easier for councils to plan ahead. I recognise that it will not be popular with those who think that their efforts are better directed at continuous attempts to change the formula in their favour, but I do not share that view. Stability and a degree of certainty are vital to enable councils to plan ahead with confidence.

As councils now finalise their budgets, I suppose that it is only to be expected that some will seek to deflect criticism by claiming that the Government are responsible for large council tax increases. I have no doubt that we will hear exactly that refrain from the Opposition, so I pose three simple questions to Conservative Members. First, when in all their 18 years in office did they deliver a settlement that gave an above-inflation increase to every council in England? I suggest that the House will wait a very long time for an answer.

Secondly, if the Opposition believe that the settlement is inadequate and claim that council taxes will rise unduly as a result, how much more money do they believe should have been provided by the Government on top of the £51.2 billion that we are making available? Thirdly, where would that money come from? Without an answer to those questions—again, I suspect we will wait in vain for one—their rhetoric and posturing will be rightly seen as just that.

This year's grant settlement is excellent. It continues a sustained and consistent improvement in local authority funding under this Government. It removes the anomalies that undermined confidence in the old SSA system. It takes account of today's circumstances and, indeed, brings the whole process up to do date. It gives proper emphasis to the needs of deprived and disadvantaged communities. It gives an above-inflation grant increase to every council in England. In sum, it is a much fairer system, which underpins the delivery of better performance from local government in future years. I commend the settlement to the House.

The right hon. Gentleman spoke for nearly a third of the time allocated to the debate. I make no apology for saying that, and I have no complaint about it. Clearly, he was dealing with an important matter and he was his usual courteous self, but I tell the party managers that the amount of time allocated for the debate is inadequate. We have often had to return to the House to get additional time, and additional time should be allocated to something as important as the settlement, bearing in mind that it involves a change in the formula. I make no personal criticism of the Minister as I have a great deal of time for him, even though, on such occasions, he has more front than Woolworth's.

The Minister has done a remarkable job with his homework. He has memorised his tables and each Intervention contains a reassuring rebuttal—everything is okay, everything is hunky-dory and the Member of Parliament has nothing to worry about because the settlement is so magnificent. It is the memorising that is impressive and not, sadly, the content. The Minister might well have learned the periodic tables or an Esperanto primer for all the help he is in determining the value of this year's settlement.

The Minister is right about one thing: this is a place where two worlds collide. In the one that he and his compliant friends occupy, a contented local government receives the Government's largesse with open arms and enthusiasm—let us call it planet spin. In the other world, there is loss of grant, slashed services, populations losing tens of millions of pounds and soaring council tax—let us call it planet earth.

Let us judge the Minister by the simple test of rhetoric versus reality. Last December, he chided my hon. Friend Mr. Hendry for standing up for East Sussex county council. The Minister boasted of a 3.8 per cent. grant increase; the reality is that East Sussex is one of the 13 authorities, now 12, where the grant increase for all services is insufficient to meet the Government's prescribed education increase. East Sussex will lose more than £25 million on top of a loss of £8.5 million since 1997.

During December's announcement, in response to a question from my hon. Friend Mr. Streeter, the Minister said that children in Devon had benefited from the education spending increase under the Government and that Devon county council had received a "good" increase. According to the Local Government Association, a good increase means a funding gap next year of £800,000.

Will the hon. Gentleman give way?

In a moment.

Again in December, responding to a question from my hon. Friend Mr. Gale, the Minister claimed that Kent would also receive a good settlement. Mr. David Lewis, finance director of Kent county council, says that the settlement will have a real effect on Kent's ability to deliver services and on council tax.

Last week, the Under-Secretary of State, Office of the Deputy prime minister, Mr. Leslie, said in answer to my right hon. Friend Mr. Jack:

"There can be very few excuses for excessive council tax rises."

However, his parliamentary colleague, Mr. Pike, said that Lancashire county council would have

"either to cut services or to make an unacceptably high council tax increase."

Will the hon. Gentleman give way?

In a moment.

Today, we heard from Mr. Dismore, who put some reasonable points to the Minister. Again, he said what a marvellous settlement this is and, to paraphrase, that the hon. Gentleman would have done much worse under the Tories, or Lloyd George or Lord Palmerston, had they been here.

I have a contemporaneous note—this will interest the hon. Member for Hendon, I suspect—of the meeting between Barnet council and the Under-Secretary:

"I have now met with Chris Leslie and David Miliband but, apart from tea and sympathy, got nothing. They all acknowledge that Barnet had received the worst settlement and have indicated that they will not use their reserve powers against us if we do not passport the total amount."

It goes on to say something that I also regard as very interesting:

"They have also said that the 7.6 per cent. is just a formula and that the schools have misread his letter. There is no actual money."

I have a great deal of sympathy, of course, for the point that the hon. Gentleman is making and for all those hard-pressed councils, but is he suggesting that they would all get extra money under a Conservative regime, or is he saying that all those people who have done quite well would get further cuts so that their money could be taken away for all the basket cases he is talking about?

What I am saying is that there would be a much fairer and more understandable formula, free from political interference. It would not be a case of rewarding our friends and punishing our enemies. No, it would be a fair formula.

Several hon. Members:

rose—

I shall give way in a moment. Let us deal with the 12 authorities that experienced the gap in education funding. The Government seem to be confused about whether the Secretary of State will exercise his powers under section 42 of the Education Act 2002 to passport the expenditure.

I am concerned because during last week's Question Time, in reply to a question I asked, the Minister for Local Government and the Regions said that there would be a

"willingness to be flexible where there are genuine pressures."

I think that he said something similar today. Yet a few short questions later, the Under-Secretary of State, Office of the Deputy prime minister, the hon. Member for Shipley, returned to the same old tired mantra:

"In reality, all councils, including Essex, will get a real-terms increase in grant."—[Hansard, 29 January 2003; Vol. 398, c. 863–69.]

How can Essex be receiving a real-terms increase, when the increase in grant for all its services is insufficient to meet the Government's prescribed increase in education? Essex has a funding gap of £7.5 million, Kent one of £3.7 million, and Hampshire one of £3.1 million.

Will my hon. Friend revise his definition of the Minister for Local Government and the Regions from a mugger to a rogue bank manager, who gives higher-than-inflation interest on one's account, but tucks away bank charges so high that they swallow it and more?

Yes, the right hon. Gentleman has—in his professional capacity as a Minister, not in his personal capacity—the characteristics of a loan shark.

As the Local Government Association's briefing for this debate says:

"If they were to passport the full increase through to schools, this gap and all the other pressures on local services, for example on social services or environmental management, would have to be funded from the council tax increases."

Delegations of councillors visiting the Office of the Deputy prime minister have been unable to get a straight answer to the problem of the education gap. Initially, they were told blandly that the FSS was not like the SSA, and that there was no requirement to spend up to the level of the FSS. When it was politely pointed out to Ministers that the Secretary of State for Education and Skills was offering to penalise authorities that did not passport the full amount, blandness was transformed into a blank look.

Ministers should, however, take heart—they are not the only ones who are confused. The whole Government machine is in disarray. The local government world was amazed by the performance of the Minister for School Standards at the Department for Education and Skills councillors' seminar on 29 January at Local Government House, where he appeared not to understand the impact of settlements on authorities penalised by the funding gap. Perhaps the Minister for Local Government and the Regions should tell the House what discussions he has had with the Minister for School Standards—and let me say frankly that I am not referring to the confused briefing discussion that I witnessed in the Lobby after the December statement.

I find the new formula much fairer than the old one, which was devised under the Conservative Government. I have been pondering on the fair formula that he says the Conservatives would introduce if they took office again. Will he explain which authorities would gain and which would lose under the new fair formula that he presumably has at the back of his mind?

I will go further than that. Here and now I make a pledge, to which I am prepared to be held, that we will change the formula, but we will not do so on the basis of party advantage. Furthermore, I give a clear undertaking that we will work towards a general consensus and agreement on funding. I will go even further and say that it might have been possible for the current Government to have obtained consensus on their proposals had they not chosen to adopt such a confrontational attitude. It is an opportunity missed. The reason we have a problem is that people have no confidence now—because of the degree of discretion, they believe the figures to be fiddled. The consensus is broken, and that is damaging to local authorities.

Several hon. Members:

rose—

I will give way to Mr. Davey, but I hope that he is not going to talk about local income tax.

Does the hon. Gentleman agree that education passporting is affecting councils such as East Sussex, Kent, Cumbria and my own council of Kingston upon Thames, and that the Government are effectively forcing them to raise their council tax? If so, does he further agree that, if councillors react by putting up their council tax, they still deserve our full support?

Again, I can go further than that, because it is the knock-on effect that I am about to come to, which will have a serious effect in respect of social services.

Will the hon. Gentleman give way?

In a moment.

If the Government think that it is a simple choice between Mr. Nice and Mr. Nasty, they are missing the point: choose one and the impact is on school children; choose the other and it is on care for the elderly. The Government had promised a big increase in social services funding, but that will be impossible for authorities to deliver without a substantial council tax increase or a drastic reduction in other services. In many cases, there will be a straight, stark choice between the young and the old.

By a cruel twist of fate, the very authorities that the Government have chosen to take money from are those with the highest proportion of elderly people. Bearing in mind that we are talking about a county function and about specific districts in which there is a high proportion of elderly people, the list is not extensive, but it includes areas such as Arun, North Norfolk, West Somerset, Rother, Eastbourne, Tendring, Christchurch and East Devon, all of which will suffer from the settlement.

To that list, my hon. Friend can add my borough of Surrey Heath, where I have a large number of retired people or people who are about to retire. When he talks of fiddled figures, will he recognise that one thing that has caused outrage is Ministers coming to the House and announcing a 3.2 per cent. increase. Independent, non-party political borough treasurers then get in touch with Members of Parliament such as me to say that that figure has been arrived at only by fiddling this year's figures, and that the actual increase is 0.8 per cent. which is more than wiped out by the increase in national insurance. My independent officers are very angry and they know who is to blame—this Minister, this Government and their fiddled figures.

My hon. Friend is absolutely right. I could not put it better myself.

Several hon. Members:

rose—

I give way to Mr. Betts but then I will have to make some progress.

May I bring the hon. Gentleman back to his commitment to a fairer and less party political distribution system? One of the fundamental ways in which the new system is fairer is that it seeks only to distribute grant. The hon. Gentleman may have a different view on whether it is a fair system of grant distribution, but that is all it seeks to do. Under the Conservative Government, the system also set arbitrary spending limits for every council and imposed penalties and capping to force local authorities to comply with the Government's diktat. That was a completely unfair, arbitrary political system, which is why this system, having got rid of that element, is so much fairer.

If the hon. Gentleman is applying to serve on the Conservative commission on the reform of local government I shall certainly consider it and let him know in due course.

Make no mistake, the crisis in social care will get worse because of the settlement.

There are concerns about the shortfall in grant for services transferred to local authorities—for example, for funding preserved rights.

The hon. Gentleman is always courteous in giving way. He has just made a rather important statement. The Conservative party is apparently launching a commission to consider local government funding. When will the commission start its work, and what will be its composition? Will Lady Porter be a member?

I do not want to disappoint the right hon. Gentleman, but I am afraid that his behaviour over the last year has rather ruled him out from joining. However, one never knows. When he leaves ministerial office we may think about calling on him.

Already there are indications that the proposed transfer of residential allowances will have a significant impact on authorities' budgets, particularly the requirement to undertake a financial assessment of all clients by 1 October 2003. The legislation on delayed discharges currently in the other place will increase burdens on local authorities and will only add to the crisis. Care for the elderly and vulnerable children will be squeezed both ways by the pressure of increased demands and the rising costs of providing services. When the Minister came to the House to give a statement in December, I made two predictions. I said that the following week the comprehensive performance assessment would be produced and that it would take away tens of millions of pounds from excellent authorities and give poor-performing authorities tens of millions as some kind of reward. That proved to be the case. All the new powers and flexibilities promised in the Local Government Bill, which is currently going through the House, will not compensate for those missing millions. It is ironic that the Government offer flexibility and freedom to high-performing councils and at the same time place them in a straitjacket by taking away that money.

Will the hon. Gentleman give way?

Not for a while.

My second prediction was that within two years we would see council tax increases of 16 per cent. Here, I am afraid, I have come horribly unstuck. It looks as though figures close to that will be achieved this year. It seems certain that, for the first time, ordinary families on ordinary salaries in ordinary homes in band D will receive council tax Bills of £1,000. Throughout the counties, southern England and London there will be massive council tax rises, and London will see increases of over 20 per cent. Council tax has become the ultimate stealth tax. The Minister is right to say that we should judge the Government on council tax rises. The accountants Tenon calculate that the increases since 1997, not including any resulting from this settlement, are the equivalent of adding 2p to income tax.

We now have a chance to consider the formula. There is nothing fair or, for that matter, radical about it. After all, there is nothing radical about pork-barrel politics: to punish one's enemies and reward one's friends is a concept as old as time.

rose—

rose—

I shall give way first to David Taylor and then to Matthew Green.

The whole House and the few hundred people scattered around TV sets will be grateful for the Conservatives' Pauline conversion and will look forward to a politics-free grant formula when the Conservatives are next in power. All the hon. Gentleman's Front-Bench colleagues may be in residential care by then. Will he confirm that the policy is a permanent and major shift from the arrangements that were so generous and friendly to authorities such as Wandsworth and Westminster and so harsh to many authorities in the midlands and the north?

I have to tell the hon. Gentleman that I am feeling pretty sprightly, and we look forward to our return to power very soon. What is so unusual about this Government taking on Conservative policies? After all, yesterday our options for the reform of the House of Lords received the closest vote, so I would not mock if I were him. The hon. Gentleman seems to think that this is the only method of allocating funds, but there are plenty of examples throughout the world of grant distribution formulas in which the political system is not involved.

rose—

I promised that I would give way to the hon. Gentleman. [Interruption.] No, I promised that I would.

We clearly agree that some councils will be forced into high council tax rises or cuts in their services. Will he guarantee that where councils choose to increase council tax, the Conservatives will not campaign against them on that basis at the next set of local elections?

I realise now that I have given way too many times. My hon. Friends were right. I shall give way no more and conclude my remarks quickly so that my hon. Friends can make their points.

This system has taken most of the worst features of the old system and made them vicious. One expert on local government finance put it to me:

"Isn't it a marvellous coincidence that 5 years of planning can produce a system that takes away from Conservative authorities and gives to authorities represented by Labour Cabinet Ministers?"

The Government have not spent five years carefully deliberating. They sat on their hands for four and a half years before plunging into a hectic round of "What do we do next?" The Select Committee noted that in its critical report on the new formula. The shires have been slaughtered at a time when the rural communities wanted the Government to reassure them that they understood and wished to help. They have received a resounding kick in the teeth.

What have the councils done to offend the Government? Have they challenged the Government's right to govern? Absolutely not. Have they failed to co-operate with the Government's economic policies? Again, absolutely not. Some councils, such as Kent, adopted the Government's anti-poverty strategy and were making it work.

Why are the Government punishing councils such as Kent, Dorset and West Sussex, which the Audit Commission rated as excellent authorities? They do not fit into new Labour's projects and therefore their political influence will be marginalised. The things that they hold dear will be bulldozed and built over, as we heard earlier. In the next few years, as the funds slip away, their efforts will be diverted from innovation and improvement to the survival of their services.

The Government may hold up their hands in horror and say that the formula has unintended consequences in the shift from county to town, and that they are blind to councils' political colour. Let us put that to the test. Let us ignore the fact that all but one of the 12 councils with a deficit in their education funding are Conservative. Let us put aside the fact that Conservative authorities are losers from the formula whereas Labour authorities are gainers. Let us use the Government's figures and compare London authorities. The increase in grant for London Labour authorities is 5.6 per cent. whereas as that for Conservative authorities is 3.7 per cent. The Minister may claim that that is because of the nature of the authorities. Let us consider some comparable authorities, for example, Harrow and Enfield. They are similar, yet Harrow gets 6 per cent. and Enfield, a Conservative authority, receives 3.9 per cent. Merton and Bromley are also similar, yet Labour Merton gets 6.2 per cent. and Conservative Bromley receives 3.5 per cent. The boroughs are similar but the outcomes are different. I should be interested in convincing, rather than party political, arguments about the differences between those pairs.

Instead of making selective comparisons, will the hon. Gentleman compare like with like? Will he compare Enfield not with Harrow, but with the adjoining borough of Waltham Forest? What are the percentage increases for both boroughs? Will he compare Bromley not with a south-west London authority, but with the adjoining borough of Croydon? If he makes fair comparisons, he will find no political bias. Does he agree that Conservative authorities such as Wokingham, Cambridgeshire and Cheshire received huge increases? Will he therefore put an end to an outrageous political slur?

I think that I have touched a raw nerve and that the right hon. Gentleman has been rumbled. The people of London understand that places such as Bromley and Merton, and Harrow and Enfield are comparable. The statistics that I cited are correct.

The settlement fails in many ways. It is unjust and unfair. It is also politically partisan and partisan between town and country. It ignores the growing crisis in local authority pension schemes, which will require a massive injection of cash. It fails to acknowledge that councils will have to pay the national insurance jobs tax in April. It does not take account of the unfunded element of national negotiated pay Bills. Above all, the Government have forgotten whose money we are considering.

It is foolish in times of economic uncertainty to increase the tax burden on the part of the country that generates our prosperity. To hit it simultaneously with a vicious redistribution of resources is provocation. As the council bills hit the mat in April and the full impact of the Government's actions is literally brought home, Ministers should not be surprised at the growing chant of, "Give us back our money."

Several hon. Members:

rose—

I remind Members that Mr. Speaker has imposed a 10-minute limit on Back-Bench speeches.

I promise to speak briefly, Madam Deputy Speaker. I know that many others wish to speak.

I want to concentrate on the specific problems affecting my local authority, the London borough of Hammersmith and Fulham, as a consequence of this year's local government finance settlement. I am sure the Minister will realise that my comments should be seen in the context of a high-performing local authority with a wide reputation for providing good services for a diverse and very mobile population.

A week after the Minister announced the details of this year's settlement, he gave details of the Audit Commission's comprehensive assessment investigation of the workings of local authorities, which he mentioned earlier. My borough emerged as one of the best performing councils in London, and was awarded "excellence" status. The settlement is all the more disappointing in the light of that independent assessment.

Under the new grant distribution system, it is even more important to distinguish between movements in formula totals—known as formula spending share—and actual grant, actual cash. In that context, the settlement contained very bad news for the people of Hammersmith and Fulham: a 10.5 per cent. increase in FSS; a 3.5 per cent. increase in cash owing to the application of the floor, without which it would admittedly have been only 2.6 per cent.; huge losses from the methodology changes, £19.9 million in cash terms; an increase from resource equalisation of £5.4 million in cash terms; and a very small increase from data changes, amounting to less than £1 million.

If we subtract the £5.4 million increase provided by resource equalisation from the massive loss caused by the changes in methodology, we find that the council has made a net loss of £14.5 million, or 9.7 per cent., as a consequence of the revenue grant distribution. That is easily the worst of the percentage losses experienced by inner-London boroughs, although the council has just been recognised as a high performing, high-quality authority.

Early analysis shows that Hammersmith and Fulham has done extremely badly in comparison with virtually all other London boroughs in all three of the major services blocks: education, environmental protection and cultural services, and personal social services. The only explanation seems to be that the council is considered to be less deprived relative to other boroughs, presumably because of the indicators used by the Government to determine deprivation. In other words, a number of indicators favourable to Hammersmith and Fulham have been removed from the formula, and replaced with less favourable indicators. For example, census indicators included in the previous deprivation formula—such as the number of children living in flats, which is very high in my borough—have been replaced by

"households where the head of the household is in semi-routine or routine occupation".

Such an indicator, relating to the nature of the employed occupation that a head of household might have, is very bad for Hammersmith and Fulham.

The deliberate decision—all these were deliberate decisions—to simplify the formula and, for instance, to rely on fewer deprivation indicators means that complex and multiple deprivation in boroughs like mine simply is not detected.

Hammersmith and Fulham benefited to some extent from the resource equalisation element of the grant distribution system, which takes account of the relative tax-raising abilities of boroughs before determining the amount of cash they should receive. That benefits councils whose need is great in relation to their tax base. Hammersmith and Fulham has a high tax base, based on the value of properties and a high council tax banding, and—because of the new formula to which I have referred—a relatively low recognised level of need. In the case of many inner London boroughs, losses related to methodology have been largely compensated for by substantial gains from resource equalisation but, as I have said, that does not apply to Hammersmith and Fulham. The double whammy for the borough is the over-simplification of the formula, and other reductions in weighting applied to deprivation and density factors.

These are obviously highly complex matters with which few residents in my Constituency will wish to be bothered. However, the reality on the ground is that last week, the one remaining social services nursery in my constituency was peacefully and highly responsibly occupied by parents, in protest at its impending closure. The one remaining sports and leisure centre and swimming pool in Hammersmith and Shepherd's Bush is also now set to close. I must advise my right hon. Friend the Minister that the leader of the council informed me this morning that council tax payers in Hammersmith and Fulham face a local taxation increase of at least 12 per cent.; indeed, it could be as much as 15 per cent. At the same time, millions of pounds worth of cuts will be made in the valued and much-needed services that are often directed at some of the poorest and most vulnerable of my constituents.

I was a councillor in Hammersmith and Fulham for many years under successive Conservative administrations, and every year we faced cuts and reductions in services. Local people, particularly council staff and committed local councillors—again, I emphasise that it is an excellent local authority—cannot understand why we face a similar, if not worse, scenario under a Labour Government, and nor can I. That picture has emerged not because of uncontrollable data changes, but because of political decisions taken by Ministers. I urge my right hon. and hon. Friends to look again at the practical, and in my judgment disastrous, effects that this settlement will have on the people of Hammersmith and Fulham.

The Minister is highly respected throughout the House—[Interruption.] I believe that he is, and the Conservative Front-Bench spokesman actually said as much. The Minister wears a pained visage throughout this debate, and particularly when various Members criticise his settlement, which he seems genuinely to believe is very generous. He should be frank with the House about the fact that many councils, particularly those at the floor, are having serious difficulties as a result of this settlement, and he should realise that the many council tax payers out there who will face the consequences of this settlement will be wearing expressions rather more pained than his own.

There are many problems with the settlement. The first problem is that it will result in the highest ever rise in council tax. The second problem is the education passporting issue, on which we have heard a lot of double-talk from Ministers. The third problem is the underlying cost pressures in respect of national insurance and the local government pay settlement, which various Members have already talked about. Fourthly, there is the effect on pensioners. In some boroughs and local authorities, pensioners face the double whammy of high council tax increases and cutbacks in care services. Finally, we need to look at the long-term implications of the settlement, which are very worrying.

Perhaps the hon. Gentleman will answer the question that the Conservatives failed to answer. Would his party deal with the problem of the authorities at the bottom of the pile by putting more money in, or by taking money away from those that have done slightly better?

As the hon. Gentleman knows, my party has a long-standing commitment to increasing funding in education. That would be achieved through the local government grant settlement, so the answer to the first part of his question is yes.

On the passporting of education increases, the Government are completely unjoined-up. In the past five years we have heard much about how the Government intend to act in a joined-up way, but to be frank, Mars and Venus are more joined up than this Government in this settlement. The Minister said on one day that there will be a reduction in ring fencing, but on the very next, head teachers up and down the country received a letter from the Minister for School Standards saying that there will be passporting of the education settlement. Indeed, the situation was worse than that. In addition to the Minister's letter, officials wrote to councils up and down the country setting out the calculations used by the Department for Education and Skills in determining whether the block formula spending share increase is deemed as having been passported to schools. So the whole of Whitehall has been putting pressure on the passporting through of the education settlement. Indeed, the Select Committee chaired by Andrew Bennett, who has just intervened, criticised the Government on this very issue.

So a major problem is caused by education passporting requirements, and it is hitting councils hard. There are, I think, 12 councils among those on the final list that the Government published on Monday where the total increase in the total revenue support grant is less than the education increase that the Minister for School Standards is telling councils to passport through. Those authorities are in real difficulty. Mr. Pickles said that they are Conservative councils. I can tell him that a number are Liberal Democrat councils such as mine, Kingston upon Thames, and councils such as Cumbria which are run by Liberal Democrats with Conservatives.

The hon. Gentleman knows that Essex is also on the list of councils that are suffering. I want to play back to him the question that he asked earlier. As he is setting out policy from his front bench, can he tell the House whether, if councils have to increase their council tax because of the lack of support from the Government, the Liberal Democrats will not campaign against those councils? Yes or no?

We will not campaign in many areas. A lot depends on how such a council has run its affairs. Unlike Conservative Front Benchers, we believe in local democracy.

Not only for the list of 12 councils that I mentioned but for a long list below that, the increase in education grant as a percentage is still less than what the Minister for School Standards is requiring them to passport through. I worked out that there are 51 local authorities which, if they do what the Minister requires, will have £3 million or less to spend on all their other services. That is bizarre, and it will be very difficult for many councils to do.

Is not the reality that any authority that has a grant increase of less than 6 per cent. will find the settlement difficult? The education grant—two thirds of such an authority's budget—will be passported, so the remaining services will be squeezed in areas that have a settlement of less than 6 per cent.

My hon. Friend is exactly right. That is why I want to ask the Minister a question that the Local Government Association has been asking him. He will know that the chair of the LGA, Sir Jeremy Beecham, wrote to the Secretary of State for Education and Skills asking him to give a guarantee that the reserve powers recently taken by the Government to intervene on local councils if they did not passport the education spending increase through would not be used this year, especially given the special circumstances of the major grant review. The Secretary of State refused to give that assurance, and the LGA wants to know whether Ministers will now do so.

The hon. Gentleman has clearly given a Liberal Democrat spending commitment to give more money to education. How would he ensure that that money is spent by schools without requiring a passporting arrangement?

The Minister failed to answer a very basic question, which is being asked not only by Liberal Democrat Members, but by the chair of the Local Government Association, who is a Labour party member. The LGA has written to the Government, but they have failed to give an answer. Until they respond to an issue that is affecting councils all over the country, the Minister should not be asking me such questions.

May I ask the hon. Gentleman a direct question in the light of the question that Matthew Green asked a moment ago? Would the Liberal Democrats solve the problem of councils that have a less than 6 per cent. increase owing to passporting by asking for less passporting, so that schools would get less, or by proposing that every council should get an increase of at least 7 per cent. in grant?

We say that there should not be so much ring fencing or passporting—that it should be a matter of local democracy. We are asking the Government for some honesty on the issue. We want them to admit that the implication of their spending settlement is that council tax will have to go up by huge amounts if the money for schools is to be secured. I am surprised that the hon. Gentleman does not recognise that.

I want to refer to my authority of Kingston upon Thames, whose provisional grant was £730,000 less than the education passport. Subsequent data changes meant that the final total grant settlement for Kingston council announced on Monday is £1,059,000 less than the Government are asking the council to pass on to schools. That is a huge problem, and it is shared by many councils up and down the country.

The grant increase for non-education services in Kingston is a staggering negative 22 per cent. Many other councils, such as the one in Essex covered by the Constituency of Mr. Francois, are in the same position. If councils are to pass through the education spending, as Ministers intend, they will have to make huge cuts in all other services, or impose a large council tax rise. The Under-Secretary failed to be honest with the House on that very significant matter.

We have many problems with the way in which the Government have gone about the settlement, above and beyond education. They seem unable to see what is obvious to everyone else—that there are huge cost pressures on local authorities. We have heard about them already. They include the 4 per cent. increase in local government pay, and the 1 per cent. increase in employers' national insurance contributions. That alone will cost local authorities £280 million and, as the LGA has said, the Government should have provided that money.

Service pressures also exist. Ministers have trumpeted a rise of 6.3 per cent. for personal social services, but many of the special grants that previously existed have been taken out. Stripping out that figure leaves the rise at a level that does not even cover demand-led pressures, especially on social services for vulnerable children. Service pressures are also evident on pensions, and many London boroughs have to meet expanded requirements stemming from new waste disposal services, additional licensing duties and increases as a result of the freedom pass.

A floor of only 3.5 per cent. does not begin to take account of such increased service pressures. The Minister has said that we should not worry, because every local authority is being given an above inflation rise, but he fails to take account of service pressures way above inflation.

I am grateful to the hon. Gentleman for giving way, but I am tempted to use his analogy and say that people on other planets should not throw meteors. He has challenged the Government to meet the £200 million cost of increased national insurance contributions, for which his party voted. He has challenged the Government about the extra costs of pensions owing to the pensions raid enacted by the Chancellor of the exchequer, for which his party also voted. He has also asked for extra spending on education, which his party also favours. Where is the money to come from?

My party, unlike the hon. Gentleman's, has always produced costed manifestos and alternative Budgets. [Laughter.] Hon. Members may laugh, but I have been involved in the painstaking research that was required. We shall listen to the hon. Gentleman when he tries to do the same. He failed to vote for the extra money for the health service, and he should be ashamed of that.

Local government faces the pressures that I have described, and the Parliamentary Under-Secretary should acknowledge that they exist. Councils around the country will not understand that he has failed to do so.

Will the hon. Gentleman advise the Liberal Democrat group on my local council, whose members complain that the council tax will go up by too great a percentage but who at the same time want more expenditure?

I do not know about the particular circumstances in the hon. Gentleman's Constituency, so I cannot comment in detail. However, I should not be surprised if Liberal Democrat councillors were concerned about the way in which that local authority was being run by the Conservatives.

My third major concern with the settlement is the Government's approach to ring fencing. A key reason why all the pressures faced by councils are so difficult to manage, and why they feed through inevitably to large council tax rises, is that the Government are insisting on so much ring fencing. It goes beyond passporting education rises; ring fencing extends across the piece.

Ring fencing is absolutely pernicious. It takes away councils' flexibility and autonomy when it comes to managing tough settlements such as this, and it corrodes local democracy. Not unreasonably, electors cannot understand why they have council tax rises when grant rises are increasing. Part of the answer is ring fencing. One of the worst aspects of the Government's presentation of the figures is their claim that they are reducing ring fencing. They tell us that it has fallen, but in fact they reached that conclusion only by re-defining what counts as a ring-fenced grant, in a way that not only the LGA but many councils throughout the country cannot understand.

Why has ring fencing increased from 14.7 per cent. last year to 16. 8 per cent. this year? When the Government took control in 1997, only 4.5 per cent. of total grant to local authorities was ring-fenced. By massively increasing ring fencing and failing to tackle it, the Government have made the problems of local authority financing far more difficult. That is why there have been such high council tax increases during their tenure.

This year, I predict that average council tax rises will be the highest since the tax was introduced. That is certainly suggested by provisional figures from councils throughout the country. Given that there may be an element of scaremongering in those figures, the average increase may not reach double figures, but it could be about 9 per cent. Curiously, the Government's own figures assume exactly that amount. When I intervened to ask the Minister for Local Government and the Regions about that point, he seemed to brush it away, but the documentation gives a figure for assumed council tax yield of £18.094 billion, which is a 9 per cent. increase on the actual yield last year. By continuing to shackle local government finance through ring fencing, the Government are forcing councils to increase council tax. There should be no mistake about that.

I am extremely worried about those council tax increases. Council tax is one of the most unfair taxes imaginable. It hits pensioners and people on low incomes. It is a Conservative tax and the Government should not continue to push it up. It has a huge impact on the elderly. Under the settlement, many elderly people will face large council tax Bills, but there will be a double whammy if they live in a local authority that has a high proportion of pensioners. An examination of the revised SSA formula for care for the elderly and the effects of resource equalisation suggests that something odd is going on.

When the figures were issued in December, spending on care for the elderly appeared to be due to rise by £273 million. At 4.8 per cent. that was not a huge increase, but it was not bad. However, when resource equalisation kicked in, the final total was a cut of £797 million—a drop of 14 per cent. Some local authorities were able to address that problem. There is a little bit of wriggle room—they still have some control—and they may be able to find resources to cope with the cut. However, authorities with a large number of pensioners will have great difficulty in doing that. That is the double whammy: a council tax rise and cutbacks in care for the most vulnerable elderly. The Government should be ashamed of that.

My final point is that the long-term implications of the settlement are worrying. One reason why this year's settlement has been especially contentious is that it involved a major review of the underlying grant formula. I shall not rehearse the Select Committee's arguments—[Interruption]—it appears that hon. Members will be pleased about that—but I want to focus on three issues that arise from the major review of the grant formula.

The first point concerns stability. The Government said that stability would be one of the principles embedded in the grant review. They told us how wonderful they were because they had set floors and that they would not change the grant formula for the next two years. However, the problem is that the Government will not announce the floors for the next two financial years; they will not even given an indication of where the floors will be. The capacity for local authorities—especially those who are already struggling—to plan ahead is reduced. The Government's attitude is particularly hypocritical, because they talk about stability and long-term planning in Whitehall, yet they refuse to give councils the necessary information to achieve that at local authority level. That is a dereliction of responsibility. The Government are not following the best practice that they try to promote.

The second issue that concerns me—[Hon. Members: "Second?"] The second issue on the long-term point relates to data changes. There have already been significant data changes between this year's provisional and final settlements. Information from finance officers around the country is that this year has seen larger alterations in grant as a result of data changes than almost any previous settlement. If the Government have implemented a robust and more stable grant formula, how can such huge changes just to do with data occur over a relatively short period? How can local treasurers have faith in the system?

There are practical problems at root level. Kingston alone has lost £329,000 between the provisional and final settlements. In a small authority, that is a lot of money. The Minister must remember that that causes local authorities huge difficulties over a short period. The framework of the review does not seem to be providing the stability that was promised.

The final point on long-term issues—[Interruption.] The Government recently announced that they are to review the balance of funding between local and national Government. That should have happened alongside any grant review; it would have made it far more effective. We have read the terms of reference, which are interesting and broad. I hope that the review will include—it could do so because the terms are so broad—reform or, indeed, abolition of the council tax. Only by implementing a fair system of local income taxation can we restore a proper balance of funding between national and local government. In winding up the debate, the Minister should say more about the balance of funding review. We want to know when it will be set up, who will be appointed to it and by when it will report. It is an exceedingly important aspect of the subject.

Liberal Democrats will not be able to vote for this settlement. Effectively, it imposes the largest ever council tax rise on pensioners and families across the United Kingdom. The matter has been poorly handled—whether by the Department for Education and Skills or the Office of the Deputy prime minister, we do not know. Suffice it to say that there is chaos in Whitehall, and that that is having an effect at root level. Ring fencing remains, and that is a stranglehold on councils, residents and local democracy. My constituents will expect me to vote against the settlement, and those of Government Members will expect them to do so as well.

I begin by reiterating that Cambridgeshire county council is very grateful for its extremely high increase of 11.5 per cent. Of that, 4 per cent. was due to recognition as an expensive area and for the first time receiving a grant under the area cost adjustment. Education has seen a 10 per cent. increase and social services a 13.1 per cent. increase. That is probably the best settlement that Cambridgeshire has ever received. I must point out that Cambridgeshire is not a Labour authority or even, thank goodness, a Liberal Democrat authority. It is Conservative controlled, which gives the lie to the Conservatives' point that all Conservative authorities have suffered a poor settlement. That is simply not true.

Cambridgeshire is however concerned about losing £10 million as a result of the transitional arrangements. Although it should have received a 11.5 per cent. increase, owing to the damping arrangements, the ceiling has been set at 8.5 per cent. The county council has asked me to make representations to my right hon. Friend the Minister on that point. It would like—surprise, surprise—the transitional arrangements to continue for as short a time as possible.

The leader of Liberal Democrat-controlled Cambridge city council, who my right hon. Friend has described as deluded—I have to agree with that—appears to think that the Government's indicated rate of a 4.64 per cent. rise would result in every council receiving such an increase. The increase that he expected was then somehow translated in his mind to a promised increase. When he found that he was to receive only a 3 per cent. increase in grant, he described it as a savage cut. He has since been consulting council tax payers on the sort of cuts to services that the settlement will involve. I find that kind of misrepresentation quite disgraceful. It is the kind of absurd statement that makes people distrust politicians.

I have been asked by Cambridge city council to make representations to my right hon. Friend the Minister for Local Government and the Regions. The city council would like the transitional arrangements to last as long as possible. I find it quite difficult to choose between the two councils—except to say that, from the point of view of council tax payers, the county council is the more important contributor to the council tax bill, and that, therefore, the county council's wish for the transitional arrangements to last as short a time as possible should be the predominant idea in my right hon. Friend's mind.

The leader of the Liberal Democrat city council has gone further and is representing the 3 per cent. increase not as an increase but as a £1.9 million cut. It is true that Cambridge city council has had rather bad news from the Office for National Statistics—in the way that student numbers are calculated and in the way that the change in the formula has, for the first time, excluded overnight visitors. Cambridge has a large population of visitors and finds that—

Will the hon. Lady give way?

If the hon. Gentleman will allow me to finish my sentence, I will allow him to intervene, even though I have only 10 minutes.

That large population of visitors is creating difficulties because they cause the city council a great deal of extra expense. That would be a valid point to make, but those difficulties do not mean that there will be a £1.9 million cut in resources.

Will the hon. Lady confirm that Cambridge city council has real cost pressures—4 per cent. on the wage bill and 1 per cent. on employers' national insurance contributions? Is she wishing those away, as if they were not real cost pressures?

I am aware that Cambridge city council has cost pressures. I am also aware that that is because of a mistake in the way in which the census figures were calculated in 1990. Cambridge city council found itself being overfunded rather than underfunded for many years, which is now being redressed. We have to nail the absurd notion that the city council was promised 4.64 per cent. and received only 3 per cent.

I do not want to speak for very long but I want to say that, as far as the county council is concerned, the education settlement will mean a real improvement in Cambridgeshire schools, which have suffered from underfunding for many years. Many schools in my Constituency run at a deficit, especially those in the more deprived parts of the city, which have more difficulty in attracting pupils than do the schools in the more affluent parts of the city. I know that head teachers, whom I am meeting on Friday, are very grateful indeed—not only for Cambridgeshire's settlement but for the Government's insistence that that settlement is passed on in full to schools.

I believe, too, that social services will benefit hugely from the 13.1 per cent. increase. The care of elderly people is costly in Cambridge; property is expensive; and wages are high because of high accommodation costs. Cambridgeshire has found it difficult to provide good residential accommodation for elderly people for many years, so the 13.1 per cent. increase will be extremely important in raising living standards in the city, and taking away the fear and anxiety experienced by many elderly people in my constituency.

On the whole, therefore, I am pleased with the settlement. I acknowledge the pressures on Cambridge city council, but it does it no good whatsoever for its leader to pretend that he had been promised something which he was certainly not. That is dishonest, and does him no good among Cambridge residents.

It must be interesting for you, Mr. Speaker, as someone from north of the border to watch the squabbling south of the border. Thus it ever was, I suspect.

This year, the credibility of the annual divvying-up of revenue support grants reached an all-time low. I have a horrid feeling, however, that the Minister will repeat his behaviour and go past that limit next year. This is the first year of the much-vaunted new fairer, clearer system but, by some incredible feat, the Government managed to fail on both counts. It took some time, but eventually the Minister admitted to the Housing, Planning, Local Government and the Regions Committee that if the system was simple, it would involve a considerable amount of rough justice. There has been plenty of rough this evening, but I am not so sure about justice. The huge diversity and variation in local needs across the country leads to considerable complexity, as Mr. Coleman made clear. Without doubt, the new system is as complex as the one that it has replaced, and I am sure that it will become more complex with every year that squabbles continue.

For local authorities, assessment was particularly difficult this year. The data, control totals and methodology tables—DCM for short—were not provided to the councils until midway through the consultation period. That led to exceptional difficulties, as the tables are required by councils to check the facts on their allocation. Every year, except this year, they are provided when the allocations are announced. The reason for the delay, according to the Minister, was that the tables were more complicated this year. Who would have guessed? Some councils were upset and had only half the usual period to assess changes and the reasons behind them before the deadline for consultation. Perhaps that is why the Minister saw only 50 councils—he could have seen twice as many if there had been more time.

The old system of allocation was based on verifiable needs indicators, but this year the system is based essentially on subjective principles or, as the Minister put it to the Select Committee, the application of "judgment". It would not be unreasonable to assume that the census data used would have a solid verifiable basis. However, the Select Committee noted:

"The differences between the figures projected from the 1991 Census and the results of the 2001 Census have shifted the population figures into the sphere of contention."

In other words, they could not be relied on at all.

Over the past few years, two things have led to an increase in local government expenditure. First, there has been an increase in central control, a trend which has continued this year. Local authorities are being told what they should spend on education—we have heard quite a bit about that this evening. They are also being told indirectly what to spend on social services, with the Department of Health looking over their shoulder and so on. No account is taken of the fact that in London and the south-east, revenue support has increased less than the FSS. Furthermore, the proportion of allocated grants—grants allocated by Ministers—has risen dramatically this year, perhaps by 37 per cent., the Select Committee was advised. Those grants used to be known as specific grants. To get round the difficulty of the criticism from the Committee, the Government are now renaming some of them. We have "specific grants", "targeted grants" and so on. But in effect Ministers can allocate funds where they like, to friends, setting targets and setting the responsibility of councils to meet those specifics.

The hon. Gentleman's party never did that.

The Minister questions whether it happened under the Conservatives. He should look back at the figures. I understand that the specific grants or similar grants in Conservative days never rose above 4 per cent. The cover, according to the Minister, is that they are to meet specific needs. The reality is that they are to dictate to the local authorities. If the grant formula is as good as the Minister claims, such action should not be necessary.

The second main trend has been the movement of funds north, predominantly to friends, but of course if friends happen to be adjacent to a Conservative council sometimes the Conservative council can benefit, as we have just heard. But effectively the south-east and London are funding those to the north.

This year the new system exaggerates that movement, and it exaggerates it hugely. If it had not been for the floors and ceilings, the shift would have been dramatically worse, sufficient to be an outright scandal. It is on the edge of that now.

The underlying scheme itself is a disgraceful manipulation of taxpayers' money for political ends. The result will be that for the same level of service local people in the south-east will be taxed considerably more than those in the north. The council tax under Labour is a stealth tax. Now it is not just a straight stealth tax; it is a geographic stealth tax.

The residents of Surrey will be expected to find an extra 17 per cent.—17 per cent. more from the taxpayers for county services. They are also suffering from the same issues that were raised earlier— [Interruption.]

Order. We cannot have continual interruptions from a sedentary position on either side of the House.

What the Minister ignores is the liabilities put upon those councils, and particularly upon Surrey, for FSS, passporting, which we have covered, and also the social services requirements. Just to stand still, just to meet the passporting, just to make social services safe, as legally required, they are looking at 17 per cent.

Most of Surrey's district councils will be in a similar situation, with the possible exception of Guildford. There the Liberals will, I guess, plunder the balances, because it is an election year. Mole Valley district council, within my Constituency, received a 3.1 per cent. increase, which amounted to £107,000. Again, it has a number of centrally imposed increases. I shall pick two. National insurance will cost Mole Valley £45,000 more. The increased staff costs to handle the new centrally imposed welfare reforms will add £110,000. That means that just those two changes, let alone all the other liabilities upon it, will leave the council with a £48,000 shortfall. It is a little council. It is an efficient council. But it will have to increase its council tax by 15 per cent.

The hon. Gentleman and I have just completed Committee consideration of the Planning and Compulsory Purchase Bill. Does he agree that there will be an extra burden on those councils which are planning authorities, because they will have to take on extra planning staff to cope with the new statements of development principles on top of their existing work?

I completely agree. I think that the hon. Gentleman will agree with me that because we have only 10 minutes I could not spend the whole time listing all the extra burdens that all the local authorities have, although it would be a great temptation.

One of the Government's excuses for the shift in the funds is the perceived ability to pay. That is that the people of Surrey are more able to pay than are the people of other areas in England. As for everywhere in the country, it is true that some people are more able to pay, but I do not see why they should have to pay increased taxes because of a biased formula derived from ministerial judgments. More important, though, many people in Surrey simply cannot afford to pay. This allocation is another burden on the cost of living in the south-east and it will drive away the people whom we want to attract back to the area—teachers, policemen, bus drivers and shop workers. All the people whom we are trying to attract and whom the Government say that they are trying to attract will be driven out.

I am sure that the Minister will not worry. He has dealt with the clamour made by many of the hon. Members on the Benches behind him, although a few of them have put the other side of the case this evening. This situation and the way in which allocation is carried out are complicated. The issue is difficult for the people out there who pay the Bills to understand, but they are starting to learn that, on high council tax, it is the Government who are to blame.

I am pleased to follow Sir Paul Beresford. He is a fellow member of the Select Committee on the Office of the Deputy prime minister: Housing, Planning, Local Government and the Regions, but I shall not take the same entirely distorted route in criticising the report, although I have criticisms of my own that I shall point out.

I accept that the local government settlement is, overall—I deliberately insert that word—a better settlement than we ever got under any Tory Government. I congratulate the Government on trying to produce a better system of local government finance and finally ending the anomalous SSA system. As the Select Committee pointed out, however, there is still some further work to do. As we said, the equality of the outcome suffered from a lack of proper preparation. We also said:

"It is unacceptable that . . . not all the relevant information was published on the day of the announcement" and that

"local authorities have only just over a month to respond."

That month included the Christmas period. As I shall mention later in my speech, at least one local authority is still awaiting information, even though the final settlement has now been announced.

The Committee also pointed out:

"The Government's proposals for resource equalisation have not resolved the difference in 'gearing' between authorities."

That is a huge anomaly for local authorities in the north, despite what we are hearing from Conservative Members who are crying out about difficulties in the south. It is the poorer areas in the north that have to pay higher council tax in order to subsidise some areas in the south. Indeed, we are now having to do that to try to depress council tax rises in Westminster because of the anomalies in the 1991 census figures.

The report made another point that is very important for my local authority:

"The consequence of 'passporting' increases in education and social services Formula Spending Share is either to increase council tax or to reduce expenditure on other services."

That is certainly the case in Gateshead, where the Government's view of the figure to passport to schools, £6.877 million, is greater than the council's increase in total grant from 2002–03—£6.734 million. That leaves no additional funding for all other council services, with the burden falling on council tax payers.

There are further difficulties that are more local, but certainly affect the north-east. For example, the new formula fails to take account of the need to maintain back lanes. We have many miles of such lanes in the north, but they are ignored in the formula. They have to be surfaced and lit, which is especially important with regard to crime problems, and local authorities have to provide funding. Furthermore, such lanes generally divide long streets of Tyneside flats, but the children in flats indicator that is retained in the children's personal and social services formula does not include Tyneside flats. It usually refers to multi-storey flats. Councils such as Gateshead have a policy of not housing children in multi-storey flats for very good social reasons, but as a result, they are not included in the formula and suffer.

The north of England, which generally comes lowest in most social and economic indices, is still one of the regions that does worst out of the settlement. We heard from some of my hon. Friends representing Durham seats about its concerns about the settlement, but I should like to concentrate the rest of my remarks on my home town and Constituency. Gateshead is a beacon council that is excellent by all the standards that the Government and the Audit Commission have set down, so we were surprised and concerned to find that we received a settlement of only 4.6 per cent. In comparison, Wiltshire received a settlement of 13 per cent. Far from transferring money from the south to the north, it seems that this process has operated the other way around.

The Minister very kindly agreed to meet my right hon. Friend Joyce Quin, my hon. Friend Mr. McWilliam and me, and members and officers of the council. That meeting took place on 13 January, and we were told that population loss was the reason for the problem with Gateshead's settlement. I was interested to hear the Minister tell the Opposition that we should compare like with like, as it was pointed out at that meeting that the populations of the neighbouring authorities—Newcastle and Sunderland—had reduced by 4 and 3 per cent. respectively, yet they had received 6 and 6.2 per cent. respectively and that Gateshead's population had reduced by only 2.9 per cent., yet it had received only a 4.9 per cent. increase. So it seems obvious to us that population loss was not the reason for the lower increase in grant.

We were then referred to the resident expert on local government finance—a civil servant who would tell us what was the reason. The answer was, "It must be because of other factors." Well, as hon. Members can imagine, that really was not the answer that we were looking for, so we pressed the expert and asked, "What other factors?" We were told, "It might be education." Again, that is not a satisfactory answer.

Finally, the local authority chief officers were invited to go back to Gateshead to look up the Department's website, where they would find all the figures and be able to work out for themselves why we only got 4.6 per cent. That may be satisfactory in some people's minds, but it is not in ours: we felt that we should have been given a proper answer at the time. Following that meeting, my hon. Friends, the leader of the council and I sent letters to Ministers, but I regret to say that, to date, no reply has been received and no explanation has been given about the 4.6 per cent. increase.

I can understand Ministers' argument that, with a complicated formula that covers the whole country, there will be winners and losers and that some people will get more than others. That is understandable, but we are entitled to an explanation as to how the increase has come about. If we had an explanation that we could understand, we might be able to accept it, however distasteful it might be, but, unfortunately, we have had no explanation.

We now find that Gateshead's final settlement has been reduced by a further £346,000, so the increase now works out at 4.3 per cent—even lower than before. It is certainly the lowest figure in Tyne and Wear. The next lowest in that area is 6 per cent., and it is certainly a lot lower than the 7.3 per cent. average for metropolitan districts. That is not acceptable.

My right hon. Friend the Member for Gateshead, East and Washington, West intervened on the Minister's speech to ask whether he had an explanation for the settlement. I am afraid that, again, we did not get a satisfactory answer. There is still no detailed explanation for that settlement. I accept the Minister's offer of a further meeting—I am sure that it will be taken up—but that is no comfort to us here and now, when we are asked to go through the Lobby to support a settlement that we find totally unsupportable. So unless a miracle happens and the Minister is able to give us a satisfactory reply in his winding-up speech, I have to say that the hon. Members who represent Gateshead will be unable to support the measure in the Lobby this evening.

Today's report marks the end of a six-month consultation by the Government on local government funding. By any yardstick, it has been an opaque consultation, obfuscated by the Government themselves. The consultation trumpeted the replacing of the standard spending assessment of grants to local authorities, with a "fair funding formula", but not even post Einsteinium relativity theorem could be as difficult to work out as the formula that the Government have presented; nor can anyone say whether the new formula is fair because we have yet to see all the announcements on local authority funding. That is absurd.

The changes affect every service provided by every local authority, yet the Government have deliberately left councillors compromised by lack of information and lack of explanation. Consider Oxfordshire. Only two things are certain. The first is that council tax will have to rise by at least 13.4 per cent., so band D homeowners in Cherwell will pay £25 more because of today's announcement. The second is that local councillors who provide the services on which so many local people depend now have absolutely no idea what the service provision will be following today's announcement.

The imposition of the grants, ceilings, floors, and resource equalisations, which are now part of the compulsory mumbo-jumbo of local government finance settlements, has yet to be communicated to local authorities, including Oxfordshire. Lack of information creates uncertainty. Uncertainty leads to instability.

In a letter to ODPM officials in December 2002, Oxfordshire county council explained how the proposed settlement

"is extremely complicated and it has been difficult for us to understand the implications of the proposals. Some changes interrelate, making it very difficult to understand what is causing the change in our grant. Late release of information . . . has particularly caused problems in terms of providing speedy responses both internally and to media interest".

I would go further. The deliberate late release of information by Ministers has made it practically impossible for Oxfordshire county council and Cherwell district council to stabilise existing services. What do they decide to put out to tender if they do not know what stage their budget is at? How can they properly decide what represents best value, under the Government's own criteria, if they do not know what bit of their budget is doing what?

In the same letter, Oxfordshire county council explained that waiting until February 2003 for the Government to make most of the remaining announcements would

"leave us very little time to set our budget".

Yet here we are, early in February 2003, and councillors are confused. The local media are confused, and council tax payers are so confused that they find it difficult to know whom to hold to account.

Accountability is central to democracy. Without it, democracy is undermined. Of course Ministers and certain Labour councillors are trying to spin the story that any failures are of the councils themselves, but how so? Oxfordshire county council did not draw up the terms of last summer's consultation. It did not dream up thousands of pages of incomprehensible formulae and it did not decide to drip feed local authorities with important financial information that would clearly have a domino effect on their entire provision of key public services. All those are ministerial tactics.

I was initially encouraged when the ODPM announced a local government finance review. I suspect that last summer's consultation document was not intended to be taken to the beach for holiday reading. None the less, the consultation was important for local government and local services, as its aim was, apparently,

"new formulae that are fairer, simpler, more intelligible and more stable".

Sounds good, but then we get to the detail.

Buried away in the Government's document is a sentence that rather alarmingly admits that

"any system based on formulae cannot reflect all possible circumstances, so there will inevitably be an element of rough justice".

Then there is the caveat that rough justice

"tends to be increased as formulae are made simpler".

Council tax payers and business tax payers in Oxfordshire and elsewhere will now experience the Government's "rough justice".

I have referred to the council tax, but there will be no less an impact on business rates in Oxfordshire. Under the consultation options, it was clear that in every case business rates would have to rise by about 7 per cent. It is clear today that that will indeed happen. On that basis, it was somewhat cynical of the Government to trumpet in an earlier local government finance green paper that

"we said we would give local authorities limited freedom to vary the business rate in their areas".

Under all those scenarios, it is plain that the Government will pass the buck to local authorities, which will either have to undermine local businesses with higher rates or under-resource local public services.

Will my hon. Friend give way?

Sorry, but I am not going to give way. I have only a limited time.

Even more staggeringly, the same green paper claims that the business rate is

"not intended to substitute council tax".

Under all the projections for Oxfordshire's budget, the business rate and council tax will have to rise significantly to cover up shortfalls in Government funding. One can only infer that the Government believe that it is acceptable to use those local council tax hikes as a substitute for proper, sustained Government investment in local services.

The business rate rise is bad news for small businesses in north Oxfordshire. The council tax rise is bad news for everyone living in Oxfordshire. We are told that the Government grant floors will delay the impact of the changes to grant in Oxfordshire, but that is not a solution and floors do not produce fairness. Delay does not enhance stability.

Then there is the so-called resource equalisation. That term is intended to sound good, but it does not mean what it suggests. The Local Government Association explains resource allocation as

"dealing with the problem of the gap between total formulae spending and budgets . . . with a compensating increase in the assumed amount contributed from the council tax".

Put that mouthful into practice for Oxfordshire and it sounds much less promising.

Let us consider the last financial year for Oxfordshire county council. The current formulae dictated that it had to spend £20 million more than it was allocated. Council tax was then increased by an average of 10 per cent., as this "resource equalisation" suggests, but there was still an £11 million funding shortfall. In short, resource equalisation simply is not an escape route from the Government's failure properly to invest in local services. If that is what happened under 2001–02 conditions, how on earth would resource equalisation sustain services when council tax increased by nearly 14 per cent? It would not do so.

I remain cautiously optimistic, however, on the area cost adjustment. Under certain scenarios, Oxfordshire county council can lessen the impact of grant losses through top-ups via the ACA. However, that is dependent on Oxfordshire county council convincing the Government that the cost of living in Oxfordshire is as high as in the rest of the south-east. I can tell Ministers that it is. The Land Registry's latest quarterly survey showed that house prices in London are rising at a slower rate than those outside the capital in the south-east region. They are still increasing in Oxfordshire.

I am concerned that, in the past, the Government's local government finance arrangements have shown no intention of adjusting for the higher cost of living in the south-east compared with the rest of the United Kingdom. The ODPM might say that that was the reason for the review, but if that was the Government's policy, I am slightly at a loss to understand why pay for teachers, police officers and NHS staff recognises only the high cost of living in London and not the high cost of living in counties such as Oxfordshire.

I submit that it is irresponsible of the Government to present options that might lead to massive cuts in budgets for services. Elderly care will be destabilised and youth groups put under threat, and foster carers do not know where they stand. Not a single vulnerable group that depends on the support of social services provided by counties such as Oxfordshire can feel reassured that their lives will be made more stable or secure by today's announcement. This is not a fair formula. Sadly, it will often be the most vulnerable and the weakest in our communities who will suffer as a consequence of the Government's unfairness.

Listening to all the gripes and grumbles from Opposition Members, it is difficult to believe that we are in the Chamber deciding how to divide up a bigger cake, but that is what we are doing. Only a few years ago, we were not discussing how much bigger the cake was, but scrambling around to see if we could get the biggest crumbs that had fallen on the floor after the slices had been taken out of the cake. That is the fundamental difference between today and the 1990s under the Conservative Administration. Conservative Members complain that their local council has received an increase of only 3 or 3.5 per cent., but their complaint is not about the size of the increase, but about its size compared with the increases of 8 or 9 per cent. that other authorities have received. They forget that when they were in power, a 3.5 per cent. increase would have been the envy of most councils in the country, because most got increases of less than that, or even negative increases.

The Conservative Front-Bench spokesman says—without breaking into a smile—that his party would introduce a fairer and less party political system. It was difficult to listen to him. When he was pressed about what that fairer and non-party political system would be, we heard not that he had a system, nor even that he had a commission searching for a system. He could not name the members of his commission, but said that at some stage he would appoint a commission, whose members could be anyone, to try to devise a system that he had already concluded would be fairer and would give more to his Back-Bench colleagues, although at whose expense he would not say. That was an incredible statement: after all the time they have spent looking, the Opposition have not even set up a mechanism to find an alternative. When we get the commission and its great works are performed, no doubt its first job will be to decide how to work a grant distribution formula within a policy of a 20 per cent. overall cut in public expenditure. It will be interesting to see how all councils can benefit and get more under such a regime.

Then we come to the Liberal Democrats. They are nothing if not consistent. They never have a policy or say how much they would spend. They always wait for the Government to say how much more they will spend, then say that they would spend even more. Theirs is a wholly consistent approach. It is not really a policy—more an abdication of policy—but at least we recognise where they are coming from.

Anyone who believed at the beginning of the process that we would somehow come up with a settlement that would determine how to distribute billions of pounds to local authorities and that anyone in the street could understand immediately on first reading was living in an unreal world. Everyone knew that whatever settlement we came up with would be relatively complicated. We wanted a system that was fairer and that could be explained more easily—I think that Ministers have been able to do that—but we knew that it would still be complicated. There is always a trade-off between fairness and simplicity: a really simple system will contain more elements of rough justice—at least Tony Baldry acknowledged that. Everyone recognises that a degree of fairness requires a degree of complication. Either those Opposition Members who criticised the complexity and lack of simplicity are extremely naive, or they were speaking with party political tongue in cheek.

One of the new system's fundamental achievements is, as I said in an Intervention, that it is so much fairer. Its only remit is to take the amount of money that the Government believe is appropriate to spend on local authorities and to decide how to distribute it. I accept that there can be different views about whether it achieves that fairly, and some hon. Members will feel that their authorities are not being treated as fairly as they should be, but it is fundamentally different from the previous system, which not only sought to distribute grant but had the additional objective of specifying the level of spend for every local authority as determined by the Government, and, if those authorities overspent, to bring in a system that has varied over the years to penalise or cap them. It was a system of central Government control over local councils, local democracy and local expenditure. This system does away with that and that is why it is so much fairer and more democratic, and puts life back into local democracy in Britain. I welcome that.

I want to make one or two suggestions about certain elements of the new proposals where some difficulties remain. The Select Committee, of which I am a member, made some criticisms and it is fair that we should deal with them. I have one or two slight reservations about the area cost adjustment, but it is remarkable how few people today have slammed that. Year after year I have listened to debates in the Chamber where virtually every hon. Member has said that the system is unfair, unacceptable and must be changed. Let us at least give the Minister a little credit for going some way—I think quite a long way—to resolving that real problem, which has been fundamental to many criticisms of the system over the years.

The census is not directly the Minister's problem, but it is not right. There are problems. Everyone can feel that instinctively. Sheffield has even lost some of the data and does not know how many forms were returned, so it cannot calculate the under-reporting. It has had to do an estimate based on other authorities. We suggested Nottingham and Leeds, but it took other authorities further afield, including Darlington, for its comparisons, and we think that it is at least 2 per cent. out on its estimates, which can mean a lot of money in terms of grant to Sheffield. There clearly are problems with the system, and we must carry on trying to solve those.

The issue of ring fencing remains. I recognise and respect the Minister's commitment to reduce ring fencing but, with the apparent changes of definition, it is sometimes a little difficult to understand whether it is being done. I simply ask the Minister please to keep on with that. It is important if local authorities are to have that extra freedom and local democracy is to have that extra rejuvenation that I mentioned previously.

Some difficulties clearly remain about the relationship between the Office of the Deputy prime minister and the Department for Education and Skills. Passporting is not totally unacceptable because the Government have made it clear that education is their priority, so getting money into schools is something that we should welcome. If the Liberal Democrats want to argue for less money to my schools in Sheffield, I am happy, as I said before, to put it on the leaflets and explain where they are coming from, because that seemed to be the end result of what they were arguing for earlier. However, I accept that there has to be a little more evidence of joined-up thinking between Departments.

I thank the Minister for clarifying one particular issue on which the Select Committee spent quite a lot of time, and that was whether there was a requirement to passport on the increase from SSA to FSS in social services. I accept that that is a formulaic increase, which is putting more spending into the resource equalisation procedure, and it is not meant simply to be passed on. Certainly authorities could not have done that within a realistic council tax increase. It is helpful that the Minister and the Secretary of State have now made that clear, as have Health Ministers. I thank the Minister for that. I thank him even though Sheffield has had only a 4 per cent. increase for social services. We were told that there has been a switch within the social services formula from funding the elderly to funding children's services. It happens that Sheffield has a large number of elderly people and therefore loses out on that. Nevertheless, even though we were disappointed with that 4 per cent. increase, Sheffield still has a little money to begin the process of putting money into aids and adaptations, to do away with the horrific policy of the previous Liberal Democrat-controlled administration in Sheffield, whereby elderly people who could not get in and out of their bath and wanted a little financial help for a shower, were told that if they could manage a strip wash such help would not be available. That sort of policy is a throwback to the era when the last Liberal Government were in power, and we should not have such a policy in this century. A little money has been made available to begin the process of ending that arrangement, and we can welcome that.

In the end, for all the arguments about passporting or about amounts, Sheffield will get a 6 per cent. increase. That is slightly below the metropolitan average and slightly above the national average, but it is double the inflation rate. The council tax settlement will probably result in increases of about 7 per cent., which is less than the 9 per cent. about which the Liberal Democrats were arguing. We can argue that other authorities will receive 8 or 9 per cent. extra, and Sheffield would have liked such an increase, but 6 per cent. is a good settlement and the national settlement is also good.

I come now to the funding review. The crucial issue is giving local authorities more responsibility and more power to raise their own revenue. That is another key element for local democracy. I ask the Minister to be brave in the review. I would love it if the Government set an objective of raising locally at least 50 per cent. of the money spent by councils. Ministers say that they want the review to achieve that. I ask that it is not prescribed in its thinking. Let it take a genuine blue skies approach; let it think the unthinkable. It simply should ask, "How can we raise the extra money?" If we start with prescription, we will end up with a review that addresses only the margins, and that will not achieve the fundamental change in funding arrangements that I would like.

I hope that Mr. Betts will excuse me if I do not pursue his interesting arguments, but in the time available I have one or two points of my own to make.

I think that we have just gone past Groundhog Day, but I think that, listening to this debate, we all had the impression that we have been here before. It is absurd that in a debate of this importance some six Back Benchers get called, and I hope that in future we can have more time to debate what is a fundamental redistribution of a huge sum.

My case against the settlement is that the Government have made it virtually impossible to deliver not the commitments that councillors have made, but those that the Government have made. They are willing the end but they have not willed the means. They have made it clear that they want to drive up the standard of public services, particularly education and social services, and I share that ambition. However, the impact of these redistributive proposals makes that impossible not only in my Hampshire Constituency but in swathes of the south-east. As I said in the last debate on these matters, what the Chancellor bestoweth in his Budget, the Deputy prime minister taketh away in the revenue support grant settlement.

Monday's letter, which we all received from the Minister for Local Government and the Regions, said:

"Our proposals for the funding of local authorities' revenue expenditure next year provide another significant boost to enable them to make real improvements in their services."

He went on to say that councils should be able to do that

"while maintaining reasonable levels of council tax".

However, to avoid cuts in services Hampshire county council, which was recently awarded top marks for efficiency, is having to increase council tax by 15 per cent.

The Minister will say that Hampshire's grant increase is 3.7 per cent. or £23 million, but the budget increase is 8.2 per cent., or £78 million. A standstill budget would be 7 per cent., so the gap has to be met by a council tax increase of 15 per cent. Does the Minister consider that increase reasonable? It gets worse: Hampshire county council has to passport an increase of 5.9 per cent. to the schools budget, as required by the Department for Education and Skills. That is £26 million, £3 million more than the whole of the grant increase that the council gets from the Government, so that has already been swallowed up by a mandatory increase in one service, leaving minus £3 million in grant to achieve the Minister's ambition for real improvements, coupled with a reasonable increase in council tax. It is simply not believable.

With minus £3 million in grant left, the county council has to address everything else, including the pressures on social services. Last year, because of the lack of supply, prices rose by 13 per cent., and they may go up by 10 per cent. next year. Added to that are all the other inescapable costs: the increase in national insurance contributions, increases in the landfill tax and the crazy idea of fining social services departments for bed blocking. I hope that the House of Lords, however it is composed, will defeat that Bill.

The Minister made a plea for certainty and stability. I support that. He said that there would be no more changes in the formula. However, we are worried about the changes that have already been announced. Will he shortly announce the floors and ceilings for the year after next so that local authorities have some certainty in their forward planning?

If the Minister hoped that the councillors of Hampshire would carry the can for the council tax increase, I have news for him. Councillor Ken Thornber, leader of the county council, ably supported by Hampshire's Members of Parliament, has led a vigorous campaign, which received extensive coverage in the local press. The Hands Off Hampshire campaign has explained what is going on to ratepayers. They have got the message that the Government believe that, in Hampshire, we are all healthy and wealthy and suitable targets for redistribution. They know that they will pay an extra £2 a week on average because the Government have switched resources.

Of course, people in Hampshire acknowledge that other parts of the country have greater needs and fewer resources. We have no difficulty with the regional support grant reflecting that. However, we believe that what is happening is beyond what can objectively be justified and that it is driven by political imperatives. I predict that people in Hampshire will respond by ensuring that the political motives that have driven up the council tax are changed at the earliest opportunity through the ballot box.

As many of my hon. Friends have said, the debate is so important, given that it involves £39.9 billion of public money directly from the Government and considerably more in council tax, that we should have more time for it in future. I urge Government business managers to ascertain whether we can hold a similar debate shortly.

Conservative Members made excellent contributions, notably my hon. Friends the Members for Mole Valley (Sir P. Beresford) and for Banbury (Tony Baldry) and my right hon. Friend the Member for North-West Hampshire (Sir G. Young). They point to the genuine difficulties that they and other similar southern authorities experience. That is not surprising. The grant increase is 5.9 per cent., which amounts to £3.2 billion. The increase in national insurance takes up £280 million; that in pension contributions takes up £100 million; and that in the local government pay settlement above inflation takes up £490 million. A large part of the 5.9 per cent. is therefore already swallowed up by Government-imposed increases.

The Minister said that local authorities had a choice of whether they wanted to pay the increases. How can they choose whether to pay increases in national insurance, pensions or a nationally negotiated local government pay settlement? They have no choice. The average increase in the country is only 3.86 per cent. The Secretary of State for Education and Skills tells us that we must pass on an average passported increase of 6 per cent. to education. As either Mr. Davey or Matthew Green said, that is roughly three quarters of any local authority budget.

It is hardly surprising that many southern authorities must make a whopping double-figure increase in their council tax to maintain services and make up the shortfall. As my right hon. Friend the Member for North-West Hampshire said, as well as the increases that the Government have imposed directly on local authorities, his authority faces an increase in landfill tax, huge increases for waste disposal and problems with the social services block. Many authorities also have a problem with the census. That leaves some southern authorities in genuine difficulty. No wonder their council tax payers will suffer a huge increase.

I wonder whether my hon. Friend knows that west Somerset, which has the smallest district council in England, has got just over £200,000 and cannot carry out its duties. My hon. Friend is right. The chief executive is sick to death of Government Intervention.

One of the Government's great claims when they reviewed spending distribution for local government was that local authorities would have more discretion. Not only has the settlement been mean but the Government have exerted more control over passported increases. Local authorities therefore have less discretion over how to spend their money on other services.

Does my hon. Friend agree that the review gave the Government an opportunity to put right historic anomalies caused by the old system? The London borough of Havering, for example, has experienced perversely low settlements for a long time, as the Minister knows. Instead of taking the opportunity to do the honourable thing, he has given Havering the lowest increase in London—3.5 per cent.—and made the borough's financial difficulties a hundred times worse.

My hon. Friend is entirely right. I was about to say something about London authorities' increases.

Will the hon. Gentleman give way?

I will give way to the Chairman of the Select Committee shortly, but I will not give way to anyone else.

Conservative London boroughs have benefited from a 3.72 per cent. increase on average, whereas their Labour counterparts have received 5.6 per cent. That may not seem much of a difference, but by golly, it is a big difference given the budgets with which those authorities are dealing. The Minister of State's borough, for instance, has received a 7.6 per cent. increase, while one of its closer neighbours, Richmond-upon-Thames, has received only 3.5 per cent. How can such differentials be justified? One has a strong suspicion—even if it is not based on fact—that this Labour Government have treated Labour authorities in London more generously than they have treated Conservative authorities.

I wonder whether the hon. Gentleman will exemplify this idea of meanness. Is he saying that the Conservatives are committing more money? Or are the Conservatives actually saying that they will take money from some authorities and give it to those that they think have done badly in this regard?

The hon. Gentleman would have a point if his party were not imposing increases that local authorities will have to fund. If this were a real 5.9 per cent. increase, without all the tax increases imposed by the Government, we would not be whingeing so much; but when the Government impose extra duties and extra costs on local authorities, of course authorities have no alternative but to raise council tax to double figures.

As well as all the problems I have mentioned, there are significant other problems. Members have mentioned a problem with the social services block. How can it be right to take money from the elderly and give it to children's services? Surely both are vital services, for which authorities should be fully funded. Authorities such as my own—already mentioned by the hon. Member for Kingston and Surbiton—a large proportion of whose social services budget must go towards care of the elderly, will be particularly badly hit. It really is mean-spirited of the Government to start saving and penny-pinching at the expense of the elderly.

Many Members have described increases in their areas as unacceptable. One reason why 12 authorities have got into particular difficulties is that the passported education increase is higher than the total increase. The Local Government Association is Labour-dominated. Its chairman, Sir Jeremy Beecham, has written to the Secretary of State for Education and Skills, Mr. Clarke, saying that given the turbulence in funding this year the association strongly believes that new powers that a former junior education Minister had assured the House would be used only in exceptional circumstances should not be used. In his reply, the Secretary of State recognised that in some authorities the grant increase did not wholly cover—I would say "does not cover"—the increase in school funding, but declined to give an undertaking not to use the reserve power in 2003–04.

It must be wrong, in the case of any authority anywhere in the land, for the Government to insist that a certain amount must be spent on education and then not to fund it properly. The only consequence can be that authorities having to spend too much on education must cut spending on other services.

This is redistribution of local government funds on a grand scale. Not only must we deal with resources equalisation, but couple that with the pooling of capital receipts, the moving of money from one housing revenue account to another, and the repayment of huge debts, and what we have is a redistribution from southern authorities to northern, Labour-dominated authorities. That cannot be a fair system.

Mr. Clifton-Brown gets himself into a terrible muddle. I was very interested to hear that he calls this a mean settlement. That explains why he was whingeing so much. If the settlement is so mean, does he completely dissociate himself from the comments of the Shadow Chief Secretary, who says that he wants to cut public expenditure by 20 per cent.? Does he not feel that such a cut would be even more mean and penny-pinching, and would inflict considerable damage on vital public services?

It was also very interesting to hear Mr. Pickles announce that he is not content with this settlement, and that the Conservative party will set up a commission to look into local government finance. I wish him luck with that commission, and we shall certainly watch that development with great interest. We will remind him of that promise next year, and see how he is progressing. Perhaps people such as Dame Shirley Porter are working on that issue.

Many contributions were made during the debate, and I want to pick out a few from the Members who are still present. Tony Baldry complained about the settlement for Oxfordshire county council. I should remind him that when he was a Minister during the final three years of the previous Conservative Administration—I think that he was a Minister—Oxfordshire county council received only a 2 per cent. increase, but under this Administration it has received a 6.6 per cent. increase over the past three years. I should tell Sir George Young, who was also a Minister during the final three years of the previous Conservative Administration, that Hampshire county council received only 1 per cent., on average, during that time. Under a Labour Government, it has received 4.9 per cent., on average, over the past three years.

rose—

Sir Paul Beresford, who was the Minister with responsibility for local government during the final three years of the previous Conservative Administration, awarded an average of only 3 per cent. under his own stewardship. However, the Labour Government have awarded 5.8 per cent., on average.

The Minister is forgetting the other side of the coin: the best value, the changes in committee structure, all the auditors and the cost in extra staff to meet all the liabilities that he and his Government are imposing on local authorities. He should balance that against it.

To echo a phrase that was used earlier, I think that I have touched a nerve. There have been a number of changes in the settlement, in the light of the consultation.

Devon county council is run by a coalition of all parties, including Labour. It estimates that the council tax rise will be £2.60 a week; otherwise, it will have to cut services. Will the Minister tell his Labour group leader and the other leaders in Devon whether they should cut services or raise the council tax by £2.60 a week?

The hon. Gentleman's county council is receiving a grant increase of 4.2 per cent., which is way above the rate of inflation, and Teignbridge district council is receiving a 5.9 per cent. increase. I do not understand his references to excessive increases in council tax, because they just do not exist.

The hon. Members for Brentwood and Ongar, for Mole Valley and for Cotswold alleged a north-south divide in the allocation of resources. I know from what we have heard so far that some Members from the south think that the north is getting too much, and that some Members from the north think that the south is getting too much. The truth is that there are big gains in every single region: for example, 8.4 per cent. in Conservative-controlled Wokingham unitary council; 8.5 per cent. in Tory-controlled Cambridgeshire county council; 7.1 per cent. in Bedfordshire county council; and 8 per cent. in South Gloucestershire council. I could go on.

My hon. Friend Mr. Clelland expressed concern about the 4.3 per cent. settlement for Gateshead, but I should point out that there has been a 33 per cent. increase in neighbourhood renewal funding. I accept that the settlement is less than for some other metropolitan authorities, but it is not catastrophic, and I hope that he will look again at the matter.

I have listened to the Minister carefully. Would it be a fair summary to say that what he told Barnet council—that it should not worry as no money was involved—is what he is telling the House?

No. Every authority, including Barnet, is receiving an increase in grant above the rate of inflation, and that has not happened before.

Many hon. Members—including, among others, my hon. Friends the Members for Cambridge (Mrs. Campbell) and for Hammersmith and Fulham (Mr. Coleman), and the right hon. Member for North-West Hampshire—mentioned floors and ceilings, which ensure that all authorities are protected. The process has been generally welcomed. Stability in the system is extremely important, and we foresee that floors and ceilings will be part of the finance settlement for the foreseeable future.

Mr. Davey asked about the ring fencing of grants. We want to move away from ring fencing, which for the coming financial year is 12.4 per cent. but which will fall below 10 per cent. in the financial year 2005–06.

My hon. Friend Mr. Betts hit the nail on the head in his excellent speech: the settlement is giving significant increases. We are debating how to divide a bigger cake. Since taking office, the Government have raised local government funding by 25 per cent. in real terms, compared with a real-terms reduction of 7 per cent. under the Conservatives.

My hon. Friend the Member for Sheffield, Attercliffe was right also to highlight the changes to the area cost adjustment. There has been less criticism of that matter than in previous years. The Government's approach is more sophisticated, and specifically reflects individual authorities' circumstances. The old area cost adjustment was arbitrarily confined to London and the south-east. The new area cost adjustment recognises that higher-cost areas border the south-east and exist in some of the major northern conurbations.

Several hon. Members raised the question of funding for social services. Resources for personal social services are increasing in real terms over the next three years by 6.3 per cent., 4.5 per cent. and 6.3 per cent. That represents an average annual increase of 5.7 per cent. on a like-for-like basis. The hon. Member for Brentwood and Ongar said that the settlement amounted to robbery from the shires, but that is complete nonsense. Shire district councils have benefited from an average increase in grant of 7.4 per cent., and shire counties are getting 5.7 per cent. more, or £690 million extra in grant. We have found a way to reflect questions of rurality and sparsity in the grant formula, and that is how we have managed to secure the increases that we have made.

Several hon. Members rightly pointed out that there is concern about the census, and how the population figures will impact on the settlement. We have discussed the matter with the Treasury. We have to use the best data available, on a nationally consistent basis. The ONS is confident about the information that it has but, if any revisions are made, we shall have to look carefully at their potential impact.

We have listened carefully, and we have consulted at great length about this formula settlement. We believe that it is one of the most radical settlements for local government finance for a generation. The new formula spend-share approach is very different from the old standard spending assessment. We no longer tell councils what to spend. The buck has to stop with local councils, which must make their own judgments about council tax levels.

The new formula is transparent, and based more on evidence of need. We believe in investing more and in supporting local government. The settlement grants £51 billion to local government. As I said, the Government have increased spending on local government by 25 per cent. in real terms. That contrasts with the 7 per cent. real-terms cut by the previous Conservative Administration. That is the Opposition's track record.

The choice for the public could not be clearer. Labour believes in improving services and investing more. The Conservatives plan to cut that vital spending by 20 per cent. and damage public services. They never gave an above-inflation increase—

It being six hours after the commencement of proceedings on the motion, Mr. Deputy Speaker put the Question, pursuant to Order [28 January].

The House divided: Ayes 316, Noes 190.

Question accordingly agreed to.

Resolved,

That the Local Government Finance (England) Report 2003–04, a copy of which was laid before this House on 3rd February, be approved.

Mr. Deputy Speaker then put the remaining Question required to be put at that hour.