I beg to move,
That the Local Government Finance Report (England) 2004–05, HC 276, a copy of which was laid before this House on 29th January, be approved.
This is not, of course, a one-off increase; it is part of a programme of sustained growth in investment in the vital public services delivered by local government. Overall, Government funding for English local authorities is up by 30 per cent. on that of the last seven years in real terms. That is in stark contrast with the previous four years, in which year-on-year cuts were the norm, resulting in a 7 per cent. real-terms funding cut during that period.
Opposition Members, who are now showing clear evidence of selective amnesia, may wish to forget their responsibility for the realities of life in that era, when real-terms cuts were the order of the day. But those involved in local government do not have such short memories. They know the change that has occurred. They know that in 2004–05, for the second year running, all local authorities will receive a real-terms increase in formula grant on a like-for-like basis.
I am grateful to the Minister for giving way. I faxed his colleague the Under-Secretary, Phil Hope, on
Those are real-terms increases that are well above the rate of inflation, and we expect local authorities to work within the finance available to them, and to look for economies in order to deliver value for money and quality services to their residents.
As my right hon. Friend knows, I have argued vehemently with him on many occasions at this time of year about the settlement for my own local authority. This year, I want simply to say two words to him: the first is "thank" and the second is "you".
I am very grateful to my hon. Friend for his remarks. As he knows, his authority received an increase of 7.5 per cent., which is a realistic and very good settlement. I sincerely hope that the people of Brent will see good value for money from their local authority.
I understand that all Members want to intervene and I shall try to provide opportunities for them, but first I need to make some progress.
No, it is not, but I have no doubt that we will hear from South Hams in due course.
Some councils have queried what is meant by a real-terms increase in formula grant on a like-for-like basis. The basic principle is clear enough. From one year to the next, the responsibilities of local authorities or the way in which they are financed may change. If we were to compare grant paid to an authority from one year to another without taking account of that—for example, councils are no longer responsible for funding part of the cost of certain benefits—we would be making a misleading comparison. So for the purposes of a like-for-like comparison, we recalculate the previous year's settlement as if the change had already happened. The following year's grant is then calculated on that basis. That is the only proper and fair way. I shall now give way to Mr. Hawkins.
I am grateful to the right hon. Gentleman for giving way. Does he not accept that ever since this Government came to power, they have consistently loaded yet greater burdens on small borough councils in particular—Surrey Heath is an example—and that the funding to perform their functions has simply not followed? So the Government are not dealing with the situation fairly; they are loading on burdens and not providing the money. Whenever the director of finance for my borough council checks the figures announced by the Government, it is discovered that the money is not as much as the Government pretend through the Minister's statements.
For the second year running, every local authority in the country—including the hon. Gentleman's two district councils and Surrey county council—has received above-inflation increases. A county council receiving a 7.7 per cent. increase would have been completely unthinkable when his party was in power, so I would have expected to hear a little more realism and a little less complaint.
I owe an apology to Mr. Burnett, because I gave him a slightly incorrect answer. The figures that I gave were the average increases in formula grant over the past seven years, but of course, this year's settlement is even better. Let me now put the record straight by giving him the figures for this year: for Torridge an increase of 4.9 per cent.; for West Devon an increase of 5.3 per cent.; and for Devon county council an increase of 5.5 per cent. I hope that he will take those good figures back to his local authorities and tell them that he expects them to budget prudently and deliver efficient services without the need for large council tax increases.
My concern is less with how much extra moneys the Government are providing, though no one is against that; what I am against is asking council tax payers to pay more and more every year. In Devon last year, it was about 18 per cent., with the rate of inflation at around 2 per cent. On the settlement for Devon and Torbay, is the Minister telling me that the local authority should not increase its council tax more than the rate of inflation?
What I am saying to councils throughout the country, and I am sure that the hon. Gentleman has heard it, is that we are giving good increases. I remind the hon. Gentleman of the increases in his authorities: South Hams has an increase of 3.9 per cent.; Teignbridge of 3.9 per cent.; Torbay of 6.9 per cent.; and Devon county council, as we have already mentioned, 5.5 per cent. Those are all good increases, all above inflation. What I am saying is that, with those increases, we expect councils to budget for low single figure increases.
On the question of pressures on councils to increase the level of council tax, let me remind the hon. Member for Totnes—it would be wise of him and Conservative Front Benchers to be aware of it—of what happened when the Conservatives were in power. When Mr. Gummer was the Secretary of State and doing a similar job to mine in 1996—I am a mere Minister of State, rather than Secretary of State, but I am doing the same job of announcing the settlement—he said: "The increase in AEF"— aggregate external finance, not the grant, which was a lot less—
"is 2.8 per cent.—less than the increase in TSS—because we take the view, which I believe the Opposition share, that council tax payers should properly fund a slightly larger proportion of the costs of their local services."—[Hansard, 31 January 1996; Vol. 270, c. 1021.]
A year later, in 1997, he said:
"The increase in aggregate external finance is less than the increase in total standard spending, reflecting the Government's belief"— he did not have a very good speech writer, repeating almost word for word the previous year's formula—
"that local taxpayers could meet slightly more of the cost of local services."—[Hansard, 3 February 1997; Vol. 289, c. 680.]
So when the Conservatives were in government, they clearly believed that local taxpayers should pay more. We believe that recent increases are excessive and that local council tax payers have every reason to object to the large demands placed on them. As I have said, we expect authorities to budget now for low single figures. It is sheer hypocrisy on the part of Conservative Members to complain about pressure on the council tax given that, when they were in power, they were encouraging increases in council tax because of the inadequacy of the settlements.
Will the right hon. Gentleman repeat what he said here yesterday—that although he expects councils to budget in low single figures, that is not necessarily the figure on which capping might be applied? What is the figure at which capping will be applied?
I am pleased to discuss capping with the right hon. Gentleman, who was responsible for the same matter when he was in power. Let me remind him of what he had to say on that particular subject in his winding-up speech of 1996. It was a very funny one. As the Minister for Local Government, Housing and Urban Regeneration, the right hon. Gentleman said:
"It is not often that, in a debate on local government finance, one can begin with Procrustes".
He had, as he said, done his research. Procrustes
"apparently lay in wait in the Athens road and equipped people who came for lodgings with a bed that was not necessarily the right size. If the people were too long, he chopped them. I did not realise that capping had such a distinguished antecedent, but I am encouraged to know that I follow in such a long tradition. I understand that Theseus fastened Procrustes to his own bed and chopped his head off—he had clearly missed his vocation as a local government Minister."—[Hansard, 31 January 1996; Vol. 270, c. 1090.]
That was what the right hon. Gentleman said eight years ago. In those days he believed in the road to Athens; clearly, he has been on the road to Damascus since then.
I hope that the Minister will stop messing about and answer my question. The Devon fire and rescue service will set its own precept for the first time this year, and I am very worried that the formula set out by the Government will have an adverse effect, not least because Devon has more retained firefighters than any other county. Meeting the pay award for retained firefighters will account for 23 per cent. of the budget, not 16 per cent. If Devon had received the national average amount, it would not suffer the projected budget shortfall that people fear will cause fire station closures, especially in rural areas. The £2 million that is the difference between what Devon will get and the national average would have resolved the problem. Without going back into history, will the Minister say something about the future of Devon's fire and rescue services?
I am happy to talk about Devon. As the hon. Lady knows, I have visited the county and discussed this issue. People are naturally worried about it, but I have told them the same thing as I have told people elsewhere: we expect councils and all authorities—including the fire and police authorities—to budget prudently and to keep council tax levels down. We look to them to aim for increases in the low single figures.
As I have made clear on previous occasions, we do not operate a crude and universal capping system, so we are not saying that anything above a certain level will be capped. That would not be an appropriate way to proceed, but we will use our capping powers if we believe that any authority is imposing an unreasonably large increase. We will take proper account of relevant factors in that decision, but I put all authorities, including those for fire and police services, on notice that they must budget prudently, and that we will use our capping powers if necessary.
I will give way when I have finished answering this question. Mrs. Browning asked specifically about fire authorities. There are concerns, for example, about the need for the new combined fire authorities to build up reserves. I have written to fire authorities on that point, quoting advice from the Chartered Institute of Public Finance and Accountancy. I have said that authorities do not need to move immediately to the level of reserves that they might consider necessary. I have suggested that the new combined authorities might wish to discuss with their previous constituent authorities an arrangement that could give them the cover that they want. In that way, the new authorities would not have to make large provision for reserves in any one year.
I have also touched on other issues with the combined authorities, and my officials will meet representatives from all fire authorities tomorrow. The aim is to explore further the practical help that the Government can give to ensure that fire authorities, while keeping their precepts down, can meet their responsibilities and drive forward the modernisation programme that is so important in the fire service. The levels of precept that we have been hearing about are not acceptable. They would be regarded as far too high in a year when local authorities are generally beginning to recognise that they must keep council tax levels down.
I hope that my right hon. Friend will use the capping powers if necessary, but he will know that, for many councils, a significant proportion of the budget increase is accounted for by the amounts that they must pay into pension funds to make up shortfalls. Councils have no choice about making those payments, which have a large impact on council tax levels. Moreover, the people who have to pay council tax are angry, because they see no benefit from the extra money that they have to pay. What can my right hon. Friend say to councils about that problem?
My hon. Friend makes a valid point. My colleague the Under-Secretary, my hon. Friend Phil Hope, has issued guidance to local authorities on this matter. We are keeping it under close review, as we know the real concerns that local authorities have. We shall continue to work with them to ensure that their pension obligations can be met in a way that does not impose undue burdens and unreasonable pressures on council tax payers.
I want to make some progress, as I have not made much for the past 10 minutes. However, I will give way in a little while.
We certainly expect councils, like any well run organisations, continually to improve their efficiency, and to make better use of their funding. Council tax payers, many of whom are justifiably concerned about what they will face in the coming year, expect nothing less.
The Government will help in that. For example, we are putting in place a number of measures to secure improvements in local government procurement, through our national procurement strategy. We are also building cost-effectiveness and value for money assessments into the comprehensive performance assessment framework for 2005 onwards. We expect all councils to budget prudently and search out savings and economies to ensure that they deliver value for money to council tax payers.
During the consultation period, we received 454 written representations from local authority groups, individual local councils and hon. Members. The Under-Secretary and I met representatives from the Local Government Association, the Association of London Government and groups representing the main classes of local authority, and I shall deal briefly with the main points that were raised. A number of authorities with education responsibilities argued that they should not be expected to increase their spending on schools by the exact amount of the increase in schools' formula spending share—so-called passporting.
Does my right hon. Friend find it as extraordinary as I do that Cambridgeshire county council, which received an 8.5 per cent. increase in this year's grant and has been promised a 7.9 per cent. increase in next year's grant, is still having enormous difficulty in passporting the 6.8 per cent. increase in its schools budget on to schools without raising the council tax by 9 per cent.?
My hon. Friend raises a valid point and I have good news for her. As a result of the final adjustments to the settlement, Cambridgeshire county council will receive an increase in the coming year of 8 per cent., not 7.9 per cent. The increase is only modest, but most authorities would regard 8 per cent. as a good figure. Even if Cambridgeshire county council were to passport 100 per cent. of the increase in its schools budget, it would still be left with considerable headroom to fund other services.
My right hon. Friend the Secretary of State for Education and Skills and my hon. Friend the Minister for School Standards have been in touch with Cambridgeshire county council, and I hope that the issue can be resolved sensibly and amicably. Recent discussions have been constructive and I hope that a settlement will be achieved, because large council tax increases in Cambridgeshire cannot be justified when the Government settlement was so generous both this year and last.
The House knows that the Minister is a decent man. He can avoid Devon but he cannot avoid my constituency because he has to drive through it. My constituents want to know what he is saying to his chums who run the local council. They experienced a 17.5 per cent. council tax increase last year and everybody expects the increase to be well into double figures this year. He is the arbiter and has the power to cap such increases. Rather than delving into history and being such a reasonable man, will he please be a hard man and tell the council that it is not going to get away with it and that he will stop it?
The hon. Gentleman is also a reasonable man, but he should pay a little more attention to geography. Although his constituency is close to mine and I often travel through it, I do not need to drive through it between my constituency and Westminster because it lies to the east. I will give him the exactly the same message as I would give the local authority in Bexley and, indeed, other authorities: I expect local authorities to budget prudently. Bexley has a 4.3 per cent. grant increase in the coming year, which is well above inflation, and I expect it to keep the council tax demand down to low single figures in just the same way as I expect all other authorities to keep council tax down. Bexley has achieved an excellent rating under the comprehensive performance assessment, and in a sense excellent authorities are almost duty bound to show other authorities how to budget prudently, deliver excellent quality services and achieve value for money.
The good news is that Sheffield council will get its council tax increase down to low single figures. However, because it has rightly followed Government advice and passed on the welcome increases in education and social services spending to those services, the increase in grant for other services is only 1.3 per cent. at a time when there is a widespread desire for environmental improvements. When we were in opposition, many of us spoke out against capping on many occasions, and some of us remain to be convinced that the principle of capping is any more right now than it was in the early 1990s.
I understand my hon. Friend's position, which has remained consistent. The Opposition might have changed their position—
No, we have maintained our position. Before taking office, we made it clear that we would retain reserve capping powers. We did not want to use them and, in fact, we have not made widespread use of them, but as the Audit Commission made clear in its report, published shortly before Christmas, the assumption by local government that we would not use capping powers was probably one of the factors that contributed to last year's unreasonably large council tax increases. To avoid any uncertainty, we have made it clear that we have the reserve powers that, as we said before we took office, we would use if necessary, and this year we will use them unless local authorities heed the warning and keep their council tax increases down.
I shall make a bit more progress before I give way again.
I was talking about the importance of education when my hon. Friend Mrs. Campbell asked a question. I was emphasising that the Government have always been clear about the priority that we attach to education—a priority shared by parents, governors and teachers in every area. I am pleased that, in general, authorities have made it clear that they, too, share that priority, by increasing school spending broadly in line with schools formula spending share.
Last year, some authorities were expected to increase school spending by more in cash terms than their formula grant increase. We accept that that caused difficulties for some authorities and this year we have dealt with the problem by guaranteeing that every authority will receive a grant increase at least large enough to match their schools' FSS increase. Some authorities that benefit from that complain that they have no money for other services. That is simply wrong; it overlooks two facts. First, those authorities are receiving more grant than they would otherwise receive from the general grant settlement. Secondly, schools are not funded solely from Government grant, and no doubt councils will want to continue to contribute to the cost from locally raised revenue.
Some concerns were expressed over the distribution to authorities of the new money—£340 million—made available in the pre-Budget report. It is worth repeating the basis of that distribution. The extra £340 million was added to revenue support grant but not to formula spending share, thus reducing the assumed national council tax. That reduction was shared among authorities so that the extra grant was directed to classes of authority with responsibility for children's social services and the liveability agenda. The resulting grant distribution was subjected to floors and ceilings at the increased level.
Yes. Is not the problem that when the Chancellor explained that the extra money would be available, it was described as a benefit that would enable authorities to restrict council tax, yet in East Sussex no extra money came from the second grant? However, East Sussex has received a 37 per cent. increase, which is why capping should be pursued; under the previous Tory Government, cuts of 7 per cent. were the norm, so the current situation is completely different.
I am grateful to my hon. Friend for making those comments. He is right to point out that East Sussex has received a good increase—
I am answering a question—I shall give way to the hon. Gentleman in a moment.
Six authorities received no significant grant increase as a result of the extra £340 million, but that was due to the specific arrangement for supporting authorities with education responsibilities, which would not have had sufficient grant to meet the passporting requirement without an uplift. In the original provisional settlement announced in November, that uplift took their entitlement above the level of the new floor brought in after the additional payment of £340 million from the pre-Budget report statement. They had thus already received an uplift that took them above the level that they would have reached with the additional payment. I realise that sounds complicated, but the issue is complicated and I hope that my hon. Friend Mr. Foster will see that that is the reason for what might otherwise appear to be a slightly unfair outcome.
The Minister said that West Devon borough council had received an increase of 5.3 per cent. this year, which, on a budget of £6.5 million, is £332,000, but that is before the contribution of £167,000 to the floor and thus leaves an increase of only £165,000. That is what the treasurer of West Devon borough council told me today. The increase is not 5.3 per cent., and the actual amount does not leave the council enough money to deal with the extra burdens placed on it by the Government. What does the Minister have to say to that?
I have two things to say to that. First, I shall happily look into any figure that the hon. Gentleman wishes to send to me, but on the face of it West Devon council's treasurer's proposition is, frankly, curious. The floor is the level of guaranteed minimum for all authorities—for district councils, it is 3 per cent.—so there is no question of the floor taking down a settlement. A floor lifts a settlement, and there is absolutely no way in which a 5.3 per cent. increase, which is the figure that West Devon will receive, is reduced by the floor.
A separate issue relates to the specific arrangements for the reimbursement of costs incurred in council tax benefit and hosing benefit payments. I shall explain that technical issue in a moment. Some district councils have been troubled by it, but it is the only possible circumstance where I can envisage West Devon might not achieve the 5.3 per cent. figure.
There is another circumstance to which I hope my right hon. Friend will give careful attention. In district and borough councils such as my own—Dacorum borough council—negative subsidy operates at ever-increasing, ratcheting levels, so the effect is to create a trapdoor in the floor. Will he carefully consider whether that trapdoor should be sealed permanently?
There is no trapdoor and no negative subsidy in the revenue support grant mechanism. My hon. Friend may be referring to a different regime—possibly the housing subsidy regime—but there is certainly no question of any trapdoor or negative subsidy in the local government settlement.
The right hon. Gentleman is only a Minister of State, as he said, in the Office of the Deputy Prime Minister. Taunton Deane is getting a 3.3 per cent. increase, but with reductions for rent allowance, council tax benefit and non-HRA rent allowance, its increase is only 1.49 per cent. Will he therefore address his remarks to that increase?
As I told Mr. Streeter, I shall explain the technically complex issue of council tax and housing benefit subsidy when I reach that point in my speech, rather than dealing with it twice.
I have covered the issues that relate to the way in which the additional sums have been added to the settlement following the pre-Budget report. Let us move on to the floors and ceilings—an issue that has attracted a certain amount of comment. The floor receives general support—of course that is a rather obvious point. I cannot fail to notice a curious reluctance among authorities to propose a means of paying for that floor from a fixed pot of grant. The concerns to which the hon. Member for South-West Devon referred in respect of West Devon council might relate to the fact that, because it is an above-floor authority, it is making a contribution towards the floor. That does not reduce its 5.3 per cent. grant increase, which comes after the application of the floors and ceilings. However, the hon. Gentleman is right to suggest that those authorities above the floor contribute through either the scaling factor or the ceiling towards the cost of the floor. That is part of a framework that ensures that every authority is guaranteed at least a 3 per cent. increase—a point that we will come back to.
There is a curious reluctance to pay for the floor. Indeed, authorities affected by the ceiling complained that they should have received a larger grant increase. Some claimed that they had funding entitlements withheld. I want to correct that misapprehension. The formula grant distribution system distributes a fixed pot of grant among authorities. The basis for the distribution of formula grant to local authorities in England next year is defined in the local government finance report for 2004–05, which we are debating this evening. Local authorities can expect to receive formula grant as calculated using the report, which combines formulae and floors and ceilings. We have always made it clear that there are no entitlements in the grant distribution system, and the Government cannot be said to owe grant to any authority. Interestingly, the authorities that received the largest overall grant increases are the most vocal in criticising the effect of the ceiling.
The Minister said that local authorities were expected to contribute to the cost of the floor through the cost of the ceiling. Will he explain how that mechanism works, or is it the case that there is a trapdoor in the floor?
The system is relatively straightforward. The floor guarantees that no authority will receive less than a specific level of grant so that authorities have certainty that they can budget ahead on the assumption that their grant from the Government will not fall unreasonably from year to year—stability and certainty are important in local government. Local authorities warmly welcome the floor. However, the uplift for authorities that would otherwise receive less than the floor must be paid for. It is paid for by reducing the amount paid to authorities that would have received more than the floor, which is achieved via two mechanisms. First, we apply a scaling factor so that authorities that are a little bit above the floor make a small contribution toward the floor and, secondly, we set a ceiling, which is the maximum entitlement that any authority can receive. Authorities that are above the floor contribute a tapered amount until the point at which they reach the ceiling, when they receive no more than the full amount of the ceiling. The mechanism has been discussed and agreed with local government, and it is widely supported in local government because it gives certainty and is considered to be fair. Inevitably, the authorities that are nearest to or at the ceiling complain about it because they know that they would have got more money but for the arrangement.
May I see whether I have got this right? If local authorities are near the floor, they may scale to the ceiling; and if they are going to go through the ceiling, they are put down through the floor again—is that correct?
Thank you, Madam Deputy Speaker. I must say that I did arrange a series of seminars a year and a bit ago when we were introducing the new grant distribution formula. I tried to explain the floors and ceilings mechanism then, but clearly I failed. I was about to tell Mr. Clifton-Brown that when authorities reach the ceiling, they do not go down again because they remain on the ceiling. [Laughter.] They remain attached to the ceiling by a magical system.
Half my constituency is in Waverley borough council. I have a small semi-rural constituency, so it has unavoidable costs. We have had a lot of problems. The council was supposed to receive a 3.2 per cent. increase, but that turns out to be 0.3 per cent. If one does a like-for-like comparison, as the Minister suggested, the formula grant has reduced by an assumed or notional sum of £630,000 for rent allowances and council tax benefits, but the money coming back from the Department for Work and Pensions grant is only £490,000. In addition to that—
The hon. Lady raises a point to which I have already alluded: the council tax benefit and housing tax benefit subsidy arrangements. I shall explain the arrangements and point out why the way in which she presented the situation is not quite accurate—it is more complex than she implied.
We are taking the remaining steps over the coming year to rationalise full support for housing and council tax benefit in the hands of the Department for Work and Pensions, rather than continuing to reflect a notional share of the cost in the formula grant. Most people would agree that the way in which council tax and housing benefit subsidy is currently reimbursed—the majority is refunded in response to claims submitted on the basis of actual payments by DWP, with a notional 5.5 per cent. added to the revenue support grant—is not a logical or sensible way to continue. Local government wanted to rationalise that, which we have done.
When one rationalises a scheme that is divided into two different elements—one making payments in relation to actual audited figures, and the other a notional amount paid in advance, relating to assumed costs—in a demand-led service such as council tax or housing benefit, there is bound to be some discrepancy, because one cannot accurately forecast the case for every authority. That is the present situation.
The figures given by Sue Doughty reflect the current position, where it appears that the level in the revenue support grant in the current year may not have been sufficient to cover the actual cost incurred by the authority in that proportion of the total that should be covered by revenue support grant. The discrepancy is nothing new. As I shall explain in a moment, we are trying to ensure that all authorities have a safeguard provided by the Minister responsible, the Under-Secretary of State for Work and Pensions, my hon. Friend Mr. Pond, to ensure that there is a transitional arrangement limiting any reduction to 0.5 per cent. of the total budgeted cost of benefits. I hope that that message will soon get through to the hon. Lady's authority and to others that are troubled by the prospect of losing grant as a result of changes in the arrangement.
The Minister presents an image of yogic flying councils floating above the floor, which I had not encountered before.
The right hon. Gentleman mentioned his visit to Devon county council. Is it not extraordinary that, wherever he goes, he hears from directors of finance—Jan Stanhope, in the case of Devon county—who disagree with the figures produced by his Department? Is it conceivable that, year after year, the Minister says that one set of figures is right and the directors of finance say that the other set of figures is right, with the public in between being confused? Is it not time that the Minister sent his officials down to places such as Devon to sit down and work out where the problem lies—
Thank you, Madam Deputy Speaker. The hon. Gentleman does not give an accurate presentation of the situation in Devon. Some of the evidence submitted by the director of finance in Devon that my officials reported to me when I went to that meeting indicated a not fully complete understanding of the grant distribution system and the requirements on the local authority. There was some concern among my officials that the presentation had been rather politically clouded in the case of Devon county council.
I refer to the Minister's explanation of the way the formula works, and of the floors and ceilings. For a very small county such as Rutland, a formula designed for much larger units invariably throws out some pretty funny figures. Following our exchange of letters today, will he confirm that he will allow the officers of the council to see a suitably appointed Sir Humphrey in his Department to discuss the numbers that have been produced, so that as grown-ups we can resolve a simple matter that requires a small adjustment?
I am happy to give the hon. Gentleman the assurance that he seeks. I recognise that there are special circumstances in a very small authority such as Rutland. It gets a good overall percentage grant increase of 6.8 per cent. but there are specific issues that he has raised, and I am happy for my officials to discuss them in a sensible and grown-up way.
I have described the changes from the formulaic to the reimbursement regime in relation to council tax benefit and housing benefit. I shall now go on to the census—
I will not give way; I need to make some progress.
The census has also been a cause of concern. A number of authorities made points about data, and in particular data based on the 2001 census. Some were disappointed that we had not been able to incorporate socio-economic data from the census in the settlement proposed. We were simply unable to do so, as not all the data were available in time. Moreover, using those data will be more complicated than merely putting them into the existing formulae.
Re-analysing the expenditure figures using updated socio-economic data will inevitably point to new formulae, because the relative importance of the factors will change. We may need to change the factors in the formulae as a result. The Office of the Deputy Prime Minister will take this work forward in discussion with the local authority associations. The Office for National Statistics has revised its mid-year population estimates, and is continuing work in some areas that may lead to further changes. I have already given a commitment that we will amend the 2003–04 settlement, which was made using the best population figures available. I expect to do so in parallel with the settlement for 2005–06, taking account of the latest available figures, which the ONS will publish in August this year.
We are committed to the new burdens principle. If we ask local authorities to take on a new role, we accept an obligation to ensure that they have the ability to fund their new responsibilities adequately. A great deal of concern has been expressed about the effect on councils of the new licensing role that they are required to undertake from September. We have made it quite clear to local government that when the Secretary of State for Culture, Media and Sport sets the guidance and fees she will do so in a way that ensures that authorities can recover their costs. That will cover the licensing authority's costs associated with the administration, inspection and enforcement. There will also be an independent review of the costs and income after the end of the transitional period.
There are, of course, issues in the first year, some of which relate to start-up costs and others to the fact that enforcement obligations do not arise. Those issues need to be looked at in the round to try to ensure that there is a genuine settlement that allows authorities over a period of time to recover their full costs—that is what we are seeking to achieve.
After considering points that were made in consultation, I can confirm the basis of grant distribution that I proposed on
In the period between the provisional settlement and the final one, the Mayor of London, who was elected as an independent, became a Labour mayor. Has there been a change in the settlement for the Greater London Authority, and will the rule that applies elsewhere apply to the GLA—low, single-figure increases only will be acceptable and if the Mayor introduces anything higher he will be capped like anybody else?
I have already explained to the Liberal Democrats in a previous debate that the arrangements for the GLA budget are slightly more convoluted than for other authorities, as there is a dialogue between the Mayor and the authority. That is why we did not act immediately when rumours first began about the level of council tax precept. At this stage, however, we understand that the Mayor is proceeding with a proposal for an increase of 9.9 per cent., which is certainly not in low, single figures. I shall write to him, as indeed I have written to all local authorities that have provided indications.
In case there is any confusion—this matter was raised earlier by Mr. Curry—I remind Simon Hughes that our decision on capping will take into account the circumstances of each individual authority and there will not be a blanket figure. It would be wrong to assume that we are imposing a blanket cap.
Will my right hon. Friend reaffirm that message for my local authority, Enfield, which will receive a 6 per cent. grant increase, yet is discussing the possibility of a 7.5 per cent. increase in council tax next year? When added to the GLA precept, that will be four or five times the rate of inflation, and is causing considerable concern among various groups in the area. I therefore urge the Minister to confirm that he will write to Enfield and take action if it exceeds a reasonable increase.
I am happy to confirm to my hon. Friend that I wrote to the London borough of Enfield on
I am afraid I cannot, as I wish to make progress. The time for debate is limited and many hon. Members wish to speak.
Given the significant extra investment and the scope for efficiency improvements, our view is that next year local authorities can and should deliver council tax increases in low, single figures. I am pleased to say that the initial indications that I have show that many councils agree with those points and are considering budgets that would be consistent with that objective: some, however, are not. I must therefore make it absolutely clear that we are prepared to use our capping powers on any authority, including police and fire authorities, if that proves necessary. We will decide on the criteria in the light of authorities' budget decisions.
This is another good settlement for local government. We listened to local government's views on the spending pressures that they face, and met them. We provided a real-terms increase in funding for all authorities and helped them to plan ahead by freezing the formula for a period of years and by continuing with the use of floors and ceilings. We adapted the system to provide greater certainty on school funding and reduced the ring-fencing of Government grant by £750 million. Given that, and the improvements in efficiency that councils are making and will want to make in future, we expect councils to deliver better services at a reasonable cost in council tax. I commend the settlement to the House.
On a point of order, Madam Deputy Speaker. Would it be in order for you to advise the House on when the winding-up speeches are going to begin? Given that we have only an hour left, it looks as though this debate may be unique in that we could move straight from the opening speeches to the winding-up speeches without the debate ever touching the Back Benches. Perhaps you and Mr. Speaker could consider how the interests of Back Benchers can be protected against Ministers speaking for 50 minutes in a debate of only two hours.
As far as this debate is concerned, clearly the floor has already hit the ceiling, and there is nothing between the two. It is a matter of some regret that we are discussing in just two hours the disposal of about 25 per cent. of public expenditure. I am afraid that that is a reflection on priorities, and I think that the business managers should get together to ensure that in future we can have proper debates on matters of such importance.
The Government's handling of local government finance over the past 12 months has been characterised by incompetence, confusion, panic, and now intimidation: incompetence, because the Government utterly failed to foresee, then to get to grips with the dislocation caused by the application of a new formula—rigged, as it happens, to drag money to Labour metropolitan areas; confusion, because the Government sought desperately to bail themselves out by ordering the passporting of education funding, while all the time the Secretary of State for Education and Skills, whose blundering had caused the problems in the first place, sought to blame everyone except himself for the mess; panic, because the Government threw money at this year's settlement without sorting out the inevitable problems that flow from the Secretary of State's pre-emptive strike by prescribing the distribution of schools funding from Whitehall; and now, intimidation as the Government try a combination of cash and confrontation to bludgeon councils into setting a council tax increase in "low single figures"—or is it a "reasonable" increase—accompanied by an increasingly histrionic letter-writing habit that suggests that even the Minister has scant faith that the settlement will stand up as reasonable in its own right?
The Government are right to feel panic. Last year's incompetence has led to massive council tax rises because the Government decreed additional spending, but failed to provide for it in grant. The council tax increases were the direct consequence of the Government's miscalculations, as the Audit Commission made clear. So now we are back—with a vengeance—to crude and universal capping. Even the Deputy Prime Minister mocked himself—at least it saved us the trouble—when he talked yesterday about "exercising his sophisticated view" in implementing capping, and could hardly conceal his smile.
Capping has an interesting pedigree. The Minister quoted my reference to Procrustes when I was doing my job, as he is doing his. That reference was double-edged, which is why I used it, and it turned out to be right in the end. In June 1993, the now Secretary of State for Foreign Affairs said:
"The Labour party is wholly and unequivocally opposed to the capping of a council's budget. It is an abuse of central power, it demeans democracy, it undermines the right of local people to decide what services they are ready and willing to pay for, it is in breach of one promise after another from the Conservative party, it serves no economic purpose, and it has not worked in its own terms."—[Hansard, 9 June 1993; Vol. 226, c. 385.]
That statement continues to be true. Everyone learns in retrospect. The Government had 13 years in which to learn, but they failed to do that.
Does the Minister remember his perorations about the new freedoms for councils that perform well? Is he aware of the sheer effort and energy that go into preparing for comprehensive performance assessment inspections? Does he remember the praise that he heaped on councils that were rated excellent, while encouraging those that were merely good to make one last heave? Does he know that, of the councils that received threatening letters from him and had a CPA inspection, nine were rated excellent: five Conservative, three Labour and one without overall control—Hartlepool—and 15 were rated good: five Conservative, two Labour, two Liberal Democrat and six without overall control? Does he remember that, in December 2002, the Deputy Prime Minister promised that excellent and good councils would be exempted from reserve capping powers?
We are now in the perverse position whereby councils that are rated excellent are awarded freedoms, but may be capped, while poor councils have no freedoms, but may not be capped. That is not the only perversity. On the first day of the new financial year, the Department removed controls on capital but enforced controls on revenue through capping. I understand that it is called the new localism
It will be interesting to note whether the Minister takes into account the absolute level of council tax when he determines his capping criteria.
There is a third perversity. The Government have created turbulence and introduced the famous floors and ceilings to control it. However, there are two sets of floors and ceilings. The interaction of floors and ceilings for the general grant and that for education expenditure means that, for some local authorities, the entire grant increase must go to education. Those authorities are: Richmond, East Sussex, West Sussex—which has a princely total grant increase of £6,000—Windsor and Maidenhead, Southend and Bromley, which last year had to increase education spending by more than the increase in the entire grant for all purposes.
I am sure that the right hon. Gentleman would like to correct the impression that he gave that West Sussex received a total grant increase of only £6,000. That is not the case. He is referring to the supplement as a result of the Chancellor's pre-Budget report. The increase to West Sussex is much larger.
The bonus that West Sussex received was, for the reasons explained, a princely £6,000.
The distribution is skewed. London faces a £247 band D precept from Mr. Livingstone. After the distribution of £340 million in central grant, the increases after passporting are 6.6 per cent. for Labour councils, 6 per cent. for Liberal Democrat councils and 2.5 per cent. for Conservative councils. Labour councils have got nine out of 10 of the highest settlements and Conservative councils have got seven out of 10 of the lowest settlements.
We do not even know how capping will work. Is reasonableness a criterion? Are low single figures a criterion? Yesterday, the Minister said that he had written to 54 authorities that were rumoured to be planning increases of more than 5 per cent. He also said:
"That is not necessarily an indication of the level at which we will cap".—[Hansard, 4 February 2004; Vol. 417, c. 746.]
What is the level? The word on the street is 7 per cent. There is a host of questions to be asked. The Minister said that he will cap police authorities, but at what level? It is all very well saying that the Chartered Institute of Public Finance and Accountancy has given advice on the reserves to be constituted by fire authorities, but the wonderfully magic word "prudent" is attached. What is a prudent level of reserves for fire authorities?
Will the Minister relate capping to grant increases? Will he recognise the impact of floors and ceilings? Will he take account of the absolute level as well as the percentage increase of council tax when considering whether to cap? Let us consider a council such as Runnymede in Surrey. It currently charges £85.10 at band D, which makes it the second lowest in the country, against an assumed national average of £181.56. That council proposes to charge £100.44—an increase of 17.5 per cent.—partly because of the hit caused by the calculation of council tax benefit. It has written to the Minister to confess. It has put its hands up, but it will leave its precept as one of the lowest in the country. Can it expect a letter or is it a special case?
On the question of the cap, I accept all the problems that the right hon. Gentleman has outlined for the Government, but where does his party stand? Would it have a cap if it were ever in government? If not, would he go round the country to justify the council tax increases of 9 per cent., 10 per cent. or higher in most local authorities?
If we were in government, we would not have got into this mess in the first place. We would not have rigged the formula, we would not have betrayed the excellent councils and we would not have imposed the burdens on local government that this Government have.
Does the Minister recall that the figure for Kent to which he objected was in a council document that reproduced the Treasury's estimate of the increase in council tax as a yield of 7.3 per cent.? In fact, that was wrong because the Treasury's figure for the assumed yield from council tax is an 8.2 per cent. increase, which is rather higher than low single figures.
Now we hear, at last, that the Minister might be going to cap Ken. We look forward to seeing the Livingstone letter. The planned increase is still 9.9 per cent., as the Minister said, so perhaps the Government have overcome their fear that the Mayor of London's pledge of allegiance to the Labour party is so qualified that he has to be handled like cut glass. It should not be a difficult letter to write, just a standard draft. The Deputy Prime Minister could even top and tail it, and could perhaps finish with a few words saying what personal pleasure it gives him to see Mr. Livingstone once more embraced in the bosom of the Labour party.
The settlement is much better than last year's, and of course councils should budget as tightly as possible and constantly seek to eliminate waste and duplication. However, there is a problem with local authority inflation and the constant demand for the delivery of new services, without the assurance of the long-term funding to support them. Public service pay is rising at a rate of some 5 per cent. a year, and 60 to 70 per cent. of local authority costs are on pay. For example, we have seen pay increases in the fire and rescue services. We also know that demand is increasing. There is not an hon. Member in this House who has not seen people at his surgery concerned about problems in social services relating to care of the elderly, threats to places in residential homes and local authorities' difficulties in funding those care home places, particularly with the new standards that are being applied. That is a major constituency issue for all of us. A home has closed near Skipton in my constituency, and the only alternatives offered are miles away in Bradford and Lancashire, too far for any relatives to visit. People in their 80s, towards the end of their lives, have been displaced into a completely alien environment.
The right hon. Gentleman clearly states that increased pay is an issue for local authorities, but fair pay for local government workers is important. Would he find the answer in restricting that pay, and not providing fair pay to people who work in the public sector?
The hon. Gentleman has entirely missed the point. Local authorities depend substantially on Government grant—we know that, although we all wish that it were otherwise and are trying to work to alter the situation. But while that is the case, and while local authorities are therefore subject to national pay negotiations, the money has to be raised somehow. If it is not raised by grant, it comes from council tax. That is the point. It is a matter of record that public service pay is rising by some 5 per cent. a year, and that that is a significant burden on local authorities.
There are also the rising costs of child protection—after the Climbié case—the mounting cost of adoption and fostering, and the rising cost of domiciliary care. I am sure that all hon. Members find that that is another persistent issue in their surgeries. Social services are almost always the main sufferer where education pre-empts other spending in circumstances in which the total grant is inadequate.
What does the right hon. Gentleman have to say about the excellent revenue support grant settlement that Wolverhampton has had? It will delight the council tax payers, who will be asked to pay only a very reasonable increase. One can think back to the years of the Conservative Government, when council tax increases were much higher. The right hon. Gentleman was partly responsible for that.
Some cities have benefited substantially from the reallocation of the formula, and Wolverhampton is perhaps one of them, but many others have not, and still face real difficulties. That is my point. I am not making a crude and universal condemnation. This is a very sophisticated condemnation of the way in which the Government have distributed the funds.
Given the right hon. Gentleman's very sophisticated analysis of the pressures on local government and the costs, will he now tell the House whether he agrees with the settlement that we propose or whether he would increase it?
I have made it absolutely clear that we shall oppose the settlement because of the mess that the Government have got themselves into, the way in which the formula has been applied, the betrayal of the excellent councils, despite a pledge given by the right hon. Gentleman's own boss, and the additional burdens imposed upon local authorities. I have spelt that out for the second time. I would do it again, but I do not think that it is necessary.
We also have the increase in environmental services, in waste collection—
I am sorry to stop my right hon. Friend in mid-flow, because we are much enjoying his speech. His colleagues on the Conservative Benches thoroughly agree with what he is saying.
My concern, and that of my hon. Friends in Devon, is the actual cash amount that Devon people have to pay in council tax. They are running out of money, and cannot pay it. Does my right hon. Friend agree that one of the problems is that because council tax has been allowed to run away with itself, and has increased and increased, people can no longer afford the services that the county council says they have to pay for? Does my right hon. Friend also agree that what is important now is to reduce the staffing levels in councils right across Devon? In this way, council tax could be reduced at a stroke.
I agree that if there is clear evidence of waste it should be eliminated, but I do not agree that the council tax has run away with itself. The Government have imposed the increases in council taxes. This is not a self-induced mechanism. The Government have failed to match their requirements by grant.
We have the increases in environmental services, and we are all in favour; we want to see the landfill directive implemented. We want to see the UK get over its catastrophic record in recycling, for example.
There is also simply the business of being in business: pensions, insurance, utility bills, the implementation of single status. Those are all new, major burdens on government. They are not invented. There is remorseless pressure because of increased demand, compounded by inflation.
District councils often get the thin edge of the wedge, because the increase is below or near the level of inflation pretty well across the board, so the services that are often most visible to local people—street cleaning, lighting, local roads—are likely to suffer. They have also been the ones hit by the council tax benefit difficulties.
Does my right hon. Friend anticipate that in the winding-up speech the Minister's response will be that every local authority has an inflation increase? But, of course, that is an inflation increase on last year, when many local authorities, particularly in the south and south-east, were savaged, unlike Wolverhampton and other urban Labour boroughs in the north.
I do not know what the Minister will say, but clearly we do not have long to wait, so we shall soon discover.
What will happen next year? Is the £340 million extra a one-off or is it a recurrent payment? If it is not a recurrent payment, if it is not in the base for next year—and the Government keep warning of the tight spending round—it must be found locally, and that looks like 2 per cent. on the council tax simply to start from the same place.
So the problem is that this is a dishonest settlement. It pretends to be much better than it is. It is distorted by the ordering of the distribution of school funding by the Government. It will have an inevitable consequence of tightening the squeeze on social services. It is disfigured by the threat of crude and universal capping, because this is a Government back to their bullying, hectoring, prescribing, dictating worst. This settlement must be opposed.
This debate is of paramount importance to local government.
I declare my interest, as the chairman of SIGOMA—the special interest group of municipal authorities—in the House of Commons. Our aim in SIGOMA is to present to Parliament the interests of municipal authorities, including metropolitan authorities, outside London and the effect of Government policies on the services provided by our authorities affecting our constituents. My right hon. Friend the Minister is aware of our role, and I ask him to take note of the points that I and other members of SIGOMA may put in the debate.
Funding is of paramount importance in providing the services that I have mentioned, and the formula for allocating funds is what the local government finance report is about. I shall address some of the areas of concern expressed by members of SIGOMA. The report covers the year 2004–05, and sets out the amount of grant to be paid to each local authority and other specified bodies for the coming year.
First, I record my appreciation of my right hon. Friends the Deputy Prime Minister and the Minister for Local Government, Regional Governance and Fire, for the support given to local government since 1997. Under the Tories, for 18 years, local government suffered tremendously from cuts in finance that reduced services, as has been made clear tonight. The devastation of 18 years left a blight on many local authorities from which they are still recovering. Under the Tories, industries such as mining, steel, glass and railways all suffered, which created vast areas of deprivation. Local government had to address and provide for that deprivation. My right hon. Friend the Chancellor has recognised the problem of deprivation and has helped the local government wards that have been identified as the most seriously deprived. The Government and local government have worked together in delivering improved services to deprived communities, which is appreciated. Revenue funding, however, is still a real issue to be addressed, as the report demonstrates.
The formula spending share, which was introduced in 2003–04, recognised to some degree the need for a new formula, which helped each local authority to assess how the calculation for major services was arrived at. That is addressed in section 4 of the report. What the report does not show is the definition of poverty in the 21st century, and we are requesting that there should be improvements to the weightings given in the deprivation indicators in the formula. The needs in relation to individual problems and circumstances cannot be identified in the formula, so the requirement for freedom for local authorities to deliver those services through targeted grants is the way forward. We are asking for more freedom to be allowed to local authorities to face the way forward in terms of help for individual needs.
To some degree, the delivery of services to the most deprived communities has been successful with the neighbourhood renewal fund—the NRF. My question to my right hon. Friend the Minister is what will happen when the NRF comes to the end of its life? Crucial services will be lost, and much of the progress and improvements in those areas will fade away if funding is not maintained. We need to ensure that adequate resources are provided at the crucial level of funding through the NRF. I ask for that to be addressed in the winding-up speech tonight.
A further concern that I want the Minister to take seriously is population decline. In many metropolitan areas, we have witnessed population movement, which impacts on education, social services and the main, core services provided by local authorities, which in turn creates deprivation and a vicious circle. Because population decline requires certain services to be maintained, that puts heavy costs on local authorities.
In relation to data loss and the census, which was touched on by my right hon. Friend the Minister, SIGOMA estimates that the loss to local authorities owing to data change is £85.6 million—as per the analysis of change data issued by the Office of the Deputy Prime Minister. We accept that there is a loss in that regard, and I hope that it will be addressed. I know that my right hon. Friend referred to that issue, but I consider that it demands more attention.
A further point to which I wish to draw attention is revaluation. The current system has a basic premise that resources are distributed on the basis of need and will provide equal levels of council tax if authorities spend at FSS. Reference to that is made in annexe C. The current system is based on valuations 10 years out of date that bear no relationship to the current position. The relationship between the ability to pay and the level of council tax has diverged over the years, with the perverse result that council taxes are higher in the most deprived areas—the very communities that have a low tax base and cannot raise revenues to fund much-needed services. I ask my right hon. Friend to consider that serious situation. The lack of revaluation penalises SIGOMA authorities to the extent of about £270 million a year. Some compensation should be given for that loss of income.
SIGOMA members welcome the commitment to the introduction of revaluation in 2007 but I reiterate my plea for help for those authorities that will be penalised because of the lack of revaluation.
Block 6 of the report refers to environment, protective and cultural services. Interventions have referred to the effect of that block on services to local authorities. About 21 per cent. of household waste is recycled or composted but that figure must increase significantly to meet the landfill directive targets for 2010—by which year, 30 per cent. of household waste will have to be recycled. By 2015, the figure must increase to 33 per cent.
The Prime Minister's strategy unit report "Waste not, Want not" referred to a 45 per cent. increase in household recycling rates by 2015, with households taking part in kerbside collection programmes. If waste recycling targets are to be met, local authorities must be offered additional resources because while the proposed programme is important, it will cost money. It is vital that there is funding for that that follows the costs incurred as a result of the targets.
The final settlement block does not provide further support for the recycling block, as was requested by SIGOMA members. Pressures on that block will continue to be highlighted by SIGOMA, to achieve recognition within the current spending review. I ask my right hon. Friend, when he winds up, to give some indication of how the Government will address the extra resources needed under the environment, protective and cultural services block.
As Mr. Curry said, a core issue is the Government's attitude to capping, now that we know the settlement. Despite many years of Labour opposing capping and the Government's new-found attachment to the new localism, they talk of little else. They seem obsessed with capping. Ministers spend their time browsing newspapers and surfing the web for any report on any draft budget from any council, anywhere, just so that they can write a letter threatening capping—talking tough.
As councils throughout the country set their budgets, they need to know what the House feels about the Government's obsession with capping. By voting against the Government today, we can send a signal to councils that they should stop looking to Ministers but look instead to their electorates. We can send a signal to the Government that the House rejects the return to the extreme centralism of the Conservatives and reasserts its belief in local democracy.
The Government's case is based on the claim that this is a generous settlement.
By one measure, it is a generous settlement. In terms of absolute figures and percentages, the settlement is far more generous than anything ever proposed by the Conservatives. The right hon. Member for Skipton and Ripon is on the dodgiest of ground. As a Conservative Minister whose settlements led to severe cuts in education and social services, and as a Minister who praised the council tax—as, indeed, an Opposition spokesman who still supports it—he has little to offer.
When referring to Procrustes, the Minister forgot to say what Procrustes did to people who were too short for the bed in his inn. He put them on the rack. That is where the right hon. Member for Skipton and Ripon and his party are when it comes to the council tax.
I am surprised that the Minister is using such a modest comparison to measure his generosity. He should be taking into account not just what Ministers are giving councils, but what Ministers are telling councils to do with the money. He talks continually about the revenue support side, but conveniently forgets the constraints that his Government are imposing on the expenditure side. The truth is that the Government are forcing councils to spend money on things on which they might not choose to spend it.
There is a long list. It includes the costs of unnecessary audit, inspections, comprehensive performance assessment and best value. Then there are the costs of supporting the plethora of central Government initiatives such as the local strategic partnerships, the work force remodelling exercise and the electronic service delivery targets for 2005. There are the national insurance costs, and the higher pension costs caused by the Government's policy.
Many of the costs may be linked to worthy Government objectives, such as the implementation of freedom of information legislation, the Disability Discrimination Act 1995 and higher care standards. The point is that they should be subtracted from the Government's self-proclaimed generosity before they pat themselves on the back. Those are extra costs that must come out of the settlement. It is like being given a Christmas present that one does not really want: one is happy to have the bright new shiny Chinese wok or the lovely fondue set, but would have preferred the cash. That is the problem that the Government have got themselves into.
Our criticism of the Government's claim to generosity does not deny the increase in revenue support, nor does it argue for more. I hope that the Minister will accept from me that Liberal Democrats are not saying that he should have provided more cash. What we are saying is that he should have provided the cash without the massive accumulation of extra costs and responsibilities whose cumulative effect makes this a tight settlement.
I want to make some progress, as many Members want to speak.
Above all, the settlement should have been made without strings. It comes with more strings than an orchestra. On ring-fencing, passporting, targets and inspections, the Government have tried to tie down councils' freedom so much that they have ended up tying themselves in knots. The central problem for this settlement is the tangled relationship between capping and the Whitehall controls—or, more specifically, the disastrous collision between education passporting and capping threats. At the centre of that collision are the Office of the Deputy Prime Minister and the Department for Education and Skills.
I genuinely believe that the ODPM would like to give councils more freedom, but it has been told to keep council tax down, so it has offered a generous settlement. Then in charges the DFES, with its demands for all education cash to be passed on. Crash! No freedom.
We would leave it to the local education authorities. That is called local democracy. It is something in which this Government used to believe when they were in opposition.
What are councils to do, faced with this dilemma? Are they to obey the DFES and passport education cash, while risking the capping of the unavoidable increase in council tax? Or are they to obey the ODPM, keeping back some of the education cash and setting a modest council tax but risking legal action on the part of the DFES?
That is a dilemma for far too many councils. Let us take two, Labour-controlled Telford and Wrekin and Liberal Democrat-run West Berkshire. Telford is supposed to be a flagship Labour authority, judged excellent by the comprehensive performance assessment; yet last year it under-budgeted, set a lowish council tax and ended up borrowing. Now the day of reckoning has arrived: there is talk in Telford of a 13 per cent. rise. If that happens, will the Minister cap Telford? After all, it is an excellent authority and the Government promised to give excellent authorities freedom from capping—but, of course, they reneged on that. Telford will be a big test for the Minister's logic.
Then there is West Berkshire, another well-performing authority. Caught in the pincer of passporting and capping, it is obeying the DFES, and as a result looking at a double-figure council tax rise—simply because it obeyed central Government. For West Berkshire, the situation is even more galling. The ODPM says that it deserves more money, but it lost more than £3 million of what the ODPM said it needed last year, due to the ceilings. This year, the ceiling will cost it the £3.6 million that the ODPM says it is now due. With that cash, its council tax would indeed be in low single figures.
Does my hon. Friend realise that in a way, the situation is even worse than he suggests? The very fact that the Government have imposed a ceiling on West Berkshire indicates that it was underfunded for many years under the previous formula. So there is now a big backlog of necessary expenditure, towards which not a penny is being offered.
My hon. Friend is exactly right. Such councils are having huge problems. The effects of passporting, capping and ring-fencing are combining with that backlog and creating real problems.
We have arrived at a truly bizarre situation. The Government admit that a given council deserves more cash, but they take it away to fund the settlement's floors. When the council tries to adjust its budget by spreading its remaining cash fairly across its services, it is told that it cannot do so, and that much of the cash should go to schools. Then, when it tries to raise its council tax to do what it has been told, it is capped. No wonder the Audit Commission said that the Government's council tax system is fundamentally flawed. Frankly, that was an understatement. What are councils supposed to do if such a dilemma is the fruit of a generous settlement?
The truth is that, although this settlement may be generous when measured against the Conservative record, it is far from generous when measured against the new Labour world of controls and caps. For the Minister's sake, I repeat: we are talking about more generosity not in terms of cash, but in terms of freedom—freedom for councils. Ironically, by granting such freedom he would set himself free—free from the burden of having to cap councils.
Let us look a little more closely at the Minister's dilemma: his stance on capping. He has been talking tough, but he has been sending out totally mixed messages. That is probably because, in reality, he is engaged in a large and complex poker game. First, we are told that the Government want low single figures. What does that mean? Well, 5 per cent. and under would seem to be the obvious message. But then we get the statement about "single figures". What does that mean? Many in local government think that that means 9.9 per cent. or less. Yet when many Labour councils are struggling to get under 10 per cent., we hear on the local government grapevine that some councils might get away with increases in the mid-teens. What are we to make of all this?
What of fire authorities? Many suspect that it is in respect of fire authorities and police authorities that we will see the highest rises, and for a multitude of reasons. There is the pay settlement, which is hitting rural fire authorities, with their retained firefighters, particularly hard. There is also the pension problem, which gets worse every year, the up-front costs of the modernisation agenda, and the cost of the new combined fire authorities building up their reserves. And there is the perhaps most bizarre centrally imposed cost pressure of all: fire authorities being forced to hike the council tax to comply with new accounting rules imposed by the centre, yet if they comply with them, they get capped. That is truly byzantine.
What is the Minister's intention for the fire authorities? He says that he will meet them tomorrow, but it is a shame that he could not share with the House what he is going to tell them. Will he cap them? Will he require districts to re-bill when he has capped them, at a cost probably equal to the "overspend" of the fire authorities? That would mean council tax payers' money going on re-billing, not fire protection. This is bizarre.
When one appreciates how ridiculous this mess has become, it is perhaps possible to understand why Ministers are obsessed with capping. It is the last hiding place of the Whitehall control freak. If Ministers cap, they are capping their own mess. That is why Liberal Democrats say, "Scrap it, don't cap it."
I want to ask the Minister several specific questions about this year's settlement, the first of which relates to the extra cash provided in a panic by the Chancellor in the pre-Budget report: the £340 million sticking plaster. There is some concern that that money has been taken directly from the NHS budget. Will the Minister assure the House that that is not the case, and instead come clean and tell us where the extra cash came from? If he cannot, there is an even greater need to ask my second question about the £340 million. There is a view that that sum has not been built into the baseline budget for next year for the ODPM and for councils. In other words, it is not just a sticking plaster, but one designed to come off in a year. If that is the case, it is a serious charge, for the £340 million is equivalent to 2 per cent. on council tax, and if the cash is effectively time-limited, we are witnessing the stealthiest council tax rise of all. It is in there, but it is being deliberately delayed to get the Government through the June local elections. I thought that they had tried every trick in the book, but it looks like they have invented a new one.
What about licensing? The Government promised that the new responsive licensing would be self-funding and that the Department for Culture, Media and Sport would design a mechanism. Will the Minister confirm that today? We still do not know what the mechanism will be, which is serious. The Minister is urging councils to be prudent, but should a prudent council provide for the contingent liability that the Department for Culture, Media and Sport, when it comes to licensing, might not be able to organise the proverbial in a brewery? When will that other Whitehall silo get its act together for the ever patient, always subservient local government?
I would like the Minister's assurance on a final matter. His excuse tonight might well be that we should all wait for the balance of funding review. He might argue that he sees all the problems and understands the difficulties, but that we should all be patient because the matter is in hand. He is a well-respected, well-liked Minister who listens. He may persuade some of us sometimes, but he needs to provide reassurances—and I seek two tonight.
First, can he give the House a categorical assurance that education funding will not be centralised as a way out of the balance of funding problem? No. 10 advisers have worried about that problem, but will the Minister resign if school funding is taken away from local authorities, which would be a disgrace?
Secondly, we need to know more about the timing and status of the review's conclusions. The Minister said at ODPM questions yesterday that the review would report in the summer. Does that mean before the summer recess, during the recess or when we come back in September? The Minister appears not to know, so we would like some clarification. When we get the report, what status will its recommendations have? Will it lead to the reform of council tax through the legislative powers of the Local Government Act 2003? Will it lead to this Parliament producing more legislation, or will it just be a contribution to the Labour manifesto? We need to know how quickly the Government are going to deal with this appalling problem.
The Minister may not want to be definitive in answering those questions tonight. I understand that, but given that he seeks the House's support tonight, he could at least share some of his current thinking with us. With the council tax system and the current settlement so badly flawed, the Minister should be charting his path out of this quagmire for all to see. Otherwise, we can have no confidence in this policy, no confidence in the settlement and no confidence that the Government have a clue about what they are doing.
May I tell my right hon. Friend that I am not criticising him when I point out that in a debate of less than two hours, only 20 minutes is provided for Back-Bench Members? Surely we would all, including my right hon. Friend, agree that that is totally unacceptable. I suggest that my right hon. Friend and other Front-Bench Members make representations to the appropriate quarters so that in future years we can have a fuller and more representative debate than we are having this evening.
I did not participate last year, but usually in these debates I have a go at the Government for failing to provide sufficient resources for the city of Leicester. The Minister will be pleased to hear that that is not my intention tonight; indeed, I intend to put the boot into the city of Leicester. As the Minister knows, the Labour party lost control of Leicester last year and a Lib-Dem/Tory council took its place. In recent weeks, we have seen the consequences of the Leicester electorate's decision. Despite a reasonable settlement—higher than 5.5 per cent.; lower than 6 per cent.—which will safeguard social services and education, the people of Leicester are now threatened with a council tax increase of 14 per cent. and savage cuts in voluntary sector provision.
I am following the hon. Gentleman's remarks closely. I am glad that the people of Leicester have had a fair and reasonable settlement this year. However, for the past two years fair settlements like that have been paid for largely by people in the south of the country. Why should the people of Plymouth—a deprived and challenged community itself—pay for the people of Leicester?
If the hon. Gentleman had listened to my speeches in recent years, he would have heard me complain that Leicester had not received sufficient funds. I am making an exception this evening, for the reasons that I gave earlier.
The people of Leicester are now being threatened with a 14 per cent. increase in council tax, and savage reductions in the provision of services by the voluntary sector. If it is imposed, the increase in council tax will be totally unacceptable. It will adversely affect social cohesion and increase social exclusion in the city, and have an adverse impact on Leicester's good race relations record.
The new leaders of Leicester city council cite two reasons for the proposed increase. The first will not surprise anyone, especially those who listened to the speech by Mr. Davey, the Liberal Democrat spokesman. The leaders claim that the financial situation left by the previous Labour administration rendered such an increase inevitable.
Anyone who has looked at the books will accept that that is simply untrue. The leader of the Labour group on the city council will set out an alternative budget in the next few weeks that would achieve a substantial reduction in the proposed level of council tax but without the swingeing cuts in the voluntary sector.
I have some sympathy with the second claim made by the new leaders of Leicester city council. They argue, as I have argued in the past, that Leicester has been historically underfunded ever since it returned to unitary status. That underfunding has been exacerbated every year. The city council now claims that the city is owed £20 million. I have been asked—as have my right hon. Friend Ms Hewitt, the Secretary of State for Trade and Industry, and my hon. Friend Keith Vaz—to speak to Ministers to try and get that money returned.
I do not have any great faith that the money will be returned, but I should be grateful for an assurance from Ministers that they will look into that claim again. I hope that, in future years, assessments can be made to take account of that historical underfunding.
I do not believe that the difficulties faced by Leicester city council this year are an order of magnitude different from those faced in previous years. In discussions that I have had with the council's leaders, it has become clear that there are legitimate questions to be asked about proposed levels of financial provision for certain services. There are big arguments about whether the proposed level of reserves, the allocation of millions of pounds to parks for unspecified reasons, and the proposed level of expenditure on maintenance, are necessary.
That is not an exhaustive list of the questions being asked, but it is illustrative: it shows that, if there is political will in the new city council leadership, proposals can emerge that would be acceptable to council tax payers in Leicester, and lead to a substantial reduction in the proposed level of council tax. I urge the city council to follow that lead.
What concerns me most of all, however, is the proposal to cut expenditure in the voluntary sector from £11 million at present to £9 million over the next two years. If that £2 million reduction is carried out, it will impact on the whole city and all groups in the city, and no section of the community in Leicester will be unaffected: women's groups will be affected; children's groups will be affected; mental health organisations will be affected; and ethnic minority groups will also be affected.
In my view, the reduction is a mindless attack on those groups which have done so much in Leicester to improve social cohesion, tackle social exclusion and improve race relations. To be parochial, the closure of Goldhill adventure playground and Braunstone adventure playground in Leicester, West will inevitably lead to more young people on the streets, with a possible attendant increase in social problems. The threatened closure of the Saffron resources centre will remove one of the key players in improving the life chances of the people who live on Saffron Lane estate in the outer city of Leicester.
The biggest cuts will be made in Highfields, which is the crucible of the multi-racial, multi-ethnic population of the city. If the cuts are carried out, one must fear for the continuing development of Leicester as a good multi-ethnic community. The cuts are short-sighted and fail to recognise the value for money provided by the voluntary sector in Leicester. The damage done to our city and its development as a multicultural city will be irreparable. I hope that the cuts can be stopped and that the new leadership of the city council eventually sees the light and realises the futility and stupidity of its current proposals.
At this point, I would normally comment on speeches by Back Benchers, and it is a matter of some regret that I cannot comment on speeches by my hon. Friends because they have been denied an opportunity to speak—they have, however, made a number of telling interventions.
I know that the hon. Gentleman cannot comment on contributions by Conservative Back Benchers, but perhaps I can help him. A leading Conservative Front Bencher told a group of Worcestershire head teachers that he believed that the area cost adjustment should be scrapped. Does he agree with that position?
Why did I take the intervention? I must have been mad.
We must restore confidence in the system by which the grant is allocated, because the system is shot. The speech by Mr. Davey was immensely naive on one point: he asked whether central Government would take over education; they have. They absolutely control education and passporting is the final straw. It is the final measure that gives them complete control over education. Education authorities receive a sum of money which they pass over to schools, and sometimes they must find extra money because the Government have not allocated sufficient funds. The nature of passporting has completely skewed the organisation of local government finance. It means that there is practically nothing left in many authorities for care for the elderly, children in need, cleaning, or even for mundane things such as dustbins. Nor is there anything left for rodent control, about which the Prime Minister talked with such knowledge and passion yesterday.
We heard from the Minister his usual honeyed words about how adequate the whole settlement is, but we have been there before. As early as November, he said how generous the settlement was and that there was no reason why councils could not continue to improve services while sticking to a reasonable council tax increase. However, within a couple of weeks, the Chancellor of the Exchequer found it necessary to put in the additional sum of £340,000—[Interruption.] I am sorry—I mean £340 million.
Perhaps we should not be surprised, because the Minister said the same things last year. But we now know that last year council tax went through the roof. The average council tax rose by 12.9 per cent. on band D properties, which was the biggest increase in the history of the council tax. Previously law-abiding citizens refused to pay the council tax increases and old-age pensioners were dragged before magistrates courts for non-payment. Senior police officers warned of a breakdown in law and order.
The same formula that distributed the grant will also be used to distribute the extra top-up. My right hon. Friend Mr. Curry made great play of the mere £6,000 that will be given to West Sussex. Put into context, that means that the good folk of West Sussex whose property is in band D will receive the princely sum of 2p off their council tax bills. By any stretch of the imagination, that is penny-pinching.
My right hon. Friend was also right to point out the discrepancy between Conservative and Labour authorities. After passporting is taken into consideration, Labour authorities have received, on average, an increase of £6.6 million, but Conservative authorities have received an average of £2.5 million. We all know who will get the blame. Last year, most people blamed the councils, but this year we know from ICM that the people blame the Government. The independent Audit Commission blames the Government. The blame lies firmly on the shoulders of the Government.
It is true. The Audit Commission says that burdens from central Government increased local authorities' costs and that changes in the allocation of funding hit many councils hard. It dismisses the Government's claim that the high rises last year were because the councils were not up for re-election.
The level of council tax has reached a high that even this Government find unacceptable. Council tax has been used for a purpose that it was never intended for. It has distorted the whole system of local government. Rather than scrabble around for a new form of taxation, the Government should remove the distortion. They must stop using council tax as a stealth tax to bring in public expenditure by the back door.
I shall conclude with some apposite words from the Minister. On the subject of capping, he said, in this very Chamber:
"We see a sad and sorry picture of the imposition of centralised diktats by Ministers who cannot possibly understand the intricacies and detailed implications for local communities".—[Hansard, 24 June 1992; Vol. 210, c. 346.]
This is indeed a sad and sorry settlement.
We have held a short, intense but important debate on the financial settlement for local government next year. Many Members have had the chance to intervene on my right hon. Friend the Minister for Local Government, Regional Governance and Fire, and many of them spoke in support of their local area. However, I noticed that no one asked for less money to be given to their council.
Many Members asked for unreasonable council tax increases to be capped, or to be dealt with. I have looked back at some of the debates when the Conservatives were in power; the Tory Government, who deliberately failed to recognise the problems of deprivation, boasted that tax increases under Tory councils were the lowest. Today, it appears that, on average, Tory councils, with the Liberal Democrats close behind, are planning to set higher council tax rates than Labour councils. Of course, they will try to pin the blame on the Government, but local people know better. They know that every council has received consistent, above-inflation support for its services every year since 1997. They know that Tory councils are to blame for high council taxes.
Mr. Curry was ambivalent about capping when he responded to an intervention from my hon. Friend Andrew Bennett; he refused to say whether he would cap councils in future. Given the right hon. Gentleman's record in government, that is strange, as he was one of the most ruthless, across-the-board, capping Ministers this country has ever seen. He knows that Tory councils cost us more, and that if ever they got back into government a Tory Government would cost us more.
What emerged from the right hon. Gentleman's contribution was the way the Tories would find the savings to stop those rises. We heard it: cuts to public services. That is the answer that the Tories came up with. Basically, the right hon. Gentleman said that public sector pay was too high, so all our public sector workers in local government know that their pay would be cut if the Tories ever came back to power.
The hon. Gentleman disfigures entirely what I said. I said that public sector pay was rising at 5 per cent., and when I was asked whether I wanted to cut it, I said "no" and that the Government had to finance it because it was a cost on local government. That is what I said.
Mr. Steen, who is no longer in the Chamber, did not actually focus on public sector pay, but on public sector jobs. He said that the only way to reduce the cost of local government is to reduce the number of public sector workers in local government. Not only will the Tories cut their pay; they will also cut public sector jobs. Of course, the hon. Gentleman is only backing up his leader, who believes in small government. And what does that pledge mean in practice? A 20 per cent. cut in public sector spending across the board. That would be the impact of a Tory Government in charge of local government.
From Mr. Davey, we discovered that the Liberals are opposed to important new developments, such as local strategic partnerships, which do much locally to bring local agencies together and improve public services. It appears, however, that the Liberal Democrats will scrap those partnerships, along with other interventions we have made, such as the comprehensive performance assessment, which are driving up standards in local government. As a result of inspections and the support, such as the CPA, that local government enjoys, councils' performance improves year on year. The hon. Gentleman should tell his Liberal Democrat friends in local government, who are often the greatest enthusiasts—
Order. I think that the hon. Gentleman, probably from understandable frustration, is distorting what a point of order should be. I cannot accept that.
It appears that the Liberal Democrats are opposed to passporting, too—as, it seems, is the right hon. Member for Skipton and Ripon, who is opposed to the passporting of money for education. That is interesting in view of the comments about Cambridgeshire made in February 1997 by Mr. Gummer, who was then in government. He said that the Conservatives had concentrated on education because
"the majority of people feel that it should be a priority . . . If a local authority does not passport through the money, as is provided for, it will be for the electorate to ask it whether it shares their priorities".—[Hansard, 3 February 1997; Vol. 289, c. 678.]
The right hon. Gentleman wants to see money going to education—or he did then—but his right hon. and hon. Friends on the Opposition Front Bench no longer do. It always amuses me when Conservative MPs ask for more money, even though their Front-Bench colleagues would clearly cut it.
Let us contrast the Tory record with that of a Labour Government who believe in helping communities to help themselves. At the centre of that belief is our commitment to support local authorities in doing the job that local people rightly expect them to do.
On a point of order, Mr. Deputy Speaker. You will know that strong representations were made at last week's business questions that today's important business should not be taken on the shortest day of the week, especially as the business for the week was light. As you know, both last Thursday and this Monday the business did not carry and the time was not used. Could you bring that to Mr. Speaker's attention so that he can use his influence to bring it to the attention of the Government and the usual channels, and try to protect the interests of Back Benchers for the future? You will know, Mr. Deputy Speaker, that not a single Conservative Back Bencher was able to speak in the important debate on the local government settlement.
Further to that point of order, Mr. Deputy Speaker. Is it not bad enough that the Government scheduled business in a way that allowed very little time for it? They compounded that felony when the Minister for Local Government, Regional Governance and Fire spoke for an excessively long time. Twice, therefore, the Government managed to squeeze out Back Benchers, from their own party as well as Opposition parties. Can nothing be done to protect the House and Back Benchers from such activity by the Government?
Order. The original point of order is not strictly a point of order for the Chair, but it is certainly a matter of concern for the Chair, whose interest is to protect the interests of Back Benchers. Mr. Heald and Mr. Forth will know that the Chair does not organise the business of the House. The House's agenda and the time allocated for it are usually determined through the usual channels. There is a difficulty, because when a time limit is imposed, which Mr. Speaker has been encouraged to do by the Modernisation Committee, Back Benchers take a cue and intervene on Ministers. If Ministers are generous in taking interventions, time on a day when there is at most half a day for business is very severely curtailed for Back Benchers. I am sure that Mr. Speaker will read Hansard and the points that Members have made. In essence, the matter must be resolved by amicable negotiation through the usual channels.