I beg to move,
That the Local Government Finance Report (England) 2004–05: Amending Report 2006, HC 856, a copy of which was laid before this House on 31st January, be approved.
If the House agrees, we will also discuss the other two motions on the police on the Order Paper:
That the Local Government Finance Report (England) 2005–06: Amending Report 2006, HC 857, a copy of which was laid before this House on 31st January, be approved.
That the Local Government Finance Report (England) 2006–07, HC 858, a copy of which was laid before this House on 31st January, be approved.
That the Limitation of Council Tax and Precepts (Alternative Notional Amounts) Report (England) 2006–07, HC 859, a copy of which was laid before this House on 31st January, be approved.
Before Opposition Members rush to contrast this year's formula grant for their education authorities with last year's, they should bear in mind that a fair comparison of figures must include schools funding. All of the figures I quoted are adjusted for changes in function and financing to give a like-for-like comparison. We have also provided a two-year settlement for the supporting people grant programme. Total allocation in 2006–07 will be £1.685 billion. Allocations of 95 per cent. of grant have been announced for the second year, 2007–08, so an authority's allocation will not go below that, and it may indeed be higher.
The figures that the Minister has boasted about of above-inflation increases refer to the aggregate of a county council settlement. While it is true that the settlement for education has indeed been significantly above inflation, the settlement for other areas has been below inflation, posing real problems, for example, for social services departments and highways maintenance.
I am sure that we shall come on to the specifics during the debate. My point is that if one takes a like-for-like comparison of total allocation for all councils, they have all received an above-inflation grant increase. For the benefit of the House, I shall detail the floor damping levels to which his authority and representations referred.
In allocating grants in advance to every local authority in England, we have put a premium on stability and predictability of funding. Those are vital to councils so that they can plan ahead for service delivery. We have now announced two-year individual allocations of formula grant for every authority, and more than 90 per cent. of all specific grants that can be allocated in advance have been allocated for 2006–07 and 2007–08. With the next spending review period of 2008 to 2011, we will move towards full three-year settlements.
Changes in grant distribution can be disruptive and I intend to minimise the extent to which that is so in the short term. In the interests of stability, we have made grant floors—a minimum guaranteed increase from one year to the next—a permanent part of the system. Further to that, for the next two years we have set grant floors—minimum guaranteed percentage increases—that are high in relation to the average increase available in formula grant. I shall list those floor figures for the benefit of the House. For 2006–07, the floors will be 2 per cent. for those authorities with education and social services responsibilities; 3.1 per cent. for police authorities; and 1.5 per cent. for fire and rescue authorities. As I have already explained to the House, that figure masks the help we are giving by phasing in recovery of the modernisation grant paid in 2004–05.
The Minister's new social services formula has had a very detrimental impact on my local authority, especially as we have had a 24 per cent. increase in the needs of the children of Barnsley and a 67 per cent. increase in the needs of young adults. That has caused great concern. Would the Minister be prepared to meet a delegation from the local authority?
I am always prepared to meet with Opposition Members and my hon. Friends to discuss matters. I shall give further details of the impact of the floors—the authority in my hon. Friend's constituency is paying for floors in other authorities. That is the important point of policy that I am now addressing. I shall explain what the floor figures are for the benefit of all hon. Members, as some authorities have not yet been mentioned.
The floor figure for shire district authorities in 2006–07 will be 3 per cent. In 2007–08, the floors will be: 2.7 per cent for education and social services authorities; 3.6 per cent. for police authorities; 2.7 per cent. for fire and rescue authorities; and 2.7 per cent. for shire district authorities. We shall also phase in the changes for children's and younger adults' social services, with specific formula floors in those funding blocks.
Would the Minister address a technical question regarding the floors? For the first time, supported borrowing is being addressed and, from memory, the scale-back on that is 85 per cent. Those quite desirable capital schemes are included for the first time. That often means that a particular floor can sometimes have a negative value.
I want to deal with supported capital and the impact of the floors because the hon. Gentleman and a number of delegations I have met during the past few weeks have raised that point. I would argue that it arises from a misunderstanding resulting from the abolition of the notional spending amounts through the old formula spending share criteria.
Consultation on the settlement I proposed to the House on
As my hon. Friend knows, one of the delegations included me and representatives from Derby city council, which was one of 27 major authorities caught by the miscalculation of population figures by the Office for National Statistics in 2001. Despite the representations made by the 27 authorities affected and the fact that, by my calculations, the sum needed to settle the problem was not large—about £6.4 million—I am disappointed that the ODPM did not see fit to provide that additional sum, as it would have given Derby city council about a third of a million pounds, which would be extremely helpful.
I recognise the point that my hon. Friend makes and congratulate him and his colleagues from the council on their professional representation. I want to make a specific point about the population statistics in relation to comparisons with 2004, 2005 and 2006, so perhaps my hon. Friend will bear with me.
As the Minister knows, it was generally thought that the standard spending assessment and the formula spending share were equally complicated, but the new distribution system is really confusing and difficult. Could he help by writing to me on this point? In an inner-London council that I know well, the relative needs indicator in the formula for children to social care is 0.00051700040384. That means nothing to anybody expect perhaps a man with a computer, so will the Minister explain what it means and what would happen if he wanted to put more money into that needs sector? How does he know that it will be allocated there and not distributed elsewhere by the formula?
It seems that I have confused the hon. Gentleman with the simplicity of the formula. The abolition of the FSS, whose predecessor was the SSA, has caused some difficulties for local authority officers when advising Members on like-for-like comparisons, but as I said on
If I may, I shall go through the principles, after which the hon. Gentleman may be informed of the beauty and symmetry of the formula. Although beauty and symmetry are not words that come to mind that often when dealing with him, I hope that he will bear with me.
Given that we had proposed to phase in change quite slowly, it is not surprising that many local authorities commented on the impact of the damping. A number of authorities on the grant floor complained that they had gained no extra grant above the floor; for example, for capital projects. I reject that argument because the floor gives such authorities more grant than they would receive after the grant formula calculation. Other local authorities above the floor—we have heard about some of them already this evening—complained of the extent to which their grant increase was scaled back to pay for the floor applied to other authorities.
First, of course, the floor has to be paid for, and ultimately one has to strike a balance between the need for stability and allowing larger grant changes to come through. As I have explained, the overwhelming principle in the settlement is to favour stability. Secondly, it is important to note that the real-world pressures on local government exist irrespective of formula changes and are not new, although they may be more transparent—as has been outlined.
We have reformed the grant calculation system and some respondents found that difficult to understand. I readily concede that the system is still complex, but in the past we found that some local authorities were not happy with the idea of a simple system, as in their view it would reduce fairness. My policy is to make the system simpler. For the present, the new system has the advantage of removing the old assumptions about spending and tax levels—the FSS—thus devolving more accountability to local authorities, a policy that Opposition Members say they favour.
The new system is simpler in principle. Apart from the damping that I have already described, grant distribution is determined by three things: first, a relative needs formula; secondly, an amount relative to the tax that can be raised locally based on the property profile in the local authority area; and thirdly, a central allocation per head of population.
The relative needs and resource elements should be broadly familiar to Members, as the system has long contained formulaic estimates of relative need and of relative ability to raise council tax. The central allocation makes explicit what was always implicit in the system—after taking account of differences in relative needs and resources, some of the grant is allocated on a per capita basis. Fuller explanations are of course available to authorities, and to Members, in the supporting information we have provided.
The formula allocations of the seven funding blocks are based on an assessment of needs, but the overwhelming determinant is the amount of formula grant available for distribution, as the hon. Gentleman knows. That is inherent in the system; we can only slice the cake in so many ways. If I may, I will take this opportunity to lay to rest the accusation—although I realise that the hon. Gentleman is not making it—that the allocation, the calculations based on need in the funding blocks and the simpler system cause an unfair distribution, either due to the type of local authority or between regions in England.
In the settlement, we use population projections and estimates supplied by the ONS, as those are the best figures consistently available. Several authorities are pursuing issues about the figures with the ONS, which is the correct course of action, but the change in the methodology for calculating population received majority support in the consultation and provides a better look ahead as well as an assessment of historical trends in population statistics.
Milton Keynes council benefits from a projected population figure, as we are expanding rapidly, but what the Minister gives with one hand he takes away with the other—87.5 per cent. of what we receive is lost through funding the floor settlement, which will amount to £3.5 million next year and £6.5 million the year after. Is not it the case that the floors policy is being funded at the expense of the sustainable communities policy?
My experience of these matters is that Opposition Members who benefit from the floors policy tend to remain mute, while those whose local authorities would gain more money, in addition to the extra money that they have been allocated—let us not forget that point—are scaled back by the need to pay for the floor, as he says, which is why the decision about stability in the system is so important.
Does the Minister concede that there is great concern about the disparity in the ONS estimated population rates, which are not reflected in authorities such as Enfield, where numbers in all categories are increasing? The number of asylum seekers and refugees has risen, as has the number of properties. Traffic growth has risen. The number of housing benefit claimants has risen. School numbers are up. None of that is properly reflected in the ONS figures, which are based on what is now accepted to be flawed methodology—for example, in relation to port of entry questions and the figures for GP registration, which are, as the ONS itself admits, inadequate. Is not a new approach needed, which would take on board the Local Government Association's suggestion that a commission for statistics should be set up? We need an approach whereby Ministers take responsibility rather than merely conceding that there is a problem.
Order. This is a strictly time-limited debate, in which many hon. Members are seeking to participate. Of course interventions are the stuff of debate, but they must be short.
Thank you very much, Mr. Deputy Speaker.
The population statistics provided by the ONS are the best, most consistent figures available to us. A number of authorities have made points during the past and the current settlement about the accuracy of the figures, and a number of consultations and debates are going on between local authorities—including, I believe, the hon. Gentleman's—and the ONS.
Several authorities have queried the funding of the new free bus travel for the over-60s and the disabled. I have therefore re-examined the proposals for the distribution of the additional money, on which we consulted extensively last summer. However, I have not found that those proposals were particularly unfair to any type of authority, nor that the extra cost of free fares, in so far as they can be estimated at this stage, place a burden out of proportion to existing public transport spending on any authority. I have therefore concluded that the settlement reflects the fairest way available to share out the money. It takes account of factors that reflect support for the disabled and the needs of areas where take-up is likely to be highest. With colleagues in the Department for Transport, we will monitor the effects and consider issues of the efficiency and effectiveness of the current arrangements for bus travel in the future.
On Wednesday, during Deputy Prime Minister's Question Time, my hon. Friend Mr. Clelland specifically asked whether discussions were ongoing about free travel in Tyne and Wear. We were told on Wednesday that those discussions were still ongoing. Unless I have got it wrong, my hon. Friend now suggests that they are not. Can he please advise us?
Discussions are still going on with the passenger transport executive and other authorities. My remarks relate to the funding formula distribution. My hon. Friend's area faces the problem because it involves a cluster of five local authorities with a passenger transport executive, and discussions are taking place there. We have been able to find £1.7 million for the metro in Newcastle upon Tyne, but that is a separate subject.
The £1.7 million that the Minister mentions came from the Department for Transport, not from the Office of the Deputy Prime Minister. On the point that he makes about ongoing discussions, that is not my impression, having spoken to the director of the passenger transport executive only an hour ago. There have been no further discussions since the meeting that he had with the Minister last week.
Let me be very clear, to help my hon. Friend and the House, and repeat what I have said about the settlement. Of course my remarks relate to the distribution of the formula grant. I have not found that the proposals were particularly unfair to any type of authority, nor that the extra cost of free fares, in so far as they can be estimated at this stage, place a burden out of proportion to existing public transport on any authority.
I hope that the hon. Gentleman will be able to catch your eye, Mr. Deputy Speaker, but I need to reach a conclusion for fear of being unfair to the House.
I should just deal with a misconception promoted by several authorities controlled by the Conservative party. There is no political or geographical bias in the system, contrary to what has been said, and no taking from the south to give to the north, or vice versa.
Following consultation, I am broadly confirming the grant distribution proposals that I made on
Very few comments were received on the two amending reports for the 2004–05 and 2005–06 settlements, and I confirm my proposal to make those reports. They will enable us to take account of revisions made to population estimates by the ONS and provide a firm basis to move forward on multi-year settlements.
I can assure hon. Members that we are committed to ensuring that local authorities can deliver effective local services without the need to impose excessive increases in council tax. That is the framework for the settlement, which takes account of the joint work that we undertook with the Local Government Association to look at the pressures that councils face in the next two years and the ways that local and central Government can manage those pressures together.
The joint work with the LGA identified some real pressures over the next two years, particularly in respect of waste management and social services. That is why we provided an extra £305 million in 2006–07 and £508 million in 2007–08 in formula grant above what was previously planned. I make it clear that that extra funding is in addition to the funding provided by Government to meet the net new burdens principle. It gives councils the funding to continue to provide the services that local people need, taking into account the pressures identified by the LGA. There is no need for councils to threaten cuts in service for vulnerable members of society.
We have also agreed to work jointly with local government in a number of respects, including working with the LGA in the context of CSR07—comprehensive spending review 2007—on pay, adult social care and waste. We have also reaffirmed our commitment to discuss with local government the new burdens and measures to mitigate them.
My hon. Friend says that there is no need for local authorities to cut services to the disadvantaged or for them to raise council tax. Is there any reason, therefore, why Conservative-controlled Northamptonshire county council should have issued redundancy notices to more than 700 staff, including all 197 of its youth workers, and threatened to charge disabled people for servicing their stair lifts?
I do not wish to enter into specifics—I am more than willing to do so in the wind-up if I have time—but local authorities have received above-inflation grant increases for eight years, and for some 10 years by the end of this settlement period. Although the Government recognise in our work with the LGA the pressures on local government, it is incumbent on all councils to balance their budgets.
Given the substantial investment we have made in local government, we expect all authorities to budget prudently and not place excessive demands on their council tax payers. There is no excuse for excessive council tax and spending increases, and we will not allow authorities to impose excessive increases. We will consider the principles on which capping would be based after councils have set their budgets. We have made it clear that we expect the average council tax increase in England in both 2006–07 and 2007–08 to be less than 5 per cent.
Local government should be under no illusion: we will use our capping powers to deal with excessive increases, as we have done in the past. I am broadly confirming my proposals for alternative notional amounts, which are notional figures used for capping purposes to give a like-for-like comparison of budget requirements between years.
This is an excellent package for local government, as it continues the record investment in councils made by the Government and adds a step change in the stability and predictability of local finances, which has been welcomed by the Conservative-led LGA, and it will therefore enable councils to plan service improvements. I commend the settlement to the House.
The House is grateful for the Minister's explanation of the change in the grant mechanism. It will long remember that with gratitude. I suppose that it is a matter of deep sadness to him that nobody in the Local Government Association or in any of the councils thought that the change was good or supported it. I accept that the odd one or two might have supported him, but by and large two thirds of local authorities came out against it. [Interruption.] The Minister says that if local government is against it, it must be a good thing. I look forward to his next meeting with the LGA, which I am sure will be fruitful.
At the time of the settlement, the Minister said that the
"Government is providing local authorities in England with stable and predictable funding . . . This is enough money for local authorities to continue to provide effective local services to communities".
With great respect to the hon. Gentleman, that makes me wonder how in touch he is with local services—something that was implied in some Labour interventions. Most councils are receiving a near-inflation increase when their costs are spiralling. Just over half of social services authorities are receiving a below-inflation increase. Many local authorities have had the goalposts shifted, and the only increase they receive is on paper.
Again, I hope the hon. Gentleman forgives me when I say that what sticks in the throat is the sanctimonious lecturing about costs and council tax levels. That comes from the worst Department in the Government. What a title to have; it is an achievement in its own way considering the competition and what the Government have done to dairy farmers, poultry breeders, the armed forces, motorists, train travellers and, most recently, policing.
In the past few weeks, the Department has been described in various ways. MORI said that it is a pantomime horse—in fairness, I think it was only the rear of the horse. Nine out of 10 regeneration experts have no confidence in the Department's plan. The Select Committee on the Office of the Deputy Prime Minister accused it of exaggerating the Government's achievement. More than £168 million were wasted on consultants to demolish 168,000 terraced houses. The Department is accused of operating in a climate of bullying. The ODPM is a byword for incompetence. No wonder the Deputy Prime Minister was forced to admit recently that his Department's left hand does not know what its right hand is doing. From my perspective, I am not sure that that is entirely true. I think that the left hand has finally woken up to what the right hand has been doing for years and does not like it.
Does my hon. Friend agree that there is at least one positive thing? The Minister and his Department recognise that the new formula does not fit the reality of local government needs and expenditure. All those below the floor were lifted to the floor, and yet 87 per cent. of those above were capped to fund them.
My hon. Friend makes a good point, which I shall develop later.
The ODPM has no moral authority to lecture councils on savings or council tax levels. It might make a nice innovation next year if local authorities went through the books of the ODPM and it was accountable to local councils. I am sure that we would find some savings then.
As my hon. Friend is talking about moral authority and the ODPM, will he say what impact the below-inflation rise of social services budgets will have on those who rely on them, whose need is growing way above inflation? Alternatively, what impact could that have on the council tax payer?
Given that the Government have backed a crude and universal cap, there is only one way for the argument to go. The most vulnerable will be hit this year. There is no other way to go. My hon. Friend knows that some councils will try to ameliorate the problem by cutting into reserves and spreading the money around, but given that we know what the position will be next year, and that we have a clear idea of the year after, I am afraid that cuts are inevitable. As a result of the way in which the school grant operates, it is inevitable that those cuts will hit the very people my hon. Friend wants to protect.
This is a Government who by stealth intend to abolish district and county councils and to waste upwards of £3.5 billion in the process. Instead of showing the courtesy to the House of making a statement outlining their intentions, they prefer to govern by leak and PowerPoint presentation to chief executives. Instead of asking councils for their opinion, they prefer to sideline them by having cosy chats with officers. We know why. The last time the Government consulted on reorganisation, they were defeated by a massive no vote. I doubt they will make the same mistake again, but the voice of the people must be heard and their democratically elected representatives must be heard.
Some £3.5 billion is too much to pay for a Department that no one would miss if it were abolished tomorrow. Some £3.5 billion is too much to pay for this gulag of despair to be seen to be doing something. If we have £3.5 billion to spare, I would rather it were spent on services that improve the quality of life of our citizens, including, to pick up on my hon. Friend's point, our most vulnerable citizens.
Having worked for a large shire county throughout the Conservative period in office of 1979 to 1997, I kept a close watch on their policies and attitude to the general public, and the conversion to the merits of listening to the people is so moving that it would bring tears to a glass eye. What consultation took place, and what vote were people given, on the major restructuring of local government in 1996–97?
Why restrict it to that? Why not go back to the reforms of 1881? Why not say something about the reform of corn laws? The hon. Gentleman has to understand that it is 2006 and we are into the third term of a Labour Government. Let him grow up and accept his responsibilities. There is no use going down memory lane, when he was a young man in short trousers. Let him address the reality now.
In a moment because I intend to refer to the hon. Gentleman. He does not look too pleased about that.
On the settlement, most councils are receiving only an inflationary increase in grant. Half of social services authorities are receiving an increase that is below inflation. The spending pressures identified by the LGA as part of the "funding the black hole" exercise on pressures in the period leading up to the settlement have not gone away. However, I will not go through those because hon. Members no doubt remember them well.
Most councils have tough choices to face. In an effort to bridge the gap, local authorities will seek efficiency savings, apply, where appropriate, reserves and balances, and bear down on costs. That is sensible. However, for many the choice will be between council tax increases and cutting services. The contrast between the 6.4 per cent. increase in the ring-funded dedicated school budget and the 2.7 per cent. increase in the formula for authorities with education and social services responsibility is stark. That will lead to great tensions in implementing the integrated children's services agenda at a local level.
An analysis of 56 councils across England shows that almost eight out of 10 of those who are consulting on draft budgets are struggling. The main reasons for that are that half of social services run by councils received a grant increase of less than 2 per cent.; that an increasing number of vulnerable older persons need extra care; that there are inflation-busting increases in private sector contracts and fuel bills; and that there are increasing volumes of waste collection and disposal each year.
The ending of the safeguarding children and additional access and systems grants paid in 2004–05 and 2005–06 exacerbates that pressure. A number of councils are proposing job cuts and service cuts, such as increasing the eligibility criteria for elderly care services. The travel concessions, about which the Minister spoke so eloquently, will not put additional pressure on local services only if no additional passengers are attracted to the scheme.
Let us see the effects in a balanced sample of local authorities. I will take two Conservative-controlled councils, two Labour and one Liberal Democrat.
The hon. Lady's party does not control very many, but no doubt she will talk about a few—although, in these loving times, we are on her side.
In Conservative-controlled Cambridge county council, council tax is likely to increase by just under 5 per cent. To achieve that, budget cuts of £1.7 million are the only option. Key services, notably road maintenance, public transport and home care for the elderly and disabled, will suffer cuts. Surrey county council, which is also Conservative controlled, has been severely affected by the Government's new grant formula and has announced that 661 out of 7,000 staff will go in order to keep the council tax increase below 5 per cent.
Derby city council announced in November a budget deficit of £2.3 million, which could rise to £4.5 million. That is expected to lead to increased charges and closures of many facilities, including public toilets. In order to deliver a 4.9 per cent. council tax increase, Lancashire county council needs to save a staggering £16 million in services or direct cuts, plus £4.3 million in efficiency savings. There are proposals to close nine libraries and to replace daily fresh meals to pensioners with weekly deliveries of frozen meals. York city council, which is run by the hon. Lady's party, proposes to make four special needs teachers redundant as part of more than £800,000-worth of cuts in education and children's services. The council has to make savings of £6 million.
That is a pretty sorry state to be in. If the Minister will forgive me, I must say that I was not entirely satisfied with his answer on supported borrowing.
My hon. Friend mentioned Cambridge. Is he aware that if Norfolk county council had carried on providing exactly the same level of services with the money that the Government have given it, it would have had to put up the council tax by nearly 7 per cent., which is obviously unacceptable to people on fixed incomes? It is ultimately delivering a council tax increase of under 5 per cent., which will make it extremely difficult for many hard-working staff and vulnerable people in receipt of different services. Does my hon. Friend agree that in that respect the Minister's expression "parallel universes" comes to mind?
My hon. Friend makes a good point. I had the joy of visiting his constituency some time ago and he was at pains to point out a number of villages that suffer from levels of deprivation that one would see in many cities. Part of the problem in his constituency is that it lacks the critical mass to be able to qualify under the grant distribution system. We have the ridiculous situation of deprivation being recognised in many cities but not being recognised in areas such as that my hon. Friend represents. It seems to me that if you are poor, you are poor, and the Government should recognise that.
In case people think that this is just a county problem, we have advice from Mr. Steven Pick, who is the chief director of finance in Barnsley. He said:
"Achieving a 5 per cent. tax increase will require a shift in our position—likely to have implications for all services."
Ted Lush, the corporate director of finance and property services in Stockport, said:
"The budget will be the most difficult ever faced. All areas will have their spending reduced."—[Interruption.]
The Minister scoffs at that, but that is the view of a professional. He is not a party member; he has no axe to grind. All he has to do is represent the people of Stockport and to help them out.
I emphasise that the needs formula does take into account sparsity and deprivation in rural areas. The percentage increases in grant in Norfolk, for example, are 4.8 per cent. and 8.4 per cent. the following year. Is not the process that the hon. Gentleman is describing that of local authorities ensuring that the budgets balance in future years and that the pressures on councils, which I conceded and helped the Local Government Association to analyse, cannot be blamed on above-inflation grant increases from central Government?
The hon. Gentleman does himself no favours in making such points. It is parallel universe time. At a time when the number of vulnerable elderly is growing significantly and people are living longer— which is a pleasing thing—but in a vulnerable state and require additional sums, pressures on a county such as Norfolk have to be understood.
I will give way to the hon. Gentleman later; he has a big place in my speech and I want to give him star billing. I will come to him in due course. Let us move on to supported borrowing. I want to make some progress so that my hon. Friends can speak.
In a moment.
Part of the formula grant is to pay for borrowing for local authorities' capital programmes. That is allowed for in authorities' relative needs formulae, but it is largely counteracted by the effect of the dampening mechanism, which means that authorities on the grant floor receive no more money than the minimum increase for their class for supported borrowing, and authorities above the grant floor have their increase above the floor scaled back to pay for the floor.
The goalposts have moved in 2006–07 by the scaling back factor of 85 per cent. for education and social services. That was a particular problem for authorities in wave 1 of the building schools for the future programme, but it does have wider implications. I want to look at two authorities—both recently elected Conservative county councils. This may be of interest to Ms Keeble, whom I advise to read the Hansard of Prime Minister's questions last week, during which my hon. Friend Mr. Binley pointed out to the Prime Minister that when it was Labour controlled Northamptonshire county council received a 6 per cent. increase, but that this year it was only 2 per cent.
Let us look at what has happened to Northamptonshire because of the effect on borrowing. The council received an overall grant increase of £2.5 million, which is 2.1 per cent., to fund all services, including financial capital investment. After taking into account the cost of capital investment, just £750,000, or a 0.6 per cent. increase, is left for all other services, which may explain why service charges are going up in Northamptonshire.
Let me give the hon. Lady the other example, as she might feel that Northamptonshire has done reasonably well compared with Oxfordshire county council, which has also recently become Conservative controlled. The increase in grant for Oxfordshire county council is £1.9 million. If one strips out the supported borrowing, one is left with a decrease of £1.4 million or minus 2.2 per cent.
The hon. Gentleman is confusing two councils—Northamptonshire county council and Northampton borough council. The county council received £115 million extra from the Government for its school building programme—a record allocation. On the other hand, Northampton borough council, I regret to inform him, has been dubbed the worst council in Britain and it is, indeed, Conservative controlled.
As for the hon. Lady's point about Northamptonshire county council, if she is expecting us to be helpful in future she should show a little gratitude for our intervention, as we are here to help.
Ring-fencing is necessary because the Government want to control everything but, sadly, can manage nothing. In "Strong Local Leadership: Quality Public Services", the White Paper which was published in 2001—not very not long ago—they made a commitment to reduce the amount of ring-fenced grant to under 10 per cent. of the total grant. That seems ambitious, as ring-fenced grant now accounts for more than 50 per cent. of the total grant. That increase is a result of the dedicated schools budget, which was necessary because the Government got into a terrific mess. If I had another name, I would say that they were in a terrific pickle in 2003, when they made a promise to schools that, frankly, could not be met by the grant distribution. The dedicated schools grant is an important symbol, showing that the Government do not trust local government.
In questions to the Deputy Prime Minister last week, I raised the issue of the supporting people scheme. I was sorry that it was dismissed out of hand, because it is a great crisis for local government. Expectations have been raised, but they cannot be met, exposing the most vulnerable to a reduction in their quality of life. To enable Ministers to understand their plight, may I cite a report by Derby city council on the supporting people programme that was published late last year? It predicts a funding shortfall of £534,000 in 2005–06, which will rise to just over £1 million in 2006–07, and to well over £1.5 million in 2007–08. The council proposes to allocate £500,000 from corporate resources to fund the projected shortfall, but the continued use of reserves to fund such deficits is not viable. It says:
"However, the severity of cuts required to achieve a balanced budget will inevitably mean that some valued services to very vulnerable people will be adversely affected."
Michael Jabez Foster is fearless in standing up for his constituents. No doubt, the Friary centre is a valuable and important resource in his constituency, but the local council and East Sussex county council are about to reduce its funding. In the
"wrong because the need is manifest . . . it is not unaffordable".
He obviously reads the information distributed by the Whips, because he says that there has been a 2.1 per cent. increase in the social services budget. However, I have a rebuttal from the leader of that fine council, who is known to many Conservative Members as one of the leading experts on local government finance. He says that there has been
"no increase in grant for social services, roads, libraries, etc. for the last three years and only 0.6 per cent. for the 2006/7 year which starts in April."
That is why the centre is closing. It is not a matter of councils wanting to close facilities. It is because the Government have set a 5 per cent. limit, and have not allowed a single increase.
If the learned leader of East Sussex county council uses such economics and believes that the increase is only 0.6 per cent. that is why the council is in such a pickle. The truth is, it is 2.1 per cent.—the 0.6 per cent. relates to his total budget, not the grant, so he is obviously seeking to mislead. Even if that were not the case, there is absolutely no reason why he should close such establishments unless they have got into a financial pickle. Of course, they need more, but that is not the reason for the closures.
Would the hon. Gentleman do me the courtesy of allowing me to reply to the hon. Member for Hastings and Rye? I regret inadvertently starting the pickle analogy. Peter Jones, the leader of the council, is a man of considerable experience. He has taken the council out of a difficult situation, and his record in local government is second to none. The hon. Gentleman's special pleading is not persuasive.
Does my hon. Friend agree that the precept, for example by the police authority, is a matter of the gravest concern when it hits the fan at the level of the council tax? In the case of Staffordshire—which, it was announced today, disgracefully, will be part of the merger in the west midlands—the precept is deeply resented and will have consequences for the financing of the county's constituent authorities. We fear strongly and, I believe, rightly that that will have the effect of increasing the costs, as well as centralising the system, against the wishes of the people of Staffordshire, including my constituency.
Order. If Mr. Pickles wants to respond to that, will he please do so very briefly, as we have already had the debate on police grants this evening.
I must make progress, as I want to leave time for my hon. Friends and other hon. Members.
Let us turn to pensioners. Now would be a good time to explain what happened to the pensioners' discount. That was intended to protect pensioners from the massive increase of 76 per cent. in the council tax under Labour, but now, when the council tax is to rise even more, the discount is thought to be unnecessary. Why is that? Will the Chancellor announce it again in March? It is not in the books. Was it just an election gimmick? If the Minister said something about it when he winds up, we would all be grateful. Many pensioners are wondering how they will find that extra £200, which they had counted on.
The Government have managed to achieve the nearly impossible for the public—below-inflation increases for most services outside education, and above-inflation increases in council tax. Truly, this is a new minimalism for new Labour: more is less, less is more—another increase through Labour's favourite stealth tax. Only by the occupant of the rear end of the pantomime horse is it regarded as addressing the needs of local government. Sadly, its melodious clip-clop will be heard stumbling through the rest of the year and making all our lives a misery.
Order. Before I call the next speaker, may I remind the House that there is a 12-minute limit on Back-Bench speeches, which applies from now?
Labour Members would have listened with growing incredulity to the speech of Mr. Pickles, had he continued. I shall give him one reason for that incredulity. He mentioned Cambridge county council having to make cuts of £1.6 million. That council has a population of about 737,000. In the 1980s and 1990s, when I was a member of Wigan council, which has a population of 300,000, we were required to make cuts of £10 million by the Conservatives—not just in one year. Year on year, we had to make such cuts. It would do Opposition Members some good—those on the Front Bench as well as those who intervened earlier—if we had a few choruses of "mea culpa" before they continue their comments.
There has been a remarkable growth in the amount of money given to local government by the Labour Government, and that is the case again this year. I have problems with this year's settlement—not with its size, but with the way the cake is sliced up. The major problem is with the formula. The new formula recognises need, particularly for social service. I welcome that. A formula based on evidence that recognises need will lead to a fairer distribution.
However, a damping mechanism has been introduced, especially in relation to social services, so that all the gains that were made by many of the authorities in the organisation that I chair, the special interest group of municipal authorities, have been damped out. I am not opposed to damping in principle. It is right, for the reasons to which I alluded in my opening remarks. When I was on the council, I would have preferred damping to massive cuts year on year. We could have achieved much more. In this case, however, the damping is far too harsh. In SIGOMA authorities such as mine, about £250 million will be taken out of our social services. We have a floor of 2.7 per cent. That protects councils that are currently over-resourced in social services at the expense of councils such as mine that are under-resourced, and will continue to be so for some considerable time.
I regret that during the consultation period the Minister did not take on board the case made by SIGOMA authorities and others for reducing that damping to some degree. Had he been able to reduce it even by a small amount, that would have led to about £35 million going back into SIGOMA and other authorities, including county councils. That would have significantly improved their ability to serve their people.
It is not just a question of damping in social services. On top of that, we have damping in the overall budget, with floors of 2 per cent. and a reduction of about 85 per cent. on the amount of money that authorities receiving more than the floor should get to pay for that.
I cannot understand why we have those two elements of damping. The local government settlement is about how the Government divvy up the amount of money that they have: it does not relate to the amount of money that each local authority will spend on any one element within it. Local authorities have the freedom to make those choices—they do not have to spend the amount of money on social services that is allocated by the Government—but a double damping effect places a tremendous imposition on them. It is imperative that the Minister considers this in great detail. It will not be an issue over the next year, because that is fixed, but when he comes to deal with the next settlement it is essential that that double damping is taken out; otherwise, we will have major problems with local government settlements in future.
The result is that there will be quite severe cuts in the number of services provided. Those cuts are not likely to fall on particular individuals, because all good local authorities will ensure that they deal with the essentials. However, where individuals are supported by social services, the bar of access to services will start to be raised, and the charges levied by authorities will be increased. We will end up with a postcode lottery. Authorities that have a higher rate for historical reasons, and therefore benefit from the damping, will be able to provide services that authorities such as mine, which are suffering from the damping, will be unable to provide. One authority will be unable to provide the services that another authority next door is able to provide. I am sure that Members on both sides of the House, including the Minister, would agree that that situation is wholly unacceptable and must be dealt with.
Another issue that affects local authorities in the SIGOMA areas is that most of us have primary care trusts that are seriously underfunded. The underfunding of PCTs in SIGOMA authorities amounts to £215 million. That is in addition to the £250 million that we have lost because of the damping. As a result, PCTs have no resources available to help local authorities with their social services budgets. People will not get the level of support that they need. Instead of being treated at home in dignity, close to their families, they will become more dependent and eventually have to go into acute hospitals, putting increasing pressure on the NHS. In many local authorities, it is not unusual, as Tom Jones might say, for social services and PCTs to pool resources in order to provide joint funding for those purposes. However, in SIGOMA authorities there is a single pot with two gaping holes that are pouring out £250 million and then another £215 million from those services.
It is essential that Ministers set a time scale to end such damping. Without that, the whole formula that we have set up—I think it a good formula and agree with it—will become worthless; Ministers might as well throw straws in the wind to decide on the amount of money. The whole thing will become discredited and the whole point of it would be brought in to disrepute.
The following two things are essential in the next round of local government settlement. First, we must have a single damping mechanism on the total amount of money that goes to local authorities. Secondly, we must have a definitive and transparent time scale, so that the damping that I mentioned can be eased out. I do not want authorities to have to make savage cuts. However, they need to understand that, because of their needs, they are over-resourced in comparison with other authorities and the Government need to take account of that.
I say to the Minister that if future settlements do not include those two things, a lot of Labour Back Benchers will be seriously discomfited.
The local government financial year has a kind of ritual about it. It is a bit of a dance, with a touch of stand-off here, a bit of flattery there and a complex move somewhere else, all designed to distract the eye.
Contrary to popular wisdom, the new year actually begins around October, as the Local Government Association and council leaders begin to set out their stall of doom about council service cuts and council tax rises. The Government then fight back with a macho swipe at wasteful councils and warn them that they must stay within their budget this year or face the wrath of the cap. Then there is a stand-off, a bit of a public argy-bargy, a spot of name-calling and a public falling-out.
At the last minute, the doughty Minister trawls around his colleagues with a begging bowl to find a few extra coppers to forestall the crisis. He announces his Christmas bonus to councils in December and tells them that they need to thank him for it. However, councils protest that it is still not enough and charge their MPs to explain the difficulties to the House in January. Then councils fix their budgets, cut some vital services, hike up the council tax and the voters protest; so Ministers cap them. Councils then cut a few more services and we begin the annual dance of the pantomime horse all over again. [Interruption.] I had to get the pantomime horse in; there was a race to get it in first.
In December, the Minister announced that a few extra scraps would again be thrown from the master's table to grateful local councils, so why do councils still moan? They complain because it is the very system that keeps them in chains, and until the Government are willing to tackle that, we shall be forced to repeat the same moves, year after year.
In the meantime, the Government have introduced some reforms, but as Mr. Pickles said, the local government community was united in opposing them. The Government had a consultation about the change to the formula, but everybody said that it would be a bad idea; they introduced it anyway. The problem with the new formula is that, far from making things simpler or more transparent, it increases the potential for ministerial discretion in the allocation of funding.
For example, why does Northumberland get nearly £100 per capita of grant more than Somerset? There may well be a perfectly legitimate reason, but the Government should be willing to make those reasons public and transparent and to debate them.
Another side effect of this year's settlement is that, on the whole, districts have done better than expected. That may be a coincidence, but I cannot help wondering whether it has something to do with the Government being desperate to avoid last summer's capping embarrassment, when they employed the full machinery of legislation to make an example of a set of tiny district councils, an example that for the most part provided little more benefit to the average council tax payer than the cost of a pint of beer.
However, some developments are to be welcomed and it is important that we do so. As the Minister said, the Government have done much work to identify spending pressures with the LGA, and that is to be welcomed. We also welcome the shift toward three-year settlements, with the two-year settlement in this instance being fitted in with the three-year spending reviews.
However, technical difficulties arise from a move to longer settlements. The Government will use projections from the 2004–05 mid-year population estimate to calculate funding through to 2007–08 and projections are, of course, based on historic trends, which poses problems for areas where population growth is speeding up, and for some northern cities, which have managed to stem population decline but where projections imply it is continuing.
Fundamental questions also remain about the data source. The Office for National Statistics has finally admitted that, for many inner-London councils with high migration levels and very large ethnic minority communities, its population figures and methodology are fundamentally flawed. My own borough has battled with that. Brent council estimates that the ONS may underestimate its population by as many as 20,000 people, when compared with Greater London assembly estimates. The implications are real, since for every 1,000 fewer individuals in the calculation, the estimated lost revenue approaches £500,000. Will the Government look at ways of ensuring that projections are informed by the most up-to-date data available?
There are some glaring omissions in the statement. The Government have included no amount for the cost of their latest policy wheeze—council structural reorganisation—and I wonder whether the House should assume that that will not be implemented until 2008–09, or whether it is to go entirely unfunded? The Cambridge academic Michael Chisholm calculates that the cost will be up to £3.5 million. The Government may dispute the figure, but they surely do not claim that the process will be entirely free.
The fundamental problem with the settlement, as with last year's and the year's before, is that it provides little freedom for councils to do their job properly. If we believe in local government, we have to give councils the freedom to raise and spend their own money. That means drastic local government financial reform, not a bit of tinkering with the formula.
My constituents are extremely confused. They know that there was a 3.5 per cent. increase in grant funding from the Government, which was one of the most generous for many a year. Yet our Conservative mayor proposes cuts of 10 per cent. across the board. Who is telling the truth? Was there an above-inflation increase, or is there really a 10 per cent. cut? If we can find out the answer, we shall know who is accountable for the cuts, or for unnecessary cuts.
My hon. Friend raises a number of points, notably about the opacity of the funding formula and the gearing effect and balance of funding, which I shall come on to discuss.
This year, with the dedicated schools grant, which some hon. Members have described as the biggest symbol of the Government's lack of trust in local government, ring-fenced grants now total around 50 per cent. of the whole grant. If budgets are tight, that pushes pressures on to other areas. The total grant may well be above inflation, but non-schools grant increases are below retail prices index inflation, and well below wage inflation, which pushes up the cost of delivering council services much more quickly than RPI inflation does. The pressure is greatest on social services, with some authorities already stating that they may have either to increase charges or increase the qualification criteria for care, a point alluded to by Mr. Turner. The latter policy led, of course, to the now infamous case in Gloucestershire, where Richard and Beryl Driscoll were separated. I know, Mr. Deputy Speaker, that my hon. Friend David Howarth wants to catch your eye to speak about some of the specific effects of pressures on funding for social services and supporting people in his constituency, so I shall not speak about that in more detail.
As councils struggle to balance their books and pay for programmes in non-ring-fenced areas, it is council tax payers who bear the brunt as their council tax goes up again. If it goes up by 5 per cent. again this year, the average band D council tax payer will pay £1,275 a year, which is a total increase of 85 per cent. since Labour came to power. If it goes up by 5 per cent. again the following year, the figure will be £1,339, which is up 95 per cent. since 1997. In that time, inflation and the state pension have gone up by 29 per cent. and wages by 53 per cent. We can see the mismatch quite clearly.
Voters protest about council tax partly because it has risen so quickly, but also because it is fundamentally unfair. It does not relate to the ability to pay. As was pointed out in the Lyons report, the initial public view on taxation was that linking tax liability to individual ability to pay was the fairest form of taxation.
It is now more than three years since the Minister's predecessor, Mr. Raynsford, set up the balance of funding review, which promised to solve the local government finance system once and for all. However, we are still no nearer a solution. As is proven by the reams of briefing papers that Members need to get through a debate such as this, we have in Britain the most impenetrable, opaque and confusing grants mechanism in the world.
We need a new system of local government finance that is based on fair local taxes, localised business rates, local income tax and a simple grant mechanism, without ring-fencing, passporting or capping. We need a new system that will let local government do the job that it was elected to undertake. We need also a new system that will stop the nonsensical ritual of financial crisis. I live in hope.
I shall keep my remarks brief because many of the issues have been raised that I wanted to take up about metropolitan authorities. It has been a disappointing settlement for the metropolitan authorities, and that relates to damping. The met authorities are deeply disappointed by what appears to be the new settlement's lack of effective change. The authorities have received the lowest increase in grant—2.4 per cent. compared with the national 3.1 per cent. For the metropolitan authorities, that equates to about £250 million. There are 17 met authorities that will have a floor increase of 2 per cent.
The metropolitan authorities represent about 24.5 per cent. of national need. Their local tax base, unfortunately, allows them to deliver only about 22.2 per cent. of assumed local funding. That equates to 26 per cent. of total Government grant. That means that metropolitan authorities will receive only 27.3 per cent. of resources. That is a difference of £670 million to all the met authorities.
The damping effect that will stem from the settlement is in addition to damping that has occurred in the past. In 2003–04, there were the changes to the education funding formula. Damping was introduced and met authorities lost an estimated £180 million. Changes were made to the funding formula of primary care trusts; again, that was in 2003–04, under the pace of change policy. That was £200 million less than the needs agreed by Government. As for joint funding issues, I was told on Friday that Barnsley PCT might now have to provide the funding to meet the debts of Sheffield PCT because of the political problems of our strategic health authorities. That would be a funding disaster for the area.
Council tax revaluation, if delayed indefinitely, would have resulted in losses to metropolitan authorities. And so it goes on. The new social services formula builds on that. I shall give an example of how such damping has an effect on my area of Barnsley. There is the housing subsidy settlement of 2006–07. My area has suffered from poor housing subsidy settlements in the past. The formula did not reflect our need to spend. In 2004–05, the Government recognised this iniquity and introduced a new system of allowances. However, the pace of that change has been determined by the level of transitional protection to authorities, primarily in London, which were the losers following the 2004–05 changes. My local authority welcomed the 2006–07 draft settlement as it was proposed to move substantially towards our target allowances for housing subsidy.
However, following consultation, additional transitional protection has been given and the top 16 gainers from that protection are all London authorities. As the national pot for management and maintenance allowances is fixed, money is being taken from authorities such as Barnsley to meet the cost of extra transitional protection for London authorities. My local authority is thus £350,000 worse off under the final settlement compared with the draft settlement.
As my hon. Friend Mr. Turner pointed out, it is difficult for areas such as ours to make up any shortfall or address damping under the grant. We do not have wealthy local authorities. They do not receive income from tourism or charges for provision. We thus face pressure when trying to address the situation, which results in cuts to services because we cannot find the extra funding that we need. The authority will not challenge the capping rules set out by the Government, or implement way-out council tax increases, so services will be cut. I can tell my hon. Friend the Minister that redundancy notices were issued in the education department in Barnsley on Friday. Redundancies will occur because Barnsley will have to lose about 200 posts as a consequence of what Sarah Teather called an annual ritual. We face cuts and redundancies under our local government settlement, as we did in the bad old days of the previous Government.
May I put forward a suggestion that has been made by the metropolitan authorities to try to resolve the damping situation in social services? It is proposed that an additional £305 million will be provided in 2006–07 and £508 million in 2007–08. Could £100 million of the 2007–08 settlement be brought forward to alleviate the effects of damping in the 2006–07 financial year? That would reduce the impact of the situation on social services and address the problems of four London authorities, 41 metropolitan districts, 22 county councils and 18 unitary authorities? A total of 85 authorities could benefit if £100 million were brought forward, and that would give them time to plan for the shortfall.
As I pointed out, my local authority is once again facing cuts to services. We cannot find the funding to provide the services that are required of us with the grant that is being put forward, so we have to look at cuts, which is why redundancy notices are being served as I speak. In line with the representations that the Minister has received from the metropolitan authorities, will he remove the social services damping to some extent, fund the cost of the overall floors, implement a form of funding to take account of the effects of population decline and put in place a funding mechanism to compensate for the lack of revaluation?
There is always a familiarity to these debates. The Minister stands up like the captain on the bridge scanning the horizon saying, "Well, the weather's absolutely fine and the horizon's quite clear. There might be a very slight swell, but no one need feel the slightest bit seasick." At the same time, down in the engine room, the chief engineer is saying that a horrible clanking noise is coming from the engines, and soon smoke begins to appear. The two views of the settlement are totally dislocated. We have just heard the view from the engine room—the northern metropolitan authorities—from the hon. Members for Wigan (Mr. Turner) and for Barnsley, Central (Mr. Illsley). They said that there are real difficulties with the settlement and they are the ones who have got it right. Despite the undoubted passion with which the Minister made his speech, he is simply looking at the horizon through opaque spectacles.
Three things are noteworthy about this settlement. First, education spending has now become totally divorced from the rest of local government expenditure. It is distributed by a different Department and according to an entirely different formula; indeed, in many ways it is the opposite formula to the one used by local government. The formula rejected by local government has now been adopted by the Department for Education and Skills, so we are back to the dear old happiness of joined-up government.
The Office of the Deputy Prime Minister has lost a huge chunk of its empire. I never cease to be amazed when I hear Labour Back Benchers chuntering about how the education White Paper has got it all wrong, and local authorities need a much greater, enhanced role supervising the way that education operates. At the same time, they have simply watched the Deputy Prime Minister's authority in this matter draining away. They are rather late in closing that stable door.
The second point about the settlement is that, in fact, schools do rather well, even though the Government have resorted to rather a crude method of buying off the argument because the events of 2003–04—you will remember, Mr. Deputy Speaker, that some local authorities were not given sufficient additional grant in total to fund the increases that they were supposed to give to education—are burned into their consciousness.
I know that the hon. Gentleman is under pressure, but as my hon. Friend Mr. Pickles pointed out from the Front Bench, we are quite a long way into a Labour Government. The formula has been changed about five times already. This is a Government who said that they were going to find a completely new way round local authority funding, and all they are doing at the moment is sitting there waiting for the Lyons report to come in, rather like Polynesian natives waiting for the cargo boat to arrive.
Because education has done quite well, the rest of local government has done quite badly—we have to be honest about that. There are tough measures for social services, highways, waste and amenities, and that is accounting for the smoke and mirrors of the Gershon review. Curiously enough, the name "Gershon" did not pass the Minister's lips this evening.
The third point, which in many ways is the most important of all, is that, on any reading of the Chancellor's expenditure plans, the future looks pretty tough for all areas other than his three, or two and a half, chosen special areas of health, education and overseas development. After the public expenditure boom, we are now heading for the bust. That means, inevitably, council tax will become much more acute as an issue, rather than less important.
What has been happening? We now have two settlements. In fact, if one counts the police settlement separately, we have three. There is the revenue support grant and the dedicated schools grant, which flows from that debacle in 2003–04. The schools grant rises by 6.4 per cent. in 2006–07 and 6 per cent. the following year, and the grant for other council services rises by about 3 per cent. The schools money is based on existing expenditure—just 5 per cent. and a tiny bit more for London—plus an allocation by formula.
What is interesting is that the Deputy Prime Minister has derided notional spending assessments, such as the standard spending assessments, because they are misused and people dare to extrapolate the level of council tax. Heaven forbid that we should dare to extrapolate by how much the Government might require councils to increase their tax. All those have been dropped, but nobody has passed the message down the road to the Department for Education and Skills. Local authorities whose spending was below the schools' formula spending share will now get extra grant to enable them to move towards it.
I suggest, if I may, that Ministers look back—I know that they constantly do so; the Minister for Local Government is always looking back—to see how their predecessors used to fulminate against need assessment. Lord Hattersley is a wonderful example of the fulmination against need assessment. Believe it or not, need assessment is now enthroned as the basic principle of local authority funding. But that has brought about what I regard as happy ironies. In 2003–04, as my hon. Friend the Member for Brentwood and Ongar will remember, the Government were accused of manipulating the system to direct money towards their friends in the north. The fact is that because population has emerged as one of the few remaining quantitative elements in the determination of the grant, money is now moving back down from the friends in the north. The Minister, for once, is right for the wrong reasons: this is not manipulation in favour of Labour councils; in many ways, Labour councils will feel the pinch of this settlement rather more than other councils. All I can say is that that is ironic, and that it is nice to see the chickens coming home to roost.
We now have a system with so many floors, ceilings and damping mechanisms that the whole thing looks rather like the design for the house of horrors in Hitchcock's "Psycho", and the Minister was rather like the corpse in the cellar, judging by the passion and enthusiasm that he put into his speech this afternoon.
Where are we heading in the long term? The Institute for Fiscal Studies has calculated that the pre-Budget statement indicates a real increase in public expenditure between 2007–08 and 2010–11 of just 1.8 per cent. Once the Chancellor has made provision for his favoured services—health, education and international development—all the other services will have to fight over an increase of about 0.8 per cent. a year. That will include the bulk of the services that now fall under the revenue support grant.
That means that council tax bills will rise, to the extent that they are permitted to do so under the capping procedures, and that there will be cuts in services. It is no good the Minister simply asserting blandly that there is no reason for anyone to cut anything. We all know that the inflation that affects local government services is entirely different from the broad, RPI-type of inflation, because so many local government services are demand led. So this will hit the services which, by their very nature, find it hardest to marshal a lobby. Social services tend to be fragmented because they involve a host of relatively small-scale support services for families, carers, elderly people and children, for which demography and social change are fuelling increases in demand. They will feel the pain, together with the smaller services that bear crucially on people's quality of life in their immediate environment.
Of course a two-year settlement is welcome, because if councils can have nothing else, at least they can have a certain amount of predictability of their own misery. That will give them some assistance. No doubt, in two years we shall have reached the Chancellor's next cycle of public expenditure, for whose review letters are now dropping into the postbags of the various Secretaries of State. Perhaps we shall also have received the long-delayed, much-deferred and much-hoped-for Lyons review.
The Government talk incessantly about joined-up thinking, yet it is amazing how dislocated the whole process of the grant has become across the public services. Their motto seems to be: "Keep your heads down, chaps, and hope". The Minister made a speech today that put that into language, the poetry of which has entirely overwhelmed me. Local government is going to face some very difficult times.
This is an inevitable settlement; there is no point in pretending that the Government are going to dish out a great deal more money. We all know that the chickens have come home to roost in regard to public expenditure. Local government had better batten down the hatches and prepare for some years of this, and council tax payers had better prepare themselves for council tax increases to go on rising steadily, because we are locked into this syndrome and there is no escape from it.
The Government must regret some of the wonderful promises that they made in their early years about how they were going to introduce an entirely new structure in local government funding. It was as though they were just waiting to discover the north-west passage. As I have said before, we shall discover, unless Lyons proves to be a remarkably efficient icebreaker, that there is no such thing as a north-west passage in local government finance and that, for the time being, we are stuck with this.
It is a great pleasure to follow Mr. Curry. He has some knowledge of these issues, and I recall that he was one of the better Conservative Ministers for local government. However, what he has just said has demonstrated that, while Ministers and Governments may change, the civil service trundles on, and what he said about inflation was astounding in its audacity. I remember him and other Ministers standing at the Dispatch Box saying exactly what our Minister has said today, reading from exactly the same script. They said that local government had had a bigger-than-inflation increase and that there should therefore be no problem. I have been hearing that speech for the past 20 years, and it has not changed.
I accept what my hon. Friend has said, and also what was said by my hon. Friend Mr. Turner. At least local government settlements have gone the other way since 1997, and authorities have benefited from some improvements.
My hon. Friend the Member for Wigan also spoke of inequalities in the system, and those are what concern us in the north-east. The system is based on a flawed formula: we know that, because the Government commissioned the Lyons report in an attempt to come up with a different system and a new formula. The north-east continues to come out worst whenever a settlement is announced. This year the Minister has announced an average settlement of 3 per cent.; the average settlement in the north-east is 2.7 per cent. Along with that, we have to compete with our next-door neighbours in Scotland, who benefit from the Barnett formula. It is somewhat ironic that the Federation of Small Businesses in Scotland produced a report today showing that the north-east of England is at the bottom of the league according to a series of key social indicators, while in most instances Scotland is above the average.
The Minister has announced a 3 to 3.5 per cent. increase, but Gateshead in the north-east has ended up with 2.5 per cent., even less than the north-east average—although according to all the indicators it needs support from central Government, and although it is a beacon council that the Government constantly cite as an example of good local government. Westminster, with all its high-value properties and high incomes and all the advantages of the lucrative business that surrounds it, has received an increase of 2.9 per cent., which is set to rise to 4.6 per cent. next year. Gateshead's increase is set to rise to only 2.7 per cent. How can that possibly be equitable or right?
Ministers have tried to resolve some of the problems. They have made adjustments in an attempt to iron out some of the anomalies. As the settlement demonstrates, however, the inequities have not been removed. I believe that that is because Ministers have found the system to be so skewed that ironing out the unfairnesses in one fell swoop would require a huge shift of resources from authorities that were favoured under Tory Governments in the past, with all the political consequences that would ensue.
Ministers have therefore introduced what my hon. Friend the Member for Wigan describes as damping. The aim was to avoid the political fallout, but it also means that the full benefits of a fairer system, and of the changes that Governments have made, are not passed on to the local authorities that need them most. It is estimated that that has cost metropolitan authorities £250 million in social services funding alone, and a further £180 million has been lost to metropolitan education services.
Those inequalities have been further aggravated by a new factor in the formula: households with residents aged over 90. Unfortunately, the north-east is very low down in the league when it comes to health inequalities, and few of our households contain residents over the age of 90. We therefore cannot benefit from that change in the grant, but our old people still need support. Indeed, they may need even more support because of the health equalities to which I have referred.
Young people are also affected. After all that the Government have said about "Every Child Matters", how can it be right for councils in London to receive up to three times more for each child than those in the north-east? What possible justification can there be for that?
The right hon. Member for Skipton and Ripon mentioned the population issue. It is a key factor in grant distribution, but it too can work to the disadvantage of the areas in greatest need. If half the people move out of a street, we do not see half the paving stones being removed or half the street lights being turned off. The same services must be provided, even if the population has been halved. Falling populations are tied too closely to the allocation of resources, and too little consideration is given to the continuing need for services even when a population is in decline. Indeed, the need may be greater in such circumstances: it is often the economically active and the skilled workers who depart, leaving behind vulnerable people who require even more support.
The projected figures show that the population in the north-east is actually rising by 2,000 a year, but according to figures from the Office for National Statistics—as was acknowledged earlier, they are incorrect—the population is falling. So as a result of the population factor, we are suffering yet again in terms of grant allocation.
The other issue, which I am afraid the Government have ducked, is revaluation. Revaluation is important in an area such as mine. Ministers often talk about the difficulties of being in government—about how being in government is about making tough decisions and not being afraid to make unpopular decisions—but they backed away from revaluation only too quickly.
The Minister mentioned the free bus travel scheme that is due to be introduced in April—an issue that I have raised in the House several times. The Chancellor of the Exchequer announced a £350 million fund to pay for the scheme and, by all accounts, that should be enough money to finance a free bus fare system across the country. However, some genius decided that the money should be distributed through the revenue support grant system, which is in no way related to the specific issue of the concessionary fare-travelling public. I do not know which civil servant made the suggestion or which Minister took that advice, but both should be surplus to requirements. The result was that this issue got lost in the system, and areas such as Tyne and Wear, where the population is relatively low but the use of public transport and concessionary travel is relatively high, therefore lost out. However, areas with greater car ownership—where more people travel by car and fewer travel by public transport—got more money than they need to run free bus services. Tyne and Wear ended up with £7.5 million less than it needs to run the scheme.
I have raised this issue with the Minister in the past few months and, to be fair to him, he has listened carefully and done the best that he can to resolve it; however, it has not been resolved. He referred earlier to the extra £1.7 million that Tyne and Wear has been allocated by the Department for Transport, which will help to provide free fares on the metro light rail system. We cannot have free fares on buses and not on the metro, because if we did, the metro would suffer a loss as a result of people switching to the buses. Secondly, a lot of people, particularly in the east end of Newcastle, rely on the metro rather than the buses, so it would be unfair to them if they had to pay and others did not; the situation has to be equal.
Funding free travel on the metro cost £1.7 million, but we are still more than £5 million short of the money needed to run the free bus service. That means that at next Wednesday's budget meeting, the passenger transport authority will have to cut concessionary fares for young people generally, and specifically concessionary fares for those attending college. I have been a Member of this House for 20 years and a public representative for some 34 years. I do not know how many advice surgeries I have run in that time, but it is certainly a lot. Last Saturday, for the first time ever, at two separate advice surgeries two completely different representations were made on the same issue by people who were completely unconnected. They were pensioners, and they told me that they did not want something that the Government were going to provide: they did not want free bus travel in Tyne and Wear to be provided at the expense of concessionary fares for young people. However, this is what we are having to do because the Government have failed to resolve this issue.
I appreciate what the Minister said about the legal problems that the Office of the Deputy Prime Minister faces in trying to dish out money to different local authorities. I said some time ago that if Ministers cannot resolve this issue, we will ask the Prime Minister to do so. He has responsibility across the whole of government, and not just for one Department. But I am now told that I cannot speak to the Prime Minister because discussions are ongoing. Well, I hope that the Minister can resolve this issue, because so far as I am aware, discussions that might resolve it are not in fact ongoing. The ODPM has given us the definite answer that no further money will be forthcoming. The problem therefore remains, so I hope that the Minister will unblock the situation and allow us to have our meeting with the Prime Minister.
The Government hope that the Lyons review will point the way in solving the problems associated with local government finance. However, there is absolutely no way that any review can come up with a solution that will produce a fair system that does not involve a massive shift in resources between regions, nations and local authorities—that is, unless the Government provide huge extra resources to correct the anomalies that have been allowed to build up.
I await with interest the outcome of the Lyons review, but I am not optimistic that Ministers of any Government will ever have the guts to do the right thing.
One of the nice things about following—admittedly, one step behind—my right hon. Friend Mr. Curry is that he fires the traditional shots across the bow, so I can afford to be more parochial, which also means that my speech can be shorter.
The Minister, as ever—although it is not a failing restricted to this Government—described the figures as a tremendous increase, while ignoring the fact that, as has already been pointed out, education has been removed. He also ignored the fact that the percentage is based on the change that was introduced with the FSS—the formula spending share. To be parochial, that change meant that Surrey county council lost £39 million year on year. So any percentage increase dates back to that loss, and I suspect that some of the officials who guide the Minister on such matters are very aware of that, because they live in Surrey.
The changes were so dramatic that the Government had to introduce floors and ceilings as buffers. The ceilings have gone, but the chop for those well above the floor is dramatic. It affects those well above the floor in order to raise others to the floor. The new system coincides with the dedicated schools grant, which removes education funding from the normal grant. The new grant system, as I pointed out earlier, is extraordinarily complex, and needs a brain capable of rocket science to manage it. It is impenetrable. The Minister is giving me looks of surprise, but even if he has the intellect to handle it, what I am saying will be no surprise to anyone else who has tried to struggle with it.
Surrey county council's formula grant was drastically reduced on the introduction of the FSS, to £101.4 million. Without the buffers it would have been reduced to £65.1 million—a potential reduction of 39 per cent. Fortunately, the Government have recognised that such a cut would be a tad too far, so they have introduced the buffers and the actual grant will be £103.4 million. However, because of the requirements built in by the Government for the minute-by-minute handling of local government such as inspections and comparative performance assessments, the limiting of the council tax rise for the coming year to 5 per cent., and the possible lowering of the floor in future years, Surrey county council will have to introduce some £50 million of cuts over the next two or three years.
I accept that many local authorities can make efficiency savings, and I hope that most of Surrey county council's savings will come from such a source. However, given the size of the cut, it cannot all be found from efficiency savings. Constituency letters about the potential impact of the cuts are already pouring in.
When I was a Minister dealing with these issues comparisons were always thrown at us, and I wish to pick up an example given by my hon. Friend Mr. Pickles. He mentioned that Labour-run Lancashire county council would have to make cuts in the next financial year. However, Conservative Surrey has a grant per head of population of £95.85 and Lancashire has a grant per head of £191.96—more than twice that of Surrey.
I remind the Minister of his second principle, because he should look carefully at the ability to pay. I have raised that issue already in the debate on the revaluation, and I suggested an alternative approach. The present approach is a duplication of that under the FSS, and hidden in the formula is the spread of properties over the council tax valuation bands. That is not a fair way of making the calculation. Surrey receives the second lowest grant of the English shire counties, yet it is the second most expensive area of England in which to provide services. To put it more simply: the value of properties is spread across the higher echelons of the bands, because they are more expensive to buy and maintain, with bigger mortgages that cost people more, so they are less able to afford the huge council taxes that are required because the grant has gone down.
Unusually, I am not asking the Minister to change Surrey's grant. That would be a hopeless request and a waste of my time. If the motion is put to a vote it will roll through, with Scottish MPs behind it. I am asking him to look ahead and think again about his second principle. Will he look at ability to pay—I hasten to add, before there are squawks of encouragement from the Liberal Benches, that that would still be on the basis of a property tax—and recognise that we need a mixture of an understanding of property values and the cost of living? The cost of living in Surrey and London is much greater than in the rest of the country, so that proposal would give a much fairer balance and might stifle the protestations about local income tax from some corners of the House.
It is not new for East Sussex county council to whinge; it does so annually. Indeed, back in the 1970s I took part in the whingeing, although then we had some cause. In the four years to 1997, our real-terms funding was minus 7 per cent., and that included education. There is a history—and that situation occurred not long ago. Even more recently, at the general election, the Opposition offered us a zero increase in local government funding. If that had come about, we should be experiencing real problems.
This year, East Sussex county council received an extremely good education settlement—and not minus 7 per cent., but a 2.1 per cent. funding increase, to deal with everything else. As Mr. Pickles pointed out, the council's Tory leadership suggests that the increase was only 0.6 per cent. That is wrong. Let us at least get the facts correct: it was 2.1 per cent., more or less in line with inflation.Given such an increase, it is shameful that the council is trying to destroy many important local government services, especially social services. I am grateful to the hon. Member for Brentwood and Ongar for mentioning that the only day-care centre in Rye for older people is to be closed.
I am honoured to be president of the local branch of Mencap, but funding for its active art provision for about 60 adults with learning difficulties is to be completely withdrawn. One of the cruellest cuts of all will affect Rethink SOS, which helps people in the first weeks after they have attempted suicide. As far as the service is aware, no one has tried to take their life again. That may be luck, but the service has been vital, and its funding, too, will go completely. Furthermore, £500,000 is to be withdrawn from care for carers. The Government may have made a mistake in not ring-fencing the care grant, as they originally proposed, because the Tory council is now able to cut it, as well as funding for respite care. That shows what caring Conservatism means in East Sussex. At least we have a test bed—we know what Tories do when given the opportunity—so that will be a lesson, despite what the new leadership suggests.
Such things might have been necessary if the funding had been cut, but with an inflation increase in grant and a double-inflation increase in the council tax proposed, they are simply unnecessary. None the less, is 2.1 per cent. enough? Cuts are not necessary this year because the county council can look to balances and other funds, but I have to tell my hon. Friend the Minister that in the longer term, it would not be possible to maintain such services if an increase of 2.1 per cent., covering inflation only, were provided.
The reason is very obvious. East Sussex has a growing elderly population—many people are over 85 years of age—and the formula is flawed. The Minister well knows about that because he has been gracious enough to listen to the arguments made by East Sussex county council—or perhaps he did not quite hear them, but he certainly listened to them—and there is certainly a need for additional funding for people over 85. That is very important, but it has not been fully taken into account.
Moreover, East Sussex has particular needs because of the cost of labour. We are just outside the home counties, but we compete with them for labour. My hon. Friend will say that the area cost adjustment has been spread, thus making it fairer, but it does not feel like that in East Sussex; the truth is that the current formulation of the ACA allows counties way outside the London area to benefit, and we lose out.
May I draw to my hon. Friend's attention something that I announced in the statement of
I should have given my hon. Friend credit for that. I said earlier that he listened but did not hear, but he obviously did hear, and I am grateful to him for indicating that there may be some hope for future years, which is, of course, what we are talking about.
The formula also has another flaw. My hon. Friend has mentioned that the property value arrangements have changed, but it seems to me—he may want to respond to this in his reply—that property values are still taken into account. For example, a pensioner or postman on precisely the same income living in an expensive property in Hastings or East Sussex will have no greater income than a similar person living elsewhere, but the property value will be taken into account in determining the needs element under the formula.
I repeat that this year, East Sussex county council has no reason to make the draconian cuts that it intends to implement—but next year and the year after, there may be an argument for doing so unless the formula is reassessed. I want to ask my hon. Friend a question. How is it that a pensioner in Hastings—the 30th poorest town in Britain—is worth £657 per capita, whereas the sum will be as great as £1,000 or more in other parts of the country? There is no justification for that, and I very much hope that my hon. Friend will think again about the grant settlement in the near future.
I thank my hon. Friend for the fact that the borough council in Hastings, where a concentration of need exists, has done extremely well. I am grateful to him for that money, which the council has been able to spend extremely wisely in improving local services, but the difficulties are magnified in a poor area in a not-so-poor region or county, and we need to find a way to deal with that problem. I ask him to tell his friends in the Department of Health that we need to keep our primary care trust, lest a wider spread of the resources create the same problem.
I am pleased to follow Michael Jabez Foster, who drew on the nub of my argument, which is that it is possible to have areas of relative deprivation in places such as St. Albans, and it is hard for people in those areas to pay high council taxes.
St. Albans is a constituency that is stereotyped as being wealthy, but it has areas that are characterised by having poor housing, poor health outcomes and poor future prospects. We endure high housing costs. I stress "endure" because many young people are struggling to get on to the high housing costs ladder. As a result, we have long waiting lists for social rented housing, significant levels of homelessness and overcrowding. For many, the council tax is an enormous growing burden that they struggle to pay.
As we know, the council tax is divided into four categories: parish, police, district and county. The residents, however, do not see it like that. They make no distinction and just see the final figure that lands on their doormat. Since 1997, council tax bills in St. Albans have increased by 96 per cent. A standard band D household could expect to pay £634 in 1997. The same household would now expect to pay £1,242.
What is the major cause of this grief? I talked to both county and district councillors, and the main holes are in their county, district and policing costs. A constant complaint is that a huge number of extra responsibilities and duties have been placed on authorities in each sector, but the funding does not reflect that. A person might ask, "Do I have a profligate county council?" Labour Members implied that some Conservative county councils either keep money to themselves or throw it away.
Conservative-controlled Hertfordshire county council is rated as excellent. It is one of the best in the country and has received a four-star rating for the fourth successive year. Hon. Members should accept that it knows what it is talking about. Hertfordshire county council is on the grant floor, so any rise is 2 per cent., which nowhere near reflects the costs and demands placed on its services. The leader of the Conservative county council, Robert Ellis, tells me that to keep costs down, it has doubled the efficiency savings that the Government required it to make. It is being very prudent. However, the margins are now tight.
Hertfordshire has pressed the Government—I am sure that the Minister is aware of this—for a realistic level of funding. The headline statistics make worrying reading. In the financial year 2006–07, the formula grant is nearly £150 million—an increase of just 2 per cent. Hertfordshire is one of five authorities with the lowest increase out of 14 other comparable shire counties that also have fire responsibilities. The average of all authorities in England is 3 per cent. For 2007–08, the formula grant is a little over £151 million—an increase of 2.7 per cent, but lagging well behind the rest of England, which will get an average of 3.8 per cent.
What do those different figures mean for my constituents? I am told that with a grant floor it will be very difficult for Hertfordshire to invest in new capital projects, such as schools and transport. That comes at a time when the building schools for the future programme and local transport plans mean that there will be a high expectation of local authorities delivering significant new investment. However, Hertfordshire believes that it will have to cut key front-line services.
Hertfordshire has one of the highest incidences of people with learning disabilities in local authority-supported residential care. The demand for that service is one of the main reasons for the council spending above its funding limits for personal and social services. However, the calculations take no account of the relative needs of people with learning difficulties, so yet another funding expense will land on the taxpayers' doorstep.
The recent Buncefield disaster will have a major cost implication of £2.5 million for the authority, despite the Bellwin formula settlement. That disaster alone will equate to an extra 0.65 per cent. increase in council tax. My district council will also have an ongoing cost as a result of Buncefield. Talking to it today, it said that it will have to monitor the water and environmental impact for years to come and there will be no additional funding. As I said, council tax bills have risen by 96 per cent.
It would be easy to add fuel to this particular roaring fire because we have a Liberal Democrat-run district council. On top of all the other woes for my constituents, it felt it necessary to appoint an additional diary secretary, at £33,500 extra per annum, and a new chief executive, who we have always managed without, at an additional £100,000-plus per annum. On top of that, the councillors have just awarded themselves a pay rise of 33 per cent. I do not want to get carried away with or distracted by those figures. There are serious issues of additional Government-imposed responsibilities that are not funded adequately.
One particular extra duty that the Government have placed on the district council is a higher recycling target. We all welcome the push to encourage greater recycling, and to be fair the Government have supplied capital funding to acquire new wheelie bins, public service vehicles and so on, but no extra funding has been provided to run the additional recycling rounds. That means an extra £100,000 burden. The head of finance at St. Albans district council today told me that he estimates conservatively that that will cost the council £400,000 in addition to the standard refuge collections.
I am also told by officers in the licensing department—I have mentioned in the House before the fact that St. Albans is supposed to be one of the towns with the most licensed premises in Europe—that the Licensing Act 2003 has meant that additional staff are needed to deal with inspections and to man a noise nuisance helpline, which the council feels obliged to run 24 hours a day. That means an additional £80,000 net of the fee in extra costs to the council.
Another area of concern is the disabled facilities grant. I am told by my council that year on year it has had its contributions cut. I would welcome the Minister's response to that, but that is what I have been told. This year the council will receive a £25,000 real-terms cut. Demographics are changing. In St. Albans, more and more elderly and disabled people are staying in their own homes, and we welcome that. Rightly, the council wishes to try to help them to stay in their homes and to live valuable, long lives. However, the Government have also increased the eligibility criteria, which will come into effect from
To return to the early part of my speech, I have massive lists of people and full surgeries of those who want houses in the social rented sector. Perhaps there is not the reinvestment that the Government would like, but the council is having to fund this budget deficit. Instead of money from council house sales being ploughed back into providing much needed accommodation, it will have to be diverted into building extensions and adapting housing for disabled people who qualify for grants. As more and more elderly and disabled people are living in their own homes—private homes, I might add—the majority of grants from the public sector will be diverted to residents, who I accept are needy, in the private sector. A rather perverse and, I would imagine, unforeseen method of wealth distribution is happening in St. Albans.
The Government give a per capitation figure for the eastern region to deliver disability grants, but as has been said, there are certain cost implications in certain areas. With the high cost of building and employing staff in St. Albans, that figure will not go anywhere near to covering the cost of allowing elderly and disabled people to have their homes extended to facilitate their living at home. My council is very worried, and to quote the words of one officer today:
"We have just about reached the limits of our ability to tax the public".
I do not have time to address the £5 million year-on-year, real-terms deficit that my chief constable told me and other Hertfordshire MPs only last month he has had cut from his budget, or the £17 million rebranding exercise that may happen as a result of police amalgamations, which will also land on the tax payers' doorstep. Needless to say, that will all add to high bills for my constituents.
My council is calling on the Minister for support for capital investment delivered through capital grants. That is exactly what it has written to him about. It wants a fairer and more transparent grant system that recognises the true cost of extra demands on services and which, more to the point, the person in the street can understand and see as reasonable and fair.
The few words I wish to say may sound a little parochial, but many right hon. and hon. Members across the country will identify with them.
The change to a new system of local government finance will have two main effects including, first, a continued shift of resources from constituencies such as mine in the south-east to other regions. Secondly, a system has been created that seeks to disguise—[Interruption.] I hope that the Minister is listening, because that system seeks to disguise the unfairness that the shift causes in the provision of vital services by the councils that lose out.
I think that the hon. Gentleman was in the Chamber when Mr. Curry confirmed that there had not been a shift in resources from constituencies such as the hon. Gentleman's to constituencies further north.
I will prove to the Minister that there has been a shift from areas such as West Berkshire. Whether those resources have gone north, south, east or west, I shall leave the Minister to work out, as his Department has contrived a very confusing system.
My right hon. Friend Mr. Curry is quite right—we cannot look at the issue properly if we include the schools money, and the figures that I will use are for non-schools grant. Many authorities receive two and, in some cases, three times as much grant per head as councils such as West Berkshire that do worst in the system. As if the situation were not iniquitous enough, some authorities enjoy annual increases far above those received by West Berkshire. Middlesbrough, for example, has received a 5.7 per cent. increase; Stockton-on-Tees, 4.9 per cent.; Hull, 4.8 per cent.; and Hartlepool, 4.2 per cent. West Berkshire, however, must make do with a below-inflation settlement of 2.1 per cent. In short, a system that is already grossly unfair has been made more unfair with each passing year.
The predictable reaction to that unfairness from the Government is to claim that those disparities are simply a reflection of greater deprivation elsewhere, but that argument is flawed. If we use the indicator of average weekly income, the Government's own statistics show that average income in a relatively well-off area such as West Berkshire is 50 per cent. higher than in council areas with the very lowest incomes in the country. How can that disparity justify Government grant levels 300 per cent. higher in other areas?
The change to the new funding system has hit West Berkshire and a number of other south-east councils particularly hard for another reason. For many years, West Berkshire council, along with neighbouring councils such as Wokingham, were short-changed by a system that imposed ceilings on grant levels. Although demographic trends meant that the Government calculated that West Berkshire required large increases in grant to meet service needs, those were curtailed to pay for grant increases to other councils. Last year, as hon. Members will recall, the grants ceiling was removed for one year. West Berkshire received an overall increase in grant of 11 per cent., and it began to offset the years of bad settlements that it had previously received. A year later, under the new system, West Berkshire is no longer at or, indeed, above the grant ceiling, but is on the floor, with a below-inflation increase in its non-schools grant of 2.1 per cent. How can a council be assessed as requiring a massive increase in grant one year, but receive a grant below inflation the next?
I try not to be cynical, but one can understand why people ask if it is more than a coincidence that the funding system has been changed just as it was finally about to start to address long-term inequalities in funding for some authorities in the south-east, where the Labour party has virtually no presence.
There is a final aspect to the changes in this year's funding system that should not go unnoticed. We live in the world of the relative needs formula. The effect of this change is to render an already complex and opaque system virtually unintelligible. That is helpful, if the system is designed to move resources from one area to another without any genuine justification or accountability. Despite half-hearted Government protestations to the contrary, the old system of formula spending share effectively set out what the Office of the Deputy Prime Minister thought local councils should spend in cash terms on various services.
Not surprisingly, the old system produced some uncomfortable statistics for the Government. The last set of figures for social services FSS in 2005–06, updated for the last time in this year's release of information, showed that West Berkshire came 146th out of 150 authorities in the amount of funding the Government expected it to spend on social services per head. Effectively, the Government expected West Berkshire to provide social services by spending just £197 per head of population, compared with up to three times that sum in other councils.
Clearly, that was always nonsense, brought about by the inequity of the funding system. West Berkshire has the same demographic pressures as other councils, with an ageing population, increased cases of dementia, and so on. The needs and unit costs of social services clients are not radically different because they live in West Berkshire rather than in inner-London or places further north. Why should services to some of the most vulnerable people in our society be underfunded by the Government simply because those people happen to live in an area which, by Government calculations, is moderately better off than other areas?
The truth is that an elderly or disabled person in need of social services provision living in Newbury has just the same requirements as someone in a similar condition living in Newcastle, but the Government believe that my constituent is only a third as important as somebody living in another area. Unsurprisingly, the new system of relative needs formula provides no monetary statistics. The Government say that is because the old system was misrepresented, but it is precisely because the old system exposed such unfairnesses that it has been changed.
There are two other areas that are worthy of consideration in such a debate. First, West Berkshire receives back far less in business rates than it contributes. That is another example showing how resources are shifted surreptitiously from one area to another. It is not a system that is understood by the electorate out there. Secondly, the people of West Berkshire have thankfully taken the only course of action open to them that can mitigate the effects of Government underfunding: they have elected a Conservative administration, which in its first year—[Interruption.]
I hear a scoff from the Liberal Democrat Benches. The Liberal Democrats controlled that local authority, and they were happy to see the people of West Berkshire caught in a pincer movement between a Government who fiddled the funding and imposed the Chancellor's savage stealth taxes on them, and a Liberal Democrat authority that ramped up council tax year on year to pay for ridiculous spending and pet—[Interruption.] I certainly blame both, because I had to live under them for too many years. I am happy for the Liberal Democrats to see our figures.
The people of West Berkshire have now elected a Conservative administration which, despite the appalling settlement that it has received, has identified pensioner poverty as a major problem that is being exacerbated by council tax. The administration wants to keep council tax down. It has recognised the effect of council tax on young families as well. It has managed to achieve a record settlement, even in the climate that the Government have created. I am enormously proud of the Conservative administration running West Berkshire council. It is doing its best to provide quality services within a system of Government grant that is unaccountable, whose logic is untenable and which creates a disparity of funding that is totally unfair.
I want to raise two topics with the Minister: first, the supporting people programme, the grant for which has fallen by 1.7 per cent. nationally; and secondly, the transparency and rationality of the grant formula.
As Mr. Pickles said, the supporting people programme is admirable. Its aim is to help people to live independent lives at home. They include those who have been homeless and rough sleepers, ex-offenders, people with disabilities, people at risk of domestic violence and people with drug and alcohol problems, as well as several other vulnerable groups such as Travellers and people with HIV and AIDS. The programme provides funds in order to, for example, help people to access their correct benefit, ensure that they have the right life skills to maintain tenancies and provide advice on home security. Finding a place for someone to live is often not enough: unless they are given help in maintaining a new and stable lifestyle, they may be in danger of slipping back into their former lives.
The problem is that funding for the supporting people programme was cut last year, is being cut this year and looks as though it will be cut again next year. The origins of the cuts lie in the Treasury's belief that the programme is too expensive. However, the cost to the public purse, through the health service, the criminal justice system and the benefits system, of failing to reintegrate vulnerable people is also very high.
I understand that the Government are consulting about the future of the supporting people programme, and I hope that they will decide to give it the funding that it deserves. I have two comments for Ministers to consider in the course of that consultation. First, as Mr. Turner, said, there is an interaction with health spending. That is particularly true of mental health spending. There is a serious problem with the provision of mental health services in many areas. In my own constituency, cuts of 13 per cent. in mental health funding have been proposed. Some of those cuts—to day centres, for example—affect precisely the same people as cuts to the supporting people programme. All I ask is that the Department of Health and the Office of the Deputy Prime Minister work together to ensure that these most vulnerable people are not hit twice by separate Government policies.
Secondly, there is an interaction with spending on homelessness. I note from the figures before us that the special grant for tackling homelessness is rising just as the special grant for the supporting people programme is falling. That rise is welcome in itself, but Ministers should remember that the homeless are among the most important of the groups that are helped by the supporting people programme. I would like an assurance from the Government that they are not merely shifting resources around from long-term help in supporting people to short-term help for the homeless. The supporting people programme is a crucial part of dealing with homelessness. The policy of moving people through gradations of housing until they are able fully to support themselves is absolutely right, but it will not work unless people are helped to stabilise their lives. Emergency services for the homeless usually win more headlines, but long-term success depends on such programmes, and they need to be maintained.
The other issue that I want to raise is that of the lack of transparency in the system of calculating grants for local authorities. In December, the Minister said that the settlement was purely cash based and did not involve any assumed council tax levels for each authority, as in the past. That caused much amusement in local authority circles. No system for the allocation of grant to local government can be purely cash based, because all systems start with the national control total and work backwards. The formula is a way of distributing a fixed budget. Anything else would cause chaos in central Government finances. If one proceeds as the Government have, all that one does to get the figures to add up is to introduce a bit of trial and error by running the formula repeatedly, using slightly different figures, until the right totals appear.
The Government's purpose in shifting to the new system appears to be purely to avoid having to publish the assumed council tax figures for each local authority. They complained that the figures were misunderstood and that local authorities were using them for inappropriate purposes. The Minister mentioned standard spending assessments, which were misused. That is true but they were mainly misused by central Government. The SSA constituted a method of working out the share of the national total but it was used to criticise local government for spending too much or too little.
It was the other way around with assumed council tax. The assumptions were understood only too well and the Government appeared desperate to disguise them. To do that, they produced a system that is, according to the Chartered Institute of Public Finance and Accountancy, more complex and much less transparent than the previous system. However, it is not clear that the Government have even succeeded in hiding their assumptions about council tax amounts and the way in which they calculated the figures. Finance officers in councils throughout the country are busy working out what the Government's assumed council tax for their council must have been.
Yes, but there is a question of wasting their time. The attempt to hide the assumed council tax in relative shares of spending does not work because the Government ultimately have to publish absolute figures for the total grant and a specific negative amount to represent the total national council tax base. That means that it should be possible to reverse-engineer the formula to return to the assumed council tax levels. The Government should save people the time and effort of working that out and simply publish the figures, which they used to do.
The other, perhaps more serious, problem with the formulae as they are currently presented is that they mix technical assessments with political judgments. Whether a formula successfully predicts the amount of need for a specific service or the cost of providing it in different areas is a technical matter—a sort of exercise in amateur sociology and economics that can be checked against the research. However, the balance of funding between different blocks—hidden in the "basic amounts" in the formula—and, I suspect, different sorts of council, is a political decision. The Minister is right to say that there is no bias in different regions except accidentally at the end, but I stress that the decisions about the balance of funding between different sorts of council are political.
I believe that we should be considering two reports, not one. There should be a technical report that provides evidence for a specific way of predicting need and cost, and a political report that gives the Government's reasons for opting to support particular services and sorts of council.
A Government who even suppressed the assumed council tax level are unlikely to want more openness in the rest of their activities in that field. However, a Government who were committed to a clear and open debate about their priorities would welcome openness.
We live in an unjust country. The Government are unjust and I blame local government's powerless state on the Labour leader. Since he took power in 1997, he has shown little or no interest in local government.
What is the point of anyone becoming a councillor nowadays? The centralising Government tell local authorities everything that they should to do. They tell them how much to spend and what they can raise. Central Government direct every facet of local government. What on earth is the purpose of anyone standing for local government?
A deputation from Southend council met the Under-Secretary of State, Office of the Deputy Prime Minister, Jim Fitzpatrick, last month to explain to the Government Southend's serious financial predicament and to try to get more help from him. As the Minister knows, when the national census was conducted, 20,000 people in Southend were left off it. That means funding for 20,000 fewer people. The Minister is always courteous when he meets us and has been sympathetic, but my colleagues and I are not going to shut up and wait until 2011 for something to be done.
In Northamptonshire, we have the reverse problem. The population will increase massively as a result of the Office of the Deputy Prime Minister's growth area agenda, but the population assumptions in the local government finance settlement are based on historic census data and do not include the projections provided in the growth area assessments.
There we are; I was exactly right when I said we live in a very unjust country.
We have a serious situation in Southend, with 20,000 people left off the census. We cannot wait until 2011 for that to be addressed. The Minister also knows that Southend pier has been burnt for the third time, that we are suffering cliff slippage and that Southend, West—the constituency I am proud to represent—has the most people in the country aged between 100 and 112.
They certainly are good Conservatives.
All that brings huge financial difficulties. At the meeting with the Minister's colleague, we brought to his attention the fact that Southend had received a 2 per cent. increase while the average across the country was 3 per cent. We also brought to his attention the fact that if the local authority increased local council tax by more than 5 per cent., capping would take place. If we follow the Minister's instructions, Southend will have to make cuts of £11 million—on top of £25 million of cuts over the past five years.
I end with a gentle warning to my hon. Friends. It is normal when one takes a deputation to a Minister asking for more money not to expect any change. But this settlement takes the mickey. Following our delegation—my hon. Friend James Duddridge, members of Southend council and me—the grant was not left alone; it was actually cut further. As a result of our delegation—
The Minister shakes his head, but as a result of our deputation—my hon. Friends must bear this in mind, until we enter office—we have actually had our grant cut by £34,000. That really is taking the mickey. I am desperately disappointed with what the Government have done.
I shall keep my remarks short as I know that the Minister wants to reply.
Despite what the Minister had to say, quite a few Opposition Members have spoken on behalf of authorities whose allocation of moneys is on the floor. I should not want to cut across what the hon. Members for Wigan (Mr. Turner) and for Barnsley, Central (Mr. Illsley) had to say, but I assure the House that in London, having a social services grant on the floor does not necessarily mean living a life of luxury. Within my local authority there is, unfortunately, a need to close down an industrial organization that has given jobs to 85 disabled members of the community. There has also been the acceleration of closures of old people's homes. The Minister and my hon. Friend Sir Paul Beresford raised the issue of affordability. That is an important issue, especially within the context of London.
Within my constituency, there was a recent analysis by Barclay's that showed that the real standard of living—when account is taken of the costs of living in London—in Croydon, Central is within the bottom 100 constituencies in England and Wales. The neighbouring constituency of Croydon, North is within the bottom 30. Careful consideration must be given to the allocation of moneys to constituencies in outer London, which are showing great signs of a decline in the quality of public infrastructure. That is recognized by the Mayor of London.
Within Croydon, there are real issues with specific grants that go into the overall revenue settlement; for example, concessionary fares and importantly, for Croydon and Hillingdon, unaccompanied asylum-seeker youngsters.
Briefly, I pay tribute to the London borough of Sutton, which is controlled by the Liberal Democrats. There is a desire there to work on a cross-party basis to lobby on behalf of that borough's interests. The approach taken was a great success for the borough in terms of achieving its position in the area cost adjustment in falling within a west London council definition. Unfortunately, the London borough of Croydon has not fallen within that process. If I had some criticism of the Labour authority in Croydon, it would be its unwillingness to operate in a bipartisan approach to the Minister that involves both the Labour and Conservative parties. That is both before my election to the House and afterwards.
I suppose that, on a party political point, that will not be a problem for me after the coming local elections. However, it is important to take a constructive approach. When it comes to area cost adjustment in terms of west London councils on the provision of education, children's services and other elements within cost adjustment, we find that the boroughs are being funded at a rate of 6 per cent. higher than other boroughs within outer London. It strikes me that that is an unjustifiable effect of the operation of the ACA within the funding formula.
Overall, it will have cost Croydon council £40 million relatively in funding over the three-year fixed period that has been locked in by the Government. There seems also to be a contradiction in funding within London on schools. The average funding for secondary schools within Croydon is £3,300 per pupil whereas in many London boroughs the funding will be £5,000.
I concede that there have been problems within Croydon, given its fascination for council tax referendums that allowed the opportunity for increases of 2 and 3 per cent. in the run-up to the previous local elections. Obviously, that led to a great deal of trouble for the local authority in increasing its council tax by 27 per cent. immediately after the local council elections. Unfortunately, that will operate as a distinct handicap for the Labour party in trying to retain control of Croydon council at the upcoming elections. The residents of Croydon will easily remember 27 per cent.
Croydon is going through dynamic change. Many of the wards within Croydon have the highest populations of black and ethnic minority communities, and it is important that we serve those communities. The political agenda within London, understandably within the context of the Olympics and London 2012, has been to concentrate resources on the development of the Thames Gateway area.
Funding that comes to London through learning and skills councils also discriminates strongly against southern London. In the review of area cost adjustment for subsequent years, I hope that the Minister will give serious consideration to the need to take account of the real costs of operating in London. Boroughs such as the London borough of Croydon require greater equality of treatment. The director of finance of the London borough of Croydon recently said that we operated within an ACA that put us in a valley of payments, or low point, compared with neighbouring Bromley and Sutton.
Serious consideration should be given to the real dynamic changes that are taking place in Croydon's population. As many other hon. Members said, especially Michael Jabez Foster, we must realise the problems that are caused when areas with distinct deprivation are not well supported through the overall allocations. That problem applies especially to the London borough of Croydon because its northern parts and some areas of Croydon, Central, which I represent, have many facets and styles that are similar to those of inner-London areas.
Unfortunately, as the Minister will be aware, there was recently a great deal of publicity about the fact that our main station in Croydon has the highest rate of reported crime of any outer-London rail station. That in itself is an indication of the some of the decline that has taken place in the London borough of Croydon, which ought to be addressed through the future allocations of resources to Croydon. When the Minister winds up the debate, I hope that he will provide us with some positive remarks about how the area cost adjustment for Croydon will be reviewed in future years.
With the leave of the House, Mr. Deputy Speaker, I shall reply to the debate.
I thank hon. Members on both sides of the House for their contributions to the debate and will try to respond to their points about the settlement. Over the past few weeks, I have been keeping a private tally of the most ingenious arguments that hon. Members have made for why their constituencies are being unfairly treated and good contributions to that competition were made this evening. Hon. Members representing some of the wealthiest areas in the country said that they should be rewarded for living in wealthy areas. Conservative Members said that money is being given to northern Labour areas, while we heard from Labour Members representing northern areas that money is being given to southern Conservative areas; I make no comment about that.
The winner of the competition has to be Mr. Amess, who complained that the delegation that he led to meet Ministers from the Office of the Deputy Prime Minister resulted in a reduction in his area's grant. I am highly tempted to save that one until the next general election and put out a performance review grant. Unfortunately the hon. Gentleman is not in the Chamber, but the truth is that the reason for the changes was entirely due to statistics. I am well aware of Southend's difficulties due to the fire at its pier and have previously commended the hon. Gentleman on his campaign about population statistics. I referred to that general issue during my opening remarks when I said that the Government rely on the most robust figures available, which are those from the Office for National Statistics.
The hon. Gentleman also criticised the Government for using historical trend population figures. May I re-emphasise the fact that the changes that we have made in the settlement take account of future projections, as well as historical changes, to take on board points made by hon. Members on both sides of the House during the consultation and recent meetings?
The hon. Member for Southend, West said that his council was implementing cuts of £11 million. I wonder why Opposition Members have such short memories. A cut is a reduction in the cash available to spend on services; a cash reduction or a reduction after inflation, if one wants to define it like that. A cut is not a smaller increase than was hoped for. [Interruption.] Opposition Members, who are incredulous at that point, need to get back to the days when they were a party of sound finances. It is not credible to stand before the electorate in May, in the context of increased grants from the Government year on year, over 10 years, and complain about cuts. That is just not tenable.
That is not to say, as I said in my opening remarks, that the Government have not recognised that there are pressures on councils, particularly as a result of an increasing elderly population, increases in the costs of waste recycling and increases in other areas, above the net new burdens identified by the Local Government Association and ourselves, which were provided for in this settlement. Opposition Members cannot have it both ways. They cannot say that the reductions in services in some specific areas of council expenditure are due to this settlement; they are not, and it is not credible for them to argue that point.
Surely the hon. Gentleman has something better to offer us than "Yah boo sucks". Surely he recognises the growing pressures and burdens on local authorities. Things are closing down from Rye to Rugby. Things are closing down from Lancaster to Surrey. Things that were funded last year are not being funded. Is it all just a conspiracy to make the hon. Gentleman look bad?
With respect, the hon. Gentleman repeats the mistake that I just warned him against. I am more than happy that he carries on doing so. He needs to listen to his own electorate. They will not put up with what they see as public sector profligacy. This Government have provided above-inflation increases and investment in local government for 10 years. That is a fact that he cannot deny, and no amount of Central Office press releases will change that. It is also the case that the Local Government Association, very responsibly led by a distinguished ex-council leader in Sir Sandy Bruce-Lockhart—not a Labour member, but a Conservative councillor speaking on behalf of all councils—entered into a process with the Government to identify any net new burdens. We did that, and we reached agreement on it. We also identified pressures on local councils over and above inflation.
There are two points that the House has to recognise. The first is that those pressures exist for central Government as well. They do not stop at the county border. The pressures from the increased elderly population, the demands on health and other services, exist for central Government, and it is incumbent on us to ensure that resources are fairly distributed and that budgets balance. One cannot then say that the pressures on councils are the fault of the settlement; they are not. Where there are real pressures, and we have acknowledged them, it is because of the real world.
If the hon. Gentleman wants to intervene again, I will allow him to do so briefly because I will be fascinated to hear what he has to say. My second point is that if local government wishes to be a partner in governance of this country, it has to accept its responsibility in balancing budgets. It is to no one's gain for it to say, month after month, year after year, in the context of a 79 per cent. real terms increase in council expenditure, that the Government should provide more; from where?
Given the nearly 80 per cent. increase in council tax, how can the hon. Gentleman lecture anyone about profligacy when his own Department has wasted £168 million on consultants and when the level of financial competence in the Department is a disgrace? If the Office of the Deputy Prime Minister cannot run itself, how can the Minister possibly lecture others?
I would make two points in response to that intervention, which notably failed to answer the challenge that I put to the hon. Gentleman. My first point in response to his allegations is that, when he sees the figures on the Gershon efficiency savings, he will find that my right hon. Friend the Deputy Prime Minister's Department is leading the field, along with the Department of Health, in that regard. Secondly, I challenge him again to tell the House what his policy is. If he is saying that a 79 per cent. above-inflation increase in grant is insufficient, and that he does not wish to see above-inflation increases in council tax, what is his policy? The fact is that there is no policy on offer from the hon. Gentleman, unlike Sarah Teather, who has an alternative.
My hon. Friend makes a valid point.
The hon. Member for Brent, East once again blamed the system for the increases in council tax. She acknowledged the increase in grant, but criticised the increases in council tax and blamed the balance of funding for the problems. The problems faced by councils—hers in particular; I have met a delegation from her council—are to do with the real-world pressures of an increased elderly population, increased costs of waste disposal and recycling, and increased costs as a result of other demographic changes. Those pressures cannot be wished away by a change in the formula or in the balance of funding. They can be, and are being, addressed by a strategy, agreed in conjunction with the Local Government Association, of addressing those underlying causes.
Both the Opposition parties argue that Her Majesty's Government should recognise a separate level of inflation for local councils, over and above the level for central Government expenditure. That is not a tenable policy; it is economically illiterate. Were we to adopt an inflation level for local government that recognised the demands placed on local government, it would become a self-fulfilling prophecy, and people would be back again next year arguing for even more money. The public would, quite rightly, not accept that.
Will the Minister reflect on his use of the word "profligacy" in relation to local government? Is that really his view? Does he not think, with hindsight, that councillors of all parties up and down the country might find his use of the word offensive in that context? If he does think that his use of the word was valid, will he tell us which services currently provided by councils should no longer be provided?
I chose my words deliberately, as hon. Members would expect, and I expected such a response from Opposition Members. The hon. Gentleman cannot have it both ways. He cannot blame the Government for the pressures on local councils while recognising the 79 per cent. above-inflation real-terms increase in grant that councils have received. If he wants me to enter into a debate about the council of which he was leader, I shall be happy to use the word that he accused me of using.
It is indeed. I might also ask the hon. Gentleman to tell us what the staff complement figures are now and what they were 10 years ago. The silence is illuminating.
Mr. Pelling asked us to look again at the area cost adjustment. I announced in the debate, and in a statement on
My hon. Friends the Members for Wigan (Mr. Turner), for Barnsley, Central (Mr. Illsley) and for Tyne Bridge (Mr. Clelland) made important points about the impact of "damping" and the need, as they saw it, for a timetable to reduce it. I am grateful for the positive way in which they raised those issues. It confirms the falsehood of the accusation that this is a new distribution formula heavily biased towards Labour areas. No doubt my hon. Friend the Member for Wigan sees some irony in that, but I am grateful to him for acknowledging that he has some sympathy for the floor as a policy. The floor relating to non-schools expenditure on education authorities provides the protection that he wants. Authorities such as his and mine would have been in severe difficulties without the double floor applying to the formula spend element and the overall grant.
Mr. Curry raised points about wider Government policy and priorities in education, health and development. He acknowledged that while this was a tough settlement it was inflationary on the whole, and was good enough to praise the Government for their increases in other areas. Sir Paul Beresford presented—as he often does—the argument against the full resource equalisation in the settlement. My hon. Friend Michael Jabez Foster welcomed the floor. He criticised his county council's priorities, while recognising the difficult decisions that it had to make. He welcomed the 5.8 per cent. settlement, and the 7.2 per cent. settlement for Hastings borough council.
This local government settlement will ensure above-inflation increases in grants for 10 years running. It provides stability and predictability through a two-year settlement, and builds on the policy of investing in local services. It does so in a fair way, recognising the needs of different types of authority across the country in a manner that is not politically partisan, despite the accusation that has been made. I commend it to the House.
Question put and agreed to.
That the Local Government Finance Report (England) 2004–05: Amending Report 2006, HC 856, a copy of which was laid before this House on 31st January, be approved.
That the Local Government Finance Report (England) 2005–06: Amending Report 2006, HC 857, a copy of which was laid before this House on 31st January, be approved.
That the Local Government Finance Report (England) 2006–07: Amending Report 2006, HC 858, a copy of which was laid before this House on 31st January, be approved.
That the Limitation of Council Tax and Precepts (Alternative Notional Amounts) Report (England) 2006–07, HC 859, a copy of which was laid before this House on 31st January, be approved.— [Mr. Woolas.]