It is a pleasure to follow Mr Betts, and it has been a pleasure to serve on the Select Committee under his guidance for the last four years. I agree with many of the points he made, particularly the last stuff on cladding. We know that is a much bigger issue than is currently accepted, and we need to deal with it. It is interesting that he talks about local authorities not having rents capped when it is Labour party policy to cap rents in the private sector. I am not sure that is a very balanced approach.
I agree with many of the points the hon. Gentleman made about the spending challenges for local authorities. Clearly, there are huge spending challenges for local authorities and also for the national Government. It is my belief that we will have to address this stuff in a very different way. This is not a party political point, but Governments of all persuasions have balanced the books in this country only seven times—they have done so in only seven years—over the past 53 years. We cannot simply keep spending more than we are getting in, otherwise we end up with the £2 trillion debt, which is where we are.
I regret some of the spending pledges in our leadership contest at the moment, because we have got to run this country much more prudently. We have to be able to balance the books on an ongoing basis, and certainly to do so within a cycle. We have some massive challenges ahead that we will all have to accept: the cost of healthcare that we are going to provide; the cost of pensions that we are going to have to provide; and the costs of social care. As things are at the moment, all this is going to land on the taxpayer. It does not seem feasible that that situation can continue, particularly in the area of social care. We know there is a funding gap for local authorities of about £3 billion, which will rise to about £8 billion within five years, according to the LGA.
The Minister is doing a brilliant job in trying to get extra funds, and also in making sure that the funds are spread fairly across the country. The current funding formula is certainly not fair. My local authority has about 50% less spending power compared with some London authorities, for example. We need a fair settlement—one that is fair to everybody—but this has to be a rising tide that lifts all boats. If we do not put extra money into the system, we cannot provide a fairer funding system, as my hon. Friend Sir Geoffrey Clifton-Brown said about school funding, and we cannot have some people losing out when everybody’s budgets are tight. We are going to have to find some more money for local authorities from somewhere if we are properly to address the fairer funding issue.
The biggest issues for my local authority, North Yorkshire County Council, are those involving children’s services and social care, which is what I primarily want to talk about. The difficulty with social care is that it has virtually zero correlation with the method of funding local authorities today or in the future. Moving to a system of business retention—the Minister knows I have reservations about such a system—means a finite amount of money for local authorities at a time when there is huge and rising demand for social care. There is no correlation between those two things. Local authority funding will be unsustainable. Either we find a new way of doing this, or local authorities will provide many fewer services in future.
The Select Committee considered social care twice. The first time, we went to Germany to look at the system there and then we conducted a joint inquiry with the Health and Social Care Committee. We settled on several recommendations, one of which constitutes the right solution, which is sustainable, scaleable and simple. It is the German system that was adopted in 1995. Before then, the German system was funded by local authorities. I am sure that they recognised that that was not sustainable, so they moved to a system of social insurance.
Everybody pays a small amount—just over 1% of people’s salaries, and the employer pays 1% of earnings—into a private insurance system. The insurance companies are not for profit—nobody makes any money out of the system. The levies are settled nationally, and the system also covers people with learning difficulties and disabilities. The system is simple and sustainable. Everybody pays a small amount so that nobody has to pay everything. That is the fairest part.