We return in this clause to the important issue of funding for local authorities. I am happy to tell the Committee that I agree with the sentiment that local authorities should be adequately funded by central Government for the costs to them of administering a mandatory concession. After all, it is Government policy to fund new statutory burdens fully. However, I say at the outset that it is in all our interests to get things right. There is no underhand plan to try to deprive anybody. The scheme is popular and will benefit 11 million people, and we want to get it right. I can confirm to the Committee that that is why we are paying so much attention to it.
The Government are providing up to an extra £250 million of funding a year for the new concession. The hon. Member for Wimbledon asked for a calculation of the £1 billion a year. I confirm that the figure for getting to the full-fare national scheme is £250 million, which is new money for 2008, and that the figure for moving up to the full-fare local scheme was £420 million, while the figure for moving to the initial scheme—that is, the half-fare local scheme—was £400 million. I hope that that is helpful but, as I have said, I am always happy to provide any further information.
I am confident that the £1 billion will be sufficient. There is indeed no mention of the funding of concessionary travel in the Bill, but for good reasons. Circumstances change, and flexibility needs to be built into the legislation to enable future improvements to concessionary travel to be made as efficiently and effectively as possible. It would be neither appropriate nor wise to lock ourselves into a particular approach now, when the important issue of funding is being considered and discussed across government and beyond.
Amendment No. 20 and new clause 2 propose a direct annual revenue grant to fund authorities. It is important to recognise that the freedom and flexibilities provided by the unhypothecated formula grant are generally supported by local authorities. Indeed, local authorities have long argued against having their hands tied by hypothecated funding schemes, and if I did not listen to them, I am sure that hon. Members would be the first to criticise me.
Concessionary fares reimbursement is only one of the many obligations that authorities must meet from their council tax receipts and from the funding provided by central Government through the formula grant process. I am aware that the Local Government Association strongly supports a specific grant for the extra funding for the national bus concession, at least temporarily. We are considering the merits of temporarily distributing the extra money through an unhypothecated specific grant. We need to be clear, however, that such a move would break from the policy of greater freedom and flexibility in funding, which is generally welcomed by the local government community.
I assure hon. Members that we continue to talk to the LGA and to the concessionary fares working group, which consists of representatives of all tiers of local government, about methods of distributing the extra money, including the option of a specific grant. I hope that that reassures the hon. Member for Rochdale about the level of consultation that we are undertaking in addition to the regional roadshows, nine of which have been held around the country in recent weeks, to talk directly to local people.
New clause 2 would require all the funding for the statutory concession to be distributed by direct annual grant, which would mean that existing funding for concessionary fares would have to be extracted from the formula grant system. I am not sure whether that is the intention of the new clause, as there is little support for such an approach. Moreover, the LGA and our concessionary fares working group support the idea of the current funding staying in the formula grant. They are all too well aware of the council tax turbulence and fiscal uncertainty that would result from the transfer of existing funding from the formula to a specific grant. With great respect to hon. Members, I can see little point in introducing something that local authorities do not want.
The Treasury, the Department for Transport and the Department for Communities and Local Government are carefully considering the merits of different funding mechanisms for statutory concessions. We are aware of the feedback from our working group. I referred earlier to the nine regional roadshows that my officials recently completed, to which all local authorities were invited. I assure my hon. Friend the Member for Tyne Bridge that Nexus representatives were present, and I am sure that he will wish to speak to them about how useful it was. According to the feedback that I have had, it was extremely valuable.
It is important that we get our approach right. We will continue to talk to interested parties in the coming weeks before coming to a view on the mechanism for the extra funding. The new clause is misplaced. If we decide that a specific grant is the right option, we will formally consult local authorities on the formula for distributing the specific grant. In any case, there is no need for the Bill to oblige the Secretary of State to fund concessionary travel as proposed by the new clause. The Secretary of State already has the power to fund local authorities for concessionary fares by direct grant, if he wishes. It would be inappropriate to require the use of such a funding mechanism in perpetuity without consulting all those with an interest.
The hon. Member for Rochdale expressed his dislike of funding for concessionary fares coming from revenue support grants, but local authorities have long argued for non-ring-fenced, single-pot funding. That is what the Government have provided, and that approach has been generally welcomed. New clause 2 would specify that a contingency fund be set up. The extra funding of up to £250 million a year for the national bus concession is based on a number of key assumptions, which include the generation of an extra 100 million journeys and a pass take-up of 85 per cent. Those are generous assumptions, because in some regions of England, pass take-up is less than 60 per cent. The £250 million figure also includes a contingency allowance to recognise the difficulties of allocating money on a formula basis. We are confident that the extra funding is sufficient to cover the extra costs to local authorities.
The hon. Member for Wimbledon raised the point that he was concerned about demand increases leading to higher costs and fare increases. I reiterate that the extra funding includes moneys to address uncertainties, and we have taken into account fare inflation in our calculation.
We are also sensitive to the issue of set-up costs. Earlier in Committee, we said that we would provide extra funding in addition to the extra £250 million a year to pay for the extra costs associated with implementation, such as the issuing of new passes. We are discussing the figures and the mechanics with the LGA and the concessionary fares working group.
In addition, proposed new subsection 149A(2) in new clause 2 proposes that a contingency fund be established to fund any unforeseen costs of the mandatory concession. Again, as previously, I am sure that the amendment is well intended. However, it is not practical or proportionate. How do we define unforeseen costs? That is a rather tricky task that will create its own bureaucracy, because every local authority will be incentivised to make a claim and there will be no balancing provision that such claims must be reasonable. The amendment erodes the incentives for local authorities to negotiate cost-effective schemes with operators and to manage overall costs effectively. That has happened in Wales, where local authorities pass on the full cost of their schemes to the Welsh Assembly. As a consequence, the total cost of the Welsh national scheme has been increasing significantly year on year. I am sure that the Committee will agree that we cannot sanction such an approach.
The existing arrangements contain appropriate checks and balances to ensure that public funds are spent wisely. They include an incentive for local authorities to reimburse cost-effectively by a fair amount and a right of appeal for any operator that believes it has been disadvantaged. Although the system is not perfect, it is fair to the taxpayer and operator alike.
The proposal for guaranteed funding carries with it the risk of unnecessary expenditure incurred by local authorities and bus operators going beyond what is fit for purpose. It is crucial that we get a good deal for the taxpayer. Giving an unconditional commitment, as requested, to fund any cost does not provide that. As I have said, extra funding already includes a contingency.
The same arguments apply to amendment No. 6, which specifies that the Secretary of State must reimburse local authorities when they incur a deficit of more than £500,000 as a result of reimbursing individual operators. Under section 31 of the Local Government Act 2003, the Secretary of State already has the power, with the consent of the Treasury, to make grants to local authorities to cover their expenses. Therefore, the amendment would add little. In addition, I do not find it helpful to introduce arbitrary thresholds with the potential to distort local negotiations.
New clause 4 proposes yet another review—in this case of the funding arrangements for local authorities. As the Committee has heard, we have embarked on a great deal of consultation with local authorities and other interested parties about all the issues surrounding the implementation of the national bus concession. We will continue fully to consult local authorities in line with existing statutory requirements. The Department for Communities and Local Government already has in place a well established annual process for consulting local authorities, both informally and formally, about the formula grant distribution. I see little to be gained from adopting this amendment.
New clause 5 proposes that the Secretary of State makes a statement every financial year about the amount that is made available to local authorities and the method of distribution. Again, I see little benefit from that. There is already the yearly local government finance settlement that sets out central Government’s funding of local authorities. That settlement does not, and cannot, earmark different sums for different purposes for the very good reason that the funding is not hypothecated. That is generally welcomed by local government, because it makes it clear that local government is responsible for choices on local spending priorities.
Referring to the comments made by my hon. Friend the Member for Tyne Bridge, there was indeed a problem in Tyne and Wear in respect of Nexus, which I was very glad to meet in recent months. Following consultation, the formula grant was adjusted to reflect support for disabled people and the needs of areas in which the take-up is likely to be high. That benefited not only Tyne and Wear, but all areas that had a higher than average number of residents who were disabled. The measure reduced the shortfall by about £7 million.
I would also make the point that extra funding was given to the metro to reflect the unique circumstances in Tyne and Wear. £1.7 million was made available last year, and also this financial year, to cover the financial impact on the metro.
With all of those points in mind, I hope that hon. Members will agree with me that the amendments are unnecessary and that the lead amendment will be withdrawn.