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Local Government Finance

Part of the debate – in Westminster Hall at 9:30 am on 3rd April 2001.

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Photo of Mr Keith Darvill Mr Keith Darvill Labour, Upminster 9:30 am, 3rd April 2001

I would not say that that is the proper comparison, but it is certainly one that is widely used.

First, the current system has lacked certainty. Only since the 1998 comprehensive spending review has that problem been addressed. In the past, there was uncertainty from year to year about the level of grant to expect, which hindered planning and modernisation of services. Stability and predictability are important changes for the better. Secondly, the current system gives authorities the same amount of grant regardless of what they are doing to modernise services. Thirdly, the grant system has relied too much on the mechanical use of the statistical analysis of spending. Fourthly, it does not apply any fine tuning to take account of circumstances in individual authorities. I would add a fifth weakness to those set out in the Green Paper: no account seems to be taken of the adverse historical circumstances that applied in some local authorities when the new system was introduced.

My complaints about and criticisms of the existing system are based firmly on my experience of finances in the London borough of Havering, not only in the past four years, but since the reforms were introduced by the previous Administration after the disastrous poll tax debacle more than 10 years ago. I speak from personal experience, not only as a politician, but as a governor for two local schools, an activist in the communities association in my local area, the backroom boy in the Labour party during those years and chair of the infamous local government committee in Havering.

How does the present system impact on boroughs such as Havering? First, the level of Government grant that Havering receives is one of the lowest in London. When compared with those of its neighbouring boroughs, the level of grant per head of population is significantly lower. That may sound like special pleading, which I accept to a certain extent in being an advocate for my local area. More importantly for this debate, that illustrates some of the weaknesses in the system.

For 2000-01, Havering received £578 grant per head of population, whereas Redbridge, its neighbour, received £741 grant per head--20 per cent. more. Barking and Dagenham, another neighbouring borough, received £896 per head--55 per cent. more--and Newham received £1,237, which was 114 per cent. more. I will continue to refer to those boroughs. Although deprivation levels are rightly taken into account, the structure of the standard spending assessment calculation does not reflect the pockets of deprivation in boroughs such as Havering, nor does it reflect the actual cost in, for example, the unit cost per pupil in the education SSA.

The basic structure of the SSA calculations is the number of clients multiplied by unit costs multiplied by area cost adjustment. The unit cost includes a national standard amount and a supplementary amount to reflect the assumed effects of deprivation, and sparsity or density, and the area cost adjustment reflects the higher cost of employing people and property in the area. The indicators in the formula determine the supplementary amounts that are detrimental to Havering. Although some data used in the education, social services and environmental, protective and cultural services--EPCS--service blocks are updated annually, such as the number of income support claimants, other data are based on the previous census, which was conducted 10 years ago, and have become considerably out of date.

To illustrate the detrimental effects of the formula, I refer to Havering's SSA for secondary education. The flat-rate unit is £2,306 for each pupil. The supplementary amount for deprivation is £309 for Havering, £448 for Redbridge, £549 for Barking and Dagenham, and £842 for Newham. The area cost adjustment is £283 for Havering, £298 for Redbridge, £309 for Barking and Dagenham, and £341 for Newham. The unit cost per pupil in Havering is £2,898. It is £3,052 in Redbridge, £3,164 in Barking and Dagenham, and £3,489 in Newham. The total secondary schools SSA is based on the number of pupils in the borough, which is 14,649.

I am sorry to repeat the statistics, but they illustrate an important point. If the SSA were based on the Barking and Dagenham unit cost, the total amount received from the Government would be £46.3 million. It would be £51.1 million for Newham, and £44.7 million for Redbridge. Havering receives only £42.4 million, which is £3.8 million below the Barking and Dagenham figure, £8.6 million less than Newham, and £2.2 million less than Redbridge. I appreciate that there are higher levels of deprivation in those areas, but the gap is too wide.

One can argue that it costs the same to educate a secondary school pupil in Havering as it does in neighbouring boroughs, in terms of the cost of teaching staff, staff-to-pupil ratios and school running costs. With those figures, Havering could attract £8.7 million extra in Government support on that part of the SSA alone. That is only one aspect of the formula. I could go on, because similar effects are illustrated by the EPCS service block and concessionary fares system.

The SSA formula has not reflected Havering's need to spend on local services, especially social services. Compared with outer-London boroughs in general, Havering continues to have one of the lowest SSAs per head of the population. Compared with its neighbours, the disparity is marked; Havering's SSA per head of population is on average 23 per cent. less. Although the borough recognises that the percentage increases in SSA for 2001-02 are good--double the rate of inflation--they will be applied against a low base and do not reflect true spending needs. In that respect, it is not as good a settlement as it looks.

Since 1995-96, Havering's budget requirements have consistently exceeded the SSA, even after accounting for drawing down from reserves--in 2000-01, spending was 4.5 per cent. above SSA. That inequity must be resolved. The continued underfunding has had a detrimental effect on the council's infrastructure. A prime example is highways maintenance spending. About 58 per cent. of the borough's street lighting columns are more than 15 years old, and in excess of 2,500 have significant deterioration. Spending on highways maintenance averaged 17 per cent. below the SSA in recent years. I was interested to look at the performance indicators. Whereas in the past, Havering's maintenance of street lights was average, it has now declined, which reflects the lack of investment in that important area.

The imposition of the ceiling for data changes appears to be unfair to councils like Havering. It already provides services for pupils in schools, for the elderly and other services for the general population and it pays higher input costs to employ skilled staff as reflected in the new earnings survey. Furthermore, as in other London boroughs there are recruitment and retention problems in key local government professions. The effect of the ceiling should be taken into account within the council tax benefit subsidy limitation scheme. It should also be taken into account in the passporting rules for the education standard spending assessment. Passporting the SSA increase in full will increase the loss to the council through the council tax benefit subsidy limitation scheme, yet Havering has the highest level of delegation in the country. Nearly 90 per cent. of devolved funding goes to local schools.

External support for Havering is one of the lowest in the outer London boroughs. In the past five years, it has averaged 71 per cent. while the outer-London average is 75 per cent. The gap is widening from 3 per cent. in 1996-97 to 4 per cent. in this year's provisional settlement. That means that in addition to having one of the lowest SSAs in London, which restricts the council's spending, Havering residents are expected to pay a higher proportion of costs towards local services. Currently, the council tax is well above average at £959 this year.

The borough loses out in other areas. Havering pays its levy to the East London Waste Authority based on band D equivalence. Funding through the SSA formula is based on population and deprivation indicators. The basis of the costs to the constituent boroughs is not represented in the SSA formula. If the levy were based on tonnage of waste generated, it would more closely reflect the funding stream and would save Havering nearly £875,000 per year. Another example is the mismatch between the funding and costs to the council in concessionary fares. The SSA formula, which distributes grants to fund that service, takes into account the way those services are paid for, but as the SSA formula includes deprivation indicators, our neighbouring authorities receive significantly more Government support to fund those services.

Havering also loses out in the London borough grants scheme. The total cost is allocated on a population basis, but grants made by the units to voluntary organisations whose work includes Havering represent approximately 10 per cent. of the amount that the council contributes. That is partly due to the fact that any grants allocated by the unit require match funding. The council has no scope to match-fund to attract those resources to improve services in the borough. I have gone though the difficulties that a borough like Havering has in some detail, but other boroughs throughout the country have similar problems. They have led to significant increases in the council tax. There was a 43 per cent. increase in council taxes from 1996 to 2001. There is a 12.4 per cent. increase for 2001-02. Increases above the national average are likely for the remainder of the comprehensive spending review period.

What does the future hold? The Green Paper sets out a number of ways of trying to achieve a better regime. A number of them require careful analysis. I am in favour of the safety valve suggestion. The Government recognise that any formula-based system is bound to have limitations and that those limitations could be resolved by allowing authorities to apply for further funding via a safety valve mechanism. That would allow the Government, presumably as a top-up to the revenue support grant, to pay additional non-ring-fenced grants to councils that appear to be underfunded.

I agree with that approach, subject to there being clear criteria that local councils can understand when applying for the funding. Comparisons of external support to the class of authority are a good starting point. The criteria should be consistent, holistic and not open to different interpretations. For example, unit costs can vary simply by the allocation, while best value performance indicators need to be applied consistently across authorities and years. The system should be neither administratively cumbersome nor costly. The Government should consider using other sources of information, such as inspection results.