Local Government Finance

HC Deb 30 November 1995 vol 267 cc1333-52 3.31 pm

The Secretary of State for the Environment (Mr. John Gummer)

With permission, Madam Speaker, I should like to make a statement about the local authority finance settlement for England for 1996–97.

In forming my proposals, I have listened carefully to the views of local authorities and their associations, and I have considered fully the demands which will be placed on local authorities in the coming year.

I have also given weight to the interests of the economy as a whole, and in particular the Government's objective of reducing the public sector deficit. Local government accounts for around a quarter of general Government expenditure and has been rigorously examined, as have all other spending programmes. It is clear that many authorities continue to have scope to increase their efficiency.

I have also taken into account our policy that increases in pay and prices within the public sector must be offset, or more than offset, through efficiency savings or other economies. Within available resources, our approach to public sector pay is flexible enough to allow pay to be set to reflect the circumstances of individual groups.

That is the background to the aggregate figures that I published on 28 November. The Government's view is that the appropriate level of revenue spending for local authorities in England—the total standard spending or TSS—in 1996–97 will be £44.92 billion.

My right hon. Friend the Secretary of State for Health will be making a separate announcement on resources for community care, which are included in the figures that I have just quoted. The figures also reflect the transfer of waste regulation to the Environment Agency from 1 April 1996 and certain other minor changes in local authorities' functions next year, and include provision of £100 million for the transitional costs of local government reorganisation.

The figures do not include resources to compensate local authorities for lost income from community care charges, arising from capital disregard changes announced by my right hon. and learned Friend the Chancellor of the Exchequer on Tuesday. A special grant report will be laid before the House in due course to authorise an additional grant in 1996–97 for that purpose.

My proposal, including provision for community care, reorganisation costs and the police, provides for a 3.3 per cent. increase in local authority spending year on year. In allocating these resources, we have reduced provision for capital financing to bring it more into line with authorities' need to spend.

The Government have to decide what local government expenditure the nation can afford, because the national taxpayer foots most of the bill. Last year, we decided on £43.5 billion. This year, it is £44.9 billion. Of course, every year some local authorities spend more than under this system. They have their own resources: council tax, interest, fees and charges. So every year, on top of what the Government allow for, they budget to spend more. That is what we all expect. However, every year they use that difference to try to confuse the electorate. They take this year's spending, which includes all their resources, and compare it with the Government's settlement, which, of course, excludes much of their resources. As a result, even though the Government provide for them to spend £1.4 billion more, they claim it as a cut.

I dwelt on that, because the confusion reaches even as far as the House of Commons. It is very important that at least we start by getting the facts straight.

I am comparing—[Interruption.] I am pleased that Labour Members think that, because it will be the first time—for any settlement under the Government—that they have bothered to think about the facts at all. I have to tell the House that the Labour party circulated a note before the Budget statement, saying that, whatever the settlement was, Labour Members had to say that it was inadequate. That shows how interested the Labour party is in the facts.

I am comparing the Government's settlement for last year with that for this year. Last year, local authorities spent more than the settlement, and they will do exactly the same this year.

As for local authority services, we have decided to give the main priority to education. My proposal is that, after adjusting for changes in function, education standard spending should increase by 4.5 per cent. I must emphasise that the amount spent on schools is a decision for the local authority concerned, but no doubt parents, governors and teachers will wish to ensure that the whole of that increased funding feeds through into school budgets.

The provision that I have announced for the transitional costs of local government reorganisation in 1996–97 will need to cover both a further tranche of transitional costs in the areas where reorganisation takes place on 1 April next year, as well as costs where reorganisation is not due to take place until April 1997. Orders have not yet been placed before Parliament to implement all the changes that the Local Government Commission recommended as part of its main county reviews. In addition, we must await the commission's final recommendations on the fresh district reviews; these are due later this year. We envisage a staging of the implementation of reorganisation in England which takes account of the resources available.

Central Government grant and the distributable amount of non-domestic rates in support of TSS will be £35.62 billion, a year-on-year increase of 2.8 per cent. I announced on 28 November that the distributable amount of non-domestic rates in 1996–97 should be £12.74 billion, and I am today publishing the detailed basis for the distribution. I propose that the revenue support grant for distribution should be £18 billion. In addition, some £4.88 billion of specific and special grants would be available. The total of revenue support grant for England, on which I am consulting, may need to be altered slightly if the balance of the police funding formula as between Welsh and English police authorities changes as a result of consultation.

I turn now to the means of distributing revenue support grant. At its heart is the standard spending assessment for each authority.

Standard spending assessments are never likely to be popular, but they must be fair. More SSA for one authority means less for everyone else, because the total is fixed. We are continually discussing with the local authority associations how the SSAs might be improved. I am sure that it would be helpful to the House if the Labour party also discussed that with the local authority associations. They certainly think that they are fair, even though the counties would like more for the counties and the metropolitan authorities would like more for the metropolitan authorities. It is very difficult, when one has an objective system, that the only people who do not think that it is objective are the official Opposition—in this House, but not outside. We share with the local authority associations all the detailed data and analyses that might form the basis of changing the SSA formulae.

The system is as open and objective as we can make it. Those who claim otherwise simply do not understand the SSA system. The formulae we use are not applied selectively to achieve a particular result for a particular authority—[Laughter.] If Opposition Members wish to press me, I will give them figures that will be very embarrassing to them. I shall be happy to show that the authorities about which they complain got more proportionately under Labour Governments than under Conservative Governments—[HON. MEMBERS: "Westminster."]—and one of them is the very authority they mention.

For each local authority service, the same formula is used for every authority that provides that service. If the formula specifies £2,000 per pupil or per kilometre of road, that is what the authority's SSA is.

All the local authority associations understand the need for a SSA system. The differences between them are about the indicators that they believe are important and the ways in which they should be weighted. We have no choice but to assess the strengths of the conflicting arguments when deciding what changes to make.

For 1996–97, we have brought up to date the data on SSA indicators, such as population and pupil numbers, wherever that is possible. It is right that we should reflect changing circumstances.

We propose only limited changes in the method by which we calculate SSAs. Authorities will generally welcome relative stability in their SSAs. We have, therefore, made changes only where we were satisfied that there is a sufficiently strong case for doing so. Most of the changes have been the subject of representations from authorities. The arguments for and against change have been discussed at length with the local authority associations.

There are, therefore, six main changes. We have responded to suggestions that the allowance for special educational needs and support services should be based on the number of pupils attending maintained schools, rather than the total number of children living in an area.

We have responded to requests that we make distinct provision for local authorities' contributions to the cost of rent allowances, over which they have limited discretion. We have also responded to those who wish a distinct element of the SSA to be allocated to authorities that pay the levies of the national parks and the Broads.

We have responded to those who believe that a larger proportion of the SSA for the police should be related to the cost of pensions and a lesser proportion to the police establishment.

We have followed up the Audit Commission's report entitled, "In the Line of Fire", introducing a distinct element in the formula relating to pensions and a new element relating to the work of the fire service on fire prevention and fire safety. And we have brought up to date the basis on which we allow for district councils providing some county council services and vice versa.

One controversial part of the formula in which we have retained the existing methodology is the area cost adjustment. We have agreed with the local authority associations that we will set up an independent review, which will report in June 1996. The aim will be to identify a way of calculating the area cost adjustment that is conceptually sound, achieves a wide measure of acceptance among local authorities in all parts of the country and is practical to apply, year by year.

Meanwhile, the area cost adjustment for 1996–97 will reflect the narrowing of differentials in earnings between London and the south-east and the rest of the country. Compared with the adjustment made for 1995–96, SSAs in London and the south-east will be more than £150 million lower, and those in other parts of the country higher by a similar amount, through using the more recent figures on earnings.

I therefore propose that authorities should receive a special grant to damp the effects on council tax of changes in the method of calculating SSAs. I stress that that applies only to changes in the method. Changes in data have their full effect, without being moderated through damping, as is our usual practice.

That means that the change in the area cost adjustment, which I have just mentioned, comes through in full because it arises from changes in the data on earnings. That is even-handed; when the earnings data were changing in a way that was favourable for London and the south-east, London received the full benefit without damping.

The damping grant will operate at a threshold of 2 per cent., taking account both of the change in the SSA and of any damping grant being paid in the previous year as a result of earlier changes in SSAs. In the case of police authorities, the damping arrangements will also take account of the police grant. I know that that will be widely welcomed.

The council tax is now well established as an equitable means whereby local residents contribute to the cost of local services. Council taxes will vary widely, depending on the spending decisions of each local authority and its performance in collecting the tax, on the circumstances of each household, and on individual entitlement to exemptions or benefits.

However, I am required to identify notional taxes for each valuation band, for a standard level of spending—the so-called council tax for standard spending, or CTSS. My proposals incorporate a CTSS for band C of £505. I emphasise to the House that that is merely an element in the grant distribution formula. It is neither a prediction of individual council tax bills nor a national average.

I believe that we have now fully met our commitment to help those facing the largest increases above their community charge bills when the council tax was introduced. I therefore do not propose to continue the scheme of transitional relief in 1996–97. However, I do propose a scheme to protect council tax payers in areas to be reorganised from 1 April 1996 from unacceptably large increases in council tax if those are a direct consequence of reorganisation.

Local authorities need to make a full contribution to the control of public expenditure and to set budgets that their local taxpayers, and the country as a whole, can afford. I am today announcing my intentions for capping criteria.

First, however, I shall draw attention to a technical change in the capping rules. Billing authorities have until now been required to include in their budget requirement, on which capping bites, a proportion of the income forgone in granting certain discretionary non-domestic rate reliefs. I propose to remove those reliefs from the scope of capping. I am sure that billing authorities will welcome that change. Decisions on the granting of relief are entirely for them, but I hope that the change will encourage greater consistency of policy in that area—for example, towards village shops suffering financial difficulties.

I am issuing today proposed notional amounts for authorities whose boundaries or functions will change from 1 April 1996, including the reorganised authorities in Avon, Cleveland, Humberside and North Yorkshire.

In addition, the provisional capping principles make allowance for a number of changes since last year, such as in the funding of rail services in metropolitan areas. That is necessary to allow a fair year-on-year comparison of budgets. Subject to those and other technical adjustments affecting individual authorities, my proposals for capping criteria are as follows.

As in previous years, when authorities set budgets 12.5 per cent. or more above their SSAs, the proposed criteria will not permit any increase over their 1995–96 base budget. However, I do not intend to seek reductions from the few remaining authorities that set budgets substantially above their SSAs.

In this year's settlement we have given priority to the police, to education, to personal social services, including care in the community and to the fire service. I propose to reflect these priorities in changes that I am introducing into the capping system; changes which will allow those authorities that are local education authorities, police, or fire and civil defence authorities, a greater measure of flexibility.

County councils and the Isles of Scilly, new unitary authorities, metropolitan districts, London boroughs, police and metropolitan fire and civil defence authorities will benefit from the new approach. For authorities budgeting up to 12.5 per cent. above their SSA, there will be two capping criteria. The increase in their budgets will be limited to whichever gives the greater increase.

Under the first criterion, the increase in an authority's budget will be limited to an amount calculated by adding together the increases compared with 1995–96 in the authority's SSAs for education, for personal social services, for fire and—in the case of police authorities—the increase in their police SSA and their principal formula police grant. The second criterion will limit an authority to a flat-rate year-on-year increase compared with its 1995–96 base budget.

The second criterion will give permitted increases as follows—for county councils and the new unitary authorities in Avon, Cleveland, Humberside, York, and the Isle of Wight, and for the Isles of Scilly, I propose that the year-on-year increase should be limited to 3 per cent. For metropolitan districts, outer London boroughs and the London and metropolitan fire and civil defence authorities, I propose that the increase should be limited to 2 per cent. For inner London boroughs and the City of London, I propose that the increase should be limited to 1.5 per cent. For police authorities, I propose that the increase should be limited to 3.5 per cent. These percentages will be used if higher than the figures arrived at by adding relevant SSA increases, as I explained earlier.

For shire districts, I propose that the criterion should be the same as last year. That is, any increase of 0.5 per cent. over last year will be considered excessive if it gives a budget requirement above an authority's SSA. These criteria are necessarily provisional, and I cannot take my decisions on capping until authorities have set their budgets. When I come to take those decisions, I shall of course take into account all relevant considerations.

The new approach that I have outlined will allow individual authorities greater flexibility to adapt their budgets to local circumstances. Authorities have repeatedly said that they would use such flexibility in a responsible way, and would not take this as a licence for a general increase in spending and taxes. The Government, and council tax payers, will watch with interest how authorities respond to the greater responsibility that this places upon them. We shall see where their true instincts lie.

Alongside this new approach to capping, the Government are also proposing an expansion of challenge funding in local authorities' capital programmes. Challenge funding is one of the greatest successes of this Government. Earlier this week, the Environment Select Committee reported that the single regeneration budget challenge fund has already demonstrated its potential to achieve excellent value for taxpayers' money. The SRB challenge fund supports the regeneration of cities, towns and smaller communities throughout England. It is also and increasingly promoting genuine community and private sector involvement, integration of different Government programmes and a new sense of partnership between local authorities, training and enterprise councils and others.

The challenge fund is therefore a proven concept, demonstrated by a substantial programme which is making a very noticeable impact. We are already building on it by applying the challenge approach to the housing investment programme and other initiatives, including the new deprived estates challenge fund.

The Government have been enormously encouraged by the imaginative and constructive way in which local authorities have so far seized the opportunities the fund presents. They have found that challenge funding stimulates a new approach to priority setting. Separate service departments come together to co-ordinate an approach which best suits the authority as a whole. The contributions levered in from the private sector enable them to increase the total spend to the benefit of local people, businesses and competitiveness.

We believe that we should build on that progress, and pilot approaches which would accelerate the drive towards challenge funding beyond the relatively small proportion of public spending to which it applies at present. I will therefore publish a discussion document shortly, which will set out options for a pilot scheme for introducing challenge funding for an element of local authority capital programmes. I want to hear from those with further experience of the benefits of challenge funding, and I hope that we will be able to move forward very quickly.

My Department is today writing with the details of the settlement to every local authority in England. That package includes a consultation paper setting out how we propose to distribute central Government support among authorities, including my proposals on SSAs, for continuing to damp SSA losses and for the police authorities. It sets out my provisional capping criteria, illustrates them by calculations of the proposed cap for each authority and includes my proposals for notional amounts. Copies of this package have been placed in the Vote Office and the Library.

The proposals that I have outlined today represent a balanced and reasonable response to the conflict between the pressure to provide ever more resources for local government and the need to control public spending. They provide for a 3.3 per cent. increase in local authority spending, including police and the transitional costs of reorganisation. They incorporate significant improvements in how available resources are allocated, while continuing to protect people in those authorities that stand to lose most from changes in SSA methodology. They would allow council taxes next year to be set at reasonable levels, offering protection from excessive bills. They represent a package which the country as a whole can afford.

Mr. Frank Dobson (Holborn and St. Pancras)

Today's statement shows that the Government are determined to force local councils to increase council tax and reduce the services that they provide for local people. Next year, as this year, local people will have to pay more and get less. [Interruption.] Madam Speaker, we kept quiet for 25 minutes. It would not be a bad idea if Conservative Members could keep quiet for five.

Madam Speaker

The hon. Gentleman makes a good point. He will be heard in good order.

Mr. Dobson

On the basis of the Government's figures, council taxes could rise by as much as this year's average increase of 5.2 per cent. That council tax increase, combined with higher charges for local services like school meals, meals on wheels and home helps, and the cost of service reductions, will cost an average household £108 next year.

The Government's figures also show that they expect council tax payers to cough up an extra £3.5 billion over the next three years, which is about equal to an extra tuppence on the standard rate of income tax. That is just another example of the Government furtively taking away with one hand the highly publicised cuts that they have been making with the other.

The Secretary of State and the Prime Minister today, like the Chancellor of the Exchequer on Tuesday, claimed that the Government will provide more money for education next year. That is simply not true. According to their own figures, councils will spend less on education next year than they are spending on it this year. An extra 86,000 children will be at school next year. It they are taken into account and councils fall into line with the Government's published spending plans, the amount spent per pupil next year in our schools, far from rising, will fall by £40 per pupil.

Let us compare the Government's world of fantasy finance with what is happening in the real world. In the real world, there are more schoolchildren; hard-working schoolteachers expect a pay increase next year; inflation drives up the price of books and other school equipment; and councils or schools will have to meet the extra costs of measures like installing seat belts in school coaches.

A landfill tax will be levied on councils, costing them £77 million next year. That is a straight transfer from council tax payers to the Treasury. This morning the Secretary of State said on the radio that councils could save more money by putting services out to tender. As he well knew when he said it, councils are already obliged by law to put their services out to tender and, if a contract does not go to the Tories' friends in the private sector, it can be only because a council's own work force put in a lower and better bid. He also suggested that councils can increase charges to help keep up their current level of spending. Which charges does he want to see increased? Does he want parents to have to pay more for school dinners or pensioners to pay more for meals on wheels or home helps?

This mean-minded settlement will increase council taxes, push up charges for vital local services and cut those services for local people. It means that next year, like this year, the Government will force local people to pay more and get less.

Mr. Gummer

The hon. Gentleman is saying, on the one hand, that the settlement is inadequate and on the other that we are putting taxes up to pay for it. The curious thing is that those two ideas do not hang together. How much would he think was adequate? How much more tax would a Labour Government impose to pay for an adequate settlement? They cannot have it both ways. He wants more money without anybody paying it. That is the traditional Labour attitude.

When the hon. Gentleman works out how much the council tax, as he says, will go up, he is saying that every Labour council will put up its tax to the highest level that it can manage within TSS and therefore take that tax off its local taxpayers. In other words, he is proving what we have always said: that Labour councils tax people more, and that immediately they are given the chance to tax more, they take that chance. Yet what did the local authority associations, which are all run by the Labour party, say? They said that if we gave them more freedom they would deal with it responsibly, but Sir Jeremy Beecham has now told us that they will use every corner of that freedom to put up the council tax by 10 per cent.

Already the Labour party has halved that increase to 5 per cent. because it does not accord with the Blair rule, which was circulated around the Opposition Front Bench and was very clear. First, before the Budget was announced, Labour Members had to say that any settlement, whatever it was, was inadequate. Secondly, they could not promise any more money.

The questions of the hon. Member for Holborn and St. Pancras (Mr. Dobson) beg the question: how can people have more money to spend without any increase in taxation? The answer is that one cannot spend money one does not have. It is a simple answer, but it is one that Labour—new, old or indifferent—has never learned. We have heard today that the Labour party has not learned anything. Wherever it is in power, it intends to spend right up to the limit that it is allowed.

The hon. Member for Holborn and St. Pancras went on to say that it was fantasy finance. How interesting. The hon. Gentleman was comparing what councils are spending this year with what their allowance from the Government is for next year instead of comparing like with like.

Mr. Dobson

That is not true.

Mr. Gummer

The hon. Gentleman did. I suggest that he looks at Hansard to see it. He knows that councils will have 4.5 per cent. more, on average, to spend on education and if that money does not get through to the schools, it will be the Labour and Liberal councils that have stopped it. The Government have given 4.5 per cent. to the schools. The only people who can stop it getting there are the Labour party and its local councils.

Lastly, we will be watching carefully the argument about going out to tender. The metropolitan authorities have gone out to tender and in well over 80 per cent. of cases, the in-house team has won but in the shire districts, only 40 per cent. of in-house teams have won. Does that mean that Labour in-house teams in metropolitan authorities are much more efficient than Labour in-house teams in shire districts or does it mean that it is almost impossible to win a contract in a Labour metropolitan district because the local council trade unionists make sure that they are the paymasters and that those local authorities therefore pay them with the council tax payers' money?

Sir David Madel (South-West Bedfordshire)

My right hon. Friend will be aware of the difficulty that Bedfordshire county council has had this year in relation to its school budgets. Can he confirm that his announcement will make it perfectly possible for Bedfordshire county council to put more money into school budgets in Bedfordshire next year?

Mr. Gummer

My hon. Friend is perfectly right. If Bedfordshire county council does not increase significantly the money going to its schools—it has a permitted budget increase of 3 per cent., and more in terms of its education budget—it will be because the council has pinched the money to spend on something it wants more.

Mr. David Rendel (Newbury)

Will the Secretary of State confirm that if there is to be extra real spending by local councils next year in education and other spheres, which he has tried to pretend there ought to be, that money will have to come from an increase in council tax? According to the Department of the Environment's own figures, which were contained in a press release issued on Tuesday, the Government's central subsidy to local councils will be precisely the same in real terms next year as it is this year. There are no extra real resources from the Government. Moreover, is it not the case that a large proportion of the extra resources come from business rates, which are simply a transfer from businesses to the local community, while the amount coming from other taxation is actually falling considerably?

Mr. Gummer

First, it would be more helpful if the hon. Gentleman, when looking at the Red Book, could distinguish between British figures and English figures; otherwise we do not get the comparison right. His comparison is wrong. Secondly, I do not know whether the hon. Gentleman has run a business, but most business men do not start off by saying that the only way to save money is by getting more. They start by asking themselves whether they can be more efficient and then use the money that they save. The Labour party and its annexes, the Liberals, have said the same thing: that the only way that we can find the money is to increase council tax. Sir Jeremy Beecham, who is of course supported on this matter by the Liberals, today let the cat out of the bag. He said that Labour and Liberal councils will spend every penny that the Government allow them to spend. Whether they need it or not, the council tax will increase by 10 per cent., and it will be a Labour and Liberal increase.

Sir Timothy Sainsbury (Hove)

Will my right hon. Friend accept that the priority that he has given to education in the form of a 4.5 per cent. increase and the recognition of that in the capping formula will be very widely welcomed? Will he join me in condemning the irresponsible party political scaremongering in which East Sussex county council and a number of others led by Labour and the Liberal Democrats have indulged, frightening parents, teachers and governors by saying that their education budgets are going to be cut instead of increased?

Mr. Gummer

My right hon. Friend is perfectly right. His county council will have an increase of 3 per cent. It has been going around, as my county council has—it has been a nationally run operation—telling people that it would suffer a 5 per cent. cut. If I may use my own county council as an example, in Suffolk there will be an increase of 5.7 per cent. for education. The county council has been scaremongering and saying that there will be a cut of 5 per cent., which shows how the Opposition parties will use anything to try to get party political support.

Mr. Terry Davis (Birmingham, Hodge Hill)

On the question of schools and the area cost adjustment, does the Secretary of State intend to continue the distribution of money on the basis that Birmingham should spend 20 per cent. less than Westminster on the education of a child?

Mr. Gummer

The area cost adjustment is something about which we argue with the local authorities. Of course, the hon. Gentleman could have used Tower Hamlets or any other inner London borough as an example because the position is the same for all the inner London boroughs and, indeed, the south-east in general. That is how the system works. There is a real argument between Labour, Conservative and Liberal authorities which get money from the area cost adjustment and the similar authorities which do not get the money. That is why, having tried with their help—they also tried, together and separately—we decided that the only way to proceed is to have an independent inquiry to see whether we can find a better method. But there is a fundamental difference: those who receive from the present system like it and those who do not receive do not like it. The trouble is that even the independent group will find that difficult to square.

Sir Dudley Smith (Warwick and Leamington)

Is my right hon. Friend aware that the socialist and soggy Liberal councils will almost certainly say that that is not enough money? Does my right hon. Friend realise that anyone who studies the figures will welcome the 4.5 per cent. increase on the SSA for education? Will he encourage recalcitrant county councils such as Warwickshire to release more of their financial assets to which they still cling on in difficult times? Will he tell such councils that they should live within the inflation figure like everyone else has to?

Mr. Gummer

My hon. Friend makes a good point. If local authorities wanted to help people on the basis of inflation—if they tried to push inflation down—which would help them in future years, they would seek to live at least within the inflation figure, if not try to make savings. In my hon. Friend's case—in Warwickshire—there is a permitted increase of budget of 3.2 per cent., which will feed through into education more significantly. The concerns that both he and my hon. Friend the Member for Rugby and Kenilworth (Mr. Pawsey) have pressed on me so often have been met this year by that change and will be met in the future by the agreement for an independent review of the area cost adjustment which, as my hon. Friend the Member for Warwick and Leamington (Sir D. Smith) has often told me, is particularly difficult for Warwickshire.

Mr. Nigel Spearing (Newham, South)

The Secretary of State has made great play of local authorities' ability to pass on the money that he says is being provided for education, presumably by way of the SSA. Does he agree that the SSA does not provide the money, which comes through the revenue support grant? For the past few years, with the best will in the world, Newham has been unable to pay its SSA in education because £6 million had to be spent on the homeless and another large sum had to be spent in respect of capital receipts, which it is impossible to pay out of the revenue support grant provided by the Secretary of State. How can Newham, with an increase of 2.5 per cent. in permitted budget—compared with Westminster's permitted increase of 11 per cent. for next year—afford the increase in the figure for education?

Mr. Gummer

The answer is simple. Newham has been overspending right at the top of the level and Westminster has kept its costs low. According to the independent assessment published in the Independent only a few weeks ago—

Ms Hilary Armstrong (North-West Durham)

It is yours.

Mr. Gummer

It is an independent assessment and has nothing to do with me. According to that assessment, Westminster is the fourth most deprived borough in London. [Interruption.] I hope that the hon. Member for Holborn and St. Pancras will read the Independent newspaper to see where the statistic came from. That newspaper does not support, nor is it written by, my officials. The hon. Gentleman seems to want to discount those independent figures. Is he honestly saying that, in future, if there were ever a Labour Government, he would hand out money on the basis of his own—bottom—ideas? If he does that, he will be returning to the old Labour system which gave Westminster significantly more than the present system.

Mr. Barry Field (Isle of Wight)

As my right hon. Friend has said that the review of district councils is nearly complete, will he promise the House that there will be an early review so that the people of East Cowes can have the parish council to which they have been looking forward? Is he aware that the Liberal Democrat-controlled Isle of Wight council published a leaflet only last week, on the front of which it said that there would be £630 million of Government cuts to local authorities? Will he condemn that and ensure that the money is used for education on the Isle of Wight? We had had an excellent budgetary record on the Isle of Wight—we drive round in our 25-year-old cars and are all over the age of 60—and we now have a local government settlement specifically for the Isle of Wight. I want the good news to get through to the people, not to be gerrymandered and tinkered about with by the wretched Liberal Democrats who want to spend the money, waste it and do anything with it but provide a decent education for the people of the Isle of Wight.

Mr. Gummer

The people of the Isle of Wight have a very good advocate in my hon. Friend. It is a great sadness that they have a Liberal county council, because that county council will, no doubt, having promised the people cuts, want to deliver on that Liberal promise. It will be the only promise that the Liberals ever made that they will deliver on, but that is the one that they will want to deliver on.

I hope that my hon. Friend and local governors and teachers will insist that the Liberal county council on the Isle of Wight passes back money that has been given to it by the Government from the taxpayers, to every school in the Isle of Wight. I am sure that my hon. Friend will ensure that we soon know if it does not.

Mr. Harry Cohen (Leyton)

Will the Secretary of State comment on the proposal to withdraw large amounts from the SSAs for the operation of the nursery voucher system? Are not the proposals that the Government are considering unfair, in that the withdrawals from SSAs would be on a per pupil basis, whereas the SSA is allocated on a needs basis? Will not that lead to those authorities with relatively little nursery provision having large amounts of SSA and those with a large nursery provision having very little SSA—perhaps even a negative SSA?

Mr. Gummer

Perhaps the hon. Gentleman has not noticed that the only people to whom that applies are the four volunteer councils, which do not include his local council. He should not be worried at all.

Sir Patrick Cormack (South Staffordshire)

In thanking my right hon. Friend for concentrating on education, may I ask him whether Staffordshire will have its very significant problems solved? May I also ask him whether he will try to make the whole business of local government finance a little more intelligible to the ordinary man? Is he aware that the doctrine of the Trinity and the Schleswig-Holstein question are positively kindergarten subjects by comparison with: B+C+M-O+V, where B, C, M and 0 and V have the same meaning in subparagraph (1) above"?

Mr. Gummer

The matter is simple for my hon. Friend. His local council will be able to increase its budget by about 3.2 per cent. It should be able to get a significant amount of money through to the schools, and I am sure that he will ensure that it gets that money through to the schools. If the money does not go to the schools, it will be the Labour-controlled Staffordshire county council that will have failed.

Mr. John Heppell (Nottingham, East)

Does the Secretary of State remember that last year, Nottinghamshire county council predicted a cut of £20 million and was told that it was scaremongering? In the event, it had to make cuts of £22 million. This year, it predicts cuts of £50 million. Even if the council is completely wrong about that and it has to make cuts of only £25 million, it is not scaremongering: it will mean fewer teachers and larger classes.

Mr. Gummer

No, because there are no such cuts. The only way in which the council can produce those cuts is by deciding how much it would like to have spent in the best of all possible worlds, placing that figure before the public and then saying that it is not receiving that full amount and therefore the bit in between is called a cut. That council could ensure that its local schools had more money, and no doubt the hon. Gentleman will ensure that it does.

Sir Peter Emery (Honiton)

Will my right hon. Friend drive home the fact that this year, for education in Devon, there is an increase of more than £17 million—10 per cent. more than the average increase of 5.3 per cent.—and that that means that, on a rough calculation, there is more than about £140 per pupil in Devon extra for the Liberal county council to distribute to the schools instead of keeping it, as the council did last year, to distribute elsewhere? Will he therefore consider whether certain councils should have the SSA ring-fenced to ensure that they get the money to the schools rather than keeping it for the county?

Mr. Gummer

My right hon. Friend is right. He will notice that Liberal Members are busy trying to pretend that that money is not coming to them, because Liberals want to do again this year what they did last year, which was to starve the schools in order to blame the Government and to use the money for something else.

We know how the Liberals operate. They will no doubt try to operate in that way again this time, but, with a settlement of more than 5 per cent., as my right hon. Friend says, if that money does not get to every school in Devon, I am sure that he in his constituency and his colleagues in other constituencies will ensure that every parent and governor knows that the reason why the money has not got there is the Liberals at Devon county hall.

Mr. Peter L. Pike (Burnley)

Does the Secretary of State accept that increasing the standard spending assessment for education by 4.5 per cent. does not give local authorities a penny more because Lancashire county council, for example, is already spending 108 per cent. In fact, the right hon. Gentleman said in the early part of his statement that the real increase in local government expenditure was only 2.8 per cent. Is that not the crux of the issue?

Mr. Gummer

The hon. Gentleman must face the fact that Lancashire county council can increase its budget by 3.2 per cent. By concentrating on education, which represents a significant part of its budget, the council can significantly raise the amount spent on schools. The hon. Gentleman knows that; any attempt by him to suggest otherwise demonstrates that he is in league with Lancashire county council—one of the least satisfactory county councils in the country—in trying to excuse the fact that the council has not given the money to the schools. We shall wait and see. If the council does not give the money to the schools, we shall know who to blame—and the hon. Gentleman will be one of them.

Mr. Nicholas Winterton (Macclesfield)

My right hon. Friend will be aware that I have frequently questioned Ministers on the Floor of the House about the allocation of resources to Cheshire—my constituency is in that county—especially in relation to personal social services and education. May I thank my right hon. Friend for the additional allowance of 5.1 per cent. for education—that is more than £17 million—and for the additional sum of £1.25 million for personal social services? I know that that will be welcomed by those who run Cheshire county council, and by my constituents.

Will my right hon. Friend clarify one point, however? The Minister of State has launched an inquiry into the area cost adjustment. When the committee or commission that conducts that inquiry has reported, will its recommendations be implemented without delay? If Cheshire is to benefit, will the adjustment be implemented retrospectively to cover the current year, or will it apply only to the next financial year?

Mr. Gummer

I thank my hon. Friend for his supportive words, but I should have known that there would be a sting in the tail. I fear that the adjustment will not be retrospective; but I promise that as soon as we have the report and are able to consider it, we shall seek to implement its recommendations as far as is possible, certainly in the next financial year. We are talking not about this year, but about the next settlement. This is the last settlement under the present system, given that the recommendations stand up and are different from the current arrangements.

Mr. Stephen Timms (Newham, North-East)

Is it not rather misleading to concentrate on the increase in the education part of the revenue support grant? It is only one element in a larger single sum. What percentage change in the non-education element does the right hon. Gentleman propose?

Mr. Gummer

I hope that the hon. Gentleman has noticed that I have used the increase in the total budget in all the figures that I have given. Some hon. Members have referred to education, but I have given the total sum. I assure the hon. Gentleman that the increase in spending permitted in Newham will be more than 2 per cent.

Sir Michael Shersby (Uxbridge)

I am pleased to learn that Hillingdon's education SSA is to increase by £4,865,000, or 5.5 per cent., in the coming year. Can my right hon. Friend assure me that nothing in the capping arrangements which have existed in the past, and which have been revived this year, will prevent Hillingdon borough council from passing the money on, particularly to grant-maintained schools in my area?

May I also express my gratitude, on behalf of the Uxbridge police, for the element in the statement relating to pensions? That is a great improvement, which will he welcomed by the Uxbridge police.

Mr. Gummer

I thank my hon. Friend for his second point, and I can give him the assurance that he requires on the first.

Mr. Robert Ainsworth (Coventry, North-East)

Will the Secretary of State drop the smokescreen with which he has been trying to obscure the facts, and answer a simple question? Given the same level of service next year as this, does not the settlement impose a 5.2 per cent. tax increase? Is this not another Tory hidden tax—and not very well hidden at that?

Mr. Gummer

Only if every council decides to spend to the full increase in the SSA and nobody makes any savings whatever. In other words, Labour councils will no doubt force this upon their electorates, but sensibly run councils can make savings and start there. The hon. Gentleman is right only if he assumes a badly run Labour council.

Mr. Tim Smith (Beaconsfield)

Is my right hon. Friend aware that the extra resources that he has announced for education are extremely welcome? What can be done to ring-fence that money to ensure that it actually reaches the schools? Will my right hon. Friend ask the Secretary of State for Education and Employment to publish a list showing each school in each constituency and how much their budgets would increase if the SSA percentage were passed on to them?

Mr. Gummer

My right hon. Friend the Secretary of State for Education and Employment is here and will have heard my hon. Friend's comment. In his county, we will not have much difficulty in ensuring that the money goes to the schools, because he has a well-run council that seeks always to find savings in order to improve what it can do with education. Elsewhere, we will have to keep a beady eye on what happens.

Mr. Richard Burden (Birmingham, Northfield)

Does the Secretary of State accept that he cannot claim to be increasing the amount available for education when he is screwing down the overall level of support for local authorities in the way implied by his statement? Is he aware that every £1 million not allowed to Birmingham threatens 200,000 hours of home care; or four libraries and four community centres; or four elderly persons homes; or 100 places in special schools? Which would he cut—or would he put taxes up?

Mr. Gummer

The hon. Gentleman cannot have it both ways. On the one hand, he complains about the settlement by saying that unless we can make savings, we might have to increase council tax. On the other hand, he says that he wants to spend more. The hon. Gentleman must answer the question that Opposition Front Benchers have not answered: if there were a Labour Government, by how much more would they put up taxes in order to make the settlement what they would call adequate? They will not answer that question because they have been told to say both that the settlement is inadequate, and that they would not increase taxes in order to meet the inadequacy.

Mr. Tim Rathbone (Lewes)

May I add my thanks to those already extended by my right hon. Friend the Member for Hove (Sir T. Sainsbury) for the amount made available to East Sussex?

I wish to ask my right hon. Friend about manners in local government. How can he stop local government carrying on the sort of pseudo-consultation exercise that East Sussex county council has performed on the basis of an anticipated increase in education funding of 0.5 per cent., which was ludicrous months ago and has been proved absolutely ludicrous today?

Mr. Gummer

Although the rough and tumble of party politics is perfectly reasonable and most of us rather enjoy it, I think it is intolerable to frighten parents about the future of their children and old people about their future in council homes. That is part and parcel of most Liberal party politics. The Liberal party is the only party that stoops so low, and I exclude the Labour party from that.

Mr. John Gunnell (Morley and Leeds, South)

The Secretary of State has recognised that the change in capital disregards for people in long-term care will have a substantial effect on finances in local government, as we will hear later. Can he guarantee that the disregards will be taken into account for the capping criteria; and that the funds will be adequate? If the funds are inadequate, the Secretary of State will be responsible for the impact on services. What steps has he taken to mitigate the impact?

Mr. Gummer

There have been full discussions on this matter. The announcement and details will be given very soon. I hope that the hon. Gentleman can contain himself till then. If he has further questions, I will be happy to meet him and discuss them.

Mr. David Wilshire (Spelthorne)

Is my right hon. Friend aware that Surrey county council has not waited for today's announcement and has been busy telling parents in my constituency that schools in Surrey are likely to receive £8 million less next year? Now that he has announced that the schools will receive £8 million more, how does he rate my chances of an apology from Liberal and Labour councillors?

Mr. Gummer

The chance of getting an apology is poor. Perhaps my hon. Friend should ask his Liberal and Labour opponents to use the same mechanism to circulate to every parent and every school the fact they are getting £8 million more. If they did that, they would not need to apologise, but they might have to explain to parents why they tried to mislead them in the first place.

Mr. Paddy Tipping (Sherwood)

Will the Secretary of State consult parents about the settlement? What will he say to parents in Nottinghamshire when they bring to his attention the fact that the county council currently spends 7.5 per cent. or £25 million above the Government guideline on education? The county council will receive, at best, £15 million from the settlement, leaving a budget gap of £10 million. There will be bigger class sizes and fewer teachers, so people will be paying more and getting less. How will he respond to them?

Mr. Gummer

The hon. Gentleman has to say that 3.3 per cent. goes on in addition—it goes straight through. However, he should point out to the leader of his county council that Nottinghamshire is one of the most profligate counties in the country and could give a great deal more to schools if it stopped spending as wildly as it does now.

Mr. Iain Mills (Meriden)

Does my right hon. Friend recall our conversation in a similar debate last year, when he admitted that the methodology of the SSA calculation was unfair to Solihull council? Does he now believe that he has corrected that in his statement today?

Mr. Gummer

I am pleased that my hon. Friend reminds me of that occasion, which was not a comfortable one for me because I had real sympathy with Solihull. As he knows, I cannot change individual arrangements as they are made by classes. Solihull is one of a class and the arrangements last year had a particular effect on Solihull. He will note that the budget can rise by 3 per cent. I have announced an independent inquiry into the way in which we deal with the area cost adjustment, which is particularly important to Solihull. I hope that when it comes through, my hon. Friend will be happier about the arrangements.

Several hon. Members

rose—

Madam Speaker

Order. Despite the fact that the statement has now taken more than a hour, I shall try to call all the Conservative Members who have been standing for so long. Perhaps we can have a reasonably quick exchange as there are two more statements.

Mr. Richard Alexander (Newark)

Would it not be fraudulent of local authorities to use the money directly allocated for schools for some other purpose? Bearing in mind the fact that schools in Nottinghamshire were seriously underfunded last year, surely we should take steps to ensure that the money specifically allocated to schools goes to schools. It is not enough to say that it must be left to parents, governors and local Members of Parliament. We should take a closer interest in ensuring that the money goes to the right quarter.

Mr. Gummer

My right hon. Friend the Secretary of State for Education and Employment and I will certainly take a very close interest, but there is a difficulty. If one believes in local accountability, local councils must make such decisions for themselves. When I refer to governors, parents and local Members of Parliament, I am talking about local accountability. We have told people quite clearly that they can spend significantly more money on schools. Nottinghamshire can save money in many other ways and spend it on schools, but Nottinghamshire taxpayers will have to press to make sure that the money gets through to the schools. If my hon. Friend knows of any case in which they are not doing so, I shall look at it myself.

Mr. Nigel Forman (Carshalton and Wallington)

Although I warmly welcome the increase of the education SSA by 4.5 per cent. this year, which is generous, has it ever crossed the mind of my right hon. Friend when he was Minister for Local Government or now, as Secretary of State, that the two main weaknesses of the system that we are discussing are its excessive complexity and centralisation? Is it not time that the Government took a long, hard look at those aspects, particularly if my right hon. Friend is sincere—as I presume him to be—in saying that he favours local accountability? Is not the real answer to give local authorities more possibility to take their own spending decisions and then to be held directly to account by their local electorates?

Mr. Gummer

I have great sympathy with what my hon. Friend says, but there are two problems. First, if local authorities are spending a quarter of the spending of government as a whole, it must have an effect on the ability of national Government to spend. If local authorities were to push up spending, we, national Government, would have to reduce our spending on the national health service, for example, to keep the general economy in shape. There is a real difficulty.

Secondly, money does not necessarily come easily from a local community in the sense that the poorest communities may have the greatest needs but the lowest rate bases. We need a system that provides a real redistribution of income, which is what the SSA does. There will always be a significant amount of central Government spending, over which we need to have some control. A modest movement, however, in the direction of more money coming from the local community, would be reasonable. In that context I have gone some way towards the Labour party. Its latest policy document, entitled "Renewing Democracy", states that it would be far healthier for democracy if councils were responsible for raising locally a much higher proportion of the money they invest and spend". I am interested that Labour Members are prepared to attack any move to increase council tax when they want a "much higher proportion" and we are suggesting a small proportion.

Mr. Harry Greenway (Ealing, North)

Has my right hon. Friend taken account of Labour councils such as Ealing, which have substantial reserves from previous Conservative administrations? Will he be pressing for those reserves to be used where that is needed? Does my right hon. Friend agree that following the education settlement for Ealing it will be indefensible for the council to continue its policy of refusing a travel grant to children who wish to travel to schools some way away from home, even if their parents are on income support, on the ground that they could choose a nearer school? Parents have a right not to do so under current legislation.

Mr. Gummer

I must declare an interest. One of my children attends the local Church school in Ealing. The education provided by that school is very good. I have noticed, however, since Ealing borough council changed hands, that a series of petty and vindictive steps has been taken by the new council, including a step to which my hon. Friend has referred. The council does not like the possibility of parents choosing. I hope that my hon. Friend will join me and other parents to ensure that the money that is provided for Ealing gets through to the schools.

Mr. Eric Pickles (Brentwood and Ongar)

Does my right hon. Friend remember a time when a 4.5 per cent. increase in education SSA would have been welcomed throughout the House? My right hon. and hon. Friends have done even better for Essex, where there will be an increase of 4.9 per cent. That will be worth nearly £26 million, a sum that is larger than some district councils' total budgets. Does my right hon. Friend agree that some of the alibis that we have heard this afternoon—it has been suggested that there will be no increases—will not wash with parents and head teachers? The councils that do not pass on the extra funding will be rightly brought to retribution.

Mr. Gummer

It is important for my hon. Friend to ensure that every head teacher, governor and parent in Essex realises that there will be a 4.9 per cent. increase in the funding that should be available for their schools. Essex county council, like Suffolk county council, sought to frighten people by talking about a 5 per cent. decrease. Against that background, Essex county council owes it to parents to write, "Sorry, the figure was not minus 5 per cent. but plus 4.9 per cent.", and to ensure that every penny of the increased funding gets through to schools.

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)

Does my right hon. Friend recall that last year the Liberal-dominated Gloucestershire county council cut individual school budgets by between 4 and 7 per cent. Will he confirm that this year's figures will allow that council to set a council tax, if it wishes to, which will provide for a generous 5.3 per cent. increase in funding for education? Would not every parent, governor and teacher be able to regard it as a scandal if the county council did not substantially increase individual school budgets?

Mr. Gummer

It will he a scandal if school budgets do not increase in that way in Gloucestershire. It will not be a surprise, however, if that does not happen. Liberals in Gloucestershire have shown themselves willing to play party politics with children's education. They have done it in Gloucestershire and elsewhere. I know of nothing in the past that has been like that. I am sorry that the Liberals should have lowered themselves to that level.

Mr. Richard Tracey (Surbiton)

I thank my right hon. Friend for the care that he has given to education in Kingston upon Thames. I reassure him that I will support any measure which ensures that the £1.25 million extra spending for schools in Kingston goes to schools and is not milked off by the local authority.

On a separate issue, will my right hon. Friend use the greatest caution in relation to the area cost adjustment as it affects London? Although my right hon. Friend represents a constituency elsewhere, he lives in London, so he will know that London is more expensive simply because of the number of tourists, the greater use of the roads, the increased use of the city because of the railway stations and the airports, and the increased cost of care for the elderly.

Mr. Gummer

As a Minister, I live in London during the week, but at the weekends and when Parliament is not sitting, I live in the country, so I am entirely independent on the matter. I can see both sides of the case, which have been adequately presented in the House. That is why I have decided that there should be an independent inquiry, which will no doubt look carefully at the points raised by my hon. Friend. However, it will also have to consider my county's concerns regarding sparsity, distance and the difficulty of paying for small schools which are necessary if adequate and proper education is to be provided for small communities. I cannot say that the argument is all on one side. That is why the argument is so difficult to get straight and that is why we have asked for an independent inquiry.

Mr. Ian Bruce (South Dorset)

My right hon. Friend will know that the Minister of State, Home Office, my right hon. Friend the Member for Penrith and The Border (Mr. Maclean), has sent round a letter putting in layman's terms what the increases could mean to police authorities—for example, 66 additional officers for Dorset and a total increase of 6.2 per cent. Will my right hon.

Friend ensure that his other ministerial colleagues do something similar, particularly with regard to education? Last year, when it came to ensuring that schools were adequately staffed, Dorset county council said that it was £5 million short, yet we have now discovered from the auditor that the county filched £10 million that it did not need to spend.

Mr. Gummer

My hon. Friend points to the generality. One could understand that being accidental if it occurred in one council, but when it occurs in almost every Labour or Labour-Liberal-controlled council, one has to recognise that there is a concerted effort, which goes as follows. People are frightened by the prospect of a cut which will not come; the council gets an increase but says that there has been a cut, and then the money is put into something else. In my county, money for schools has been put into road signs and red lines across roads. I hope that this time the county will ensure that every penny goes to the schools.

Mr. Jacques Arnold (Gravesham)

People in Kent will be delighted to know that the Government are putting an additional 4 per cent. of funding into the county and into its schools. They will also be more than a little relieved because they were led to believe by a document produced with council tax payers' money that there would be no additional money for inflation or pay awards. Bearing in mind the fact that the schools were short-changed last year, what are the prospects for that money finding its way to the Kent schools?

Mr. Gummer

There is no doubt that Kent schools will be able to cover reasonably expected increases in expenditure and probably something rather better than that. But if Kent county council was more concerned about its priorities and spent its money in the schools, it could do even better. But I fear that we may have to wait for Kent county council to cease to be run by the alliance and return to sensible Conservative control.

Mr. Dobson

Rather than have a rant, which is the Secretary of State's usual response to questions from Opposition Members, will he simply confirm that none of the figures quoted by Conservative Members with regard to funds for education makes any allowance for the 86,000 increase in the number of school pupils, the expected pay increases, the expected level of inflation or the additional legal duties which the House has placed on local education authorities?

Mr. Gummer

Some of the money that has been given to the local authorities and some of their added spending will obviously have to cover their additions during the coming year, which is what always happens. But if this is an inadequate settlement, the hon. Gentleman might like the opportunity to say publicly how much would be an adequate settlement, and from where the money would come. The hon. Gentleman is incredible in the House.