Local Government Finance

HC Deb 02 December 1998 vol 321 cc883-901 3.30 pm

The Secretary of State for the Environment, Transport and the Regions (Mr. John Prescott)

With permission, I should like to make a statement about the local authority revenue finance settlement for England for 1999–2000.

The services that local councils provide are vital to economic success and to making Britain a better place to live in. We are working with local councils through our central/local partnership to modernise and support local government.

On this occasion last year, I set out the Government's programme for the renewal of local democracy. It is an ambitious long-term programme, and I have further progress to report. In July, we published our White Paper on modernising local government. Yesterday, we published our Local Government Bill to sweep away the wasteful and unfair system of compulsory competitive tendering and replace it with best value, so that local people can get the quality of service that they expect at a price that they are willing to pay. The Bill abolishes crude and universal capping of council budgets and in its place provides more flexible reserve powers to prevent excessive increases in council tax, as we promised in our manifesto and as I have set out in the House on several occasions. The measures give local authorities greater responsibility for managing their own resources while providing protection for the local community.

Today's announcement on revenue funding should not be seen in isolation. We are tackling problems in a co-ordinated way, with extra resources to help communities tackle deprivation and improve housing and transport. Our spending plans for local government offer the most generous council tax settlement ever. They include: extra spending and extra protection for the taxpayer; a fairer distribution of grant; and three years of funding stability. They are the key elements of our approach to this year's local government settlement.

Total standard spending, as the House is aware, is the total amount of local authority spending to which we are prepared to contribute. Next year, it will be £50.62 billion. That is £2.6 billion more than this year, an increase of 5.4 per cent.

Education and health are our main priorities. Next year, we will invest an extra £1.4 billion in modernising education, an increase of 7.2 per cent. There will be more than £500 million extra for social services, in respect of which the Government's reforms werer set out in Monday's White Paper on social services.

We have announced further increases in the following two years. Over the three-year period, total standard spending assessments will increase by about 7 per cent. more than expected inflation. That new certainty helps councils plan ahead with greater confidence. Better forward planning and greater flexibility mean better standards of service and better value for money.

About half the money to fund total standard spending will continue to be provided by the Government. I propose that the revenue support grant should be £19.9 billion. In addition, some £5.9 billion of specific and special grants will be available to councils. The RSG figure may need to be altered slightly following consultation.

The business rate poundage will be increased by the September retail price index to 48.9p in the pound. We will redistribute £13.6 billion to local authorities next year. I am publishing the basis for that distribution today.

We are asking council taxpayers to contribute a fair share—no more, no less—to the cost of providing local services. We shall increase funding from Government grant and the business rate broadly in line with the overall increase in SSAs. If local authorities increase spending in line with the increase in their own SSA, council taxes will rise on average by 4.5 per cent.

As I told the House last December, this is the last year of crude council tax capping. I am therefore the first Secretary of State since the council tax was introduced seven years ago—after the disaster of the poll tax—not to set capping criteria in advance. However, I should make it clear that we expect local authorities to exercise self-restraint.

We are providing substantial real increases in funding, and local authorities should be concentrating on securing greater efficiency in the delivery of services and financial management, to increase further their spending power. There is no justification for excessive council tax increases. If we are faced with such increases, we shall not hesitate to act, as I have made clear to the House before.

We have to protect the country's interests as a whole. We shall not pick up the cost of excessive council tax increases by higher council tax benefit subsidy payments. We announced our intention to tackle that problem in the July White Paper.

We are setting a guideline figure, which will be a 4.5 per cent. increase in council tax, or a higher increase if needed to allow a council to budget in line with the cash increase in its SSA. A council that keeps within that guideline figure will have its council tax benefit subsidy payments reimbursed at the full rate. However, a council that exceeds the guideline will have to make an extra contribution to the cost of paying for the extra benefit. The council's contribution will increase gradually for each half a percentage point that the council tax increase exceeds the guideline.

I should make it absolutely clear that that provision will not impact on people in receipt of benefit, and that councils with a higher than average proportion of income from council tax benefit will be treated as though they had the average proportion. Poorer areas will therefore be treated no worse than the average.

On standard spending assessments, the national totals are important, but what every council wants to know is how much it will get and to be assured that the distribution is a fair one. Last year, I announced a number of changes to the SSA formula to make it fairer. For example, I brought up to date the formula for elderly residential social services, and ended the fundamentally unfair assumption that visitors and commuters were as deprived as deprived local residents.

This year, with the Local Government Association, we considered many possible changes. I should like to mention three matters on which we are proposing change, and a couple on which we have not reached a satisfactory conclusion.

First, after three years of discussion and research on children's social services, we have found a new formula, which I believe is well founded. It is undoubtedly an improvement on the formula that has been used for the past few years.

Secondly, I have introduced an allowance for sparsity in the part of SSAs that allows for the extra cost of providing social services for the elderly in their own homes. There will, therefore, be more for rural areas in that part of the SSA.

Thirdly, we are taking account of deprivation in the part of the formula that deals with what are called "county services", such as libraries and probation.

Sometimes, the search for an improvement is unsuccessful. This year, we have done a great deal of work, with local authorities, on two other big issues. The first, of course, was on the additional educational needs of some children. The other was on the area cost adjustment, dealing with the fact that pay costs vary significantly from one region to another.

In both cases, there are some valid objections to the current formula, and, in both cases, we have had many alternative reform proposals from which to choose. We had, for example, 21 detailed options on only the area cost adjustment. However, there was no clear frontrunner, either on merits or on its support within local government. It would not have been right to take decisions on the area cost adjustment and additional education needs now, when it is clear that there are unresolved issues raised by local government that need further work during the period of SSA stability. Maximising consensus is important to this Government—as it was not to the previous Administration.

I recognise that councils need time to adjust to the changes in SSAs. I shall pay a grant to limit the impact on council tax for those authorities whose losses due to changes in the SSA formula go beyond a threshold. I shall go further than the traditional damping arrangements. I guarantee that no local authority, north or south, will receive less government grant support next year than it did this year. It follows that there is no case for steep council tax increases.

The Government understand that the uncertainty created by an annual review of the SSA formula is unhelpful to local authorities who are trying to plan ahead. We now have a three-year period of funding stability for local government, during which we shall seek a long-term solution to the continuing difficult issues in the local government finance system.

We need to look at the scope for reform within the existing SSA system. For example, we are looking for solutions to the area cost adjustment and additional education needs problems. That is not an easy task. We also need to look at the case for more radical reform, to produce a system that is clearer and more robust. We need a system that is more easily understood by the voter and accepted as fair and stable.

Local authorities must use this period of stability in their financing to concentrate on increasing efficiency and improving services, rather than on fighting their corner in the annual battle over their share of grant, but developing best value services for their community.

My Department is today writing with details of the settlement to every local authority in England. That package contains papers setting out how we propose to distribute central government support between authorities, including my proposals on SSAs and phasing in changes. It also includes details of how council tax benefit subsidy will be reduced above the guideline increase in council tax. Copies of that package have been placed in the Vote Office and the Library.

The proposals that I have outlined represent a break from the annual ritual that we have witnessed in the past. They represent the best settlement for seven years, they include changes to distribution to give a fairer and more stable system, they will ensure that no council loses grant and they will protect council tax payers from excessive increases in their bills. It is the best deal for years for local people. I commend it to the House.

Mrs. Gillian Shephard (South-West Norfolk)

I thank the right hon. Gentleman for making available copies of his statement and the supporting documents. He is always scrupulous about that, and I am grateful to him.

Last year, the right hon. Gentleman's settlement for local government delivered a record 8.6 per cent. increase in council tax across the nation and an extraordinary political switch of £50 million away from London and £100 million away from shire areas towards his friends in the north. So much for his party's pre-election promise that new Labour was not about high taxes on ordinary families and so much for his so-called commitment to a fair distribution of Government grant.

The right hon. Gentleman also promised increased clarity and fairness in local government finance last year. It is strange that he should have chosen to make his statement the day after publishing a Bill—one of the few allowed him by the business managers—that, by abolishing compulsory competitive tendering, will certainly put up council taxes. By introducing a new crude and arbitrary form of capping, the criteria of which will be a secret known only to Ministers, the Bill will render local government less accountable, less transparent and less fair.

This year, the right hon. Gentleman had the chance to put right last year's damage, but he has chosen not to do so. Today's settlement is for no change. Taxes for ordinary families will continue to be put up across the board, the funding fiddle for his political friends will be perpetuated and nothing will be done to provide the increased clarity and simplicity in local government that he promised.

We welcome the extra money that the right hon. Gentleman has provided for education. I have two detailed questions on the distribution of the grant. Will he confirm that the settlement does not include any provision to compensate authorities for the £130 million cost of the Government's pension tax? Does he accept that the increase that he has announced for the fire service is not enough even to meet the costs of this year's 5.6 per cent. pay award to firemen? Will he admit that that will mean cuts in the fire service across the country? What does he suppose will be the likely reaction of the fire service unions?

On methodology, will the right hon. Gentleman explain how much of the £100 million that was taken last year from rural areas will be restored to them through the sparsity allowance that he has announced for domiciliary social services for the elderly? Which sparsity indicators will he use? Does his announcement mean that the county councils network was right all along?

Will the right hon. Gentleman explain how his proposals for capping will contribute to transparency, accountability and fairness in council finances? How will removing capping criteria from the public domain achieve that? What does he think is an acceptable council tax increase, given that last year's increase was nearly 9 per cent? Perhaps he can tell the House what he means by "self-restraint".

Does the right hon. Gentleman understand that his proposals for council tax benefit will have the same effect as capping? Will they not transfer the cost of social security benefits from the Chancellor of the Exchequer to the council tax payer? Will he give a figure to show by how much he expects the change will lead to an increase in council tax? The Deputy Prime Minister has today promised jam tomorrow. Ordinary families, as he describes them, know that the bills will arrive next year.

Mr. Prescott

I thank the right hon. Lady for her opening remarks. Her history and her comparisons between this Government and the previous Administration seem to be at variance with the facts. In her area, Norfolk council will receive from the settlement 6.2 per cent., which is 6.2 per cent. more than it received last year, whereas, in the final year of the Tory Administration, it received an increase of 1.2 per cent. King's Lynn and West Norfolk district council will receive 3.6 per cent. more this year. When she was in the Cabinet, it received 1 per cent. less. The record should be made clear.

The Department of Transport, Environment and the Regions has almost 20 per cent. of the Government's legislative burden. We have at least three Bills on local authorities. Given what is going on, we may have more time in the programme for even more legislation. The Department's heavy legislative burden is about modernising local authorities and making the distribution of resources fairer. My statement has shown that the changes in the SSAs, which make some adjustments in the calculations for individual county areas, will create a fairer means of distribution and fairer criteria for the children's services. The changes has been generally welcomed—

Mrs. Shephard

I welcomed it, too.

Mr. Prescott

I am glad that the right hon. Lady welcomes it; that is a step forward. I readily accept, as I am sure she does, that it is extremely difficult to progress further on education and cost adjustments and to find solutions to those problems. We shall continue to work on those problems; the period of stability under the three-year programme will, I believe, help us in that.

The right hon. Lady mentioned resources in rural areas and the sparsity principle. When her local council recently made representations to me, I was not able to say that we had accepted the principle, but I am glad to confirm today that we have. That has made for fairer adjustment in some of the changes that we have made to last year's settlement. That means that rural areas will get more. I do not know the exact amounts, but I will write to the right hon. Lady to give the figures to her. Some of the details of the consultation paper are in the Library, and I am sure that she will try to make some assessment of them.

The fire service settlement takes account of the pressures facing local government services, including pay and prices, as well as the opportunities to make savings. There is plenty of room for improvement in efficiency, which best value will be able to identify. I am sure that Opposition Members will want to reinforce that point.

With regard to pensions and whether the settlement deals with the provision of an estimated £130 million to take into account the Chancellor's changes on pensions, I can tell the right hon. Lady that that figure is included in the settlement.

Mr. Giles Radice (North Durham)

I thank my right hon. Friend for his settlement, and for the sympathetic way in which he has listened to my colleagues and me when we have described the problems of the hardest-hit areas. Will he take it from me that the settlement for Durham is fair and takes account of the level of need?

Mr. Prescott

Yes, that is at the heart of what we are doing—although we have not completed our work—and it is what the SSAs are about. In developing new criteria, there will be many changes from one area to another, and there will be many challenges in this House from those who are affected by those changes. The question from the right hon. Member for South-West Norfolk (Mrs. Shephard) about rural areas and urban areas is a classic example of that. There is an overall increase of 5.1 per cent. for the more sparsely populated areas, compared to 4.8 per cent. for England as a whole.

Clearly, we have a lot to do, and we shall take into account—as promised in our manifesto—fairer ways of dealing with the local government settlement. I must give notice that, although I am quite prepared to look at how we might find a proper solution to the criteria problem—indeed, I am doing so—a reform of local government financing is a far better way of dealing with it.

Mr. Paul Burstow (Sutton and Cheam)

I thank the Secretary of State for his statement, and for the opportunity to see it in advance.

Liberal Democrats believe that the current system leaves council tax payers unclear about whom to blame when their council tax bills go up and when their services are cut. Is it not the case that the settlement continues a long tradition of smoke-and-mirror tactics so that local people are, once again, paying more but getting less for it? Is the right hon. Gentleman aware that there is a £1.6 billion gap in his plans—as estimated by the Local Government Association—which councils can bridge only by council tax rises and cuts in services?

Last year's settlement left social services struggling to balance their budgets, with two out of three councils increasing charges and restricting access to care services. Does not this settlement mean that children, the elderly and disabled people will face a real-terms cut in care services? Is it not the case that the number of primary school classes with more than 30 pupils rose as a result of last year's settlement? Will class sizes go up or down as a result of the settlement?

Is not the Secretary of State's plan to claw back council tax benefit nothing more than capping by another name, but a cruder form of capping than the crude and universal form of capping that he says that he wishes to replace? Does he accept also that his decision not to pre-signal his capping plans has left councils in a position where they will have to play Russian roulette with people's services?

In our view, this is a bad settlement. It represents a victory for the control-freak tendency in the Government and another defeat for local democracy.

Mr. Prescott

Liberals always amaze me—that is why I never sit down with them. Never mind the smoke and mirrors—let us see what the hon. Gentleman's authority is getting, and people can then make the judgment. Sutton council is getting a 5.5 per cent. increase this year. That is certainly above the average that we have mentioned. Sutton is to get an extra £4.3 million for education—an increase of 5.9 per cent. Even the most inefficient local authority should be able to provide a better education system on that. It is receiving an extra £2.1 million for social services—a real and substantial increase of almost 8 per cent.

The settlement represents the best deal that Sutton has had for at least seven years. That is a matter of fact. To give me all the rubbish that the hon. Gentleman gave me about the settlement may be all right as Liberal propaganda and rhetoric, but it has little to do with the facts and does not address the real problems involved in providing good services.

The hon. Gentleman was concerned about real-terms costs. He should take into account the change from compulsory competitive tendering to best value. We believe—time will tell—that best value will bring increased efficiencies, and many business men have come to the same conclusion in their negotiations with local authorities. The hon. Gentleman has not taken those benefits into account.

Class sizes are falling, and we shall continue with that policy, giving more resources to education than ever before. What is more, that level of resources has been guaranteed for three years—something that no Government have done before.

I have made the distinction before between crude capping and the sophisticated Prescott version. Hon. Members may object to the term "sophisticated". I am trying to make the point that Governments cannot be indifferent to the level of expenditure by local authorities. We have given a fair and generous settlement—the best that local authorities have had for many years—but, if an authority is prepared to ignore that fact and say that it will spend more, we have a system under which it is allowed to raise the money—as was not the case under crude capping—but it will not receive all the public grant that would otherwise have come from Government.

Authorities can make that choice, but if their spending reaches a level that is totally unacceptable, I have a responsibility to intervene to protect the council tax payer. At that point, I can instigate a form of crude capping, but I do not have to limit it to one year. I can review the expenditure in the year that has gone—which I could not do before—and consider the phasing over the next few years. I can take those factors into account, so it is indeed a more sophisticated approach.

Mr. Frank Field (Birkenhead)

I thank my right hon. Friend for both the command that he shows of an immensely complicated brief and the sensitive way in which he is going about the reform of a major area of our public finances. Is he aware that most local authorities will now be considering in detail how the settlement will affect them individually? If some find that their settlement is way out of line with the generality, will they be able at some stage to come to him, or to my hon. Friend the Minister for Local Government and Housing, to make a plea for transitional arrangements over and above what he has announced this afternoon?

Mr. Prescott

I thank my right hon. Friend for his comments. I do not believe that councils should be encouraged in any way to spend more than we have allowed for in the settlement—we think that the 5.5 per cent. is a very good settlement and that the allocations have been fair—but I am always ready to accept that there are sometimes exceptional circumstances, and we must take those into account in the process. My hon. Friend the Minister for Local Government and Housing will hold discussions with the local authorities in the consultation process. I recognise that there may be exceptional—and I mean exceptional—circumstances, and I am taking extra powers to be able to deal with them as I have suggested.

Mr. Peter Brooke (Cities of London and Westminster)

Has the Deputy Prime Minister revisited his decisions of last year about day visitors and tourists in inner London, the consequences of which have already provoked criticisms from the Government office for London?

Mr. Prescott

No, we have not done so at this stage. I am aware of the criticisms that have been made. I would like to reflect on the matter and give the right hon. Gentleman a fuller response in a letter.

Mr. Bill O'Brien (Normanton)

I thank my right hon. Friend for his support for local government. At least we now have Ministers who believe in local government, as the statement shows. The abolition of compulsive competitive tendering is welcome. A great deal of time was spent by local government officers working out the framework for CCT, and in many instances that was a waste of resources. I feel sure that efficiency savings will be made.

Will my right hon. Friend accept that my local authority of Wakefield suffered for many years under the Tories? We were deprived of finance for education, when it cost £1,000 less to teach a child in my constituency than it did to teach a child in some Tory London boroughs. I hope that we will see an adjustment, and the members of the Special Interest Group of Metropolitan Authorities will welcome the statement. We hope that we will have the opportunity in the next three years to build on the relationship that has been developed in the past 18 months between my right hon. Friend and his colleagues to ensure that the progress in local government that he has outlined today is maintained.

Mr. Prescott

I thank my hon. Friend for his remarks. On CCT, the evidence is overwhelming that least cost does not necessarily mean best value or the most efficient way to do things, and that is why we are implementing best value. We have been grateful for the support of many local businesses which have also come to that conclusion. Many difficult problems are associated with the education criteria for SSAs and we should not underestimate that. The problem is often seen as a north-south one, but that is not entirely the case. The difficulties faced in some London areas are very real, but people do not always understand that problems faced in the northern areas are also very real. I readily accept that any formula will affect both north and south, and, if anybody has come to a different conclusion, they are wrong. It is a difficult process, but perhaps the best solution is the one that we are working on with the local government associations for a radical reform of local government financing.

Mr. David Curry (Skipton and Ripon)

Does the right hon. Gentleman remember with what violence his colleagues lambasted the previous Government over the area cost adjustment and what were regarded as the inequalities in the formula? Does he now accept that his failure to address either additional educational needs or the area cost adjustment, which are the two most disfiguring elements of the formula, means that we are stuck with the problem for the next three years, not just the next year? Will he confirm that the additional money for health and education is not hypothecated and, according to the tradition of local government expenditure, it is at the discretion of local authorities how they spend the additional money?

Mr. Prescott

Yes, it is not hypothecated and it is up to the discretion of local authorities. That concern was expressed about the extra education funds announced last year, which were funded by Government and were not an extra burden on the rate support grant. I am glad to say that more than 80 per cent. of local authorities agreed that the money should go to education. Some did not, and I regret that, but most local authorities recognised the priority even though we had no statutory enforcement or hypothecation. That approach was successful.

On area cost adjustments, the right hon. Gentleman's criticisms would have had more conviction if he had attempted to make changes during his period of office in government. He may have been sympathetic to change, but the Government were not. I do not know whether the right hon. Member for South-West Norfolk has any further thoughts on the matter, but she nodded her head when the difficulties were mentioned. I do not doubt that the difficulties are real. When people examine the balance between local authorities in the settlement on children's services, they will see changes in the distribution between north and south. Criticisms can be made, but it is not easy to make the distribution and it is not a simple matter of north-south.

As we said in our manifesto, the settlement must be fairer. We have achieved that in one area, but not in the other two. That is not because we have not done anything—my hon. Friend the Minister for Local Government and Housing has had many discussions on the issue and 21 detailed formulas for the area cost adjustment have been put before us. Many hon. Members have expressed their fears about changes to the area cost adjustment, but we will not funk it. We must have a fairer distribution and Ministers can defend their actions only on the basis that they are fair. What we have at the moment is not fair, but I want to achieve a consensus on the changes and that will take a little longer. I have already told the House that it will take at least three years, not one.

Mr. Eric Illsley (Barnsley, Central)

I congratulate my right hon. Friend on his generous settlement. He has recognised the needs of coalfield areas, as he showed in his announcement yesterday in Peterlee. Of the 20 authorities originally capped in 1990 under the current system, 30 per cent. were coalfield authorities. Because of the flawed SSA methodology, those areas have always been behind in revenue support grant settlements. May I urge my right hon. Friend to seek greater fairness in distribution, and ask him to apply a degree of flexibility to council tax benefit rebates?

The position of the coalfield authorities—particularly Barnsley, my own authority—makes it likely that their council tax increases will be above the guideline figure that my right hon. Friend has announced today, and they will be affected by the loss of rebate. Will my right hon. Friend be flexible in considering areas, such as mine, that will be caught out by that?

Mr. Prescott

I am grateful to my hon. Friend for his remarks, but the target has been set at 4.5 per cent., and the settlement for his area is 7.2 per cent. As he recognised, that is quite generous, and it will deal with some special problems. In making my announcement about the coalfield settlement at Peterlee yesterday, I tried to establish a new fund to deal with coalfield area problems, and the money announced is extra money, £350 million over and above what we are settling today. The same was the case with the new deal housing programme and with education funding. Local authorities will receive not only the money that I am announcing today; many settlements of huge amounts of resources will be used to meet specific problems. The settlement through the SSA on children has meant that the coalfields have been taken more into account, because that had discriminated against them. My hon. Friend appears to be telling me that his council will be spending more, but I ask him to remind the council that there will still be Prescott's sophisticated capping.

Mr. Eric Pickles (Brentwood and Ongar)

The right hon. Gentleman has described his settlement as the most generous in history. That certainly is not the case for Essex, which falls £28 million short just of standing still. If the settlement is generous for the rest of the country, that generosity is built on the backs of the elderly who are being taken care of in social services in Essex and of our schoolchildren.

Mr. Prescott

I am having considerable difficulty in taking into account the fact that hon. Members are saying the settlement is not fair or generous. Essex county council will receive a 5.7 per cent. increase this year, and I must make the inevitable comparison with what happened during the final year of the previous Administration in 1995–96 when Essex received only 2.7 per cent. However the assessment is measured—by percentage or in absolute terms—it is a fair one, and we have settled not for one year, but for three. Considerable resources will go to the local authorities.

The hon. Member for Brentwood and Ongar (Mr. Pickles) is an expert in local government, and he spent considerable time in it, but I cannot, by any stretch of the imagination, accept his argument that the authorities are not benefiting. Essex alone will receive £27.6 million for education, an increase of 5.6 per cent., although, as I recall, the council did not spend on education all the money it received for education last time round, but chose instead to spend it on roads. I think that that was the wrong priority, but the authority had the right to do so.

Mr. Dennis Skinner (Bolsover)

My right hon. Friend went to Peterlee yesterday to announce the £350 million package for the coalfield areas, and, as my hon. Friend the Member for Barnsley, Central (Mr. Illsley) has said, that will intertwine with changes to the SSA. I have listened to some of the figures that my right hon. Friend has trotted out today, and have heard that Norfolk will receive 6 per cent., that the hon. Member for Sutton and Cheam (Mr. Burstow) is getting 5.5 per cent. and that another area represented on the Opposition Benches is also getting 6 per cent. I am beginning to think that Derbyshire might have won the lottery, although probably not.

In order to repair damage to the coalfields, there must be a redistributive element to SSAs, and it must go along with the package that my right hon. Friend announced yesterday in order to ensure—this is the principal thing that he must do—that we do not lose jobs. May I have his assurance that that will be a continuing theme so that we can repair the tremendous damage that the Tories did to the coalfield areas?

Mr. Prescott

I can assure my hon. Friend that many people are employed by local authorities. At a time when the private sector is perhaps thinking of cutting back, thank goodness local authorities still have the resources from the Government to provide local services which, at the same time, provides jobs. That is not an unusual situation between the private and public sectors in the development of a cyclical economy.

My hon. Friend said that some local authorities have received a settlement of 5.5 per cent. I doubt whether he would describe Derbyshire's settlement as a lottery, but it did get 6.1 per cent. It is a good example of the extra resources announced yesterday in our coalfield community policy, which involves an extra £345 million to deal with the damage brought about by the savage attack on those communities by the previous Administration. We are now trying to deal with that by increasing housing and jobs and by improving the environment in those areas, particularly in Derbyshire.

I am aware of the call that Derbyshire's local authority made at the conference yesterday for a connection to the M1 motorway. That is being considered and, as the local authority pointed out, that is important for the development of jobs in Derbyshire. We are happy to do all that we can to help meet the criteria that my hon. Friend has laid out.

Sir Paul Beresford (Mole Valley)

This year's announcement, together with last year's, hides a large redistribution of funds to crony councils. Some of the councils that are not receiving this shift in funding will have some difficulties. They will be looking at their council tax and at what the Secretary of State calls Prescott's sophisticated capping. Perhaps we could rename that Prescott's subjective capping. What sort of percentage increase would make the Secretary of State think of looking at subjective capping?

Mr. Prescott

It works to a formula. It is not a question of whether or not I like a council. The House would not allow me to exercise such a prejudice. Although that happened under the previous Administration, we would not want to do it because it would not be fair. We must have fair criteria. For every half percentage point over 4.5 per cent., there will be a loss of Government grant for local services, equivalent to about one eighth. One can calculate that, if it went over by 4 per cent., there would be a full penalty and all the grants could be lost. By that stage, I would have intervened because the local authority would have to consult me. I would then exercise a judgment about whether to move to Prescott capping.

There may be a real and justified reason for moving from 4.5 to 5 per cent.—that was mentioned earlier by my hon. Friend the Member for Bolsover (Mr. Skinner). From the figure of 4.5 per cent. up to the total cap, we are prepared to let the local authority spend as it wishes, but we are not prepared to give grant for any expenditure over that amount. I think that that is fair. Local authorities can make their own judgment about what to spend—crude capping prevented that, but this system does not—and that can continue until it reaches a stage that I believe is excessive. That is what I have just announced.

Surrey county council has a 4.6 per cent. increase whereas, under the Conservative Government, it received 1.7 per cent. Obviously, I have a little slip of paper for every hon. Member who stands up pointing out what happened to their local authority under the Conservative Government. It is a fair point to make and most criticism from Opposition Members can be judged on that alone. There is a change when one moves from Government to Opposition and from Opposition to Government and it is far better for us to be on the Government Benches.

Mr. Paddy Tipping (Sherwood)

My right hon. Friend has been clear and determined in his support for coalfield communities and his aspirations to help coalfield local authorities such as Nottinghamshire. Can he confirm that this is a good settlement for coalfield communities but, at the same time, accept a degree of regret that the big issues such as area cost adjustment and additional educational need have not yet been resolved? If my right hon. Friend waits for consensus on this issue among local authorities, he will be waiting for a long time. I hope that he will take a determined approach to resolve these issues.

Mr. Prescott

I accept that it will be difficult to achieve absolute consensus on any of those problems. The example of agreement that I gave to the House was not agreed by everybody. There is a time when one has to make a judgment. However, it is better to have a formula that does not involve open warfare, which, as my hon. Friend knows, is what we have seen in the House and in other places from time to time.

We can make advances, but we have not had sufficient time to do so. Over the next three years we shall make calculations and further extend discussions to find out how we might achieve that.

As I said—I still feel strongly about this—the solution may well be to try to find a better form of local government financing, but that is never an easy proposition, any more than standard spending assessments are easy—as anyone who observed the development of the poll tax will know. We shall continue to try. We have had some success and we shall continue to work on the more difficult problems.

On the settlement for the coalfield communities, Nottinghamshire got a 5.5 per cent. increase, which it will view as an improvement. The coalfield communities settlement will benefit several areas, but it is very specific to those communities. The settlement was regarded as a welcome contribution in Peterlee. The change in the SSA relating to children's services has also benefited the coalfield areas because the old criteria tended to discriminate against them.

Mrs. Angela Browning (Tiverton and Honiton)

I have a favour to ask of the Deputy Prime Minister—he will gather that I am desperate. Will he receive a delegation from Liberal Democrat-controlled Devon county council between now and February? The council has been lobbying for a meeting and his Department is usually quite generous about that. When he meets council representatives, will the Deputy Prime Minister ask them why the money that they have received from the centre for flood defences—there is a total underspend by the council of £1.3 million—is not being spent?

The Deputy Prime Minister will be aware of the devastation in my constituency in places such as Gittisham, Ottery St. Mary, Cullompton and Whimple. I declare an interest, in that I live there and I too was flooded out. The Deputy Prime Minister would save me having to raise the matter in an Adjournment debate. Devon county council hopes that it can persuade him to increase the money that he intends to give it. He could do my constituents a great favour in return by examining how the council controls the money that it receives and, in particular, how communities are disadvantaged by the way in which the council spends the money that it is allocated for flooding.

Mr. Prescott

The hon. Lady raises an important point, and it is one that we have considered. I do not know how the settlement affects Devon, but money has been put into accounts for several local authorities to deal with flooding. They have been claiming back money on the basis that there are funds in those accounts, but we shall now reimburse only the money that is spent. Several authorities have been burrowing away the money and not using it for flood defences.

Mrs. Browning

Yes, that is what the Liberal Democrat council has been doing.

Mr. Prescott

I take the hon. Lady's point. If that is what the Liberal Democrats have been doing, it is terribly disgusting. We are about to change that system. It is typical of the Liberals to hide the money and then call for more.

Dr. Howard Stoate (Dartford)

I congratulate my right hon. Friend on what will be seen as a fair settlement for Kent of 4.7 per cent. I congratulate him particularly on reserving judgment on removing the area cost adjustment, which he will know is a concern to boroughs such as mine in Dartford which stood to lose many of their services. When he gets round to the detailed and complex discussions on the area cost adjustment, will he take into account the great difficulties faced by borough councils that do not have social services and education in their budgets? Will he also recognise the significant pockets of deprivation that exist even in leafy areas such as Kent?

Mr. Prescott

We want to take those matters into account. I mentioned earlier, in regard to proposals made by county councils about using sparsity as a criteria, that we have taken that into account. Whether we are considering the provision of library services or elderly services, we have made an adjustment and it is reflected in the settlement today.

I can tell my hon. Friend that we have been discussing the area cost adjustment ever since we came to power. We have narrowed down proposals to 21 formulae. I am not yet convinced that we have one that I can bring to the House and say with confidence, "This is right and proper and it is the fairest method," so I have not come here today to make further advances on that. My hon. Friend can rest assured that the services provided by local authorities will be taken into account in assessments.

Mr. Tony Baldry (Banbury)

Last year, Oxfordshire county council managed only by moving a substantial chunk of education spending to prop up personal social services spending, and by substantially hiking the council tax bill. What does the Deputy Prime Minister say to those in Oxfordshire who are worried that, this year, the settlement might result in another substantial hike in the council tax bill, and a substantial reduction in social service provision in the county?

Mr. Prescott

I recall people from Oxfordshire making a very similar case to me. It was a reasonable case. We had some disagreements about it, but I understood their problems, which resulted from the fact that the previous Administration gave them a very restricted contribution.

There is a great difference between the latest settlement and that made in the last year of the previous Administration. Oxfordshire county council gets a 3.8 per cent. increase in this year's settlement; in 1994–95, when the Tories were in government, the council got an increase of 0.5 per cent.—half a percentage point. No wonder Oxfordshire had problems providing services. That was the settlement that we inherited from the previous Administration.

This is our settlement—our judgment about fairness—and 3.8 per cent. compares very favourably with 0.5 per cent. under the hon. Gentleman's Administration. It means that Oxfordshire gets an extra £9.5 million for education. That is an increase of 4.6 per cent.—a substantial increase, which fairly represents the best deal that Oxfordshire has had for years.

Mr. Harry Barnes (North-East Derbyshire)

Although there is still a lot of work to be done on area cost adjustment and educational needs, I congratulate my right hon. Friend on the 5.4 per cent. increase overall in the total spending assessment, and on an increase which was said to be 7 per cent. in real terms over three years. I understand that Derbyshire county council will get a 6.1 per cent. increase, and that its police will get a 6.4 per cent. increase. There have been considerable problems in both areas. However, the figures are not great, given those for other district councils.

I understand that education provision is very much to the fore in connection with the county's position, but has the idea of enhancing the population figures been considered? North East Derbyshire district council suffers because it loses a considerable amount of money owing to the fact that people work in Sheffield and Chesterfield. That fact needs to be taken into account by the Department for the Environment, Transport and the Regions in assessing a fair settlement for the district council.

Mr. Prescott

This is another part of the argument about the criteria for SSAs and the area cost adjustment. Arguments about population will be considered, as will arguments about many other factors. Views differ, and I should like more information and more discussion before I reach a conclusion.

Each settlement takes into account the services that are provided by each authority, and the 6.1 per cent. for Derbyshire county council takes into account police services, which my hon. Friend rightly points out are being given 4.1 per cent. However, he must take into account the fact that the Home Secretary looks to the police for a 2 per cent. improvement in productivity this year. These settlements and accounts are based on efficiencies and productivity.

Mr. Geoffrey Clifton-Brown (Cotswold)

On the face of it, the settlement for Gloucestershire county council looks generous, but it is based on smoke and mirrors. The education settlement is 1 per cent. below the national average, although Gloucestershire is already among the lowest-spending councils on education in the country. Our police settlement will involve a £1.5 million cut in the police budget. The council tax payers of Gloucestershire will suffer, because the council tax that they pay will increase by considerably more than the average of 4.5 per cent. If that is the case, will it not simply be a distribution from the shire counties of this country to the northern urban counties, paid for by the council tax payers of the shire counties?

Mr. Prescott

Another claim for smoke and mirrors. At least, before giving his analysis, the hon. Gentleman felt obliged to say that the settlement looked generous. It not only looks generous; it is generous, whatever it is compared with. The 5.7 per cent. increase that Gloucestershire is receiving is far better than the awards in many years under the previous Administration, and far better than was given last year.

I know that the hon. Gentleman is not criticising the education settlement, but I am sure that people in Gloucestershire will welcome the fact that there will be £12.1 million more for education—one of our priorities. The hon. Gentleman appears to be arguing that there will be a shortfall in police funding, but he is not taking into account the agreement between police authorities and the Home Secretary on the efficiency and productivity improvements to be expected this year. That, of course, runs right through the local authority settlements. I am not simply giving money to the local authorities and telling them to get on with it.

Local authority modernisation means giving best value. I expect services to be delivered more efficiently and effectively, with greater productivity; otherwise I am wasting money that I could be providing for other services. That is what best value is about and what I intend to bring about. It is not smoke and mirrors, but a real increase and a benefit to the hon. Gentleman's constituents. It is a pity that he did not finish by saying that, on further reflection, it was a good settlement—but we live in hope.

Mr. Gordon Prentice (Pendle)

This is indeed a good settlement. Will my right hon. Friend say a word or two about the other services block, which is important to small district councils like mine in Pendle? In particular, environmental health officers have new responsibilities for monitoring air quality, policing food establishments and so on. I want to be reassured that the settlement will ensure that the money goes where it is needed in those front-line environmental health departments.

Mr. Prescott

We have made clear what the standard spending assessments are, what the services are and what money will be provided for them. The local authority can make a judgment about how the money is spent and what it considers to be its front-line services. We cannot hypothecate or ring-fence, as we said before about education. We sincerely hope that local authorities will use their good judgment to spend on those services, based on the SSAs. If they have any doubt, they can talk to my hon. Friend the Minister for Local Government and Housing, who will be going through the consultation procedures on the matter. With regard to the extra burdens that will be placed on my hon. Friend's Pendle authority, they will be taken into account, but the judgments will ultimately be made by the local authority.

Mr. Edward Davey (Kingston and Surbiton)

Last year, the Deputy Prime Minister referred to Kingston as a "leafy borough" and went on to announce one of the worst settlements for our borough for many years, resulting in cuts across the board. If this is indeed one of the most generous settlements in the past seven years, does he realise that the others have been really mean? Does he realise that there are pockets of genuine need and deprivation in boroughs such as Kingston and other boroughs in London? Will he confirm that as his SSA changes are phased in over the next few years, London boroughs such as Kingston will lose out?

Mr. Prescott

I still think that the settlement is generous. My reference to leafy Kingston recalls the time when I fought my first election as a candidate in Hull, which was Kingston-upon-Hull, against the representative of Kingston-upon-Thames, who later became the Chancellor and then Lord Lamont. I can tell the hon. Gentleman that compared to Hull, Kingston-upon-Thames looks rather leafy.

We want fair criteria for the distribution of resources. The settlement for Kingston is a 4.8 per cent. increase, with £2.5 million for education. That is not chickenfeed, by any measure. The changes in the SSA, some of which we have already introduced, as I told the House, are required for a fairer distribution, whether to meet educational needs or the area cost adjustment. We are working on that, and I have told the House what I intend to do.

Mr. Andrew Dismore (Hendon)

I welcome my right hon. Friend's decision not to change the additional education needs formula for this year. In London, we recognise that there are anomalies in the formula, but we have special problems—for example, in my local authority, Barnet, a substantial number of children have English as a second language. I assure my right hon. Friend that in London we are committed to working towards a consensus to sort out that difficult issue.

Mr. Prescott

My memory did not serve me well when I was trying to think of all the local authorities and extract the information on Barnet.

Educational needs, like area cost adjustments, create difficulties in assessing the differences between various parts of the country, which are often identified as London and the rest, or as north and south. We will take into account the need for a fairer settlement. As my hon. Friend knows, the present settlement is 4.2 per cent. and almost £7 million more for education. I believe that he will welcome that. We must await the final results of the work that we are doing on the new assessments for educational needs.

Mr. James Gray (North Wiltshire)

Salary costs in Chippenham, which is in my constituency and which does not benefit from the area cost adjustment, are precisely the same as salary costs in Newbury, just over the border in Berkshire, which does so benefit. Does the right hon. Gentleman not realise that, owing to the very nature of the area cost adjustment, he will never achieve consensus? Those close to London will want to keep it, while those away from London will want to do away with it.

Does the right hon. Gentleman recognise that a tax is being imposed on areas such as mine? Is not the only clear way to deal with the area cost adjustment to get rid of it once and for all?

Mr. Prescott

That may well be a consideration. I do not necessarily agree with it, but such suggestions have been made by various parties that approach the matter from different angles. They all have solutions that favour them, but do not necessarily favour the other areas affected by the criterion.

Last year, my hon. Friend the Member for Cambridge (Mrs. Campbell) made a similar point about the need to recognise the difference between boundaries, and the effects of what is done. It is a real problem, which I cannot ignore, and we shall take it into account. Once we begin to draw lines in relation to different criteria, there is always an interface; but there is always an interface between the rich and the poor. We must make a judgment.

Wiltshire county council is receiving an extra 6 per cent. this year. I am glad that the hon. Gentleman did not criticise that amount, because I need not go on to say that, in the last year of their Administration, the Tories provided only 3 per cent.

Dr. George Turner (North-West Norfolk)

I congratulate my right hon. Friend on the poker face that he managed to maintain when he came to Norfolk last week to announce the publication of a White Paper on the issue, and on the pleasant and straightforward way in which he and his colleague heard the many representations from the county.

My right hon. Friend has already given the figures for Norfolk. As the former chairman of the education committee who had to implement the last grant settlement under the last Government, I know how much better the present chairman will feel when he sees those figures tonight.

What my right hon. Friend has said is evidence of new Labour's willingness to look afresh at issues that have plagued Norfolk for 18 years. However, although this may be a good settlement for the three years to come, I join those who agree with my right hon. Friend that we need to consider the establishment of a more comprehensive system, which is seen to be fair. I hope that the three years will be used for that purpose.

Mr. Prescott

I thank my hon. Friend for what he has said—especially his reference to Friday's meeting in Norfolk, which involved Members of Parliament on both sides of the House. It was an excellent meeting, attended by members of local authorities and representatives of the agriculture industry. I announced the Government's intention to publish a rural White Paper to examine the problems. As I have said, I thought that the meeting was excellent, and I believe that everyone left it with the same impression.

My hon. Friend has raised an important point, which was borne in on me again in Norfolk. The county made clear its feeling that it had suffered under the previous Administration, because more money went to the shire districts than to the county. To be fair, I must add that more was still going to the county, but it was distributed differently owing to the different formulae used for the districts and the county. The changes that I have announced will reverse that, to the extent that more will go to the county, because of the definition of the services and the sparsity criteria that we have accepted. In any event, whether the money goes to the county or the districts—I know that different services are involved—there will be more and better resources than ever before, however they are distributed.

Mr. Nicholas Winterton (Macclesfield)

rose—

Madam Speaker

Order. I did not see the hon. Gentleman in the Chamber at 3.30 pm. Has he been present throughout the statement and the subsequent exchanges?

Mr. Winterton

I am afraid not. I had another engagement in the building. I was going to apologise, if you called me, Madam Speaker, for being absent for part of the statement.

Madam Speaker

I do not call any Member who has been absent for any part of a statement. I have been making that clear for some time.

Mr. Barry Gardiner (Brent, North)

I thank my right hon. Friend and his colleagues for the care with which they have listened to representations over the past few months, and in particular, for their response in regard to additional educational needs and the arguments for retaining ethnicity criteria.

As my right hon. Friend knows, in the borough that I represent 106 languages are spoken, and in our schools English is the second language for 61 per cent. of children. That makes my right hon. Friend's proposals particularly welcome. Will he consider the ethnicity criteria changes in personal social services? I believe that they will have an extremely deleterious effect on my borough of Brent, and a number of others. I should be grateful if my right hon. Friend and his colleagues agreed to meet representatives from my local authority, and others who are affected, to consider the matter further.

Mr. Prescott

I am grateful to my hon. Friend for the way in which he raises this matter, because it reminds hon. Members on both sides of the House that different authorities will be affected if the criteria are changed. There is a legitimate complaint and concern here; however fair we have been in finding that formula, there will be legitimate grievances against the conclusions that we have drawn.

Brent is certainly one of those authorities—the SSA increase is 3 per cent., and my hon. Friend has explained the reasons why. I tried to explain them to a number of northern councillors at a recent meeting. They all think that this is a north-south business, but we have to point out that poverty, whether in leafy Kingston or wherever, is in all our areas. We all have areas of poverty and deprivation, which the House will want to try to help.

My hon. Friend has a very good point, and I am well aware of it. Although there will be better settlements in respect of capital receipts—his area will benefit—that does not mitigate his central point. When we make changes in these criteria, we cannot always assume that there will be proper distribution, in the way that we want. The criteria can work effectively against what we intend. I think that that has happened in Brent, and I should be delighted to meet my hon. Friend to talk about the conclusions of this.

Mr. Christopher Leslie (Shipley)

Last but not least, may I also thank my right hon. Friend for the many millions of pounds extra that he has announced in the settlement for the Bradford district? In particular, will he confirm that one of the most significant aspects of his announcement is the three-year planning period, which will encourage efficiency and modernisation of local services? At last we will be able to get that long-term planning into local government finance.

Mr. Prescott

I very much agree with my hon. Friend. Our judgment was that a three-year expenditure programme would be a lot easier for local authorities, and I think that they generally feel that they can now plan over three years. Although that is a longer period, it gives considerable time to examine area cost adjustments, educational needs and those other matters that we are concerned with on SSAs.

I recall—I chance my arm on this—that the authority that my hon. Friend represents has shown that, under the new criteria, it will get less in some of these areas, under the formulae on children. There has been argument about north versus south, but a southern authority and a northern authority will both be affected by the criteria—which belies the assumption that this is a simple north-south issue.