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§ The Minister for Local Government and the Regions (Ms Hilary Armstrong)
I beg to move,That the Local Government Finance Report (England) Special Grant Report (No. 72) (HC 159), which was laid before this House on 29th January, be approved.To complete the picture of local government funding, we need to tackle two other issues, in addition to those covered by the previous motion. These are any substantial continuing effect on a local authority's grant entitlement arising from past changes in the method of calculating the grant distribution formula; and the arrangements to provide a measure of funding stability for other authorities, such as shire districts, not covered by the floor and ceiling arrangements.The special grant report covers three special grants: standard spending assessment reduction grant—SSA review; SSA reduction grant—police funding review; and central support protection grant.The SSA reduction grants deal with past changes in methodology. As there have been no methodology changes to SSAs or to the police grant formula since 1999–2000, other than some minor changes to reflect the introduction of the Greater London Authority and the transfer of nursery grant funding into SSAs, the number of authorities receiving these grants has been diminishing over the past few years. This year, only one authority remains protected by these grants—the City of London. The total cost of the grants has consequently reduced from some £16 million in 2000–01 to less than £2 million this year.
§ Mr. Patrick McLoughlin (West Derbyshire)
I am grateful to the Minister. She said that there had been no substantial changes in SSA over the past year. Can she tell us whether there have been substantial changes over the past three years?
§ Ms Armstrong
I said that there had been no changes since 1999–2000. [Interruption.] As the hon. Gentleman knows, we have maintained SSA methodology over a three-year period. I read to him the areas in which we have changed methodology over the past three years.
On a like-for-like basis, the grant guarantees that no shire district authority—no relevant authority—will receive a reduced general grant from central Government.
§ Ms Armstrong
The number of relevant authorities receiving the grant this year has again declined as a result of the more generous funding levels for shire district councils.
§ Ms Armstrong
Mr. Deputy Speaker, I am seeking to uphold your injunction to keep my introduction brief. However, I give way to the hon. Member for Christchurch (Mr. Chope).
§ Mr. Chope
I am grateful to the Minister. She just said—if she looks back at her notes, she will be able to read it again—that there would be no reduction for shire districts on a like-for-like basis. Taking into account the additional burden placed, for example, on East Dorset district council, which features in the report, does she agree that a new burden has been placed on East Dorset as it now has to pay for concessionary fares, so there is not a like-for-like basis for comparing this year and the coming year?
§ Ms Armstrong
We are dealing with SSAs. There is no substantial change in SSAs this year. However, additional funding has been put into the settlement, in order to deal with the matter that the hon. Gentleman raises. We are comparing SSAs on a like-for-like basis.
There are only 10 shire districts that will receive central support protection grant this year. They are listed in the report. The cost of this grant for relevant authorities has consequently fallen from more than £4 million in 2000–01 to £1.4 million this year. The reductions are reflected in the overall grant settlements that we discussed in the previous debate.
The report completes the Government's allocation of general grant to local authorities for the year 2001–02. It will help to provide stability of funding so that the authorities affected can plan ahead for better service delivery. It is therefore an important part of our commitment to public services. I commend the special grant report to the House.
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§ Mr. Nigel Waterson (Eastbourne)
As the Minister said, we are discussing special grant report No. 72, which covers SSA reduction grant, SSA police grant and the central support protection grant.
On one view, the report is narrow and technical. It deals with transitional grants for the authorities concerned. Essentially, it deals with anomalies that may affect certain local authorities.
Part of the report deals with the City of London. As I understand the position—the Minister is welcome to correct me if I have it wrong, as I am sure she would be the first to agree that, for anyone without a degree in mathematics, it is difficult to follow some of the formulae—the City of London is sensitive to demographic changes, and so may require extra grant attention at this time in the cycle.
The main issue, as far as I can see from the report, involves certain shire districts which are not eligible through the relevant mechanism for the new floor arrangement. We debated the matter earlier this evening, but the report raises general as well as specific issues.
As I said, the report is limited to specific authorities and the anomalies that apply to them. They are set out in detail. The report highlights all the distorting effects of the new floors and ceilings that the Government have introduced. It is strange that we are debating the effects on the authorities of floors and ceilings when the Government claim that there is a freeze on standard spending assessment methodology and that they are still considering the thousands of responses to the Green Paper on local government finance. It is odd that the Government are embarking on piecemeal reform of local government finance and a sticking-plaster approach—as 384 my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) described it in the previous debate—when they are in the process of thinking the unthinkable about local government finance and future mechanisms.
Comments from Liberal Democrat Members, Conservative Members and Labour Back-Bench Members in the previous debate made it painfully apparent that there is much dissatisfaction with the operation of existing mechanisms. Some local authorities are on the wrong side and others on the right side of the area cost adjustment fence. No matter how the mechanism is supposed to operate, some councils always seem to be bottom of their given league table. I do not expect the Chamber to fill up with hon. Members whose local councils are more than happy with their allocations, but plenty turn up for the opposite reason, doubtless after being lobbied by their constituents.
It is odd that the changes are to happen this year of all years, when there is supposed to be a freeze and what the Minister insists on describing as stability and predictability—as if those two things can be intrinsically good when the basis for calculating the initial figure is unfair in relation to some local authorities. There will be a clear change in the operation of the formula for some councils. The Government argue that, without some change, the existing formula would result in, to paraphrase the Minister, an unacceptably wide range of outcomes next year. Some authorities, especially in the south-east and London, would receive larger increases because of population movements and higher living costs. Hence the Government have devised a system of floors and ceilings on grant increases for authorities with responsibilities for education and social services.
The minimum floor increase for an individual authority will be 3.2 per cent., and the maximum ceiling will be 6.5 per cent., as the Minister said earlier. The debate is about authorities other than the City of London precisely because they do not provide education or social services. Left to themselves, they would not benefit—if that is the right word—from the new ceilings and floors. In a nutshell, that is the theme of the report.
However, neither the report nor the Minister explained why the Government believe that the system should be introduced now. As hon. Members know from the previous debate, we have three basic objections to the introduction of ceilings and floors at this stage. First, they distort a system that is already complex. A constant theme of such debates is the difficulty of understanding the formulae. It is no good Ministers complaining about the complexity of the system and the difficulty of explaining it to the taxpaying public—I presume that that is why they are considering other methods of calculating the amounts that local councils should spend—while simultaneously introducing an extra distortion to the system.
Secondly, the Government were presented with statistics, especially the new earnings data, for many authorities in the south-east and London, which suggested a substantial increase in the area cost adjustment. That is why they face a difficulty this year. Whatever the arguments for or against that mechanism, whether it is good or bad—
§ Mr. Waterson
I hear cries of "bad", and I appreciate that we are holding a genuine cross-party debate. Opinions depend on the area that one represents. In East Sussex, we believe that the area cost adjustment is good.
§ Mr. David Kidney (Stafford)
Now that the hon. Gentleman has had a little more time to think about it, will he outline Conservative party policy on the future of the area cost adjustment? He appears to like it. What is his party's view?
§ Mr. Waterson
In East Sussex, we like the area cost adjustment, because we happen to benefit from it. I understand why the hon. Gentleman takes the opposite view.
I repeat that we will wait and see the sort of mess in local government finance that we inherit after the general election before we make up our minds. The hon. Member for Stafford and I agree that once a mechanism such as the area cost adjustment is in place, people become dependent on it. It is difficult to wean people off such measures, and they become part of the system.
§ Mr. John Bercow (Buckingham)
My hon. Friend made a pertinent remark about the complexity of the formulae. Does he agree that it would be revealing if Ministers were obliged to go into an examination room to answer questions of which they had no advance knowledge, about the function and implementation of section 88B(3) of the Local Government Finance Act 1988, with no guidance from their officials, and declare the results to the public?
§ Mr. Waterson
My hon. Friend makes a telling point if I only knew what it was. He reminds us clearly and eloquently of the sheer complexity of the formulae. I am sure that we jobbing politicians all rightly rely on officials when we become Ministers. Many Conservative Members are looking forward to that experience in two or three months. However, we will rely more on officials for guidance on local government finance than for any other subject.
At least Conservative Ministers tried; they saw a constant stream of delegations about local government finance. I have taken delegations from Eastbourne and I am sure that other hon. Members from all parties have done that for their local councils. The Labour Government are much less willing to receive delegations from councils. I do not claim that our Ministers always gave councils the answers that they wanted to hear, but at least they were prepared to listen and to take account of people's comments.
I was making a point about reflecting the real costs to councils. If costs have genuinely increased in a specific local authority area, they should be reflected in the area cost adjustment, as long as that system remains.
As the hon. Member for Stafford pointed out in slightly unguarded but acutely observed correspondence, most local authorities will lose out. A few will benefit from the floors while 12 will suffer from the ceilings. I suspect that the Government are simply trying out a new weapon. However, the mass of local authorities in the middle will continue to lose out because of the mechanism. I challenge Ministers to challenge that statement. We will watch future developments with great interest.
§ Mr. Kidney
For the hon. Gentleman's information, as a result of the Government's announcement about changes 386 since the provisional settlement was announced to the House, Staffordshire will not lose out because of the floor provisions. The extra money that it now receives takes it back past the amount that it gave up under the floor provision. We are not losing out in Staffordshire.
§ Mr. Waterson
I am delighted to hear it. No doubt the Government are hoping that that will save the hon. Gentleman's seat and others in the area, although I somehow doubt that it will be enough.
I shall finish on our general worries about the floors and ceilings concept, particularly the fact that it is being introduced at this stage, when we are meant to be having a freeze on any such changes. The Local Government Association Conservative group, which is well on its way to being the dominant group in the Local Government Association, states:The LGA Conservative Group is strongly opposed to the proposal to introduce grant ceilings. There seems little point in having an elaborate system of SSAs, dependent on the collection of large quantities of data, if that data is subsequently ignored because it does not suit the Government.That is the truth behind all this. We find the proposals in the document as objectionable, in many ways, as those in the earlier document because they bring in the idea of floors and ceilings. Having said that, although we voted against the earlier report, it is not my intention—subject to how the debate develops—to invite my right hon. and hon. Friends to divide the House on the Special Grant Report No. 72.
Mr. Eric Insley (Barnsley, Central)
I am grateful for the opportunity to make a brief contribution on the report.
I want to follow the comments of the hon. Member for Eastbourne (Mr. Waterson) about floors and ceilings. I was surprised, when reading the report, to find that my local authority did not come within the SSA reduction grant, in view of the 1991 census information. I recall speaking in previous debates on this issue, and drawing attention to the fact that, even with the changes that had taken place, we lost revenue support grant in the same way that we have under this settlement. In this case, we have lost revenue support grant through data losses.
The report relates mainly to ceilings and floors. My local authority, Barnsley, is at the floor level of settlements throughout the country. It received a 3.2 per cent. increase in revenue support grant, which is at the lower end of the scale. I appreciate that other amounts of money have been received in relation to the neighbourhood renewal fund and to education. Unfortunately, those amounts of money are not adequate to address the problems that we face as a result of the low settlement.
. There are restrictions on how the neighbourhood renewal fund money can be used. It cannot simply be transferred across into other sectors, in which my local authority is currently struggling to meet its responsibilities. In fact, Barnsley remains 30th out of the 36 metropolitan authorities in terms of its level of RSG funding. The data changes, and the area cost adjustment factors, have resulted in a loss of some £2.2 million, and the ceilings and floors have resulted in a further loss of some £100,000.
As for the additional moneys from the Department for Education and Employment, Barnsley received £180,000 of the total, while neighbouring Doncaster received about 387 £880,000. That equates to about 79p a head for Barnsley, compared to an average of £2.63 a head across all the metropolitan authorities. Once again, we appear to have come off badly regarding all the extra funding that the Government have provided.
The effect on Barnsley's budget, as my hon. Friend the Member for Barnsley, East and Mexborough (Mr. Ennis) pointed out, is that it will lose £11 million over the next two years. That is nothing new for our local authority. because it has faced many cuts since the SSA methodology was introduced in 1990. It was capped in 1990, together with 19 other authorities, one third of which were in coal-mining areas. The SSA methodology simply does not address the difficulties of coal-mining villages, because they are always equated with rather nice villages with duck ponds and village greens, which are doing quite well. We tend to lose out as a result.
There will undoubtedly be redundancies in Barnsley as a result of the settlement. The local authority has already issued compulsory redundancy notices to the employment department. That will obviously cause some difficulty, in particular because the local authority does not have the money to fund the redundancies that are being imposed on it as a consequence of the local government settlement.
My hon. Friend the Member for Barnsley, East and Mexborough asked whether the Government would consider a supplementary credit approval for £1.8 million, to cover the difficulties that the local authority will encounter in funding those redundancies and employment cuts. My hon. Friend mentioned that the job losses could be equivalent to about 225 full-time posts. The local authority has issued an HR1 notice that calls for 450 redundancies. That is a substantial number of job losses.
The methodology used for the ceilings and floors is rather flawed, as was mentioned earlier. The proposals rely on the scheme being self-financing, which has the perverse effect of penalising those authorities that have already lost resources through data changes. Authorities such as mine have, therefore, lost twice: once through the data changes, and again through the ceilings and floors mechanism.
§ Ms Armstrong
There are one or two misapprehensions about this matter. My hon. Friend's local authority will contribute to the special grants that we are debating. Those special grants are top-sliced from the settlement, and he does not, therefore, know how much his authority will contribute to them. Had that money not been top-sliced, it would have been distributed through the general grant. By opting for that system, we have simply made more open the contribution from each authority. However, instead of that contribution coming from the authority's base grant, according to the scaling factor, and the floors and ceilings, the contribution is only part of the increase that it is receiving. Barnsley is, therefore, contributing less, because we have calculated the amount using floors and ceilings, than it would have done if we had done this by top-slicing, through a special grant.
§ Mr. Illsley
I am grateful to my right hon. Friend, but we are still contributing £100,000 in respect of ceilings 388 and floors. That is simply a case of the poor funding the poorer, which has happened with previous RSG settlements.
The "other services" block, which my hon. Friend the Member for Barnsley, East and Mexborough mentioned, is the one that seems to have been neglected. Although we passport money for social services and education and although I agree with education being a priority, "other services" funding seems to have been slightly neglected even though our local populace clearly told the local authority through the community plan that they want issues such as the environment, street cleaning and road repair, which the block covers, to be addressed. Even education and employment did not feature as a priority in the community plan survey, but factors relating to the "other services" block did.
I should like to mention housing revenue accounts and stock transfer, but time does not permit. However, such issues are having an impact on our local authority's problems in respect of the funding that it needs and best value, and a demonstration about that took place in the town only a few days ago. Although that money will not come out of this settlement, we ought to target local government funding at the areas that particularly need it.
§ Mr. Adrian Sanders (Torbay)
I have been trying to work out the simultaneous equation that leads to what Z means in Annex B, before Hansard records hon. Members as zzzzz!
§ Mr. Don Foster
My hon. Friend informs the House that he has been trying to work that out, but can he explain why, when C plus D minus A over T is not greater or equal to two times S, the grant is T into Z minus S whereas if the grant of C plus D minus A over T is greater than two times S, the grant is half TZ? Why should there be a difference?
§ Mr. Sanders
When I sum up, I shall try my best to explain precisely why that is. The equation is an example of, "Whatever you put in, you can get out whatever you like so long as you confuse everybody in the process as to how you got there." The Minister said that this is the best settlement ever.
§ Mr. Sanders
Every year since the council tax was introduced, the Minister has been able to say, "This is the best settlement." Every year, the money going into local government increases, so there is no lie there. The problem is that the extra money does not always meet the costs incurred on the ground by different local authorities. That is why we have formulae and why we have floors and ceilings. However, the floors and ceilings that we have been debating represent an admission that the data on which the standard spending assessment are based are out of date and, for some authorities, almost meaningless.
In effect, whatever controls the Treasury determines decide who wins and who loses in each year's settlement. The view of Members on the Liberal Democrat Benches is that radical reform is necessary. The legitimacy of local decision making to meet community needs should not rest on the political colour of the Government in control at 389 Westminster, but that is what has happened to local government over the past few decades. Irrespective of who was in power, the Government were able to tweak the simultaneous equations to support those authorities that they wanted to support at the expense of those that they perhaps did not want to support.
It is argued that councils should be free to raise their own taxes and that any distribution grant to assist those areas that cannot raise as much money locally as others should be determined by local councils acting collectively. Before hon. Members jump up and say, "What would the Lib Dems do?", I should point out that we consider the legitimacy of local government to come from the roots—from communities themselves. Local government in this country is like a dog kept on a tight leash. The minor reforms made by the Government, which we welcome, only lengthened the lead while continuing to keep local government on a tight choke. However, if local government is the dog, the SSA system and the damping arrangements are the dog's breakfast.
Those authorities that missed out in the past continue to miss out. Historically, low-spending authorities face the double-edged dilemma of having to cut services while increasing council tax as the Government tell them that they have never had it so good. More money is given to local government year after year, but something does not add up. Surely if the grant regime was fair and if central Government believed in local government, council tax would not have to rise at three times the rate of inflation.
The truth is contained in the pre-Budget book, under the heading relating to central Government receipts. Apparently, in the next financial year what Government coffers receive from council tax will rise by 6.9 per cent. That is remarkably close to what the average council tax rise will be. By shifting the tax burden to the council tax payer the Chancellor has been able to get a pat on the back, while councillors have got it in the neck.
Central Government seem to mistrust local government. I do not for a moment include this or other Ministers in that; it is, I think, the Treasury that mistrusts local government, because it controls how much local government can spend, borrow and even, in some cases, charge for a given service. If councils want or need additional funds, they must apply for grants or credit approvals, with no guarantee of success. The shift towards money being available through competition is an incredible waste of officers' time and of local government resources, given that not all councils are able to succeed. A widespread view is that some authorities gain grants not wholly on the basis of need, but on the basis of their officers' ability to put in good applications. It seems that the skills of officers are more important than the genuine needs of some authorities.
I want to refer briefly to my council, Torbay unitary authority. A preliminary announcement by the council—
§ Madam Deputy Speaker (Mrs. Sylvia Heal)
Order. Will the hon. Gentleman confine his remarks about his local authority to the matter under debate?
§ Mr. Sanders
The impact of the standard spending assessment is factor A in the simultaneous equation. It means that my authority faces cuts of 9 per cent., and a 7 per cent. council tax rise.
The crux of the matter is this. My local authority, which is Conservative-controlled, says "We are £30 million short of what we believe we need to spend, and what the 390 SSA says we need to spend." I happen to think that that is probably the officers' estimate of what the council would like to spend, but I have no doubt that there is a difference between what Government say it needs to spend and what it has available to spend. That is having an impact on council tax rises, and on cuts in services.
Let me give one example of a service area to which that applies. Children's services spending is part of the SSA formula. Since 1998, the SSA for children's services in my unitary authority has risen by 15.7 per cent. Over the same period, spending on this service has been forced to rise by more than 50 per cent.—not because the council has chosen to increase spending, but because agencies outwith the council are referring clients to the council, and the council has no control over that.
The grant system takes a long time to catch up with the amount that is having to be spent, if indeed it ever does catch up. I strongly suggest that Ministers should be sympathetic to councils whose costs are increased, which enable through no fault of their own, in areas as important as children's services and social services enabling people to be cared for under local authority jurisdiction.
Local Government finance is too complex. My hon. Friend the Member for Bath (Mr. Foster) made that point very well, and I shall write to him later with the answer to his mathematical question. The system is not transparent, and in the case of some services in some authorities it is unfair. It seems that which authorities find it unfair depends on the colour of central Government.
The tax burden has been shifted from central Government to the council tax payer, and radical reform introducing a power of general competence, including fiscal competence, is long overdue. It is time that local government was set free.
§ Mr. Keith Darvill (Upminster)
Whoever split the debates has done the House a grave disservice. The contributions in the first debate and, to a certain extent, in this one need to be heard. The debate needs to be had in the House. I will certainly be one of those calling for the House authorities to have a further debate on the whole subject.
I hope that the hon. Member for Bath (Mr. Foster) does not have a similarly friendly intervention for me on the formula because I could not answer it. That is the root of the problem. I realise that we are talking about special grants. I recognise the increase in the level of settlement this year generally, in contrast with earlier years: a £3 billion, or 7.2 per cent., increase in total Government grant and a 4.9 per cent. increase in the general grant. We should not pursue the debate without recognising that positive.
I recognise, too, the extreme difficulties that my right hon. Friend the Minister for Local Government and the Regions and her colleagues in the Department face in trying to satisfy every council, let alone every hon. Member. She surely has one of the most difficult jobs in government. However, I am dissatisfied with the overall settlement, including the special grant arrangements. The roots of that dissatisfaction lie in the settlement's effects on my borough, the London borough of Havering, and in the method by which central Government fund local government.
391 I should add that, prior to the 1997 general election, my local authority suffered a 1.8 per cent. decrease in its settlement in 1994–95, followed by a 1.2 per cent. increase in 1995–96 and a 0.7 per cent. increase in 1996–97. That contrasts with the four years of the present Government, when there have been increases of 4.1. 4.5, 4.2 and 6.4 per cent. this year. The average increase in the four years before 1997 was 1.5 per cent. The average increase in the past four years has been 4.8 per cent.—a significant increase.
None the less, there is an element of tinkering with the system. Councils that benefit from that tinkering have initial comfort for a number of years, but it does not deal with the fundamental flaws, as my right hon. Friend said in the earlier debate. I echo the remarks of my hon. Friend the Member for Barnsley, East and Mexborough (Mr. Ennis). To avoid the complexities of the special grant and the system generally, what is needed is a fundamental review. I was happy to make a contribution to the Green Paper. I will be interesting to read the contributions of hon. Members and others when the results of the Green Paper consultation are published.
The problem is that the settlement does not recognise historical factors, including the difficulties following the post-poll tax debacle in the early 1990s. That is when the fundamental problems that exist arose in my local authority. We can plot them from that debacle.
The settlement does not recognise adequately the area cost adjustment, or the area cost adjustment does not adequately recognise needs, whichever way one looks at it. I know that there have been a number of reviews. The Elliot report a few years back specifically helped outer London boroughs. My local authority made representations to the previous and present Governments on that point.
The current settlement does not recognise adequately the increasing demands that local government has to deal with. That is a fair point, which we often debate. We often put obligations on local authorities, but we do not properly fund them. There needs to be a review of that.
The settlement does not particularly well assess the needs of areas, certainly not of my own area. My area's ageing population, for example, is not reflected in the settlement. As an area's age balance changes, demands on social services change. A proper needs-based system should take account of that and fund the demands, but that is not happening. If that does not happen over the years, local authority finances become diminished. The settlement—in the special grant and elsewhere—also does not necessarily recognise high wage costs.
All those factors have led to the likelihood that, this year, my local authority will increase council tax by 11.5 per cent. That was the figure predicted a couple of weeks ago, but it may be decreased on the basis of this final settlement and the decisions of the precepting authorities, primarily the Greater London Authority. Nevertheless, we anticipate a council tax increase that is well above inflation, of between 9 and 11.5 per cent.
As council taxes are being increased, services will be cut. I should say that the local authority has been under that financial strain for about eight to nine years. Eight or nine years ago, however, there was some fat in the system 392 that enabled the council to cope. The local authority has made efficiency gains in service delivery in the intervening period. However, if councils have to make cuts and increase council tax year after year, eventually it becomes very difficult to deliver the improved public services which we all want. One can already see diminution in marginal services such as road resurfacing.
The borough's reserves are now well below those recommended by the Audit Commission. Consequently, it is unable to make adjustments to cope with difficulties in a particularly bad year. The consequence of that is that our constituents are affected by service cuts and a reduction in their overall quality of life.
I appreciate that this is a narrow debate on the special grant report. I believe, however, that we urgently need a review of the overall system, and I hope that the Government will begin one as quickly as possible.
§ Mr. Tony McWalter (Hemel Hempstead)
My hon. Friend makes a powerful case. However, even without a fundamental review—which would be very difficult to conduct because of the factors that he mentioned, such as an ageing population and the fact that different age groups have different levels of need—does he not accept that floors and ceilings are a good way of addressing the needs issue? This year, even councils that were subject to ceilings still received a real-terms increase. Is not that approach also the best way of dealing with the needs of those who have essentially been pulled up to the floor?
§ Mr. Darvill
I broadly accept that the floors did help. Had they not existed, we would be discussing far greater difficulties across the country. Therefore, to that extent, the system must be welcome. If there is not a fundamental review of the system in the next 12 months, we will undoubtedly be considering other devices and ways of tinkering with it, perhaps by increasing the floor, to ensure that greater difficulties do not arise.
§ Mr. Tim Loughton (East Worthing and Shoreham)
By the very same logic that the hon. Gentleman has just used, is it not clear that the many authorities that have lost out because of the ceiling will be losing not only bonus money, but money that is essential to cover additional spending on social services, flooding, best value and everything else? As authorities will now not be receiving that money, money will have to come out of spending on other core services.
§ Mr. Darvill
The hon. Gentleman gave the example of flooding, but I understand that financial provision has been made for it. I cannot deal specifically with the point, but I have seen in the papers various figures on provision to deal with flooding. The hon. Gentleman is undeniably right, in the sense that those local authorities will have their ceilings reduced and will therefore have to adjust their services downwards.
However, the fundamental problem was created in the broad post-poll tax settlement, when the present complexity was created. Admittedly, it is this Government's job to do something about it. Until they do, the debate on these matters will continue, as it has this evening.
The underlying message that I want to give to Ministers is that, although the overall benefits enjoyed by councils must be recognised, there are councils around the country 393 that are suffering. The delivery of services in those areas is becoming increasingly difficult. I shall support the Government generally this evening, but I want to draw Ministers' attention to my concerns in this area.
§ Mr. Christopher Chope (Christchurch)
The hon. Member for Upminster (Mr. Darvill) said that he did not think that adequate time had been allowed for the debate. I agree: I am surprised that the Minister has so little influence with the Government that she was unable to secure a whole-day debate on the matter.[Interruption.] I think it important to discuss the orders before us separately, but the Government were prepared to offer only three hours for debate on the subject of the revenue support grant for England.
When I was a local government Minister, the debate used to go on all day. Hon. Members would stand up and complain on behalf of their area, saying that they had been done down by the Government. It was traditional in those days for hon. Members worried about their area to vote against the Government, even when they were members of the Government party. I do not know whether that will happen tonight, but I suspect that the Government's agenda is to try to restrict the debate so that they are exposed to less criticism from their Back Benchers than they properly should be, given the injustice of the arrangements that now prevail.
There is a set amount of money to be distributed, and the Government's method of distribution is very unfair for some councils. I shall deal in my remarks with the case of East Dorset district council, which covers about half of the area of my constituency.
§ Mr. Darvill
Does the hon. Gentleman accept that in my contribution I contrasted the very low settlements received under the Government that he supported with the much higher settlements received under this Government?
§ Mr. Chope
I know that that is what the hon. Gentleman said. However, what I have to say about East Dorset will show that his proposition is not accurate in relation to particular councils. Moreover, I doubt its accuracy as a generality. The pre-Budget report produced by the Treasury shows that the Government expect the yield from council tax to increase by two to three times the rate of inflation this year. That is the same rate of increase as occurred last year and the year before that.
That means that the Government expect council tax payers to pay a higher contribution to the costs of local services than they did under a Conservative Government. That is now causing real hardship. In a written answer that I received yesterday, I was told that, in 1998–99, 6 per cent. of pensioner households were in what I would describe as council tax poverty—that is, they were paying more than 10 per cent. of their income in council tax.
Hon. Members of all parties have been concerned for many years about people in fuel poverty. They are people who spend more than 10 per cent. of their net income on fuel. I submit that it is horrendous for pensioners to have to spend more than 10 per cent. of their income on council tax. Those figures are increasing, but the Government have not been collecting the data for the past year—no doubt because having them revealed would be rather embarrassing. I know from my constituency, which has a 394 large number of pensioner households, that the burden of the council tax is becoming unbearable and that increasing numbers spend more than £1,000 a year on council tax.
Annex A of the report shows that East Dorset district council is identified in part III as a receiving authority area. It will receive £51,647 as a result of this report. I shall therefore not be voting against this report because the people of East Dorset are grateful for small mercies.
Underlying that figure is the fact that East Dorset district council will receive in Government grant this coming year no more than it has received in the current year, despite having to take on extra burdens and responsibilities imposed by the Government—indeed, by this House—through legislation. I refer in particular to concessionary fares, about which I have been in correspondence with the Minister on a number of occasions. When the Government announced that they would introduce a mandatory minimum standard for local authorities in relation to concessionary fare schemes, they said that they would put aside sufficient money to meet the additional costs. I have no reason to doubt that they did just that. However, they have not distributed that money in a fair and equitable way. Not a penny of that extra money has come to East Dorset district council, so other councils are receiving money over and above what is necessary to pay for the extra burden.
Only two district councils—East Dorset and Hart—receive no revenue support grant. The Minister and the Government know that. They know that if they use the RSG as the mechanism for distributing resources when they impose new burdens on local authorities, none of the extra resources will go to East Dorset or Hart. Obviously, I am more concerned tonight about East Dorset than I am about Hart, but the principle is fundamental. The Government are imposing new burdens; they make general propositions, saying that they will fund the costs of those extra burdens out of taxpayers' money and then expect some councils to meet the full costs themselves. In East Dorset, where about 25 per cent. of the population are pensioners, that effectively means that pensioners—many of whom live in difficult circumstances—will have to pay substantial increases in council tax to meet the additional burden of the concessionary fares scheme which many of them will not wish to use.
In East Dorset, it is estimated that the additional cost of the concessionary fares scheme, even in its minimalist state, will be £150,000. That probably represents an 8 per cent. increase in the council tax in East Dorset on band D and for all households, simply on account of the extra burden imposed by the Government. Then there is the extra burden of best value audit fees, which is a particularly heavy burden on the smaller and smallest councils—an issue that has been raised on both sides of the House but has not received a sympathetic response from the Government. There are something like 300 new best value inspectors, who are being funded through best value audit fees by the citizens of East Dorset and elsewhere. Franldy, it is impossible to see any benefit accruing to the people of East Dorset as a result. Dame Helena Shovelton, who used to be in charge of deciding who would run the lottery—she has given that job up—is the chairman of the—
§ Madam Deputy Speaker
Order. I remind the hon. Gentleman that this debate concerns the purpose, needs and adequacy of the special grants.
§ Mr. Chope
Absolutely, Madam Deputy Speaker, and I hope that that is the issue with which I am dealing.
In the introduction to the annual report of the Audit Commission, which was published in July, its chairman, Dame Helena Shovelton, said:We are committed to make sure that our Inspection Service will work with authorities to help them to seize the opportunity best value brings and achieve real improvements to the quality of local services and the quality of local people's lives.In East Dorset, the reality is that because of the burden of the best value inspection and audit system, the council will have to cut services and increase council tax. That outcome is totally inconsistent with what Dame Helena Shovelton said would happen. Another burden has been placed on East Dorset district council for which it is not getting any additional funding. As I said, part HI of the report makes it clear that it will get only £51,647.
This is a narrow issue, but it is important. How can it be fair that a council should get no cash increase—we are not even talking about an increase in real terms—in Government support at a time when the Government are imposing major new financial burdens. As a consequence, the level of service will be reduced and there will probably be substantial increases in the council tax. As a result, an even higher proportion of pensioner households will pay more than 10 per cent. of their income in council tax every year.
The Minister said in her introductory remarks that the report would ensure stability of funding. That expression will go down like a sick joke in East Dorset.
§ 9.2 pm
§ Mr. David Drew (Stroud)
I will keep my remarks short so that as many hon. Members as possible may contribute to the debate. I will also try to keep them to the subject, which is narrow, given the fact that the Opposition spokesman, the hon. Member for Eastbourne (Mr. Waterson), seemed to repeat the remarks that he made in the previous debate, but I will say no more about that.
I wish to reinforce the argument that I made in an intervention on my right hon. Friend the Minister for Local Government and the Regions in the previous debate, but with reference to the special grant. Fire and rescue services in Gloucestershire will face particular problems because as a result of the standard spending assessment they will not be able to access the special grants. The services work with the police and ambulance service in the county. We want a tri-service emergency centre, but it will be put at risk unless we can find some additional moneys. Likewise, we are working with the fire and rescue services of other authorities in the south-west to establish a joint training centre. Both projects require special grants from the Home Office, but will be put at risk unless we can obtain additional funds to pay our contribution.
My hon. Friend the Member for Stafford (Mr. Kidney) will no doubt point out, if he has the opportunity, that the education standard spending assessment is inadequate. Many hon. Members on both sides of the House want the area cost adjustment to be removed because of its gross unfairness.
The sins of the father are visited on the sons and daughters; that is never more true than in local government, where the Government are increasingly 396 having to address, through additional direct grant, the problems that we were left with. Much as one welcomes the money, if we could sort out the formula, we would prefer to find the amounts from within local resources, so that our schools and social services could be funded more adequately without having to rely on—
§ Mr. Drew
It is only fair to other Members who want to speak that I do not give way, as I am sure my hon. Friend understands.
We need to sort out local government funding sooner rather than later. Clearly, that will not happen before the election, but I hope that soon afterwards we shall see light at the end of the tunnel—with the excellent Green Paper and the opportunities that are available.
My hon. Friend the Member for Upminster (Mr. Darvill) pointed out that we continue to suffer from the effects of the poll tax. Another such factor is the early retirement scam. Many of my friends took early retirement for genuine reasons—sickness or job cuts—but the Conservative Government never predicated the long-term implications of getting people off the payroll in any of their calculations. We see the effects of that in the problems with police and local government pensions; many people who left their employment for genuine reasons still have to be paid for through top-slicing. Until we can grapple with that pensions problem, we shall all be at a serious disadvantage. That is why we need to reform the formula and the funding system.
§ 9.7 pm
§ Mr. Edward Davey (Kingston and Surbiton)
Like the hon. Member for Stroud (Mr. Drew) and other hon. Members, I have concerns about the area cost adjustment and its operation in my local council—the Royal Borough of Kingston upon Thames—and, especially, about the need for long-term reform. This year, a short-term fix—the floors and ceilings idea—has caused hardship in many councils, especially in outer London, as the hon. Member for Upminster (Mr. Darvill) pointed out.
The ceiling will significantly affect my council. That is a shame because the council was hit in last year's settlement, when the new earnings survey figures—plugged into the area cost adjustment—worked against us. This year, when the new earnings survey figures would have worked in our favour, the benefit was not allowed to flow to councils such as Kingston in outer London.
I am disappointed that the Government continue to persist with the ceiling approach, because when I led an all-party delegation from Kingston council to see the Minister for Local Government and the Regions she listened politely and asked the right questions; today, unfortunately, we find that she has not acted. It is interesting that in today's Evening Standard, Professor John Howson estimates that London needs another 9,000 teachers. That is especially relevant, because the part of the area cost adjustment that is not being fed through because of the ceiling relates to the higher salaries that councils such as Kingston are having to pay to ensure that there are teachers in our classrooms.
Given such huge teacher shortages, I am concerned that the Government are pursuing that policy. I raised the issue with the Chancellor at a meeting of the Select Committee 397 on the Treasury. He acknowledged that London has a problem with teacher shortages, but that recognition does not appear to have fed through to the local government settlement, especially for outer London boroughs that are hit by the ceiling.
During the debate, the Minister has made several sedentary interventions. What I am about to say will please her. I welcome the fact that she did listen with regard to the homelessness issue and housing benefit. There is a point that perhaps should have been raised in the previous debate, although it is relevant to this one because it relates to "A" in the equation.
The Minister announced today that rent levels specified in the housing benefit subsidy regulations will be raised, so more housing benefit will be payable in areas where rents are higher. That will significantly help people on low incomes with housing difficulties. I see many such people in my surgery every week, so that measure is particularly welcome. In high-cost areas such as Kingston, the homeless and those in poor housing have been hit severely by the regulations, which I believe the present Government introduced as a left-over from the previous Government. This change makes it better. It certainly does not make it perfect, because Liberal Democrats would like the regulations to be abolished.
Although I welcome that change, I am concerned that this grant settlement does not help boroughs, such as mine, that are having problems with teacher shortages and with attracting teachers. Interestingly, the Kingston share of the £52 million grant is only £0.1 million. That is nowhere near its fair share. I wonder whether the criteria that have been used to share out the £52 million grant could be published, because I do not believe that they would stand up to proper scrutiny.
§ Mr. David Kidney (Stafford)
I look forward to the day when we no longer need to debate and vote on special grants—when we have a system for distributing the Government's central grant to local government that is transparent, easy to understand and, above all, fair. The Government showed the way forward by publishing a Green Paper last year, which some hon. Members have mentioned and to which I shall briefly refer.
Those who say that the Government acknowledge the unfairness of the previous system of distribution introduced by the Conservatives but have been slow to do something about it are wrong: the Government have made efforts to do something about the unfairness, injustice and disparities in distribution that that system created.
At first, the Government tried methodological changes each year. That is borne out by annexe B of the report, which says that special grants were introduced partly as a result of changes to the methodology for calculating standard spending assessments for the financial years 1997–98, 1998–99 and 1999–2000, among others. However, the Government found—the point was well illustrated in the previous debate by the right hon. Member for Skipton and Ripon (Mr. Curry), who mentioned a change that was made in, I believe, social services that disadvantaged his council—that making piecemeal changes, even with the best of intentions, had unintended consequences elsewhere in the system because of the complexity and lack of transparency. That attempt was abandoned.
398 The Government made a second attempt to achieve fairness. They devised 21 more thoroughgoing options for change, and asked members of the Local Government Association whether they could reach a consensus on which option would be better than the current system. Sadly, they did not rise to the challenge. They could not agree, so that option, too, was ruled out.
Plan C was for the Government to suggest their own changes as a prelude to consultation, and they did so by publishing the Green Paper. The great interest in change among the public outside the House is shown by the fact that, as the Minister said, there have been 16,000 responses to the Green Paper—a tremendously high number. I look forward to hearing the Government's response when they have considered them all.
The elements in the Green Paper that I believe will do away with the need for special grants are, first, the introduction of a formal system of ceilings and floors, which would ensure that there were no great winners or losers in the distribution of central grant from one year to the next and would bring certainty and an ability to plan local government's finances.
Secondly, I look forward to the introduction of minimum entitlement for each pupil in education. I realise that that is too simplistic on its own. That is why the Green Paper refers to making adjustments for deprivation and for recruitment and retention. The key to those elements is preventing future Governments from dabbling in those adjustments for political reasons.
The Office for National Statistics will have an important role. It is already charged with developing ward-based statistics, which will help to establish factual deprivation figures. I know from my experience of serving on the Select Committee on the Treasury that the office is working to ensure that its figures on recruitment and retention are more accurate.
If the proposals in the Green Paper eventually form the new system, we will not need the special grants that we debate and vote on each year. We will then have a fairer system, and I will be able to look teachers and parents in the eye and say that we have a system that treats schoolchildren in Staffordshire as fairly as pupils in other parts of the country.
§ Mr. David Heath (Somerton and Frome)
In the previous debate, the hon. Member for Coventry, South (Mr. Cunningham) said that he sometimes thought it a disadvantage to have a background in local government when speaking on such matters in the House, and I agree with him. First, it creates the illusion of partially understanding the formulae used. Secondly, hon. Members find themselves making exactly the same speeches that they have made for decades past in local government and in the House, because the message does not seem to get through, and I am afraid that this subject is no exception.
This special grant report deals with the floors, not the ceilings, in the system. I can well understand why the Government think that a system of floors is necessary. In fact, it is not a new concept; previous Governments introduced safety nets—as the floors were then called—to prevent local authorities from losing money because of changes to the system. The basic unfairness of the system creates the difficulty. We argued time and again about 399 such matters with the previous Government. That is why I find it difficult to accept the comments of Conservative Members, who now proclaim the unfairness of the system that they invented and implemented for years.
By implementing the special grant report, the Minister is at least trying to reduce at the margins the enormous disparities thrown up by the system between the funding of one authority and another. I am pleased to follow the hon. Member for Stafford (Mr. Kidney) in the debate because we have worked on the problem during recent months. We recognise that we are not alone and that many local authorities, such as Leicestershire, Gloucestershire, South Gloucestershire and Northampton, are very badly treated under the present formula. That is especially so in the allocation of education SSAs, which are, after all, the key to county council spending. If the education SSA is wrong, it has a knock-on effect throughout the system and money has to be diverted from social services, highways maintenance and so on to keep schools going.
I cannot accept a system that produces a disparity between Somerset and a leafy London borough of £1,500 a year per child. We have only to calculate how much the accumulated £1,500 per child disparity is worth to realise what an enormous difference it makes to the funding of a secondary school. We know that the problem exists partly because the SSA formula does not take account of children's basic needs. We know that the area cost adjustment has a huge effect, which is amplified by other factors that have been introduced recently.
I shall cite as an example the area cost adjustment's effect on my own police authority. We discussed the police grant earlier today. No less than 3 per cent. of the 7.5 per cent. pre cept increase is down to the adjustments of the area cost adjustment. That is £1 million of spending that could otherwise go into policing Avon and Somerset, and another £566,000 goes on the council tax benefit subsidy limitation scheme.
Those sums are top-sliced. The Minister intervened elegantly on the hon. Member for Barnsley, Central (Mr. Illsley) when he suggested that we have a system under which the poor subsidise the poorer. She rightly said that the money is sliced from the marginal increases rather than from core funding, but that makes not a ha'p'orth of difference to authorities that do not receive their entitlement because of the ossification of the system, which has nothing to do with stability. It is about maintaining basic injustices in the system.
I am disappointed by the report because it does nothing to deal with the huge disparities between authorities and it does nothing to create an entitlement to a basic level of funding for children in authorities such as the one that I represent. After four years of this Government, I would have expected that entitlement to be in place. For years under the Conservatives, we argued that it should be, and we are bitterly disappointed with this Government.
My hon. Friend the Member for Bath (Mr. Foster) referred to the difficulties of hypothecated funding for education authorities. That is one way in which the Department for Education and Employment tries to get round the system, but it is extraordinary that it recognises the problem but has to get round a rigid formula that is imposed by the Department of the Environment, 400 Transport and the Regions. It is time that the Government dealt with the problem and that our children had a fair deal from the funding system.
§ Mr. Tim Loughton (East Worthing and Shoreham)
What a fascinating but odd debate this has been—and it is getting odder. Alas, I hazard the guess that it will not feature in the Commons sketches in tomorrow's press. Theoretically, the debate has been all about the Special Grant Report (No. 72)—a masterpiece of plain English it is not. It certainly is not a gripping and all-consuming read that is mesmerising and enthralling. I suspect that it will not reach W. H. Smith's top 10 list, even at the knock-down price of £4.10.
The first undertaking that I shall give is that the next Conservative Government will do something to simplify the nonsense that are the formulas that make up the 13 pages of the report and that have been produced all for the sake of £3 million. The two SSA reduction grants that originated under the previous Government were applied for historical reasons to the City of London, which is very sensitive to SSA changes because of its small residential population. Given that the figures were based on the census of 1991, will that arrangement continue after the new census is published this year? At what stage will that census kick in?
We are confronted with the formulas that the hon. Member for Torbay (Mr. Sanders) mentioned. As if it is not enough to be confronted with formula B minus A over T, which extends to T(Z minus S) to ½TZ, the second formula involves B minus A over;T, C plus D plus E and T(Z minus S) and ½TZ. If that were not bad enough, the new formulas that apply to the new central supply protection grant steal the show. They refer to B minus A, but then page 13 of the report states:3. Grant is payable if the amount M calculated under paragraph 2 is greater than zero.4. The amount of grant is calculated in accordance with the following formula: B minus A where A and B have the same meaning as in paragraph 2.That is all quite simple.
We understand that the formula means that 10 shire districts will supposedly benefit from the year-on-year reductions in total Government grant. Because those counties do not provide educational and social services spend, they do not benefit from the floors that we have heard so much about and to which the Minister alluded.
I readily admit that I am not always the sharpest knife in the drawer, but will the Minister explain to me—other people and the House of Commons Library have not been able to—why no fewer than 103 district authorities fit the criteria for the central support protection grant, but only 10 of them will benefit from it? They range from Brentwood to Weymouth and Portland, and include East Dorset district council, as my hon. Friend the Member for Christchurch (Mr. Chope) mentioned. What about the other 93 authorities? The list starts with Bromsgrove, which received a 0 per cent. increase in total external support. St. Edmundsbury received a 0.3 per cent. increase, Tewkesbury received a 0.4 per cent. increase and Chester received a 1 per cent. increase. The list extends to North East Derbyshire. It is not clear how those authorities will benefit, although we are assured that the central support protection grant will ensure that any 401 authority that does not qualify for the grant floor will none the less receive a Government grant no lower than that which it received in 2001–01. Will the Minister explain that point?
Some interesting contributions have been made. My hon. Friend the Member for Christchurch pointed out that his council will, on the face of it, be a beneficiary of the CSPG. However, he told us that the extra pensioners in his constituency are a great expense for the council and that benefits such as concessionary fares, which the authority will now have to fund, are not being refunded by the Government. The hon. Member for Barnsley. East and Mexborough (Mr. Ennis) was concerned that his constituents had missed out, and the Minister did not allay his fears. What the hon. Member for Torbay called his dog's breakfast speech was concerned entirely with the formula of Z.
I agree with the comment made by the hon. Member for Upminster (Mr. Darvill) about the need for a fundamental review of the whole system. Interestingly, the 11.5 per cent. council tax increase that he foresaw is out of sorts with the Minister's figure. I agreed also with the hon. Member for Stroud (Mr. Drew) on the inaccessibility of special grants. In my authority area, West Sussex, 72 per cent. of the extra education funding received by the county council is not for it to spend as it wishes, as it has been provided in specific grant form.
This debate has been about floors and ceilings. It is the flaws within those floors and ceilings that are yet another example of centralisation by the Government. What is the point of introducing an elaborate system of SSAs that depends on the collection of large quantities of data, if those data are subsequently ignored because they do not fit the Government's dogma? That is all part of the Government's funding fiddle.
§ The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions(Ms Beverley Hughes)
For the past hour and a half, we have ostensibly been debating the special grant reports. Of course, those reports raise a number of other important distribution issues, many of which have been mentioned.
Two specific points were made about the special grants themselves. I shall deal first with that made by the hon. Member for East Worthing and Shoreham (Mr. Loughton). I assure him that it was entirely wrong. The grant ensures that no council receives less on a like-for-like basis. That is the basic criterion on which 10 councils qualify. The hon. Member for Torbay (Mr. Sanders) said that the inclusion of the 10 councils reflected political bias. Had he done the most basic research, however, he would have found that they comprised one Labour council, one Liberal Democrat council and five Conservative councils. Three of them are without overall control. I fail to see how that reflects political bias towards Labour authorities. If the hon. Gentleman can identify such bias, he will have to explain it to me after the debate.
The second and main issue was the problems associated with the standard spending assessment and distribution. This is an entirely vexed question, on which the three 402 main parties do not agree. The problems relate not to data, as the hon. Member for Torbay alleged, but to methodology. There is no consensus on the area cost adjustment. Indeed, the whole system is complex and is neither transparent nor understandable. Some would argue that it does not take account of the different trends that apply in different places.
The previous Government failed completely to tackle any of those problems and simply reduced funding year on year. They did nothing at all about distribution.
We have instituted a fundamental review and, as my hon. Friend the Member for Stafford (Mr. Kidney) pointed out, we were grateful for the large number of replies. As the contributions from my hon. Friends the Members for Upminster (Mr. Darvill) and for Stroud (Mr. Drew) and the hon. Members for Somerton and Frome (Mr. Heath) and for Kingston and Surbiton (Mr. Davey) showed, once we start debating the matter, it turns out that every Member wants different changes that would benefit his own area. I do not blame them for that, but it reflects the difficulty inherent in the issue. I am not convinced that, as one of my hon. Friends maintained, if we introduced a new system, we would completely eradicate all complaints. I think that hon. Members would still want more for their own areas.
This year, because of the huge skews produced by applying the current methodology to the data, we have introduced floors and ceilings. I am sorry that Conservatives Members do not feel that they can support that proposal. Their basic premise was of course wrong. In the previous system, under the central support protection grant, which we have debated tonight, all authorities above the minimum contributed to the minimum guarantee. That will work in the same way in the system that we have introduced this year. As my right hon. Friend the Minister for Local Government and the Regions said in an intervention, the main difference is that the new system is transparent. People can see what they are getting and whether they are contributing to the floor.
My hon. Friend the Member for Barnsley, Central (Mr. Illsley) raised a number of issues, but I must point out that there are no restrictions on the use of the neighbourhood renewal fund. It is intended to drive up standards in the most disadvantaged areas, and provided that Barnsley demonstrates that it is hitting the targets, it can use its extra £2.7 million as it wishes.
Although distribution is important, the real issue is the overall investment in, and the commitment to, local government. I say to Conservative Members that it is this party—
§ It being one and a half hours after the commencement of proceedings on the motion, MADAM DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 16(1).
§ Question agreed to.
That the Local Government Finance Report (England) Special Grant Report (No. 72) (HC 159), which was laid before this House on 29th January, be approved.