HC Deb 28 November 2002 vol 395 cc581-90

Motion made, and Question proposed,That this House do now adjourn. —[Charlotte Atkins.]

7.38 pm
Ms Julia Drown (South Swindon)

I welcome the opportunity to put Swindon's views on the review of local authority funding.

My constituents have made it clear that they want and value improved local government and police services. A key part of that relies on new investment. My constituency has the worst-funded unitary education authority and my constituents have called for a fair funding system. We welcomed the review because we thought that we were bound to gain from it. Unfortunately, it has emerged that virtually every authority thought it would gain.

Imagine, then, our disappointment when we found that although almost every other one of the 40 worst-funded education authorities with which we had campaigned looked to gain from at least some aspects of the new education formula, Swindon did not gain from any of the education options put forward. It is therefore no surprise that the review team and I have received a huge number of letters about the issue from teachers and parents in Swindon. Swindon has already received more education funding under this Labour Government—over £500 per pupil per year. However, teachers make it clear to me that extra funds are needed and would be well used to extend students' opportunities and to raise standards. Similarly, it is clear that we need more funds for social services.

On all funding methods I urge the Government to give more details on how changes will take place. They have said that no authority will get less grant next year, but it is not clear whether that is in real or cash terms. The Government have also promised that, as the new system is implemented, no authority's schools will lose out, so schools simply need clarification about the period of implementation. However, for other services, and authorities overall, including police authorities, the position needs to he clarified.

Given that the Government have allocated substantial resources to public services, they would give much reassurance to local authorities if they made it clear that, for police and local authorities, overall funding would be maintained in real terms for 2003–04, 2004–05 and as many more years as they felt able to make that promise. Authorities could at least plan on a level playing field, even if nominally they may lose out under the new formula. There should be no allowance for existing spending patterns, except as part of the process of implementing the new formulas. This is not a fair basis of funding. It is an allowance for existing spending and it will box in populations who have suffered under low-spending authorities and ensure that they remain in that position.

I turn now to specific issues on particular services. Swindon has the third worst education standards in the south-west; Bristol has the poorest standards and receives the most funding, well above the south-west average, which is logical. Swindon receives £34 per pupil below the average. The lower standards are not because we have worse schools; they reflect deprivation that has not shown up in existing formulas or a lack of baseline funding to meet pupils' needs. I want the formula to be improved, not to take away from others but so that more future growth moneys support the lowest-funded authorities—where they are needed, as they are in Swindon.

Giving extra funds for additional education needs is sensible. One of the questions under consideration is whether the working families tax credit should be included as a measure of deprivation, or whether only income support should be included. There is a powerful case for including the working families tax credit, or its equivalent in the new post-April system. Employment is rising, but in many constituencies that means that families are moving from no pay to low-paid work, and that does not change the education opportunities or attainment of those children overnight. If we want to ensure that the education challenges faced by families with no pay or in low-paid work, the way forward must be to take into account data on the working families tax credit as well as on income support.

I would expect that to produce smoother changes in allocations, as the change in data for income support plus the working families tax credit is likely to be less dramatic than that for just income support. Smoother changes are a good policy goal. Whichever indicator of deprivation is chosen, the current threshold system fails the test of being easily understandable.

In terms of deprivation, Swindon is about 110th in the 150 authorities, so we are about the 40th least deprived authority. The threshold in education tries to create what Swindon wants—a fair base level of funding for many authorities. Under option 2, the threshold was seen as high, with a baseline set at the bottom 50 authorities. However, it is not clear whether the additional funds for education needs are given to the bottom 50 authorities or levelled up to the 50th least deprived authority. If we assume the former, whereas under the current formula Swindon's existing needs are recognised, under the new formula they are ignored and taken to be just the baseline, so Swindon would lose £2 million compared with our current grant. That cannot be justified—Swindon's results do not justify reduction. We are currently in the bottom 40 authorities. The new formula is not levelling up, but is levelling down further, which does not make sense. The additional funds are concentrated on the 100 most deprived authorities, leaving few funds to distribute along the baseline.

If Swindon is supposedly levelled up to get the resources of the 50th least deprived authority—a more deprived area—it is not right that that leaves Swindon with fewer resources than we have now. The threshold has to move up 105 authorities to be neutral for Swindon. Only then will a third of education authorities get extra help for special needs, and more resources will go into basic needs for all schools. That is difficult to justify—why does the extra support have to be concentrated on 50 authorities before the formula for Swindon is back where it started? Swindon is among the most poorly funded authorities, so it does not have a high basic level of funding. That alone shows how hard it is to follow the formula and suggests the need for a rethink.

Option 5 proposed by the F40 group is widely supported. Of the 55,000 responses to the consultation on the review, 53,000 were made as a result of the F40 group's campaign. That represents a magnificent response from parents and staff who are keen to see a higher base level of funding. I hope that the Government in turn can respond positively and adopt an option along the lines of the F40's proposal, which builds up a higher base cost for all schools.

Additional costs are inevitable in areas of high employment and housing shortages such as Swindon and must be acknowledged if there is to be sufficient recruitment and retention of staff. Head teachers have made it clear that they face pressures not experienced by their colleagues in other parts of the country when recruiting staff. Only yesterday a head teacher in one of the most deprived areas in Swindon told me that she had advertised a key post but received only three applications. The only suitable applicant came from abroad—she recruited that person, but unfortunately they did not stay at the school. That is just a small sign of the pressure we are under, and shows that we need extra resources to deal with our serious recruitment and retention problems. If the Government want to achieve equal opportunities for all students, those extra costs must be reflected in a new formula.

Most work on this problem is not in the review of education but in reviews of area cost adjustment. Members on both sides of the House have recognised that the existing system is unfair. Proposals in the review paper are a vast improvement on current arrangements. A change is much needed and can be justified by the detailed work in options 2 and 3. Option 2 suggests using the method recommended by the independent review of the additional costs allowance in 1996 and taking more detailed account of differences in the structure of labour markets in different authorities. Swindon is a good example, as our economy is widely recognised as being different from that of the wider economy in Wiltshire and the south-west. With the exception of London, it is hard to find a town or city with as many national and international headquarters, but the prosperity that that brings hides deprivation, which is hard to tackle in an area of high wage and housing costs. That should be picked up by the formula, as options 2 and 3 propose.

The arguments for options 3 and 5 are appealing, as private sector wages reflect the market, whereas public sector wages are fixed. If an area has a lot of public sector workers, the inclusion of the public sector will dampen the effect of wages, yet the pressure to find staff may be even greater in those areas. That applies as much to education as to other services, particularly social services. Although education rightly receives much of the limelight in the discussion of local government funding, the funding of social services is equally important. Many authorities, including Swindon, spend well over current Government assessments of funding, which indicates their huge needs. Swindon certainly faces huge pressures in social services for children, the elderly and people with mental health problems, all of which are essential in any civilised society.

I should like to get back to the days when a home help service was available. It did good preventive work, but we are a long way from having it. Again, I recognise that the Government have put more investment into social services, but there is still a long way to go. Whichever proposal is chosen, the population basis should be the resident elderly population, plus those in residential care who are supported by the authority but live outside it. It does not seem right to exclude people who cost the authority a great deal of money. It is right that they should be supported, and if they are the responsibility of the local authority, they should be recognised in the formula.

On fire service funding, a radical approach is needed to remove the perverse incentive of the fire calls indicator, which has been discredited. We should be doing all we can to promote preventive work, and I am very proud of the work that Swindon and Wiltshire fire brigade does in that respect. That has often been at the forefront of preventive work across the country. The fourth option for the fire service gives an extra top-slice for fire safety education, and an extra sparsity top-slice, which is surely justified. That is the most attractive option if the Government genuinely want to prevent fires and deal with the difficult pension problem facing the service.

The second option, which makes only minimal changes, does not deal adequately with those issues. As the consultation has proved to be complex and painful, it is unlikely that Ministers and MPs will take part in such discussions every year, so any changes made now should be significant and substantial.

Many concerns have been raised in Wiltshire with regard to police funding, particularly the rural policing fund. I was delighted to hear the Home Secretary announce last week that the rural policing fund would be preserved outside the formula. That is making an important difference in Wiltshire already and we want to see it retained.

Whereas education services funding looks to use working families tax credit and income support data, environmental services funding takes account of income support only. It would seem logical to use both sets of data across Government Departments. I know that the Government have responded by saying that many of these services are subsidised in the day, but I cannot think of many services in Swindon that are subsidised in the day. In the case of cultural services, the same issues of access and inclusiveness would apply to those on low pay as to those on no pay.

On population growth, I urge the Government to recognise that Swindon has been growing rapidly and it is a huge frustration to my constituents that the infrastructure does not keep up with that expansion. Formulae must take account of that. Swindon may be in a unique position, as we have effectively been a new town without being defined as a new town. We have been the fastest-growing town and services have not caught up with the expansion of population. The borough council planned for that as much as possible but, because of rate capping and other problems, it was not able to do as much as necessary. Outside the funding formula, perhaps the Minister will consider allowing more of Swindon's uniform business rate to be returned to the town for a defined period so that we could catch up with the investment needed. With our Government-backed urban regeneration company and new regional development agency structures, this may be a key time to deliver on that.

My constituents rely on local government services and appreciate the value of those services. They want the Government to adopt a new, fairer formula for funding local government services to reflect the differing needs and costs of services in different areas. I have highlighted some of the issues that the new formula should address. I emphasise three points: first, a review of the area cost adjustment is crucial to reflect the pressures that high-cost areas such as Swindon experience; secondly, the need for a higher basic funding level for education authorities; and thirdly, the need for major additional investment in social services.

7.54 pm
The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie)

I genuinely congratulate my hon. Friend the Member for South Swindon (Ms Drown) on securing this debate. There is much competition between many hon. Members throughout the House for a debate on this issue. It is the mark of a dedicated and conscious Member of Parliament to argue in such detail about technical and funding matters that obviously affect all our constituents so significantly.

My hon. Friend has given me a very long list of issues to cover, so I shall press on and try my best to address some of them. Hon. Members will be aware that the Leader of the House confirmed earlier today that the announcements on these matters will have been made by this time next week, so we do not have long to wait. In the meantime, however, I can certainly reassure her that the points that she has been making have, along with all other responses, been taken into account in making the final decisions. This debate also follows the announcement made earlier this week about setting up a voluntary arrangement with Swindon borough council following a request from the authority for help in improving public services, which are facing difficulties in the area.

My hon. Friend is especially concerned about funding for schools. She registered her support for the proposals made by the F40 group. I assure her that I am well aware of the strength of feeling not only in Swindon, but elsewhere in the country, which the group has made plain. I am pleased that my hon. Friend the Minister for School Standards has been able to meet a delegation of representatives. I know that there was a helpful exchange of views.

On the options in the education formula, it is worth reiterating that the considerable increases in funding for education that the spending review has provided over the next three years mean that we have been able to give the commitment that no authority's schools will lose out in real terms in moving to the new formula. We want a fairer, clearer system that is justified by the educational needs of children and based on the most up-to-date evidence of relative cost and need. Any formula will need an element for deprivation, known as additional educational needs, and an enhancement for areas where schools need to pay more to recruit and retain staff.

The F40 group has proposed a change to the formula, suggesting that money be taken out of the factor specified in the formula for deprivation and put into the basic allowance per pupil. That would have an impact on authorities with high levels of deprivation. In working out a new funding system, we need to consider how changes will affect all authorities, not only those in the F40 group. However, I can assure my hon. Friend that we have been considering all the responses very carefully, including those from the F40 authorities.

My hon. Friend mentioned some specific points that I shall try to address. In respect of how the education formula will treat issues relating to deprivation, the indicator that we choose is clearly very important. I appreciate that Swindon has some disadvantaged areas with residents in low-paid work. Among the proposals for the new funding formula are two options in which the main indicator for deprivation—the number of children of parents on income support—is supplemented by the number of children of parents in receipt of the working families tax credit. That option picks up children whose parents are in low-paid work and aims to reflect a wider definition of poverty. As I said, we will see the outcome very shortly.

On the complex question that my hon. Friend asked about the threshold for additional educational needs and how it works, the consultation options all use thresholds for assessing top-ups. For example, the threshold of 30 LEAs would give all authorities funding as if 13 per cent. of their pupils were deprived. If 15 per cent. of an authority's pupils are deprived, it would receive additional funding for the 2 per cent. of pupils above the threshold, but if that authority has a level of less than 13 per cent., it would receive funding as if it had a 13 per cent. level.

I appreciate my hon. Friend's concerns about the level of the threshold and how it might affect Swindon. Although the threshold is relatively easy to convey in a general sense, I can sympathise with her about the difficulty in assessing how the different threshold levels will affect individual authorities. In making decisions, we are considering the pros and cons of high and low-level thresholds for additional educational needs.

Let me deal with the way in which the current system reflects the extra costs through area cost adjustment. It takes account of the extra costs of recruiting and retaining staff in some areas, especially London and the south-east. The options in the consultation paper are based on evidence that suggests that authorities with significant deprivation and additional staff costs need to spend more to achieve the same results for their children. I accept that there is scope for judgment about the evidence, but the four options reflect that.

To make a wider point about the area cost adjustment, I note that my hon. Friend supports options ACA2 and ACA3, and that on balance she prefers options that are based only on wages in the private sector. Although we understand the rationale for using only private sector wages, there are arguments against doing that, notably the reality of lower wage flexibility in the public sector. We must weigh up those issues carefully.

My hon. Friend seeks assurance on several other formula issues. She mentioned the elderly personal social services formulae. There are two main choices. One option is to use the total resident population, which includes those in households and residential care. The alternative is to use the population in households plus the number of people in residential care that the authority supports. My hon. Friend was clear that she supports the latter. Both options include people in residential care, but the second approach recognises that authorities place people in care in other authorities. However, the matter is more complicated and it is difficult to go into great detail. We have been carefully considering the balance as we finalise decisions.

My hon. Friend also questioned the reason for including deprivation in police option 5. It has a separate deprivation factor, which was included in the consultation document to seek views on whether that would be an acceptable method of helping to implement the Government's agenda to help people out of deprivation.

My hon. Friend also asked whether the £30 million rural policing fund would continue next year. I appreciate that she spotted that the national policing plan, which the Home Secretary launched, will continue in its current form outside the funding formula.

My hon. Friend believes that working families tax credit data should be used in the block of services that is catchily entitled EPCS, or environmental, protective and cultural services, in addition to assessing deprivation based on benefits data.

Low wages are clearly an aspect of deprivation that is not well covered by benefits data, but is that the right indicator for EPCS? Is that set of services in as much need of deprivation weighting as, for example, education or social services? Decisions will be made, announced and explained next week, but we are all grappling with those questions.

Let us consider fixed costs for authorities. All authorities, whatever their size, must have specific functions, for example, a chief executive, a director of finance and so on. Those basics constitute bigger issues for small authorities. However, it is debatable whether much can be achieved through a fixed-cost element for larger authorities such as police authorities or fire authorities. Nevertheless, we are carefully considering all the arguments.

My hon. Friend mentioned population growth and the extent to which the formula should recognise it. We have received many comments on that. We understand the anxieties of rapid growth areas about their increasing population. The consultation paper contains an option of making a targeted grant that is top-sliced off the total formula grant to avoid the complexity of including it in the formula. The results of the 2001 census highlight some of the difficulties of simply projecting forward past population trends.

My hon. Friend proposed a more radical approach for the fire service formula to get rid of the perverse incentive of the fire calls indicator. I assure her that we have looked closely at all the formulae to ensure that they no longer include the perverse incentives and inadequate indicators that many of them contained.

On non-domestic rates, the Government have said in the pre-Budget report that we will explore how some of the increased business rate revenue derived from growth and regeneration might be retained by councils. We will be consulting on any proposals next year.

The formula grant review is, of course, about the distribution between authorities of a fixed pot of money. However, it is worth reminding the House that we have significantly increased the funding for local authorities overall since we took office, with Government grant increasing by 20 per cent. in real terms, compared with the 7 per cent. cut in real terms over the last four years of the previous Conservative Administration. The spending review ensures that councils will continue to see increased funding. I have repeated the good increases in grant for local authorities generally in previous Adjournment debates that have taken place recently in the House, and I do not wish to take up too much time in this debate repeating all the good news for local authorities.

My hon. Friend has called for even bigger increases in funding over the next three years, in particular for social services. We looked carefully at all the pressures facing local authorities, at the improvements in service we want to see made, at the room for greater efficiencies and at what the country can afford when setting the spending plans for the next three years—plans which provide now for a real-terms growth in funding for personal social services of 6 per cent. a year. We believe that we have been able to ensure that the people will be able to see real improvements over the next few years in the priority areas such as personal social services.

My hon. Friend has also asked for clarification on the Government's commitments on the level of grant increase next year. We have said that we will ensure that no local authority receives less grant than it did last year on a like-for-like basis—that is, if the composition, nature and functions of the local authority do not change significantly. This is a cash grant increase pledge—not in real terms—but we hope to do much better than this in the announcements that we make this time next week.

My hon. Friend has also asked for floors to be set for all three years of the spending review. We want to ensure that local authorities have greater certainty about future funding. We have said that we intend to keep floors and ceilings as part of the new system, and they will therefore feature in the local government finance settlement for at least the next two years. However, we cannot provide information on the levels of floors and ceilings for future years, as there are too many variable factors which can affect decisions on the floor. Given that, we are unable to provide this information much in advance of the provisional settlement for each year.

It is worth looking at how Swindon has benefited since we took office. It has received an annual average increase in standard spending assessments of 5.2 per cent., compared with an increase of 1.5 per cent. in the last four years of the previous Conservative Administration. Swindon's education SSA has increased by nearly £21 million—more than 37 per cent.—over five years. Its standards fund allocation has increased significantly, and it has received more money for capital, including the £58 million private finance initiative scheme. In social services, Swindon's children's grant has increased by 18 per cent. and its carers' grant by 21 per cent.

A wide-ranging review is under way. There is, of course, a difficult balance to be struck, but we are considering carefully all the points that have been made, particularly by hon. Members who have spoken and written in during the consultation period. The Government have a good track record of providing major new funds for councils, and I hope that, in the decisions that are announced next week, many hon. Members will see the commitments that we have been able to maintain.

Question put and agreed to.

Adjourned accordingly at eight minutes past Eight o'clock.