Local Government Finance (Hansard, 15 October 2002)

§ The Minister for Local Government and the Regions (Mr. Nick Raynsford)
First, we very much regret the late start for this important debate; it could not be predicted when the time was originally allocated. As my right hon. Friend the Leader of the House stated earlier, we will explore options for a further debate to give the many hon. Members who want to speak on this important subject the opportunity to do so.

§ Sir Paul Beresford (Mole Valley)
On a point of order, Mr. Deputy Speaker. In the light of the Minister's statement, those hon. Members who may be called to speak briefly this evening may want to participate in the continuation debate. Would that be in order?

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Obviously, an hon. Member can speak only once in a debate, so the hon. Gentleman should make no such assumption.

§ Mr. Raynsford
rose—

§ Mr. Eric Pickles (Brentwood and Ongar)
I appreciate that it is not the Minister's fault and we are looking forward to hearing what he has to say, but his advice will no doubt be sought, so I hope that when it is he will say that, because of the number of hon. Members who want to speak and the importance of the subject, the debate should be held on the Floor of the House, not in Westminster Hall.

§ Mr. Raynsford
I understand the hon. Gentleman's concern and I can give him the assurances that he requests because I have spoken to my right hon. Friend the Leader of the House about the importance of having an early opportunity for a further debate. How that can be arranged will obviously depend on discussions between the usual channels. There are constraints, but it is important that we should have that debate and I was certainly very reassured by the view taken by my right hon. Friend.

§ Mr. Don Foster (Bath)
rose—

§ Mr. Raynsford
Before I take any more interventions, may I point out to hon. Members that, given the short time available, I have deliberately chosen to limit my speech? We will make swifter progress and Back Benchers will have a greater opportunity to speak if Members limit their points of order or interruptions. I give way to the hon. Gentleman.

§ Mr. Foster
I apologise for taking up some of the Minister's time, but I for one want to hear in some detail what he has to say.
Further to the question put by the hon. Member for Brentwood and Ongar (Mr. Pickles), is the Minister prepared to say whether he believes that a further debate should be held on the Floor of the House?

§ Mr. Raynsford
The hon. Gentleman has been a Member of the House for some time, so he ought to 269 know that it is not the role of Ministers to determine the business of the House. I have already given a perfectly clear undertaking. I can only say to the hon. Gentleman that he is wasting the time of the House, which should rightly be focused on the issues.
Despite the extremely technical nature of many of the issues involved and the difficulty of making sense of all of them, the grant distribution system is one of the most important things done by the Government. Local government accounts for about 25 per cent. of all public expenditure—about £60 billion in total. More than £40 billion of that comes in the form of grant direct from the Government. Until now, the grant has mainly been distributed using standard spending assessments, which cover money for key services such as education, social services, waste management, sports, arts, libraries, police and many others. The spending review has confirmed further increases in substantial investment in those services. This debate is about how we channel that money through to councils.

§ Mrs. Anne Campbell (Cambridge)
I am interested in my right hon. Friend's criteria for the success of that proposal. Will one of them be that he will reduce the disparity between authorities, thereby making the system fairer?

§ Mr. Raynsford
I shall explore in some detail some of the key principles behind the consultation but I hope that my hon. Friend will recognise that there are many definitions of fairness and that it would be wrong for me to give a particular commitment when there are also many others to consider. After all, we are engaged in a consultation exercise and no decisions have yet been taken on the final formula.

§ Michael Fabricant (Lichfield)
Will the right hon. Gentleman give way on that point?

§ Mr. Raynsford
Although I am happy to give way—hon. Members know that I am usually happy to do so—it will limit the amount of time available for Back Benchers if I have to take too many interventions.

§ Michael Fabricant
In that case, Mr. Deputy Speaker, I shall not try to catch your eye later on.
In a spirit of helpfulness, the Minister raised questions about fairness. Will he give an assurance that counties such as Staffordshire will be no worse off than they are at present—and, believe me, they are pretty badly off at present?

§ Mr. Raynsford
If the hon. Gentleman will contain himself, I shall cover that specific point later in my speech. I have given undertakings that will have been heard by many Members who attended the seminars held yesterday and a week ago.
It is important to emphasise one significant change that we are going to make from the old SSA principles. The original idea behind SSAs was to deliver a standard level of service for a standard level of council tax. If that ever worked in the past, which frankly I doubt, we certainly do not believe that it works at present. Furthermore, we are also clear that such an approach is fundamentally incompatible with our objective of giving 270 greater freedom and discretion to local authorities. Rather than pretending that we can say how much every council should spend, we are, under our new framework, focusing on how we distribute grant to councils.
When we began to consider how to improve the system, we examined the range of options. Some authorities told us that formulae did not take their circumstances into account, so we offered local government the choice of using assessments of their own plans as the basis for distribution rather than formulae. We consulted on that in a Green Paper two years ago. In response, a large majority of councils said that they would prefer to keep the system based on formulae that look at their circumstances and their ability to raise council tax. If people ask why we are sticking with a system that is not fundamentally different from current arrangements, the answer is because that is what local government asked us to do.
If the underlying approach is not fundamentally different, the detailed formulae will change. That is because everyone—Government, Opposition, councils, shools, individuals—had lost faith in the old formulae. They had been in place for over a decade. Some of them were based on very old information. Some were perverse. Many did not adequately reflect the conditions and circumstances that we face today. So while we are not abandoning the use of formulae, we are taking a fresh look at the formulae; and it is those formulae that determine how the money is divided between councils.
In looking afresh at the formulae, we have fully engaged with local government. Technical work has been discussed in detail with representatives of local authorities, including, of course, the Local Government Association.
We have also had a number of discussions with councillors and MPs, and we have tried as far as possible to involve those who are concerned about the process in evolving options for change. We have also conducted all this work as openly as possible, sharing options, evidence and ideas as we have gone along. I and my ministerial colleagues—I am very grateful that many of them are present tonight—have also seen many delegations on the issue. We have held several seminars for Members of Parliament, the most recent one yesterday. I am delighted to say that some 90 Members attended, which shows the interest in this important subject.
Inevitably, many of the representations that we have received, and much of the evidence submitted to us, have been contradictory. That is understandable, since people come at this with different priorities and different ideas about what would constitute a fair system. We recognise that we shall not be able to agree with everyone, or address all the issues, or give everyone a bigger share of the cake. But we have tried to give everyone the opportunity to be heard and we are trying to ensure that the outcome does reflect, as far as possible, the many good proposals and suggestions that have been put to us.
Let me at this point make one thing crystal clear. Contrary to what some people have suggested—indeed, contrary to what some hon. Members may hope—we have not approached this review with any predetermined outcome in mind. There is no agenda to shift 271 resources from one part of the country to another. Of course, in any major change such as the one that we are undertaking there will be distributional consequences.

§ Mr. Desmond Swayne (New Forest, West)
rose—

§ Mr. Raynsford
But the consequences are not pre-determined; they will be decided by full, careful and thorough evaluation of all the evidence and of the logic and force of the arguments. That is perhaps an unfortunate moment to give way to the hon. Gentleman.

§ Mr. Swayne
The Minister is most kind. What estimate have the Government made of the likely increase in total Government expenditure that will be consequent upon redistributing grant to local authorities, which will then spend their additional allocation, which will have to be replaced by additional council taxes from those who lose that grant? What will the total increase in public expenditure be?

§ Mr. Raynsford
If the hon. Gentleman had been following what I said earlier, he would know that I have made it clear that there is a substantial further increase implicit in the spending review, which will ensure a good increase for local government in the settlement. If he will bear with me, I will come to guarantees for all councils.

§ Richard Younger-Ross (Teignbridge)
I thank the Minister for giving way on that point. I am very concerned. He talked about fairness and said that all the formulae have been looked at and there has been no predetermination. The south-west could lose out by £152 million under the formula. It currently has an SSA of £876 per head, compared with an average of £995. I cannot see how any fairness or justice under any formula could end up with the south-west losing out at all.

§ Mr. Raynsford
If the hon. Gentleman had borne with me for a moment, he would have avoided making a rather foolish allegation that there will be losses, when we have on so many occasions made it quite clear that no authority will suffer a loss. I shall come to that in a moment.

§ Mr. David Watts (St. Helens, North)
rose—

§ Mr. Raynsford
I shall give way to my hon. Friend and then I shall try to make some progress, because I know that many Back Benchers want to speak.

§ Mr. Watts
Will the Minister assure many of us that not only will the system not seek to shift money from one area to another but that it will not seek to maintain the present position? Many of us believe that the present position is unfair.

§ Mr. Raynsford
As my hon. Friend will have heard from what I have said, we are committed to significant changes in the formulae, which will have distributional consequences.
272 One of the original goals of the review was to try to simplify and streamline the mass of complications that surround the system. This has proved one of the most difficult of the big questions that we have had to resolve. Local government has consistently said that it favours transparency, but not at the expense of oversimplification. There are benefits in achieving greater simplicity, not least in terms of the people affected having a chance of understanding the system, but simplicity leads inexorably to rough justice and, if taken too far, undermines confidence that the system takes full account of the appropriate indicators.
Although no decisions have yet been taken, we recognise that the desire for a radically simpler system will need to be balanced against concerns that that would lead to unfairness. Having said that, we believe that it is possible to create a clearer and more consistent framework with the new formulae based around four principal components. There should be a basic allocation for each recipient of the service, such as the number of elderly people receiving care from social services or each mile of road requiring maintenance. On top of that, there should be three top-ups respectively for deprivation, pay costs and other costs, such as the additional costs of delivering services in sparsely populated areas.
We have discussed the issue with local government and others, and there has been general support for that framework. Of course that does not mean that there is agreement about the weighting given to each component. Indeed, some of the fiercest arguments have raged over those issues. One authority will say that deprivation should be made more important; another will say that pay costs are what matter most, while others will focus on the per head allocation or sparsity.
I have no doubt that those arguments will continue to rage during the weeks ahead. However, there has been another very important strand to the representations that local government has made to us: the calls for increased predictability and stability in the system. We have gone some way towards that in recent years with the introduction of floors and ceilings to limit year-on-year grant changes. That has been generally welcomed, although, of course, views tend to differ depending on whether an authority expects to be in the floor or the ceiling zone. As that can change from year to year, consistency is not always evident in the representations that we receive on this subject. However, we recognise that the review has inevitably created additional uncertainty, in particular with worries about authorities facing a cut in funding.

§ Dr. Howard Stoate (Dartford)
Will my right hon. Friend give way?

§ Mr. Raynsford
I ask my hon. Friend to bear with me a moment.
That is why I have given a clear guarantee—I repeat it now—that, regardless of the answers that the new formulae produce, no authority will face a cut in grant next year on a like-for-like basis. For the avoidance of doubt, I should say that that does not include inflation, but it will cushion authorities against the immediate impact not just of the new formulae but of other changes, such as the new population figures from the 273 2001 census. Of course, when announcing the floors for next year, we certainly hope to do better than that simple no-cash-loss guarantee, but we cannot go further on the general grant at this point because we do not yet have the final data or know what distribution the formulae will give.
If we were to set a high floor now, we would risk having to reduce it later if it turned out to be unaffordable. Alternatively, we would risk having to set a ceiling only just above, or equal to, the level of the floor. The latter would make nonsense of the whole review; the former would have a dire impact on authorities' budget planning processes. So I hope that hon. Members will understand why we are giving a clear guarantee of no losses. We will go further, but we cannot yet announce the floor and ceilings.

§ Mr. Geoffrey Clifton-Brown (Cotswold)
The right hon. Gentleman has confirmed that the no-cut guarantee is only in cash terms, not in real terms. Can he give a similar guarantee—if that is what it will be—for the other two years in the plan period? Will the same guarantee apply next year and the year after?

§ Mr. Raynsford
The hon. Gentleman ought to remember that I answered that question when he asked it at yesterday's seminar, so rather than detain the House now—[Interruption.] I am sorry that he seems to have a bout of amnesia and cannot remember the answer.

§ Sir Patrick Cormack (South Staffordshire)
On a point of order, Mr. Deputy Speaker. This is clearly the sort of debate in which we all benefit from many interventions and the Minister answering questions clearly and unhurriedly. The Leader of the House promised—while you were in the Chair, sir—that this debate will be continued another day, so would it not be sensible for the Minister to take as long as he wants and as many interventions as he wishes? Several of his colleagues are nodding as I speak. We could just hear the Minister's speech tonight and have a chance to intervene, as the debate will continue another day.

§ Mr. Deputy Speaker
That is not a matter on which the occupant of the Chair can advise.

§ Mr. Michael Portillo (Kensington and Chelsea)
On a point of order, Mr. Deputy Speaker. Is it in order for a Minister to withhold information from the House on the basis that he gave the information yesterday in a seminar, which was not part of the official proceedings of the House?

§ Mr. Deputy Speaker
Order. The Chair is not responsible for the answers that Ministers give from the Front Bench.

§ Mr. Raynsford
May I say in the nicest possible way to the right hon. Member for Kensington and Chelsea (Mr. Portillo) that as he, too, was present at the seminar, he might have spared the time of the House by speaking personally to his hon. Friend?

§ Michael Fabricant
This is ridiculous. I, and other Members, may not have been present at the seminar for 274 perfectly legitimate reasons. The House was not recalled until today. It is completely improper for a Minister to say that some people in the House might have heard an answer at an informal seminar, while other Members such as me could not be present, as the House was not in Session. The Minister is being asked a question on the Floor of the House. Will he now answer it?

§ Mr. Deputy Speaker
Order. I assume that that is a point of order to the Chair. All that I would say to the hon. Gentleman is that I am sure that hon. Members—and not least the hon. Gentleman—have means of prising information from Ministers.

§ Mr. Raynsford
As I was saying, I was delighted at the very large numbers of Members who attended yesterday's seminar and at a similarly large number who attended the other seminar that we held the week before. I am very sorry that the hon. Gentleman was unable to attend either of those events. For his benefit and that of others who were not able to attend the seminar, the answer is that I made it clear that we will continue floors and ceilings in future years.

Several hon. Members
rose—

§ Mr. Raynsford
I shall give way to my hon. Friend the Member for Don Valley (Caroline Flint).

§ Caroline Flint (Don Valley)
My right hon. Friend said that the allowance per mile of local roads would be considered. May I bring to his attention the dilemma that faces many coalmining communities, which has been raised by the Coalfield Communities Campaign—namely, the number of unadopted roads in those communities and the problems of finding finance to work with residents to bring them back into council ownership? Will he consider including, at least for a few years, unadopted roads in target areas in the allowance per mile?

§ Mr. Raynsford
My hon. Friend presciently anticipates exactly what I was about to say. Local authorities rightly feel passionately about changes to the formulae that would better reflect their local needs and circumstances. Equally, Members on both sides of the House want their area to get a fair share of the cake. We will listen carefully to all that is said tonight and on any future occasion when such a debate may be held. Within the bounds of feasibility—as I suspect that some of the demands will be mutually contradictory—we will endeavour to reflect in our final decisions the concerns that have been voiced. We do not expect to please everyone.

§ Sir Paul Beresford
If I may take the Minister back a couple of paragraphs in his speech, he was talking about protection of local authorities and using floors. In the assessment of the floor, is he taking into account grant or grant plus discretionary grant?

§ Mr. Raynsford
The hon. Gentleman asks a technical question about the way in which floors are constructed. To explain the matter briefly, without going into too much detail, as I do not want to take too much time, the purpose of the floor is to ensure that no authority gets 275 less than a prescribed sum determined in a particular year. That refers to general grant distributed currently through the SSA system and grant that will be distributed through the formula grant distribution framework in future. It applies to general grant.
We do not expect to please everyone—we would be very foolish if we thought that we could do so. In fact, we will have done rather well if we do not disappoint everyone. What we are determined to do, however, is to replace the old, discredited SSA system with a new grant distribution formula that is fairer, that better reflects today's needs and circumstances, that is less complex, less confusing and less perverse, and that enables local authorities to plan with greater certainty and to deliver the high-quality services that people rightly expect from their local council.

§ Mr. Eric Pickles (Brentwood and Ongar)
I regret what has happened. Despite any reservations that we may have about the formulae, it is clear that the right hon. Gentleman has put in an enormous amount of effort and work. The two seminars were very good and well attended, and he went out of his way to answer the points made, so it is a shame that such effort has been rewarded by this debate. The subject deserves a full day's debate. I am pleased to understand that we will have a further debate on the matter—a continuation of this debate—on the Floor of the House. I am sure that all the Members who have constituency cases to make will not be disappointed to learn that.

§ Sir Patrick Cormack
Does my hon. Friend agree that if there is to be a continuation of this debate, as the Leader of the House has promised, it must take place on the Floor of the House? We cannot continue somewhere else a debate that was started here.

§ Mr. Pickles
I entirely agree with my hon. Friend. The working of the usual channels are a complete mystery to me, but a bearer of tidings passed down a whisper that the debate might well take place on the Floor of the House. If that is so, we can be a little easier on the Government. However, we look forward to continuing with the debate.
While I am in a mood to hand bouquets to the Minister, let me present him with another sweet-smelling rose. I congratulate the Government on achieving what many thought was impossible. They have taken a complex formula, added their special magic and made it even more complex. The once impenetrable labyrinth of local government grant is now firmly shrouded in mist.
More seriously, the Government have taken a system that relied heavily on formulae and that ensured minimum interference from the Government and added a strong element of discretion. The County Councils Network referred to such discretion in its advice to all Members of the House. It said: These top-ups are more susceptible to manipulation, the basic entitlement is therefore a far more equitable means of funding local authority services. 276 That is right. One of the most remarkable features of local government finance and involvement from the centre is how little manipulation took place in the past. [Laughter.] I am sorry to be greeted by such laughter of disbelief, because I do not believe—

§ Mr. Watts
rose—

§ Mr. Deputy Speaker
Order. The hon. Gentleman is not giving way and he should be heard with the same quiet as the Minister for Local Government and the Regions.

§ Mr. Pickles
In fairness, I may have slightly provoked the hon. Member for St. Helens, North (Mr. Watts).

§ Mr. Nigel Waterson (Eastbourne)
Will my hon. Friend give way?

§ Mr. Pickles
Of course. I shall then give way to the hon. Member for St. Helens, North.

§ Mr. Waterson
My hon. Friend speaks about manipulation, but is he aware that, under the Government's proposals, my county of East Sussex could lose up to £44 million, which equates to 900 teachers or care for more than 2,000 vulnerable elderly people?

§ Mr. Pickles
I am aware of that. I had the opportunity to visit my hon. Friend's county council a couple of weeks ago and was most struck by the need that exists there. I was also struck by the time—87 hours a week—that its excellent chief executive had spent on dealing with Government forms and the like. My hon. Friend makes an excellent point.

§ Mr. Watts
If the hon. Gentleman believes that the previous Government did not manipulate the present system, will he explain why, when the changes took place, they transferred millions of pounds from Labour authorities to Tory authorities? My authority lost £10 million overnight.

§ Mr. Pickles
I thank the hon. Gentleman for that question, but I have as good a memory as his. I recall the time that Bradford was Labour controlled and was on a similar band to Wandsworth. When Wandsworth did very well, Bradford did very well. In fact, we went and became Conservative controlled.
The Minister is right to say that there is a strong element of rough justice in the system, but instead of providing greater equality, the Government have instead increased the rough justice. A change of such magnitude should be based on consensus. The Minister referred to the seminars organised by his Department. I attended only one of them, but I suspect that the others were as good tempered. Members from both sides of the House offered sound advice and there is a willingness to find a fair formula. However, it is impossible to build a consensus on the basis of transferring and losing £304 million to the metropolitan authorities, as estimated by the County Councils Network. The figure could even be as high as £800 million, based on some calculations.
277 The way in which the calculation has been put together and the various options available make it difficult, even for someone who is as keen as mustard on local government finance, to work out a precise picture for each authority.

§ Judy Mallaber (Amber Valley)
If the hon. Gentleman is concerned about disparity and losing money, does he think it right that his authority gets £200 more per primary school pupil than my county council, which is not a metropolitan area? Is that fair? Is there anything to justify why his area's needs are greater than mine, which is a far more deprived area?

§ Mr. Pickles
There are many different reasons for that, which is why the formula has been so difficult to agree. For example, there are levels of deprivation and staffing costs to consider. The hon. Lady misunderstands and she is not helping the debate if she thinks that I am defending the existing scheme. One reason why the Government have spent such a long time producing an alternative is that it is a difficult thing to do. I was hoping that we might arrive at a consensus and believe that that is still possible. Local government deserves a system that is transparent and understandable. It deserves a system that we can all support.

§ Paddy Tipping (Sherwood)
rose—

§ David Taylor (North-West Leicestershire)
rose—

§ Mr. Pickles
I shall give way to the hon. Member for Sherwood (Paddy Tipping) first.

§ Paddy Tipping
The hon. Gentleman talks about the need for consensus and fairness. Will he set down the principles that he and his party would use to distribute grant?

§ Mr. Pickles
I am happy to do so. However, as the old saying goes, I do not think that I would have started from here. We need a thorough review of the functions of local government and to get agreement on the criteria that determine how grant is distributed. On that basis, I would certainly be willing to build a consensus.

§ David Taylor
Will the hon. Gentleman give way?

§ Mr. Pickles
In a moment.
However, it is impossible to build a consensus when individual high-performing authorities are penalised with the removal of grants worth tens of millions of pounds. It is impossible to build a consensus while low-performing authorities are rewarded with a cash 278 windfall. It is impossible to build a consensus when, as The Times asserted in a July headline, "Labour will tax Tory voters to fund heartland".

§ Gregory Barker (Bexhill and Battle)
Does my hon. Friend see anything fair in the fact that East Sussex, which is the poorest shire county in England, is also the worst affected? [Interruption.]

§ Mr. Pickles
I am sorry to hear Labour Members laugh. My hon. Friend speaks the truth, certainly in terms of average income and of the size of the cuts in relation to the budget.

Several hon. Members
rose—

§ Mr. Pickles
If hon. Members bear with me, I want to make some progress and then I will happily give way—

§ Mr. Michael Jabez Foster (Hastings and Rye)
rose—

§ Mr. Pickles
I mean exactly what I say: I will give way in a moment.
Decisions will be made known in December. That will be about the same time as the Audit Commission gives its verdict on larger councils, through the comprehensive performance assessment. Is the Minister prepared to give a guarantee that the top 10 local authorities will not have grant taken away from them and that the incompetence of the bottom 10 will not be rewarded with extra grant?

§ Mr. Raynsford
I am happy to respond to that. Before I do so, I take the opportunity to say that I have been informed that, following discussions held by my right hon. Friend the Leader of the House, we now feel hopeful that it will be possible to extend this debate on the Floor of the House next week. In response to the hon. Gentleman's question, I have already given a guarantee that no authority will receive less grant, so there is no question of any high-performing authority suffering a loss. That gives the hon. Gentleman the assurance that he seeks.

§ Mr. Pickles
I have to tell the right hon. Gentleman that on 12 December that will not spare his blushes.

Several hon. Members
rose—

§ Mr. Pickles
I shall give way in a moment.
The Government have ignored this issue for six years. It is clear from the consultation that they have not used that period to gather information. After six years, we are nowhere near agreement on the heads of need. We have moved from a position in which the Government were acting like a sleeping dormouse to a new phase in which they are like a bat out of hell. Their determination to push through these reforms by May will do untold harm to fragile local government. As a result, in the words of the Rural Services Partnership, the work that has been carried out has been compressed into a short timescale and some of it appears to be lacking in rigour".

§ Jim Knight (South Dorset)
Having heard the Minister's reassurance, will the hon. Gentleman 279 reassure us that if his party were in office it would match the Government's plans to increase local government spending by 5 per cent. next year?

§ Mr. Pickles
The hon. Gentleman may have misheard his right hon. Friend. He gave an undertaking that in cash terms there will be no difference in grant, but as people will readily understand, that will in no way compensate local authorities for their cost base and wage bill.

§ Mr. Michael Jabez Foster
rose—

§ Mr. Pickles
Of course I will give way to the hon. Gentleman, who is so patient.

§ Mr. Foster
Several Conservative Members have mentioned East Sussex. Is it not the case that East Sussex took a reduction of 7 per cent. in real terms in the last three years of the previous Conservative Government? Would the hon. Gentleman be prepared to match the amount that this Government are at least guaranteeing?

§ Mr. Pickles
I hope that Hansard is available in the hon. Gentleman's constituency, because those words require wide circulation. [HON. MEMBERS: "What does that mean?"] It means that the hon. Gentleman will have a bit of a problem.
The Minister's guarantee that no authority will receive less cash next year is not sufficient to meet councils' existing needs. We know from rising pay settlements and a growing cost base that those moneys will not meet next year's costs and will lead to council tax increases and service cuts. Even the real-terms guarantee on education is so full of escape clauses that its effectiveness should be doubted. The Association of Secondary Heads in Essex told the Department on 13 September: Our experiences of 'real term guarantees' in recent years have meant that our budgets have lost out. This happened in the 2002–2003 budget round when the Learning Skills Council became involved in budget calculations for the first time. In 2002–2003 many Essex secondary schools suffered a 'real terms' cut in their budgets, despite the fact that they had been promised growth. Given that Essex could lose about £80 million, Kent rising £90 million and East Sussex £43 million, no cash guarantee will be effective. The removal of sums of those proportions cannot be achieved by painless cuts or salami-slicing in line with the Government's gradual withdrawal of grant by placing a floor on the loss. Whole sections of public services will be abandoned or rationed. Even if the Government announce a floor of 3, 4, 5 or even 6 per cent., local authorities will have to make decisions about the wholesale abandonment of important public services.

§ Sir Paul Beresford
Does my hon. Friend take into account the fact that some local authorities rely to a large extent on discretionary grants? If they are at the floor, such authorities will lose out dramatically, because the discretionary grant element will not be taken into account.

§ Mr. Pickles
My hon. Friend has extensive experience of these matters and he is absolutely right. Furthermore, 280 local authorities want to return to the levels of specific grants seen in the Tory years, because far less discretion is available to them now than they had under the Conservatives. The Minister looks surprised, but that is what the county councils said in a letter to him; I advise him to pay more attention to his mail.

§ David Taylor
The hon. Gentleman is moving on from the distribution of rate support grant to specific grants. Perhaps he will take a further step and consider how the national non-domestic rate is currently distributed. The system is extremely simple: every authority receives the same sum per person. Does he endorse the Government's proposals to merge NNDR into RSG, creating a formula-based system, which will not contribute to the transparency and intelligibility that are probably major planks in the consensus that he seeks?

§ Mr. Pickles
I do indeed seek consensus, and I believe that consensus is possible on this issue, because I got the distinct impression from the Minister that the Government were having a rethink. I see the Minister smile, so perhaps it will be possible to build consensus. There is no sense in merging NNDR and RSG: there are several disadvantages to doing so, particularly for local authorities that currently receive no RSG. In addition, there is the importance of co-operation between business and local authorities and the need for transparency, and the current system is better in those respects than the Government's proposed changes.

§ Mr. David Drew (Stroud)
Neither the Government nor the official Opposition have mentioned what I regard as the nub of the problem: the area cost adjustment. Many of us feel that there was a fiddle. It is understandable in the light of the notion that teachers, social workers and others in the south-east face additional costs, but it creates a blatant unfairness that must, if possible, be removed. I am interested in hearing whether the official Opposition will seek to remove the area cost adjustment.

§ Mr. Pickles
I do not agree with the hon. Gentleman—I do not think that the area cost adjustment was a fiddle. There is a case for examining it, but some of the proposals regarding the number of people who fall off the different steps would merely replace one perversity with another. The Government appear to have got hold of the idea of zones within counties for the purposes of the area cost adjustment, but the Minister will be aware of the huge variations that occur, for example, in the counties around London and the different parts of those counties.
Let me return briefly to the real-terms guarantee. Taking out sums of such proportions will result in public services having to be reduced. The Minister's refusal to provide even a working assumption as to the level of the floor of the withdrawal is harming local authorities' plans. Despite pleas from Sir Jeremy Beecham, the chairman of the Local Government Association, the Minister has refused to go beyond a zero per cent. floor, suggesting in a letter that 3 per cent. might be too high. However, at this time of year, councils are at an advanced stage of their budgetary cycle, and Government's silence makes them fear the worst. Council budgets are not going to be put together in the 281 spring—we have moved far beyond that. Most of them are put together in the autumn. The refusal to offer anything other than a zero floor is to the detriment of local government.

§ Mr. Portillo
I noted that the Minister was extremely careful in his use of language this evening. Not only is there a zero guarantee for the first year, but in subsequent years floors and ceilings, he said, would continue. He did not say which floor would continue—he did not say that it would be the same floor—and did not specify the years. Does my hon. Friend agree that his reluctance to repeat what he said yesterday in a private meeting in the Chamber, where it can go on public record, may reflect the fact that floors and ceilings in future years will not be the floors and ceilings of the first year?

§ Mr. Pickles
My right hon. Friend is correct—the Minister is not in a position to say that there will be no pain or to say, "Don't worry, the amount of money will be reduced." Even on a cash basis, there will be a substantial cut for local authorities of 5 or 6 per cent. We must remember that the total sums being discussed are tens of millions of pounds.
Resource equalisation, whereby a council's tax-raising potential is taken into account, was introduced relatively late and offers a perverse incentive to embrace higher levels of expenditure. It also penalises lower-income families in areas with high house prices. Labour Members laughed and scoffed at the mention of East Sussex, which has high local house prices but low incomes. It has almost the lowest average income in England, comparable to that of Tyne and Wear. The system, however, which is supposedly designed to deal with deprivation and sparsity, takes £43 million from the county.

§ Sir Nicholas Winterton (Macclesfield)
The hon. Member for Sherwood (Paddy Tipping) asked my hon. Friend what the Conservative party would do in government about local government finance. Will he fill out his reply and say whether he has followed the excellent work conducted for more than two years by the F40 group of local authorities, led in the House with great distinction by the hon. Member for Stafford (Mr. Kidney), who has highlighted many inadequacies and made sound proposals on the way in which injustices in the present system could be put right? I speak for Cheshire, a county that features extremely badly in the formula, and has done so under successive Governments.

§ Mr. Pickles
The hon. Member for Stafford (Mr. Kidney) is blushing, and so am I at my hon. Friend's question. I believe that I elaborated my thoughts in considerable detail and shall happily go to greater lengths, but I hope that my hon. Friend will allow me to do so in private.

§ Mr. Adrian Sanders (Torbay)
Will the hon. Gentleman clear up something that was not obvious in his speech? Fourteen per cent. of the pot of money that goes into local government is taken out and given to local authorities, which bid for it in special grants. Is the 282 hon. Gentleman's policy to restore that 14 per cent. or is it to get back to the 4 per cent. that applied when the Conservatives were last in power?

§ Mr. Pickles
It was not 4 per cent., but nearer 6 per cent. It depends on how one counts.

§ Mr. Don Foster
It was just over 4 per cent.

§ Mr. Pickles
I shall not haggle over a couple of percentage figures, but I do not believe that the hon. Gentleman is right. On the general point, however, the level of discretion is about 17 per cent. Given that most local authorities spend three quarters of their budget on staffing, that leaves them little discretion on how the rest is spent. Both I and my right hon. Friend the Member for Haltemprice and Howden (David Davis) are firmly committed to increasing the amount of local authorities' discretion so that they do not have to go cap in hand to the Government. If the Liberal Democrats want to join us in defending local government, they will be more than welcome to do so.
As we have discovered, we can talk for hours about the area cost adjustment, the relevant merits of different recruitment costs, zone integrity and various different steps. We can talk about the desirability of lowering the top-up for additional educational needs, but at a time when rural communities are desperate for reassurance that their concerns have been heard in this Chamber, the Government have kicked away the ladder. This is a mess masquerading as a solution; a blind rush without purpose or principle. The proposals do not have the confidence of local government and should not have the confidence of the House.

§ Mr. Bill O'Brien (Normanton)
I am amused by the comments of the Opposition spokesman, the hon. Member for Brentwood and Ongar (Mr. Pickles). In response to an intervention he referred to defending local government. I remember clearly that when he was leader of Bradford council for a short period he sold off old people's homes with old people in them. Therefore, defending local government was far from his mind then.

§ Mr. Pickles
I am glad that the hon. Gentleman has given way because it gives me a chance to say this: under my leadership of Bradford council, we sold not one single old persons' home. The party that sold an old persons' home—to a Labour councillor—formed the incoming Labour Administration. Hypocrites!

§ Mr. O'Brien
The hon. Gentleman set in motion the sale of the homes and was then removed from the leadership of Bradford council because people in the community said that that was not what they wanted. In fact, they are saying to the Tories now that they do not want their policies. The hon. Gentleman's speech showed clearly that the Tories have no proposals for the future of local government.

§ Mr. Colin Challen (Morley and Rothwell)
My hon. Friend has hit the nail on the head. The Opposition did 283 not have a word to say about cities or urban areas; they are trying to divide the country. They do not want a fair system; it is all about East Sussex.

§ Mr. O'Brien
I am sure that my hon. Friend has identified the real point.
Local government finance and the distribution formula will be of paramount importance to local authorities if we are to provide the world class services that we talk about. As chairman in the House of Commons of the Special Interest Group of Municipal Authorities outside London—SIGOMA—I join my colleagues who represent those 48 major authorities in pleading with the Minister to ensure that we get a fair, transparent, simpler and more stable system of resource distribution for local government. People expect a great deal from government. They want well-run schools for their children, crime-free streets and good quality care for older people and the vulnerable in our communities. Little or no change to the system of local government funding will not provide those services and the better environment that we all expect. SIGOMA's case is for a more robust system of resource distribution. That is well known to the Ministers and all Departments.
To make our case, I must compare the authorities in SIGOMA and those that will be affected by the resource distribution with London authorities, as there are some similarities between the two groups. Our communities suffer from generally higher deprivation than that suffered in London's urban areas. A major consequence of that is lower attainment, particularly in education. Despite the deprivation and lower attainment, our communities pay on average £125 more in band D properties than people in band D properties in London communities.

§ Ms Karen Buck (Regent's Park and Kensington, North)
Will my hon. Friend give way?

§ Mr. O'Brien
I am sorry, but I have only a few moments.
Even after the assumed higher cost of providing services in London is taken into account, our communities still receive on average £140 per head less than the London boroughs. My own authority, Wakefield, has one of the lowest education SSAs in the country. To bring this element of Wakefield's SSA up to the metropolitan average would entail an increase in SSA or its replacement by £11 million. The children in the Normanton constituency are entitled to the same standard and quality of education as children elsewhere in the country. Not to change the financial formula for local government services is to deny my constituents fairness and justice.
In April this year, the Secretary of State for Health announced his intention to create a radically different relationship between health and social services, particularly in the provision of care for older people. Local government shares central Government's aim to improve care for the elderly, but the NHS plan will fail if social care is not properly funded. The way to address the problems of social care is not by penalising local councils. That has happened in areas where the Audit 284 Commission has been compiling reports. My area suffered because of such a report. Penalising local authorities will not solve the problem of caring for the elderly and the vulnerable.

§ Mr. Tony McWalter (Hemel Hempstead)
Will my hon. Friend give way briefly?

§ Mr. O'Brien
I am sorry—I have only three minutes left.
Councils' total contribution to supporting social care amounts to more than £1 billion over and above the SSAs on which the Government base the grant that they give to local authorities. That is a further reason for the current system to be reviewed.
The area cost adjustment is always mentioned in debates such as this. It was raised at the seminar, and I am sure that it will be raised repeatedly until some fairness is introduced into it. Members of SIGOMA are not against any adjustment in the distribution system to recognise some of the problems that London boroughs may have. What we ask is that any adjustment should be made on the basis of actual, rather than assumed, needs. I appeal to my right hon. Friend to give that serious consideration.
This morning, in a meeting of the Select Committee taking evidence on social housing, we were told that local authorities in London have different problems, and that what applies in one borough does not necessarily apply in others. The area cost adjustment must therefore be based on actual costs, not on assumed costs, as that is demonstrably unfair.
Finally, I refer to the EPCS—environmental, protective and cultural services—block, which is a further concern to local authorities. Provision of services under this block is almost always the lowest funded and most under-resourced. A review of the services covered by the EPCS block is essential. The EPCS block is usually a passport to other services, and it is those other services that lose out.
On the consequences of the decline in population, a fall in population might be seen as a blessing. We in SIGOMA refute that. Those who are most able to move from an area are those most likely to have transferable skills and a better education and to be more economically active. Those left in the area are less able to pay higher council taxes, yet are more in need of quality public services to guarantee a decent standard of living. On the EPCS block, such increases and the transfer of resources mean that there will be underinvestment and a lack of support for the delivery of world class services if we do not recognise the importance of services in that block, including playing areas, roads, open spaces and street lighting. The services take the brunt of the cuts, so I ask my right hon. Friend to give us a formula that will be transparent and robust, and which we can understand and explain to the people whom we represent.

§ Mr. Don Foster (Bath)
In these rather bizarre circumstances, and in what may, I hope, be seen as part one of my contribution, I intend to say a little bit about why I am concerned about what is currently happening 285 and mention what I think should happen next. In what I hope will be part two of my speech, at an unspecified later date, I shall speak in more detail on my thoughts about the way forward.
The hon. Member for Brentwood and Ongar (Mr. Pickles) rightly tried to see whether it was possible to build some consensus in the House. I suspect that there is consensus in all parts of the House at least about the view that local government needs a different and fairer funding system. I hope that I can also build consensus in respect of the bouquets that he gave to the Minister. Indeed, I suspect that nobody in the House would deny the Minister's clear commitment to local government. I give him credit for his willingness to take on a challenge that almost everybody else has failed to tackle—in fairness, even the Local Government Association has failed to tackle it—and make some proposals about an alternative to the current discredited system.
The fact that I shall be critical of some of the Minister's proposals does not mean that I am critical of his energy in that direction. His commitment to local government has been demonstrated by the fact that it has felt the effects of a number of improvements in the past five years. We have seen a number of significant changes. For instance, capping is now more or less out of the window. Of course, there have also been some improvements in overall funding, but sadly, those increases have often been linked to increases in ring-fenced funding.

§ Mr. McWalter
Does the hon. Gentleman also agree that there should be consensus throughout the House about the fact that social services receive woefully inadequate funding throughout the country, whether in area cost adjustment areas or elsewhere? It is a vital function of this debate that that historic misery be corrected.

§ Mr. Foster
The hon. Gentleman is absolutely correct. The Minister might even leap to his feet to suggest that, in recognising that deficiency, the Government have put additional money into that block in the SSA formula. Were he to do so, however, he would also have to go a little further and acknowledge that, even with the additional moneys that have been put in, local authorities throughout the country are still reporting that their expenditure is well in excess of the amount that has been given and that many needs are not being met. The hon. Gentleman makes an important point.
Unfortunately, we have waited in vain for five long years for a new formula to replace the current discredited one. After two wasted years spent on the abortive attempt to introduce the plan-led approach, I believe that we are now in danger of rushing the current review through to full completion for the coming financial year in a way that could lead to the same disaster that resulted from rushing through changes to the A-level system. Hasty action now could create problems in future. The Government have left themselves a short time of only a few weeks to consider the many and varied responses to the consultation before they make their final settlement announcement.
I hope that the Minister will acknowledge that, last year, the Government could not get their sums right for even the minimal changes—not the huge swathes that 286 are now proposed—to the system as district councils with incorrectly calculated floors found to their cost. As the Minister said, a change in one part of the system led to unpredicted consequences elsewhere. The Government missed those consequences. How can we have genuine confidence that last year's mistakes will not be repeated and multiplied many times in the numerous changes that are proposed to floors and ceilings, let alone all the other changes, in the approaching financial year?

§ Richard Younger-Ross
My hon. Friend referred to floors and ceilings. Will he comment on the Minister's response to my earlier intervention about the long-term impact of formulae on potential? It is fair to say that if the floors exist and there is no impact in the first year, there may be no impact in the second or third year. However, what happens when the floors no longer exist? Will local authorities be worse off?

§ Mr. Foster
I fear that my hon. Friend's analysis is not correct because it is not necessarily the case that there will be no impact. As the Minister rightly pointed out, the floor refers only to a cash figure, not an inflation-related figure. I am sorry that I was unable to attend his seminars, which, I understand, were extremely good. However, in the seminars and in the Chamber tonight, he failed to state clearly what would happen after the first year. We understand that floors will continue to exist for several years, but the Minister has told us neither the number nor whether they will continue at the same level. For my hon. Friend's council and many others that fear losing out under any new arrangements, there is no certainty for the future.
I hope that my hon. Friend accepts that if the current formula is unfair and changes are required, the distribution mechanism needs to change. As the Minister said, there will always be those who will not get much more compared with others who will.

§ Mr. Chris Mole (Ipswich)
I was worried that, in supporting his colleague's comments, the hon. Gentleman was suggesting that there should be transitional arrangements that last for ever.

§ Mr. Foster
I believe that I was able to point out before the hon. Gentleman intervened that I did not advocate such a proposal. I acknowledge that if we want to change a system, there will be changes for many councils.

§ Sir Paul Beresford
The point that was made in the earlier intervention puts the Minister in an interesting position, because if his formula is so fair, the floors and ceilings will have to disappear.

§ Mr. Foster
I accept that that is likely. If the Minister was prepared to respond to our question about the length of time that floors will continue and their operation, we might get a clearer view.

§ Sir Patrick Cormack
Will the hon. Gentleman give way?

§ Mr. Foster
Perhaps the hon. Gentleman knows the answer better than the rest of the House.

§ Sir Patrick Cormack
This hon. Gentleman finds the subject so incomprehensible that it would be difficult for 287 him to explain it to his constituents. That is a genuine problem. Does not the hon. Gentleman agree that the hon. Member for Normanton (Mr. O'Brien) made the most important, simple point: whatever the result, it must be comprehensible, unlike the Schleswig-Holstein question? The hon. Member for Bath (Mr. Foster) will know that only three people knew it: one was dead, the other was mad and the third had forgotten it.

§ Mr. Foster
I have come across no hon. Member, including the Minister, who is capable of fully explaining current local government finance settlement arrangements. The new system that purports to be fairer will involve a complex mechanism. We must all get used to the fact that whatever we do will be relatively complex. That complexity and the need to review the matter in greater detail suggests that although some changes could be introduced in the next financial year, it would be better if the Government postponed them for a year. I shall explain the reasons for that in more detail in part two of my speech next week.
It is worth reflecting on the fact that earlier today on the Floor of the House—