Local Government Finance

HC Deb 24 October 2002 vol 391 cc418-80

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

1.7 pm

The Minister for Local Government and the Regions (Mr. Nick Raynsford)

I am pleased that it has been possible to arrange more time to discuss the complex and important subject of grant distribution to local government. I look forward to a lively debate and we will listen carefully to all that is said. I must apologise to the House that in the light of other pressing responsibilities, I will not be present for the entire debate, but the Under-Secretary, my hon. Friend the Member for Shipley (Mr. Leslie), will be here throughout.

1.8 pm

Mr. Don Foster (Bath)

In the words of Magnus Magnusson, I have started so I will finish. In our earlier debate, I stressed that although we cannot remain with the current local government funding system and some changes are urgently needed, the full-blown changes should be delayed for a year to allow more time for reflection and consultation. I acknowledge that the consultation paper contains some good ideas. The willingness at least to change the area cost adjustment is welcome, as is the idea of minimum entitlement for funding per pupil or per head of the population. The Liberal Democrats have proposed that for a long time and we welcome the fact that the Government have embraced the idea, although they should go further.

We also welcome the greater recognition that is given to sparsity, but as my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) argued strongly and cogently, the sparsity element should be extended to apply to all service areas, not just to district council funding for environmental, protective and cultural services, for example.

The proposals raise many concerns. The options for change in the review paper were as complex as the old system. They were backed by scant information as to how weightings and other figures had been calculated. That was hardly conducive to good consultation. The various proposals have thrown up numerous anomalies in Government thinking, some of which are quite bizarre. For example, it seems that for the first time since Sir Robert Walpole and his excise Bill of 1733, we have a Government who are advocating the redistribution of resources away from the rural poor to the City of London.

There are already huge disparities in funding between one authority and another, yet in many cases the options will widen inequalities, not close the gaps. My local authority, Bath and North East Somerset council, for example, languishes almost at the bottom of the league table of funding for education. It rightly and rather mildly comments in its response: It therefore seems strange that the suggested options would increase the disparity between the lowest and highest funded LEAs even further than it is now. There are many other examples. Newham currently receives three times the funding of Kingston and more than double the funds given to Richmond or Sutton, yet the review options generally leave those low-funded authorities with no extra resources, but will provide Newham with an extra £24 million for education alone.

Mr. Nick Hawkins (Surrey Heath)

With reference to penalising the rural poor, penalising some areas and widening disparities, does the hon. Gentleman agree that in certain areas, especially in my county of Surrey, there will be particular problems where success is penalised? We have one of the most efficient police forces in the country and an extremely successful county council, yet under the Government's proposals, that success will be penalised further, to the advantage of inefficient Labour-run local authorities in inner cities. The Government are helping their friends in the north.

Mr. Foster

The hon. Gentleman has made the case for his constituents well. The redistribution that is taking place is a matter of great concern to many people. The Minister will say, of course, that the floors and ceilings mechanisms will provide a degree of protection, but we have still to hear from the Government how those arrangements will operate and for how long.

Many other examples exist. Gloucestershire is about 130th down the league table of funding for education, yet it looks set to lose about £8.5 million—the equivalent of £100 per pupil. It appears that, as the hon. Gentleman said, the worst-funded authorities are being set up to be the hardest hit. Those that are successful and provide high-quality services will also be penalised.

Mr. David Drew (Stroud)

rose—

Mr. Foster

I hope the hon. Gentleman will accept that earlier, in less than 10 minutes, I gave five opportunities for intervention. I know that many other hon. Members want to speak, so if the hon. Gentleman will forgive me, I shall make rapid progress.

Other examples relating to the area cost adjustment show strange anomalies. Kingston, Merton and Sutton councils, for example, could not begin to figure out why they would be so badly hit by the proposals. It turns out that the Government had got their location on the map wrong and thought that they were in east London, when clearly they are not. I am delighted that, following representations, the Minister has acknowledged that there is a problem with the proposals, and I assume that he will agree to rectify them.

Mr. Edward Davey (Kingston and Surbiton)

I am grateful to my hon. Friend for making that point. In a private conversation after one of his excellent seminars, the Minister assured me that he was examining the matter. Will my hon. Friend take it from me that our labour market and labour costs in the borough of Kingston, and also in Merton and Sutton, are similar to those in west London? The simplest solution would be to place those three boroughs with the grouping in west London.

Mr. Foster

My hon. Friend has made his point admirably, so to save time I shall delete from my speech the remarks that I intended to make in relation to his local authority, and turn to my own to demonstrating how the Government seem to be giving with one hand and taking away with the other.

The Avon and Somerset police authority calculates that under the current proposals it will lose about £5.5 million, or 180 police officers. That contrasts oddly with the additional money—almost exactly the same amount—that it has been given through the crimefighting fund.

Other problems with the current formula are not being addressed. Deprivation, for instance, has not been dealt with as thoroughly as it should have been. As many hon. Members will know, the way in which the Government do their calculations means that pockets of deprivation in particular areas are not covered under the present mechanism, and will not be covered under these proposals.

Councils containing a mixed rural and urban community will often lose out as well. Kent county council is a good example. On the list of the 148 most deprived authorities, it is ranked 99th. It stands to lose between £10 million and £100 million, while other much less deprived authorities will gain.

Other anomalies are not being addressed. Of course we all welcome educational support for children from ethnic minorities, but according to the formula, it will be based on the total number of pupils whose first language is not English. In practice, the total number matters less than the number of languages spoken.

Many organisations and individual councils have expressed concern, including the Rural Services Partnership, the Most Sparsely Populated Councils Group and the f40 group, comprising the lowest-funded local education authorities. That last group is particularly concerned, and urges that the element of funding per pupil be greatly increased. I agree.

The real problem is that we are discussing equalisation arrangements relating to, on average, 80 per cent. of the money that councils will spend. Surely we all acknowledge that if the amount provided by Government were a smaller proportion, we would be less worried. If we want to reconnect the British people with their councils, and make them more interested and more involved in what their councils do, we must make them genuinely believe that their local councils are capable of meeting local needs. That surely means that we should increase the amount of councils' spending money that is raised locally, with a corresponding reduction in local income tax.

Dr. Evan Harris (Oxford, West and Abingdon)

Will my hon. Friend give way?

Mr. Foster

No, I want to make progress and finish my speech as quickly as possible.

The review has not even begun to address a number of other issues. One set of anomalies looks set to be replaced by another, and key issues such as local accountability, making the funding of services more transparent and making local taxation more progressive have been omitted from the agenda. The Government's proposals will lead to huge shifts of resources from rural to surburban areas. They are bound to raise the suspicion of pork -barrel politics.

There is certainly a lack of confidence in the options for change with which we are being presented. They are patch-and-mend proposals. Surely, even at this late stage, some modest changes could be made immediately. Surely the Minister could put off by one year the full-blown implementation of whatever proposals will follow.

The Minister knows of my high regard for the former Secretary of State for Education and Skills, who resigned last night. In terms of personal and political honesty, she knocks spots off many of us. Only a week ago, she told the House clearly that she accepted what Mike Tomlinson had said about the A-level fiasco, namely that there should have been a one-year delay in implementation. Had there been such a delay, many of the problems need not have occurred She went on to say that one of the reasons why she had not delayed implementation for a year was that she received no representations from any quarter asking her to do so. If things go wrong in a year's time, as I predict they will, I hope that the Minister will acknowledge that at least we on the Liberal Democrat Benches gave him the opportunity to take action and warned him what would happen. One year's delay on the majority of the proposals would make a great deal of sense.

1.20 pm

Andrew Bennett (Denton and Reddish)

It is said that to have loved and lost is better than never to have loved at all. I am not sure whether the Minister will feel that having attempted to reform local government finance—and, I am afraid, having failed to do so—is better than not having tried at all. The cynic in me says that what he has done so far is unite almost the whole House in anxiety and worry about the proposals, so that they will be a little less bad than we expected and we will be relieved. However, I hope that he will consider the fundamental problem. I pay tribute to him for the huge effort that he has put into the seminars, the consultation and everything else. That is great, but I think that he is looking at the wrong position. He has considered the distribution of the grant, but I think that he must deal much more fundamentally with local government finance.

The trouble is that local councils have been starved of resources. It is that which starts the problem and explains why local government is now held in disrepute. Social workers are now rationers rather than helpers. There are problems of boredom among young people in almost all our constituencies, but the youth service is terribly underfunded. On recycling, we have the poorest record in Europe, again because of underfunding. Local authority spending is also pretty bad on roads, highways and rights of way. Too many parks are now icons of neglect rather than of civic pride. That has happened because almost all local government finance is now obtained from a grant and there is no opportunity to raise the money locally. It is that inability to raise money locally that people feel to be unfair.

I invite the Minister to come to the Bull's Head in my constituency. It is located just inside Stockport, but Tameside is visible from the front door and Manchester from the side door. If he could visit the Bull's Head and explain to my constituents and those of my right hon. Friend the Member for Manchester, Gorton (Mr. Kaufman) how the system is now fair, I would think that he was wonderful. I am afraid, however, that he will find it very difficult to do so. When he considers the different amounts that people sitting next to each other pay—most in the area will come from band A properties—and sees the disparity between Stockport, Manchester and Tameside, he will understand why there is a feeling that things are not fair. The differences between those three authorities are not huge, but when local people find that people in Wandsworth pay half the amount that they are paying, they begin to think that something is going fundamentally wrong.

People then ask how much is being spent. They find that there are significant differences between the three local schools, which are situated within a mile of each other, but are located in each of the different authority areas. At primary level, £2,206 per pupil is spent in Stockport, £2,360 in Tameside and £2,623 in Manchester. That puzzles people, but when they find that a lot more is spent on schools in Wandsworth, they think that it is fundamentally unfair. At secondary level, the difference between pupils in Manchester and Stockport is more than £800 per pupil. Even worse, if pupils come from Manchester to Stockport for their education, they get mugged at the border because they do not bring that full £800 with them to a Stockport school, but will get only the expenditure in that school. I hope that that little anomaly can be altered.

Mr. Patrick McLoughlin (West Derbyshire)

Will the hon. Gentleman give way?

Andrew Bennett

I shall not do so; with only eight minutes, it(is hard to get my points across.

I have to say to the Government that the present system is unfair and very difficult to understand, but we have to recognise that it is a legacy of the poll tax. That is when the spending started to come down, and when local authority control of spending changed so dramatically: local government finance changed from about 50 per cent. coming from local funds down to a very small proportion.

I pay tribute to the work done by Coventry in demonstrating that, of the extra money that has been going to London for education, about half seems to be spent on schools—which is great—but the other half is being spent on bringing down the council tax in London. That is grossly unfair.

My plea to the Minister is for a new, buoyant source of local government funding, and, until we have one, we will be in difficulty. I know that we have the business improvement areas, but that is earmarked money. It might also be possible to put a tourist tax in place, but if the Government cannot come up with a new form of funding, let them at least return the business rate to local authorities.

I also make a very strong plea for the Government to look at the council tax bands. I know that, if we have lots and lots of bands, we shall be going back to the old rates system, but the old system was far fairer than the present council tax system in areas such as mine. We need at least to have bands A, A-and A* at one end of the range, and we probably need more bands at the higher end as well. We need more frequent valuations, and we need to question how much money is going to the Audit Commission. There is no point in having huge numbers of inspections if local authorities have not got the money to deliver good services. The Audit Commission is getting far too expensive.

I would also make a plea for us to think about taking education funding out of local government finance. It seems sad that we should have such a complicated mechanism, rather than a much simpler per capita payment. If we have a class of 30 children, for example, we need a substantial amount of money for that. The variations for particular education needs should be much smaller.

I would simply plead with the Government in these terms. We need to take a much more fundamental look at local government finance. We need to restore local government, as opposed to local administration. Only if we can get a full, fundamental review in place will we restore people's confidence in local democracy. I applaud the efforts that the Minister has made, but I fear that, so far, he has lost.

1.27 pm

Sir Paul Beresford (Mole Valley)

It is delightful that we have longer for this debate than we anticipated, but it is sad that it is still so short. This could have been an opportunity to explain to the Chairman of the Select Committee, the hon. Member for Denton and Reddish (Andrew Bennett), that competent authorities can get their expenditure down and the quality of their services up, and that that might be reflected in the differences in council tax.

The final figures will tell us whether the scheme works, and the final figures will be the real test over time. I hope that, after what he has said today, the Select Committee Chairman will agree that we need to launch an inquiry, presumably mid-way through next year after the grants have been confirmed and the council taxes settled, but before Ministers' minds are set on the following year.

Many Conservative Members smiled sweetly and knowingly when the Minister said that he was setting out on this venture. He has told us repeatedly that standard spending assessments were terrible, complicated and unfair, and he promised us a better, simpler system that would be more intelligible and based on formulae. Last week at the seminar, the brave man repeated that. I have not yet found a council treasurer, even a tame one, who agrees with him. Of course, the Minister will say that we need to wait for the result, and there is a measure of truth in that.

The Minister has made some personal progress. His bravado has diminished a little, and he said at the seminar that he recognised that not every council would be pleased; in fact, he said that it was possible that not a single council would be pleased. As many of us know, under the standard spending assessment method, the winners kept exceptionally quiet—except for the occasional moan to save face and set markers for the following years—and the losers complained. They said that the system was unfair, too complicated, and so on. That is exactly what we have been hearing from the Liberal Democrat Front-Bench spokesman this afternoon.

The Minister has accepted, however, that the basis of distribution must be ascertained using some form of need factors and, promisingly, he has assured us that there will be a reduction in the enormous proportion of subjective grants that have grown up under his Government. At least there is a veneer of needs, but it looks a little thin when we inspect the environmental protection and cultural services block that is so vital to district councils. It used to have an at least plausible link to expenditure, but not now. In this and several other areas, any link seems to have been abandoned in favour of subjective judgment—otherwise known as ministerial whim.

The Minister has almost always promised simplicity. That is a bold gesture, but as we heard from the Liberal Democrats, the problem is that, with so many variations nationwide, simplicity results in crude, ineffective and in some cases unfair decisions and judgments. However, as the Minister said last week, some rough justice is inevitable. Rough justice can be removed and fairness introduced only through more complexity. A scheme involving the division of funding by needs factors is either simple—with areas of perceived and perhaps genuine injustice—or fairer but consequently more complicated.

The Minister has more complications to deal with than we had when in government, because he has lost control of many of the levers to many other Departments: the Department for Education and Skills, the Department of Health, the Department for Environment, Food and Rural Affairs, and goodness knows which others at the rate things are progressing. Each has its own indicators, and each, seemingly, its own floors. None appears to have any relationship to the other Departments; and sometimes there is not much relationship to the local area.

As everybody will know, many councils are panic-stricken by the options. Some anticipate huge—really huge—council tax rises, just to stand still. The Minister has helped. His promise that nobody will lose formed the basis for his reintroduction of the use of floors. That promise has brought some relief, but it is also viewed with some cynicism. Many are worried about whether specific grants will be taken into account. Last Wednesday, under pressure, the Minister helpfully explained that he expects the floors to be high enough next year to at least cover such losses. I hope that he is right. If this promise is not fulfilled, Surrey councils, the south-east and London will be hit hard. A floor involving a zero increase in grant to Surrey could mean a nigh-on 20 per cent. increase in council tax. That estimate ignores any little events such as the firefighters' pay rise.

Even though he has not been a councillor, the Minister will doubtless recognise that cutting budgets and adjusting services, especially through efficiencies, takes considerable time. This year, local authorities have been left at sea; they have been given absolutely no indication of floor levels, even when the Minister was pressed on the matter last week. However, the fact remains that, if his formula is as accurate as he says, the floor that protects loser councils this year will be progressively lowered. In some cases, potentially great pain will be caused to their residents and businesses. I accept that there are huge possibilities in terms of efficiency savings in local government expenditure, and as a taxpayer and an ex-councillor, I wish that the Government and local government would exercise their minds much more in this direction. I am sick and tired of standards in public services being judged on the amount of other people's money that is spent on them.

The Minister had many complaints about SSAs, but they are coming back through his scheme. It is based on factors of doubtful definition, multiplied by weightings of dubious origins. It is further complicated by floors and ceilings, and although it is not called an SSA, it is rapidly looking like a sibling or twin.

1.33 pm

Mr. Neil Turner (Wigan)

My right hon. Friend the Minister rightly stressed the importance of getting the formula right. If we do not, the Government will not achieve their aim of tackling and eradicating the inequalities to which deprivation and social class give rise. I want to concentrate my remarks on the education block, not just because it is such a high priority, or because it constitutes a large amount of local authority expenditure, but because, if we do not get it right, we will deny the opportunities that a good education can give to all our children in terms of breaking the cycle of deprivation that scars so many of our communities.

The excellent Department for Education and Skills document "Investment for Reform" sets out the problems starkly: We continue to have one of the greatest class divides in education in the industrialised world. A socio-economic attainment gap is evident as early as 22 months and widens. In English, schools with under 8 per cent. of pupils eligible for free school meals see nearly 81 per cent. of their pupils achieve the expected level at key stage 3. The equivalent figure for schools with over 50 per cent. of disadvantaged pupils is 39per cent. Later, it states that the stubborn link between social class and educational achievement persists. 70 per cent. of children whose parents are in unskilled occupations fail to achieve five good GCSEs, compared to 31 per cent. of children whose parents are from professional or managerial occupations. Those quotes are apt descriptions of Wigan, and they are apt descriptions of many towns and boroughs in the north-west, the north-east and the midlands, where heavy industries have declined or vanished. But they could equally describe towns in the south-east, the south-west and London. This is not some sterile and divisive debate about town versus country or north versus south; it is about trying to make sure that we eradicate deprivation throughout the country and achieve a fair society for all our children.

Wigan has high levels of deprivation; 90 per cent. of its wards are included in the 20 per cent. most deprived in the country. We have low staying-on rates for pupils moving into further education. Crucially, we have had low levels of funding over many years under the existing standard spending assessment formula. The council and the local education authority have not used that as an excuse for poor performance. They have risen to the challenge, managing to produce better results than the socio-economic make-up of the borough would lead one to expect. The council has intervened successfully where schools have been seen to be failing, such as Kingsdown high school where support from the LEA, other schools and the council has resulted in a 400 per cent. improvement in just two years in its GCSE results. It is small wonder that the authority achieved a three-star rating from Ofsted.

The solutions to such deprivation that are proposed in the consultation paper are all detrimental to Wigan, and to the north-west as a whole. How can one of the most deprived boroughs, which already spends £6 million more on education than the current SSA level to correct the faults inherent in that system, be deemed to be in need of less? It is bizarre, and it is perverse. The application of a simple "reality test" would have shown that each of the options failed to achieve the targets that the Government had set out to achieve, and therefore contained fundamental flaws.

We need to be absolutely certain that the proportions within the overall additional educational needs block accurately reflect the need to spend on those elements, and I would hope that serious questions will be asked about that and the possible consequences of getting it wrong. More specifically, I believe that that there are three areas where changes need to be made if we are to get a positive result to the application of that reality test.

First, we need a broader and more accurate definition of deprivation. The use of income support and working families tax credit alone does not pick up many of those in need. The Department for Work and Pensions investigations indicate that there are large regional variations in those claiming income support, as those on incapacity benefit and disability living allowance do not claim that benefit. The DWP basket of key benefits—including jobseeker's allowance, incapacity benefit, disability living allowance and severe disablement allowance—has a 95 per cent. correlation with child poverty, a much higher correlation than any other measure. The use of that as the basis—or a measure of the economically inactive—will pass the "reality test", as it will achieve what the Government set out to achieve.

Secondly, a radical rethink of the area cost adjustment is needed. Nobody doubts that there is an extra cost involved in employing people in certain parts of the country, or denies that those authorities need additional money to reflect that extra cost. The proposal in the initial consultation to use house prices would be wholly wrong; they are far too volatile and, in any event, people do not pay mortgage on the increase in value of their property. More importantly, fuelling the demand side of the equation without tackling the supply side merely adds to price increases, thereby leading to demands for more ACA money; and so the spiral goes on and up. Surely it would be more effective to use public and private sector pay, capped at the public service level, to ensure that the area cost adjustment bore much more relation to the amount required by the authorities, so satisfying the reality test better.

Thirdly, we need to factor in an element that affects the current lack of adult literacy and numeracy skills. I know the argument against this—that we need to have a measure of the problems of the children, not those of the parents—but that is an academic, angels-on-a-pinhead type of argument. Of course, there are children from working-class backgrounds who manage to break out and go to universities—many of my hon. Friends have done so—but we should remember what the "Investment for Reform" document said about the link between social class and lack of educational achievement. It can be broken, but in most cases it is not.

The child from a home that is without books because the parents have weak literacy skills will always be at a disadvantage. We should set aside the intellectual argument and recognise the reality of life in many homes. Far too often, teachers have to start from scratch with children from such backgrounds and despite their best endeavours they never catch up. If the formula does not recognise that simple, self-evident fact, so well described by the Department for Education and Skills document, we will not achieve our objective of closing that great class divide.

The current options fail to deliver what the Government want. If the specific changes that I have outlined were incorporated—widening the definition of deprivation, ensuring the ACA properly reflects real costs, and recognising that parents with poor literacy skills will have children with poor literacy skills—we would give local authorities a fairer distribution and allow them to tackle the problems of despair, crime, and lack of ambition and opportunity that come from deprivation.

1.41 pm

Mr. Michael Portillo (Kensington and Chelsea)

I join the hon. Member for Denton and Reddish (Andrew Bennett) and my hon. Friend the Member for Mole Valley (Sir P. Beresford) in saying that I think the Minister of State is very brave to search for a simpler and fairer system, albeit one that is not very wise and unlikely to be successful. As one who once held the same office, may I say that I hope he emerges from the process without being suspected of being merely partisan?

Today, however, I wish to make a narrower speech on behalf of my constituency, including the Royal Borough of Kensington and Chelsea, which I share with the hon. Member for Regent's Park and Kensington, North (Ms Buck), who is in her place. No authority is more at risk from the Government's proposals. The Government's review puts 20 per cent. of the royal borough's grant funding at risk. In all, £39 million is at stake, which is the equivalent of 70 per cent. on the council tax or cuts in services.

For that reason, I have pressed the Minister of State on the question of floors and ceilings. He has said clearly that the floor will apply without any compensation for inflation for the first year. However, while there will be floors and ceilings in subsequent years, there are no guarantees about the level at which they will operate. One can expect a transition from the present position to the new position at a considerably higher rate than the effect of inflation year to year. That is why it is right for us to say how much is at stake and express our anxieties, and to refuse to take any great reassurance from what the Minister of State has told us so far.

The Royal Borough of Kensington and Chelsea has lost £13 million from its grant entitlement over the past two years thanks to the operation of a ceiling that is already in place. I thought that it would be right for the Minister of State to discuss that matter with me, as a Member of Parliament who represents a borough that has been greatly disadvantaged. I am sorry indeed that it is the Minister of State's policy not to discuss those questions with Members of Parliament. When I held his office, that was regarded as one of the most basic courtesies. It was my principle—widely shared among those in the Government—that if Ministers were doing things that made life very difficult for our citizens, they had a duty to listen to the likely results of the policy. I learned much from that process, and the Minister of State would learn much if he followed that practice—not least, better inter-personal skills than he at present possesses.

Mr. Adrian Bailey (West Bromwich, West)

Will the right hon. Gentleman in give way?

Mr. Portillo

No, because I only have eight minutes. Otherwise I would love to do so.

My borough has received some huge accolades with which I am delighted, and I pay tribute to all those who have worked so hard to achieve them. For example, the Ofsted report on Kensington and Chelsea's education system said that the borough spends a lot of money very effectively. The hon. Member for Denton and Reddish thought that some areas might use standard spending assessment money to reduce council tax, but we do not: we use the money to improve education.

The problems in central London are very difficult. Of our primary school teachers, 32 per cent.—very nearly one third—move on each academic year. That is not because we are a poor education authority. We are doing well, but mobility among teachers remains very high. That definitely needs to be recognised.

The hon. Member for Bath (Mr. Foster) mentioned the need to recognise the number of languages spoken in schools. In Kensington and Chelsea's schools, 97 different languages are spoken, 46 per cent. of pupils have English as a second language, and 35 per cent. of pupils are entitled to free school meals. We must maintain measures of our school population that relate to that population and which are not broader measures of economic deprivation. We need to focus on the schoolchildren themselves, and on the difficulties that they face. Pupil mobility in some of the borough's schools is as high as 40 per cent. That problem has been recognised by Ofsted, and should be covered by any future formula.

Kensington and Chelsea has the highest population density in England, and the borough receives 32 million visitors annually. There is a net inflow of 35,000 commuters a day, which places high demands on our services. For example, given its population, the borough has six times the usual amount of non-household rubbish, and traffic congestion makes rubbish collection much more expensive. The borough receives almost six times the normal number of noise complaints, because people live side by side with businesses.

The borough's social services gained a three-star assessment, a success achieved by only seven other local authorities in the country. Moreover, the borough was said to be serving people well, and to have excellent prospects for the future. Only two authorities in the country received that accolade. In other words, the borough is performing well, and using its resources well. It has been successful, and I echo the sentiment, expressed earlier by the hon. Member for Bath, that success should be reinforced and not penalised. However, despite the borough's successes, the Government's options could cause it to lose up to £19 million for environmental protective and cultural services, £8 million for social services, and £3 million for education.

I shall close by saying that those problems could be dwarfed by the difficulties that arose with the census—a matter raised at business questions by the hon. Member for Manchester, Blackley (Mr. Stringer). There were extraordinary problems with this year's census. I consider them to be palpable errors, and believe that they will feed through into cuts in services for the borough's population.

I shall quote from a letter about the census written by the hon. Member for Regent's Park and Kensington, North to Mr. Len Cook at the Office for National Statistics. The hon. Lady states: Given the extremely poor performance of the census enumeration process in my constituency, I was not in the least surprised that the returns were so low. In Kensington and Chelsea, the response rate was only 64 per cent. The error rate was nearly 5 per cent., and 31,000 inhabitants disappeared from the total suggested by the recent mid-year estimates. That is simply preposterous.

In her letter, the hon. Member for Regent's Park and Kensington, North went on to ask: Why would the Mid-Year estimates be accurate in Hackney, for example, but not in Westminster, Kensington and a few other areas, unless the root of the problem is the absurdly low initial contact rate, leading to an impossible challenge for the imputation process? I entirely agree with that. There has been an extraordinary amount of difficulty with what the Government propose in their formula changes. That has been compounded by what appear to be very substantial errors, which can only be put right with great difficulty, in the census enumeration process.

1.49 pm

Mrs. Janet Dean (Burton)

I welcome the Government's commitment to reviewing the local government funding formula, but I recognise that it will be difficult to achieve a solution that will satisfy a majority of authorities. Nevertheless, it is vitally important to use the one-off opportunity presented by the increased amount of finance available for local government to address the problems inherent in the current SSA system.

As a Staffordshire Member of Parliament who was previously a county and borough councillor, I know that there have been grave concerns about the relatively poor funding in Staffordshire for many years. Those concerns are not about education funding alone, but it is the perceived unfairness in the amount of money available for educating our children that has so outraged parents, governors and teachers in areas such as Staffordshire. That unfairness was clearly demonstrated by one head teacher in my constituency who, in response to the recent consultation, said: Until a year ago, I was a headteacher in a similar size comprehensive school in Sutton Coldfield and received £500.000 more per year than I do in Staffordshire. Neither parents and teachers in Staffordshire nor I understand the reason for that difference in funding. We do not accept that there should be such a large gap between the amount of money available to educate our children in Staffordshire and that in some other authorities.

Along with the dozens of my constituents who have responded to the consultation, I support the option 5 proposal put forward by f40. I pay tribute to my colleague from Staffordshire, my hon. Friend the Member for Stafford (Mr. Kidney) for the work that he has done in this respect. Of the four options put forward in the consultation document, only option 2 begins to address fair funding. The other three options would leave Staffordshire worse off.

Sir Patrick Cormack (South Staffordshire)

I am extremely grateful to the hon. Lady for giving way—of course, there is a little injury time. I should like to underline her comments regarding the tribute to our colleague the hon. Member for Stafford (Mr. Kidney) and the widespread feeling throughout Staffordshire, which crosses all party boundaries.

Mrs. Dean

I thank the hon. Gentleman.

On the specific points in the consultation, I believe that it is right that working families tax credit or its replacement should be used to recognise deprivation, not just in the education funding formula but in areas such as social services and EPCS. With the drive to get people into work, it is logical to use the working families tax credit as a measure of need to reflect the fact that those on low incomes have similar requirements to those who are unemployed.

With regard to the area cost adjustment, I support Staffordshire county council's view that to base the education area cost adjustment on house price variations would not accurately reflect increased living costs. It would also be unwise to base any adjustments on such a variable factor. Although I support ACA2, I am disappointed that all the options for the area cost adjustment are based on the general labour market theory. I believe that it would be better to recognise the average wages in the public sector, especially since large groups of local authority employees such as teachers, police officers and firefighters are on national pay scales. It has been said that it is difficult to use specific costs because of the difficulties for some authorities in recruiting and retaining staff. However, it should be recognised that the wage bills in authorities such as Staffordshire can be high because of the low turnover of staff. Some 72 per cent. of classroom teachers in Staffordshire are on the top of the main scale or have progressed through the upper pay spine.

The disadvantages faced by Staffordshire schools are demonstrated by the authority's pupil-teacher ratios. The average figure in primary schools in Staffordshire is 23.2, compared with 22.5 for England. Secondary schools are similarly disadvantaged, with pupil-teacher ratios of 17.3 compared with 16.9 for England.

I have grave concerns about the proposals for resource equalisation if the result is to reward authorities which have traditionally been high spenders and which have spent above the standard spending assessment. Others, such as Staffordshire, which have stuck to the rules in the past should not be penalised. We should be looking at need rather than historical spend.

I cannot overstate the strength of feeling in Staffordshire, particularly with regard to education funding. Many parents recognise the extra funding for schools; indeed, it is important to recognise that the above-inflation increases that we have received in recent years are reflected in improvements in our classrooms. Between 1992 and 1995, Staffordshire's teaching force fell by about 5 per cent., while pupil numbers rose by about 4.7 per cent. That situation was completely reversed between 1999 and 2002, with pupil numbers falling by 0.8 per cent., while teaching staff increased by 4.1 per cent. However, the gap between other shire counties in the south-east and authorities such as Staffordshire remains totally unacceptable. I hope that the strength of the arguments made by the f40 group, the northern alliance and authorities such as Staffordshire will be recognised and acted upon by Ministers.

Briefly, on the options for change for other services, I support the response of Staffordshire county council to the consultation regarding social services, fire and highway maintenance, as well as option 3 for EPCS, which is supported by both the county council and East Staffordshire borough council.

There is concern in Staffordshire that the great strides that have been made in recent months in improving policing may be jeopardised by several of the options put forward. Staffordshire police authority could lose more than £5 million in the worst-case scenario. While I recognise that any changes to the formula would be phased in, I hope that Staffordshire is not disadvantaged by a new formula. Therefore, I support police formula 1 and believe that the sparcity component weight should be increased to at least 1.4 per cent. to avoid losses to rural police authorities with the incorporation of the rural police fund into the main formula.

I hope that in their forthcoming consideration of the representations that have been made to them, Ministers will take into account the concerns of residents of Staffordshire.

1.56 pm

Sir George Young (North-West Hampshire)

Many of the contributions to this debate will understandably focus on the problems of individual constituencies, as we have heard from the hon. Member for Burton (Mrs. Dean) and my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo). I will make some generic points that, I hope, have a wider application, illustrating them by reference to the impact on Hampshire, which will be deeply unpalatable. I see that my hon. Friends the Members for Aldershot (Mr. Howarth) and for Gosport (Mr. Viggers) are in their places.

My first point concerns the council tax. In the past 10 years, there has been a consensus that that tax is an acceptable way to fund local government. A similar consensus used to exist in relation to rates, but it evaporated when too much weight was put on them, and there was never any consensus for their successor. The council tax is rather like the rates—it is bridge with a weight limit. It can cope with a certain volume of traffic, but when some of the loads get big it begins to crumble. Although people accept that the council tax is fair at the moment, it is a regressive tax. People on lower incomes pay a far higher share of what they earn than the better off, and the relationship between ability to pay and the value of the property in which one lives is imperfect. That does not matter as long as the sums involved are relatively small and there is broad confidence in the revenue support grant, but if these changes bring about major increases in the council tax in many parts of the country, and those changes are perceived to be unfair, the Government may find themselves confronted with a much wider debate. The genie may be out of the bottle and the consensus broken. The Government will then have to find a new way to fund local government.

Secondly, the Government have made it clear that they have a commitment to drive up standards in public service, particularly in education, but the impact of the more radical proposals for redistribution would make a nonsense of the Government's ambition not only in my Hampshire constituency but across huge swathes of the south-east. What the Chancellor bestoweth in his Budget, the Deputy Prime Minister taketh away in the revenue support grant settlement. Hampshire could be £80 million worse off, which is the equivalent of two teachers in every school. There is no way that Hampshire can invest in education and social services as the Government want if its financial foundations are eroded in that way. The Budget speech and the comprehensive spending review would be exposed as empty rhetoric.

Thirdly, it is not only the Deputy Prime Minister who plans to redistribute resources away from my constituency. The Secretary of State for Health is doing exactly the same. For every £100 spent by the NHS on the average constituent, my constituents get £83. The areas that stand to lose under these proposals are the same ones—all around London—where health trusts are struggling to balance their books. That means that in the key sector of community care where social services and the NHS meet, both are looking for economies. Health and education, the Government's top priorities, face a grim outlook in Hampshire and elsewhere.

Fourthly, what is proposed in the consultation document is a sensational redistribution of resources with the minimum of scrutiny and debate. The RSG is larger than the budget of many Departments and, indeed, larger than the budget of some countries. By changing the formula and presenting some of the changes as technical adjustments, a major and ill-targeted redistribution of wealth is taking place on the basis of the slenderest of intellectual justifications.

More than £304 million is being taken from a group of people who happen to live in one part of the country and given to a group who happen to live in another. Furthermore, that second group already lives in areas where spending levels are way above average. Public spending per head in the north-east of England is £1,148 more than in Hampshire. A Hampshire teacher will contribute towards 47 per cent. of the county council budget whereas a teacher in Durham will contribute towards 20 to 25 per cent. That is a geographical stealth tax.

Fifthly, the proposals will exacerbate the problems of public sector recruitment in the south-east, where it is essential to meet the Government's targets. Local authorities will be unable to afford competitive wages for the staff they need, in areas where it is already difficult to recruit, and the public servants who are recruited, who already face high housing costs, will have to pay higher council tax bills. Yes, deprivation is one side of the coin and must be recognised, but the cost of service delivery is the other side and should have equal recognition if we are to have a fair system.

Chris Grayling (Epsom and Ewell)

Will my right hon. Friend give way?

Sir George Young

Briefly—there is a cap on my speech.

Chris Grayling

I am sure that head teachers in my right hon. Friend's constituency will share the concern of the head teacher in my constituency who wrote to me this morning. She told me that substantial council tax increases would have a "disastrous effect" on standards and morale and would make a difficult recruitment situation much worse. I suspect those sentiments are shared by people throughout the home counties.

Sir George Young

Indeed. Teachers in many constituencies could have written that letter.

Sixthly, the implications for police authorities have not been mentioned much in the debate but they will have a serious impact in Hampshire. We could lose £10.4 million, which would mean a tax increase of about 22 per cent. to compensate. That would make a mockery of the Home Secretary's ambitions on the law and order front. The chairman of the police authority wrote to me: There would be little or no chance of any increase in the provision of the policing service across the two counties"— Hampshire and the Isle of Wight— next year…We fear that this will reverse many of the initiatives funded from the crime fighting fund and the rural policing fund. I should like the Minister to answer this question: whichever option is chosen, does he expect Hampshire to put up council tax to compensate for the loss of grant entitlement, or does he expect the authority to hold the increase to 6.2 per cent. and cut services?

May I make some helpful suggestions? First, the Government should validate current spending where the SSA is unrealistic—as in social services where everyone agrees that it is inaccurate. Secondly, they should fund the extra area cost adjustment from Government funds, instead of making the home counties pay for it. Thirdly, as far as possible, they should allocate grant by examining basic entitlements to standard services, instead of tweaking the formula with a whole lot of subjective judgments. Fourthly, they should remove the double counting of deprivation. Finally and crucially, they should leave the system as it is and reconsider it during the next year.

In conclusion, I have deep sympathy for any Labour candidate for a Hampshire seat at next year's local elections or at a more distant general election. These proposals are a serious mistake, which the Government may live to regret.

2.4 pm

Mr. Paul Truswell (Pudsey)

I have listened with great interest to some of the contributions from Opposition Members, but the message that should come from the review is "The party's over." For those of us looking from the north at the current system it seemed that its architects, the previous Conservative Government, had told their civil servants, "Here are the results, now go away and come up with the formulas." That gerrymandering jamboree has been paid for, in my area of Leeds, with higher council taxes and fewer services.

It is tempting to cherry-pick the options in the consultation paper for the benefit of one's own authority. Leeds has resisted that temptation and has thrown its weight behind the proposals made by SIGOMA—the special interest group of municipal authorities outside London. Those proposals do not maximise the advantages for Leeds, but they are based on a sustainable series of arguments. The concern in Leeds is that it could gain about £12 million —a mere £18 per head in the best-case scenario—but lose up to £18 million in the worst.

The SSA system has long been riddled with flaws and anomalies. For example, we in Leeds find it amazing that some London authorities receive up to £2,000 more in education SSA per pupil than we do, yet Leeds has seven of the most deprived wards in the country. Indeed, its SSA is currently £79 per head less than the average for its class of authority.

SIGOMA has produced some cogent proposals and responses to the consultation paper and has made some sound arguments about how the system should he changed., and I wish to speak in favour of them.

On education, Leeds welcomes the proposal for unmet as well as met need to be included in the calculation. We certainly share SIGOMA's regret at the lack of a more sophisticated measurement of need, and support the arguments in favour of including the index of multiple deprivation.

On social services, large increases in SSAs were promised in the 2002 spending review, but unfortunately, under the consultation document, the benefit will be largely lost to Leeds. The Government will be only too aware that an increasing number of care homes in many areas—Leeds is a perfect example—are closing clown because of insufficient income, putting massive additional pressure on local authority services and finances. That, coupled with the Government's proposal to penalise local authorities in connection with bed blocking, puts local authorities in an increasingly difficult position. It is crucial, therefore, that the Government address that issue and do not simply give with one hand and take with the other.

There are other anomalies. For example, the present formula uses the proportion of children living in flats as a good measure of deprivation in working out social services SSA, but that indicator gives implausibly large sums of money to authorities in London. In fact, it gives Westminster £206 for every child but Leeds a mere £9 a child. Where is the factor that takes account of the large number of back-to-back and terraced homes in Leeds? It simply does not exist.

On highways maintenance, the Government have 10-year plan targets to halt the deterioration in the condition of the roads by 2004, and to eliminate the maintenance backlog by the end of 2010. The resources available to authorities such as Leeds are insufficient to deal with the backlog of road maintenance. I am afraid to tell my hon. Friend the Minister that the consultation proposals will simply deepen the problem and the potholes. The new formula clearly needs to reflect population density. The cost of maintaining a densely populated area is demonstrably greater than the general cost of maintaining urban areas and is totally independent of traffic volume. SIGOMA, backed by Leeds, also believes that the threshold on traffic flows should be retained. Heavy vehicles clearly cause the greatest damage, and the more there are, the greater the damage.

The Government's fixed costs option—top slicing £300,000 for the cost of simply being in business and allocating that sum across the board to local authorities—is simply unjust and unfair. Unless the mechanisms by which it is calculated can be rationally weighted, the idea should be rejected outright.

Resource equalisation is another crucial element of the debate from the Leeds and SIGOMA point of view. The gap between local authority current needs assessment—SSA—and actual spending amounts to £3 billion, which has to be met locally from council tax. This year, Leeds will spend more than £10 million above SSA on education and £18 million more on social services.

We therefore support the measures required to introduce some equalisation into the system. We believe that the most appropriate way of updating is by using a fixed percentage increase to eliminate the gap between notional spending and actual spending. That is reflected in the consultation document's first resource equalisation option—RE1. However, specific funding is needed from outside the system to achieve fair equalisation; it cannot be achieved with the existing elements.

A number of colleagues have mentioned the area cost adjustment. That probably represents the single greatest cause of injustice and anger in the present system. [HON. MEMBERS: "Hear, hear."] ACA—I am sure that this message will come from everyone, except perhaps the authorities that currently benefit from the system—needs to be clearly linked to real circumstances experienced by real local authorities living in the real world. It cannot continue to be based on a convenient mythology, which is the hallmark of the present system. It is extremely disappointing that such an option has not been included in the consultation document.

The ACA factor has been demonstrated through research to overcompensate authorities in terms of actual costs. Additional resources, despite protestations across the House, have been used to keep council tax down rather than to meet needs and improve services. Any new ACA option should take account of wage pressures not only in the south-east but on a regional basis. In addition, the present approach makes far too many assumptions about the impact of private or general market pay levels on what local authorities have to pay.

Options that include only private sector pay information are totally implausible and unacceptable. It is patently absurd that the calculations should include all private sector pay up to the highest level. There must be a rational cap. London councils are not in a market competing for the services of people like the Governor of the Bank of England, Knightsbridge grocers, millionaire novelists, whether in or out of prison, or even novelists who are in or out of bed with certain people.

In conclusion, the message must be that the party is over. It is time to call it a day on a system that has cheated so many people and authorities for so long.

2.12 pm

Mr. John Burnett (Torridge and West Devon)

I join other Members who paid tribute to the hon. Member for Stafford (Mr. Kidney) for his sterling work on the f40 group. I commend to the Minister, if I can catch his eye, a work entitled "The Fiscal Crisis in the United Kingdom" by Professor Iain McLean and Alistair McMillan of Nuffield college, Oxford. It is an independent and extremely well-researched paper. It shows conclusively how badly the west country is treated in the apportionment of Government investment within the United Kingdom. I endorse, also, the comments made by the hon. Member for Wigan (Mr. Turner) on area cost adjustment and by the hon. Member for Burton (Mrs. Dean) on the matter of resource equalisation.

On 15 October we had an Adjournment debate on option 5 funding for Devon. We put forward the points raised by the f40 group. The Minister for School Standards, set out the additional expenditure that Devon and other local authorities have received. I recognise that. It is quite apparent in my constitutency, especially capital expenditure on the fabric of school buildings. Yes, there have been significant improvements. After 30 years of neglect our school buildings are getting better and there has been additional expenditure on education. However, I remind the Minister that Devon is one of the few local authorities with an expanding population. The funding review of local government finance is the most important for over a decade. It is of critical importance to the services that Devon county council provides, to the council tax payers of Devon and to the buoyancy of the Devon economy.

In the time available I want to cover some of the major points. On education funding, as the hon. Member for Totnes (Mr. Steen) said in his Adjournment debate, we in Devon receive about £195 per pupil per year less than the national average. Devon county council has to spend about £19 million a year on school transport. Effectively all four of the options in the Government paper leave us substantially worse off. We end up worse off than we are now.

There is a huge head of steam building up in Devon on this matter. I, like most other Devon Members, have received more letters from constituents on this than on any other matter. On 16 July I and other Devon Members took a delegation of head teachers, governors and others to 10 Downing street to present a petition to the Prime Minister. He listened to our points. I and hundreds of thousands of people in Devon hope that he acts on the evidence that we presented.

We support option 5 which is being proposed by the f40 group. There is a powerful all-party consensus of a great many Members who are promoting this option. I believe some 200 Members are behind it. In a nutshell we want, first, to maximise the amount per pupil. Secondly, if the formula is to provide for deprivation, not just for education, but also for other services, working families tax credit should be included as a measure, as well as income support. The Government have indicated that they are predisposed to allow this change. The case is compelling. Working families tax credit in conjunction with income support is a far better measure of deprivation and should be used throughout the formula. Income support measures unemployment. Working families tax credit measures those on low pay. Deprivation affects those on low pay as well as the unemployed.

Mr. Hugo Swire (East Devon)

Is it worth pointing out that average wages in Devon are 20 per cent. below national average?

Mr. Burnett

That is an extremely good point and the hon. Gentleman will not be surprised to know that I am going to make it. Low pay in Devon arises from seasonal work and poorly paid employment.

The use of working families tax credit within the grant distribution formula reinforces the Government's objectives of getting people into work and supporting those on low pay. The inclusion of working families tax credit also reflects the fact that low-income families are likely to have similar needs to those of the unemployed. Therefore, local authorities with a high number of working families tax credit claimants will have increased levels of deprivation.

In addition, there is the crucial matter of school transport and sparsity. A substantial amount of Devon county council's budget is devoted to school transport. In the schools block, which is over 80 per cent. of the education block, there is provision for primary school transport. I can assure the Minister that that is simply not enough. The vast majority of those travelling to secondary schools in my constituency and others qualify for school transport. That must be recognised in the formula. I see a great many heads nodding. I am delighted that there is a large degree of consensus.

Any changes in the distribution mechanism for social services must be seen in the context of the inadequacy of the quantum of resources available for those services. The Local Government Association and the Association of Directors of Social Services consistently state that nationally authorities are annually budgeting some £1 billion above social services standard spending assessments. As the Minister knows, many parts of the budget are demand led. Devon county council spends more than 10 per cent. above the social services standard spending assessments. Devon has two major concerns regarding the social services formula. Because of the concern about continuing reliance on past spending levels within the younger adults formula, we would welcome a separate formula for mental health within the younger adults sub-block. Secondly, we acknowledge that the distinction between residential and domiciliary care is becoming very blurred. That would point to the need for a combined formula in future. Devon has campaigned for several years for a total resident population rather than a household population to be used as the client group, and for a degree of weight to be given to sparsity in domiciliary care cases.

On police funding, the police options in the consultation paper show Devon and Cornwall losing some £2.1 million to £5.3 million. To give an example, £5 million is equivalent to 12 per cent. of our entire council tax receipts or the cost of 200 police officers—

Madam Deputy Speaker

Order. I call the hon. Member for Stafford (Mr. Kidney).

2.20 pm

Mr. David Kidney (Stafford)

There is a keen interest in this subject around the House and among the public and councillors in our English constituencies, for very good reasons. First, local government is responsible for a quarter of all public spending. Secondly, we have waited 10 years for this change, and people reasonably fear that this will be a once-in-a-decade operation, so they are anxious to have their say now. Thirdly, local government depends on money that comes from the Government for 75 per cent. of its spending, so this is a vital subject.

I am a friend of the Government, and I want to point out that some of the criticisms of their position are unfair. First, on the criticism that there has not been enough effort to try to change the existing system, in 1997, the first year of the Labour Government, there were 35 changes to the existing formulae. What we found, however, was that the system was so complex that to change one piece in one place had unexpected consequences in other places. The Government therefore concluded that a totally new system was needed, and I approve of that decision. The Government then gave local government the opportunity to agree that new system—what could be better than a system to which everybody agrees and signs up? Because of the all the vested interests, which we are rehearsing today, it was not possible for those authorities to agree that system. When they complain about the effect of the new system on their finances, I hope that the Deputy Prime Minister asks them what their position was when they had the opportunity to agree the system for themselves.

The Government also deserve credit for the extra funding that they have put into local government overall. I give special praise to the decision by the Chancellor of the Exchequer and the then Secretary of State for Education to introduce flat-rate payments to every school in the country in response to our complaints about the unfairness of the distribution system. As has already been mentioned, the Government deserve credit, too, for the thoroughly open way in which the process has proceeded—the Green Paper, the consultation document, the seminars for Members, and the meetings and delegations that have been seen.

The Government hope that the new approach will be simpler, easier to understand and easier to explain, of which we all approve. When we see the possible consequences for our local authority, however, we find a credible measure that we would like to insert into that simple system to benefit our area. People put up many different arguments, which was a fault of the previous system—It was overloaded with credible but partial systems that bent it to suit different authorities' areas, which made it complex and difficult to understand. The Government must therefore be brave, resist all those blandishments and arguments and keep the system simple.

Of course, the new approach will not be an objective exercise that speaks for itself. The Government will make political decisions. They will decide where to draw the line between basic amounts and top-ups. They will decide what measures to use for the top-ups. They will even decide what evidence to use for those measures. We must recognise that those political decisions are the ones that we want to influence as Members of Parliament.

Some overarching aspects of the new system need to be pointed out because of their effect on the whole, such as the promise of no losers and the system of floors and ceilings. Between them, their operation means that there is significant loss of room for manoeuvre in the overall settlement. Nevertheless, it is a fair attempt to provide stability and security for those who worry about losing grant.

The next overarching issue that is worrying for areas such as mine in Staffordshire is the operation of area cost adjustment in the new system, and the proposal for resource equalisation, both of which threaten to overwhelm completely all the good work done for individual formulae for the service blocks. The final issue is the modern expansion by a Labour Government of the use of special grants and specific grants, all of which will be taken out of the money that is available through the system to distribute to local authorities equally.

I do not have much longer to speak, but I want to mention briefly the f40 campaign, with which I have been associated. First, the campaign relates only to education funding, but we are debating the whole of local government finance, which is an important distinction to draw. The campaign grew out of a collection of only seven or eight shire counties that, under the present system, constantly found themselves at the bottom of the funding league table, year after year. They wanted change, and they argued for it, but nobody listened because they did not have a big enough influence. A strategic decision was therefore taken that drawing a line at the bottom 40 authorities in the lowest-funded league table would provide some clout. The good thing about f40 authorities is that they represent all parts of the country, all kinds of councils—shires, metropolitans and unitaries—and all kinds of political control. The campaign therefore has a sensible balance. I hope that we are able to persuade the Government to listen to our non-partisan view—I admit that we come from a particular position, but it is the one at the bottom of the pile.

As for Staffordshire—and the reason why I feel so strongly about this subject—we are poorly funded. This year, the local education authority was inspected jointly by Ofsted and the Audit Commission. First, they found that our education attainment is at or above the national level, which is a tremendous tribute to the hard work of the teachers, governors, school staff, parents and the students themselves. They also found, however, that we are funded at a level that is 12 per cent. below the average for local authorities, which, given what we have achieved, is an incredible amount. We are 33rd out of 34 English shire counties in the funding table, the local authority spends above its SSA to try to compensate, and we are not eligible for major funding streams such as excellence in cities and education action zones.

My recent experiences demonstrate why I feel so strongly: a first school has asked two experienced teachers to leave because it cannot afford their salaries; an Ofsted report told me that a primary school had to choose between office staff and a special educational needs co-ordinator; and a high school had to ask four teachers to leave because the budget did not add up at the end of the financial year. Politically, I find that, whatever the good news about educational achievement or funding—I would hope that a Labour Government would be interested in this point—whenever I mention it, everyone says, "Yes, but what about the unfair funding system?" All the good news is lost to the area.

F40 supports option 5 because we thought that the Government were interested in closing the league table gap between the best-funded authority and the lowest-funded authority, and option 5 seeks to do that. I want a system that has the maximum proportion in the basic amounts and the least possible in the top-ups. I want the top-ups to be based as closely as possible on actual additional costs presently incurred. I want no major distortion of the new settlement by wholesale resource equalisation. I want a closing of the gap between the best and worst funded authorities. Finally, I want a reduction in the use of special and specific grants to pay for improving the finances of the lowest-funded authorities while keeping the Government's commitment to no losers and a fair system of floors and ceilings.

2.28 pm

Mr. Patrick McLoughlin (West Derbyshire)

It is a pleasure to follow the hon. Member for Stafford (Mr. Kidney). I shall make some of the points that he has made in my own way.

One of the problems that the Government have found, whether they like it or not, is the build-up of the expectation—for which they are responsible—that once the new system was introduced everybody would be satisfied and happy. As we have found today, however, several concerns exist about the options that the Government have put forward in their consultation proposals. The expectation has been building up over five and a half years; in fact, it has been building up for longer. As the hon. Member for Stafford said, the original eight local authorities, which called themselves a G8, have grown into the f40 campaign. I shall comment further on that later.

I regret that we find ourselves today with very little time to debate something that will probably be in place for the next 10 years. We are talking about 25 per cent. of public expenditure and putting into operation the framework for local services for some years to come. It is a great pity that many of the people who want to speak today will not be able to do so because of the time allocated.

Sir Patrick Cormack

It should have been a two-day debate.

Mr. McLoughlin

As my hon. Friend says, a subject of this magnitude warrants not a four-hour debate on a Thursday afternoon but a full two-day debate.

I have heard people speak about the way in which local authority expenditure has been vastly increased, but the Government placed on Derbyshire county council the lowest cap on a local authority in the history of capping. Therefore, it is with a sense of irony that I listen to other people's perceptions of the changes made to local government.

There is no doubt that the system has become far too complex, with far too many grants dependent on local councils meeting Government targets and on the will and wish of Ministers. That is not perceived to be fair and we desperately need a system that is so perceived. I would be the first to accept that the system has fallen into serious disrepute. For example, when I was a member of the governing party, I never felt able to explain fully to my constituents the logic behind, and the fairness of, area cost adjustments. I am not sure that the new system will be that much easier for us to understand. Indeed, the former Secretary of State for Education and Skills, when speaking in Derbyshire, described the system as "indefensible". If it was indefensible, one wonders why the Government have taken five and half years to come up with new proposals and are now rushing us in this way. Time is short.

I have heard the cries from the Liberal Democrats and others that we should delay the proposed changes for a year. I am not sure that that would be the best approach. It would certainly lead to much disappointment. For example, in Derbyshire in September 2001, the National Union of Schoolmasters/Union of Women Teachers said: We were hopeful that the issue of Fair Funding was finally to be addressed by the present Government. We had hopes of a settlement at least bringing Derbyshire up to a median figure for this current academic year. We were disappointed that this did not happen and that we were to be left further behind again this year. We remained hopeful though that the issue would at last be tackled for April 2002. We are now angered to learn that yet again there is to be a delay in implementing the policy—until at least April 2003—with no obvious valid reasons given for the delay. A further delay, as asked for by the Liberal Democrats, would not go down well in my constituency and in my county, and that is probably true elsewhere.

The Government have introduced four options, but allowed for a truncated period of consultation. To start consultation on education funding on 9 July and to end it on 31 December does not provide people with a great opportunity to participate fully in the consultation exercise. That might have been what was in the Government's mind.

I should like there to be a far greater shift of resources into the basic pupil allowance. That is what the f40 campaign wants, so that educational funding can be understandable and transparent. I agree with much of what the hon. Member for Denton and Reddish (Andrew Bennett) said about local authority funding. Local authorities provide such a huge service that our constituents have a right to know, and to see, that they are treated fairly by the Government.

As the hon. Member for Stafford rightly said, the f40 group is a large organisation that has considered all the options for education. I accept that it has considered only education and that, when the Government make their recommendations, they will have to consider the whole sphere of services for local authorities. However, f40 has come up with option 5, which has a great deal of support in my constituency. I should like to be able to tell my constituents that the Government have addressed what was a difficult formula to understand and that the new formula can be easily understood. That would mean that there would be no excuse for services that we look to local authorities to provide not being provided.

We need a much greater shift of resources into the basic allowance per pupil and a move away from the system calculated according to additional education needs. As the hon. Member for Denton and Reddish said, elements of the proposals are so awful to local authorities such as Derbyshire, which would lose under some of them, that I am pretty sure the Government came up with them on the basis that they would draw back from the worst of them and that everyone would be relieved as a result. However, if the changes are to result in long-term benefits for local government and in increased understanding by our constituents, the more transparent the system, the better.

2.35 pm

Paul Farrelly (Newcastle-under-Lyme)

Given your former constituency, Madam Deputy Speaker, and the contributions of my hon. Friend the Member for Stafford (Mr. Kidney) and the hon. Member for South Staffordshire (Sir P. Cormack), I hope that the House does not feel that a Staffordshire mafia is in operation.

Like everyone else and on behalf of my constituents in Newcastle-under-Lyme, I welcome Ministers' commitments that no area will lose out from the review. I agree with my hon. Friend the Member for Stafford that we should give praise where it is clearly due. The Government have been able to make the commitment because of the Chancellor of the Exchequer's generous spending review this year.

In Staffordshire, we have no quibble with the extra resources that the Government have put into education and vital public services. We have no quibble with the extra ring-fenced resources that the Government are targeting where need is greatest. Newcastle-under-Lyme, which has some of the most deprived wards in the country, has benefited from sure start, neighbourhood management initiatives and, most recently, a massive pilot scheme for housing renewals.

Like many former mining and traditional industrial areas, Newcastle-under-Lyme faces particular challenges in education—in ambition, aspiration, achievement and staying-on rates after 16. We can therefore have no quibble with the Government's educational maintenance allowance scheme to encourage less-well-off children to stay on in further education. I called for an extension of that scheme in my maiden speech a year ago, and I am glad that we have had it in Newcastle from September, through the Newcastle achievement scheme. No fair-minded person could take issue with such worthy initiatives.

However, as my hon. Friends have already said, we take issue with the proposals for fair funding for Staffordshire and our relative position compared to other counties and areas. Whichever way one looks at it, Staffordshire loses out across the board under the current system. The needs in areas such as mine are equal to, if not greater than, those in areas that always do relatively well.

Let us consider education as an example. In 2001–02, out of 150 LEAs, Staffordshire ranked 146th in primary school and 144th in secondary school funding per pupil. I do not want to bandy about the names of better-off counties—I would certainly invite guerrilla interventions from the right hon. and hon. Members representing Hertfordshire if I did—but it cannot be right that schoolchildren in my constituency, where schools face great challenges, should be worth more than £300 less each per annum than pupils in many better-off areas. It cannot be right that primary schools in the most deprived areas in my constituency are £30,000 or more worse off than schools in more privileged areas in the south. It cannot be right that secondary schools, such as my old school of Wolstanton high where I am still a governor, are £400,000 worse off than schools in areas that do not have mountains of achievement to climb. That is why I add my voice in support of option 5 advocated by the f40 group for education.

I have received hundreds of letters from constituents following the f40 campaign, which has been so ably co-ordinated in Parliament by my hon. Friend the Member for Stafford. I dare not think how many letters my hon. Friend the Minister has been deluged with. I hope that he will agree that f40 is an impressive and persuasive campaign, as is the campaign on issues across the board of the northern alliance group of councils.

I could go through a list of public services in Staffordshire one by one—police, highways, fire and environment—and show how badly we do across the board, but time is short, and the House will be glad to learn that I will not do that. However, I should like to refer briefly to social services, which is perhaps the most precarious service of all. Historically, the mining, pottery, iron and steel and industrial legacy of north Staffordshire has meant great challenges for health. Not before time, they are being addressed by the construction of a new £250 million hospital to replace crumbling old Victorian buildings and by investment in intermediate care and our community hospitals. However, we cannot fully meet those challenges when social services—the community side of the health equation—remain so stretched. That is especially the case when care for the elderly is transferred into the community, which is happening increasingly in Newcastle-under-Lyme and north Staffordshire.

While facing those challenges in personal social care, Staffordshire ranks 124th out of 150 for elderly domiciliary care and 118th for elderly residential care. Despite the best efforts of the education service, our low relative position in education makes it more difficult to address special needs for the most vulnerable children in our communities. Those difficulties are compounded by Staffordshire ranking 133rd out of 150 in children's social services, which rubs salt in the wounds. I welcome the recent speech by my right hon. Friend the Secretary of State for Health heralding a radical shake up of social services for elderly care.

Sir Patrick Cormack

Will the hon. Gentleman underline the fact that, throughout my 32 years in the House, Staffordshire has always had a prudent county council, whether under a Conservative or Labour administration? Our cry is from hon. Members on both sides of House and from all parties.

Paul Farrelly

That is a valuable point.

We want a formula that better addresses need and deprivation so that counties such as Staffordshire and regions such as my own do not lose out time and time again. I will not repeat the points so ably made by my hon. Friend the Member for Stafford, but having overwhelmingly elected a Labour Government in 1997 and 2001, my constituents and the people of Staffordshire want them to be bold in redressing the balance. To coin a recent phrase, we are at our best when we are bold. Like many areas represented in the House, we want fairer funding. I realise that the Minister is in an invidious position; he cannot satisfy everyone, but we call on him to be bold. Our constituents have spent a long time waiting for a change, and a change that changes nothing will not be good enough.

2.42 pm

Mr. Andrew Lansley (South Cambridgeshire)

Days before the 1997 general election, the Prime Minister, then leader of the Opposition, said: We will review the area cost adjustment in time for the next financial year". The first debate that I secured was in July 1997, in the previous Parliament, and it was on the area cost adjustment. Responding to that debate, the Minister for Local Government and the Regions told me: we shall study the further surveys carefully and discuss them, as a matter of urgency, with the local government associations. We shall not be precluded from taking decisions at the earliest opportunity". —[Official Report, 18 July 1997; Vol. 298, c. 670.] Five years and three months later reform of the area cost adjustment is long overdue. What the Government propose in their options could have been done five years ago because it is substantially based on the Elliott review methodology produced before the 1997 election.

If implemented, the five area cost adjustment options would increase Cambridgeshire's standard spending assessment total by anything from 2.5 to 6 per cent. During the past five financial years, Cambridgeshire may have lost £100 million from the Government's failure to act, and fairness delayed is fairness denied. Cambridgeshire has the lowest SSA—£647 per head—of any county, and schools suffer most, with a gap of about £270 per pupil between he school funding in my constituency and funding over the border in Hertfordshire. Although the Cambridgeshire police area has an average amount of crime, we have 250 fewer police than average. It is time for fairness.

Step one is to implement reform of the area cost adjustment. Only options 4 and 5 would provide an area cost adjustment factor for each county. I would go further and provide that for each authority. The labour market pressures in South Cambridgeshire and the constituency of the hon. Member for Cambridge (Mrs. Campbell) are substantially different from those in the fenlands in the north of the county. I would use option 5, which more accurately reflects underlying labour market pressures in the longer term, to which local authority services have to respond, particularly if district level authorities are involved. The same area cost adjustment approach should be used for education. House prices are too volatile, too closely related to interest rate movements and too much of a current preoccupation rather than a long-term indicator.

Step two must be to reform the education grant. Many people have said that the capitation level—the basic entitlement per pupil—should be higher. That is true not only because it would deliver fairness in funding, but because the education funding strategy group is trying to build an activity-based level of funding so that we accurately fund the cost of providing the national curriculum to pupils. I am disappointed that the Government did not work with that group to produce an option on that basis. Likewise, as the formula does not provide for so many unmet needs, how can they be included in relation to additional educational needs? Additional educational needs factors apply in every authority to some extent, so it must be right to have a high threshold of 50 local education authorities. In addition, sparsity is inadequately reflected and should be included for secondary schools and the under-fives.

Step three must be to reject the proposed resource equalisation options proposed in the consultation. Those would reintroduce past spending into the formula, which the Government said they would not do. Worst of all, they would be based on validating high spending and penalising thrift. I do not suggest that we can do without resource equalisation and I accept that we may have to rely on the current system for the time being while we look for something better. However, perhaps the Minister should consider not using council tax and standard spending under the current system, but look instead to the median level of council tax as a proper intermediate measure on which to base our resource equalisation.

Step four is to take proper account of population growth. Those areas with a declining population are already compensated because of the lag between population data and grant calculation. Those areas with a large growth in population, such as Cambridgeshire, need a factor in the grant which is based on excess population growth. I was surprised that the consultation suggests £65 for a shire district. Although a shire unitary authority would receive £675, shire counties and districts would get only £560 when added together. The Greater London Assembly and an outer London borough would get £1,000 when added together.

Step five is to take proper account of sparsity. For example, a 1 per cent. weighting in the police service calculation is woefully inadequate.

The Government's proposals could be turned into a fairer system. It would mean kicking out the resource equalisation proposals and the idea that the business rate should be treated as a Government grant. The system would benefit from major changes in the education options, which other hon. Members and I have proposed, and, in the longer term, from using more direct and relevant data that relate to pupils' additional needs. I hope that on that basis we will see a much improved result later in the year. It is time for fairness and I look forward to that happening in the next financial year.

2.48 pm

Mr. Tony Banks (West Ham)

I have sat through many such debates on local government finance and have participated in them for the 20 years or so since I became a Member of Parliament. They always reveal the problems that arise from an overcentralised Government system. It was the same under the Conservatives. I remember Margaret Thatcher extending to us the promise that she would take Whitehall off the back of the town halls. Of course she did precisely the opposite. Hearing various blasts from the past, such as the former leader of Wandsworth council, the hon. Member for Mole Valley (Sir P. Beresford), complaining about the proposals, I am reminded of the way in which the Tories used formulas to give an advantage to their sweetheart authorities, such as 'Westminster and Wandsworth.

Things have got better under this Government. One still gets the feeling, however, that local authority finance is like the infamous Schleswig-Holstein question. Most do not understand the question, no one knows the answer, but everyone is affected by the outcome.

This is a whingers' debate. I have not heard anyone do anything other than whinge, and rightly so. That is the problem with local authority finance: we all come to the Chamber to complain about our own local authority being skint. No one is likely to come and say, "We have done very well." Those hon. Members who are not present are probably not interested, or prefer to read the collected works of Kim Il Sung, which are slightly more interesting, or their local authorities have done extraordinarily well out of the settlement, though I doubt it.

We know that very few people turn up to say thank you. There is little gratitude in politics, as we will all find out eventually. All our political careers are doomed to end in failure, as someone said. Mine just ended a bit sooner than others. However, I want to prove to the Minister that I am not wholly a whinging ingrate. Newham, my borough, has received much Government support, but mostly in the form of special programme measures, schemes and Government initiatives, all of which are time-limited. What we want in Newham, as all local authorities want, as a number of hon. Members have said, is a predictable core of Government funding, and much greater powers to raise our own revenue streams. We want to be able to use those revenue streams to spend on our locally determined priorities.

Government provide 75 per cent. of all local authority finance, but there cannot be effective local democracy with the Treasury controlling the purse strings to this extent. The Government have announced and implemented a genuine programme of devolution, but without greater financial independence, devolution will ultimately fail. It will not produce the local successes that people expect from it. That might be one of the reasons for the low turnout in the recent local elections, particularly those for local mayors.

It is an open secret that I hope to become Labour's candidate for London mayor. I am grateful for the support of a number of my colleagues. Why should I not be? I was the first to propose a directly elected mayor for London in 1990. The idea did not meet with universal acclaim or, as I recall, any acclaim whatever, at the time, but it is now a fact and it was brave of the Government to introduce the office. However, they are holding back from making that office truly effective.

We in London must have our own revenue streams, free from the dead hand of Treasury control. I have made a number of suggestions recently, which I shall put to the young and handsome Minister. [Interruption.] He is young and handsome. It is quite scary, really. One suggestion is that city hall should be able to raise a bond issue for transport infrastructure investment in London, unless Treasury Ministers will give us all the money that we need for vital schemes such as crossrail 1 and 2, Thameslink and the river crossings. We know that they will not, yet they are preventing us from raising our own money.

I have suggested that London should be able to receive all the income from the airport tax, which would then be hypothecated for transport infrastructure projects. That could be done, if Gordon is prepared to let us do it. I notice that the Government propose to change the legislation relating to gambling. Why not have municipal casinos in London? That is an excellent idea. It is done in other parts of the world and raises large amounts of money, which could be used to improve services for London.

My hon. Friend the Member for Denton and Reddish (Andrew Bennett) mentioned a tourist tax. We could have a hotel bed tax in London. What about a London lottery? I throw these ideas before the House so that they may be considered and discussed. A London lottery would be an excellent way of raising money. We do not want to rely on sticking the precept up more and more, as that simply impacts on the local authorities and borough councils, and we want to find independent ways of raising our own money in London. My hon. Friend also suggested that business rates should come back to local authorities. Absolutely correct. That would be of great benefit to London.

I know that when we call for more resources for London, there are many who say that London is already getting too much. That is not a fact. London is not just Mayfair, Westminster, Kensington and Chelsea., where Opposition Members go for their enjoyment; it is also places such as Plaistow, Tottenham and Peckham. We have some of the most deprived local authority areas in the entire country.

I conclude with an extract from a speech made by the Chancellor on 11 October, in which he said: So we are introducing a range of new financial freedoms—new powers for local authorities to retain fines, develop new services and decide council tax exemptions and discounts, allowing responsible councils to innovate and respond to local needs. We are making councils themselves responsible for deciding how much they can prudently borrow, providing greater freedom for councils to invest in local services. I hope that when the Minister replies, he will dress that out a little more. It sounds very interesting and promising. We need some delivery.

2.55 pm

Mr. Nigel Waterson (Eastbourne)

It is always a great pleasure to follow the hon. Member for West Ham (Mr. Banks). Who says the music hall is dead? I thought that I had blundered into some Labour party mayoral hustings.

Mr. Banks

You have.

Mr. Waterson

The hon. Gentleman confirms that. He must be crossing his fingers and hoping against hope that he does not have a monkey running against him.

In Eastbourne, my constituents are facing a council tax calamity of mammoth proportions. In fairness, though, it is not all the Government's fault; the Liberal Democrats have made their contribution. In record time, even by their standards, since taking control of the borough council earlier this year they have produced a black hole in the council's finances and are speaking of an increase of up to 30 per cent. in council tax under their regime. Of course, we must allow for a certain amount of spin in that figure. I assume that they will end up with a figure rather less than 30 per cent. in the coming year and then claim some sort of success.

I shall deal with the likely effect, beyond those effects on my council tax payers, of the Government's proposals. It is impossible to escape the conclusion that the Deputy Prime Minister has got it in for taxpayers in the south-east and, as was said earlier, is trying to give money to his friends in the north. In the immortal words of Kenneth Williams, "Infamy, infamy, they've all got it in for me!" That is the attitude of many councils in the south-east.

We have already had the formula fiddled once, so it no longer recognises sufficiently the number of older people living in East Sussex and in my constituency. Despite that, the new Conservative-controlled county council has made enormous strides in bringing the budget under control after the chaos of the Liberal Democrat years, and has finally scrapped the 800-people waiting list for social services care under the previous regime. Potentially, East Sussex is the worst hit of all county councils, yet it has the third lowest gross domestic product per head among all areas in the UK. It is not full of rich toffs of the sort that the hon. Member for West Ham mentioned in the London context. On any of the proposals, East Sussex will lose between £4 million and £44 million in a full year. In real terms, that equates to some 900 teachers, or it means social services being unable to give care to over 2,000 vulnerable elderly people. That would dwarf the problems that the current county council inherited from the Liberal Democrats when it took control.

As we have heard from speaker after speaker this afternoon, the net result of all this is a massive shift in resources from the south, particularly the south-east, to the north and the midlands. I have a copy of a letter to the Secretary of State for Health from Councillor Keith Glazier.

Mr. Andy Reed (Loughborough)

rose—

Mr. Waterson

I am not giving way, as time is short, as the hon. Gentleman knows.

Councillor Keith Glazier, the lead cabinet member for social services, refers to the promise of 6 per cent. real growth above inflation over the next three years for social services, but even taking the mid-point of all the options set out by the Government, he states: A loss of this scale would more than wipe out any gain from the growth in resources signalled in the recent Comprehensive Spending Review. The changes, however, would affect spending throughout the county. I have also had a letter from the chief constable, Ken Jones, who says that according to the calculations Sussex police face a potential loss of grant of up to £17 million in a single year… we will need to recruit in the region of 250 new officers over the next three years, just to replace those that are due to retire. The force is trying to reach it target of 3,100 police officers by the end of this financial year". Incidentally, that is more or less the figure that the Government inherited in 1997. The chief constable goes on to say any standstill in our funding would be extremely damaging and set back the gains that we have made as a Force over the past year. The area cost adjustment has been discussed. East Sussex is relatively close to London, and costs are high compared with those in other parts of the country; so some form of adjustment is obviously necessary. Many Members probably do not know, however, that East Sussex is one of the poorest counties. I have already given the GDP figures, but there are substantial areas of deprivation in my constituency and in the county as a whole. The effect of all the existing pressures—increasing school rolls, increasing numbers of old people and, in some areas, increasing deprivation—on county council expenditure is considerable.

There is, however, a double whammy. We have the highest proportion of people over 85 in the country. That puts enormous pressure on social services, as such people are likely to need residential or other care. Moreover, they are the people who will be asked to pay the mammoth council tax increases. Let us leave aside for a moment the incompetence of the Liberal Democrats in Eastbourne itself, and consider the enormous increases—dwarfing even those increases—that the Government's proposals are likely to bring about. The pressure on social services will be matched by extra pressure on the budgets of vulnerable people who do not have large disposable incomes.

I urge the Minister to address the concerns of my county council, and of many people throughout the county and certainly throughout my constituency, about the disastrous effects that the proposals are likely to have on my council tax payers, and the even more disastrous effects that they are likely to have on the services provided for my constituents.

3.3 pm

Mrs. Anne Campbell (Cambridge)

I have considerable sympathy for my right hon. Friend the Minister for Local Government and the Regions, who has had to disentangle the mess left by the Tories when the poll tax was axed 12 years ago. Having said that, I must add that I wish the review could have been completed earlier, although I am very glad that it has been completed now. I was appalled to hear the hon.

Member for Bath (Mr. Foster) ask for a further year's delay, which in my constituency, and probably in all Cambridgeshire, would almost certainly ensure that the Liberal Democrats remained out of office for many years. It would be extremely unpopular.

The hon. Member for South Cambridgeshire (Mr. Lansley) calculated that Cambridgeshire had lost £100 million under the present Government. On the basis of his calculation, during the years in which the Conservatives failed to reform their system the county would have lost £140 million. If I were the hon. Gentleman, I would keep quiet.

Mr. Lansley

Will the hon. Lady give way?

Mrs. Campbell

No. I have only eight minutes, and the hon. Gentleman has already had an opportunity to speak.

As my hon. Friend the Member for Stafford (Mr. Kidney) pointed out, one of the problems created by the current system is the creation of huge disparities between authorities. That is bound to make people feel that the system is unfair. As the hon. Member for South Cambridgeshire said, we in Cambridgeshire tend to compare ourselves with those in Hertfordshire, with whom we share a boundary. Education funding differences amounting to hundreds of pounds exist between pupils. In Cambridgeshire the funding for each secondary school pupil is £3,225, while in Hertfordshire it is £3,503. In a school with 1,000 pupils, the difference in funding between the two counties is £278,000. Ninety per cent. of that would be enough for six or more teachers to be employed over and above the allocation for a similar school in Cambridgeshire. Hertfordshire has always had a much more generous settlement under the current system, which is difficult—indeed, nigh-on impossible—to justify to parents, teachers and governors in my constituency.

I do not underestimate the difficult task faced by my right hon. and hon. Friends. During a debate on 15 October, I asked whether my right hon. Friend the Minister for Local Government and the Regions considered reducing the disparities between authorities to be one of his criteria for success. He implied that he did not. I urge Ministers to think again. There will be continuing flak if those disparities are not reduced, although it may mean some reshuffling of cards. They are perceived to be extremely unfair, and I think that reducing them should be a priority.

I want to discuss two specific aspects of the proposals, the area cost adjustment and resource equalisation. I shall begin with the area cost adjustment, as I find it easier to understand. Cambridgeshire has argued long and hard that it should be able to benefit, in the grant distribution system, from allowances for higher costs, including wage rates, property and bought-in services. I was pleased to note that the review supports the county council's argument that counties outside the south-east also face high operating costs. It is interesting to compare house prices, for instance. I have a list from the Land Registry of the average prices involved in residential property sales between April and June this year. The average price in Cambridgeshire was £139,678, whereas the averages in Hertfordshire and Bedfordshire were £131,263 and £136,541—both lower than the Cambridgeshire average. Unlike Cambridgeshire, Hertfordshire and Bedfordshire receive area cost adjustments. My hon. Friend the Member for Wigan (Mr. Turner) said that house prices should not be a factor. I must tell him that they severely affect recruitment of teachers and other low-paid workers who cannot afford to buy houses in my constituency.

Data taken from the new earnings survey of full-time employees on adult rates in 2001 support the evidence that Cambridgeshire should benefit from the higher costs allowance. Average gross weekly earnings in Cambridgeshire were £453.40 in Cambridgeshire, higher than those in Essex, Oxfordshire and West Sussex. Cambridgeshire and Cheshire are the only counties in the top 10 in relation to average earnings not to receive the area cost adjustment.

The analysis in the consultation paper suggests that Cambridgeshire has been underfunded relative to other counties for the past 11 years, which has had a major impact on services. Cambridgeshire is spending £80 million over standard spending assessment on social services, but there are still significant pressures, especially on the provision of care for elderly people. That is largely because costs are on a par with those of authorities surrounding London. It is more expensive to provide home care and nursing or residential accommodation in Cambridgeshire than in neighbouring authorities, yet they receive significantly more cash per potential client than Cambridgeshire does. Hertfordshire, for instance, receives £2,360 more than Cambridgeshire for every elderly person who might need support. I do not see how that can possibly be fair. The criteria for deciding which authorities receive area cost adjustment should be based on evidence of relative input costs and not on an authority's geographical position in relation to London.

I want also to express my support for education option 2, which is the best approach. It recognises that deprivation includes not only people on income support, but children in families on low incomes who receive the working families tax credit. I believe that both groups are likely to have similar needs, so working families tax credit recipients should not be excluded from the calculation.

I am also attracted by option 5, which was so well expounded by my hon. Friend the Member for Stafford. It was proposed by the f40 group, which comprises the 40 lowest-funded education authorities, and I understand that it would use the same basis for calculating top-ups as option 2, but make the basic allowance per pupil greater and the top-up smaller. I say to the Minister that the great advantage of that option is that it would reduce disparities and therefore the perceived unfairness, so I hope that he will seriously consider it.

Madam Deputy Speaker

Order.

3.11 pm

Mrs. Annette L. Brooke (Mid-Dorset and North Poole)

Much has been made of the strange name of my constituency. This diverse area contains one unitary council, one county council and two district councils, one of which is part of the small group that does not receive any revenue support. In passing, may I say that I hope that the Minister is reconsidering the proposed merger of the revenue support grant and the redistributed non-domestic rate. The authorities, common factor is low funding, historically among the lowest in the south-west. To put that into context, the SSA per capita for the south-west is the lowest for any region. At £876, it is 12 per cent. below the English average of £995. As the lowest of the low, it is not surprising that the councils initially welcomed the idea of simplicity, transparency and ease of understanding. Obviously, there was a strong belief that the history of underfunding would at last be addressed.

I am heartened by the number of hon. Members who have mentioned the f40 group. The areas that it includes are situated throughout the country and the fact that so many people are talking about the issue represents the strength of feeling that exists. Not surprisingly, I support option 5. Poole unitary authority has the sixth lowest education funding in the country. Dorset is also well towards the bottom of the list of the lowest 40, although that is not reflected in its results. In the past few weeks, I have received hundreds of letters about the issue. Parents cannot understand why their children are allocated £100 less per head than those in Hampshire schools, for example. We have been hearing that they were not doing so well, but as many other hon. Members have said, the main issue is the size of the discrepancy between the highest and lowest funding, which causes great concern among parents.

Bob Spink (Castle Point)

Does the hon. Lady share my curiosity about the Government's proposal to remove more money from education in counties where the results are good—the best in the country—and use it to reward counties where the results are much lower?

Mrs. Brooke

I shall move on, as I do not think that that is the main issue.

I was saying that we have excellent teachers despite the low funding, although I am afraid that we have been very disadvantaged in terms of physical resources. The basic allowance per pupil simply must be higher.

On social services in the south-west, a recent analysis shows that there is a £70 million care gap. Local authorities are warning that the social care safety net is not adequate for children, the elderly and the vulnerable. Poole is an especially small unitary authority. In the past few years, it has seen unbudgeted overspending on children's services. I do not think that anybody wants to address that issue. We cannot easily do so; children are at risk. The difficulty is that just one expensive placement throws the whole budget. I urge the Minister to take on board the fact that those are significant problems and that it does not matter how good the councils are or what their political flavour is.

This will be my third effort to speak about waste management. I keep getting the phrase, "Nobody wants more ring fencing" thrown back at me, but I have received many representations from all the major organisations involved, including the Local Government Association, saying that they would like an extra waste block to be established—I should call it a separate waste block, in view of the merger within EPCS. I am not referring to targeted funding that is clearly identified—I want the resources to be identified for the much-needed recycling that we are all going to do provided that the funding is available. It is vital that those resources are clearly provided. That does not mean ring fencing; it means giving local councils the tools to do the job that they want to do and which out constituents want them to do.

Matthew Green (Ludlow)

Is it not strange that while waste is in the large EPCS block, it should be affected by deprivation indices? It is hard to see why deprived areas need more money to collect waste. I would have thought that the waste should be accounted for on a per head basis—

Madam Deputy Speaker

Order. That is rather long for an intervention.

Mrs. Brooke

I thank my hon. Friend for his intervention.

I should like to add my comments on resource equalisation, on which my feelings are very much the same as those already expressed. The proposed mechanism seems very crude. If it takes effect, it will reward historically high-spending authorities at the expense of those with a more buoyant tax base. I believe that it would direct funding from the south-west, which is already the lowest-funded area, to the north-east and north-west. In this case, enough is enough.

I share the concern expressed by an earlier speaker about what might happen to the police budget. There is great fear about the issue in my constituency. Dorset police authority is the second lowest funded in England and Wales, and predicts a shortfall of between £5 million and £8 million. On the other hand, I am receiving letters saying that people do not want more police as they cannot afford to pay the council tax increase.

We need more police and services, but wherever people live, the basic pension is the same. If some of the changes go ahead, resulting in massive cuts, the impact will be felt through that very unfair tax, the council tax. Year after year, pensioners in my constituency are seeing their pensions eroded. It is not the council's fault that there are large percentage increases in council tax. It is the wrong type of tax for funding local services. Some of the proposals in the new models for finance cannot seriously be considered without our addressing the fact that local authorities will have to raise the money for any extra burden that is imposed on them.

3.18 pm

Mr. David Watts (St. Helens, North)

I am very pleased to take part in this important debate. As other hon. Members have said, we are talking about how 25 per cent. of public expenditure will be allocated. That has a major impact on all our constituents, so I am pleased to see so many hon. Members present.

I should like to be as brief as possible, and to begin by dispelling some of the myths that have featured in the debate. I understand the difficulty that the Government will have in making their decisions, as there will be some winners and some losers. Some authorities have got used to very low council taxes and high-quality services, while others, such as my own and many members of SIGOMA, have had low-quality services and high council taxes. It was amazing to hear the right hon. Member for Kensington and Chelsea (Mr. Portillo) say that tax rates were high in his constituency. He ought to compare them with the rates in some of the authorities that we represent; he would see the massive differences between one authority and another.

Mr. George Howarth (Knowsley, North and Sefton, East)

Does my hon. Friend agree that, if there is to be a retention of the area cost adjustment, it should be based on real costs rather than notional costs? Part of the problem that he is describing is precisely the result of notional costs being used.

Mr. Watts

I agree with my hon. Friend and I shall come to that important issue later.

I want to set out some of the present problems, because we need to think about where we are today. I would' also like to consider some of the Government's options and to offer some brief ideas about how we can move forward. It is important to understand the present system. It is not a fair one. It was introduced by the last Tory Government in 1981 to target funds to Tory councils, to allow those councils to set very low council tax rates, and to give the impression that Tory authorities were more efficient and effective than Labour ones.

During that process, we saw millions of pounds being transferred overnight from Labour local authorities to Tory local authorities. In my authority, that involved a £10 million cut overnigh—within 24 hours, it had lost £10 million. That led to cuts in basic services, and has meant that, for the past few years, we have had to increase our council tax rates at well above the rate of inflation. It was Robin Hood in reverse: the system took money from the poorest communities and gave it to the richest members of our society.

The system transferred huge amounts of money from Labour authorities to Tory councils, and cut millions of pounds from the budgets of Labour authorities. It introduced a Tory tax on poverty and meant that many local authorities such as mine had to cut their budgets for vital services such as youth clubs, leisure centres, street lighting, roads and parks. Those services are crucial to my community.

I want to talk about the winners and losers. I understand that my hon. Friend the Minister would have major problems if he transferred large amounts of money from one local authority to another. Because of the ineffectiveness of the Opposition, many of those areas are now controlled by Labour councils and I understand the political problems that would arise. The councils would be faced with the double whammy—as my local authority has been—of having to increase council taxes at the same time as cutting public services. That is a difficult task. I am pleased that the Government have not done what the Conservatives did, and will instead introduce a cushioning mechanism to ensure that budgets are not cut overnight as they were before. We shall take no lessons from the Opposition about how any changes should be introduced.

Many hon. Members—even Labour Members—would like to see only minimal change. They argue that, whatever change we make, we lose friends, and that that is not worth doing politically. I would like to make it clear that I and other SIGOMA Members who represent many of the heartland areas believe that that is unacceptable. We want a fair and transparent system that allocates resources on the basis of need. There is consensus that we need to look at what base services should be provided and how much those services should cost. We then need to determine how we allocate extra resources when it can be demonstrated that there is a real need for them.

I am pleased that my hon. Friend the Member for Knowsley, North and Sefton, East (Mr. Howarth) made the point that, unfortunately, at present, many of the deprivation factors are not transparent. We do not know why a particular resource is allocated in the way it is; it is not based on any real cost and does not relate to the services that are provided in an area. In many cases, some of those resources are being used to undercut the council tax.

Mr. Reed

Does my hon. Friend accept that people in Leicestershire, which already has the worst-funded education authority, will look at the four options and see that they take us backwards? We would see further cuts under each of them. It is difficult to explain need as a concept, when people see that they would be worse off in cash terms not only now, but under the formulae that are being proposed.

Mr. Watts

I understand my hon. Friend's problem. I would not support some of the options that have been put forward by the Government; there are so me real difficulties there. There is a need for more transparency in the system. The Government should set up an independent review body to consider all the different factors relating to the need for local councils to spend extra resources.

Mr. Burnett

There is a paper, to which I have already referred—Professor McLean's study—that makes it quite clear that the south-west is very seriously disadvantaged.

Mr. Watts

With respect, there are a number of reports knocking around, all arguing in favour of the different systems that the Members who commissioned those reports want to promote. I would not accept that that is the right one, but I would accept the need for a review to consider which factors determine the need for local authorities to spend more than the average amount. It should also consider the linkage between those factors. We have not yet talked today about the weighting that is given to each of the deprivation factors. For example, in relation to the ethnicity factor, £448 million—I think—is distributed to 12 per cent. of deprived children. That may be right, but in some cases it is not allocated according to need, and there seems to be no logical reason for that money being transferred to those children rather than to other local authorities with equal levels of deprivation, whose children are underperforming in schools, but which have no, chance of getting the level of resources that other areas receive. It is important to have a transparent system and that funding can be linked to the need to spend.

Let us consider some of the other deprivation factors. There are three areas in Great Britain that have objective 1 status—Cornwall, Merseyside and South Yorkshire—yet, ironically, each of those local authorities is disadvantaged by the system. There is something fundamentally wrong with a system in which Europe can allocate to areas massive resources that are not matched by the allocations for services by the Government. That is one of the reasons why we need a review.

I am not arguing that there should be no change this time. If we accept that there should be no change to the present system, that would mean that my local authority and many others—

Madam Deputy Speaker

Order. I call Mr. Gregory Barker.

3.27 pm

Gregory Barker (Bexhill and Battle)

At the outset of the debate, the Government insisted that the touchstone for their proposals for the reform of local government finance was, as they stated in their White Paper, to create a mechanism that would be

simpler, more stable, more robust and fairer than the present arrangement for SSAs. Few could dissent from such a sensible and reasonable ambition. Unfortunately, however, the practical effect on my county of East Sussex could not be further from their stated goal. Instead of simplicity, the proposed new formula offers complexity; instead of stability, it offers uncertainty; instead of creating a system that is robust, it will create a regime that is open to challenge and acrimony; and instead of fairness, it will create division and inequality.

The reality of the proposals is that the new formula would rob East Sussex of £4.1 million on a best-case scenario, and on a worst-case scenario the county council would lose £43 million. In a letter to all East Sussex Members of Parliament, the county chief executive described the proposals as "damaging and drastic". It is, therefore, rather a shame that neither the hon. Member for Lewes (Norman Baker) nor the hon. Member for Hastings and Rye (Mr. Foster) is here this afternoon to fight the county's corner.

The negative effects of this reform will be particularly bizarre, given the Government's focus on creating a fairer system, and particularly perverse when we bear in mind that East Sussex is the poorest of the 34 English shire counties. Gross domestic product per head is, at just £7,847 a year, comparable to that of Tyne and Wear and Middlesbrough, which—unsurprisingly, and perhaps rightly—are net beneficiaries under these reform proposals. In April 2000, average full-time weekly earnings in East Sussex were £377.40—more than 10 per cent. lower than the average for Great Britain and 15 per cent. lower than the south-east regional average. Yet despite these low incomes, the property market in East Sussex remains in the orbit of outer London's. So although the average wage in East Sussex may compare unfavourably with that for London, its house prices are three times higher than those in the north-east.

East Sussex also has much higher levels of deprivation than any other shire county. With 25.7 per cent. of its population being over the age of retirement, it has the second highest proportion of elderly people of any English county. Elderly people are predominantly dependent on fixed incomes, and it is they who feel the council tax increase most keenly. For many of my elderly constituents, the council tax is the largest single item in their household budget.

I have already mentioned that East Sussex stands to lose up to £43 million. That is the worst-case scenario, but let us consider the mid-point. Even a loss of £26 million would be equivalent to a 23 per cent. tax rise, or the loss of 900 teachers across the county. As a proportion of our current funding, ours stands to be the worst affected county council in the country. Indeed, even taking into account all 148 principal local authorities in England—county councils, metropolitan councils and unitary councils—we are still the second worst affected.

The loss of £26 million may sound paltry in comparison with a Government budget of £418 billion for this year, but it would eat up more than 80 per cent. of the entire road maintenance budget for a county that already suffers from the worst transport links in the south-east. Such a loss is equivalent to the cost of nearly 1,000 teachers, out of a total county teacher headcount of 3,700. Put another way, that loss is more than the budget of all the primary schools, secondary schools and special needs schools in my constituency. It would wipe out entirely the county's budget for both residential and nursing home care for the elderly. Of the 2,395 places currently provided for the elderly, all would have to go, and further savings would still have to be made. A figure of £26 million is more than three times the total budget for our entire library service, which is already facing significant pressure.

Given that it is the worst affected county council in the country, it is no surprise that East Sussex is not seeking to endorse any of the Government's proposals. However, there are three areas, accounting for 90 per cent. of its funding, that are of particular concern: education, area cost adjustment and resource equalisation. I do not have time to discuss them in detail, but I ask the Minister to look at the county's submissions to him. I cannot believe that a better and more equitable solution cannot be found to the problem with which the Minister is wrestling.

It is not just the county council and the essential public services that it provides that stand to lose out through these reforms. The effect of these changes on Sussex police could be catastrophic, involving the potential loss of up to £70 million, or 9 per cent. of its total funding, in a single year. Ministers have said that the changes may be achieved by effectively freezing grant at its current level, but the consequence of that to Sussex police would be substantial. It would mean a steady reduction in levels of service, or a massive increase in council tax.

Mr. Michael Jabez Foster (Hastings and Rye)

Will the hon. Gentleman give way?

Gregory Barker

No, I am afraid that I do not have the time. The hon. Gentleman has only just come into the Chamber. [Interruption.] He has only just entered the Chamber and has not been here for the debate.

Both the Prime Minister and the Home Secretary like to talk tough on crime. How can they possibly square their tabloid rhetoric—

Mr. Foster

Will the hon. Gentleman give way?

Gregory Barker

No, I am afraid I will not.

Mr. Foster

On a point of order, Mr. Deputy Speaker. Is it proper for an hon. Member to name another hon. Member and then refuse to allow him to intervene? The hon. Gentleman selectively named Members and criticised them for their non-attendance, failing to note that there are Conservative Members who are not present, but who have not been similarly criticised.

Mr. Deputy Speaker (Sir Michael Lord)

The conduct of Members in their speeches is entirely a matter for them. It is not a matter for the Chair.

Gregory Barker

What puzzles me is that the Government are not totally blind to the problems in East Sussex. We have a special taskforce—on which I sit, along with the hon. Member for Hastings and Rye—because our county contains some of the most deprived wards. The Government have recognised that fact, and I am grateful for that, but it makes no sense then to cut away the legs of the county council, which is the essential provider of transport and education.

I implore the Minister, who I am sure is setting out to be fair, to look again at the practical effect that the proposal will have on East Sussex. It cannot be right and it cannot be fair—please, please look again at the treatment of East Sussex.

3.35 pm

Mr. Frank Field (Birkenhead)

When we go into the next election, we will reflect on two entire periods of Labour government. Although Governments have to do many things, there are few opportunities and initiatives that they can seize to make a real difference to the country in which we live—particularly if we are interested in making it more equal and fairer. The reason why so many Members—particularly those on the Labour Benches—wish to catch your eye in today's debate, Mr. Deputy Speaker, is that they realise that we have reached one of those points when the Government have within their grasp the opportunity to make a real difference to the life chances of many of our constituents.

I therefore thought it almost eccentric of the right hon. M ember for North-West Hampshire (Sir G. Young) to say that he would survey the Olympian heights, rather than indulge in the foothills of the interests that most of us will follow. Indeed, no sooner had he made that comment than, quite properly, he was making the best case that he could for his own constituency. So although I may not mention Birkenhead in my speech, I will, quite properly, represent the interests of my constituents to the best of my abilities.

In addition to the presentation made by other northern Members for the SIGOMA members—I know that the Government have looked at the document, and that they realise how robust the analysis is—I wish to develop four themes. First, given that, this time, the Government are trying to make a fairer settlement, I ask them to look at the total budget at their disposal. It is limited, and we cannot expect Governments to keep pushing up the taxpayer's contribution. Members have spoken of "the Government's money", but the Government have no money—it is our constituents' money that we are talking about.

Once the size of the taxpayer's contribution to local authorities has been decided, I beg the Government to reconsider the amount that they pay out generally, and the amount that they keep back, to make good the unfairnesses in the system. I do not believe that we have got that total balance right. We should not be fighting one another, saying, "It is unfair that they get additional resources, because we have different circumstances that should be met." We have an opportunity to explain why our own local authorities may be unique in some instances, and hopefully to make that plea sufficiently effectively to persuade the Government to follow through with additional funds.

On the formula for compensating for inequalities and disadvantage, my first plea to Ministers is to consider whether they have got the balance right between the weight given to deprivation and to race. It is clear that local authorities with many immigrants, or with many first or second-generation black Britons, face costs over and above those incurred by the richer areas that have not had the advantage of receiving new arrivals to this country. My plea concerns whether the weighting for that is right when compared with that given to deprivation. I represent a constituency that contains the poorest area in the country. I doubt whether I have seen six black faces in my constituency since being elected. Examination of the way in which the formula operates shows that our budgets are far lower than those for areas that suffer equally from deprivation but are compensated both on race and deprivation. I am not arguing that the race element should be taken out of the formula, but that the deprivation weighting is wrong.

I also make a plea about how we calculate the deprivation index. I am pleased that the Government are moving towards a wider spread of benefits to work out whether they can devise a more sensitive way of measuring poverty. While it is true that most people on income-related benefits are genuine, some are not. I make a plea to the Government: if they cannot do so now, I ask them to consider later in the cycle the weighting of health as well as income deprivation in the overall deprivation index. People do not die early or have low birth-weight babies so that they can get on to tables to show that they live in an area of extreme deprivation. Health is a far more accurate way of measuring whether areas are poor than income figures alone.

My next plea is about the area cost adjustment, although I am not pleading for it to be abolished. Clearly, there are differences in costs for different local authorities. My plea is that the area cost adjustment should be based on reality, rather than on fiction. The Government ought to look at the excellent work of the Coventry authority, which shows that, for many authorities, a substantial part of the area cost adjustment goes not on services but on reducing the council tax. That is not a tenable position. By all means there should be an area cost adjustment, but it should be based on reality.

The third area on which I shall touch is the additional costs suffered by areas with declining populations. There is a myth among some Members that it is an advantage to represent an area from which people are leaving, since at least costs fall in proportion to the numbers of those leaving. Those of us who represent such areas will know a different story. Not only is the infrastructure of those areas older, more decrepit and more decayed—therefore requiring greater investment and replacement—but many of the people who are leaving are the bushy-tailed ones; the people with abilities who have to go elsewhere to look for jobs.

The areas from which people are leaving are areas with higher dependency ratios; they have people who are dependent not in any wrong sense, but in a dignified sense. They have grown old and need looking after. They cannot always follow their offspring to areas of economic advantage. Far from our costs falling, they rise disproportionately My plea, adding to the overall case made by SIGOMA, relates to how we fine-tune the formulas that have been put forward.

I want to end with a note of thanks. The Government have opened up the debate—

Mr. Deputy Speaker

Order. Time is up.

3.43 pm

Mr. Andrew Turner (Isle of Wight)

The Isle of Wight, which I am proud to represent, has much to be proud of. Vectians are robustly independent and provide a loyal and hard-working work force. However, we suffer, as do many constituencies, from relatively high and seasonal unemployment. Our gross domestic product is creeping above 75 per cent. of the national average. Some 25 per cent. of jobs are in tourism and 40 per cent. are dependent upon it. There are a huge number of small businesses that defy the classic small and medium-sized enterprise definition because a SME nationally is large in Isle of Wight terms. Some 26 per cent. of the population are pensioners who live on fixed or declining incomes.

The economy is looking up. Despite a recent halving of jobs at Westland, there are new jobs and new contracts at AMS, SP Systems, NEG Micon and GBR Challenge, which builds the United Kingdom's official entry for the Americas Cup, which is taking place now. I congratulate GBR Challenge on how well it is doing.

My constituents and local authority are greatly concerned at the Government's review of local government funding, because the proposals, in the worst-case scenario, will lead to a loss of 10 per cent. of Government grant, which is equivalent to a 30 per cent. rise in council tax. To a band D council tax payer, that would put an extra £366 a year on top of what they pay normally. Such an increase is unaffordable to many residents, whether or not it is dampened in the short term by floors or ceilings. The council has said that such a proposal would lead to impossible cuts in services.

There are two important issues that I would like to raise today. The first is the methodology for calculating the area cost adjustment and the second is my heartfelt wish that the Government would recognise the essential additional costs of providing services on an island.

The Isle of Wight is concerned that the data used for the area cost adjustment are not valid for the size of population of the island. At present we are aggregated with Hampshire to produce a robust enough earnings sample but, of course, Hampshire is a wealthy area and the Isle of Wight is a less wealthy area. The small size of the sample produces greater opportunity for error. This is not the basis of a fair distribution of grant or a basis that can be justified to my constituents.

On the island, we have a relatively low-skilled work force. That means that we need to recruit from a wider area than the island for many occupations. When we recruit one employee to the council, we often have a difficulty, in that they have to move and their spouse or partner can then be put out of a job, as we do not necessarily have two equivalent jobs available on the island or within easy travelling distance. We need the area cost adjustment to be calculated on a fair statistical basis and not built up from a hand-sized sample that is sub-divided, further reduced, weighted and reworked, as happens at present.

On the costs of providing council services on an island, the Minister will know that the Elliot review in 1996—the local government finance review of the area cost adjustment by Professor Elliot—recommended that a study be undertaken into the differences in non-labour costs affecting two councils only, those being the Isle of Wight and the Isles of Scilly. Such a study was recently undertaken by PricewaterhouseCoopers and has been sent to the Minister's officials. It evaluates the costs solely attributable to separation by sea at £4.2 million, or almost 4 per cent. of the council's budget.

The report's terms of reference were to examine how the Isle of Wight council's costs of service provision were affected by severance by sea and to analyse and quantify the additional costs incurred. When the Minister sees the report, I am sure he will agree that it is robust and does not exaggerate. I have been through the report with a fine-toothed comb and it does not over-egg the pudding or exaggerate the case. Its robustness may be measured by the fact that it refers to a reduction in the estimated cost of severance by sea from £5.6 million in an earlier report in 1996 to £4.2 million today.

PricewaterhouseCoopers excluded many factors that result in higher costs but are not directly and wholly attributable to severance by sea, such as the cost of discretionary services; diseconomies of scale—because the island is a small authority—costs that arise from demographic factors such as the high population of elderly people; the costs of supporting or maintaining the economy of the island; and costs that are attributable to the physical geography of the island, such as the cost of coastal protection.

Even that robust report and its robust definitions came up with additional costs of £580,000 a year for special education, £827,000 a year for fire services, £400,000 a year for waste management, £655,000 a year for construction and £1.2 million a year for social services residential care.

I shall deal with one or two of those areas in more detail. In social services, the council pays for 1,750 residential care placements a year—not many for a large council, but quite a lot for a small one—and 350 nursing home places. The council must keep enough nursing and residential care homes in business to ensure that places are available on the island. It is unacceptable to place elderly people on the mainland, because a journey by public transport from Ventnor to Basingstoke to visit an elderly person, or anyone else, would cost £27 for the round trip and take most of the day. PricewaterhouseCoopers concluded that prices were higher because of less competition—it compared the island with Hampshire, Portsmouth and Southampton—with additional costs to the tune of £1.24 million.

We use residential places for 40 children with special educational needs, for services that it is not cost-effective to provide on the island. Some non-residential places are available in south Hampshire, but the additional time and cost of perhaps accompanied travel must also be taken into account. Such places sometimes cannot be taken up because of the disruption that weather conditions cause to travel. An additional £580,000 annual cost is incurred providing those residential places.

The fact that islands face additional costs has been recognised and reflected in grant systems in this country and elsewhere. The Scottish special island needs allowance is one example and the Danish grant distribution system is another—

Mr. Deputy Speaker

Order.

3.51 pm

Mr. Harry Barnes (North-East Derbyshire)

In one sense, I have waited 15 years for this debate, and I nearly missed it because I was dragged out to maintain the quorum in the Northern Ireland Grand Committee. Luckily, I have been able to return. The first Standing Committee on which I served dealt with the Local Government Finance Act 1989, which is the measure that got us into the situation we face today. It has caused the massive problems to which we need to respond. It might have been better if we had moved more quickly, so that fresh legislation could be put in place, but I am glad that we are now tackling the issue.

The 1989 Act introduced the poll tax, but that is the only element that has really changed since. The poll tax became the council tax, but that was only a minor shift in the Act's functioning and operation. It was, and still is, a flawed, fiddled funding formula that has created massive difficulties in many parts of the country. We need to adjust it to a more reasonable approach, but some councils have been granted moneys that they have spent and we cannot just automatically transfer funds from one area to another. Serious efforts have to be made to tackle the massive problems.

Since 1997, the Labour Government have taken several steps. They have increased the total percentage of revenue support, so that areas that were deprived have received money from the pot. Formula adjustments have been made, but some of those adjustments have been upwards and some have been downwards, resulting in great confusion. Some money has come from other sources to assist areas badly done to, such as the range of grants provided by the Department for Education and Skills for areas in greater need. Those have helped to adjust the picture slightly.

The overall picture can be hard to understand fully. If moneys come in from sources other than SSA provision, the Government should undertake research to show who gets what. That information is important to help us understand where we are going.

The consultation paper mentions top-up provisions. We must ensure that top-ups for some do not become take-offs for others. In one sense, any top-up in one area will be a take-off in another area, because top-ups will come from the general amounts available. However, in some cases under the present legislation, top-ups have been deliberately linked with take-offs. The enhanced population figure, which especially affects district council figures, creates problems in many areas.

In North-East Derbyshire, 4.8 per cent. of the SSA is lost because of that figure. People have moved out to work in Sheffield and other areas, or are only day visitors to the area for entertainment and other purposes. There is nothing wrong with some money being moved to cater for that, but the weighting given to the various factors needs to be revised. In practice, more than 4.8 per cent. of the SSA is lost, because the enhanced population figure—or reduced population, as it is in North-East Derbyshire—is used to calculate other factors, leading to further losses.

Under the EPCS provisions in option EPC3, North-East Derbyshire would gain a £1.7 million increase. It is difficult to understand all the provisions in the document, because although it tells us what factors were considered in drawing up the options, it does not tell us what weighting is given to them. We cannot calculate for ourselves the effect of the changes. It would be helpful if we knew what weight has been attached to what factor, because we could then detect any strange anomalies in the provisions.

Mr. David Heath (Somerton and Frome)

Will the hon. Gentleman give way?

Mr. Barnes

I shall carry on for the moment, but I may give way later if I have time.

Another element that I wish to stress is the area cost adjustment. It accounted for 1.8 per cent. of SSA in 1989–90, but now accounts for 4 per cent. That shows the excessive weighting given to the ACA, which needs to be taken seriously into account. If it is intended that no one area should lose in cash terms, that will seriously limit the gains that other areas should make.

We need to change council tax banding. The argument has already been made for extra bands at the lower and top ends of the scale. Extra bands at the top end would allow more money to be raised locally through taxation, and that could be taken into account when considering allocation of funds under the ACA. The value of properties at the top of the bottom band is eight times lower than that of properties at the bottom of the top band, but the taxation figure is only three times lower. That should be changed, as what was known as the Mates amendment sought to change the same problem with regard to the poll tax. Only a limited change has been made so far.

Fundamental review is necessary, and quickly. It would have been helpful to examine many other areas, such as education and police funding, but time has caught up with me. I was allowed only half a minute for every one of those 15 years.

3.59 pm

Mr. James Clappison (Hertsmere)

In the brief time available to me, I shall endeavour to correct the misapprehension that some people have about Hertfordshire, and about my constituency in particular. Labour Members should know that, although my constituency and Hertfordshire as a whole contain some areas that are affluent by national standards, they also contain poor areas. At least four wards in my constituency qualify for funding from the single regeneration budget. People there receive local government services as well, and they pay taxes. My fear is that the overall effect of the proposals for them and for my other constituents will either be a reduction in services for the same level of funding, or a very big increase in council tax bills.

Ministers have condemned the existing SSA system for failing to deliver a standard of level of service for a standard tax. However, from the outset it is clear that the funding to be made available for Hertfordshire will not provide a standard level of service—not least as far as the police are concerned.

The police service is one of the most vital social services. The effect of the proposals on policing in Hertfordshire is clear cut and stark. Hertfordshire loses out significantly under each of the five options set out for consultation.

In response to the formula grant distribution paper, the chairman of the Hertfordshire police authority wrote to Ministers to express his concern at the damaging effect that the proposals in the Formula Grant Distribution Paper will have on policing in Hertfordshire. In the worst case, Hertfordshire could lose some £8.8 million, or 7.2 per cent. of funding, which is equivalent to over 300 Police Officers. This would have a dramatic impact on our ability to meet local and national policing priorities. My constituents share that concern about the results of the proposed formula. They emphatically do not believe that law and order problems deserve lower priority, in Hertfordshire, than elsewhere. My constituents who live in some of the areas that I described are the ones most strongly in favour of having more, rather than fewer, bobbies on the beat, and of achieving faster police reaction times in emergencies. They have full confidence in the Hertfordshire force, but they are increasingly aware of the recruitment problems that the force is experiencing, given that the neighbouring Metropolitan police force can offer a substantially higher allowance to recruits.

Moreover, police numbers in Hertfordshire have fallen since the last general election. They have barely risen since 1997, even though the Hertfordshire force has assumed responsibility for a much larger area. The last thing my constituents want is a reduction in the resources available to the police in Hertfordshire.

The same picture applies to other vital public services. Some hon. Members have described an overall shift of resources away from the south-east and counties such as Hertfordshire, and they are right to do so.

Ministers respond by saying that there will be a system of floors and ceilings, but the only guarantee given so far is that no authority will face a cut in grant. Account must be taken of the pressures of inflation and of the pay pressures that will be inevitable. The latter will include the effects of the increase in local authority employers' national insurance contributions. We shall wait and see whether the floor will be higher than has been set out, but the Hertfordshire local authority fears that if it is anything like what it forecasts residents will face a substantial council tax increase.

My right hon. Friend the Member for North-West Hampshire (Sir G. Young) mentioned previous systems of local taxation. I well remember what was said about the implications of having floors and ceilings when the community charge was introduced. I was a parliamentary candidate in a by-election in the part of the world that the right hon. Member for Birkenhead (Mr. Field) represents at the time when the poll tax was introduced. I tried to argue that the effects of the poll tax would be mitigated by the provision of a floor. If Ministers and their parliamentary election candidates want to go down that road, I wish them more luck than I enjoyed on Merseyside.

The hon. Member for Bath (Mr. Foster) took us back to 1734 for an example of the outcry that he thinks could arise as a result of the proposals, and he mentioned the excise tax. I hesitate to say so, but that tax was introduced by Sir Robert Walpole, one of the hon. Gentleman's spiritual predecessors. It was opposed by the Tories of the time, but the example shows what local outcry could go up as a result of local taxation changes. In its own way, this set of proposals could produce a similar outcry when its implications are realised by people in the worst affected counties.

One of those counties is Hertfordshire. A very substantial shift in resources is taking place. My constituents, and others, are faced with the prospect either of reduced services or of a considerable increase in council tax bills to provide a standard level of service. I warn Ministers that those people will be very interested in Ministers' view of the proposals. They will want to see how Ministers respond to the considered and proper concerns expressed by the Hertfordshire local authorities, including Hertfordshire county council.

4.5 pm

Ms Karen Buck (Regent's Park and Kensington, North)

I am from London. Although meetings of London Labour MPs might as well begin with a few rousing chants of the Millwall football supporters' chorus "Everybody hates us and we don't care". I promise the House that we do care. It is very important that there is some mutual understanding of the pressures facing local authorities in different parts of the country. I have always had huge sympathy for those local authorities in the north and elsewhere that faced great pressure in trying to deal with the devastating economic collapse as a consequence of Conservative policy. Those authorities have had to deal also with the effects of falling populations. All I and my colleagues in London ask is that there is a similar degree of recognition of the pressures and demands that face us.

I do not believe that the formula as currently structured gives us what we are looking for, which is a closer reflection in Government grant allocations of the need to spend. It is very hard to see how the need to spend is reflected in the options under consideration, essentially in the formula's personal social services and environmental services block. The reasons for that are many and diverse, but they are rooted in the impact of deprivation.

I hope that the House will accept certain facts. London has the highest level of child poverty in Britain, and the reduction in child poverty that has taken place in London is smaller than in any other region. More households are without work in London than in any other region. A quarter of the country's problem drug users are in London, and two thirds of all the homeless people in the country are concentrated in London. Local authorities in the city support 40,000 destitute asylum seekers. Twice as many children in inner London are eligible for free school dinners as in any other area of the country. My constituency of Regent's Park and Kensington, North sounds like an elysian paradise, but it has the seventh highest eligibility for free school dinners in the country. Those levels of deprivation need to be understood in the formula, and I hope that they gain some degree of recognition among colleagues in the House.

It is also extremely important that the complex pressures of ethnicity and deprivation, and their interaction, are understood My right hon. Friend the Member for Birkenhead (Mr. Field) spoke about that balance. I accept that ethnicity is not necessarily and always a proxy for disadvantage, but the complex ethnicity now appearing in London and elsewhere—including Slough—is completely different from the simple presence of an ethnic minority population. I hope that my right hon. Friend will accept that. There are 300 languages spoken in London's schools. That creates a demand for spending and support that is not recognised by deprivation indicators in general.

I turn now to personal social services. The education formula gives considerable recognition to the costs of meeting ethnicity, but that requirement is not always properly reflected in other service areas. Personal social services in London are overstretched precisely because they have to deal with 300 different languages, and with the related issue of high turnover and mobility. High turnover is a huge pressure on schools. In many primary schools in London, no pupil at key stage 2 was in the school for key stage 1, but high turnover also places huge demands and pressures on personal social services. London also has twice the rate of mental health admissions of other parts of the country. Many of these factors are related.

London is changing at a rate probably not seen by any western city in the past century. We are now absorbing 100,000 international migrants a year. Although that is exciting, challenging and probably necessary, it places a demand on all our health and local authority services. If we do not meet that demand properly, there will be serious consequences. Yet under the proposed formula, London councils, which spend £356 million above their standard spending assessment at present, could lose between £38 million and £140 million. I do not see that that is in any way a reflection of the need to spend. That is why I am arguing, as my colleagues would have done if we had had more time, for London authorities to get a fair deal. I also want a fair deal for other communities. These are the ways in which I believe the Government could provide that.

Andrew Bennett

Does my hon. Friend recognise that almost all Labour Members accept that she should get a fair deal, but we are concerned that an awful lot of people in London still pay a lot less in council tax than people in other parts of the country?

Ms Buck

I accept that there are disparities which have historical roots, and that there is a need to change them. I am most concerned about the fact that the majority of London councils are Labour controlled and levy a high council tax. If we allow for the fact that there are fewer band A and B properties in London than anywhere else, our council tax levels are higher than elsewhere.

Mr. David Chaytor (Bury, North)

Will my hon. Friend give way? It is on this point.

Ms Buck

I cannot give way any more; only two London Members have been called to speak from the Labour Benches, and I am sure that other people will have an opportunity to make their point.

We in London are asking for a fair deal; the floor that many authorities are likely to be on should be set at a level that ensures that services are protected. Secondly, we want all the options in the personal social services proposals to be reconsidered. I believe them to be technically deficient—they were designed to reflect higher levels of need yet, perversely, they seem to do the opposite. We do not believe that any of the options in the personal social services formulae are reasonable.

Thirdly, we need to ensure that the environmental services proposals reflect London's needs. Last year, more abandoned cars were removed in Merton, in the constituency of my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh), than in the whole of Manchester. That is the scale of the environmental pressure in London. It should also be recognised that in the streets of the west end there are more visitors at 3 o'clock in the morning than at 3 o'clock in the afternoon, yet there is no specific weighting for this huge number of night-time visitors and the pressure that they put on services. We need an option in the environmental services block that allows us to provide a quality environment right across London. That effectively means the fourth option in the environmental services block, but weighted for visitors and commuters.

We also need the Government to recognise the impact of high population turnover and mobility, particularly on social services and education. It is correlated largely, but not entirely, with ethnicity. We need local education services to be funded on the basis of the school, not the resident, population. They are entirely different in London, although not necessarily in other parts of the country.

In my view, we need to be wary about the working families tax credit—

Mr. Deputy Speaker

Order.

4.13 pm

Matthew Green (Ludlow)

I welcome this review, because we have waited a long time in Shropshire. During the past decade we saw services slashed year on year and large council tax rises as a result of the changes that the Conservative Government made to local government finance. As has already been mentioned, we are in with the f40 group and with the northern alliance. I pay tribute to both campaigns.

I want to be constructive in my approach to the problems. Resource equalisation is the almost invisible problem; I do not think that its implications have always been thought out fully. All the proposals equalisation would create quite perverse outcomes as they would take resources away from low-spending authorities with relatively buoyant local tax bases—largely shire counties—and direct them towards traditionally overspending authorities in areas of lower council tax value. The proposal would remove grant funding from shire areas that are already funding services above SSA to London authorities that are spending below SSA. The result would be to create massive turbulence in the funding of local government services. The revised funding formula already provides a system of resource equalisation. There should be no changes to the current methodology of resource equalisation.

The problems with resource equalisation are that the options are based on past spending patterns which the Government have stated that they wish to move away from as a matter of principle. High spending is rewarded, taking no account of policy decisions underlying such spending or the quality of service provided. The provision for deprivation in urban areas, already addressed in the needs-based formula, are double-counted. No detailed research has been undertaken into the case for any of the options.

If the Government accept higher needs to spend, they should make their own contribution and not leave council tax payers to foot the bill. The redistribution effect is anomalous and cannot easily be justified when compared with the pattern of existing budget and SSA variations.

We have heard a fair amount about the area cost adjustment, in the past decade, which grew from £500 million to around £2 billion. The increase has been twice that in local government funding as a whole. That has meant that in the past decade, money has been moving away from the areas outside the area cost adjustment.

Sparsity has also been mentioned. It has been recognised in the schools blocks for primary and for the local education authority block for transport. However, it has not been recognised for early years settings, the private, voluntary and LEA-maintained settings that are often on an even more geographically spread basis than primary schools. It has not been recognised for secondary schools nor for the additional costs of providing support services such as special educational needs specialist services or information and communications technology networks over sparsely populated areas.

Department for Education and Skills officials went on record at the Local Government Association education finance conference to say that they had been given no evidence of a need for sparsity beyond the levels in the consultation model. However, I know that work done separately by Professor Ros Levacic and Rita Hale Consultants has come to different conclusions. A copy of the Institute of Education, University of London research outlining many of these matters was forwarded to officials at the Department for Education and Skills and the Office of the Deputy Prime Minister during the consultation period.

The work of Professor Ros Levacic and Antonia Simon highlights a number of recommendations. For example, SSA for sparsity in the schools blocks should be revised upwards to ensure that LEAs are adequately compensated for the additional costs of small schools owing to sparsity. The increase required in the SSA is in the region of £74.8 million in this year's costs. LEAs should be funded for the greater costs of small secondary schools due to sparsity as well as the primary sub-block.

The formula proposed by the education funding strategy group for funding home to school transport should be reviewed to ensure that it correctly reflects the relationship between sparsity and expenditure on school transport.

I wish to add my voice to the calls for the inclusion of working families tax credit in the arrangements for recognising deprivation. Incorporating working families tax credit recognises the effect that low pay within the family can have on education needs. Ignoring working families tax credit excludes recognition of needs in low-income economy areas. Introducing working families tax credit would reduce the economy-related volatility in the distribution of deprivation funding.

Mr. Edward Davey

Does my hon. Friend realise that the working families tax credit is not taken up in London anywhere near as much as it could be compared with other regions? If WFTC is to be included, it should be on the basis of eligibility and not take-up.

Matthew Green

I agree. That is a fair point. The key is that real deprivation must be recognised—including people with low pay and with no pay. We need to find a proper way to recognise that.

The roads block has not been mentioned. The formula is being based on previous spend on roads. This has been raised in the seminars and I realise that Ministers have rightly said that they have struggled to find another formula that works properly for roads. I would like some more to be work done on the subject, however. In Shropshire and in many other rural counties in the past decade, county councils have rightly preserved their education and social services spending, but cut their roads spending. They did so because one can always repair a road later but one cannot repair a child's education or the results of a lack of care by social services.

If road spending is to be based on that of previous years, those areas in which such spending has suffered in the past and which have a huge backlog of repairs will not receive fair funding to maintain their road network.

4.21 pm

Dr. Desmond Turner (Brighton, Kemptown)

I recognise that there is a perception that local authorities in the south enjoy an unfair advantage over those north of Watford. That is not a universal truth, however, and I ask my right hon. Friend the Secretary of State to be careful to ensure that in the process of rectifying perceived injustices he does not, even unintentionally, produce new ones.

I note, for instance, that one of the greatest perceived injustices has been the treatment of Wandsworth and Westminster. They are hardly touched by this review, so it has almost failed at the first fence if one uses that marker. There are authorities in the south-east where any external impression of prosperity masks areas of considerable deprivation, with consequent extra demand on council services, but which are set in a high-cost area. My own unitary authority, Brighton and Hove, is just such a case. My hon. Friend the Member for Pudsey (Mr. Truswell) wanted some justification for the existing area cost adjustment. My authority will give him that. I can show him the devastating effect that withdrawing such support as the authority has got under the formula would have.

I am not simply pleading for Brighton and Hove to be a special case, or having a good whinge as my hon. Friend the Member for West Ham (Mr. Banks) might say. If I did not have a bit of a whinge, however, I would be failing my constituents. My authority strikingly illustrates the problems that will also apply to a greater or lesser extent to some other authorities in the south-east.

Ms Julia Drown (South Swindon)

This issue does not affect the south-east alone. As my hon. Friend will know, in Swindon, which is the worst-funded unitary authority and one of the four of the f40 group that fails to gain on any of the education funding formulas, high costs are a real issue. That area suffers similar deprivation problems to Brighton. Does my hon. Friend agree that the area cost adjustment formula needs to be changed so that the likes of Swindon are taken into account as well as Brighton?

Dr. Turner

I have great sympathy with my hon. Friend. I want us to come up with a just solution and I do not think that we have got there yet in the proposals that are out for consultation.

Brighton and Hove have some of the most deprived wards in the country—sufficiently so for two of them to have been selected as a pathfinder for the new deal for communities. There are 17 pathfinders in the country and only the most deprived areas have been selected. Of the rest of the wards, approximately two thirds are among the top 20 for deprivation. Those hon. Members who come to Brighton, look at the sea front and think, "This is great, I like it," might not like it if they lived in some of the more deprived parts of the city. They would see a very different side of Brighton and Hove there.

Judy Mallaber (Amber Valley)

Will my hon. Friend give way?

Dr. Turner

I cannot give way too often.

We also have extremely high housing costs in my area—some of the highest in the country, and among the fastest rising prices at present. In that respect, we are no different from most of London. Some of our key statistical indicators, such as the number of children in care or on the at-risk register, could be superimposed on those for inner London boroughs. Our unemployment is 50 per cent. above the national average. We have grave difficulty in recruiting and retaining key workers in public services. For example, we have a 25 per cent. vacancy rate for social workers in child protection, which is a grave issue in Brighton as we have had some serious cases. That shortage is the last thing we want.

We have a general difficulty with recruiting to local government posts. Often, we get only one qualified applicant, if any. Some posts have to be readvertised. In common with the health service in the locality, the council has to spend more on recruitment and retention packages to get anyone. All those problems are a result of very high housing costs. A reasonably qualified and experienced teacher's salary will not finance the purchase of the cheapest one-bedroom flat in Brighton and Hove.

The council has been stuck for some time in a vicious circle of spending cuts and large council tax rises. Under the proposals as set out in the consultation paper, even allowing for the floor, Brighton and Hove will be dealt a devastating blow. It has some of the same characteristics as a London borough, but it is being treated much worse than the London boroughs under the options set out in the consultative document. When one reads the document that fact is glaring. We are listed next to Bristol and we always feel that we have a great deal in common with that city, but it is treated quite well and we are treated appallingly. There is thus a dramatic difference in the way in which two similar authorities are treated under the proposals.

Some of my hon. Friends have been highly amused when Conservative Members have pleaded poverty on behalf of East Sussex. I must tell my hon. Friends that, for once, those Conservative Members were right. I served my time on East Sussex county council as a Brighton member before local government reorganisation. I know the county well and I know its problems. There is much deprivation. It used to be a low-spending Tory-controlled authority, which has not helped it, as it started from a low base. Also, given the GDP per capita, the area would qualify for objective 1 status under European funding. That is another area that could be badly hit by the proposals because it already has some very under-supported services.

We are expecting an increase in the number of policemen in Sussex. The Home Secretary has promised that increase, but a 9 per cent. cut in funding for the Sussex police will clearly make that impossible. We suffer from the problem of being next door to the Metropolitan police who are poaching officers by offering them £5,000 a year extra and free travel. The Sussex police will not do well out of this proposal.

We are nowhere near getting this formula right. We must get a true picture of deprivation, but we must mix it with a real definition of the actual costs of providing a reasonable level of service in all authorities throughout the country. The proposals that are before us do not just need a little tweaking, they need rather a lot, and I hope that my right hon. Friend the Secretary of State will do that.

4.30 pm

Mr. Geoffrey Clifton-Brown (Cotswold)

It is a privilege to wind up on behalf of the Opposition in this highly important debate continued from 15 October. There have been about 27 speeches, in addition to the two or three on 15 October, which shows the widespread interest in this extremely important subject. There were probably as many people on the two days who did not manage to catch your eye because of time, Mr. Deputy Speaker, and I must therefore protest to the Government that we should have had more time—in fact, a full day's debate—for these highly important proposals. As they cover 25 per cent. of all public spending, it is essential that we get them right.

The Government made the reform of local government spending a manifesto commitment in 1997. They have spent the last five years thinking hard about what to do and in July they came up with the big tome that we are discussing, yet they have given us and the general public only three months to consult on it, and two of those months were part of the summer recess when many people were on holiday. The Government have not given experts in the field or the general public much time to express their views on the subject, so I hope that Ministers will continue to receive representations sympathetically. I was especially touched by the comment of my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo) that the Minister for Local Government and the Regions had refused to discuss the matter with him. I hope that that will be put right.

The debate is important because only once every 10 years do we have the chance to effect changes to local government finance. The matter is highly complex. The present system covers 120 measures, many of which involve complicated maths, including regression analysis. As my hon. Friend the Member for Mole Valley (Sir P. Beresford) pointed out, if it is simple, it is not fair; and if it is fair, it is certainly not simple. Whatever Ministers say, the new system will not be simple.

The hon. Member for Bath (Mr. Foster) said that we should delay the whole matter for a further year, but I cannot agree. I congratulate the hon. Gentleman on his new post. I gather that he has been promoted to the transport brief, but I am sorry that we shall lose him on local government matters. As my hon. Friend the Member for West Derbyshire (Mr. McLoughlin) pointed out, the NAS/UWT believes that implementation should take place in the forthcoming financial year, and I have a great deal of sympathy with that view.

I cannot refer to all 27 speeches, but I shall take up some of the more significant points. The speech of the hon. Member for Denton and Reddish (Andrew Bennett), the Chairman of the Select Committee, was especially interesting His comments, like those of many of his hon. Friends, were almost universally critical of the Government's proposals. I was particularly impressed by his observation that there should be more discretion on local spending. We all say amen to that. My hon. Friend the Member for Mole Valley made the same point: there should be less specific and general grant, less top-ups, less ring fencing and more discretion for local authorities to spend as they please. I wholly agreed with him.

We heard an erudite and articulate speech from my right hon. Friend the Member for Kensington and Chelsea, who made an interesting point about floors and ceilings, which amplified an intervention that I made on 15 October. Will the Minister give us a reassurance on that point? Will he guarantee that no authority will lose out in either cash terms or real terms in any of its expenditure blocks in this year's settlement under the new system compared with the present system? The consultation paper already gives that guarantee for education, but will the Minister extend it to all the other expenditure blocks? As the annual rate of local authority inflation, including pay settlements, is running at between 5 and 6 per cent., and I am asking the Minister for a real-terms guarantee in years one, two and three of the current rate of inflation of 2.5 per cent., perhaps he will be able to accede to my request.

The paper is highly complex. It covers all seven local authority expenditure blocks, each of which has between two and five options. It also deals with resource equalisation, fixed costs, sluggish costs and declining populations. We are dealing with a complicated subject, but my hon. Friends have made some telling points.

My right hon. Friend, like the hon. Member for Regent's Park and Kensington, North (Ms Buck), referred to the real difficulties posed by changes in London, not the least of which is the large number of commuters and visitors who come into London every day.

My right hon. Friend the Member for North-West Hampshire (Sir G. Young) made some perceptive remarks. He set out the fears of Opposition Members and of many people in local government that the proposals are a mechanism to transfer money from smaller, efficient and low-spending rural and shire counties to the profligate and less efficient northern and high-spending councils. He pointed out that as much as £80 million might be lost in Hampshire, which amounted to two teachers in every school.

My right hon. Friend also explained that if core funding is withdrawn by the Government, any increase will have to be borne by council tax payers. In my authority, Gloucestershire, the ratio of core funding to council tax is about three to one, so £3 has to be raised locally to make up for every £1 lost from central Government. My right hon. Friend pointed out that only a very imperfect system would rely on council tax increases, because property values do not necessarily reflect spending patterns, especially those of pensioners and people on fixed incomes. Such a system would act regressively on poorer and less advantaged groups in society. I hope that the Government will not take the line of forcing some local authorities to impose council tax increases that are greatly in excess of inflation. That would hit disadvantaged groups very hard indeed.

Judy Mallaber

The hon. Gentleman referred to the possibility that money might be transferred to other parts of the country. I come from a rural coalfields area, which the Government want to help, and we cannot understand how some of the southern counties receive so much extra per pupil than our area? Can he explain that? Does he agree that there should at least be a floor and that the lowest-funded authorities should reach that level?

Mr. Clifton-Brown

The hon. Lady makes her points in her own way. I can only regret that she had no chance to speak in the debate. If her Government had provided more time for the debate, she might have had that chance. May I suggest that her points could be made in an Adjournment debate?

other Members spoke tellingly. I was especially struck by the contribution made by the hon. Member for Stafford (Mr. Kidney). I cannot discuss the contributions of every Member who has spoken about the f40 group, but I pay tribute to the hon. Gentleman for his work on the group. He has led an effective campaign, in which Gloucestershire was included. It would be wrong to introduce changes in this grant distribution formula that affect councils like Gloucestershire, which is likely to lose funding of as much as £135 per pupil, yet is already one of the lowest-spending authorities.

I also pay tribute to my hon. Friend the Member for South Cambridgeshire (Mr. Lansley) who said that fairness delayed was fairness denied. He rightly pointed out that schools in Cambridgeshire already receive £270 less per pupil than those in neighbouring Hertfordshire.

The real joker in the pack was the hon. Member for West Ham (Mr. Banks). I think he was issuing his new manifesto as putative Mayor of London. I always knew that old Labour was a gamble, but I had not realised that its supporters had a gambling policy and that they wanted to introduce municipal casinos. No doubt that will be part of the hon. Gentleman's manifesto, so the people of London can judge whether the proposal is a good one.

My hon. Friend the Member for Eastbourne (Mr. Waterson) made the perceptive point that his constituency has a particular problem owing to the high percentage of elderly people. Indeed, as I represent a constituency that has the third highest number of people aged over 85, I have a great deal of sympathy with my hon. Friend. Personal social services will be especially affected in local authorities such as my hon. Friend's. Like other hon. Members, he pointed out that in his area health spending will also be affected, so the combined nutcracker effect of cuts in health and social services spending will be misery. There will be more bed blocking and more people waiting for treatment. Throughout the country, more people will suffer.

The new Member for Mid-Dorset and North Poole (Mrs. Brooke) made an interesting contribution. She said that she has received representations saying that there should be no more police in Dorset because the people there could not afford the council tax increases. That is a sort of sideswipe at the Government, but, in my experience of elderly and vulnerable people, they will spend more if they feel that they can obtain more police and feel more secure in their own homes, so I am not sure whether I entirely agree with the Lady on that matter.

My hon. Friend the Member for Bexhill and Battle (Gregory Barker) made the telling point that his county council could be the worst affected in the country. He gave some fairly horrendous figures—a wide band of between £4.1 million and £43 million—and said that that would particularly affect the police force in his constituency. I hope to return to the police if I have time, because that issue is of particular concern.

The right hon. Member for Birkenhead (Mr. Field) spoke very sensibly, as always, and made some telling points about the methodology used in the proposals. I should like to quote quickly the Rural Services Partnership's views on that because the methodology is very important, and I hope that it will be rigorous and soundly based when finally introduced. It says that relatively little independent research has been carried out into the factors that influence the need for or the cost of providing local government services. It goes on: In addition, the RSP's technical case asserts that the work that has been carried out has been compressed into a short timescale and some of it appears to be lacking in rigour. I hope that the Government will be able to attend to that. It concludes: All of this will result in a system, which is instable and could be subject to political interference in the future. I have little doubt that it could be subject to political interference in the future.

My hon. Friend the Member for Isle of Wight (Mr. Turner) made the telling point that the island obviously has costs because of its geographical position. My hon. Friend the Member for Hertsmere (Mr. Clappison) said that his local authority could lose 300 police officers, and he is not alone in the shire authorities. In particular, the proposals on the police are very worrying.

I think that I have covered the contributions of all my hon. Friends. There were telling contributions from Labour and Liberal Democrat Members, but I do not have time to deal with all of them.

I am concerned—my hon. Friend the Member for Mole Valley touched on this—that the Government have increasingly proscribed the way in which local authorities can spend their money with special and specific grants, top-ups and so on. There are also legal obligations as to the services that local authorities have to supply—for example, in education and personal social services. So if there is a shortage of money because of the Government's proposals, the areas of discretionary expenditure that remain—for example, highways—are likely to be particularly badly hit. That must be a real worry.

As I have said, there are seven blocks in the discretionary paper, and there are some worrying proposals. Most worrying of all is the resource equalisation proposal. As always, the devil is in the detail, and the resource equalisation proposals are right at the back in chapter 11. If hon. Members did not reach chapter 11 in this huge tome, they should look at the proposals in option RE2, which show that the shire counties and district councils could lose a staggering £328 million. Indeed, the south-east and south-west alone could lose a staggering £128 million.

It must be wrong that efficient low-spending councils' money is being redistributed, because of their tax base, to high-spending, often highly indebted, highly inefficient, northern Labour councils. That cannot be fair and it cannot be right. Councils that have been prudent over the years should be allowed to provide a reasonable level of service.

The next particularly worrying block is that for the police, under which, for example, Devon stands to lose 200 police officers.

The third particularly worrying block is that for environmental, protective and cultural services. Again, my right hon. Friend the Member for Kensington and Chelsea will be interested in the fact that one of the proposals—EPC3—does not allow for commuters and day visitors, so London would lose £272 million under that proposal. Under EPC4, the shires and districts would lose a staggering £259 million because the weighting for deprivation, commuters and visitors would be removed.

As my hon. Friends have said, this proposal is one of Labour's redistributive measures. It is unfair and unfounded, and the Labour party should take it back to the drawing board. When the people of this country realise that the Labour Government, with their tired brand, are delivering an unfair system, they will vote in the ballot box to remove the Government because of what they have done.

4.45 pm

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

This has been a lively, interesting and detailed debate. There has not necessarily been the consensus that we usually achieve in the House, although I would not necessarily agree with the view of my hon. Friend the Member for West Ham (Mr. Banks) that this was a whingers' debate. That is not true; it was not a whingers' debate, and it has been well-mannered and well-argued in content.

Before I continue, I should like to say that my right hon. Friend the Minister for Local Government and the Regions has asked me to apologise for the fact that he is unable to attend the debate to hear the winding-up speeches.

We are considering a very significant issue today—the formula grant review. We are talking about local authorities in England that currently receive grant via the SSA system. As many hon. Members have said, some 25 per cent. of public spending goes through local government, most of which comes from central Government, with the balance raised locally via council tax. For some time, the Government have been reviewing the fundamentals of how those resources are divided between authorities. Although it might be an obvious thing to say, we do not have limitless funds. A finite pot of grant is shared by reference to an authority's circumstances and to its ability to raise council tax.

As my hon. Friend the Member for Stafford (Mr. Kidney) recognised in his contribution, three basic factors form the foundation of the system: the basic amount per head of population, an appropriate emphasis on the need to tackle deprivation and reflections of the variations in pay costs between areas. Of course there are other components.

Richard Burden (Birmingham, Northfield)

Will my hon. Friend comment on two things? First, in relation to deprivation, the PricewaterhouseCoopers report referred to unmet need as real need that should be addressed. Will that be given full weight in the Government's response? Secondly, I hope that my hon. Friend will understand that the fact that there was no contribution today from the west midlands conurbation, which includes England's largest local authority, Birmingham, indicates not a lack of interest, but a lack of time. May I draw his attention to the letter that has been written on behalf of Birmingham MPs to our right hon. Friend the Deputy Prime Minister?

Mr. Leslie

I very much appreciate my hon. Friend's contribution. I am certainly not taking the weight of contributions as a measure of how to make a judgment on this matter. There has been a long and extremely thorough consultation process.

Mr. Mark Todd (South Derbyshire)

I thank my hon. Friend for commenting on the issue of how to adjust for variable costs in local government. Of the various formulae presented, surely the one that commends itself most obviously is that used in the national health service, which avoids the cliff edge, is already in place and is clearly a tried model used across the country?

Mr. Leslie

I shall come in a moment to issues in respect of area cost adjustments. I understand that there is a weight of differences of opinion. Today I want to underline the guarantee that we have been able to give so far about a no cuts arrangement in terms of authorities on a like for like basis for next year. Obviously, we wish to move further on that issue, but that is the state of play before we get into the details and the final decisions.

Mr. Clifton-Brown

May I challenge the Minister again to say whether it is cash for all seven blocks or, as the consultation paper says, in real terms for education? Can he confirm that it will be in real terms for education and all the other blocks? Will his cash guarantee apply for years one, two and three?

Mr. Leslie

The hon. Gentleman will have to wait and see when we come to the final decisions about the grant allocation. All I am saying is that at this particular time we can give that undertaking about no cash loss for any particular authority. Obviously, we hope to do more. The hon. Gentlemant seems to be making spending commitments on behalf of the Opposition. I welcome his conversion to a real terms commitment to growth for local government spending and I shall have to remember hat for a later date.

Several hon. Members

rose—

Mr. Leslie

I do not have much time. I should like to make some progress and then I may give way later.

The hon. Member for Bath (Mr. Foster) suggested that it would be better to postpone the change in the system for a year or so, although on 15 October he said: We have waited in vain for five long years for a new formula to replace the current discredited one. I am not sure that there is necessarily consistency in the Liberal Democrat arguments. I am glad that the hon. Members for West Derbyshire (Mr. McLoughlin), for South-East Cambridgeshire (Mr. Paice) and for Cambridge (Mrs. Campbell) urged the Government to make progress in terms of implementing the results of the review. There is never a right time, but I think that we should make progress straight away.

Clearly, many hon. Members are concerned about deprivation, and rightly so. The factors reflecting deprivation need to be relevant in the particular services that are provided. They need to be relevant and applicable to all authorities. We need to avoid perverse incentives in the formula. For example, it would not make sense if we had a formula that rewarded school absenteeism. We need to reflect genuine need. Those are important issues. How much weight we give to those issues is of particular concern. My hon. Friends the Members for Wigan (Mr. Turner), for Pudsey (Mr. Truswell) and for St. Helens, North (Mr. Watts), and my right hon. Friend the Member for Birkenhead (Mr. Field) raised important issues in respect of deprivation, as did the hon. Member for Torridge and West Devon (Mr. Burnett) in terms of whether working families tax credit and income support come into the deprivation calculation.

Mr. Swire

The Minister referred to Devon county council's plea that working families tax credit be taken into account in an area that has a lot of low paid workers but is not too bad on unemployment. Will he give that his utmost consideration because it is a serious factor that will affect the outcome for Devon?

Mr. Leslie

I hear what the hon. Gentleman says. We shall have to weigh up those factors in the process of reaching final decisions. A number of options look at incorporating working families tax credit into the calculations on deprivation.

A number of hon. Members raised the education allocations. Clearly, those are significant proportions of funding. The document for consultation had four cross-cutting blocks, including variables reflecting deprivation issues, additional educational needs, area cost adjustment and so on. The f40 group of authorities was well represented in the debate by my hon. Friends the Members for Stafford and for Newcastle-under-Lyme (Paul Farrelly), the hon. Member for Mid-Dorset and North Poole (Mrs. Brooke), and many others. The Government will consider option 5 as submitted and the other suggestions. I understand the strength of feeling, but there is a need to balance the desire of f40 authorities for a high basic entitlement with the need adequately to tackle deprivation and educational under-achievement in certain areas.

Judy Mallaber

Will the Minister also consider a suggestion that I put in my submission but was unable to make today, which is that there is a floor, perhaps at the lower quartile level once the calculations have been done, so that the lowest funded education authorities do not fall below that level?

Mr. Leslie

My hon. Friend helpfully moves the issue forward to floors and ceilings in general, and the guarantee that I mentioned earlier in terms of no cash cuts at this particular stage is relevant to her point. The hon. Member for Mole Valley (Sir P. Beresford), and the right hon. Member for Kensington and Chelsea (Mr. Portillo) questioned the guarantee. Of course we hope that we can do better than the commitment so far. Decisions on the levels of floors and ceilings are the next stage in the deliberations. We want to set those at realistic levels, taking into account the grant available and the range of outcomes for individual authorities. We hope that announcements will be made before early December—[Laughter.]

Sir Paul Beresford

I apologise for my levity. Does the guarantee apply to police authorities?

Mr. Leslie

No authority receiving grant will incur a cash loss. That is the guarantee that we have been able to give at this stage. Clearly, we hope to do better.

The right hon. Member for Kensington and Chelsea—who has left in his taxi, unfortunately, although the hon. Member for Cotswold (Mr. Clifton-Brown) mentioned him frequently, which was interesting and perhaps I will analyse that later—and my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) also touched on the issue of the census. I understand the issue to which they refer, and, while we will use census information as the best available data, it will be covered by the floor guarantee that I mentioned.

Area cost adjustment is a big issue, which is very significant, and most Members accept that there are greater pay costs in different places, which is a difficult issue to address. My hon. Friend the Member for Stroud (Mr. Drew), the hon. Members for Brentwood and Ongar (Mr. Pickles) and for South Cambridgeshire (Mr. Lansley), and my hon. Friend the Member for Brighton, Kemptown argued that greater consideration needed to be given to area cost. My hon. Friends the Members for Normanton (Mr. O'Brien), for Pudsey and for North-East Derbyshire (Mr. Barnes), along with other hon. Members, were of a slightly different opinion. Whether area cost adjustment can reflect the true costs involved is an extremely important issue, and we need to make sure that we are as fair as we can be about such options.

Resource equalisation is another extremely technical issue, which is very difficult to address. My hon. Friend the Member for Stafford, the hon. Member for South Cambridgeshire and the hon. Member for Ludlow (Matthew Green) all raised the issue. Basically, it is about taking account of an authority's ability to raise council tax when distributing the grant. The argument is whether it is fairer to take more account of an authority's relative council tax base. Again, I have listened carefully to the views expressed, and I hope that we will be able to take these matters into account.

Clearly, the grant distribution system is one of the most important issues affecting public services. Getting it right is absolutely vital. We have therefore taken great care to talk to local councillors, Members of Parliament and other local government representative bodies over recent months. Much of the work is extremely detailed and technical, and I would like to place on record my thanks for the efforts and energies put in to responding to the consultation process. In trying hard to secure the widest possible involvement of all stakeholders, we hope that the eventual results prove more robust, reliable and authoritative. It has not always been possible to exploit every single avenue proposed, and we cannot promise that everyone will he ecstatic about the results. In my view, however, it is better to have approached the issue with an open mind, listening to concerns and basing decisions on the evidence before us, than to stick with the status quo or take the easy option of inaction and no change.

My hon. Friend the Member for Denton and Reddish (Andrew Bennett) hit the nail on the head when he invited me to go to Bull's Head public house in his constituency to try to explain the formula—that might take an extra pint or two. In respect of the points made by the hon. Member for West Derbyshire, who urged greater transparency, those familiar with the intricacies of local government finance—they are few and far between—will have an instinctive desire for a simplification of the formula used to distribute grant. One of the reasons why we embarked on the review was to try to clear away the mass of complications and complexities that has tied up the system so much.

Mr. Mark Francois (Rayleigh)

rose—

Richard Younger-Ross (Teignbridge)

rose—

Mr. Leslie

We intend to simplify where we can, but if there are clear reasons why options need to be improved or made less crude, we will have to face up to those decisions. We do not want to oversimplify, but we do want to strike the right note to deliver confidence and understanding in the system.

Mr. Don Foster

Will the Minister give way?

Mr. Leslie

I am afraid that I do not have time.

Transparency must be our ultimate goal. If aspects of the formula can be seen as logical and rational, and based on clear reasons, that will be a major step forward.

Many former local government Ministers have participated in the debate this afternoon. At this moment, I feel a great deal of respect and affinity with what they endured during their tenure. My right hon. Friend the Minister for Local Government and the Regions and I have met countless representatives, and we will try our best to strike the right balance in all these matters. What we see is a move forward from—and the demise of—the standard spending assessment. It failed because it tried to dictate centrally what local councils should be spending. That cannot be done by the Government. This Government want to invest more in local government services. Unlike the Conservatives, who cut council spending by 7 per cent. in real terms, we want to make sure that extra spending goes in. We have put in an extra 20 per cent. on top of inflation since we came to power, and a massive 5 per cent. real terms rise for the next financial year. Investing in local democracy and building quality public services is vital. We want a serious boost in services and a boost in investment. Giving councils a decent grant matters. That is the approach that we intend—

It being Five o'clock, the motion for the Adjournment of the House lapsed, without Question put.