HC Deb 19 November 2003 vol 413 cc786-806

1.6 pm

The Minister for Local Government, Regional Governance and Fire (Mr. Nick Raynsford)

With permission, Mr. Deputy Speaker, I should like to make a statement about local authority revenue finance for England in 2004–05.

The provisional settlement that I am announcing today will be the seventh successive one giving an above-inflation increase in funding for local government. It will build on the significant real-terms growth that we have been able to provide since taking office; grants to local government have increased by 29 per cent. in real terms since 1997. That contrasts with a 7 per cent. cut in the last four years of the last Government.

Next year's settlement will see total support from Government grant and business rates of £54.1 billion, which is a cash increase on this year's settlement of £3.3 billion, or 6.5 per cent. The total includes £26.6 billion of revenue support grant, £15 billion in business rates, £4.2 billion in police grant, and £8.3 billion in special and specific grants. Of those totals, £45.8 billion will be distributed by formula to local authorities—an increase of £2.1 billion, or 4.7 per cent.—and I am announcing the detailed allocations today.

In order to provide certainty and stability, and as already announced, we are making no changes to the formula spending share formulae this year. We have made the necessary adaptations to allow combined fire authorities to receive formula grant in their own right.

Floors and ceilings have become an accepted part of the settlement in recent years, and as already announced, we will continue to use this mechanism to set minimum and maximum limits on the percentage increases in grant received by authorities in each year, on a like-for-like basis. This is to ensure that all authorities receive an increase in grant and to avoid sharp short-term fluctuations, which can make forward planning difficult.

For 2004–05, the floor and ceiling for authorities with education and social services responsibilities will be a 3.5 per cent. floor and a 5.8 per cent. ceiling. In some cases, however, authorities will receive more than 5.8 per cent. because we are also guaranteeing that they receive sufficient grant to pass on their schools formula spending share increase in full. For fire authorities, the floor will be 3.5 per cent. and the ceiling, 5 per cent. For both police authorities and shire district councils, we have decided in the interests of stability to set a floor that is close to the average grant increase. These floors are 3.25 per cent. for police authorities and 2.2 per cent. for shire districts. This year, therefore, the floors and ceilings effectively give all authorities in those groups a similar grant increase. As in previous years, we will add to floor or ceiling grant increases any revenue support for new capital allocations issued by the Government.

We have also strengthened the arrangements for schools funding. Our proposals build on those in the statement made by my right hon. Friend the Secretary of State for Education and Skills to the House on 29 October. Schools formula spending share will rise by between 5 per cent. and 6.8 per cent. per pupil in every authority. That means that all authorities will receive an increase in schools FSS that is substantially above inflation, and I reiterate our promise that every authority will receive a matching increase in its formula grant.

The Government's clear expectation is that all authorities should pass the increase on to their schools budgets, other than in wholly exceptional circumstances. We have considered the point put to us by local government that, while it shares our ambitions for schools, it might be difficult to fund them fully because of spending pressures elsewhere. My right hon. Friend the Secretary of State for Education and Skills has already announced £120 million worth of transitional support in 2004–05 to assist with schools spending pressures.

I can announce that the Government are adding a further £300 million to help fund pressures other than those in respect of schools—for example, to help support social or environmental services. That is included in the overall totals that I have quoted, and it means that local authorities will be able to meet our expectations for funding schools, while also improving other services.

We continue to consider carefully whether Government policies impose new spending burdens on local government, and to make provision to fund them if they do. For example, we have agreed with local government that it would be sensible to rationalise the funding of housing and council tax benefit subsidy. In implementing that transfer of responsibility, we have ensured that all properly made claims will be fully funded. Similarly, in respect of local government's new responsibility for the licensing system. I can confirm the commitment already given by my right hon. Friend the Secretary of State for Culture, Media and Sport that we will ensure that the costs of the licensing system are fully covered by the fees. My right hon. Friend the Secretary of State for Environment, Food and Rural Affairs will reduce spending pressures on local government by some £25 million to £35 million in respect of waste next year. Some £10 million of that will come from deferring until 2005—06 the introduction of the landfill allowance trading scheme.

Local authorities have pressed us to reduce the use of ring-fencing—that is, restrictions on the use to which Government grants may be put. We recognise that ring-fenced grants have their proper place in securing specific results, particularly as a short-term measure, but they cut across local accountability and can distort local priorities, so we need to review their use very carefully. I can announce today that from 2004–05, we will remove the ring fence from five social services grants and three grants in the environmental, protective and cultural services block—a total of £750 million in 2004–05, and more in subsequent years. Those grants will be distributed separately from formula grant, so as to distribute the money to the right places, but no conditions will attach to their use. The result will be to bring the proportion of grants that are ring-fenced down from 13.3 per cent. to 11.1 per cent. in 2004–05. We are on course to meet our target of reducing that proportion below 10 per cent. by 2005–06.

Hon. Members will be aware that the main provisions of the Local Government Act 2003 came into effect yesterday. The Act gives local authorities greater freedom to borrow and trade, and enables authorities to retain income from fees and charges. The new prudential borrowing system, which will start on 1 April 2004, coupled with the other financial freedoms, will help local authorities to organise their financial affairs more flexibly and to generate additional revenue.

All that is important to enable local authorities to budget prudently and minimise demands on council tax payers. We are clear about the fact that the current trend in council tax rises is not sustainable. People expect their local councils to set reasonable council tax. They and we are looking to authorities to deliver high-quality services in a cost-effective way. Against the background of further substantial increases in Government grant, and the extension of freedoms and flexibilities to local authorities, large council tax increase are simply not acceptable.

Local authorities should be aware that the Government will examine next year's council tax rises very closely. We will be looking for evidence that authorities have realised efficiency savings. We will take account not only of one year's increases, but of the trend in increases over more than one year. Every local authority, including fire and police authorities, must be in no doubt that we are prepared to use our targeted capping powers in 2004–05, if necessary, to protect the interests of council tax payers.

We recognise that in areas where there is a combined fire authority, next year's budgets will not be comparable with this year's, because the combined fire authority will be a precepting body in its own right for the first time in 2004–05. We will therefore consult the fire authorities and authorities with education and social services responsibilities about the level of earlier years' budgets, which we will use for comparison purposes when we come to consider the use of capping powers.

We are also taking steps to help individual taxpayers directly. Not all those who are entitled to help with their council tax bills are claiming the benefit. My right hon. Friend the Secretary of State for Work and Pensions is therefore working with local authorities to examine a range of options for promoting council tax benefit and encouraging the take-up of council tax benefit by potential beneficiaries. In particular, we want to ensure that the 1.9 million pensioners who will gain, or gain more, council tax benefit on the introduction of pension credit get the extra help to which they are entitled. My right hon. Friend will announce his proposals shortly.

It is worth recalling the measures that the Government have already taken to help pensioners. Compared with the position in 1997, pensioner households will, on average, be more than £1,250 a year better off in real terms—about £24 extra a week. That is as a result of the Government's measures, including above-inflation rises in the basic state pension, free TV licences for the over-75s, the winter fuel payment and the pension credit. As a result of our measures to target the most help on those in greatest need, the poorest third of pensioners will have gained an average of £1,600 a year in real terms since 1997.

The proposed settlement that I have announced today continues the trend of the past six years, which has delivered year-on-year investment increases in local services. In addition to the £3.3 billion extra grant announced today, we have extended the flexibility for councils to deploy resources where they will do most good. We have made the finances of schools more secure, while ensuring that councils retain the ability to tackle other priorities. We have provided a good settlement, on the basis of which local authorities can plan for future improvements in services without unreasonable increases in council tax. Local authorities asked for extra funding, for reductions in ring-fencing, and for no unfunded new burdens. We have responded positively to all three requests. It is now vital that councils meet the expectations of their taxpayers and budget prudently to improve services at a reasonable cost. I commend the settlement to the House.

Mr. David Curry (Skipton and Ripon)

I am grateful to the right hon. Gentleman for early sight of a fairly skeletal statement. He and I have spent a considerable part of our career on opposite sides of the same issues, and I look forward to a constructive, intelligent engagement on a subject that matters enormously to millions of our fellow citizens. I am glad of the healing presence of the Deputy Prime Minister, fresh from his new evening job as anger counsellor.

The Minister has been at his mellifluous, Panglossian best this afternoon.

The Deputy Prime Minister (Mr. John Prescott)

A bit of class.

Mr. Curry

I always bring a bit of class, and if it hangs around, I hope some of it will rub off.

This time last year, the Minister set out proposals that led to utter, unadulterated chaos. I suspect he saw it coming, but the blundering collision of the Deputy Prime Minister and the Secretary of State for Education and Skills—the collision of two bulldozers—left a crater deep enough to bury virtually the entire settlement. It led to confusion and incoherence so complete as to be almost inspirational. It led to the biggest council tax increases for a decade, and a campaign by the Secretary of State for Education and Skills and the Minister for School Standards—the Laurel and Hardy of the Government—to blame everybody but themselves.

The settlement is a panic-stricken and desperate attempt to repair last year's damage. The watermark right through the settlement is panic. [Interruption.] I am glad the hon. Member for Blyth Valley (Mr. Campbell) agrees with me. I accept that the bills for next year will not reproduce the increases that we have seen this year. It is amazing how the imminence of elections can concentrate the mind. However, the mere fact that we do not have another catastrophe is not a virtue in itself. We will see yet again, as we see year after year, an inflation-busting increase in council taxes. Year on year, remorselessly, relentlessly and unremittingly, under this Government, council tax bills soar. Every year, Ministers recite the same old litany and say that the Government's proposals are fair, realistic and even generous. I have the speeches, which are a sort of black Gregorian chant. Each year, however, the inescapable arithmetic reasserts itself—bigger bills or reduced services. [Interruption.] It is very helpful to have been on the Government Benches, as one knows the tricks.

There are things in the statement that I welcome, but they give rise to questions. On the £750 million reduction in ring-fencing, the Minister talked in his statement of payments outside the formula to direct the money to "the right places". Does that mean that the grants must be used in the general sector from which they came, or may they genuinely be applied freely across the range of local government spending? In other words, may earmarked, ring-fenced grants for social services be spent elsewhere?

I welcome the additional funds to help services other than education. Last year, as the Minister will recall, the real crisis was the way in which education spending muscled every other sort of spending out of local government. Yet we all know that there is an historic shortfall in social services funding, and authorities also face the first year of bed-blocking fines, harmonisation of pay costs, mounting charges in care homes, and the cost of the new care standards and developing new arrangements for children's services, to which everybody in the House attaches enormous importance. I want to be reassured that we are not merely moving from catastrophe to disaster and declaring that that is a victory.

What does the Minister mean by the rationalisation of funding of council tax and housing benefit? There is a real problem here, and it is not good enough merely to say that old-age pensioners and people just above benefit level suffer large council tax increases. People on benefits suffer because so many people fall through the net. We know that more than I million potential claimants do not make the claims for which they are eligible.

Mr. Edward Davey (Kingston and Surbiton)

Two million.

Mr. Curry

The hon. Gentleman doubles the figure, but that is a Liberal tendency.

It is necessary to make the benefits more accessible and efficient. Help the Aged has produced some extremely sensible proposals, and I am sure that the Minister will want to take them seriously.

I note the deferment of some demands on council waste management requirements. That is welcome, as too many requirements are piling up without being costed. I bet that that was dragged out of the Secretary of State for Environment, Food and Rural Affairs through clenched teeth and that heels were digging into the earth this morning.

At the heart of the statement was the explicit threat of capping. The Minister appealed to reason. One should beware of Governments when they appeal to reason, but I know just how important that little word "reasonable" is. Indeed, I think that the Government could not function without the concept of reasonableness, which they never define. However, we need to know what is reasonable in this context, as he uttered some serious threats. Is it council tax at inflation, or at twice or three times inflation? is it anything that falls within double figures? Is that what is reasonable in this context? When he says that he will consider the trend over more than one year, does he have an aggregate increase in mind, and if so, over how many years? What level of efficiency gain is he asking local authorities to factor into the equation?

I have a question about the total amount of money available. The Minister announced £54.1 billion in total support from the Government and business rates. The grey book has a projected revenue allocation of £54.5 billion. Are we really facing a settlement that is below forecast? If so, it is below forecast by an amount equivalent to the budget of a London borough.

I have come across a helpful little leaflet headed "National Statistics" and "Office of the Deputy Prime Minister", and called "Local Government Finance—Key Facts", which shows just how draconian Labour's council tax policy has been. It raised £11.24 billion in 1997–98, and it is estimated that it will raise £18.9 billion in the current year. Under Labour, the annual increase in council tax has consistently been three times the rate of inflation. Band D has increased by an average of £413 a year or £8 a week. In London, the band D payment is now more than £1,000 and has increased by 63 per cent. under Labour, so it is no wonder that the Labour party is so anxious to recall Ken Livingstone to the party colours if he can be extracted from his latest demonstration.

We have got used to Labour's pretence that public expenditure can rise painlessly, as borrowing and stealth taxes can take care of it, but the council tax is the tax from which it cannot hide. If I leave a rake on the floor of my tool shed and step on it, it will rear up and smack me in the face. Labour council taxes are that sort of tax; they are straight, up-front, in-your-face, cash-on-the-nail taxes, and as we all know, they hit the worst-off first. There is no escape. When services are delivered by local councils—[Interruption.] Just wait, it's coming. When services are delivered by local councils, every 1 per cent. of increased public expenditure that they have to fund requires a 4 per cent. rise in council tax. Even if the Government were to provide every penny of the increase in aggregate, which never happens, the distribution formulae would require local tax rises.

That is the matrix at the heart of the system, so there is no escape from that stark logic. Public expenditure increases require higher council tax bills. That is not alchemy, accident or miscalculation, but logical necessity. When the Government embark on a massive increase in public expenditure—significantly higher increases than we have seen—

Mr. Ronnie Campbell (Blyth Valley)

He's trying to bring back the poll tax.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I am sorry to interrupt the right hon. Gentleman, but the hon. Member for Blyth Valley (Mr. Campbell) should control his excitement.

Mr. Curry

The hon. Gentleman is repenting of agreeing with my earlier statement.

When the Government embark on a massive increase in public expenditure, well ahead of inflation and significantly higher than in the past, the bigger bills automatically fall on the council tax payer's mat. It is no wonder that when the Minister's beaming countenance appears on the television screen, the prudent householder's hand moves instinctively to protect her wallet. What is the Government's response? It is very predictable. We are told that they are going to take council tax out of the new cost of living index.

The Minister makes much of the arrangements for education funding. This year, education funding was the biggest part of the problem. What we saw did not require the insight of a prophet or sage. At its worst and most perverse, we saw authorities such as Barnet and Essex ordered to increase education funding by more than the total increase in the whole Government grant. We also saw a massive increase in tax to keep essential services in place. It was the classic Labour formula of over-promise and under-delivery, followed by a desperate attempt to dispose of the dead bodies that littered the stage.

The price of the educational override that we now have, which was introduced by the Secretary of State for Education and Skills, is a system yet more complex, difficult to understand and incapable of taking the additional strain. The poor old Deputy Prime Minister has lost another round to the Education Secretary and is reduced to following the Lord Mayor's show and trying to work out how the bits fit together.

I fear that it will be the humble services that suffer in this settlement, at an average of about 2.2 per cent. for district councils. Pavements, street lights, pothole repairs, recreation and parks are the services that are often the closest to the citizen. This is the settlement that could mark the year when the streets begin to crumble. Of course, if the Minister is right and has paid the penance for last year's catastrophe, there will be rejoicing in the streets, and even the pensioners of Devon will invite him down again to share a grateful libation.

This settlement is quite simply bad news. To use the technical expression—I am sure that the Minister is familiar with it—the citizen has been stuffed. It is bad news for pensioners, for people on low incomes, communities and others. It shows the same old spin, blather, centralisation and panic, and the same old Labour.

Mr. Raynsford

I welcome the right hon. Member for Skipton and Ripon (Mr. Curry) to his new position and congratulate him on having come back after his wilderness years to head such an enormous team of former shadow Cabinet members. I hope that they are all happy in their new roles.

I, too, look forward to constructive engagement. It was interesting that the right hon. Gentleman's first comment implied that he accepted that council tax increases will not be as high in the coming year as they were last year. That probably indicates that he has been talking to his colleagues in Conservative local authorities, because it was those authorities that made this year's huge council tax increases of 16 per cent. He knows very well that his party was responsible.

The right hon. Gentleman will doubtless say that it was not those councils that were responsible, but the Government, so I should like him to remember the views of his former boss, the right hon. Member for Suffolk, Coastal (Mr. Gummer), who made similar announcements from this Dispatch Box in the 1990s. He took a very simple view on this issue: When council tax bills go up, it is because the local authority puts them up. It has the control over them."—[Official Report, 27 November 1996; Vol. 286, c. 359.] Does he believe that his former boss was wrong? If, on the other hand, he accepts that view, I hope that he will tell his local authorities to restrain their council tax increases in the coming year.

The right hon. Member for Skipton and Ripon asked a perfectly good, technical question about whether my comment on targeting the grant to the right place implied a different form of ring-fencing. I was referring to geographical location, because a number of such grants are specific and relate to circumstances that apply in some authorities but not others. We will continue to ensure that grants related to deprivation go to the right place—to those authorities that need such help—but, as I made clear in the statement, those grants will be unring-fenced.

The right hon. Gentleman talked about unclaimed council tax benefit and referred to various proposals, including those from Help the Aged, to tackle the problem. We are very conscious of the importance of doing that, and we will look closely at any evidence from Help the Aged and others. Indeed, as I said, my right hon. Friend the Secretary of State for Work and Pensions is actively engaged in that regard. The extension of the pension credit provides an opportunity to ensure that the new, more generous rules bring into entitlement those who previously did not qualify.

The right hon. Gentleman also asked about the level at which capping might apply. He will know very well that there are two possible approaches to capping: one is to specify a level in advance, which is the approach that his party often used to take when in government; the other is to say, as we do, that it is not right to impose such crude and universal capping. However, as a responsible Government we cannot stand aside if authorities persistently increase council tax by unreasonable levels. That is why we retain our reserve powers, which we will use in circumstances where we believe it necessary to do so. We do not want to use them, and we hope that authorities will budget prudently, but we will if necessary, as I have made clear to the House.

The right hon. Gentleman asked about the difference between the figures in the Grey Book and those in the settlement. As he will know from his own experience, it is the result of transfers that sometimes take place. This year, there is a transfer relating to council tax benefit and housing benefit, which in future will be fully reimbursed by the Department for Work and Pensions, rather than requiring a contribution from local authorities, which was supported under the revenue support grant. That explains the discrepancy between the figures.

On band D increases, I remind the right hon. Gentleman that when he and his colleagues were in government, they used to boast proudly, year on year, that the average band D council tax in Tory authorities was £250 a year less than that in Labour authorities. I bet he has not looked carefully at the recent figures. If he does, he will see that the difference has shrunk virtually to nothing, because of disproportionate increases in Tory authorities. He should certainly talk to his colleagues in local government, in order to advise them that they will incur the ire of the electorate if they go on with disproportionate increases.

On gearing, I remind the right hon. Gentleman that that effect is the consequence of the council tax scheme that his Government introduced. Nothing has changed since the scheme was introduced more than 10 years ago. On education, as we have already made clear, we are committed to improving the position of education authorities to ensure that extra money goes to schools but that other council services will not suffer as a result.

The right hon. Gentleman said that district councils are, as I accept, getting a lesser increase than they got last year. Last year, they got a very good increase, averaging 7.5 per cent., but it is tighter this year. The settlement has a floor of 2.2 per cent., but even so, it is an increase. When his party was in government, district councils used to experience actual cuts in their grant, year on year. I shall remind him of the increases in grant from Government to local authorities between 1994 and 1997, when he was in charge of local government: in 1994–95, 1.1 per cent.; in 1995–96, -0.6 per cent.; in 1996–97, 1.2 per cent.; and in 1997–98, 0.2 per cent. Our settlement guarantees an average increase of 4.7 per cent. and builds on six previous years of increases, so it is pretty cool for him to complain about the level of increase. This Government are funding local authorities, and we expect them to set reasonable council tax increases.

Mr. Edward Davey (Kingston and Surbiton)

I thank the Minister for that statement, and join him in welcoming the right hon. Member for Skipton and Ripon (Mr. Curry) to his new position; we look forward to his attacking his own policy on many other occasions. The Minister says that his statement is a good news story for local government. Does he remember saying the very same thing last year? Does he recall that the effect then of that statement was a schools funding crisis and record council tax rises?

Did not the Minister give the game away when. during today's statement, he kept warning councils about their budgets? That was a case of getting his retaliation in first. The truth is that this year's statement is not a good news story for local government either. Many councils, especially those in the shire districts face real-terms cuts because of this low settlement. Is not the timing of the settlement a case of burying bad news under a Bush?

At the heart of the statement is a massive funding gap. Even if the Minister's claim of £300 million extra turns out to be new money, which we very much doubt, does he accept that that will still leave a funding gap of £500 million? Will he confirm that, to fill that gap, authorities will be forced either to hike council tax or to slash services? Will he also admit that the biggest losers in this statement are the police? How can the Government talk tough on antisocial behaviour when they are asking chief constables either to hike council tax precept by 15 per cent. or to cut officers on the front line?

Will the Minister concede that the Treasury, unlike the Office of the Deputy Prime Minister, is assuming an average council tax rise of 7.3 per cent.—nearly three times inflation? How can he wash his hands of council tax rises, given that both he and the Treasury have built an above-inflation council tax rise into their own assumptions? Worse still, in the light of the massive funding gap, is there not a danger of another year of double-digit council tax rises? How can he square that with his stated view that the council tax is at the limit of acceptability?

Given all that, it is surely incumbent on the Minister to be much clearer about his intentions in terms of capping councils. At least we know that the right hon. Member for Skipton and Ripon supports widespread capping: that is what he did when in office—16 times. How does the Minister square his capping threats with Labour's opposition to capping when in opposition? Why did he change his mind? Back in May of this year, he promised not to cap councils rated excellent by the Audit Commission. Why, by August, had he changed his mind again? The Government are in a mess on council tax because they have made this unfair Tory tax even worse, so is not the real answer on council tax to scrap it, not cap it?

On public services, this statement contains many hidden problems. On education, the Government have gone even further down the road of micro-managing every one of England's 21,397 schools. Given that almost every penny of Government support for schools is now ring-fenced, how does the Minister expect local education authorities to manage the £300 million overhang from this year's settlement? How are they expected to deal with their own demand-led spending on special educational needs and school transport? Given that 2,700 rural schools have fewer than 100 pupils, does not this straitjacket settlement imply a massive closure programme and yet another attack on the countryside?

On social services, will the Minister confirm that the settlement will not meet in full authorities' massive cost pressures in respect of services such as fostering and elderly care homes? For shire district councils, the statement looks particularly bad, with the grant for their core services increasing by less than inflation— something that, when in opposition, the Minister called a cut.

Will the Minister confirm that there is a real-terms cut for services such as recycling, cleaner streets and better lighting? Does not the recycling cut show that the environment remains a low priority for the Government?

The Minister may revel in having the poll tax promoter as Conservative leader and the council-capping champ as Tory local government spokesman, but he must recognise that the past cannot help the council tax payers of today. He knows that the council tax is set to soar again. He knows that the statement will do nothing to stem the seething unrest and unease about the spiteful council tax.

Mr. Raynsford

It is difficult to know what sort of settlement we would need to produce to make the Liberal Democrats happy. For years and years, authorities have had above-inflation increases. Again this year, for the seventh time running, local government is receiving an above-inflation settlement across the board. All authorities with education and social services responsibilities have well above-inflation increases, and districts have a near-inflation increase, after years under the previous Government when they faced cuts year on year. When we produce such settlements, the Liberal Democrats say how terrible it is. It reveals that they are living in a never-never land where money grows on trees and they can clamour for more and more resources without thinking about how to deliver value for money and cost-effective services.

The hon. Gentleman said that our £300 million extra left a £500 million gap. Of course, he has taken the Local Government Association's estimate of £800 million extra spending pressure. He has ignored the £120 million extra education funding, so he cannot do his figures.

Matthew Green (Ludlow)

It is not new money.

Mr. Raynsford

It is new money.

First, we can see that the hon. Member for Kingston and Surbiton (Mr. Davey) has not got his figures right. Secondly, those LGA estimates are the typical position of the LGA. When we are approaching a settlement, there is negotiation, and obviously it wants to put the biggest possible gloss on the figures that it presents, so it offers some very imprecise spending estimates. It said that there was a £300 million schools overhang—although the full figures will not be available for some considerable time—and £300 million of additional social services pressures. Those are all figures plucked out of the air. There may be some substance to them, but they are not precise. However, the thing that is most telling is that there is no reference in any of the LGA figures to any possibility of cost savings or efficiency gains—none whatever. A 0.5 per cent. efficiency saving is all that would be required to fill the gap between the extra funding that we are putting in and the grand total of the LGA's somewhat inflated claim, so it does not wash.

The hon. Gentleman said that the Treasury was assuming an average council tax rise of about 7 per cent., but I make it clear that it is not an assumption. Every year, the Treasury puts in a figure based on past years' trends, thinking about what council tax rises might be. We do not assume that it will be at that level. We sincerely hope that it will be significantly lower, but obviously, for public expenditure purposes, the Treasury has to make some calculation, and that is the basis of it.

On capping, the hon. Gentleman asked why we have changed our mind in relation to excellent authorities. I have spelled it out on many occasions. We are reluctant to cap, but we cannot stand aside when authorities put up council tax by completely disproportionate amounts. The London borough of Wandsworth increased its council tax by 57 per cent. last year after cutting it by 25 per cent. the previous year—an election year. Few people would justify that increase—not even Conservative Members would justify it. However, had we said that excellent authorities would continue to be free from the risk of capping, that kind of excess would not have been considered, while other authorities with lesser increases might have been subject to capping. I hope that the hon. Gentleman will recognise that there must be fairness and consistency across all authorities on these matters. I regret the move, but it is inevitable because of the decisions of some irresponsible authorities to up their council tax by more than was necessary.

The hon. Gentleman talks about scrapping the council tax. The Liberal Democrats do so blithely but, as he will know from the questions I have put to him, the implications of introducing a local income tax are far more complex than he and his party suggest, and the administrative costs are likely to be massive. His naive assumption that it can all be done with a saving of £500 million in administration beggars belief.

The hon. Gentleman talks about particular problems of cost pressures on local authorities without talking about the scope for efficiency savings. He talks about more micro-management of schools, but in the past six months we have been working very closely with local government to ensure that effective measures are in place, so that schools get the funding that they want and need, and that local authorities have the means to do that and to fund other services. That is practical work with local government to meet our educational objectives. I am only sorry that he could not welcome that.

Several hon. Members


Madam Deputy Speaker (Sylvia Heal)

Order. May I make a plea for single questions and single answers? Many hon. Members are hoping to catch my eye. I would like to please as many as possible.

Andrew Bennett (Denton and Reddish)

I thank my right hon. Friend for all the hard work that he has put into the local government settlement and for his courtesy and patience when he meets representatives from local authorities about individual settlements, but can he remind us how we got into the situation of a regressive council tax? It was a panic measure from the Tories' poll tax. As a result, we are going to continue to have unfairness in local finance. Will he tell us what progress is being made on the local funding review and whether he is satisfied that the increases in VAT that were imposed when the poll tax came in are finding their way to local government?

Mr. Raynsford

I thank my hon. Friend for his kind remarks about the preparation of the settlement and our work to build a constructive dialogue and partnership with local government. We will continue to do that. He perfectly properly asked how the council tax has got into the position it has, where there is rising public concern about the level of increases in some areas. As I said earlier, the increases have varied from area to area, and some authorities, particularly Conservative authorities, have a very poor record, introducing large council tax increases in recent years. I hope that they will be much more prudent in the coming year. However, I recognise that there are issues about the council tax. It is precisely for that reason that the Government have initiated the balance of funding review, which he inquired about. That review has been going well. We have held three sessions to date. We have taken a lot of evidence. We have invited submissions and we will move on in the next few months to look at a series of options put to us by people who have submitted evidence to the review.

It is too soon to forecast the outcomes of the review. We certainly intend to look closely at a range of options in an open-minded, thorough and rigorous way, but our objective in the long term is to come up with options that will help to inform conclusions by Government on the right way forward to ensure a sustainable basis for local government funding.

Mr. William Hague (Richmond, Yorks)

Will the Minister acknowledge that the population estimates on which his allocations are necessarily made are increasingly controversial or even discredited in some parts of the country as a result of serious shortcomings in the 2001 census? In particular, is he aware that the difficulty of estimating the population around the largest Army base in the country at Catterick in North Yorkshire has led the Office for National Statistics seriously to underestimate the population of the district of Richmondshire? Given that the ONS has conceded that it has been in error—it recently made that concession—can he assure me that the figures that he is publishing today take full account of that error, and that if they do not, he will put it right?

Mr. Raynsford

We have been in fairly regular dialogue with local authorities and the ONS about the statistics on which the settlement is based. The ONS has done some further data-matching exercises with both Westminster and Manchester city councils, where particular problems were identified. The right hon. Gentleman referred to some of the conclusions from that. The ONS will do further work. It is satisfied that, in general, the census was conducted in a thorough and rigorous way, and in many respects was the best and most comprehensive census yet, but there were issues and we are keen that they should be looked at carefully.

I have already given an assurance that, if the ONS revises its population projections on which the settlement is based, we will make an amending report to ensure that those authorities that lost out as a result of the previous calculation are compensated. It is too soon to do that, but I have given that commitment, and that applies to any authority.

Joyce Quin (Gateshead, East and Washington, West)

I support the broad principles adopted by my right hon. Friend in approaching this issue, but I want to express some frustration that Gateshead, which is an excellent authority, once again seems to have been given the lowest rise of any metropolitan authority in Tyne and Wear. Will he look at the situation, and give a clear explanation of what the problem seems to be?

Mr. Raynsford

My right hon. Friend raised this issue with me last year. She rightly says that Gateshead is an excellent authority with an outstanding reputation for delivering good-value services. I shall certainly take on board her question about why it has a lower provisional settlement than surrounding authorities. I suspect that population factors have a lot to do with that, but I shall look into the matter and write to her.

Sir Nicholas Winterton (Macclesfield)

Is the Minister aware that the Treasury has acknowledged that public sector price inflation is currently at 7.8 per cent? Is he convinced that the allocations that he is making to local government—especially to Cheshire and Macclesfield borough council—take that into account? Cost pressures in Cheshire include private sector charges for residential and nursing home care, which have risen by 14 per cent. In addition, bus contracts, which necessarily are a county council responsibility, have risen by between 50 and 60 per cent. How does he justify the allocation of resources in the face of increases that will pose huge problems for responsibly led councils?

Mr. Raynsford

The hon. Gentleman will accept that Cheshire has received good settlements both last year and this year. This year's settlement gives it 5.7 per cent. extra. That is almost at the ceiling, well above the average for all authorities, and roughly double the rate of inflation. That is a good settlement, and I hope that Cheshire will be able to work within it. Cheshire is also receiving special and specific grants totalling £29.6 million. I hope that it will use those resources to deliver services efficiently to local residents, as I know the hon. Gentleman wants.

Mr. George Stevenson (Stoke-on-Trent, South)

I welcome my right hon. Friend's statement on the reduction in the ring-fencing percentage applicable to social services, and urge him to continue that process. Will he have discussions with my right hon. Friend the Secretary of State for Education and Skills to see whether the same principle can be applied to the standards fund? Finally, we heard an interminable rant from the right hon. Member for Skipton and Ripon (Mr. Curry), but I agreed with him on only one point—the issue of gearing. Will my right hon. Friend pay special attention to the local government gearing mechanism? It distorts local priorities and disrupts the financial system.

Mr. Raynsford

I am grateful to my hon. Friend for his kind remarks. We are looking at the question of ring-fencing very carefully. I have announced a significant reduction in the current year and made it clear that we are committed to achieving further reductions next year. We will obviously be talking to colleagues in all Departments. I have made it clear that gearing is one of the factors that we are taking into account in the balance of funding review that is considering issues relating to local authority funding. No conclusions are available yet, but we are giving the matter serious attention.

Sir George Young (North-West Hampshire)

Counties such as Hampshire will get only the minimum increase of 3.5 per cent. Will the Minister admit that that is a very tough settlement indeed, and that people in Hampshire know whom to blame for this year's inflation-busting increase—the Government and not the county council? Will he assure the House that the 3.5 per cent. floor increase to which he referred will in every case cover the mandatory increase in education spending that the Government are expecting local authorities to pass through?

Mr. Raynsford

The right hon. Gentleman is normally very punctilious about figures, but Hampshire county council will receive an increase of 4.6 per cent., not 3.5 per cent. If he looks at the settlement carefully, he will see that Hampshire county council will get a 4.6 per cent. rise, plus some £52 million in additional specific and special grants. That is a good settlement, and it is in marked contrast to what happened when he was a Minister in the old Department of the Environment. Local authorities then got the level of grants that I set out in my response to the right hon. Member for Skipton and Ripon. An increase of 4.6 per cent.—as opposed to increases of 1 per cent. or less, or even a reduction of 0.6 per cent.—looks like a very good deal. I hope that the right hon. Gentleman will tell his council leader to budget prudently within those limits and to deliver the public services that local residents need.

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

I welcome the protection for schools in this year's settlement, the continuation of the floor, and the flexibility fund. However, does my right hon. Friend agree that some London authorities face considerable pressure when it comes to providing services, as a result of a rising population, the census undercounting in some areas, the fact that problems with mental health are much more prevalent in London than in other parts of the country, and other difficulties? Will he say how the flexibility fund will be applied? Will he assure me that the pressures and demands of London and of the provision of non-statutory services—such as early-years and youth services—will be given high priority for support?

Mr. Raynsford

The authority that my hon. Friend represents is one of those affected by census figures. Much discussion has taken place between the ONS and Westminster city council about those figures. but Westminster city council benefited from the floor last year. That protected the authority against a serious loss that would otherwise have been incurred, as result of the census figures. I am pleased that this year's figure for Westminster is, at 3.7 per cent., a little above the floor level. The authority is therefore being protected and has received a slight increase this year.

The average increase for London authorities as a whole is 4.7 per cent., exactly in line with the national average. There is no question that London is being treated less favourably than the country as a whole.

Sir Brian Mawhinney (North-West Cambridgeshire)

The right hon. Gentleman's competence in this area of public policy is obvious and well-established, but I hope that he understands that his heavy reliance this afternoon on political spin emphasises the worrying nature of the settlement that he has announced. In the past six years, average council taxes in the real world have been two or three times higher than the percentage resource increases announced by Ministers at that Box. When council tax increases of between 9 and 12 per cent. are announced this year, will he consider them reasonable?

Mr. Raynsford

The right hon. Gentleman was another Minister in a Government that used to announce rather low increases in the local authority settlement of around 1 per cent. in a good year. I am sure that he will accept that that contrasts markedly with Cambridgeshire's grant increase this year of 6.2 per cent., following a record 8.5 per cent. last year. Those are very good increases, which most local authorities would regard as a sound basis for budgeting.

The right hon. Gentleman asked about council tax. We expect all councils to budget prudently and to restrict council tax demands to the lowest possible level. The levels that he is talking about seem to me to be high. We want authorities to provide good-value services in a cost-effective way, and not to impose unreasonable costs on council tax payers.

Mr. Harry Barnes (North-East Derbyshire)

The previous Government's Local Government Finance Act 1988 put local government finance in a mess for a decade. It caused deprivation in some areas while others had money stuffed down their throats. The redistribution under this Government was slow to start with, but it has accelerated more recently. However, does my right hon. Friend agree that it is seriously inhibited by the floors and ceilings arrangement? Some authorities do not get resources from other sources, so is it not understandable that they feel obliged to charge high levels of council tax to rectify matters? Should not something he done to overcome the financial problems created by the previous Administration? In that way, authorities that have suffered can begin to put things right.

Finally, can we have a full debate on this topic in future, as 39 minutes of this statement were taken up by Front-Bench spokesmen, before Back-Bench Members were able to contribute?

Mr. Raynsford

My hon. Friend accepts that the settlements, both last year and this, have been good for Derbyshire. This year's increase of 6 per cent. follows last year's ceiling settlement of 7.8 per cent.

I hope that my hon. Friend recognises that it is sensible to give local authorities the opportunity to budget with a degree of certainty, and not to make them subject to short-term fluctuations that can be difficult to cope with. That is why we operate floors and ceilings. Floors to protect authorities from steep reductions in their grant entitlement have to be paid for, which is why the ceiling is needed.

We recognise that there is deprivation and other problems that my hon. Friend is well aware of in his area. The changes to the grant distribution formula were designed to reflect some of those needs more accurately. The Government are determined to continue in that way, not only through the grant distribution formula but through special grants. In the current year, Derbyshire is receiving £34 million for special needs, many of which are specifically to do with deprivation. We will continue to do all that we can to ensure that such authorities receive decent settlements that enable them to budget prudently and to deliver high-quality services without the need for steep increases in council tax.

Mr. A. J. Beith (Berwick-upon-Tweed)

Does the Minister recognise that under this settlement it will be even more difficult to maintain services in districts of large area and small population, particularly in those that last year—for reasons that have still not been explained—got very low settlements of the order of 3 and 4 per cent., such as Alnwick, Berwick and Castle Morpeth? Is he willing to look again at the position of those three districts in Northumberland, the pattern for which was contrary to that of the rest of the county, and to see whether any further help is needed? Castle Morpeth has just had to turn around a major financial difficulty, but it is recognised to be doing so.

Mr. Raynsford

I am happy to look into that. I am sure that the right hon. Gentleman will accept that I do not at present have all the explanations of all the settlements for all authorities. He is right that there were generally very large increases for district councils last year, but that the three councils in his area to which he referred had relatively modest increases. The floor that is in place again this year will protect those authorities and guarantee them increases of at least 2.2 per cent. I am sure that the right hon. Gentleman will be pleased, as I am, that Northumberland county council has a particularly good settlement this year—a 6.2 per cent. increase. I shall look into the issue relating to those district and borough councils, and write to him about the matter.

Dr. Alan Whitehead (Southampton, Test)

I congratulate my right hon. Friend on his continuing success in bearing down on ring-fencing in local government spending and on the success of his discussions with other Departments on the reducing of pressures—in particular, the collection of rubbish through non-implementation of the landfill trading scheme. However, does my right hon. Friend accept that that deferral will coincide with a projected trebling of the landfill tax escalator next year, so that there will be a combination of pressure and a ring-fenced sum of money from local authorities going in that direction? Is his Department looking positively at how local authorities might be able to manage that change, and has that been reflected in this year's settlement?

Mr. Raynsford

I am grateful to my hon. Friend for his kind remarks, and I assure him that we shall continue to do all that we can to bear down on unnecessary ring-fencing and to remove any unfunded pressures from local authorities. My hon. Friend highlighted the changes relating to waste management. The postponement of the landfill allowance trading scheme is simply a postponement; it is not a cancellation. We are putting the scheme back by one year, to allow local authorities more opportunity to prepare and so that they can avoid meeting additional costs that will probably be in the order of £10 million this year. Together with my colleagues in the Department for Environment, Food and Rural Affairs, we are keen that authorities should have the means to achieve the step change that is necessary in waste management to meet our objectives to reduce the use of, and dependence on, landfill and to ensure more sustainable waste disposal systems.

Mr. Patrick McLoughlin (West Derbyshire)

Last year, Derbyshire Dales district council got a very small increase. Most Derbyshire district councils received in excess of £500,000. Derbyshire Dales got an increase of £32,000. What will be the increase for Derbyshire Dales this year?

Mr. Raynsford

The three authorities in the area that the hon. Gentleman represents are Derbyshire county council, which has an increase of 6 per cent.; Derbyshire Dales, which has an increase of 2.2 per cent.—the floor; and Amber Valley, which has a similar increase. Both of the latter councils are protected by the floor, and his county council has a good settlement.

Mr. Stephen McCabe (Birmingham, Hall Green)

I welcome the increase in formula grant of almost 6 per cent. for the people of Birmingham. Does my right hon. Friend agree that the real challenge now is to spend the money wisely, that all local authorities must recognise that they have a duty to provide cost-effective and efficient services and that wage inflation, in particular at the higher grades, without mass productivity means less money for services and, inevitably, higher council tax levels?

Mr. Raynsford

I am grateful to my hon. Friend for his remarks. I, too, am delighted that Birmingham city council will receive a grant increase of 5.9 per cent., following a good settlement of 8 per cent. last year. Birmingham will also benefit from £112 million in special and specific grants designed to help that council meet its responsibilities. As he knows only too well, it has substantial deprivation problems within its boundaries. I wholeheartedly agree that, given a good settlement of that nature, it should be possible for the city council to continue to make progress in improving service delivery and to impose reasonable increases in council tax on Birmingham residents.

Mr. Robert Key (Salisbury)

Does the Minister agree that the only winner in this miserable settlement is the Treasury? As far as the hard-pressed taxpayers of Wiltshire and Salisbury are concerned, this annual charade is bringing both central and local government into disrepute. It does not really matter whether one has rates, poll tax, council tax or local income tax, so long as the Government refuse to acknowledge the need for a fair contract between them and taxpayers at local level showing where the burden falls, rather than the present system under which duties are imposed that local authorities have to meet when they have little freedom of movement. Until a new system introduces such fairness, we shall continue to have an annual charade in which people have little faith.

Mr. Raynsford

The only charade that I see is the extraordinary spectacle of former Ministers in a Government who could offer increases of only about 1 per cent. at best complaining about increases that would have been beyond those authorities' wildest dreams when that Government were in power. That is a bit rich coming from the hon. Gentleman, given that last year Wiltshire had the largest grant increase of any county, 8.9 per cent., and will this year receive a further 5.9 per cent. increase—on the ceiling. Those are very good increases—far beyond what Wiltshire would have had from the Government whom the hon. Gentleman represented.

Mr. Michael Jabez Foster (Hastings and Rye)

Not only the Liberal Democrats but the Tories seem to believe that money grows on trees, especially when a Labour Government are in power. Last year, under the Tory council, East Sussex had a 20 per cent. increase in council tax, which is wholly unacceptable. At what level will my right hon. Friend tell East Sussex Tories that enough is enough?

Mr. Raynsford

I have made it clear in my remarks to local government representatives at various conferences recently, and I make it clear again today, that we take a dim view of authorities that increase their council tax by more than is absolutely necessary to maintain good quality services. We expect them to do much better than the very large increases that a number, including East Sussex, imposed last year. East Sussex has a grant increase of 4.5 per cent. in this settlement, which is a significant increase on last year's settlement. I hope that it will use it prudently. It also has about £32 million in special and specific grant, some of which I hope is destined for my hon. Friend's constituency, which has special problems in the county. I hope that East Sussex, which is improving its social services significantly—that is welcome—will continue to deliver and improve services, and will do so cost effectively with much-reduced demands in the coming year compared with last year.

Mr. Mark Francois (Rayleigh)

Will the Minister confirm that for those shire districts that have received the minimum floor of 2.2 per cent., the settlement is effectively a real-terms cut given the current rate of inflation? Does he also accept that wherever one puts the floors and ceilings for any authority, the amount of money that it ultimately deserves from the Government is largely determined by the grant formula itself? Surely the Government need to revise the new grant formula spending share that they have come up with so that it does not unfairly penalise those authorities in the home counties that are suffering because Labour has deliberately moved resources to assist its friends in the north.

Mr. Raynsford

I find it slightly odd that, given that Essex county council is receiving an increase of 5.5 per cent—an above-average increase—in a year when the overall increase is 4.7 per cent., the hon. Gentleman complains that money is going north. It is not. Essex is getting more than the national average. People in the north, including some of my hon. Friends, whose settlements are rather lower, have good reason to complain that money is going south.

Tony Lloyd (Manchester, Central)

My right hon. Friend has already made it clear that there will be an amending order where census figures have been revised and, as he is aware, the city of Manchester has already had such a revision accepted. However, notwithstanding the amending orders, there is also a cumulative effect, from the ceilings in previous years and other factors, on the next year and succeeding years. Can my right hon. Friend give the House a guarantee that in census-affected local authorities such as Manchester every penny will be restored, not just one year's money?

Mr. Raynsford

I know that there have been special issues in Manchester relating to the census. I referred to them in answer to an earlier question, when I made it clear that we will be prepared to issue an amending report once the Office for National Statistics has completed its investigations. If its figures suggest that there should be increased population figures for certain authorities, we shall issue that report.

Manchester has a good settlement this year: an increase of 5.8 per cent. on top of last year's figure of 6.5 per cent. In addition to the overall settlement, £66.5 million of special grant is going to Manchester, to reflect the particular needs of the community. That is a good settlement and we shall continue to work closely with Manchester city council, which is doing very good work indeed to tackle the problems in its area, to ensure that it continues to improve services cost-effectively.

Mr. John Redwood (Wokingham)

Will the Minister allow councils to pay a housing-related supplement to teachers in high-cost areas where recruitment and retention are difficult or impossible?

Mr. Raynsford

The right hon. Gentleman comes from an area that has benefited from substantial increases in grants. Wokingham received an 8.4 per cent. increase last year and will receive a 5.8 per cent. increase this year. West Berkshire, too, had large increases last year and this year. Those settlements reflect the extra money that my right hon. Friend the Secretary of State for Education and Skills is putting in to meet education needs. In addition, as the right hon. Member for Wokingham knows well, through schemes such as the starter homes initiative we are helping to provide good quality, value-for-money homes for people in key services, such as teaching, to enable them to have low-cost home ownership options in areas where, as he rightly points out, prices are relatively high.

Mr. David Kidney (Stafford)

My right hon. Friend mentioned the transitional funding of £120 million in the education settlement that will be targeted on about one third of local authorities—although, sadly, not the third that are currently at the bottom of the funding league table. He said that there would be £300 million to fund pressures other than those relating to schools. Can he tell us whether any of that will deliberately, as a matter of policy, be directed to the poorest authorities?

Mr. Raynsford

That money is being put into the general settlement, so it is not targeted as such. I distinguished between special and specific grants, which are targeted on particular areas, and the general settlement, which is distributed according to the formula. The additional £300 million will go into the formula to ensure that it can be distributed according to various indicators of need—including, obviously, deprivation. I am pleased to say that Staffordshire is receiving a 5.4 per cent. increase in its grant, which is above average, against the national average of 4.7 per cent. I hope that my hon. Friend will welcome that.

Mr. Owen Paterson (North Shropshire)

By what percentage will the costs of local government increase due to statutory demands imposed by central Government?

Mr. Raynsford

As I said in the statement, we have adopted an extremely rigorous new burdens doctrine, which requires any additional burdens imposed by central Government on local authorities to be fully funded. That is why I was able to say that we are making a number of changes to ensure that authorities have the means to meet their responsibilities; we are not putting additional burdens on them without those burdens being funded. I gave specific examples in my statement and also indicated how in other matters, such as waste management, where local authorities said that they would have difficulty in meeting their obligations, we have taken action, which I announced this afternoon, to ease those pressures.

Those are the actions of a Government who are determined to ensure that local authorities have the means to meet their obligations and to do so without unreasonable council tax increases.

Several hon. Members


Madam Deputy Speaker

Order. We must now proceed. I allowed the statement to overrun to permit a slightly more equal amount of time between Back Benchers and Front Benchers, and I hope that Front Benchers will take note.