HL Deb 05 December 2002 vol 641 cc1289-303

3.30 p.m.

Lord Bassam of Brighton

My Lords, with the leave of the House, I shall now repeat a Statement made in another place on local authority revenue finance for England 2003–04. The Statement is as follows:

"I am pleased to be able to inform the House that next year's local government settlement will see total support from government grant and business rates of £51.2 billion. This is an increase over this year of £3.8 billion or 8 per cent in cash terms. It provides substantial real terms growth in the funding we are providing for local government.

"The £51.2 billion is made up of £24.3 billion in revenue support grant, £15.6 billion in business rates, £4.1 billion in police grant and £7.3 billion in special and specific grants.

"Today I am announcing details of the allocation to individual authorities of the £39.9 billion of revenue support grant and business rates. When taken together with the police grant, this represents an increase of 5.9 per cent cash over this year's allocation.

"We announced last year that, from 1st April next year, we would introduce a system for distributing grant between authorities which is fairer, more transparent, and more just. Honourable Members will know that we have taken a long, hard look at the grant distribution system. We had no doubts on the need to replace the outdated and discredited SSA system. However, developing a robust, appropriate and fair replacement has been a challenging task, not least because of the many competing claims from different categories of local authorities. We have held very detailed discussions with local government and those with expertise in this area as we looked at all the current formulae and the options for change. We held 15 meetings of the technical group in just over a year. In addition, many more meetings were held with those with an interest, covering education, police, personal social services and other council services.

"We have then carried out a wide-ranging consultation on those options, including, useful seminars and debates in this House, where Members let us know their views. The consultation paper included 47 specific options, and another 52 exemplifications were done at the request of local authorities.

"We received some 55,000 responses to the options on which we consulted over the summer. Over 1,000 of these responses were from councils, members of the public, Members of this House, business organisations and others with an interest. The others were sent in response to various campaigns. Several petitions were also received.

"I announced the publication of an analysis of those responses earlier today by means of a written statement, and copies of the analysis itself have been placed in the Vote Office.

"In reaching a conclusion, we have needed to balance up the pressures, evidence and representations.

"One of the major problems with the old SSA system is that it attempted to take a view on what authorities needed to spend. This was unrealistic, and inconsistent with our approach towards devolving responsibilities, so we will not continue with it. Notional spending allocations do not imply anything about the budget or spending choices that will need to be made. Those are decisions that should properly be taken by councils in consultation with their council tax payers. The one exception is in respect of the Government's key priority of education, where we have said that we want to see authorities pass on increases to schools. In summary, the purpose of the new system will be to distribute grant according to authorities' relative circumstances and relative ability to raise resources from council tax.

"The new grant distribution formula will, in the main, no longer rely on past spending patterns—one of the main criticisms of standard spending assessments. The new formula will ensure that the distribution of grant is relevant to the circumstances councils face now, reflecting up-to-date spending patterns where appropriate.

"We have worked hard to make the system less complex and difficult to understand. This was never going to be easy. The sheer size of the sums of money going to local authorities, the wide-ranging responsibilities undertaken by councils, and the differing circumstances faced by those authorities across England mean that there will still inevitably continue to be a degree of complexity in the formulae used. However, we have simplified the structure of the system, which can be summarised as a basic allocation to each authority with top-ups reflecting particular circumstances facing councils such as deprivation, high wage costs and sparsity.

"The formulae also no longer include the sort of perverse incentives and inadequate indicators that were present in the old system—for example, the old fire formula was based on the number of calls each authority received. That meant that it had little financial incentive to improve fire safety and safety education and so reduce the number of calls. It is that kind of anomaly which we have tried to remove from the new system.

"I know many honourable Members will have a particular interest in the decisions we have taken on the area cost adjustment. We have concluded that pay costs should be recognised within the system, but the ACA has been re-designed to minimise the `cliff-edge' effect. It will in future better reflect the different circumstances in London and the South East and those authorities with differing pay costs. It will also reflect the needs of areas outside the South East with high pay costs.

"The other aspect which I should highlight is that we have increased the extent to which the system takes account of councils' relative ability to raise council tax—'resource equalisation', in the jargon. This means that we make a more realistic assumption about average council tax. It does not mean that we simply reward high spending.

"Turning to other formulae, we have made good the promise to ensure that no authority's schools will lose out in real terms from the changes. The new education formula ensures that every education authority's per-pupil allocation goes up by at least 3.2 per cent cash—well above inflation.

"The environmental, protective and cultural services formula has been greatly simplified, and now better recognises the basic costs that all authorities face. We have made some detailed changes to personal social services—we have simplified it so that there is now a single formula for residential and domiciliary care for older people—though as PSS was reformed comparatively recently the changes here are less extensive than elsewhere. And we have listened to the argument put to us by small authorities—particularly shire districts—that they face a fixed 'cost of being in business'. So we have allocated a flat-rate £300,000 element to most classes of authorities, to recognise that cost.

"As I have already promised, the system will incorporate 'floors and ceilings' to safeguard authorities from excessive short-term variations in grant. For the last two years we have guaranteed that no authority received less grant than it did in the previous year on a like-for-like basis. Those councils with education and social service responsibilities did, of course, significantly better, and last year we were able to ensure that all councils received a grant increase at least in line with inflation. Honourable Members will know that we have already made clear that no local authorities will receive a cut in grant next year in cash terms.

"These floors ensure that every authority within the scheme gets a reasonable level of grant increase, given the overall distribution and the total level of funding available. To pay for the floor, we impose a maximum on grant increases, and scale back the rises received by authorities between those two levels.

"I am pleased to be able to announce that I am setting the floor levels so that in 2003–04 all authorities will receive a grant increase on a like-for-like basis well ahead of inflation. That means a real terms increase in grant for all authorities.

"The floor increases in cash terms for police and fire authorities and shire districts will be 3 per cent and the floor for unitary authorities, county councils, metropolitan districts and London boroughs will be 3.5 per cent.

"To pay for these floor increases, we will be setting a ceiling of 4.9 per cent for single-service police and fire authorities (including the Greater London Authority); 8 per cent for unitary authorities, county councils, metropolitan districts and London boroughs; and 12.5 per cent for shire districts.

"Increases above the floor but below the ceiling will be scaled back by 5.4 per cent for police and fire authorities, 1.3 per cent for shire districts and 4.6 per cent for authorities with education and social service responsibilities.

"In addition, as I said earlier, we will phase in the new education formula in such a way that no authorities' schools will lose out in real terms. The education formula will incorporate a floor of 3.2 per cent in cash terms and a ceiling of 7 per cent per pupil.

"In addition to the increases in funding for local authorities' general grant, we are also providing further increases in grants for specific initiatives. Of key importance will be the Neighbourhood Renewal Fund, which will allocate £400 million of grant via local strategic partnerships to help support and kick-start public services in the most deprived areas—£100 million more than this year. On a like-for-like basis, local authorities will receive £1.3 billion more next year in special and specific grants.

"As we promised in the local government White Paper, we have looked closely at these grants to ensure that ring-fencing is kept to the minimum necessary. Members will be aware from the recent announcement on freedoms and flexibilities that the proportion of funding paid to local authorities as ring-fenced grants will, on current plans, reduce over the three years of the spending review, and that excellent councils will also receive additional freedoms from ring-fencing. Ring-fencing revenue funding is set to decrease from 12.4 per cent currently to below 10 per cent by 2005–06.

"Our plans for next year provide local authorities with good increases in grant—increases that mean that since 1997 we have raised government grant to local authorities by some 25 per cent in real terms, compared to a 7 per cent reduction in real terms in the last four years of the previous administration. There could be no clearer illustration of our commitment to supporting and helping local authorities to deliver the strong local leadership and quality public services that local residents rightly expect and that local government wants to provide.

"Given the significance of the review we have undertaken, local authorities have, understandably, been awaiting today's announcement with some anxiety. Some authorities have been predicting a settlement under which councils will have to make cutbacks or impose significant council tax increases. I am glad that today's announcement demonstrates that those fears and the scaremongering about cuts in grants from our political opponents were unfounded and unjustified. The good increases in funding provided by the spending review, the realistic levels of floors and ceilings we have been able to set, and the decisions we have taken on the distribution of grant to local authorities mean that there is no reason why councils cannot continue to improve services while sticking to reasonable council tax increases. Today's proposals are good news for local government. As such, I commend them to the House".

My Lords, that concludes the Statement.

3.42 p.m.

Baroness Hanham

My Lords, I thank the Minister for repeating the Statement. It is nice to form up to him again. I declare my usual interest as a member of a London local authority. The local government finance settlement has for years been about as opaque as a dense fog. We learn today that there is to be a change in the system, which, according to the Statement, will no longer rely on past spending patterns but will reflect up-to-date spending patterns, where appropriate, with a simplified structure. Hooray to that, if that is what it is.

Having read the Statement, and from what I have seen of the vast tomes of documents on the subject, only the terminology seems to have changed. Standard spending assessments (SSAs) have become total formula spending (TES). SSAs for individual authorities have become formula spending allocations (FSSs). Standard tax elements have now become share of assumed national council tax (SANCTs).

Whether a name change is relevant is of no concern to local residents. What matters to them is the amount of council tax that they will have to pay. To quote the Statement, the rub will lie in, the extent to which the system takes account of councils' relative ability to raise council tax That is to say, how the ratios can be adjusted between government grant and milking the council tax payer.

The new system looks heavily at councils' ability to raise council tax, which is a form of equalisation. The Minister says optimistically that that does not mean rewarding higher spending but that well-run authorities that have been prudent and kept council tax down will be penalised. It is instructive in this respect to look at the shifts in grant, not the broad averages, nor the nearly incomprehensible floors and ceilings that the Minister had difficulty in explaining. The actuals should be looked at. Inner London councils will receive an increase of about 3.5 per cent. Kent, Essex and Hampshire will receive 3 per cent. By contrast, Durham, Cumbria, Derbyshire and Cheshire will all have rises of some 12.5 per cent. Presumably, less additional council tax will have to be raised there than in other areas.

If anyone can understand the complexities and rationale of that, it will not be the residents of London and the South East; nor will they know about credit given for higher pay claims as in the newly-revamped ACA. People in Leicestershire, which will receive £85.48 less per child than Lancashire, and in Buckinghamshire, which will receive £83.20 less per child than Durham, will not understand it. Why does the formula ignore rural poverty? The front-page headline of The Times in July was right when it predicted that Labour would tax Tory voters to fund its own heartlands.

Burdens will be imposed not only as a result of the shift in grant to the North and East from well-run councils in London and the South East, but the inequity resulting from the shambles that was caused by the inadequate census. Figures for areas where no returns had been attained were guessed, attributing to many council areas, including my own, a ridiculously reduced population. That is extremely relevant, as grant is based on population as well as on spending and specific need. What is being done to assist the many authorities for which figures were made up?

Last year, average council tax in England rose by 8.5 per cent—the biggest increase in the history of council tax, inflation being just 2.5 per cent. The small print of the Pre-Budget Report predicts that in 2002–03 and 2003–04 council tax receipts will rise by 7.2 per cent against an inflation rate of 2.25 per cent. In two years, council tax will have risen by almost 16 per cent—a staggering figure—against the background of what was said by the Deputy Prime Minister; namely, that the munificence of the grant settlement meant that there was no reason why councils could not continue to improve services while sticking to reasonable council tax increases.

Every year, the Government claim that their funding settlements are generous. This year is no exception. Every year, council tax across England soars. In London, the situation is compounded by the extravagances of the mayor and his taxing requirements. Band D has soared by 38 per cent since 1997–98 against the background of a promise by Keith Hill, the then Minister for London, that the new mayor and assembly would cost only 3 pence a week—hollow laughter. The expectation is that this year there will be a further large hike in band D council tax in London as a result of the mayor. I suppose one can only be grateful that at least Ken Livingstone lives up to his promises. As he said during Question Time last September: I went into an election saying I would increase the council tax". Indeed so.

This Government do not protect ordinary families, who will be affected even further by the proposed rebanding and the introduction of new bands heralded in the Local Government Bill. This year, an average band D tax will be over £1,000, which will increase the burden on ordinary families with ordinary incomes and ordinary homes.

I should not perhaps end my remarks without welcoming something in the Statement. I welcome the proposal and promise by the Deputy Prime Minister to reduce the proportion of specific grant, which has risen remorselessly since this Government came to power. Directing local authorities on how to spend the money is a bad way to deliver grant. It is, therefore, with relief that I note that it is at least proposed to reduce the figure to 10 per cent by the year 2005.

I have a few questions for the Minister. Does the noble Lord agree with the estimate of the Chancellor of the Exchequer that council tax will increase by 16 per cent over two years—figures taken from the pre-Budget review? By how much does the noble Lord expect council tax to rise as a result of revaluation and rebanding? What control can the Government put on the Mayor of London to prevent London's council tax payers being soaked? What will the Government do to recompense the 32 local councils, which, under the flawed census, have "lost" more than 5 per cent of their populations?

3.51 p.m.

Baroness Hamwee

My Lords, I, too, thank the Minister for repeating the Statement. I begin by declaring an interest as a member of the Greater London Assembly. The Statement relates to what is termed the local government finance settlement. It occurs to me that this is a very particular use of the word "settlement". I do not believe that it can be regarded as an agreement with local authorities, a meeting of minds, or even a compromise. Although we welcome certain aspects of the announcement, perhaps the Minister will acknowledge that that is the case for this year in particular.

The Government published a consultation document in July for response by the end of September. We have heard that 55,000 responses were received. The report on the consultation rather dismissively says that the great majority of those responses were sent as part of various campaigns about education funding. I should not lightly dismiss comments on education funding, whether or not they formed part of campaigns. However, it was not a straightforward consultation; indeed, it could not be because the area is most complex. The paper included many options and questions.

As we have heard, the Government promised a fairer, more transparent and simpler system. They said in the paper that, following consultation, they might decide that, relatively complex formulae give the most appropriate grant distribution". Perhaps the Minister can tell the House whether the Government regard the outcome as, to use that term, "relatively complex"? In the other place earlier today, I heard the Minister with responsibility for local government say that the "ceilings support the floors". I thought to myself that perhaps it is complex.

The problem is this: how do we know and, more importantly, how does the world know what the changes will be? Is it right to wrap up the response to the consultation on principles with an announcement of cash? That is, perhaps, the opposite of "transparent". Does it not leave the Government entirely open to the accusations made by their political opponents and those they call "scaremongers"? Why have these two concepts been wrapped up and announced together? Does this meet the guidelines from the Government's Cabinet Office about consultation; and, indeed, about the spirit of good consultation?

Further, would the Government themselves be able to plan on such a basis? For example, local authorities are being told to plan for three years ahead, but then—I appreciate that it is historical, but this Government have not changed the position—they are faced with a timetable that includes digesting what the noble Baroness just described as an enormous amount of material with almost no time to do so, after which they have to apply such detail to their plans, consult their own communities, and come to decisions as early as next February. If the Comprehensive Spending Review was so close to decision time, would the Government be able to make such plans?

More specifically, the Government make much of reducing ring fencing. I am afraid that I cannot be quite as welcoming as the noble Baroness. Lady Hanham, in this respect. Although the Government have abolished seven special grants, can the Minister confirm that 16 new ones have been introduced? The noble Lord referred to excellent councils receiving additional freedoms, but does he not recognise that that is a highly centralised approach? I believe that there is a large number of ring-fenced grants in the police budget. As I understand it, the Home Office is one department that appears not to be reducing its ring fencing.

Can the Minister comment further on "floors"? In order to assist local authorities to plan ahead, can the noble Lord say when the Government will announce the floors for years two and three? I well understand the need to await the detailed demographic information. But, as has already been said, there are considerable doubts and queries about the recently-announced census results.

Can the noble Lord tell us anything more about London? In particular, can he say whether there will be a single floor across all the functional bodies, including the police and fire services? The Statement indicates that there is a single ceiling, so I assume that there is a single floor. If so—this is one for the aficionados, I am afraid—how will the Government protect the fire authority in London when, on any basis of the consultation, it was set to lose very substantially? That is a real issue in London. Indeed, I shall be surprised if we do not hear some reassurances in that respect this afternoon.

We are all aware of the resource issues, especially in the social services sector. We are also aware of the extra responsibilities that will be placed upon local authorities. Bed-blocking is just one example. We realise that money will be going into the service, but I have been told that the fines system that the Government are set to impose could lead to a downward spiral in places where there is simply no capacity to provide extra service and where it will be cheaper to pay fines than to provide the service. That does not scent to me to be the right way forward. Your Lordships recently gave the Licensing Bill a Second Reading. This will put a cost on local authorities as regards dealing with the transfer of the licensing system from magistrates.

If turn, again, to London. On education, can the Minister tell the House whether the working families' tax credit data have been used as a measure of deprivation? That is not something that one can readily find in the swathes of material. I should add that the take-up of that benefit is very low in London, because of high housing costs and the interaction of the credit with housing benefit. I use that rather complicated example simply to demonstrate the complexity of all these issues and how much digestion they will need.

Finally, can the noble Lord tell me how I should answer a point that was made to me today by someone working in the field of partnership between local government and business? The Government are promoting the new business improvement district proposals (BIDs), which are being sold on the basis of additionality—that is, additional funds being made available. How can I assure those whom we are asking to support this venture that the Government really will treat such funds as additional?

3.58 p.m.

Lord Bassam of Brighton

My Lords, I was perhaps expecting rather more warmth from the noble Baroness, Lady Hanham, after repeating this Statement. None the less, I was pleased to receive the welcome that she gave at the conclusion of her remarks for the changes to specific grants. That touches on a point made by the noble Baroness, Lady Hamwee. Indeed, I believe that there will be both recognition and welcome for that move across local government. Over the three-year period, we shall be reducing the percentage from 12 per cent to 10 per cent. I know that that reduction will not please everyone.

The noble Baroness, Lady Hamwee, made the point that there are still many areas where specific grants apply. That will continue to be the case, and rightly so. In some areas of public service activity we want to ensure that we drive up standards and fully reflect the needs of different communities for certain services to be provided in a particular way. Therefore, while there is a welcome freedom and flexibility involved, we are committed to that change. However, it is a change that will take time to introduce.

I enjoyed the comments of the noble Baroness, Lady Hanham, about the dense fog of local government jargon and terminology. When I was reading through these papers earlier today I was reminded of the first expression I came across in the allocation of funding to local authorities—I believe it was "GREA". That must be some 20 years ago. I had to ask the borough treasurer, a crusty individual who did not like to be questioned, what "GREA" meant. He gave a long and impenetrable answer. Local authorities have been bedevilled by that tendency ever since and tend to make heavy weather of explaining how things work.

This is an excellent settlement for local government. I have not always said that about local government settlements. Like the noble Baronesses who have spoken today I have criticised more than a few of them. I understand the concerns over this year's allocation, not least because it conies at an unsettling time when there has been extensive consultation over the way in which the settlement will go in the future.

We have given a commitment on floors and ceilings. There will be a real terms increase in grant this year. There is a cash increase for all local authorities. I cannot remember many years when one could consistently say that that was the case. I remember making some severe criticisms when in real terms individual local authorities suffered considerable damage as a result of cuts in their real terms allocation.

I will try to deal with some of the points made by the noble Baronesses. The noble Baroness, Lady Hanham, raised an important question about census data. All I can say is that most local authorities want us to use the most up-to-date information. This is the best data we have on a consistent basis. The floors on grant guarantee all London boroughs a 3.5 per cent increase, which is well above the accepted 2.3 per cent inflation level.

The noble Baroness also raised the issue of council tax increases. If local authorities want it that way—and we all agree that they do—council tax levels are to be set locally after consulting with the local electorate. It is not for us as Government to pre-announce their council tax increases for them. They must determine the increases themselves. We accept that there are indicative figures, but that is a matter of resource allocation.

I refute the point of the noble Baroness, Lady Hanham, about resource equalisation rewarding higher spending authorities. It does not. Resource equalisation is about the relative ability to raise council tax. It does not take account of individual spending decisions.

I do not agree with the noble Baroness's claim that we ignore rural poverty. The figures show that rural shire districts gain some 7.6 per cent in grant. That is not ignoring rural poverty; it is nearly three times the current level of inflation. She also asked whether revaluation would lead to large increases in council tax. It is too early for us to tell what the impact of revaluation will be. We should not trot around scaremongering. Some households will move to a higher band and some to a lower one, but there should not be any change to the overall amount of council tax collected.

The noble Baroness, Lady Hanham, referred to the mayor. The mayor and the GLA are accountable to their electors. They have to meet their electorate regularly. Electors will make up their minds based on a number of factors, of which council tax responsibility will doubtless be one.

I have tried to cover most of the issues raised. The noble Baroness, Lady Hamwee, asked about the increases in ringfencing. I explained that our long-term objective is to reduce that. We shall continue to consult and to take careful account of the points made by local authorities to us over the period.

Consultation this year has been detailed and thorough. We have published a response to it. Local government will rightly always want to make points about the formula. We will try to respond to those as best we can. We have secured more than adequate funding; it is a generous settlement for local government.

All local authorities will have an above inflation increase. Some of those increases will be larger than others as the formula has changed. We have tried to provide a fair system of floors and ceilings in changing the formula so that its introduction does not interrupt local services, as we have seen so many times in the past. I believe that the Statement will be welcomed.

4.3 p.m.

Baroness Blatch

My Lords, the Minister claimed clarity and simplicity for the Statement. I join the two Front-Benchers who have already spoken to say that it scores no marks out of 10 for either clarity or simplicity. It is an extremely complicated Statement. The Minister prayed in aid the situation 20 years ago. The Government have been in office for almost six years. It is time for them to defend their own record and not constantly to go back 20 years.

The Minister was astonishingly sanguine about the census data. In case he has been asleep over the past few weeks, the census has been deemed the most unreliable that has ever taken place in this country. Because many aspects of the settlement are based on the census data it will impact acutely on some local authorities. I am surprised that the Minister is not prepared to admit that.

What proportion of the so-called £15 billion per year until 2006 is included in the Statement for education? And, more significantly, how much of the global education budget is being held back by the Department for Education and Skills to fund its centrally controlled projects? In other words, how much of that money will not be going into the classroom to help with our children's education?

Lord Bassam of Brighton

My Lords, looking at the education figures, the education increase is some £2billion. That is a 7.5 per cent cash increase; 5.1 per cent in real terms. Since 1997–98 that is a £10.5 billion increase. As a member of the Government I am extremely proud of that significant increase. The noble Baroness asked about the amount being held back. I cannot answer that question, but I am happy to have it researched and to provide the detail to the noble Baroness.

I am sure that all Members of your Lordships' House will welcome the fact that a typical secondary school with 1,000 pupils will see a direct grant payment rise of some £50,000 in the year 2003–04, and a typical primary school with 250 pupils will see its direct grant payments rise by some £10,000 in that financial year. We want to ensure that money for education reaches the front line directly. I am sure that all three major parties are agreed on that. That is what we are attempting to achieve through this settlement and all other settlements.

I understand the noble Baroness's unhappiness on the issue of the census. If particular authorities feel that the quality of the census in their area is not as it should be, no doubt they will have already have made representations. All I can do is to encourage them to continue to do so. I know from my local government experience in Brighton that where we had disagreements with the count we made representations, and, from time to time, governments have recognised the validity of those claims. It is open to local authorities to make such representations. As I said, however, the census provides the best available data to deal with these matters. Unhappiness with the census will undoubtedly continue, but we have to trust and rely on that material.

Baroness Byford

My Lords, I am glad that the Government have recognised the difficulty of sparsity in some of our very remote areas. I shall concentrate on those areas, where it is extremely costly to deliver services. I have three questions. First, what proportion of the new allocation will be used to cover increased pay awards—both for pay and for pensions—for local authority employees? Pay and pensions are two very considerable aspects of the districts' expenditure.

Secondly, what extra funds have been allocated for home-to-school transport and some of the peripatetic services in very remote rural areas?

Thirdly, how much consideration was given to the fact that the national Government require local government to provide many additional services? I am thinking in particular of the attempt to keep people in their own homes for as long as possible—which in itself is good—with the consequence that people are being moved out of hospital very early. The cost of such a move is very high for those in urban areas, but it is extremely high in very sparse areas. Social services are al ready much more sparsely allocated in rural areas than in urban areas. I hope that the Minister will address that point.

Lord Bassam of Brighton

My Lords, the noble Baroness asked three good questions, but I am unable to reply in the detail they deserve. Ministers reached a judgment on sparsity based on the best available evidence, and almost all sparse areas have gained from the overall reduction in top-ups and the consequent increases in the basic amounts. We have very carefully taken account of that. It is not particularly relevant to this settlement, but some very careful work relating to Scotland and Wales has been done to identify key settlements. As I made plain earlier, however, this settlement benefits rural areas, with grants to rural areas increasing by 7.5 per cent, I think. We continue to take account of density and sparsity issues.

I cannot answer the noble Baroness's first question on the percentage increase in pay and on pensions. Home-to-school transport, however, will be within the LEAs' central functions and will be part of their internal allocations. I recognise that that is an issue on which representations will undoubtedly continue.

We have tried to adjust the baseline to take account of the extra burdens, and to identify those new burdens within the formula. It is an exercise that governments must take into account every year when trying to establish the rationale behind their formulas.

Lord Greaves

My Lords, I have two points. First, will the Minister answer the question on the extra cost to local authorities arising from their anticipated licensing function, and the question on BIDs which he did not have time to answer earlier?

Secondly, it will take us a long time to come to grips with this mass of figures and information. As noble Lords have said, however, the settlement has been represented as a transfer of new funding from the South to the North. Is that the case?

Lord Bassam of Brighton

My Lords, I think that local authorities have broadly welcomed the new licensing regime. Perhaps the noble Lord himself, when he was more busily engaged in local authority work, campaigned to bring licensing within the local authority ambit. I do not know, but I think that it is the type of issue that exercises the minds of local councillors. My understanding of the licensing regimes is that they will generally be self-funding. I think that that has been understood from the outset of the negotiations to bring the new arrangements within the orbit of local authorities. However, that is all subject to passage of the Bill.

The noble Lord raised broader issues such as winners and losers and North versus South. We have tried to ensure that we have a formula that works and that operates fairly for all of England. I would contend that this formula is simpler, despite what the noble Baroness, Lady Blatch, and the noble Lord himself have said. We have tried to present a formulation that takes greater account of local circumstances and the ability to increase council tax and that is more easily explained. All formulae are complex, but this one provides for a basic amount per head plus top-ups for deprivation. I do not think that anyone could argue against including top-ups for deprivation in the formula. The formula also takes account of pay costs and other specific needs. As the Statement makes clear, the formula also helps smaller authorities.

Others might disagree, but I would argue that the regional variations fall within a fairly narrow band. In the South East, the increase is 4.5 per cent, whereas in the East Midlands and West Midlands it is at the upper end, at 7.1 per cent. It is 6.3 per cent in the Yorkshire and Humber region; 6 per cent in the North East; and 6.6 per cent in the North West. I think that I made a note earlier that the district authority in Pendle—which the noble Lord., Lord Greaves, represents or represented—did really rather well this year.

Lord Greaves

My Lords, as a Member of your Lordships' House I do not represent anyone but myself.

Lord Dixon-Smith

My Lords, in the light of the figures mentioned by my noble friend Lady Hanham and provided in the background information to last week's Pre-Budget Report, are we to take it that future council tax increases at three times the rate of inflation would be reasonable?

Lord Bassam of Brighton

My Lords, I do not think that it is for me to pronounce from this Dispatch Box what would be a reasonable increase.

Lord Dixon-Smith

My Lords, the penultimate sentence of the Pre-Budget Report states that there, is no reason why councils cannot continue to improve services whilst sticking to reasonable council tax increases". If the two figures provided by two separate departments are to have any validity, the Minister is obliged to accept the proposition.

Lord Bassam of Brighton

My Lords, I listened to what the noble Lord said, but I do not have to accept his proposition. It is not for me to pronounce on what is an acceptable or unacceptable percentage increase in council tax—I am sure that it will vary across the country. I am also sure that it will vary very much in line with the express wishes of local voters, local electors and those who play a full part in their local authority. There will undoubtedly be larger council tax increases in some areas than in others. It will also reflect their ability to raise council tax, which is an important part of the new formulation.

So I shall not pronounce. However, I think that the baseline of our settlement, which is well above the current inflation level and has very protective floors and ceilings, ensures a very generous Statement. I challenge the noble Lord, Lord Dixon-Smith, to compare this year's settlement with even the most favourable settlement under the previous Conservative administration. I think that he will find that, in some if not most respects, that settlement is found wanting.