§ Chris Grayling (Epsom and Ewell)
I am grateful to the Minister for attending to take part in the debate. I am a Surrey Member of Parliament, but the concerns that I want to raise are shared by Members across the south-east of England. That is why I gave the debate its specific title. Across the political spectrum, we are all profoundly anxious about the implications for our local services of the planned funding review that the Government are undertaking. About 10 days ago, the leaders of Surrey, Kent and Hampshire county councils held a press conference to raise their concerns about the potential impact on the services that they offer.
All 11 Members of Parliament, irrespective of party, who represent the constituencies in Surrey are today sending a joint letter to the Prime Minister, urging him to pay attention to the risks inherent in the Government's proposed funding changes. I want to take advantage of this opportunity to set out some of our concerns. I will speak briefly, so that my hon. Friend the Member for Fareham (Mr. Hoban) can raise issues on behalf of his county, Hampshire.
The fundamental issue in the south-east is that we are under pressure in a variety of ways. In the past generation, there has been a huge migration of economic activity and population into the south-east—a trend that is continuing relentlessly year by year. Public services across the different counties in the area are already significantly overstretched, for various reasons. We have a substantial elderly population. Parts of Kent face a significant influx of asylum seekers, who need support within the communities to which they move.
Our police force is under pressure as a result of the increase of resources in London, especially the higher rates of pay offered there. There has been a migration of experienced officers into London and other areas. Our social services face a distinct shortage of care home beds. Against that background, all our public services operate in an environment in which the cost of maintaining them is rising relentlessly.
§ Mr. Julian Brazier (Canterbury)
I am grateful to my hon. Friend for giving way so early in his speech. Does he not think it disgraceful that in care homes in my patch in Kent—and, I imagine, in his as well—an elderly person can have two and a half times as much local authority funding as the person in the neighbouring bed? The amount paid depends on whether the person comes from the privileged boroughs of London or from our constituencies.
§ Chris Grayling
My hon. Friend makes a good point. The Minister must be aware that the shortage of beds that has resulted throughout the south-east—in London and outside—as homes have disappeared means that London boroughs with deeper wallets are taking up care home places further out. That means that there is less choice available to the social services departments that try to meet the needs of our constituents. There is a shortage not only of care home places but of carers. People in my constituencies are blocking hospital beds 130WH simply because the people are not there to deliver the home-based services that the hospitals and social services believe they require.
Against that backdrop, the review threatens at least to engender a drip-by-drip bleed of finance from our services over the next few years. Several scenarios have been suggested. At worst, my county could lose £60 million in funding. I accept that the Government have said that there will be a floor at zero per cent., so there may not be cash cuts in funding, but even if there are increases, if those increases are significantly below inflation, over several years the consequences for services will be devastating. That is because local authority services do not simply operate according to inflation. For example, there are teachers' pay settlements that are higher than inflation and need fully funding. There are increased pension costs and above-inflation increases in care home costs. There is a whole raft of additional pressures that require additional resources, especially for housing for those who are homeless in our areas, because affordable housing is not available for all those who need it. Such pressures make it almost impossible for local authorities to do their job properly. If they lose significant funding over the next few years, even in a drip-by-drip way, our services will become poorer. The consequences will be damaging both for our region and for the nation as a whole.
My area generates a significant contribution in tax revenues to support the things that the Government are doing in the rest of the country. If we undermine the ability of the south-east to function as an effective economic unit, and we do not have good public services in the parts of the country that create the most wealth, we shall lose business, investment and good people, not to other parts of the country but to continental Europe. If the south-east loses, the country loses. I urge the Minister to take that into account as he and his colleagues work on the review in the weeks ahead.
The policing situation is of particular concern. I refer to the proposed changes in police funding in Surrey, which has recently been a weak receiver of funds. In terms of the funding from central Government, Surrey's police budget has been reduced by 14 per cent. in real terms over the past five years. That funding has had to be made up by increases well above inflation in the police precept.
The force is already underfunded, and it now faces further cuts as a result of Government reviews. Review options vary from Surrey losing a bit to Surrey losing a lot, at a time when the force cannot afford to lose anything at all. The Minister may not be aware of the fact, but varying pay structures in the public sector mean that police in London receive £6,000 a year more than those in Surrey. That structure is repeated in teaching and many other public services, but nowhere is it more acute than in policing.
§ Mr. Mark Oaten (Winchester)
In addition to the problem of the difference in salary, is the Minister aware that the Metropolitan police offer incentives such as paying police officers for travelling from many of the home counties into London?
§ Chris Grayling
The hon. Gentleman makes a good point, and there are further benefits on top of that, such 131WH as pension rights and fringe benefits, which make the case for moving to London all the more compelling. As a result, forces outside London are often staffed by newly qualified officers. Forces have lost the bulk of their experienced officers, who have moved a short distance up the road to earn significantly more money—and who can blame them? Consequently, we cannot deliver the effective policing that we would want.
The chief constable of Surrey has said publicly that his force is in crisis because of the tendency that I have just described, and that he is not confident that Surrey police forces will be retained in their current form if funding changes are made according to the formulae that the Government have proposed. That is a profound worry in a busy part of the country, which may have less crime than London but is none the less vulnerable to increases in criminality. Policing is needed there, not only for major inquiries such as the tragic Milly Dowler case, but for additional security at Heathrow and Gatwick, and for the M25.
Our schools are the greatest concern, however. One of the infant school heads in my constituency has written a very spontaneous letter, which says:Surrey schools are among the best in the country and the loss of funding could have a disastrous effect on standards and morale. You will be aware of the difficulties we face in recruiting and retaining staff, especially teachers. Much of this is due to the high cost of housing and a large increase in Council Tax would make an already difficult situation worse.
There's the rub, because council tax increases—if, indeed, we must have them in Surrey and other parts of the south-east—disproportionately affect those on low and fixed incomes, such as pensioners who have been retired for a long time and who do not have above-inflation pay increases to enable them to pay above-inflation council tax increases. Teachers and other public servants struggling to buy their first houses in the south-east cannot afford significant increases in their council tax.
If the Government cut away funding from Surrey and other counties in the south-east so they have to maintain statutory services through big increases in council tax, ultimately we shall lose more of the people who find it a struggle to get by in the south-east, and our public services will deteriorate still further. The Minister must take into account circumstances in the south-east before he takes steps that will do lasting damage not just to the region but to the economy and the rest of the nation.
§ Mr. Mark Hoban (Fareham)
I congratulate my hon. Friend the Member for Epsom and Ewell (Chris Grayling) on securing the debate, and I concur with many of the points that he made. I shall focus on the impact on Hampshire in particular. Hampshire county council has estimated that in a worst-case scenario it would lose £80 million, which is equivalent to 9 per cent. of its budget. That would lead to a 32.6 per cent. council tax increase, equivalent to an increase of £170 for band D. Even with a mid-point change Hampshire would lose £35 million, which equates to a £98 increase in band D council tax.
Of course, that is only one aspect of the changes facing council tax payers in Hampshire. Changes in police authority funding will affect them too, and in 132WH Fareham there is particular concern that the merging of the rate support grant and the non-domestic business rate will lead to a loss of funding; in Fareham that will be about £75,000. When the Minister's colleague gave a seminar before this parliamentary Session, he said that an announcement would be made very shortly about that funding change. I hope that the Minister will suggest when that announcement will be made, and what might be in it.
A 9 per cent. cut in the budget for Hampshire county council would be equivalent to losing 900 teachers—that is, two teachers from every school. That would add to the pressure being placed on schools by the increasing demands made of them by central Government. Social services budgets are already under pressure, and that is already causing beds to be blocked in Hampshire. On one day earlier this month, 60 patients were waiting to be discharged from hospital, with nowhere to go. A 10 per cent. cut in funding for the elderly would lead to a loss of 400 places in residential homes. That would reinforce the pressure that hospitals are under from the closure of nursing home places and the lack of domiciliary care.
It is clear to me from talking to county councillors that the cuts in services that would arise from the shift in funding that the Government have been talking about would hit the most vulnerable people the hardest. Even if a transitional arrangement softened the blow in year one, the cuts would work their way through the system.
My hon. Friend referred to council tax increases. Earlier in the month the Government announced the uprating of pensions for married couples by £160 a year. A 32 per cent. increase in council tax in Hampshire would wipe that out straight away. I have had many letters from constituents—as, I am sure, have many other hon. Members. Mr. and Mrs. Bradshaw, who live in central Fareham, wrote to me:As pensioners living in a small two bedroomed bungalow, we already pay £820 per annum in council tax and we dread any excessive increase in the future.They are not alone in that. People on low and fixed incomes fear the effect of the increase in council tax on their income.
Even if the cuts are mitigated by transitional arrangements, even a 15 per cent. cut in funding this year could lead to a £2 a week increase in council tax, which works out at £100 a year—almost two thirds of the Government's uprating in the married couples allowance. Will the Minister think again?
The shift in spending will affect many people in Hampshire—the elderly, children who are reliant on services provided by the county council, schools, old people's homes and children's homes. Council tax increases will also impinge on the incomes of the elderly and others on low or fixed incomes. The consultation period is ending and time is running out for people in Hampshire. Please Minister, think again about the impact on the most vulnerable people in the community, whether they are in Hampshire, Surrey or Kent.
§ The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie)
I join in congratulating the hon. Member for Epsom and Ewell (Chris Grayling) on calling today's debate on an 133WH important matter, about which he spoke with passion and conviction. I appreciate that local authority funding, though sometimes quite technical, is the foundation on which many public services are built. It is a matter of concern to his constituents, as it is to all Members in this House, but I can assure the hon. Gentleman that we are assessing all the relevant points carefully before we take final decisions for the next financial year. I am aware that the hon. Gentleman, like the other Members who spoke, is particularly concerned about the high cost of services in the south-east, and I acknowledge the strong feelings on that subject.
At this stage, it would be useful to examine the important formula grant review process, which is about fundamentally examining the formulae according to which we distribute grants to local councils throughout the country. We want a fair distribution of grant; that is our overriding priority in responding to the widespread consultation exercise. The review is also about how best to deal with a fixed pot of money; any changes will mean that some gain more than others. In total, however, more money is available for local authorities overall, with the 2002 spending review providing good increases in council grants for the next three years. That builds on the grant increases—real increases of about 20 per cent., compared with a 7 per cent. reduction in the last three years of the previous Administration—that we have found since we came to office.
The hon. Gentleman worries about the south-east losing out; that is obviously his prime consideration in calling for the debate. Some council leaders in the southeast have made wild claims that funding will be taken away from their authority and given to others purely on the basis of geographical location. That is simply not true. There is no question of shifting resources according to crude political geography. It would be stretching the powers of Machiavelli to discern any such motivation. We want a grant distribution system that takes account of each authority's circumstances and puts the money where it is most needed. We are trying to balance all the different pressures, which is never easy. Evidence and representations have been coming in, including submissions from councils in the south-east, as we move towards taking the final decisions.
The hon. Member for Fareham (Mr. Hoban) talked about Hampshire council losing significant amounts of grant. Some authorities have spent time speculating that the grant review will mean large cuts. To dispel that myth, let me make it absolutely clear that we have already guaranteed that on a like-for-like basis, no authority will receive less money in the next settlement than they received this year. Counties in the south-east will not get less grant from the Government next year. The figure of 9 per cent. is wrong; it is not on the cards. The hon. Gentleman's speculation about 32 per cent. increases in council tax is no part of our plans, either.
§ Mr. Hoban
County councillors are concerned about that. Even assuming, as the Minister has, a zero per cent. floor and no reduction of grant in cash terms, that would 134WH still translate into a £2 a week increase in council tax, largely because of other funding pressures placed on Hampshire county council by the Government.
§ Mr. Leslie
I appreciate the fact that the hon. Gentleman has neatly moved me on in my argument about our guarantee of no cuts on a like-for-like basis. Obviously we hope to do much better than that, but at this stage, when we are calculating all the formulae and seeing how they pan out, it is the baseline on which we hope and intend to build. We have talked about the concept of floors and ceilings, which will ensure that a level of protection is part of the new system, and that will feature in the local government financial settlement for at least two years. The system is intended to damp the effects of the introduction of any new methodology by smoothing any volatility caused by data changes.
Fears about council tax increases have been raised, but those concerns are premature. In the spending review for the next three years, we have provided increases in funds, which local authorities will be able to use to ensure that they can improve the delivery of key services while setting reasonable tax levels. Of course, decisions on levels of council tax are for local authorities to take. Local authorities are responsible to council tax payers, and they should be talking to them about the level of council tax that they will bear, and where the money is spent.
§ Chris Grayling
The Minister made a point about operating by formulae, but he needs to understand the background provided by the Government's statement that one of the criteria being used in the review is the ability to increase the tax take. In areas where the tax take is already high—in Surrey it is 45 per cent., compared with a national average of 25 per cent.—there are concerns that the Government sees those areas as milch cows.
§ Mr. Leslie
I think that the hon. Gentleman is alluding to a part of the equation called resource equalisation. It is a technical term that does not mean cuts in grants for local authorities—in the south-east or anywhere else. We have already guaranteed that no authority will lose out on a like-for-like basis, and resource equalisation is already part of the current system. Resource equalisation involves looking at a council's relative ability to raise resources from council tax, by examining the tax base, and it is right and fair that it remain part of the new system. The question is the extent to which we take the ability to raise council tax into account. Resource equalisation is another part of the system on which we are consulting, and our decision on it will be made alongside other decisions. I can reassure the hon. Gentleman that the no grant loss guarantee applies to that area of the formula in the same way as it applies to others.
§ Mr. Leslie
The Government certainly want to use the most up-to-date evidence on need that we have. We have to make sure that the census information is incorporated, and that the floors and ceilings 135WH arrangements will apply if there are significant changes, because obviously there will be peaks and troughs in crude formula applications, which, if they were taken on their own, could mean significant changes for authorities. One has to bear in mind that the floors and ceilings will kick in after some of those factors have occurred.
§ Mr. Nick Hawkins (Surrey Heath)
I am grateful to the Minister, and I must apologise for my earlier absence, which was due to a shadow ministerial commitment. I heard him talking about counties not losing out on a like-for-like basis, but I am always a little suspicious when such conditions are attached. Precisely, does that mean that next year each county in the south-east will have the same amount of cash as it has had this year, but uprated for inflation: yes or no?
§ Mr. Leslie
The hon. Gentleman is almost there. Every county will have the same level of cash for the coming year as for this year. When I say "on a like-for-like basis", I am talking about the composition of an authority, its size and whether new functions have been added to it. Of course, if an authority suddenly found that it had acquired a social services function, for example, the amount of grant would change. However, if a council's structure and services remain the same, it will get that level of cash increase. That is the minimum guarantee that we are giving for now, but we hope to do much better. So far, we have been able to make sure that we give a real-terms increase for education, which is the largest part of most councils' budgets. The spending review envelope will prove to give significant sums to councils as a whole.
I know that Members are concerned about area cost adjustment. There have been several research programmes and projects to examine that over the years. It affects the south-east considerably. In the studies that have taken place, about 21 variant models of area cost adjustment have been devised, and authorities have not agreed on the merits of each option. There is much strong feeling about the matter. The vast majority of people recognise that pay costs should be recognised in the system. We agree, but the question is how much weighting there should be. The options in the consultation document suggest redesigning and trying to remove something of the existing cliff-edge effect. All I can say now is that we are carefully considering the responses to the consultation.
On education, a very significant issue, I shall give a broader description of where we stand at present. The options for the education formula reflect the fact that for the next three years, the spending review will include significantly more investment. We want a clearer fairer system justified by the educational needs of children and based on more up-to-date evidence of costs and need. Any formula must include an element to allow for deprivation, and for enhancement in areas where schools need to pay more to recruit and retain staff. I appreciate the extra costs faced by authorities in London and the south-east, including Surrey, because of the higher costs of recruiting and retaining staff there. It costs more to live in London and the south-east, and earnings differentials there are higher.
The options set out in the consultation paper are based on evidence that suggests that authorities with significant deprivation and additional staff costs need to 136WH spend significantly more to achieve the same results for their children. The four options reflect the scope for different judgments to be made about weighting.
The hon. Member for Epsom and Ewell mentioned his concerns about the police. The aim of the police formula review is to develop a more robust mechanism for the fairer and simpler distribution of grant to ensure that it addresses policing needs in all parts of England. We are aware of differing pressures on policing, especially between rural and metropolitan areas, and of the need to allocate resources as fairly as possible to address varying needs in different areas. There has been a genuine consultation process and the responses are being taken into account. That has taken place against the background of a substantial increase in police resources. By 2005–06, the total provision for policing will be about £1.5 billion higher than in this financial year.
§ Mr. Leslie
Nationally, significant funds will come through from the spending review and filter through to local authorities.
This financial year has seen education spending rise by 8.8 per cent., personal social services spending rise by 3.6 per cent. in real terms, and total police funding increase by 6.1 per cent. During the next three years, local authorities will benefit. Under the spending review, social services funding will increase by a further 6 per cent. in real terms on average, education funding will increase by 6 per cent. and policing funding, as I said before, will also rise.
In Surrey, whereas under the previous Administration the standard spending assessment grant went up by only 2.7 per cent. on average, this Administration have managed to increase the standard spending assessment by 4.8 per cent. As for social services, children's grant has increased by 12.8 per cent. this financial year, and carers grant by 21 per cent. Education spending has increased by £121 million—almost 39 per cent.—over five years, with the capital expenditure allocation rising this year to £38 million. An extra £24 million has so far been allocated for next year.
We have consulted at length on the formula grant review. The no cuts guarantee is there, on a like-for-like basis. I urge hon. Members to wait for and listen to the announcement before speculating and scaring too many people about the future. We want a more transparent formula. We know that we must try to strike the right balance between the competing arguments, and the involvement of not only councillors but Members of Parliament in the debate on the new formula is extremely important. My principle is to give local authorities a decent grant, which matters for the improvement of public services, and I hear the arguments that hon. Members on both sides of the House are making on the subject.
Question put and agreed to.
§ Adjourned accordingly at one minute to Two o'clock.