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§ Mr. Steve Webb (Northavon)Mr. Gale, I do not know whether you have ever seen the old news footage of industrial action in which a striking worker walks down the street at a demonstration with a placard saying, "Five per cent. of nothing is nothing; we want 10 per cent." I feel I am in a similar position. My argument with the Government is not that this year's settlement was particularly bad. Indeed, as I am sure the Minister will point out, it was markedly more than we might have expected under a previous Government, and even allowing for population growth it was probably broadly in line with the national average. However, my key contention is that the base for setting spending in the South Gloucestershire council area is far too low. I want to remark on the urgent need for reform of the system, and offer some thoughts about the shape that that reform might take.
I offer my sympathy to the Minister because I notice that there is a rash of Adjournment debates on the topic of the SSA for various authorities. I have read the transcript of his reply to my hon. Friend the Member for Somerton and Frome (Mr. Heath) and some of the issues raised in that debate are obviously relevant to South Gloucestershire.
The issue is not, or should not be, at local level, a party political one. Although it might mischievously be suggested that South Gloucestershire council is spendthrift, in the current financial year all three parties on the council set budgets with remarkably similar spending levels, and the one with the lowest level—the Liberal Democrat one—was adopted. All three were in the same ballpark, however, because whoever runs South Gloucestershire council must operate against what we perceive as an unfair system.
South Gloucestershire council has been underfunded from the beginning. In its first year, 1996–97, it pencilled in the use of £10 million of its inherited reserves to patch a hole in the budget. By cutting spending inherited from its predecessor authorities it avoided using the whole £10 million, but each year since then, £3 million or £4 million has been pencilled in to plug the hole in the budget. That is not a sustainable state of affairs.
To give hon. Members an idea of how low the standard spending assessment is for South Gloucestershire, I shall cite some figures that are familiar to the residents of that area. South Gloucestershire is 145th out of 150 authorities with respect to children's social services; 147th out of 150 with respect to care of elderly people at home; and 150th out of 150—bottom of the pile—for primary education. Clearly, in any system there are some at the top and some at the bottom. However, the discrepancies between authorities are impossible to justify. South Gloucestershire receives £300 per primary pupil less than the national average. I cannot believe that it costs £300 less to educate a child in South Gloucestershire than it does elsewhere. Even when a comparison is made with similar, unitary, authorities, the discrepancy is £260. That affects real pupils and real teachers in real classrooms.
The base level of funding is unfair, but why? First, as the Minister, who is knowledgeable about such matters, knows, we, like many authorities in the region, are 231WH affected by the area cost adjustment, which gives us no credit for the pressures on our labour market. A pertinent example is that we find it impossible to recruit home care workers. Elderly people cannot leave hospital, because there are not enough care workers to look after them. It is the problem known as bed blocking. As the Minister will no doubt point out, money has been allocated in that general direction, but I cannot help feeling that if the system more readily recognised labour market pressures outside London and the south-east—and did so up front—we might never have had folk kept in hospital beds in the first place; we could have afforded care staff, enabling them to leave. We would not have needed a sticking plaster grant to deal with the problem. We could have pre-empted it. Whatever system the Government come up with, it is essential that they recognise that it is not only in London and the south-east that such labour market pressures exist.
A separate problem affects growing authorities such as South Gloucestershire—the use of acutely out-of-date information. The number of children in primary education is counted in the January before the following year's funding is calculated. A consequence of that is that each year South Gloucestershire educates the equivalent of a whole primary school's worth of pupils not for a below average amount, but for nothing at all. The county gets no money for the children that it is teaching. Until systems are introduced that use more up-to-date data, which ought to be possible by now, the authority, which is set to grow for decades to come, will lose out.
The problem affects not only young children but the whole population of the area. The assessment of that population, which feeds into the SSA calculation, is way out. The mid-year figure for 2000, which is used in the SSA formula for the coming year, assumes a population of some 247,000. However, we know from the health authority that, in April 2001, the population was already 3 or 4 per cent. higher than that and has grown since then. On the one hand the authority is not receiving money for people in its area and the other hand, the Government formula deducts money from the authority's grant for the council tax paid by those people as soon as they move in.
The day that someone moves into the area, the authority is assumed to be receiving council tax from them, which it does, and that is subtracted from the money that it receives from the Government. However, the authority does not receive the funds to cover the cost of educating those people's children or looking after the elderly among them or sorting out their dustbins for a year or maybe two. That is a double whammy. The second those people move into the area, we lose money on the council tax side of the equation. However, although the authority has to meet the costs of providing services for them straight away, they are not included in the figures on the revenue side until two years later. Growth is a real problem if the system does not catch up with change.
I have outlined some reasons why the base funding level is unfair. This year's settlement of 6.6 per cent. is clearly decent in the context of provision to other authorities. The figure is slightly above the national average, although when the population growth is taken into account, the increase is probably broadly in line 232WH with the national average. As I said earlier, it is welcome in that it is substantially more than what we might have received under a previous Government.
§ Mr. Roger Berry (Kingswood)Does the hon. Gentleman acknowledge that the total grant to South Gloucestershire council, in cash terms, has increased by about 40 per cent. during the past four years, which is dramatically more than under previous Governments? Will he acknowledge that his concerns about the SSA for South Gloucestershire are shared by all political parties on the council and by all local Members of Parliament, including me?
§ Mr. WebbI am grateful for the hon. Gentleman's support, of which I am well aware, for my argument that the SSA formula is unfair. I would say, however, that local political responses have been seasonally adjusted. When the Government announced the extent of their support in November, all three parties said that it was a scandal. When the council announced a council tax rise based on that unfair system, complaining about underfunding suddenly became a lonely business. Accusations were suddenly made that the council was not controlling its spending properly, and the Conservative opposition have been known to make mischief, having said only a few months earlier that the funding settlement was not adequate. I will deal with the hon. Gentleman's point about grants in a moment.
The settlement of 6.6 per cent. is not bad, but the fundamental point is that it is 6.6 per cent. of not enough. It is important to put on the record that built into that increase is the assumption that the council will increase council tax by roughly 5 per cent. Regular letters to the local press say, "We have to keep in line with inflation; why can't the council?" The first answer to that is that the Government assume that the council will not. They build into their allocation an assumption that council tax will be increased by double the rate of inflation before spending pressures have been considered.
As the hon. Member for Kingswood (Mr. Berry) said, separate grants go the local authority. The question is whether they change the system. Before we consider the grants, we should examine the spending pressures on the authority. Why was the SSA increase of £11 million or so not enough? One reason is that the authority has faced a near-doubling of people presenting themselves as homeless. The authority has a statutory duty to respond humanely to such people. It cannot turn them away or say, "Sorry, you are not in the budget."
That increase in homelessness is a nationwide problem, but it is particularly acute in South Gloucestershire. The homelessness tsar and his staff and departmental staff have been to South Gloucestershire to examine the council's response to homeless people and have recommended no changes. No fault has been found in the way in which the council responds to homelessness, but there has been a huge rise in the problem, for all sorts of reasons, which has put a further £500,000 on the budget for the year to come and meant that there were no underspends this year. Normally, interest income underspends bail the council out, but this year there have been additional pressures as a result of issues such as homelessness and falls in interest income from previous years.
233WH The council has had to find money for other matters. Every three years or so, pensions schemes are reviewed for teachers and council staff. The council has a statutory duty to ensure that the funds are available, and has been told to put another £1 million into the budget to find that money. That sum, which is in addition to keeping services going, represents perhaps another 2 per cent. on the council tax. Another £900,000 has gone on what is known as single status, to level up the standards of manual and non-manual workers, whether women or men. Such matters are entirely laudable, and if a council did not act on them it would be taken to court, but the council tax payer has to pay for them.
A further £500,000 was required for the fire authority. Again, the council has no control over that, but simply has to levy the money. Another spending pressure is the £600,000 in matching funding when the Government take welcome action, not necessarily on core services but additional ones, and the council receives the money only if it finds money of its own. In a tight budget, that puts additional pressure on council tax.
In previous years, underspends have arisen, perhaps because of interest income helping to offset some spending and perhaps because of pressures that did not materialise. Now, pressure from homelessness and loss of interest income means that reserves have had to be run down by probably slightly more than £3 million in the budget. As a result, the reserves are almost gone and the burden falls on the hard-pressed council tax payer.
The hon. Member for Kingswood mentioned the grants that councils receive. They are mainly for schools and social services. The grants direct to schools are extremely welcome. However, given that the council has a policy for passporting all the money that it receives for schools directly to the schools themselves, the grants do not directly relieve the pressure on the council tax payer. The council does what it is told by passing the education money on to schools. It does not know what the schools will receive, so it cannot say that it will give less than any specific sum, and the Government would be unhappy if it did.
To an even greater extent, the grants for social services do not relieve the pressure on the council tax payer. Some £3 million is set aside for preserved rights cases, which involve people who used to be paid by the Department for Work and Pensions and are now the responsibility of the local authority. To match that £3 million grant, there is a £3 million or so liability. As my hon. Friend the Member for Somerton and Frome said a few weeks ago, that money has been dished out to councils in a way that reflects the SSA formula. That penalises us again. It would be wrong to say that councils have done well to receive millions of pounds and should reduce council tax when they have gained liabilities that more than exceed their grants in some cases. Likewise, £500,000 this year and £1 million next year for bed blocking is welcome, so far as it goes. At the same time, a grant to promote independence among elderly people has been cut by £500,000. One has to consider the whole.
The key point about the additional grants is that, welcome though they are, they do not pay for core services, except those to schools. They are for welcome 234WH innovations, but often do not help the pressure on core services. When they require matching funding, they can make matters worse, and when they are allocated through the SSA formula, worse still. My director of social services cited the example of an initiative to help disabled children, for which the council received a grant total of £32,000. It had such a small SSA for children that, once the formula had been applied, the sum had almost gone on the employment of one person and overheads. The SSA formula is wrecking the system.
The key point for us in South Gloucestershire is that when the new system is introduced next year—I hope that the Minister will reassure us that it will be—we will not have to wait years and years for any significant gain from it. I may be wrong and we may gain nothing, but I hope that there is only one way to go, given that we start at the bottom of the league table. If there are gains for authorities such as South Gloucestershire, they must be brought in quickly. I understand that if there are gainers in a fixed pot, there will also be losers, and that some cushioning has to be provided for the losers. However, I hope that the Minister will assure us that councils that are not fairly funded will not have to wait years for that injustice to be dealt with. If a ceiling is put on gains, I hope that the ceiling will be on gains per head rather than on the total SSA—or whatever succeeds that assessment. That would at least reflect the fact that we need more money just to stand still. A ceiling that remains determined on the basis of total cash will be prejudiced against growth areas.
In the longer term, the entire council tax system needs sorting out. Pensioners in my constituency who are just above benefit levels are often those hardest hit by large council tax rises. They do not receive help through the benefit system and have to pay the full whack of any increase, although their incomes have not risen by much. In the long term, we need a local government system that is closely related to ability to pay, and council tax is not such a system. The priority is to deal with that unfair system and make reforms quickly, because the people of South Gloucestershire have waited long enough.
§ The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Dr. Alan Whitehead)I am grateful to the hon. Member for Northavon (Mr. Webb) for giving us the opportunity to debate the local government finance settlement for South Gloucestershire for the coming financial year. He referred to the debate initiated by the hon. Member for Somerton and Frome (Mr. Heath) in this Chamber recently, on funding and the standard spending assessment for Somerset. Several points raised in that debate are relevant today.
I welcome the statement of the hon. Member for Northavon that the purpose of today's debate is not to claim that this year's settlement was uniquely bad or robbed councils of all their funding. The deeper issue that we should consider is how the funding formula works and how it distributes money to local authorities in general. That was the substance of his contribution.
It is worth repeating some of what I said in the debate on Somerset's standard spending assessment. This year's settlement is a good one for local authorities 235WH generally. It provides £3.3 billion more in general grant than in 2001–02, on a like-for-like basis. The 7.4 per cent. increase, taking into account all the grants that it represents, is more than three times the rate of inflation. However, I accept that the Government may truthfully say that the national settlement is good, while local authorities—and hon. Members discussing the settlement in the context of individual authorities—may say that it is not good, or that it does not do what they had hoped. That is not merely because the settlement varies greatly in different regions but because the funding formula continues to produce outcomes that individual local councils find perplexing. Hon. Members have often made that point in this Chamber.
South Gloucestershire council has benefited from the extra investment that we have made in local government. In the two years before 1998–99, which included the first year under this Government, South Gloucestershire received an average SSA increase of 3.6 per cent. each year. Since then, it has received an average increase of 5.7 per cent. Under our proposals for next year, it will receive a general grant increase of 6.8 per cent., or £8.16 million. This builds on the 4.5 per cent. that the authority received this year and compares favourably with the overall increase for authorities in England of 5 per cent., and for shire unitary authorities of 5.2 per cent.
On top of the increase in its general grant, South Gloucestershire will also benefit from the increases in ring-fenced grants, particularly in the areas of education and social services, on which I shall comment later.
It is not true that, in those settlement figures, the Government automatically assume that council tax will rise by the 5 per cent. or so that the hon. Gentleman mentioned. It is true that there were reports in the newspapers a little while ago of Treasury estimates that it was claimed were a built-in, council tax-assumed increase in the local government settlement. However, that relates to Treasury estimates of the council tax yield and is a composite calculation, which includes a possible increase in council tax, the continued improvement in the rates of council tax collection by local authorities and the additional properties that will be taxed through the council tax mechanism in the next year. That composite is not the same as an assumed increase. Indeed, because different local authorities have different circumstances, the Government have made no assumptions for an assumed increase in council tax across authorities before a grant is considered.
The hon. Gentleman emphasised the fact that, despite the good settlement for South Gloucestershire this year, there are substantial elements in the history of its funding and its nature as a unitary authority that cause him to believe that there are continuing problems in funding it. I am sure that the extra grant will have been welcomed by the local authority, but I appreciate that more fundamental concerns exist about the method of distributing grant between authorities, and I am aware of the general feeling among local authorities in the south-west that they do not receive a fair share of the grant overall, an issue highlighted in last week's Adjournment debate on Somerset.
I repeat the comments that I made in that debate. We recognise that the current system has its flaws. I have myself as a leader of a local authority fallen victim to a system in which the outcome of formula change reduced 236WH the grant increase to my authority, despite there being apparently no change in its responsibilities. The SSA formula tends to penalise authorities that had relatively low expenditure in the early 1990s when it was introduced.
South Gloucestershire would no doubt have wanted the Government to make changes this year, but we did not want to impose a system on local government without agreement that it would be fairer or more transparent. It is true that where population figures lag behind actual growth that can cause problems with grants, but a decline in population can also cause a problem, because the continuation of services does not relate arithmetically to the reduction in grant following a reduction in population. One cannot reduce one 29th of a teacher per classroom to compensate financially for the reduction of one child per classroom following a reduction in the number of children. Whichever way one looks at it, the SSA formula has problems.
I join the hon. Gentleman in emphasising that not everyone can be a winner from the changes that may eventually be introduced. We must therefore look closely at all the issues and consequences for councils of any proposed changes so that, winners or losers, they relate clearly to the way in which that new formula will work for them.
We are committed to a fundamental reform of the SSA formula and we are working to create a local government finance system that distributes grants fairly and effectively and gives councils greater financial autonomy to help them better to meet the needs of their local communities. As far as possible, we shall work with local government and try to build a consensus on how those changes will work.
§ Mr. WebbI am grateful for what the Minister has said so far, but I tried to express the frustration that local residents feel about the unfairness and the need for urgent change, and he mentioned the need to build consensus. Only today I received a copy of a letter from him to the hon. Member for Woodspring (Dr. Fox) who had suggested that he and I and the hon. Member for Stroud (Mr. Drew) went to see him as an all-party delegation. In his letter, the Minister said that he would not meet us. How can he get consensus if he refuses even to see us?
§ Dr. WhiteheadI received—indeed, the Department received—a large number of letters, as we have in previous years, from local authorities wishing to discuss particular issues relating to their settlements during the period of consultation after the announcement of the provisional grant. The Department took the view this year that it would be appropriate and right to meet a number of different local authority groups to discuss the nature of the settlement—not just the Local Government Association but the county network, the unitary authorities and the district councils—and those meetings have taken place.
However, having a large number of meetings over a short period of time was not felt to be very productive for the settlement. I recall writing a letter to the hon. Member for Woodspring emphasising that although written submissions would be welcome, it was not appropriate at that stage to hold a large number of 237WH essentially similar meetings with particular local authorities. It was hoped that discussion on representations with groups of local authorities would be a more appropriate way to make concerns felt. The hon. Member for Northavon has, however, taken the opportunity of securing an Adjournment debate in this Chamber on his local authority.
The hon. Gentleman mentioned the vexatious issue of area cost adjustments. That factor in grant distribution reflects the higher cost of recruiting and retaining staff in the south-east, but there has always been controversy about how it is calculated, especially in areas that fall outside the boundary. Numerous research projects over the years have tried to find a better solution. We have conducted research openly, and local government has had every opportunity to scrutinise and debate the research projects, but unfortunately there has been no final agreement between authorities on the merits of the different options. We therefore decided not to rush into changing the area cost adjustment, but we are considering that as part of next year's review of grant distribution.
Some authorities complain about being just outside the boundary and argue, as the hon. Member for Northavon mentioned, that their pay pressures are comparable with those of the bordering authority. I have considerable sympathy with that argument and we have reviewed the issue carefully. Despite a considerable body of research commissioned in that area, local government remains divided. Finding the answer will not be easy, but we are committed to working with local government on it.
We shall update data, including the area cost adjustment, as normal for 2002–03. We have been working with local government to ensure that that is done in the best way possible and have taken on board some of its concerns, such as on new methods of 238WH measuring road lengths used in SSA indicators. We have made concessions in terms of not implementing new methods of road length measurements this year. That has been put off until a future date.
We continue to discuss with local government how best to implement the formula, flawed though it is. I hope that, as a result of the discussions that we shall hold and the calculations that we shall make, we will have a simpler, fairer and more transparent system based on need and a notion of what local authorities see going into the calculations. That system should divide up the global grant total available for local government in such a way that local authorities can see that the overall grant cake has been divided up fairly, whether they have been winners or not.
In an earlier year, we introduced the floors and ceilings mechanism essentially set out in the Green Paper on local government finance as an option for the future. We felt that the continued substantial variations in grant between local authorities as a result of the way in which SSAs were working, produced, especially among district authorities, very wide variations, ranging from 0 to more than 10 per cent. Having a floors and ceilings mechanism was therefore important. The hon. Gentleman will know that, in the context of the floors and ceilings mechanism for unitary authorities, we have changed, again as a result of discussion with local authorities, the system whereby poor authorities pay for the very poor. Some £41 million has gone into the settlement to ensure that mid-range authorities do not pay to bring lower authorities up to the floor.
I assure the hon. Gentleman that I will take into consideration the points that he has raised today. The Government believe that we shall provide a good settlement for 2002–03, but there will be winners and losers. Nevertheless, next year's settlement will be good for South Gloucestershire. We are coming to the end of the six-week consultation period, and we shall listen carefully to all issues raised by local government during that process.