Standard Spending Assessment (Bury) (Hansard, 7 May 2002)

§ Mr. David Chaytor (Bury, North)

I am grateful to have this opportunity to raise the standing spending assessment for Bury. This may not be the best-attended debate of the Session, but the issue is of enormous importance both to my constituents and to the local authority that encompasses my constituency. My hon. Friend the Member for Bury, South (Mr. Lewis) and I have campaigned consistently on behalf of our constituents over the past five years, and it is only his ministerial responsibilities that prevent him from participating in today's debate.

The timing of the debate is interesting as it is almost three years to the day since I raised the issue of SSA in Bury in an Adjournment debate that I secured on 19 May 1999 on primary schools in Bury. The particular component of SSA that is most controversial from Bury's point of view is, of course, the education SSA, to which I shall return later.

Bury metropolitan district council is one of the smallest of the 36 metropolitan districts, with a population of 182,000. It has a mixed population and is not easily categorised. It contains areas of great deprivation and of great prosperity. It is an urban local authority with a rural hinterland and significant expanses of suburban areas. The local authority has historically suffered from its small size because, by definition, it cannot enjoy the economies of scale open to bigger metropolitan districts and shire counties. Historically, it has been underfunded, originally because of many years of control by a Conservative group, which did not build up the asset base in Bury, and over the past decade by the impact of the SSA, which has always worked against Bury and many other small metropolitan districts.

The authority has recently been categorised as one of the 20 most improved authorities in the country. It is well regarded by most ratepayers in Bury, as evidenced by the results of the local elections last Thursday, in which the Labour majority on the council was increased by two. The authority does most things well, some things excellently, and where it has weaknesses is working hard to remedy them. Its financial difficulties are enhanced by the large majority of properties being in council tax bands A, B and C, which limits the scope of revenue from that source.

The history of Bury over the past 10 years is interesting. In the early 1990s, it was subjected to continuous financial pressures that led to an absolute crisis in the 1997 budget. Several million pounds of cuts were made, particularly to the education budget. That caused widespread controversy and disruption throughout schools in the borough. The council had historically protected its education service—it has to be said that that was at the expense of other services such as highways and social services—by spending approximately 10 per cent. more than SSA throughout the early 1990s. By 1997, that was no longer possible, and the bullet had to be bitten. The local authority bit the bullet by cutting its education spending to the SSA level.

In Bury, we are extremely grateful for the gradual increase in SSA that the local authority has experienced in the past three years. For example, in 1998–99, it 45WH increased by 7.99 per cent. against a national average of 5.19 per cent.; in 1999–2000, it increased by 5 per cent. against a national average of 4.84 per cent.; and in 2000–01, it increased by 4.74 per cent. against a national average of 4.37 per cent. We are grateful for the year-on-year improvements in investments in our services. Despite that, the difference between Bury's education spending and the national average has widened in the past three years, as has the difference between Bury's education SSA and that of the best-funded authorities.

We would never expect to be one of the best-funded local authorities, but we are hugely aggrieved that we consistently find ourselves in the bottom quarter of the education SSA. The Government's index of local deprivation suggests that Bury is in the worst third of local authorities on most deprivation indicators, so we think that our SSA settlement should reflect that. I should like to quote briefly a debate here on 19 May 1999. I am reluctant to quote myself, but it is a timely way to start. I said:

On finance, Bury local authority has suffered historically from a low standard spending assessment…The aggregated schools budget per capita spend is £100 below the national average for primary schools and £150 below the national average for secondary schools. Those differentials have increased over the past three years. I also said:

I know that Ministers at the Department of the Environment, Transport and the Regions are highly conscious of the inequities of the SSA system. I know also that a considerable amount of work was done on that last year and that a change to the children's social services criteria was introduced which benefited some of the poorly funded authorities such as Bury. However, I again draw attention to the fact that we must wait a further three years for the next review of SSAs. The contentious issues of the area cost adjustment and the additional educational needs criteria remain to be resolved. In those three years, Bury and other small local authorities will continue to he funded by a system that is widely regarded as being unjustified and methodologically unsound."—[Official Report, 19 May 1999; Vol. 331, c. 1023.] So it has proved over the past three years. We look forward to the promised Government reforms of 1 April 2003.

Just before the 1997 general election, my right hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson), the then shadow Secretary of State for the Environment, came to Bury, pledged that there would be a full reform of the SSA system, and accepted that Bury's case for improvement was overwhelming. Two years later, the present Secretary of State for Transport, Local Government and the Regions came to Bury in his former capacity and recognised the inequity in funding, particularly in education; he pledged that the system would be reformed. In each of the past five years, the local authority has written to the Department in response to the settlement and has made arguments for change and improvement. My hon. Friend the Minister will be aware of recent correspondence, and I am grateful for his reply acknowledging the council's points.

In a letter that I sent to the Department on 24 January this year which summarises my views I said: I am writing to support the Council's response in its entirety; to reiterate the urgent need for a transformation of the current arcane SSA system to one that is not only fairer in application but more transparent in methodology and less subject to dubious forms of manipulation; and to draw attention to the fact that the 46WH discrepancy between Bury's SSA and that of both the best funded authorities and those with average levels of funding would appear to have significantly widened during the last four years. We welcome the overall improvements to local government finance, the approximately 5 per cent. a year increase in SSA, and the introduction of new funding streams, particularly for education, from which we have benefited. However, I come back to the fact that the basic methodology that currently applies is unacceptable.

In a letter to the Department for Transport, Local Government and the Regions, the finance spokesman of a local authority criticised the area cost adjustment component of the SSA: The operation of what is the most perverse element of the SSA system has now reached the point of farce and the late amendments made to the data used in the provisional Settlement has brought the absurdity of the situation directly to the attention of our residents, schools, partners and service users. Bury continues to acknowledge that the costs of providing local authority services in London and the South East are, to some extent, higher than in other areas of the country. However we have always believed that the current ACA methodology considerably overstates the differential in costs and we have campaigned, along with our colleagues in SIGOMA, for a distribution system that reflects actual, measurable variations in local authority costs. The late data changes have severely damaged the expectations of service providers and users, and they will hit our schools particularly hard. Local politicians and officials will find it well nigh impossible to justify to Governors, teachers and parents why it is that the pay increases given to 350 `City' workers should rob Bury schools of around £400,000 of much needed resources. That was a reference to the late changes to the data used in the settlement for this year. We want a system that is based on transparency and on measurable costs that have been agreed and that everyone can understand.

May I give an example of the differentials that currently apply between Bury and other authorities? The gap that I referred to in the 1999 debate on Bury's primary schools was of the order of £100 between the primary SSA for Bury and the national average, and £150 between the secondary SSA for Bury and the national average. In the past three years, the gap has increased: the gap between Bury and the English average is now £201 for the primary SSA and £254 for the secondary SSA. The differentials between the Bury primary and secondary SSAs and those of some of the best-funded authorities have increased by far more than that. The primary SSA for Tower Hamlets has increased by £443 in the past three years, against an increase of £223 in Bury. Its secondary SSA has increased by £521 against an increase of £281 in Bury. I know that Tower Hamlets has many problems to grapple with, and everyone in Bury would accept that the problems in Tower Hamlets are of a different order from those in Bury. However, my constituents, my local authority and I cannot and do not accept that that is an argument for increasing the differential in SSA year after year.

I am focusing on the area cost adjustment element in education because it is most controversial. We have particular problems this year. For example, the need to provide local authority matched funding for the standards fund resulted in the call of an extra £900,000 on the local authority. Had the local authority not attempted to draw down its full allocation of the standards fund, it would rightly have been subject to criticism by head teachers and governors and by the 47WH auditors. The only way it could find that additional £900,000 was by working with the schools and getting their agreement to pool their surpluses to achieve the matched funding.

The teachers' pay award this year put additional stress on SSA funding. The cost of statementing children with special needs has increased dramatically in recent years. Like many other areas, the area faces the problem of declining numbers in primary schools, an issue with which the authority is currently dealing through a consultation programme on proposals for mergers of primary schools to reduce surplus places.

The pressures on education budgets remain intense, but it is not just education that feels such pressures. The local authority was particularly aggrieved this year at the way in which the implied promises£I choose my words carefully£of increases to highways SSA because of the use of geographical information system data did not materialise. Apparently, that was because of a very late decision to change the application of GIS data so that the data applied only to principal roles. That change resulted in the loss of several hundreds of thousands of pounds for Bury's highways SSA.

In social services, we have a legacy of overspend, with which the local authority is dealing effectively. However, pressures on social services, particularly because of the interface with the health trust, are putting significant pressures, in turn, on the local authority. I draw attention to a further issue: the pressure on the local authority to meet performance indicators on the movement of elderly people from residential care and on the increase in domiciliary care is in conflict with the pressure on primary care trusts to deal with bed-blocking by getting more people out of hospital as soon as they are ready to leave and into residential care. Ministers in the DTLR and the Department of Health could usefully discuss, and to try to resolve, that issue. At the moment, the local authority's performance indicators are in direct conflict with the performance indicators by which primary care trusts have to abide.

The local authority has put a budget together this year that resulted in a council tax rise of a little more than 6 per cent.—;higher than we would have wished. It has allowed some modest growth in education and one or two other services, but there have been serious reductions in some services. The local authority continues to support the work of the special interest group of municipal authorities, which has campaigned consistently for the abolition of the area cost adjustment. It is also a member of the F40 group of local education authorities—the 40 worst-funded LEAs. Bury has a very strong interest in the campaign that F40 runs for a national minimum per capita level of investment in primary and secondary education.

I know that the Government have pledged to reform the system by 1 April 2003 and I understand that there will shortly be a consultation document. We look forward to that with enormous interest. We hope that there will be a genuine consultation, 'with ample opportunity for all local authorities to state their views. In his reply, I hope that the Minister can say whether he accepts the case that Bury has consistently argued over the years—that the current system discriminates against Bury.

48WH Can the Minister confirm that the reforms promised by the Government, whatever shape they prove to have, will be in place by 1 April 2003? Can he tell us when the consultation document is likely to be published and how long the consultation period will be? Will the proposals put out for consultation include the idea of a flat-rate entitlement in respect of the education SSA? Given my earlier comments about the discrepancy in the way in which Bury is treated for SSA and categorised in the index of local deprivation, will the index of local deprivation be used as a factor in the new methodology?

Finally, the Minister is very welcome to visit my constituency and I invite to him to do so at his earliest convenience.

§ The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Dr. Alan Whitehead)

I congratulate my hon. Friend the Member for Bury, North (Mr. Chaytor) on securing this debate on Bury's standard spending assessment. I drove through his constituency the other day, but did not stop in Bury. I should be delighted to visit his constituency and Bury metropolitan district council in the not too distant future. Not only has my hon. Friend secured this debate on Bury's SSA, but the evidence of his contribution suggests that he is in danger of becoming one of the five people in the country who, allegedly, fully understand the SSA system.

The 2002–03 local government finance settlement has come and gone. Parliament approved it, councils have set their budgets and are getting on with the difficult tasks they face this year. Finance directors of most councils are turning to the distribution of grant next year. We want a fair and transparent distribution of Government grant between authorities. My hon. Friend's letter of 19 January was prescient in that regard. That is precisely what we are trying to achieve in our review of how SSA, or its successor, is determined.

My hon. Friend focused on the changes he would like to be made to the distribution formula. We are working hard to develop proposals with local government and will consult councils, probably during the summer, on the options. I confirm that the new distribution formula will be in place for the next financial year, but I do not underestimate the magnitude of that task. All authorities want to be winners, but that, of course, is not possible. I can assure my hon. Friend that changes will be made only in the interests of ensuring that the money that is available as a result of the current spending review finds its way to the right areas.

I must set the scene for what has happened in Bury in recent years. It could make a case that it has not done as well as it might in terms of grant increases, but we have been able to provide good increases for Bury metropolitan district council in recent years. However, I recognise that it has not done as well as many authorities.

The overall settlement for 2002–03 was a good one for local government and provided an increase of £1.9 billion in general grant on a like-for-like basis. Those good increases in grant enabled us to set a floor grant increase to ensure that all authorities received increases in general grant at least in line with inflation. All authorities with education and personal social 49WH services functions, such as Bury, received an increase of at least 4 per cent. Bury's settlement was just above that floor with an increase of 4.2 per cent. or £4.6 million. However, Bury remains close to the floor because it received a lower than average increase in SSA: 4.3 per cent. this year compared with a national average increase of 5.4 per cent.

That was due mainly to a small population decrease compared with a national average increase and also to a below-average increase in the number of pupils aged 11 to 15 compared with a national average increase of 1.2 per cent. However, as my hon. Friend said, compared with the increases in SSA before 1997, Bury, like many authorities, has done well. In the four years before then, Bury received an average SSA increase of 2.6 per cent. each year and since then it has received an average annual increase of 4.6 per cent.

My hon. Friend also mentioned the pressures facing social services departments from bed-blocking and the care of elderly people. He will be aware that Bury benefits from the increase in ring-fenced grant to tackle bed blocking and receives £500,000 from the new fund. We recognise, however, that there remain substantial pressures on social services departments in that regard.

My hon. Friend makes the case for a different distribution of grant, which would benefit Bury. As I mentioned, we want a fairer and more transparent system for distributing grant between councils, and we are working with local government to develop options to achieve that. Fairness is, however, often in the eye of the beholder, and while we hope to achieve consensus, we shall inevitably be unable to please everyone.

I cannot provide details about the possible options today, but the debate has given us a valuable opportunity to understand more about the issues from Bury's perspective. As I said, we will consult on options for the new grant distribution system over the summer. Colleagues from across Government and I will continue to discuss these difficult issues with hon. Members, local government representatives and others with an interest in what the grant system delivers.

As my hon. Friend said, Bury wants to close the gap between SSA and spend. We know that most authorities spend more than the grant allocation system assumes when standard spending assessments are calculated, and we are considering particular pressures in the spending review. Among other things, that will effectively spell the end of the standard spending assessment as we know it. We certainly intend to remove from the system elements of roll-forward from historic assumptions, which have caused some of the problems that my hon. Friend mentioned.

My hon. Friend will also want to know that, alongside the changes that I have outlined to the SSA system, the Government are committed to ensuring that ring-fenced funding as a proportion of total revenue spend will go down over future years.

50WH It is for local authorities to take decisions on council tax levels and on whether to spend above the level that we assume in the formulae. The son or daughter of the SSA system is likely to involve a decision about how much spending the Government are prepared to support, and grant will be allocated on that basis. However, we want local authorities that are in the process of making such decisions to continue engaging with their communities about priorities and their implications for council tax.

My hon. Friend mentioned the possible allocation of a fixed sum to reflect population. He said that Bury was a small authority and could not find the same efficiencies of scale as larger authorities. My officials are examining the proposal from many smaller authorities that an element of grant be distributed on a fixed-cost basis. Authorities should, however, be able to think innovatively about making themselves more efficient and providing better services.

My hon. Friend mentioned the area cost adjustment and underlined his concern about the late change in this year's figures. The area cost adjustment turned out to be different from initial indications. A late change in the data that the Office for National Statistics supplied to us led to a change in the area cost adjustment just before the provisional settlement announcement. We certainly want to avoid a repeat of that. We know that the ACA is possibly the most controversial element of the formula system, and we want to reform it.

My hon. Friend talked about the education standard spending assessment formula. I am very much aware of the strength of feeling about the current education funding formula in Bury. As he will know, we are working on a new system, which includes education. Our aim in introducing that system is to make funding not only fairer, but clearer, and that is particularly true of education. For the first time, we will separately identify the funding that we want to reach schools, which we cannot do under the current system. Of course, any funding formula will need an element for deprivation and an enhancement for areas where schools must pay more to recruit and to retain staff. However, we want the level of those enhancements to be decided using more up-to-date evidence, not by building on past expenditure, as in the current system.

We still have work to do on the new system, and my hon. Friend will understand that until the new formula has been developed and detailed figures have been obtained we cannot say how individual authorities' share of overall funding will be decided. We shall be consulting on proposals for the new funding formula in the summer.

I accept that there are declining pupil numbers in Bury. Interestingly, however, a lag in data tends to protect local authorities in that regard. The problem faced by authorities with increasing pupil numbers is of equal concern.