Grant Distribution (Hansard, 8 July 2002)

§ Mr. Raynsford

I am pleased to announce that we are today issuing a consultation document covering reform of the system we use to distribute grant to English local authorities. The consultation will run for 12 weeks over the summer. I have placed copies of the document in the Library of the House. It is being sent to all local authorities, as well as other stakeholders, and is available via the internet.

The system covers key services including education, personal social services, police, fire and a wider range of other responsibilities. It accounts for distribution of over 85 per cent. of the resources government provides for those services, currently about £36 billion per year. Its importance to local government, other stakeholders and 683W public service delivery across the country means that we want a full and open public consultation on the new system.

The consultation document sets out the Government's broad objectives for the reform. Responses to the 2000 Local Government Finance Green Paper showed that a big majority of the local government respondents wanted the new system to continue to be based on formulae. The Government announced in the 2001 Local Government White Paper "Strong Local Leadership—Quality Public Services" that we agreed. We want new formulae that are fairer, simpler; more intelligible and more stable.

We are concerned to make sure that the new system is more easily understood that the old one. It is important to improve transparency and accountability. Clearly, it will never be possible to achieve a very simple system; the complexity of the issues it seeks to address see to that. The extremely technical nature of the issues means that there is frequently no clear-cut optimum solution. But we believe it is possible to make improvements.

In considering how to reflect local authorities' relative needs and circumstances, a range of factors have to be taken into account. Three elements seem fundamental:

1. a basic amount per head of population (or other relevant unit cost);
2. an appropriate emphasis on the need to tackle deprivation; and
3. the variation in pay costs between different areas of the country.

Because deprivation and pay components are core drivers of the costs authorities face in most areas and the problems the system will need to address, we are particularly keen to see them separately identified in formulae. However, that is not to say that other components (for example sparsity) are unimportant. Indeed, they may be a key consideration in particular instances. They will be clearly identified where they form part of a formula.

The document sets out options for the various components. These options are detailed to the level of showing the effects on each relevant local authority, comparing against the baseline of 2002–03. This will enable authorities and other interested parties to form views about the desirability of each option.

However, these figures are not those that will appear in the 2003–04 local government finance settlement later this year. They will differ both because of changes in the overall funding totals (as a result of the spending review) and as a result of changes to data such as population that will not be available until the autumn. Waiting until that information is available would severely restrict the time available for consultation and in any case would not improve the consultation because we want responses to be about the system and the formulae, rather than on the basis of yearly variations in data. So the options are presented in terms of changes from the 2002–03 local government finance settlement.

We will not necessarily limit ourselves to building the new system from the choices specifically consulted upon here. It is likely that other options will be put forward in response to this consultation, and we will not exclude 684W those before taking decisions. Our conclusions arising from the consultation and further consideration of options will be incorporated in the provisional settlement for 2003–04 that will be published at the usual time, towards the end of the year. Following a further period of consultation, final decisions will be announced in early 2003 in time to take effect in the 2003–04 financial year.

This is a difficult and important issue. The Government recognise that pragmatic decisions will be needed to produce a workable system, and the complexity and variety of the pressures that are put upon the system from all sides means that it will not be possible for all authorities to get what they want from this process. So no authority should feel that it is guaranteed to get a bigger share of the fixed amount of resources the system can distribute. But the Government are seeking a fairer distribution of resources which takes account of today's pressures on local government and the particular needs of areas of deprivation. We will consider all of the views that are put forward, and weigh them up carefully before decisions are taken.