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5.30 pm

Mr. Adrian Sanders (Torbay): The Minister proposes yet another settlement that will prevent many local authorities from meeting local community needs. Increases in grant will be wiped out by inflation, pay settlements and increased responsibilities--just as they were under the Conservatives. As in the past, local government will gain duties but lose power.

Since Labour came to power, the trend has been to increase the cost burden for local government while dictating where money should be spent. Taxation has been shifted from the centre to the council tax payer; and the statistical anomalies, which disadvantage many councils and inhibit their ability to respond to local needs, have been ignored.

I have some points to make about the cost burden imposed on local authorities. In the Government's first Budget, they put a tax on pensions. In year 1, that cost local authorities £300 million. However, that cost also applies in years 2 and 3 and will recur thereafter. Local authorities have never been compensated for that loss.

In year 1, there were eight changes to the SSA; each one tended to take money away from shire councils. In 1998 and 1999, the inflation assumptions were inaccurate; that resulted in a loss of money to local authorities. There was also the council tax benefit subsidy, which resulted in the poor having to subsidise the nearly poor--mainly in poorer local authorities. In the first two years of the Labour Government, rural areas lost about £250 million and London lost £140 million.

The Government examined council tax bands, but failed to reform them. There is a disproportionate council tax burden on people in the A band; those who live in mobile or park homes, which are worth half the amount at the top of that band, have to pay the same rate of tax as people whose property is worth twice as much.

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The Government dictate how the money that they give local authorities should be spent. It is one thing for the Secretary of State for Education and Employment to apply pressure on councils to spend up to the amount of the SSA, but to make grants dependent on confirmation that the money will be passed on to schools is quite different.

The Secretary of State wrote to education directors and chairs of education committees in relation to the £50 million special grant. The letter stated:

The problem with that--as it is for those authorities which already spend up to or above SSA--is that, if authorities pass on the maximum amount to schools, any increase in the education budget from the Government goes straight to the school. If the other services that have to be met from that budget have not been given an increase, they will suffer a cut. That is why many education authorities have great difficulty in maintaining school transport, special needs provision, school music services, educational psychology, discretionary grants and central support services.

That is all based on the presumption that the SSA is accurate, which brings me to the inaccurate statistics on which the settlement is based. For example, local education authorities must pay for the pupils who attend school today, so they have to pass the money down to the schools for each pupil. However, the figures upon which the grant that they receive from central Government is based are up to 18 months out of date. Therefore, a local authority with rising pupil numbers has to find funds from other parts of its budget, outside of education, to meet the Secretary of State's requirement that it spends up to SSA and that all the money is passported to schools. That means that other services suffer.

The same is true of the budgets for people in residential care and social services. The number of people going into care in one area may be rising, but the figures on them may be behind the SSA figures and the money for them will not arrive until a later year. Therefore, an authority may have to suffer a cut to other services even though it knows that it may make the sums up later. That is a reverse of the depopulation argument advanced by the hon. Member for St. Helens, North (Mr. Watts).

The number of people on the electoral register has a major impact on the SSA figure and on the amount received by a local authority. That is a particular problem for areas that have a high turnover of residents. That point may be of interest to the hon. Member for Eastbourne (Mr. Waterson), because it relates to seaside resorts, where people often live in short-term let accommodation. They may live in the area for many years, but may change their address twice a year and never get on to the electoral register.

My local authority is probably an extreme example, but its officers estimate that nearly 5,000 people receive services from the local authority for whom they do not receive a penny from central Government. That equated into grant would make the difference between a council tax rise of the rate of inflation and the 16.9 per cent. rise that the council had to levy. The impact is greater the smaller the authority happens to be.

Mr. Waterson: The hon. Gentleman is making points that apply to my constituency, which is also a seaside resort.

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Does he agree that councils would like to have the option of putting such arguments to Ministers annually when they feel that they are being treated unfairly by the formula and do not want to be locked into a three-year cycle?

Mr. Sanders: That is very true. Councils should be able to talk directly to Ministers because they cannot rely on the large Local Government Association, which is dominated by the metropolitan councils. The councils representing seaside resorts do not constitute a majority on the association, so perhaps there is an argument for a "seaside resort councils association". If the Government want to encourage one body to represent all local government, it is difficult for authorities that are not like the norm to make their voices heard. Ministers should have an open-door policy to meet the members of such authorities.

Mr. Barnes: I presume that the hon. Gentleman will welcome the introduction of the Representation of the People Bill. It will mean that people can be registered as they move. Although the problem that he mentioned will remain for a while, I hope that it will eventually disappear.

Mr. Sanders: The hon. Gentleman is right. The problem will reduce, but it will not be done away with completely. Because of it, we have suffered under the SSA regime for years, but I do not suppose that we will be compensated once the Bill is on the statute book.

The fact that most authorities spend more than the SSA on social services and education could suggest that the SSA is flawed. A mathematically constant formula that is designed to give average outcomes will always be unfair to those local authorities whose demographic, economic and/or geographical factors are furthest from the average. Seaside resorts, rural areas and peripheral areas, in particular, lose out every year. Sticking to the formula compounds the problem year after year.

We want a transparent system with clear accountability. The Minister said in her opening statement said that she believed the system to be clear and accountable. Yet, if one reads the Red Books, one sees that the receipts expected from council tax have increased each year, so the Chancellor is clearly shifting the burden of taxation from the centre to the council tax payer. We want a system that takes account of an area's ability to pay and gives local people choices about how community needs can be met.

Liberal Democrats want to shift tax raising from national to local government, with more of what councils spend raised through local income tax and local business tax. A buoyant, independent revenue source would do much to rejuvenate local government and strengthen local accountability.

This Government do not trust local government any more than the previous Government did. In fact, as I have said, the Chancellor has gone even further down the road of shifting taxes from the centre to the local council tax payer or the user of local services, which have either gone up in price or been cut. While the Chancellor gets a pat on the back, local councillors get it in the neck.

Mr. Edward Davey: My hon. Friend has undersold the policy of a local income tax. Does he agree that large council tax increases particularly hit pensioners on low

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incomes? The Tory-run Royal borough of Kingston upon Thames increased council tax by £90 last year, and we face a possible 7.5 per cent. increase this year. Those increases affect pensioners who would be protected under the Liberal Democrat policy of a local income tax.

Mr. Sanders: My hon. Friend is spot on. Pensioners and people on fixed incomes have problems with council tax levels and increases, as do those who live in areas where council tax rates are high because of property values.

My hon. Friend forgot to say that allowing local councils to raise some of their money from income tax would mean a corresponding reduction in central income tax. Fear of allowing local areas to have that power and freedom may be the reason why central Governments of both parties have tended to resist that measure.

The Minister claims that she has increased the grant so that councils can spend more, but increasing the grant does not mean that councils will not have to make cuts, increase charges or put up council tax. If the increase in total standard spending is greater than the increase in the Government's contribution towards it, councils face a gap. The Government claim that they have increased the amount that councils can spend, the amount that they can borrow and the amount that they receive from central Government, but many councils still find themselves worse off.

Likewise, every year the Government claim that the settlement is most generous. Last year, they claimed that it was the most generous settlement ever. Of course, this year's settlement is the most generous ever--inflation sees to that--but it still represents a cut for many local authorities.

This is a patronising settlement; it is a pocket-money settlement with no room for sweeties. It will result in cuts, increased charges and above-inflation rises in council tax for many local authorities, and we shall vote against it.

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