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Mr. John McWilliam (Blaydon): I thank my hon. Friends the Members for Tyne Bridge (Mr. Clelland) and for Jarrow (Mr. Hepburn) for joining me and for their support. Both of them have a significant interest in Gateshead and represent wards in the borough. I am sorry that my hon. Friend the Member for Tyne Bridge, who is a Whip, is not free to speak this morning. As a former distinguished leader of Gateshead council, he could have informed the debate greatly.
The Government have helped local authorities marvellously during their time in office, which amounts to almost four years, in which time there have been three settlements. They are building up local authorities that were seriously underfunded for many years. Indeed, the history of local government finance in the past 20 years is a sorry one.
A Conservative Government introduced the Local Government Finance Act 1982, which changed significantly the way in which local authorities received grants from central Government. As a matter of party-political policy, they shifted resources from the needy urban areas in north-east England and sent them to less needy areas in the south. They introduced a series of controls and evaluations of expenditure that were designed to have that effect.
The system in place today is essentially the same. It has been modified, but not very much and not by the current Government. I welcome the publication of the Green Paper on local government finance, but I hope that my right hon. Friend the Minister for Local Government and the Regions does not think that it will solve the specific problems of Gateshead or similar authorities. It will not do so; it is merely another twist of the same old system.
The basic problem is that the evaluation of appropriate expenditure arises from historic expenditure back in 1982, when civil servants used a statistical technique called regression analysis to project future expenditure. Such a technique cannot, however, be used to predict the future; it can tell one only what happened in the past. I have recently questioned civil servants about the use of that technique in relation to the Green Paper and I have been assured that it will not be used in future.
Education expenditure is a particular problem with regard to the basis provided in 1982. You will recall, Mr. Winterton, from your long years in the House, that 1982 was not long after local government reorganisation. Prior to that reorganisation, my constituency was a part not of Gateshead, but of County Durham.
Mr. McWilliam: Before my right hon. Friend gets too carried away, let me point out that there was an historic low spend. Back in 1980, when I was a member of the departmental Select Committee on Education, Science and Arts, Her Majesty's chief inspector of schools reported that four local authorities, including Gateshead, were in danger of failing to provide.
Over the years, the nonsense aspects of the Local Government Finance Act 1982 have accumulated. The Government have now increased provision above the initial level of £3 billion. There is now a 7.2 per cent. increase, which has been made through the welcome raise in neighbourhood renewal and, for some authorities, in the education grant. However, there is still a shortfall. Of course, I welcome the additional £750,000 for education, but the shortfall in education expenditure in Gateshead was £1.3 million, so more than £500,000 is still needed. In total, despite having to impose £3 million-worth of cuts to meet its targets, Gateshead will also have to raise its council house rents by 9.1 per cent.--a huge increase. Ring fencing and the need to support tenants will mean that an additional sum of only £800,000 is available for the general rate fund.
All those problems result from policies and acts for which my right hon. Friend the Minister is not responsible. Her predecessors in a different party and Government were responsible, so I do not blame her, but huge anomalies remain. Gateshead has a high proportion of elderly people and single parents. It also has a high proportion of council houses and areas of serious deprivation. In spite of those circumstances, the standard spending assessment change for Gateshead was only 2.8 per cent., give or take the additional funds for neighbourhood renewal and education, which mean that it will now be slightly more. That contrasts with increases elsewhere of more than 7 per cent.
The standard spending assessment settlement was poor for Gateshead and means that it has a huge cash problem. The SSA increase of 2.8 per cent.--as opposed to an average national increase of 4.3 per cent.--takes resources from deprived urban areas. The updated area cost adjustment has shifted resources to London and the south-east. The settlement will have a significant effect on the council's budget for 2001-02. As I said, the council is seeking to make cuts of £3 million.
The inconsistencies of the system are highlighted by the updating of the area cost adjustment, as council tax valuations have not been updated to reflect the significant increase in house prices that has occurred since 1991, especially in London and the south-east. In effect, those areas are getting the benefit twice. Rate banding is another problem, as the A band in Gateshead is too high. We could do with its being split in two, as it hits a significant proportion of households. On the other hand, the H band stops far too low. Only about 42 houses in the whole borough, most of which are homes for the elderly, fall into the H band. Such problems have a significant impact on resources.
We need a new system that is clear, transparent and fair and which seeks to equalise council tax throughout the country. It must ensure that areas with low resources and high needs are properly looked after and that areas with low needs and high resources can contribute towards their own costs. We have problems and it will not be easy. I look forward to seeing what my right hon. Friend the Minister does about the Green Paper on local government finance when the consultation is complete,
Mr. Stephen Hepburn (Jarrow): I thank my hon. Friend the Member for Blaydon (Mr. McWilliam) for allowing me to take part in his debate. I want to mention an anomaly to which my hon. Friend alluded: the disadvantages of Gateshead and other northern authorities compared with those north of the border in Scotland. I refer especially to the Barnett formula, which is known in the northern region as the billion pound divide. If we had such a formula for the north of England, an area such as Tyne and Wear would have approximately an extra billion pounds to spend on local services. Councils such as Gateshead, South Tyneside, Sunderland, Newcastle and North Tyneside could tackle many existing problems and achieve many objectives with that extra money.
We cannot defend the indefensible. We can dress it up and we can claim that there are different systems north of the border. However, we live on the border, and we cannot defend what happens through the Barnett formula. We appreciate that local government receives additional grants and direct grants. The Minister has done a great job in getting those grants. However, the divide is so great that the Barnett system needs a complete overhaul. I do not want Scotland to be brought down to the same level as the north-east, but an equation for need should be included in the formula for the north-east to bring us up to Scottish levels.
The position is exacerbated by tuition fees, teachers' salaries and long-term care north of the border. The differences must be tackled. The system is a mess for those of us on the border. It may not affect people who live 300 miles away in the south of England, but we live next to Scotland and experience the effects of the difference, for example, when kids go to university. We cannot live with that. We are a laughing stock, and we must tackle that.
Mr. McWilliam: Does my hon. Friend agree that, within an hour and a half's drive of Gateshead, there are Scottish secondary schools, both grammar and comprehensive, which are a magnet for fully qualified teachers in our borough?
Mr. Hepburn: I hope that grammar schools are not a magnet because I do not believe in the grammar school system. I am a comprehensive school person. However, teachers' salaries and the way in which the education system is funded in Scotland mean that there are indefensible differences.
The Minister for Local Government and the Regions (Ms Hilary Armstrong): I thank my hon. Friend the Member for Blaydon (Mr. McWilliam) for giving us a chance to rehearse some of the arguments that we shall present in the Chamber tomorrow on the local government settlement. Clearly, as another north-east Member of Parliament, I want the region not only to get its fair share but to use the money effectively to solve some of the current problems. Many northern authorities' problems with this year's settlement arise because of declining population and school numbers. It is in our interests to ensure that local government and the regional agencies can play their part in turning the region round. We can thus provide more economic stability to families who live in the area and encourage them to stay and to envisage their future there.
The local government finance settlement is currently of great interest to all local authorities. Yesterday, we laid before the House the local government finance report for 2001-02 and special grant No. 72. They set out the total revenue support grant and the basis on which that money will be distributed. Hon. Members will, of course, have the opportunity to discuss those reports tomorrow, but today's debate provides an useful opportunity to consider the issues and the consequences for Gateshead.
The spending review for 2000 provided more increases for local authorities. The first year of the review established the baseline for the approaching financial year and has enabled us to provide an increase in Government grant of £3 billion. In the four settlements since we took office, we have been able to increase the Government grant to local authorities by £8 billion. That is an increase of 14 per cent. in real terms and compares with a 7 per cent. cut in the previous four years before 1997-98.
Of course, we have given priority to education and social services. Provision for spending on education will increase next year by £1.9 billion. An increase of 8.1 per cent. for social services means that they will receive an extra £576 million. We have therefore provided an extra £6.4 billion for education and £2 billion for social services since we took office.
My hon. Friend the Member for Blaydon is especially worried about Gateshead, which will receive approximately £151 million in general grant next year. That is an increase of 3.2 per cent. or £4.7 million. The standard spending assessment figures that my hon. Friend gave conflict with mine. We need to discuss that later.
Mr. McWilliam: There is a simple explanation for that. I did not include the additional figures for education that were announced yesterday. I deliberately did not include the additional renewal fund figures because I do not believe that they are pertinent to the debate. We are considering the base level.
Ms Armstrong: The figures that my hon. Friend mentioned are not covered by the SSAs, which I was considering. The SSA increase for Gateshead was 3.6 per cent. I acknowledge that all authorities would like more. The Government want to build up investment and to ensure, through local government reform, that
The latest population statistics that we use show that 800 fewer people live in the area compared with last year. There are also almost 290 fewer pupils. As my hon. Friend acknowledged, the impact of increasing wage pressures in London and the south-east is reflected in the area cost adjustment. That also contributes to the reason for the below-average grant increase in Gateshead.
I sometimes believe that my hon. Friends want all the country's financial problems to be sorted out through the local government settlement. We cannot do that. None the less, we are considering more radical, long-term reforms. Our recent Green Paper makes it clear that we understand that an authority's costs do not always fall immediately and proportionately after a decline in population. However, a declining population must, over time, lead to lower costs.
Mr. McWilliam: As the figures that my right hon. Friend cited show, an authority such as Gateshead has a declining population because economically active people and their families are moving out. Those who are not economically active are left. That proportionally increases costs.
Ms Armstrong: We could have a long debate about that. Those circumstances do not necessarily increase the cost of basic services. However, incredible pressure exists in deprived areas. The Government have introduced the neighbourhood renewal fund so that we can tackle basic services more effectively in the most deprived neighbourhoods and thus improve the economic potential of people who live there and perhaps create a virtuous circle.
The SSAs take account of need, but I do not know of a single authority that believes that the distribution formula properly reflects its absolute level of need. I have come to believe that a formula that everyone feels to be just to their area and about which all agree is a holy grail that cannot be attained. The Government are trying to ensure that we identify deprived areas and grant additional money specifically to tackle deprivation there.
It is also true, as I am sure my hon. Friend would accept, that rapidly expanding authorities also face significant cost pressures. The issue is, therefore, one of striking the right balance between the competing and largely contrasting demands between declining and increasing populations. We introduced the floor and ceiling proposal to take such factors into account. That was because we realised, as soon as we started to consider this year's settlement, that using a purely data-driven formula would have given rise to wild swings in grant increases from this year to next. The updating of the area cost adjustment data contributed to these swings.
We consulted on those issues, but--surprise, surprise--there was no clear consensus from local government about how to proceed. Therefore, bearing in mind our commitment in the 1998 White Paper to continue to update the data on which standard spending
My aim is to put as much money as possible into the settlement every year, rather than to leave a pot of money on one side. This year, we concluded that it was right for the measure to be met within the overall totals. However, we have listened to the concerns of authorities during consultation. We are aware of the pressures facing authorities, and I am sure that Gateshead will have been delighted to learn, in the past day or so, of the action that we have taken in three specific areas.
We were concerned at the funding position of authorities in areas with the most serious deprivation problems, partly because they are the areas that are tending to lose rather than gain population. We therefore doubled the provision for the neighbourhood renewal fund in 2001-02 from £100 million to £200 million. Those additional resources will help local authorities to improve mainstream services in the most deprived neighbourhoods, and, consequently, to improve the outcomes achieved in those areas.
One of the specific issues that we want to tackle in the most deprived areas is educational attainment, and I am sure that Gateshead will want to use some of its money to raise standards of educational attainment in such areas. That should also help its education budget. We were able to announce last week that Gateshead will receive an extra £1.161 million from the neighbourhood renewal fund, taking its total next year to £2.322 million.
We were also concerned about the impact of serious floods this year. We therefore announced on Friday that we would provide an extra £11.6 million to pay for the Environment Agency's emergency response and repair costs. That money will mean that the agency will not need to add those costs to its levies on local authorities next year. I know that Gateshead was concerned about the levy when it made its representations on the settlement to the Department. The amount provided to the agency in Northumbria is £450,000, which will allow it to reduce significantly the proposed increase in the levy.
We also announced yesterday a new £52 million grant to help meet education spending pressures in those education authorities with the lowest increases in education funding from other sources. Gateshead was concerned about its low education SSA increase. It was also concerned about the basis on which we transferred money from the settlement to reflect the change in responsibility for adult education from local authorities to the learning and skills councils.
It was right to use the same methodology for making that transfer as for all other changes in which we have transferred provision out of the settlement. However, we recognise the pressures on authorities such as Gateshead and others in the north-east. The extra money will be provided in recognition of those pressures, and Gateshead will receive £750,000 from the grant next year. That is in line with the representations that it made to us on its education spending.
Gateshead has also benefited from increases in a number of ring-fenced grants, most of which have now been announced. Gateshead's overall increase in grant--including revenue support grant, the other general grants and ring-fenced grants--is more than £9 million. That is an increase of 5.8 per cent.
My hon. Friend also mentioned rents, and I understand his concern. Decisions on setting rent levels are a matter for local housing authorities. However, for subsidy purposes, we have increased allowances by 7.4 per cent. in cash terms since 1997-98. There have also been significant increases in the capital resources that have been made available to Gateshead in the same period. The allocation for 2001-02 will be £17.433 million--a threefold increase in resources in four years, and a 24 per cent. increase over the current financial year.
My hon. Friend raised several issues that are being discussed as part of the consideration of the local government finance Green Paper. That consultation has now finished, and we are drawing together its findings at
I assure my hon. Friend that I understand fully the points he has raised today. We have, as he said, provided an excellent settlement overall, but that does not mean that it does not contain real challenges for some authorities. Having said that, the settlement for Gateshead is still a good one. We have also recently introduced measures to assist Gateshead. Those measures, in addition to the settlement and the increases for local government spending announced in the spending review, will mean that local authorities can be confident that they have a good base for investment over the next three years. I hope that they will continue to work with us to obtain changes in the grant distribution system that will enable them to be confident about their future.
I cannot promise that every authority will like every change, because, inevitably, change means that some gain and some do not. However, we are determined to achieve as fair a local government system as possible, and I share my hon. Friend's ambition that such settlements should be open and transparent so that the public will be better able to understand what is going on. I congratulate Gateshead council on the work that it has done to increase turnout through piloting postal voting. Together, we shall ensure that Gateshead and the north-east are confident in moving forward, enabling the authority to build for the future for the citizens of Gateshead.