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31 Jan 2001 : Column 354

Local Government Finance (England)

6.17 pm

The Minister for Local Government and the Regions (Ms Hilary Armstrong): I beg to move,

We would normally debate the two motions on local government finance in one debate, but I understand that some Conservative Members objected to that idea. I apologise to the House for that because I know that many Back Benchers want to speak on the main motion, but that is not in the hands of those on the Government Benches. Juvenile games seem to be the order of the day among Conservative Members, so we will just have to indulge them.

High-quality public services are the foundation of strong communities. The investment that we are announcing today will help ensure that councils throughout the country can continue to improve the quality of our local environment, to help tackle crime, to raise standards in our schools and to care for the most vulnerable members of our society.

The Government believe in the value of public services and are committed to ensuring that all our public services have the investment that they need to meet the aspirations and expectations of the public. That is why, since we came to office, we have invested an additional £8 billion, an increase of 14 per cent. in real terms, in grant support, compared with a 7 per cent. reduction during the last four years of the previous Administration's period in office. It is why I am pleased to announce that this year's settlement--£44.6 billion in total support from Government grant and business rates, an increase of £3 billion, or 7.2 per cent.--represents the best settlement for local government since the introduction of the council tax.

That does not mean that I am oblivious to the difficult choices that many authorities have to make and the challenges that face local communities.

Sir Paul Beresford (Mole Valley): The Minister seems to be judging the quality of services by the amount of other people's money spent on them. In that case, will she comment on the fairly strong story that the new Mayor, a monster that she has unleashed on London, proposes to put his precept up by some 33 per cent., bearing in mind that, at the referendum, the Government said that the increase would be 3p a week for Londoners?

Ms Armstrong: I made it absolutely clear that budget setting is for local councils; it is not for the Government to determine what those budgets should be. We seek to provide sufficient resources for authorities to budget in a manner ensuring that, with best value, services improve annually. I also know that the Greater London Authority is considering with great alacrity the Mayor's budget proposals.

We are also providing for substantially increased capital investment by local government in long-term infrastructure improvements. Total local authority capital investment is planned to be £6.1 billion in 2001-02, increasing to £8 billion in 2003-04. That has been welcomed across local government. Furthermore, we have replaced the boom and bust and cuts climate of the

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previous Conservative Government, which undermined local public services, with economic stability and reasonable certainty about future funding. To be wise spenders, councils need to be able to plan ahead.

We already publish three-year plans for total general grant and limit the extent to which the grant formula will change. From this year, we are going further and providing information on the majority of capital allocations and specific grants on a three-year basis. Councils across the country have welcomed that change.

As I made clear to the House in November, the operation of the general grant distribution formula for 2001-02, if left unchecked, would produce an unacceptably wide range of outcomes. Some authorities would receive grant increases of about 10 per cent., whereas others would see their grant cut in real terms. That cannot be right. The reasons for the variation are large changes in the estimated population of local authority areas and changes in the earnings data used to calculate the area cost adjustment.

We have always made it clear that we shall take new data into account in the formula. However, as I also explained to the House in November, to prevent those changes in data from undermining delivery of the Government's priorities of education and social services--I believe that people and their local councils agree about those priorities--I announced that I would set a floor and a ceiling on the general grant increase received by any authority with education and social services responsibilities.

Mrs. Linda Gilroy (Plymouth, Sutton): May I thank my right hon. Friend for the floor that she introduced which has given Plymouth an additional £2 million over and above what it would have received under the formula invented by the Conservative Government? However, may I ask her to nail the story being put about in Plymouth by the leader of the local Tory-controlled council, who claims that Plymouth is always at the bottom of the pile when it comes to local government finance? [Interruption.] Will she also nail his claim--

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. The hon. Lady must know that there is very limited time for this debate. Interventions must be extremely brief on this occasion.

Ms Armstrong: I am very happy to nail that claim, and suspect that other hon. Members in the Chamber have nailed it fairly effectively. Almost every authority that comes to see me claims that it is at the bottom of the pile. The reality is that all local authorities have benefited significantly since this Government came to power. We have reversed the cuts that were made by the previous Administration and built on the available new investment.

In November, I proposed a floor increase of 3.2 per cent. and a ceiling of 6.5 per cent. As expected, a broad range of views emerged from consultation on that proposal.

Sir Paul Beresford: Will the right hon. Lady give way?

Ms Armstrong: I suspect that I am about to hear another view.

Sir Paul Beresford: I thank the Minister for giving way. The reality of the floor and the ceiling is of course

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that the floor is just a damping system--a continuation of the system operated by the previous Administration and dealt with, as I understand it, in the next report on special grant. As a result of the ceiling, however, those councils whose standard spending assessments reveal greater need than others will lose out. Moreover, those authorities will lose again because of the funding reshuffle between the ceiling and the floor. Approximately 400 authorities across the country will receive less than that necessary to deal with their problems, as revealed by the needs indices.

Ms Armstrong: The hon. Gentleman--for reasons that I totally understand--has absolute faith in the SSA system and the distribution system, but I do not. I think that there are still flaws in that system, and that the use of the mechanism of floors and ceilings recognises that system's problems and tries to ameliorate them. He is right that the previous Conservative Government--he was an Environment Minister in that Administration--introduced damping grants. However, they never introduced anything like a base level grant increase of at least 3.2 per cent.

There was broad agreement on the concept of the floor, but views differed on how it should be paid for. Given that the overall total for distribution is fixed, I could not agree to proposals for funding the floor with extra resources. I considered carefully the proposition that the burden should be shared among local authorities by top-slicing the total grant--which was the method usually used by the Conservative Government--but that would require authorities to contribute in proportion to their council tax base. In other words, the authorities that were not receiving a large increase would have had to contribute even more to the floor than they would using the scaling factor that I propose.

I therefore concluded that a better approach was to allocate contributions to the floor in relation to the size of the increase received by authorities above the floor. It is still my view that it would be best to set limits on what would otherwise be a very wide range of grant increases because that would have made service planning very difficult for authorities.

I am therefore confirming my proposal to set a floor of 3.2 per cent. and a ceiling of 6.5 per cent. on general grant increases for authorities with responsibility for education and social services. A 6.5 per cent. increase in general grant should be sufficient for most ceiling authorities, even after allowing for the fact that they have growing populations, and particularly when many of them are receiving substantial sums in other grants. A 3.2 per cent. increase is reasonable for floor authorities, taking into account the fact that most of them face population reductions. Those increases will be topped by significant increases in other grants.

Sir Paul Beresford: Will the right hon. Lady give way?

Ms Armstrong: I do not think that it is fair simply to have a debate with the hon. Gentleman. I am sure that he will attempt later to catch the eye of the occupant of the Chair.

Following careful consideration, I proposed to make one exception to the ceiling rule. Quite exceptional circumstances apply to the Isles of Scilly council, and it is always treated separately within the settlement.

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It cannot avoid substantial capital expenditure to maintain essential waste disposal services. That capital expenditure should receive revenue support in the usual manner, through Government grant. If I treated the Isles of Scilly council on exactly the same basis as all other authorities with education and social services responsibilities, however, that extra revenue support would take its grant increase above the ceiling. Its annual budget is extremely small, and it would clearly have exceptional difficulty accommodating the expenditure. I shall therefore not limit its grant increase this year.

For local authorities that do not have education and social services responsibilities, no floors or ceilings will be imposed. I intend to continue the guarantee provided for the past two years that no such authority will receive less central support from the Government in 2001-02 than in 2000-01.

Of course, I know that the grant distribution system that we inherited attracts a lot of criticism--not least from Labour Members. It has not made it easy for authorities to plan ahead to improve their services. It does not encourage authorities to take responsibility for their budget choices. It is also very difficult for people to understand. It is small wonder that authorities continue to doubt its fairness.

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