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Mr. Illsley: I am grateful to my right hon. Friend, but we are still contributing £100,000 in respect of ceilings

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and floors. That is simply a case of the poor funding the poorer, which has happened with previous RSG settlements.

The "other services" block, which my hon. Friend the Member for Barnsley, East and Mexborough mentioned, is the one that seems to have been neglected. Although we passport money for social services and education and although I agree with education being a priority, "other services" funding seems to have been slightly neglected even though our local populace clearly told the local authority through the community plan that they want issues such as the environment, street cleaning and road repair, which the block covers, to be addressed. Even education and employment did not feature as a priority in the community plan survey, but factors relating to the "other services" block did.

I should like to mention housing revenue accounts and stock transfer, but time does not permit. However, such issues are having an impact on our local authority's problems in respect of the funding that it needs and best value, and a demonstration about that took place in the town only a few days ago. Although that money will not come out of this settlement, we ought to target local government funding at the areas that particularly need it.

8.30 pm

Mr. Adrian Sanders (Torbay): I have been trying to work out the simultaneous equation that leads to what Z means in Annex B, before Hansard records hon. Members as zzzzz!

Mr. Don Foster: My hon. Friend informs the House that he has been trying to work that out, but can he explain why, when C plus D minus A over T is not greater or equal to two times S, the grant is T into Z minus S whereas if the grant of C plus D minus A over T is greater than two times S, the grant is half TZ? Why should there be a difference?

Mr. Sanders: When I sum up, I shall try my best to explain precisely why that is. The equation is an example of, "Whatever you put in, you can get out whatever you like so long as you confuse everybody in the process as to how you got there." The Minister said that this is the best settlement ever.

Ms Armstrong: Since the council tax was introduced.

Mr. Sanders: Every year since the council tax was introduced, the Minister has been able to say, "This is the best settlement." Every year, the money going into local government increases, so there is no lie there. The problem is that the extra money does not always meet the costs incurred on the ground by different local authorities. That is why we have formulae and why we have floors and ceilings. However, the floors and ceilings that we have been debating represent an admission that the data on which the standard spending assessment are based are out of date and, for some authorities, almost meaningless.

In effect, whatever controls the Treasury determines decide who wins and who loses in each year's settlement. The view of Members on the Liberal Democrat Benches is that radical reform is necessary. The legitimacy of local decision making to meet community needs should not rest on the political colour of the Government in control at

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Westminster, but that is what has happened to local government over the past few decades. Irrespective of who was in power, the Government were able to tweak the simultaneous equations to support those authorities that they wanted to support at the expense of those that they perhaps did not want to support.

It is argued that councils should be free to raise their own taxes and that any distribution grant to assist those areas that cannot raise as much money locally as others should be determined by local councils acting collectively. Before hon. Members jump up and say, "What would the Lib Dems do?", I should point out that we consider the legitimacy of local government to come from the roots--from communities themselves. Local government in this country is like a dog kept on a tight leash. The minor reforms made by the Government, which we welcome, only lengthened the lead while continuing to keep local government on a tight choke. However, if local government is the dog, the SSA system and the damping arrangements are the dog's breakfast.

Those authorities that missed out in the past continue to miss out. Historically, low-spending authorities face the double-edged dilemma of having to cut services while increasing council tax as the Government tell them that they have never had it so good. More money is given to local government year after year, but something does not add up. Surely if the grant regime was fair and if central Government believed in local government, council tax would not have to rise at three times the rate of inflation.

The truth is contained in the pre-Budget book, under the heading relating to central Government receipts. Apparently, in the next financial year what Government coffers receive from council tax will rise by 6.9 per cent. That is remarkably close to what the average council tax rise will be. By shifting the tax burden to the council tax payer the Chancellor has been able to get a pat on the back, while councillors have got it in the neck.

Central Government seem to mistrust local government. I do not for a moment include this or other Ministers in that; it is, I think, the Treasury that mistrusts local government, because it controls how much local government can spend, borrow and even, in some cases, charge for a given service. If councils want or need additional funds, they must apply for grants or credit approvals, with no guarantee of success. The shift towards money being available through competition is an incredible waste of officers' time and of local government resources, given that not all councils are able to succeed. A widespread view is that some authorities gain grants not wholly on the basis of need, but on the basis of their officers' ability to put in good applications. It seems that the skills of officers are more important than the genuine needs of some authorities.

I want to refer briefly to my council, Torbay unitary authority. A preliminary announcement by the council--

Madam Deputy Speaker (Mrs. Sylvia Heal): Order. Will the hon. Gentleman confine his remarks about his local authority to the matter under debate?

Mr. Sanders: The impact of the standard spending assessment is factor A in the simultaneous equation. It means that my authority faces cuts of 9 per cent., and a 7 per cent. council tax rise.

The crux of the matter is this. My local authority, which is Conservative-controlled, says "We are £30 million short of what we believe we need to spend, and what the

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SSA says we need to spend." I happen to think that that is probably the officers' estimate of what the council would like to spend, but I have no doubt that there is a difference between what Government say it needs to spend and what it has available to spend. That is having an impact on council tax rises, and on cuts in services.

Let me give one example of a service area to which that applies. Children's services spending is part of the SSA formula. Since 1998, the SSA for children's services in my unitary authority has risen by 15.7 per cent. Over the same period, spending on this service has been forced to rise by more than 50 per cent.--not because the council has chosen to increase spending, but because agencies outwith the council are referring clients to the council, and the council has no control over that.

The grant system takes a long time to catch up with the amount that is having to be spent, if indeed it ever does catch up. I strongly suggest that Ministers should be sympathetic to councils whose costs are increased, which enable through no fault of their own, in areas as important as children's services and social services enabling people to be cared for under local authority jurisdiction.

Local Government finance is too complex. My hon. Friend the Member for Bath (Mr. Foster) made that point very well, and I shall write to him later with the answer to his mathematical question. The system is not transparent, and in the case of some services in some authorities it is unfair. It seems that which authorities find it unfair depends on the colour of central Government.

The tax burden has been shifted from central Government to the council tax payer, and radical reform introducing a power of general competence, including fiscal competence, is long overdue. It is time that local government was set free.

8.39 pm

Mr. Keith Darvill (Upminster): Whoever split the debates has done the House a grave disservice. The contributions in the first debate and, to a certain extent, in this one need to be heard. The debate needs to be had in the House. I will certainly be one of those calling for the House authorities to have a further debate on the whole subject.

I hope that the hon. Member for Bath (Mr. Foster) does not have a similarly friendly intervention for me on the formula because I could not answer it. That is the root of the problem. I realise that we are talking about special grants. I recognise the increase in the level of settlement this year generally, in contrast with earlier years: a £3 billion, or 7.2 per cent., increase in total Government grant and a 4.9 per cent. increase in the general grant. We should not pursue the debate without recognising that positive.

I recognise, too, the extreme difficulties that my right hon. Friend the Minister for Local Government and the Regions and her colleagues in the Department face in trying to satisfy every council, let alone every hon. Member. She surely has one of the most difficult jobs in government. However, I am dissatisfied with the overall settlement, including the special grant arrangements. The roots of that dissatisfaction lie in the settlement's effects on my borough, the London borough of Havering, and in the method by which central Government fund local government.

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I should add that, prior to the 1997 general election, my local authority suffered a 1.8 per cent. decrease in its settlement in 1994-95, followed by a 1.2 per cent. increase in 1995-96 and a 0.7 per cent. increase in 1996-97. That contrasts with the four years of the present Government, when there have been increases of 4.1. 4.5, 4.2 and 6.4 per cent. this year. The average increase in the four years before 1997 was 1.5 per cent. The average increase in the past four years has been 4.8 per cent.--a significant increase.

None the less, there is an element of tinkering with the system. Councils that benefit from that tinkering have initial comfort for a number of years, but it does not deal with the fundamental flaws, as my right hon. Friend said in the earlier debate. I echo the remarks of my hon. Friend the Member for Barnsley, East and Mexborough (Mr. Ennis). To avoid the complexities of the special grant and the system generally, what is needed is a fundamental review. I was happy to make a contribution to the Green Paper. I will be interesting to read the contributions of hon. Members and others when the results of the Green Paper consultation are published.

The problem is that the settlement does not recognise historical factors, including the difficulties following the post-poll tax debacle in the early 1990s. That is when the fundamental problems that exist arose in my local authority. We can plot them from that debacle.

The settlement does not recognise adequately the area cost adjustment, or the area cost adjustment does not adequately recognise needs, whichever way one looks at it. I know that there have been a number of reviews. The Elliot report a few years back specifically helped outer London boroughs. My local authority made representations to the previous and present Governments on that point.

The current settlement does not recognise adequately the increasing demands that local government has to deal with. That is a fair point, which we often debate. We often put obligations on local authorities, but we do not properly fund them. There needs to be a review of that.

The settlement does not particularly well assess the needs of areas, certainly not of my own area. My area's ageing population, for example, is not reflected in the settlement. As an area's age balance changes, demands on social services change. A proper needs-based system should take account of that and fund the demands, but that is not happening. If that does not happen over the years, local authority finances become diminished. The settlement--in the special grant and elsewhere--also does not necessarily recognise high wage costs.

All those factors have led to the likelihood that, this year, my local authority will increase council tax by 11.5 per cent. That was the figure predicted a couple of weeks ago, but it may be decreased on the basis of this final settlement and the decisions of the precepting authorities, primarily the Greater London Authority. Nevertheless, we anticipate a council tax increase that is well above inflation, of between 9 and 11.5 per cent.

As council taxes are being increased, services will be cut. I should say that the local authority has been under that financial strain for about eight to nine years. Eight or nine years ago, however, there was some fat in the system

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that enabled the council to cope. The local authority has made efficiency gains in service delivery in the intervening period. However, if councils have to make cuts and increase council tax year after year, eventually it becomes very difficult to deliver the improved public services which we all want. One can already see diminution in marginal services such as road resurfacing.

The borough's reserves are now well below those recommended by the Audit Commission. Consequently, it is unable to make adjustments to cope with difficulties in a particularly bad year. The consequence of that is that our constituents are affected by service cuts and a reduction in their overall quality of life.

I appreciate that this is a narrow debate on the special grant report. I believe, however, that we urgently need a review of the overall system, and I hope that the Government will begin one as quickly as possible.

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