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24 Oct 2002 : Column 431—continued

1.56 pm

Sir George Young (North-West Hampshire): Many of the contributions to this debate will understandably focus on the problems of individual constituencies, as we have heard from the hon. Member for Burton (Mrs. Dean) and my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo). I will make some generic points that, I hope, have a wider application, illustrating them by reference to the impact on Hampshire, which will be deeply unpalatable. I see that my hon. Friends the Members for Aldershot (Mr. Howarth) and for Gosport (Mr. Viggers) are in their places.

My first point concerns the council tax. In the past 10 years, there has been a consensus that that tax is an acceptable way to fund local government. A similar consensus used to exist in relation to rates, but it evaporated when too much weight was put on them, and there was never any consensus for their successor. The council tax is rather like the rates—it is bridge with a weight limit. It can cope with a certain volume of traffic, but when some of the loads get big it begins to crumble. Although people accept that the council tax is fair at the

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moment, it is a regressive tax. People on lower incomes pay a far higher share of what they earn than the better off, and the relationship between ability to pay and the value of the property in which one lives is imperfect. That does not matter as long as the sums involved are relatively small and there is broad confidence in the revenue support grant, but if these changes bring about major increases in the council tax in many parts of the country, and those changes are perceived to be unfair, the Government may find themselves confronted with a much wider debate. The genie may be out of the bottle and the consensus broken. The Government will then have to find a new way to fund local government.

Secondly, the Government have made it clear that they have a commitment to drive up standards in public service, particularly in education, but the impact of the more radical proposals for redistribution would make a nonsense of the Government's ambition not only in my Hampshire constituency but across huge swathes of the south-east. What the Chancellor bestoweth in his Budget, the Deputy Prime Minister taketh away in the revenue support grant settlement. Hampshire could be #80 million worse off, which is the equivalent of two teachers in every school. There is no way that Hampshire can invest in education and social services as the Government want if its financial foundations are eroded in that way. The Budget speech and the comprehensive spending review would be exposed as empty rhetoric.

Thirdly, it is not only the Deputy Prime Minister who plans to redistribute resources away from my constituency. The Secretary of State for Health is doing exactly the same. For every #100 spent by the NHS on the average constituent, my constituents get #83. The areas that stand to lose under these proposals are the same ones—all around London—where health trusts are struggling to balance their books. That means that in the key sector of community care where social services and the NHS meet, both are looking for economies. Health and education, the Government's top priorities, face a grim outlook in Hampshire and elsewhere.

Fourthly, what is proposed in the consultation document is a sensational redistribution of resources with the minimum of scrutiny and debate. The RSG is larger than the budget of many Departments and, indeed, larger than the budget of some countries. By changing the formula and presenting some of the changes as technical adjustments, a major and ill-targeted redistribution of wealth is taking place on the basis of the slenderest of intellectual justifications.

More than #304 million is being taken from a group of people who happen to live in one part of the country and given to a group who happen to live in another. Furthermore, that second group already lives in areas where spending levels are way above average. Public spending per head in the north-east of England is #1,148 more than in Hampshire. A Hampshire teacher will contribute towards 47 per cent. of the county council budget whereas a teacher in Durham will contribute towards 20 to 25 per cent. That is a geographical stealth tax.

Fifthly, the proposals will exacerbate the problems of public sector recruitment in the south-east, where it is essential to meet the Government's targets. Local authorities will be unable to afford competitive wages for the staff they need, in areas where it is already

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difficult to recruit, and the public servants who are recruited, who already face high housing costs, will have to pay higher council tax bills. Yes, deprivation is one side of the coin and must be recognised, but the cost of service delivery is the other side and should have equal recognition if we are to have a fair system.

Chris Grayling (Epsom and Ewell): Will my right hon. Friend give way?

Sir George Young: Briefly—there is a cap on my speech.

Chris Grayling: I am sure that head teachers in my right hon. Friend's constituency will share the concern of the head teacher in my constituency who wrote to me this morning. She told me that substantial council tax increases would have a Xdisastrous effect" on standards and morale and would make a difficult recruitment situation much worse. I suspect those sentiments are shared by people throughout the home counties.

Sir George Young: Indeed. Teachers in many constituencies could have written that letter.

Sixthly, the implications for police authorities have not been mentioned much in the debate but they will have a serious impact in Hampshire. We could lose #10.4 million, which would mean a tax increase of about 22 per cent. to compensate. That would make a mockery of the Home Secretary's ambitions on the law and order front. The chairman of the police authority wrote to me:

Hampshire and the Isle of Wight—

I should like the Minister to answer this question: whichever option is chosen, does he expect Hampshire to put up council tax to compensate for the loss of grant entitlement, or does he expect the authority to hold the increase to 6.2 per cent. and cut services?

May I make some helpful suggestions? First, the Government should validate current spending where the SSA is unrealistic—as in social services where everyone agrees that it is inaccurate. Secondly, they should fund the extra area cost adjustment from Government funds, instead of making the home counties pay for it. Thirdly, as far as possible, they should allocate grant by examining basic entitlements to standard services, instead of tweaking the formula with a whole lot of subjective judgments. Fourthly, they should remove the double counting of deprivation. Finally and crucially, they should leave the system as it is and reconsider it during the next year.

In conclusion, I have deep sympathy for any Labour candidate for a Hampshire seat at next year's local elections or at a more distant general election. These proposals are a serious mistake, which the Government may live to regret.

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2.4 pm

Mr. Paul Truswell (Pudsey): I have listened with great interest to some of the contributions from Opposition Members, but the message that should come from the review is XThe party's over." For those of us looking from the north at the current system it seemed that its architects, the previous Conservative Government, had told their civil servants, XHere are the results, now go away and come up with the formulas." That gerrymandering jamboree has been paid for, in my area of Leeds, with higher council taxes and fewer services.

It is tempting to cherry-pick the options in the consultation paper for the benefit of one's own authority. Leeds has resisted that temptation and has thrown its weight behind the proposals made by SIGOMA—the special interest group of municipal authorities outside London. Those proposals do not maximise the advantages for Leeds, but they are based on a sustainable series of arguments. The concern in Leeds is that it could gain about #12 million—a mere #18 per head in the best-case scenario—but lose up to #18 million in the worst.

The SSA system has long been riddled with flaws and anomalies. For example, we in Leeds find it amazing that some London authorities receive up to #2,000 more in education SSA per pupil than we do, yet Leeds has seven of the most deprived wards in the country. Indeed, its SSA is currently #79 per head less than the average for its class of authority.

SIGOMA has produced some cogent proposals and responses to the consultation paper and has made some sound arguments about how the system should be changed, and I wish to speak in favour of them.

On education, Leeds welcomes the proposal for unmet as well as met need to be included in the calculation. We certainly share SIGOMA's regret at the lack of a more sophisticated measurement of need, and support the arguments in favour of including the index of multiple deprivation.

On social services, large increases in SSAs were promised in the 2002 spending review, but unfortunately, under the consultation document, the benefit will be largely lost to Leeds. The Government will be only too aware that an increasing number of care homes in many areas—Leeds is a perfect example—are closing down because of insufficient income, putting massive additional pressure on local authority services and finances. That, coupled with the Government's proposal to penalise local authorities in connection with bed blocking, puts local authorities in an increasingly difficult position. It is crucial, therefore, that the Government address that issue and do not simply give with one hand and take with the other.

There are other anomalies. For example, the present formula uses the proportion of children living in flats as a good measure of deprivation in working out social services SSA, but that indicator gives implausibly large sums of money to authorities in London. In fact, it gives Westminster #206 for every child but Leeds a mere #9 a child. Where is the factor that takes account of the large number of back-to-back and terraced homes in Leeds? It simply does not exist.

On highways maintenance, the Government have 10-year plan targets to halt the deterioration in the condition of the roads by 2004, and to eliminate the

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maintenance backlog by the end of 2010. The resources available to authorities such as Leeds are insufficient to deal with the backlog of road maintenance. I am afraid to tell my hon. Friend the Minister that the consultation proposals will simply deepen the problem and the potholes. The new formula clearly needs to reflect population density. The cost of maintaining a densely populated area is demonstrably greater than the general cost of maintaining urban areas and is totally independent of traffic volume. SIGOMA, backed by Leeds, also believes that the threshold on traffic flows should be retained. Heavy vehicles clearly cause the greatest damage, and the more there are, the greater the damage.

The Government's fixed costs option—top slicing #300,000 for the cost of simply being in business and allocating that sum across the board to local authorities—is simply unjust and unfair. Unless the mechanisms by which it is calculated can be rationally weighted, the idea should be rejected outright.

Resource equalisation is another crucial element of the debate from the Leeds and SIGOMA point of view. The gap between local authority current needs assessment—SSA—and actual spending amounts to #3 billion, which has to be met locally from council tax. This year, Leeds will spend more than #10 million above SSA on education and #18 million more on social services.

We therefore support the measures required to introduce some equalisation into the system. We believe that the most appropriate way of updating is by using a fixed percentage increase to eliminate the gap between notional spending and actual spending. That is reflected in the consultation document's first resource equalisation option—RE1. However, specific funding is needed from outside the system to achieve fair equalisation; it cannot be achieved with the existing elements.

A number of colleagues have mentioned the area cost adjustment. That probably represents the single greatest cause of injustice and anger in the present system. [Hon. Members: XHear, hear."] ACA—I am sure that this message will come from everyone, except perhaps the authorities that currently benefit from the system—needs to be clearly linked to real circumstances experienced by real local authorities living in the real world. It cannot continue to be based on a convenient mythology, which is the hallmark of the present system. It is extremely disappointing that such an option has not been included in the consultation document.

The ACA factor has been demonstrated through research to overcompensate authorities in terms of actual costs. Additional resources, despite protestations across the House, have been used to keep council tax down rather than to meet needs and improve services. Any new ACA option should take account of wage pressures not only in the south-east but on a regional basis. In addition, the present approach makes far too many assumptions about the impact of private or general market pay levels on what local authorities have to pay.

Options that include only private sector pay information are totally implausible and unacceptable. It is patently absurd that the calculations should include

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all private sector pay up to the highest level. There must be a rational cap. London councils are not in a market competing for the services of people like the Governor of the Bank of England, Knightsbridge grocers, millionaire novelists, whether in or out of prison, or even novelists who are in or out of bed with certain people.

In conclusion, the message must be that the party is over. It is time to call it a day on a system that has cheated so many people and authorities for so long.

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