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Local Government Finance (Norfolk)

1 pm

Mr. Keith Simpson (Mid-Norfolk): I am greatly obliged for the opportunity to speak on this important subject, not only for my constituents but for those of parliamentary colleagues.

This debate is part of a wider campaign for a fair deal for Norfolk and it has all-party support. I am very grateful for the attendance of my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard) and the hon. Members for North Norfolk (Norman Lamb) and for Great Yarmouth (Mr. Wright). All the Norfolk Members of Parliament support the campaign, and I am sure that at some stage the right hon. Member for Norwich, South (Mr. Clarke), the Secretary of State for Education and Skills, will, perhaps behind the scenes, press Norfolk's case.

I hope that the Under-Secretary of State, Office of the Deputy Prime Minister, the hon. Member for Shipley (Mr. Leslie), will concentrate in his reply on the specifics to do with Norfolk. I think that, within reason, all hon. Members are aware of the general background. I attended the ministerial briefing last month, for which I was grateful. The Minister gave a lot of time to members of all parties on the consultation paper.

I make no bones about the fact that this debate is part of a Norfolk lobby aimed at influencing the Government's provisional announcement at the beginning of December. As politicians, we all learn that it is no good making a noise after a decision has been made; it is best to do so before.

In many ways, understanding local government finance is like Palmerston's famous comment about the Schleswig-Holstein question: only three people knew about it; one was dead, one was mad, and the third had forgotten what the question was. This is a horrendously complex subject. There has been wide agreement that the current system needs changing, but that does not mean that the Government's wide range of options has met with universal approval.

One problem that I want to flag up straight away is that there has been considerable uncertainty because of the range of options. That has made it exceptionally difficult for Norfolk county council and the district councils to plan ahead for the next year; budget decisions have to be made now.

I deal now with the question of fair funding for Norfolk. The Minister will be aware that counties as a group do not do well out of current arrangements, and that historically—not only under this Government, but under previous Governments—Norfolk has received below county average standard spending assessment per head of population. The gap between Norfolk and the county average produces a shortfall in funding of almost £10 million a year, which is equivalent to 5 per cent. in council tax.

We all agree that the old SSA system needed to be changed. Indeed, Norfolk county council and the district councils have warmly welcomed the Government's attempts in that regard and have fully participated in the research. The real question is fairness. When we examine the formula proposals in detail, we feel that they do not impact fairly across the

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regions or the types of authorities. There seems to be a range of potential outcomes. There are some 80 different options in the Government's proposals. Depending on how they are balanced, under the new formula proposals Norfolk could in theory gain £28 million. However, it could lose £33 million. The county council certainly fears that we shall be in the category of net loss rather than net gain, and that is before we consider the major funding pressures that it is already under.

The county council has identified cost pressures for the years 2003–04 at £47.9 million in mid-September. Since September a further £2.8 million of mainly Government-driven changes has been added, making the current total slightly more than £50 million. There are major sources of funding pressure. The impact on council tax of £50 million of additional pressure equates to an increase in that tax of nearly 19 per cent.

We must also bear in mind one of the main thrusts of the Government's policy—resource equalisation. In many respects that is the most contentious element in the proposals. Most of the Members of Parliament in Norfolk, let alone the eastern region, see that as a technical way of transferring more resources to high-spending councils in other parts of the United Kingdom. That alone could lose Norfolk county £10 million, and Norfolk police authority £1.5 million. The consequences for the county are, therefore, enormous.

Mr. Henry Bellingham (North-West Norfolk) rose—

Mr. Anthony D. Wright (Great Yarmouth) rose—

Mr. Mike Hancock (in the Chair): Order. Before I take interventions, it is the custom of the House, and the Speaker requires it, that Members who wish to make interventions should inform the hon. Member who secured the debate, the Minister and the Chairman. At this stage, only one Member has notified me of his wish to intervene. If Members wish to intervene, they should observe the courtesies of the House.

Mr. Bellingham : I apologise, Mr.Hancock, for not informing you first. I would be grateful if my hon. Friend would elaborate on his point about policing. That point is of great importance to North-West Norfolk, because of the fens project, a tripartite scheme with Cambridgeshire and Lincolnshire. That project shares resources and intelligence, and was set up in the aftermath of the Tony Martin case. If the funds are not forthcoming for that project, it will probably collapse. That would be a disaster for my constituency, and for that of my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard).

Mr. Simpson : I am grateful to my hon. Friend for raising that issue. Norfolk has benefited from the rural policing grant that was introduced in 2000–01, gaining £2 million as a result. The new proposals consolidate the RPG into a general funding formula, but at too low a level—1 per cent. rather than 1.4 per cent. As a result, the grant for rural police authorities will be reduced, which will have a major impact on nearly all our constituencies.

Mr. Anthony D. Wright : I also apologise, Mr. Hancock, for not mentioning to you that I wished to intervene. I did not mean to be discourteous.

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Over the past few years we have seen a growth in resources for the police and education, and we fear that the new formula will turn the clocks back, and perhaps make the situation worse than it was previously. We want to see the current growth as a burden on the government grants system rather than on the individual ratepayers of Norfolk and of my constituency, Great Yarmouth.

Mr. Simpson : The hon. Gentleman makes a fair point. There may be other parts of the country that have requirements, but Norfolk's existing resources are likely to be taken away. The situation could get worse. The figures given earlier assume a 3 per cent. floor, yielding approximately £12 million. The Government have guaranteed that the grant for 2002–03 will be no less, in cash terms.

Norman Lamb (North Norfolk): I want to reiterate the concern about matching the grant for last year. That sounds great, but in practice it could be a disaster. Increases in salaries and national insurance, and extra burdens such as recycling, will substantially increase the base cost for local authorities. It is therefore essential that we receive more than last year, rather than simply keeping pace with it.

Mr. Simpson : The hon. Gentleman makes a good point.

Mrs. Gillian Shephard (South-West Norfolk): If Mr. Hancock will allow it, will my hon. Friend give way?

Mr. Mike Hancock (in the Chair): The hon. Gentleman is being extraordinarily patient with everyone.

Mrs. Shephard : This is an all-Norfolk, and indeed an all-party occasion. If the Government kept their promise of guaranteeing no less a grant in cash terms than for 2002, what does my hon. Friend think that would mean in terms of an increase in council tax for the people of Norfolk? It is an empty promise, because the increased pressure to spend would mean an increase in council tax.

Mr. Simpson : Once again, my right hon. Friend presses me on the figures. In the worst-case scenario, Norfolk would be £12 million worse off. That would mean a further 6 per cent. increase in council tax, making a total increase of about 24 per cent. That would be politically unacceptable, if not political suicide. It is a major problem.

Next is the question of predictability. Even the floor of 3 per cent. might be in place for only one year. The Government have not yet confirmed how long it will continue, and it may not be enough to compensate for formula terms.

I turn briefly to the equally important question of fair funding for Norfolk's policy authority. The current funding system once again means that the average funding per head of population in the most rural counties, including Norfolk, is £3.23 a head below the

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national average. If Norfolk police were funded to the average shire level, it would have received £2.6 million a year. The current council tax precepts for policing show that taxpayers in the most rural police authority areas pay £14 a year more than in urban areas. Why?

Mr. Richard Bacon (South Norfolk): My hon. Friend makes a good point about rural police forces. Is he aware that Norfolk constabulary, whose new headquarters is in my constituency, faces additional spending pressures of up to £9.5 million, most of which is statutorily required, and that it estimates it will receive between £300,000 more and £6 million less? How are we supposed to make up the difference?

Mr. Simpson : The options available to the county and the police authority are simple. First, they can try to be more efficient, and it is fair to say that Norfolk county council, the district councils and the police authority are driving as hard as they can to make efficiency savings. Their second choice would be to make cuts, which would be politically unacceptable. Thirdly, the council tax would have to be increased by so much that that, too, would be politically unacceptable.

The notional cost of the loss of £6 million for the police authority mentioned by my hon. Friend the Member for South Norfolk (Mr. Bacon) would equal 200 policemen. However, the county council and the police authority are already under considerable pressure, without looking to the future and considering the impact of the Government's new formula. My hon. Friend touched on the fact that all those authorities already face new statutory burdens, rightly introduced by the Government to raise standards. For example, as employers, the county council and the police authority will suffer the impact of increased national insurance contributions, which will cost them £800,000 next year.

I want to leave the Minister plenty of time to reply, but in closing I want to return to an important point touched upon by several of my hon. Friends. The Minister for Local Government and the Regions—I see that he is responsible also for fire fighting, which is a happy combination—wrote a letter to the Eastern Daily Press on 2 November. That was just after I heard I had been given this Adjournment debate—another happy connection. In that letter, he wrote:


That sounds like good news, but when we examine those words in detail—the hon. Member for North Norfolk alluded to this—we find that they are slightly misleading, to say the least. First, the guarantee appears to be for only one year, which is pretty limited. Secondly, the Government have budgeted for an increase in money to local government, but they expect councils to spend more than the amount of that grant on public services. Thirdly, as we all know, much of the money that goes to councils is ring-fenced, so they have little flexibility. The situation reminds me of the old Sam Goldwyn comment that a verbal guarantee is not worth the paper it is written on.

The Minister must be aware that Norfolk took a positive attitude when it entered the discussions on reforming local government finance. When it examined

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the options, however, it concluded that, whatever the criteria, it would be at the end of the spectrum where the figures came with minus signs attached. Those Members who are present believe that that is unfair, and I look to the Minister to come up with some hard facts to reassure us. When the proposals are announced at the beginning of December, I hope that we will be able to say that Norfolk has got a fair deal. At the moment, the suspicion is that it has not.

1.16 pm

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie) : First, I congratulate the hon. Member for Mid-Norfolk (Mr. Simpson) on securing the debate, not least because the subject has exercised almost every Member of Parliament. Indeed, we have already had a detailed and lengthy debate in the main Chamber about the formula grant review.

Many hon. Members are rightly extremely concerned about funding for their local services, and such issues are raised in many of our surgeries. The hon. Gentleman said that the debate was a shameless lobbying exercise on behalf of Norfolk, and it has been very successful, judging by the turnout of Opposition Members representing Norfolk and the presence of my hon. Friend the Member for Great Yarmouth (Mr. Wright).

I shall deal with the specifics of Norfolk in a moment. The hon. Gentleman suggested that everyone was familiar with the broader issue, but it is worth touching on some general aspects of local government funding and on our intentions for change. I shall not repeat much of what I said in the main Chamber, but I should emphasise that we shall see the demise of the old standard spending assessment—the SSA system. We want to move away from the practice of central Government telling local authorities that their spending should or should not be at a particular level. We want to find ways of giving them greater freedoms and greater flexibility so that they can be more directly accountable to local people. That means that we must get away from the SSA system and focus on how we divide up grant—the money that actually goes to local authorities. The SSA system will be no more.

Even if more money is available to authorities—and it will be, given the announcements made in the spending review—they will not all be able to have a bigger slice of the cake, because that is statistically impossible. It is therefore unsurprising that the Government have received strong representations from many authorities. We want to consider the relative circumstances of different authorities, and to try as best we can to base decisions on need. We will consider several different factors to determine grant.

The right hon. Member for South-West Norfolk (Mrs. Shephard) queried the guarantee that we have been able to give so far that there will be no cash loss, on a like-for-like basis, for particular authorities. That does not mean that it is the optimum guarantee; it is the

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minimum guarantee that we can give while we are still gathering statistical evidence to produce the formula. We hope to do much better.

Mrs. Shephard : That was not the point. I was asking what the impact would be on the Norfolk council tax payer if the Government managed to keep the guarantee.

Mr. Leslie : As I say, I hope that we can do better than the no cash loss guarantee. I shall mention later the extra education money that we have allocated. That has enabled us to guarantee a real terms increase in education services. That is the largest component of the formula grant review.

I must record my appreciation for Norfolk county council's work with the county council network in devising some of the formula options that we have discussed. It helped to commission research on formula change to distribute mental health service moneys, and on how to take account of additional costs associated with providing home care services in rural areas. The research and its implications have been considered carefully and are reflected in the options that are in the consultation package with which hon. Members are familiar.

Norman Lamb : The Minister mentioned the cost of services in rural areas. The rural services partnership, which represents the 50 most rural councils in the country, is concerned that inadequate attention is being given to rural deprivation. It is often hidden, but it does exist in Norfolk. It is essential for any new formula to take account of such concerns.

Mr. Leslie : That is a fair point, particularly as far as education funding is concerned. A number of authorities serve sparsely populated areas, so the Government think that the formula should reflect sparsity, as it affects the cost of home to school transport in rural areas and the help required for rural primary schools. In the course of research, we found that sparsity may make a difference in respect of primary schools but the case is less clear in respect of secondary schools. There is likely to be as many small secondary schools in densely populated metropolitan areas as there are in shire counties such as Norfolk. Nevertheless, we recognise that secondary school pupils often have to travel further to get to school in sparsely populated areas, which is why we have examined our transport expenditure options. We hope that the new formula will cover 60 per cent. of the transport element of the LEA block through the sparsity index and 40 per cent. through the number of pupils covered by the authority. That will reflect the high levels of transport expenditure in sparsely populated LEA areas such as Norfolk.

The Government want a fairer, clearer system justified by the educational needs of children and based on the evidence of cost and need. I can give a commitment that no local authority schools will lose out in real terms. In addition, all local education authorities will benefit from increased funding over the next three years, following the Chancellor's spending review announcements.

Mr. Simpson : Does the Minister know whether the Government will compensate the county council for the

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increase in teachers' pension contributions? Giving welcome money with one hand and taking it away with the other will have a major impact on the education budget.

Mr. Leslie : I often find Conservative Members arguing for higher and higher public expenditure. That is understandable in many respects. We intend to ensure that, where appropriate, we reflect additional pay costs. The additional costs adjustment is controversial among many MPs, but we will take pay costs into account. Deprivation is also extremely important, and we would not want our debate to go by without considering additional educational needs and the education spend. The options that we set out in the consultation paper reflect several variants on how deprivation can be taken into account, and we intend to introduce a phasing-in period for some of the proposed changes.

I appreciate that expenditure on policing is an issue close to the hearts of all our constituents. The aim of the police formula review is to develop a robust mechanism for distributing Government grant fairly and simply. There are many different pressures in rural and metropolitan areas, and we are anxious to do our best to allocate resources as fairly as we can. Any extremes at either end of the options illustrated in the consultation package will be tempered by the floors-and-ceilings mechanism with which hon. Members are familiar. Of course, those floors and ceilings are applied after the calculation of the grant, and announcements on that will be made shortly. However, it is important to remember that we are taking decisions against a background of substantial increases in expenditure on the police. By 2005–06, the total provision for policing will be about £1.5 billion more than it was in this financial year.

The hon. Member for North Norfolk (Norman Lamb) asked us to concentrate on issues affecting Norfolk. To set those issues in context, I point out that, in the past five years, there has been a 20 per cent. increase in real-terms expenditure for local government, compared with a 7 per cent. reduction in the last four years of the Conservative Administration. We have continued to prioritise education and social services, on which there will be a 6 per cent. increase in expenditure over the next three years.

Mr. Bacon rose—

Mr. Simpson rose—

Mr. Leslie : I know that Conservative Members are champing at the bit to ask about the Norfolk settlement. I understand that Norfolk county council has benefited significantly from our extra investment in local

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government. Under this Government, there has been an average increase in the grant of about 4.9 per cent. compared with an increase of 2.1 per cent. in the last four years of the Conservative Administration. We have managed to sustain an average increase of more than twice the rate set by the Conservatives.

Mr. Simpson : The Minister has misjudged the mood of the debate. This is not a party-political issue. We understand that the Government have increased the money available in certain areas but have imposed new requirements on Norfolk county council, and I have quoted the figures. With the best will in the world, people in Norfolk and hon. Members who represent Norfolk constituencies believe that we currently have a net loss and that, under the Government's proposed formula, we are likely to be worse off. Can the Minister guarantee that, when he makes his announcement at the beginning of December, we will be able to say that the Government have given Norfolk a fair deal and that Norfolk will not be worse off?

Mr. Leslie : I can most certainly guarantee that Norfolk will receive a fair deal, and I can guarantee right now that there will be no cash loss for councils. I can put people's minds at rest about the more extreme options in the consultation document.

I want to touch on the important issue of social services, about which I know that hon. Members are concerned. This year, there has been a 5.8 per cent. increase in expenditure on social services; a 15.9 per cent. increase in the children's grant and a 21.9 per cent. increase in carers grant. Similarly, in education, the standard spending assessment for Norfolk has increased by 36 per cent. in five years. Those are significant sums of money. On police funding, there are extra officers—more than ever before.

A formula grant review consultation is now underway. We are involving as many people as possible and have heard representations. Floors and ceilings will be introduced to give the measure of protection that hon. Members are concerned about. We try to take a balanced view at all times. It is difficult to make everyone a winner, but the Government are putting in much extra investment. That investment will be the message that will come out of the announcements that we make in December. We want a more transparent system, but we also want to make sure that we have decent investment and public services.

Mr. Mike Hancock (in the Chair): We are about to move on to the next debate but, before we do, I remind hon. Members that in Westminster Hall there is a convention that if hon. Members are to make an intervention, they must inform the Member who initiated the debate, the Minister and the Chairman. To my knowledge, no one has done that. On this occasion, I am prepared to give way on the issue, but hon. Members should be mindful of that duty.

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