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14 Nov 2002 : Column 255—continued
Mr. Mark Todd (South Derbyshire): I have been following my hon. Friend's argument on the ACA—an arid area of what is already a dry topic. As I remarked in the last debate, of the options that are available on the area cost adjustment, following the existing NHS formula for allocating assumptions on increased costs is surely the best. It is a tried and tested formula, established in the largest employer in Europe, and should surely be commended in local government.
Judy Mallaber: I thank my hon. Friend, who is more on top of these arid arguments about the ACA than I am. I commend his suggestion to the Minister, who I am sure will respond favourably.
Perhaps the Minister could also respond to the suggestion, made partly in jest and partly seriously, that if some wealthier counties with higher salaries are so worried about losing out, we could add a couple of higher council tax bands, expand their tax base and use that as part of the review of local government. That might be one element to throw into the equation when considering the finance review.
I plead with the Minister not to choose options that build on past spending patterns and unfairness, as is the case with some of the proposals on police, fire and resource equalisation. On the police, for example, all the options are bad for Derbyshire. One would enable us not to use past establishment figures. Derbyshire county council did very badly historically related to the establishment figures. There is great advantage in phasing it out. Surely there is no justification for basing new options on past spending patterns which were unfair. That relates to other areas as well, of course.
Mr. Harry Barnes (North-East Derbyshire): Is my hon. Friend aware that there is a particular problem in the proposed formulae for shire counties in general, and that almost 90 per cent. of them in all the categories provided lose out? I know that the size of the cake is growing, but the proportion that is going to shire counties is shrinking if we follow this particular formula. Derbyshire has serious problems. In this area it requires about a 5 per cent. increase in the next settlement in order to stand still in its expenditure.
Judy Mallaber: I thank my hon. Friend for his helpful comment. We have serious problems in this area and I
hope that, within the difficulties that we have with all the formulae and current budget settlements, we do not exacerbate that but improve it, by at least not basing the new formula on past establishment figures.
Mr. Todd: My hon. Friend touched on the issue of resource equalisation—perhaps an even more arid area in this dry topic. May I draw her attention to the fact that what appears to be the thrust of this is to establish a set of formulae to establish need, but then to say that we will throw that away and track back to previous spending patterns which may well have been justified by the authorities in question and their electorates, but should not be the basis for the allocation of Government resources?
Judy Mallaber: I agree, and I am grateful that my hon. Friend is so assiduous and understands all the complex arguments in all these issues.
Finally, on social services, I have no particular arguments on the options, other than to reiterate the argument for using working families tax credit within the deprivation index. Obviously, that is relevant to social services too. Overall there is an inadequacy in the global amount of social service funding, which requires Derbyshire to spend substantially above standard spending assessment in order to meet the basic needs of our residents in the county.
Those are the main points. All of us could go on endlessly, but I should leave sufficient time for the Minister to reply to those points.
7.17 pm
The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie): I congratulate my hon. Friend the Member for Amber Valley (Judy Mallaber) on securing the debate. There is a lot of competition for time to debate local government finance, believe it or not, and the measure of support from hon. Members representing that county is evident today. My hon. Friend has covered a remarkable number of points in her speech and I shall try to address as many of them as possible.
My hon. Friend is particularly concerned about funding for schools, and has registered her support for the proposal put forward by the F40 group. I am aware of the strength of feeling about this issue in the F40 group and in Derbyshire, following recent meetings with representatives. I know that my hon. Friend the Minister for School Standards has also been discussing with the F40 group delegation how the current funding review might impact on their authorities. I understand that there has been a constructive exchange of views.
It might be helpful if first I provide some background to our plans to introduce the new funding system. Hon. Members will know the range of general issues and difficulties that we face, and I do not intend to spend time repeating the general points made elsewhere. There was widespread agreement that the formulae for distributing grant needed to be overhauled. We have been working hard to devise a new system that will deliver our aims of a fairer, more transparent system for the distribution of the local grant. It is important to emphasise now one significant change from the old principles of the standard spending assessment, whose
original idea was to deliver a standard level of service for a standard level of council tax. That approach has not worked. We are all clear that such an approach is fundamentally incompatible with our objective of giving greater freedom and discretion to local authorities. Rather than pretending that we can say how much councils should spend, under the new framework we are focusing on how we divide up grant—real money—between authorities.Unsurprisingly, we have received many representations from local authorities about how they wish to receive grant. The formula review is about the distribution of a pot of money between authorities. As my hon. Friend the Member for North-East Derbyshire (Mr. Barnes) noted, everyone argues for a bigger slice of the cake. We cannot give all authorities a greater share, but I can reassure the House that the system will consider the relative needs of different authorities and determine grant on that basis.
My hon. Friend the Member for Amber Valley mentioned highways, and the formula issues that affect local government spend in that area. The Government have looked carefully at the current highway maintenance formula throughout the review, and we share concerns that the indicators do not seem appropriate for assessing the cost of road maintenance. That is why we propose that the new formula should consist of a basic amount per kilometre of road, with top-ups for traffic flow, winter maintenance costs and pay costs. We are considering all the responses that we have received, including concerns about special grant for de-trunking, and so forth. We will make our decisions known when the final results are available.
With regard to the options for the education formula, it is worth reiterating that considerable increases in funding for education are coming through, thanks to the spending review, over the next three years. In addition, hon. Members will know that the Government have given clear commitments that no authority's schools will lose out in real terms.
For the education formula itself, we want a fair clear system that is justified by the educational needs of children, and based on more up-to-date evidence of cost and need. Any formula will need to have an element for deprivation, and enhancements for areas where schools need to pay more to recruit and retain staff.
Under the current system, the main reason why authorities in London and the south-east receive a higher level of funding than other authorities such as Derbyshire is that they receive extra funding through the area cost adjustment to take account of the extra cost of recruiting and retaining staff in the area.
Options set out in the consultation paper are based more on evidence that suggests that authorities with significant deprivation and additional staff costs need to spend significantly more to achieve the same results for their children. I accept that there is scope for judgment about the evidence, but the four options that we have reflect that.
Judy Mallaber: The group of northern counties has produced an analysis that shows that many of the areas that get extra money through ACA are spending the
extra money not necessarily on education services but on other services, or to keep council tax levels down. It is not clear that the new formula really measures actual needs, and the resulting disparity in funding is substantial.
Mr. Leslie: Obviously, there are differences of opinion between local authorities on that point. However, I hear what my hon. Friend says. I know that the F40 group, of which Derbyshire is a member, has expressed its dissatisfaction with the four new options set out in the consultation paper. That is why the option 5 proposal has been made, and I have received a great weight of correspondence from F40 authorities in support of that. I can reassure the House that we have considered all those matters carefully, and we will try to take them fully into account when we make the final decision.
I should make it clear that in introducing the new funding system, our aim is to produce the best possible match between the distribution of funds and the differing circumstances and needs of local education authorities. I hear the interesting proposal concerning the lowest funded quartile of education SSAs. Even though the consultation has closed, my hon. Friend the Member for Amber Valley incorporated the proposal in her earlier submission, and we will certainly consider it.
Option 5 suggests that money be taken out of the factor in the formula for deprivation and put into the basic allowance per pupil. That would, of course, have an impact on authorities with high levels of deprivation. In working up a new funding system we need to consider how changes will affect all authorities, not just those in the F40 Group.
My hon. Friend the Member for Amber Valley touched on other issues in relation to authorities with sparse populations. We intend the formula to contain a Xsparsity" element to reflect the costs of home-to-school transport. We also hope that transport funding in each LEA will contain an assessment of the impact of sparsity. We estimate that in the new formula, 60 per cent. of the transport element in the LEA block, for example, will be distributed through the sparsity index. That may be to the benefit of Derbyshire.
My hon. Friend the Member for Amber Valley mentioned that the area cost adjustment was a significant issue. My hon. Friend the Member for North-East Derbyshire (Mr. Barnes) urged us to look at ways in which it might be changed. Numerous research projects have been undertaken over the years to find a better solution. We conducted research relatively openly. It is out there for people to see. We have thoroughly reviewed the way in which the area cost adjustment is calculated. Different research proposals were developed and have been widely debated.
There has been much discussion about which data source to use, which type of economic model to use, and where the boundary lines should be drawn. I think that about 21 different options for area cost adjustment have been proposed. There is little agreement between authorities on the merits of the options. While the vast majority of people recognise that pay costs should be recognised within the system, how we do that and what weighting we place on it are obviously matters for the Government.
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