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5 Dec 2002 : Column 1064—continued

John Cryer (Hornchurch): Following on from the question of my hon. Friend the Member for Leyton and Wanstead (Harry Cohen), there seems to be a widespread and genuine belief that the Government intend not to transfer the tube from the aegis of London Underground Ltd. to Transport for London. Some of us have dealt with the senior London Underground managers and, if for no other reason, we are filled with alarm when we envisage them dealing with some of the sharpest operators in Britain in the form of Jarvis and the others. Can we have a debate, or at least a statement, to clarify the confusion that seems to be generated as to the tube's future?

Mr. Cook: I am happy to do what I can to roll back any confusion that may exist. As I understand the position, there is no doubt that Government policy is to transfer London Underground to Transport for London. The only question that has arisen in the light of the Secretary of State's statement is how quickly we can do that. Plainly, it is difficult to contemplate transferring London Underground when the Mayor of London is still maintaining the possibility of legal action to stop the PPP proceeding. The way forward is perfectly clear and perfectly simple: the Mayor of London has to accept that London needs a modern underground system. It needs investment to secure that, and the way to get ahead with that investment is to allow the PPP to proceed. We must not put the money into the lawyers rather than into the underground.

Mr. Roy Beggs (East Antrim): Will the Leader of the House make time for the Foreign Secretary to come to the House to make a statement on UK relationships with Iran and afford the opportunity to discuss the abuse of human rights there as well as the execution of women and of prisoners who are politically opposed to the brutal regime of the mullahs? I believe that the matter is urgent, and there are allegations that Iran, too, is acquiring weapons of mass destruction.

Mr. Cook: Of course, there are human rights abuses in Iran—indeed, the Government have repeatedly condemned and made representations about them—but if the hon. Gentleman wishes to discuss our relations with Iran he should also recognise that there have been elections in which the overwhelming majority of those voting elected for people who want to take Iran forward in the 21st century and who want to roll back the repressive power of the mullahs. It does not help those who want change and modernisation in Iran to confuse their representatives with those mullahs to whom he refers.

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Local Government Financial Settlement 2003–04

1.19 pm

The Minister for Local Government and the Regions (Mr. Nick Raynsford): With permission, I should like to make a statement about local authority revenue finance for England 2003–04.

I am pleased to be able to announce that next year's local government settlement will see total support from Government grant and business rates of £51.2 billion. That is a cash increase on this year's settlement of £3.8 billion, or 8 per cent. It provides substantial real-terms growth in the funding we are providing for local government. The £51.2 billion consists of £24.3 billion in revenue support grant, £15.6 billion in business rates, £4.1 billion in police grant and £7.3 billion in special and specific grants. Today, I am announcing details of the allocation to individual authorities of the £39.9 billion of revenue support grant and business rates. Taken together with the police grant, that represents an increase of 5.9 per cent. cash over this year's allocation.

We announced last year that from 1 April next year we would introduce a system for distributing grant between authorities that would be fairer, more transparent and more just. Members will know that we have taken a long hard look at the grant distribution system. We had no doubts about the need to replace the outdated and discredited standard spending assessment system, but developing a robust, appropriate and fair replacement has been a challenging task, not least because of the many competing claims from different categories of local authority.

We held detailed discussions with local government and those with expertise in this area as we looked at all the current formulae and the options for change. We held 15 meetings of the technical group in just over a year, and many more meetings were held with those with an interest, covering education, police, personal social services and other council services. We then carried out a wide-ranging consultation on those options, including useful seminars and debates in the House in which Members let us know their views. The consultation paper included 47 specific options, and another 52 exemplifications were carried out at the request of local authorities.

We received some 55,000 responses to the options on which we consulted over the summer. More than 1,000 of those came from councils, members of the public, Members of Parliament, business organisations and others with an interest; the remainder were sent in response to various campaigns. Several petitions were also received. I announced the publication of an analysis of those responses earlier today by means of a written statement. Copies of the analysis have been placed in the Vote Office.

To reach a conclusion we needed to balance the pressures, the evidence and the representations. One of the major problems with the old SSA system was that it attempted to take a view on what authorities needed to spend. That was unrealistic and inconsistent with our approach to devolving responsibilities, so we will not continue the arrangement. Notional spending allocations do not imply anything about the budget or spending choices that will need to be made. Councils,

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in consultation with their council tax payers, should properly take such decisions. The one exception is in respect of the Government's key priority of education: we have said that we want to see authorities pass on increases to schools. In summary, the purpose of the new system will be to distribute grant according to authorities' relative circumstances and relative ability to raise resources from council tax.

The new grant distribution formula will, in the main, no longer rely on past spending patterns. That is one of the main criticisms of standard spending assessments. The new formula will ensure that the distribution of grant is relevant to the circumstances that councils face now, reflecting up-to-date spending patterns where appropriate.

We have worked hard to make the system less complex and difficult to understand. This was never going to be easy. The sheer size of the sums going to local authorities, the wide-ranging responsibilities undertaken by councils and the differing circumstances faced by authorities across England mean that there will inevitably continue to be a degree of complexity in the formulae used. However, we have simplified the structure of the system, which can be summarised as a basic allocation to each authority with top-ups reflecting particular circumstances such as deprivation, high wage costs and sparsity.

The formulae also no longer include the perverse incentives and inadequate indicators that were present in the old system. For example, the old fire formula was based on the number of calls each authority received. That meant they had little financial incentive to improve fire safety and safety education, and so reduce the number of calls. We have tried to remove such anomalies from the new system.

Many Members will have a particular interest in our decisions on the area cost adjustment. We have concluded that pay costs should be recognised within the system, but the ACA has been redesigned to minimise the Xcliff-edge" effect. It will in future better reflect the different circumstances in London and the south-east, and the fact that authorities outside those areas have differing pay costs. It will also reflect the needs of areas outside the south-east with high pay costs.

We have also increased the extent to which the system takes account of councils' relative ability to raise council tax, known as resource equalisation. It means that we make a more realistic assumption about average council tax. It does not mean that we reward high spending.

We have made good the promise to ensure that no authority's schools will lose out in real terms from the changes. The new education formula ensures that every education authority's per-pupil allocation will rise by at least 3.2 per cent. in cash terms, well above inflation.

The environmental, protective and cultural services formula has been greatly simplified, and now better recognises the basic costs that all authorities face. We have made some detailed changes to personal social services, simplifying the system so that there is now a single formula for residential and domiciliary care for older people—although as PSS was reformed comparatively recently, these changes are less extensive than others. We have listened to the argument put to us by small authorities, particularly shire districts, that

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they face a fixed Xcost of being in business". We have allocated a flat-rate £300,000 element to most classes of authority to recognise that cost.

As I promised, the system will incorporate floors and ceilings to safeguard authorities from excessive short-term variations in grant. For the last two years we have guaranteed that no authorities would receive less grant than they did in the previous year on a like-for-like basis. Councils with education and social service responsibilities did significantly better, of course, and last year we were able to ensure that all councils received a grant increase at least in line with inflation. As Members will know, we have already made it clear that no local authorities will receive a cut in grant next year in cash terms.

The Xfloors" will ensure that every authority in the scheme gets a reasonable level of grant increase, given the overall distribution and the total level of funding available. To pay for the floors we will impose a maximum on grant increases, and scale back the rises received by authorities between those two levels. I am pleased to be able to announce that I am setting the floor levels so that in 2003–04 all authorities will receive a grant increase on a like-for-like basis well ahead of inflation. That means a real-terms increase in grant for all authorities.

The floor increases in cash terms for police and fire authorities and shire districts will be 3 per cent. The floor for unitary authorities, county councils, metropolitan districts and London boroughs will be 3.5 per cent. To pay for the floor increases we will set a ceiling of 4.9 per cent. for single-service police and fire authorities including the Greater London Authority, 8 per cent. for unitary authorities—county councils, metropolitan districts and London boroughs—and 12.5 per cent. for shire districts. Increases above the floor but below the ceiling will be scaled back by 5.4 per cent. for police and fire authorities, 1.3 per cent. for shire districts, and 4.6 per cent. for authorities with education and social service responsibilities.

As I said earlier, we will phase in the new education formula in such a way that no authority's schools will lose out in real terms. The education formula will incorporate a floor of 3.2 per cent., in cash terms, and a ceiling of 7 per cent. per pupil.

In addition to the increases in funding for local authorities' general grant, we are providing further increases in grants for specific initiatives. Of key importance will be the neighbourhood renewal fund, which will allocate £400 million of grant via local strategic partnerships to help support and kick-start public services in the most deprived areas—£100 million more than in the current year. On a like-for-like basis, local authorities will receive £1.3 billion more next year in special and specific grants.

As we promised in the local government White Paper, we have looked closely at these grants to ensure that ring fencing is kept to the minimum necessary. Members will be aware from the recent announcement on freedoms and flexibilities that the proportion of funding paid to local authorities as ring-fenced grants will, on current plans, be reduced over the three years of the spending review. Excellent councils will also receive additional

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freedoms from ring fencing. Ring-fencing revenue funding is set to decrease from 12.4 per cent. to below 10 per cent. by 2005–06.

Our plans for next year provide local authorities with good increases in grant. The increases mean that since 1997 we have raised Government grant to local authorities by some 25 per cent. in real terms, compared with a 7 per cent. reduction in real terms in the last four years of the previous Administration.

There could be no clearer illustration of our commitment to supporting and helping local authorities to deliver the strong local leadership and quality public services that local residents rightly expect and that local government wants to provide.

Given the significance of the review that we have undertaken, local authorities have understandably been awaiting today's announcement with some anxiety. Some authorities have been predicting a settlement under which councils will have to make cuts or impose significant council tax increases. I am glad that today's announcement demonstrates that those fears, and the scaremongering from our political opponents about cuts in grants, were unfounded and unjustified. The good increases in funding provided by the spending review, the realistic levels of floors and ceilings we have been able to set, and the decisions we have taken on the distribution of grant to local authorities mean that there is no reason why councils cannot continue to improve services while sticking to reasonable council tax increases. Today's proposals are good news for local government and as such I commend them to the House.

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