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5 Feb 2003 : Column 380—continued

Mr. Davey: I do not know about the particular circumstances in the hon. Gentleman's constituency, so I cannot comment in detail. However, I should not be surprised if Liberal Democrat councillors were concerned about the way in which that local authority was being run by the Conservatives.

My third major concern with the settlement is the Government's approach to ring fencing. A key reason why all the pressures faced by councils are so difficult to manage, and why they feed through inevitably to large council tax rises, is that the Government are insisting on so much ring fencing. It goes beyond passporting education rises; ring fencing extends across the piece.

Ring fencing is absolutely pernicious. It takes away councils' flexibility and autonomy when it comes to managing tough settlements such as this, and it corrodes local democracy. Not unreasonably, electors cannot understand why they have council tax rises when grant rises are increasing. Part of the answer is ring fencing. One of the worst aspects of the Government's presentation of the figures is their claim that they are reducing ring fencing. They tell us that it has fallen, but in fact they reached that conclusion only by re-defining what counts as a ring-fenced grant, in a way that not only the LGA but many councils throughout the country cannot understand.

Why has ring fencing increased from 14.7 per cent. last year to 16. 8 per cent. this year? When the Government took control in 1997, only 4.5 per cent. of total grant to local authorities was ring-fenced. By massively increasing ring fencing and failing to tackle it, the Government have made the problems of local authority financing far more difficult. That is why there have been such high council tax increases during their tenure.

This year, I predict that average council tax rises will be the highest since the tax was introduced. That is certainly suggested by provisional figures from councils

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throughout the country. Given that there may be an element of scaremongering in those figures, the average increase may not reach double figures, but it could be about 9 per cent. Curiously, the Government's own figures assume exactly that amount. When I intervened to ask the Minister for Local Government and the Regions about that point, he seemed to brush it away, but the documentation gives a figure for assumed council tax yield of £18.094 billion, which is a 9 per cent. increase on the actual yield last year. By continuing to shackle local government finance through ring fencing, the Government are forcing councils to increase council tax. There should be no mistake about that.

I am extremely worried about those council tax increases. Council tax is one of the most unfair taxes imaginable. It hits pensioners and people on low incomes. It is a Conservative tax and the Government should not continue to push it up. It has a huge impact on the elderly. Under the settlement, many elderly people will face large council tax bills, but there will be a double whammy if they live in a local authority that has a high proportion of pensioners. An examination of the revised SSA formula for care for the elderly and the effects of resource equalisation suggests that something odd is going on.

When the figures were issued in December, spending on care for the elderly appeared to be due to rise by £273 million. At 4.8 per cent. that was not a huge increase, but it was not bad. However, when resource equalisation kicked in, the final total was a cut of £797 million—a drop of 14 per cent. Some local authorities were able to address that problem. There is a little bit of wriggle room—they still have some control—and they may be able to find resources to cope with the cut. However, authorities with a large number of pensioners will have great difficulty in doing that. That is the double whammy: a council tax rise and cutbacks in care for the most vulnerable elderly. The Government should be ashamed of that.

My final point is that the long-term implications of the settlement are worrying. One reason why this year's settlement has been especially contentious is that it involved a major review of the underlying grant formula. I shall not rehearse the Select Committee's arguments—[Interruption]—it appears that hon. Members will be pleased about that—but I want to focus on three issues that arise from the major review of the grant formula.

The first point concerns stability. The Government said that stability would be one of the principles embedded in the grant review. They told us how wonderful they were because they had set floors and that they would not change the grant formula for the next two years. However, the problem is that the Government will not announce the floors for the next two financial years; they will not even given an indication of where the floors will be. The capacity for local authorities—especially those who are already struggling—to plan ahead is reduced. The Government's attitude is particularly hypocritical, because they talk about stability and long-term planning in Whitehall, yet they refuse to give councils the necessary information to achieve that at local authority level. That is a dereliction of responsibility. The Government are not following the best practice that they try to promote.

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The second issue that concerns me—[Hon. Members: "Second?"] The second issue on the long-term point relates to data changes. There have already been significant data changes between this year's provisional and final settlements. Information from finance officers around the country is that this year has seen larger alterations in grant as a result of data changes than almost any previous settlement. If the Government have implemented a robust and more stable grant formula, how can such huge changes just to do with data occur over a relatively short period? How can local treasurers have faith in the system?

There are practical problems at root level. Kingston alone has lost £329,000 between the provisional and final settlements. In a small authority, that is a lot of money. The Minister must remember that that causes local authorities huge difficulties over a short period. The framework of the review does not seem to be providing the stability that was promised.

The final point on long-term issues—[Interruption.] The Government recently announced that they are to review the balance of funding between local and national Government. That should have happened alongside any grant review; it would have made it far more effective. We have read the terms of reference, which are interesting and broad. I hope that the review will include—it could do so because the terms are so broad—reform or, indeed, abolition of the council tax. Only by implementing a fair system of local income taxation can we restore a proper balance of funding between national and local government. In winding up the debate, the Minister should say more about the balance of funding review. We want to know when it will be set up, who will be appointed to it and by when it will report. It is an exceedingly important aspect of the subject.

Liberal Democrats will not be able to vote for this settlement. Effectively, it imposes the largest ever council tax rise on pensioners and families across the United Kingdom. The matter has been poorly handled—whether by the Department for Education and Skills or the Office of the Deputy Prime Minister, we do not know. Suffice it to say that there is chaos in Whitehall, and that that is having an effect at root level. Ring fencing remains, and that is a stranglehold on councils, residents and local democracy. My constituents will expect me to vote against the settlement, and those of Government Members will expect them to do so as well.

6.52 pm

Mrs. Anne Campbell (Cambridge): I begin by reiterating that Cambridgeshire county council is very grateful for its extremely high increase of 11.5 per cent. Of that, 4 per cent. was due to recognition as an expensive area and for the first time receiving a grant under the area cost adjustment. Education has seen a 10 per cent. increase and social services a 13.1 per cent. increase. That is probably the best settlement that Cambridgeshire has ever received. I must point out that Cambridgeshire is not a Labour authority or even, thank goodness, a Liberal Democrat authority. It is Conservative controlled, which gives the lie to the Conservatives' point that all Conservative authorities have suffered a poor settlement. That is simply not true.

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Cambridgeshire is however concerned about losing £10 million as a result of the transitional arrangements. Although it should have received a 11.5 per cent. increase, owing to the damping arrangements, the ceiling has been set at 8.5 per cent. The county council has asked me to make representations to my right hon. Friend the Minister on that point. It would like—surprise, surprise—the transitional arrangements to continue for as short a time as possible.

The leader of Liberal Democrat-controlled Cambridge city council, who my right hon. Friend has described as deluded—I have to agree with that—appears to think that the Government's indicated rate of a 4.64 per cent. rise would result in every council receiving such an increase. The increase that he expected was then somehow translated in his mind to a promised increase. When he found that he was to receive only a 3 per cent. increase in grant, he described it as a savage cut. He has since been consulting council tax payers on the sort of cuts to services that the settlement will involve. I find that kind of misrepresentation quite disgraceful. It is the kind of absurd statement that makes people distrust politicians.

I have been asked by Cambridge city council to make representations to my right hon. Friend the Minister for Local Government and the Regions. The city council would like the transitional arrangements to last as long as possible. I find it quite difficult to choose between the two councils—except to say that, from the point of view of council tax payers, the county council is the more important contributor to the council tax bill, and that, therefore, the county council's wish for the transitional arrangements to last as short a time as possible should be the predominant idea in my right hon. Friend's mind.

The leader of the Liberal Democrat city council has gone further and is representing the 3 per cent. increase not as an increase but as a £1.9 million cut. It is true that Cambridge city council has had rather bad news from the Office for National Statistics—in the way that student numbers are calculated and in the way that the change in the formula has, for the first time, excluded overnight visitors. Cambridge has a large population of visitors and finds that—

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