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Mr. Hugo Swire (East Devon): This is the second time in the past six months that the Home Secretary has had to come to the House to explain away a serious breach involving royal palaces. Nothing that he has said today would lead us to suppose that he will offer his resignation, as the late Lord Whitelaw did after a similar break-in at Buckingham palace in the early 1980s, but I hope that he will take this opportunity to offer a public apology to Her Majesty for embarrassing her, with her visitor from the United States.

That having been said, if the Home Secretary is to investigate the background to Mr. Ryan Parry and the evidence that he produced, will he extend that investigation to the editor of the Daily Mirror and make that part and parcel of any investigation into this new break-in?

Mr. Blunkett: I made it clear in July that I did not think that Willie Whitelaw should have offered his resignation. I did not think that he was responsible for somebody getting into the Queen's bedroom. That is a silly point to make this afternoon. If I were responsible for a failure, I would carry the can for it. I have already said that to a number of Conservative Members, who are desperate to make a party political point out of this matter. If I am not responsible, I will not. If Her Majesty felt that I, or my colleagues, had let her down in any way, I am sure that she would have said so to me this morning when I was given the grace and pleasure of meeting her.

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Mr. Adrian Flook (Taunton): I have been listening carefully to the Home Secretary's answers. I would appreciate it if he could confirm that there will also be a review of security procedures for the granting of a pass for this Palace.

Mr. Blunkett: I have dealt with this point four times now, and I am happy to continue to do so. Although hon. Members often get aggrieved and irritated at the time that it takes for security clearance and the difficulties they themselves sometimes have in getting through without having to present their passes, I am convinced, as is the hon. Gentleman, that we need to keep up our levels of security.

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Local Government Finance Settlement 2004–05

1.6 pm

The Minister for Local Government, Regional Governance and Fire (Mr. Nick Raynsford): With permission, Mr. Deputy Speaker, I should like to make a statement about local authority revenue finance for England in 2004–05.

The provisional settlement that I am announcing today will be the seventh successive one giving an above-inflation increase in funding for local government. It will build on the significant real-terms growth that we have been able to provide since taking office; grants to local government have increased by 29 per cent. in real terms since 1997. That contrasts with a 7 per cent. cut in the last four years of the last Government.

Next year's settlement will see total support from Government grant and business rates of £54.1 billion, which is a cash increase on this year's settlement of £3.3 billion, or 6.5 per cent. The total includes £26.6 billion of revenue support grant, £15 billion in business rates, £4.2 billion in police grant, and £8.3 billion in special and specific grants. Of those totals, £45.8 billion will be distributed by formula to local authorities—an increase of £2.1 billion, or 4.7 per cent.—and I am announcing the detailed allocations today.

In order to provide certainty and stability, and as already announced, we are making no changes to the formula spending share formulae this year. We have made the necessary adaptations to allow combined fire authorities to receive formula grant in their own right.

Floors and ceilings have become an accepted part of the settlement in recent years, and as already announced, we will continue to use this mechanism to set minimum and maximum limits on the percentage increases in grant received by authorities in each year, on a like-for-like basis. This is to ensure that all authorities receive an increase in grant and to avoid sharp short-term fluctuations, which can make forward planning difficult.

For 2004–05, the floor and ceiling for authorities with education and social services responsibilities will be a 3.5 per cent. floor and a 5.8 per cent. ceiling. In some cases, however, authorities will receive more than 5.8 per cent. because we are also guaranteeing that they receive sufficient grant to pass on their schools formula spending share increase in full. For fire authorities, the floor will be 3.5 per cent. and the ceiling, 5 per cent. For both police authorities and shire district councils, we have decided in the interests of stability to set a floor that is close to the average grant increase. These floors are 3.25 per cent. for police authorities and 2.2 per cent. for shire districts. This year, therefore, the floors and ceilings effectively give all authorities in those groups a similar grant increase. As in previous years, we will add to floor or ceiling grant increases any revenue support for new capital allocations issued by the Government.

We have also strengthened the arrangements for schools funding. Our proposals build on those in the statement made by my right hon. Friend the Secretary of State for Education and Skills to the House on 29 October. Schools formula spending share will rise by between 5 per cent. and 6.8 per cent. per pupil in every

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authority. That means that all authorities will receive an increase in schools FSS that is substantially above inflation, and I reiterate our promise that every authority will receive a matching increase in its formula grant.

The Government's clear expectation is that all authorities should pass the increase on to their schools budgets, other than in wholly exceptional circumstances. We have considered the point put to us by local government that, while it shares our ambitions for schools, it might be difficult to fund them fully because of spending pressures elsewhere. My right hon. Friend the Secretary of State for Education and Skills has already announced £120 million worth of transitional support in 2004–05 to assist with schools spending pressures.

I can announce that the Government are adding a further £300 million to help fund pressures other than those in respect of schools—for example, to help support social or environmental services. That is included in the overall totals that I have quoted, and it means that local authorities will be able to meet our expectations for funding schools, while also improving other services.

We continue to consider carefully whether Government policies impose new spending burdens on local government, and to make provision to fund them if they do. For example, we have agreed with local government that it would be sensible to rationalise the funding of housing and council tax benefit subsidy. In implementing that transfer of responsibility, we have ensured that all properly made claims will be fully funded. Similarly, in respect of local government's new responsibility for the licensing system, I can confirm the commitment already given by my right hon. Friend the Secretary of State for Culture, Media and Sport that we will ensure that the costs of the licensing system are fully covered by the fees. My right hon. Friend the Secretary of State for Environment, Food and Rural Affairs will reduce spending pressures on local government by some £25 million to £35 million in respect of waste next year. Some £10 million of that will come from deferring until 2005–06 the introduction of the landfill allowance trading scheme.

Local authorities have pressed us to reduce the use of ring-fencing—that is, restrictions on the use to which Government grants may be put. We recognise that ring-fenced grants have their proper place in securing specific results, particularly as a short-term measure, but they cut across local accountability and can distort local priorities, so we need to review their use very carefully. I can announce today that from 2004–05, we will remove the ring fence from five social services grants and three grants in the environmental, protective and cultural services block—a total of £750 million in 2004–05, and more in subsequent years. Those grants will be distributed separately from formula grant, so as to distribute the money to the right places, but no conditions will attach to their use. The result will be to bring the proportion of grants that are ring-fenced down from 13.3 per cent. to 11.1 per cent. in 2004–05. We are on course to meet our target of reducing that proportion below 10 per cent. by 2005–06.

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Hon. Members will be aware that the main provisions of the Local Government Act 2003 came into effect yesterday. The Act gives local authorities greater freedom to borrow and trade, and enables authorities to retain income from fees and charges. The new prudential borrowing system, which will start on 1 April 2004, coupled with the other financial freedoms, will help local authorities to organise their financial affairs more flexibly and to generate additional revenue.

All that is important to enable local authorities to budget prudently and minimise demands on council tax payers. We are clear about the fact that the current trend in council tax rises is not sustainable. People expect their local councils to set reasonable council tax. They and we are looking to authorities to deliver high-quality services in a cost-effective way. Against the background of further substantial increases in Government grant, and the extension of freedoms and flexibilities to local authorities, large council tax increase are simply not acceptable.

Local authorities should be aware that the Government will examine next year's council tax rises very closely. We will be looking for evidence that authorities have realised efficiency savings. We will take account not only of one year's increases, but of the trend in increases over more than one year. Every local authority, including fire and police authorities, must be in no doubt that we are prepared to use our targeted capping powers in 2004–05, if necessary, to protect the interests of council tax payers.

We recognise that in areas where there is a combined fire authority, next year's budgets will not be comparable with this year's, because the combined fire authority will be a precepting body in its own right for the first time in 2004–05. We will therefore consult the fire authorities and authorities with education and social services responsibilities about the level of earlier years' budgets, which we will use for comparison purposes when we come to consider the use of capping powers.

We are also taking steps to help individual taxpayers directly. Not all those who are entitled to help with their council tax bills are claiming the benefit. My right hon. Friend the Secretary of State for Work and Pensions is therefore working with local authorities to examine a range of options for promoting council tax benefit and encouraging the take-up of council tax benefit by potential beneficiaries. In particular, we want to ensure that the 1.9 million pensioners who will gain, or gain more, council tax benefit on the introduction of pension credit get the extra help to which they are entitled. My right hon. Friend will announce his proposals shortly.

It is worth recalling the measures that the Government have already taken to help pensioners. Compared with the position in 1997, pensioner households will, on average, be more than £1,250 a year better off in real terms—about £24 extra a week. That is as a result of the Government's measures, including above-inflation rises in the basic state pension, free TV licences for the over-75s, the winter fuel payment and the pension credit. As a result of our measures to target the most help on those in greatest need, the poorest third of pensioners will have gained an average of £1,600 a year in real terms since 1997.

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The proposed settlement that I have announced today continues the trend of the past six years, which has delivered year-on-year investment increases in local services. In addition to the £3.3 billion extra grant announced today, we have extended the flexibility for councils to deploy resources where they will do most good. We have made the finances of schools more secure, while ensuring that councils retain the ability to tackle other priorities. We have provided a good settlement, on the basis of which local authorities can plan for future improvements in services without unreasonable increases in council tax. Local authorities asked for extra funding, for reductions in ring-fencing, and for no unfunded new burdens. We have responded positively to all three requests. It is now vital that councils meet the expectations of their taxpayers and budget prudently to improve services at a reasonable cost. I commend the settlement to the House.

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