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Mr. Andrew Rosindell (Romford) (Con): The Secretary of State will be aware that the Crossrail project will have a major impact on my constituency of Romford, particularly the Crowlands area of central Romford, where it is proposed to build a large depot, and Gidea Park, where a railway siding is to be constructed. Will the Secretary of State assure my constituents that a full and meaningful consultation will take place before final decisions are made, that changes to the plan are possible, and that the current proposals are not set in stone? If they do go ahead, can he confirm that people along the route who are affected will be offered sufficient compensation for the blight that those two projects may well cause in my constituency?

Mr. Darling: For the sake of brevity, I refer the hon. Gentleman to my written statement, which is being issued in parallel with this oral statement and covers many of those issues. Of course, consultation is needed, and the route is subject to the provisions of a hybrid Bill. It may not quite be a unique opportunity, but there will be a chance for all hon. Members to participate in the proceedings on that Bill. The hon. Gentleman may wish to serve on the hybrid Bill Committee—if he has a word with the Whip, I am sure that he can sign up to it, although anyone who has served on one may caution against doing so.

Mr. Clive Soley (Ealing, Acton and Shepherd's Bush) (Lab): I thank the Secretary of State for his announcement on Crossrail, which is vital to the prosperity of west London. I agree that it is probably right to drop the Richmond link, which was one of the most environmentally damaging sections of the route. Echoing the point that he has just made, consultation and giving information to the public, given the nature and size of the project, are incredibly important, and I should be grateful if he would keep his eye on that.

Mr. Darling: I agree with my hon. Friend.

Mr. Richard Allan (Sheffield, Hallam) (LD): When the channel tunnel rail link is completed in a few years' time, it will be faster to travel to Paris from St. Pancras than to Sheffield. While we are all happy for travellers to Paris, does the Secretary of State sympathise with many people in Sheffield and the east midlands who feel that they have a Cinderella rail service? Can he assure us that investment in everyday services will not lose out to prestige projects elsewhere?

Mr. Darling: I agree that it is important to improve domestic services. There have been problems on the midland main line, some of which have been exacerbated by the work currently taking place at St. Pancras. The hon. Gentleman makes a perfectly good point, but it is possible to have good domestic services as well as fast links to the continent.

Mr. Keith Bradley (Manchester, Withington) (Lab): The people of south Manchester will be hugely disappointed by the latest delay in the Metrolink extension through my constituency to Manchester airport, which would achieve a truly integrated system of heavy rail, light rail and air travel. However, will my right hon. Friend's officials urgently meet officials from
 
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the passenger transport authority in Greater Manchester to discuss procurement, refranchising agreements and devolved capital budgets to ensure that a scheme for south Manchester can be introduced at the earliest opportunity?

Mr. Darling: My right hon. Friend has done a great deal to promote the cause of Manchester Metrolink, particularly the extension to south Manchester, and I have had many discussions with him, for which I am grateful. I readily accept his general proposition but, as I said in my statement, we need to consider urgently how we procure those things more sensibly so that we can secure the gains of a tram link between various forms of transport, not least at the airport. I am happy to agree with that proposition, which would benefit light rail, not just in Manchester but throughout the country.

Clive Efford (Eltham) (Lab): I welcome my right hon. Friend's statement on Crossrail, which is crucial to the capital's future prosperity and will create transport links essential to the regeneration of the south-east Thames gateway area and some of the most deprived communities, not just in London but throughout the area. May I stress the need for a station at Woolwich so that that part of south-east London can enjoy the wider benefits of that major infrastructure development?

Mr. Darling: That is one of the many issues that we must consider, as must the Cross London Rail Links company before it promotes the scheme that will come before the House. I agree, however, with my hon. Friend's general proposition about the regeneration effect in south-east London.

Mrs. Lorna Fitzsimons (Rochdale) (Lab): My right hon. Friend will undoubtedly be aware of the great disappointment in Rochdale and Oldham, which have long been first in the queue of people asking for an expansion of the Greater Manchester Metrolink. Will he agree to meet my hon. Friend the Member for Oldham, East and Saddleworth (Mr. Woolas), my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher) and myself at the earliest possible opportunity to look at the chink of light offered by paragraph 16 of his statement where, if I understand him correctly, he is not saying "never" but "not now"?

Mr. Darling: My hon. Friend is understandably expressing her concern, but I do not wish to repeat what
 
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I said to other Greater Manchester Members. I, or one of my Ministers, will be more than happy to meet them as soon as possible.

Joan Ruddock (Lewisham, Deptford) (Lab): Londoners will welcome the extra money that my right hon. Friend has allocated, but can he provide reassurance about the extension to the east London line? Is it his intention that that project should be undertaken by Transport for London and, if so, is sufficient public money available to meet the need and to enable us to start the project as soon as possible?

Mr. Darling: Yes. I can confirm that we have allocated that additional money to London, following discussions with the Mayor. He will decide what projects he wishes to prioritise. We have given sufficient money to enable the Mayor to do what is necessary for the Olympics and also to undertake other schemes, if he wishes to do so. In the spirit of devolution and in recognition of the fact that perhaps the Mayor ought to announce these things himself, I shall go no further at this stage.

Jonathan Shaw (Chatham and Aylesford) (Lab): My right hon. Friend is aware that we have investment in buses—some £10 million in Medway—but he is also aware that we have some misgivings about the Strategic Rail Authority's proposals for the integrated Kent franchise. Can he confirm that he will take charge of the new franchise for Kent and that he will be prepared to meet a delegation from Medway to discuss the cuts in Cannon Street services, which we oppose?

Mr. Darling: I may be wrong, but I recall meeting my hon. Friend very recently. My hon. Friend the Minister of State thinks he met him recently as well. While it is always nice to bump into each other, perhaps we cannot do so every week. In relation to the integrated Kent franchise, I am well aware of the controversy and the difficulties in Kent. As I said last week, the SRA will continue to be responsible for these matters until it is wound up next year. It is in the process of evaluating the latest round of consultations. I know that there are many issues to resolve and Ministers will be devoting their attention to them. At some stage, I shall be more than happy to see my hon. Friend yet again.

Mr. Deputy Speaker: Order. We must move on.
 
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Balance of Funding Review Report

1.31 pm

The Minister for Local and Regional Government (Mr. Nick Raynsford): With permission, Mr. Deputy Speaker, I shall make a statement about the balance of funding review report, which is published today, and about the Government's response. Before I begin, I should like to say a word or two about the speculation we have seen at the weekend and in yesterday's press that the Government have plans for huge increases in people's council tax bills. That is simply untrue. I shall say more about it when I come to the report's conclusions on council tax.

The review started in April 2003. I chaired the steering group, which included my hon. Friend the Economic Secretary to the Treasury, and the Under-Secretary of State, Office of the Deputy Prime Minister, my hon. Friend the Member for Corby (Phil Hope), as well as other senior figures from central and local government, the academic world, business, the union movement and professional bodies.

The remit of the review was to establish the nature and priority of the balance of funding issue and to identify and analyse options for change, setting out the pros and cons of each. We commissioned research, held a public consultation and sought further evidence on the main options for reform raised in the public consultation. We held nine meetings in all. All the papers presented to us are available on the website of the Office of the Deputy Prime Minister. I must first record my thanks to the steering group members, to everybody who responded to the review's public consultation last year and to those who presented papers to the group. Secondly, I should like to welcome the report published on 16 July by the Office of the Deputy Prime Minister: Housing, Planning and Local Government Committee following its inquiry on local government revenue. There is significant common ground between the Committee's conclusions and those of the balance of funding review. The Government will reply formally to the Committee in due course.

As those who read the report will find, some of the press speculation of recent days has been wholly misleading and inaccurate. As the report makes clear:

"The Review has been conducted for the Government, not by the Government. It follows that this report is not a statement of Government policy. It is rather an analysis of issues and options. Although it draws some conclusions, in line with its remit it does not make recommendations."

It has always been the case—indeed, it was included in the terms of reference—that the review would simply set out the pros and cons of a range of short and long-term options. As the report states quite clearly, the aim of the review was

"not to provide a detailed blueprint for reform, but to gain consensus at this stage of the argument on the broad issues, and to agree what the most likely options were, as the basis for more detailed work in the future."

So we are at the start of this process of further work and there is a great deal more detailed thinking to do.

I shall set out the main conclusions of the review. First, like the Select Committee, the review concludes that there are strong arguments for shifting the balance towards more local funding. However, that depends on
 
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the feasibility and desirability of any measures to achieve it. It would have to be possible to achieve satisfactory equalisation of needs in the distribution of resources between local authorities alongside any greater local revenue raising.

Secondly, again like the Select Committee, the review concludes that council tax should be retained but reformed. It has important advantages as a local tax. However, in the opinion of the group, it will need reform in order to help people on low incomes and to reduce the impact of revaluation. Further work will be needed on the options for such reform. A fair and effective system of council tax benefit will be a vital component of any reform package. It is clear, for example, that levels of take-up of council tax benefit among pensioners and others on low incomes remains low in comparison to other benefits.

As for council tax bands, the report concludes:

"There is a clear case for reviewing council tax bands and the ratios between them at the time of revaluation."

I should point out that the Government have always made it clear that we would want to consider these issues with other stakeholders ahead of revaluation. But the report adds that

"particular care is needed to ensure that council taxpayers on low incomes living in high value properties are not unfairly affected."

It goes on:

"Further detailed work is now required on how council tax might be reformed, based on a clear vision of the direction of travel."

Far from proposing a trebling of people's council tax bills, the review states that

"the aim should be to avoid significant changes to the overall liabilities of taxpayers."

There has been much comment in the media about the ideas submitted by the New Policy Institute. It is certainly true that the NPI gave evidence to the review on changes to the banding structure and its ideas are well documented in the report. Its original paper for the review has been available on the website of the Office of the Deputy Prime Minister since January. However, these are the NPI's ideas and they are not Government policy. Indeed, they are not recommended by the review.

Thirdly, the review concludes that the only way to achieve a major shift in the balance of funding is to supplement a reformed council tax with relocalised business rates or a local income tax or a combination of both. None of these options would be easy and further work would be required here, too. Fourthly, relocalisation of business rates could give councils greater incentives to promote economic development and improve links with business, as well as altering the balance of funding. However, business has serious concerns, including potential risks to its productivity and competitiveness.

Fifthly, although a local income tax would be more progressive and more buoyant than council tax, it would also be less predictable as a result. Considerable further work would be required to address the substantial technical and administrative issues and costs, as well as the impact on individuals and employers, before firm conclusions could be reached on the feasibility or desirability of a local income tax. In that respect, the report makes difficult reading for those who regard local
 
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income tax as a simple solution. As we say in the report, the devil is very much in the detail. I note that the Select Committee takes a similar view. Sixthly, the review concluded that smaller taxes or charges do not provide the potential for major change in the balance of funding. The case for and against each such option should be judged on its own merits.

I turn now to the Government's response. We are developing a new 10-year vision for local government. We want local government to be more effective and more accountable. A fair and sustainable finance system is crucial to that. We welcome the balance of funding review report as a major contribution to the debate. The review could not look at everything. However, while it does not make recommendations, it has reached a number of important conclusions defining the issues, narrowing down the options and assessing the case for change, as well as investigating much of the preliminary detail. It provides a sound platform from which to go forward. The Government can accept right away that council tax should be retained but reformed. It is clear that council tax is far from perfect and that changes are needed. We are, for example, working with colleagues in the Department for Work and Pensions to improve take-up of council tax benefit. That work will continue.

The report flags up the need for more work before decisions can be taken on how council tax should be reformed or on the possible means of shifting the balance of funding. These matters need to be considered carefully and in detail. We must keep up the momentum, but we must also ensure that any changes are soundly based. As I said earlier, the press speculation that the Government are planning a council tax shake-up that will lead to huge rises in council tax is untrue. Any suggestion that we have opted for any particular course of council tax reform is just plain wrong. The review concludes that

"the detailed case for and against some kind of sub-national approach should be considered."

It is right that we should do this, but not because we want to hit middle England—precisely the opposite. We need to consider options for regional banding in order to ensure that areas of high property price growth such as London and the south-east are not unduly affected by revaluation. One thing is clear: there are no easy answers. The subject needs extremely careful examination and detailed consideration; it is far too important to be a political football.

We have therefore decided to set up an independent inquiry, to be undertaken by Sir Michael Lyons to look into these matters and to report back by the end of 2005 to my right hon. Friends the Deputy Prime Minister and the Chancellor of the Exchequer. Sir Michael is very widely respected and brings to the task a wealth of local government and other relevant experience. I can think of no one better able to take forward the work that the balance of funding review has begun. Hon. Members will recall that Sir Michael has a distinguished background in local government. He is currently director of the Institute of Local Government Studies at the university of Birmingham, and between 1994 and 2001 he held the position of chief executive of Birmingham city council. He was recently appointed as deputy chair of the Audit Commission. He is a member of the Treasury's public services productivity panel and was a member of Sir George Bain's review of the fire
 
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service. In 2004, he reported to my right hon. Friend the Chancellor on the relocation of public sector jobs away from London and the south-east.

The inquiry will consider, in the light of the report by the balance of funding review and other developments such as new funding arrangements for schools, the detailed case for changes to the present system of local government funding. It will make recommendations on any changes that are necessary and how to implement them, and it will take evidence from stakeholders.

In particular, the inquiry will make recommendations on how best to reform council tax, taking into account the forthcoming revaluation. It will assess the case for providing local authorities with increased flexibility to raise additional revenue and for making a significant shift in the current balance of funding. It will conduct a thorough analysis of options to complement council tax, including local income tax, reform of non-domestic rates and other possible local taxes and charges, as well as the possible combination of such options. It will consider the implications for the financing of possible elected regional assemblies, as well as any implications that its recommendations have for other parts of the United Kingdom.

The Government now look forward to a period of focused study by the independent inquiry that will build on the balance of funding review's work. We can then take firm decisions on the best way forward in putting in place the fair and sustainable system of local government finance that is our objective.

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