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Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): Earlier, in answer to Conservative Front Benchers, the Chancellor rightly reminded the House about the disaster of the poll tax. Not only was it unfair, but it collapsed, partly because it involved an attempt to construct a register of the population, and where everyone lived, on a daily basis. Does the right hon. Gentleman recognise that many of our constituents, who are already suffering at the Government's hands through their handling of tax credits and the Child Support Agency computer system, will believe that the £5.5 billion that he is setting aside for identity cards would be better spent now on front-line security, to provide better security by having more police and better border controls?

Mr. Brown: The hon. Gentleman was giving a balanced account of events—before he started speaking about tax credits. Six million families have tax credits, and many millions more children benefit from them. Instead of opposing tax credits, why does the Liberal party not start supporting them? They are the main reason why millions of people are being taken out of poverty in this country.

Several hon. Members rose

Madam Deputy Speaker (Sylvia Heal): Order. We must now move on.
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Local Government Finance Settlement

1.54 pm

The Minister for Local and Regional Government (Mr. Nick Raynsford): With permission, Madam Deputy Speaker, I should like to make a statement about local authority revenue finance for England in 2005–06.

The settlement that I am announcing for 2005–06 will be the eighth successive one in which we have provided local government with grant increases above inflation. That is a real terms increase of 33 per cent. over the past eight years, which contrasts with a 7 per cent. real terms cut in the last four years of the previous Government.

Total support from Government grant and business rates in 2005–06 will be £60.1 billion. That is £3.5 billion, or 6.2 per cent., more than in 2004–05. It contrasts with a total of just £35.9 billion in 1997–98, in the last settlement announced by the Conservative party. The total of £60.1 billion includes £26.7 billion of revenue support grant, £18 billion of business rates, £4.3 billion in police grant and £11.1 billion in specific grants. Of those totals, £49 billion will be distributed by formula to local authorities—an increase of £2.6 billion, or 5.6 per cent. I shall announce the detailed allocations today.

The figures include the extra provision to help local government meet pressures at reasonable council tax cost that my right hon. Friend the Chancellor of the Exchequer announced earlier. They demonstrate the Government's continuing commitment to both local government and council tax payers.

I can confirm that we propose no changes in the grant distribution formulae for 2005–06. That is consistent with the formula freeze that we announced for three years from 2003–04. It provides councils with a measure of stability, which is essential for forward planning.

I have already referred to the totals available in specific grants. They perform a valuable role in, for example, targeting funds in a way that the main formula cannot. We are bringing forward the announcement of the allocation of many of those grants to help councils plan ahead with more confidence.

For several years, we have applied guaranteed minimum grant increases—floors—and upper limits on grant increases, known as ceilings, to help pay for floors. Floors are well accepted. Unlike the position when the Conservative party was in power, councils are no longer faced with losing grant from one year to the next. There is no wish to do away with the floor mechanism but there has been lively debate about how the cost of the floor is to be paid.

Let me be plain. The cost has to be found within the total of grant available, and it follows that if authorities that would otherwise receive less than the floor are to benefit from enhanced grants, the remaining authorities with larger grant increases must contribute.

Over recent years, we have operated a system of ceilings, putting a maximum limit on grant increases, thereby ensuring that those authorities due to receive the largest increases contributed most to the cost of the floors. However, I have been impressed by the arguments put by authorities, especially in areas with rapidly growing populations, that imposing a ceiling is especially hard on them as they are never likely to
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receive the additional grant that a rising population, and hence rising pressure on services, would otherwise provide for them. Having said that, exempting population growth areas from ceilings would not be the best approach, as it would be bedevilled by arguments about exactly where to draw the line.

I have therefore concluded that we should abolish the grant ceiling. Floors will be financed entirely by scaling back grant increase above the floor. All authorities above the floor will make a contribution, but none as great as the ceiling authorities used to make.

For 2005–06, the grant floors will be as follows: for authorities with education and social services responsibilities, 4 per cent.; for shire district councils, 2.5 per cent.; for fire authorities, 2.5 per cent.; and for police authorities, 3.75 per cent. For the third consecutive year, every authority in England will receive an above-inflation increase on a like for like basis.

As in previous years, we will adjust the floor scheme to provide support to authorities with increased levels of capital investment as a result of new capital allocations issued by the Government. We will also, this year, adjust the floor scheme to provide protection for councils that lose grant under the amending report for 2003–04.

We will, as we did last year, ensure that every authority with education responsibilities receives an increase in its formula grant at least as large as the increase in its schools formula spending share. Again, as last year, we will expect all authorities to pass their schools FSS increase on to their schools budget other than in wholly exceptional circumstances. We have adjusted the FSS totals within the planned total to reduce the pressure of passporting and to increase growth in the environmental, protective and cultural services block, in recognition of the importance of the local services covered by it.

We are rigorously applying the principle that, if Government policies impose new spending burdens on local government, Government will make provision to fund them.

The Government are more than doubling our contribution to the cost of local authorities' civil protection activities from 2005–06. That will significantly enhance the capacity of local authorities to respond to a wide range of emergencies, whether caused by natural disasters, accidents or terrorism.

We listen carefully to local authorities' views on the costs of implementing new initiatives and act on them where appropriate. In response to concerns expressed by local authorities on the fee levels of the new licensing scheme, my right hon. Friend the Secretary of State for Culture, Media and Sport has agreed a substantial increase in earlier estimates, and the latest proposals are now out to consultation. She has also given an undertaking that there will be an independent review 12 months after the new regime has become fully operational.

From April 2005, authorities will be given further opportunities to increase locally raised revenue through the local authority business growth incentives scheme. That allows authorities to retain a proportion of growth in business rate revenue, with total freedom to spend this on locally determined priorities. It comes on top of the substantial additional freedoms extended to local authorities, including the prudential borrowing regime,
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new freedoms to trade and to charge for discretionary services, and continued reduction in ring-fencing in 2005–06, which will see ring-fenced grants fall to below 9 per cent. as a proportion of overall Government grant, which is even better than I promised last year.

A number of councils have expressed concerns that they are facing a substantial increase in pension contributions. We have listened to their concerns, agreed to amend regulations to ease certain pressures and issued advice to enable them to manage the outcome of the 2004 actuarial revaluation in the most effective way over the next three years.

In common with the rest of the public sector, councils need to be remorseless in the pursuit of efficiency. Following the Gershon review, the Government have set a target across the whole of the public sector to deliver more than £20 billion of efficiency gains a year by 2007–08. Local government is expected to contribute significantly to that, delivering at least £6.45 billion of efficiency gains. However, we believe that higher gains are attainable by local authorities, and Departments will work in partnership with them to help to achieve maximum efficiencies. This is a win-win scenario, as efficiency gains will be retained locally and can be used for reinvestment in front-line services.

With substantial additional funding, real scope for efficiency gains and the additional flexibilities that I have outlined for councils, there is no excuse for authorities to set excessive increases in council tax. The average increase in council tax in 2004–05 was 5.9 per cent. Although that was less than half the previous year's increase, and the lowest in almost a decade, there is still considerable scope for authorities to do better. We expect to see substantially lower increases next year, with a national average increase of less than 5 per cent.

The Government used our reserve capping powers for the first time this year to deal with excessive increases. We will continue to use those powers to ensure that council tax payers do not face unacceptable increases. We are prepared to take even tougher action in 2005–06. That applies to all authorities, including police and fire authorities.

We will continue to support local authorities in promoting take-up of council tax benefit. We are including information about the benefit in this year's winter fuel payment letters, which go out to about 8 million households, and we are following that up with regional and national press advertising. We will also encourage local authorities to include clear information about council tax benefit with council tax bills and, where appropriate, a simple coupon to return indicating a wish to claim benefit. Looking ahead, my colleagues in the Department for Work and Pensions are developing proposals to streamline the claims process for pensioners when more than one benefit is claimed, so that they do not have to provide the same information twice.

As my right hon. Friend the Chancellor of the Exchequer has announced today, the Government will repeat next year our help for pensioners aged 70 or older, by giving them a £50 payment to help them with their council tax bills. The amount reflects the fact that we expect a substantially lower average increase in council tax next year.
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The Government have demonstrated our continued commitment to local government. We have increased investment year on year: £24.2 billion since 1997–98, and a further £3.5 billion this year. We have ensured once again that every council has an above-average increase in formula grant. We have given councils more opportunity and flexibility to raise and deploy local resources to meet their priority needs. In return, we expect, and all taxpayers expect, that local government will continue to deliver improving services at an affordable cost. If they do not, we are prepared to take tougher capping action. I commend the settlement to the House.

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