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Mr. Pickles: The hon. Gentleman should pay more attention to what we are saying. We are offering grant increases in line with the rate of inflation for local authorities, and looking towards improvements in health, policing and education. We would also release more than £1 billion of extra resources to local authorities. The hon. Gentleman has a distinguished record on local authorities. Given what we are offering, perhaps he will be tempted to vote Conservative at the next election.

Mr. Betts: I am probably more confused now than I was before, and I do not think that it is my fault. The hon. Gentleman is promising more money for health, for the police and for education, while proposing cuts overall. What, then, would happen to road maintenance, the built environment, waste management, housing and leisure and arts facilities at local level? Given that those areas represent a fairly small part of the total local government expenditure, the cuts to those budgets would be absolutely massive. It is time for the Conservatives to come clean with the electorate, and to explain precisely what the level of the cuts would be, and what damage they would do to the built environment, which most people regard as very important. In passing, I should like to say that I am very pleased that my right hon. Friend the Minister has recognised that important area of local expenditure in this settlement, and taken steps to safeguard it. My own authority in Sheffield is bringing in council tax increases within the guidelines that my right hon. Friend has laid down. In addition, it is
 
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doing a lot to improve road maintenance and the street scene. It has the extra funds to do that because of the 5.8 per cent. increase in funding that it has received.

I am also pleased to support my right hon. Friend's continued emphasis on the freeze in the formula. It is important that formula revisions should happen only every three years. That gives stability to local authorities and it should be continued for the future. There will always be complaints that anomalies do not get dealt with for another three years, but the stability is important.

On that issue, therefore, may I raise a point that comes genuinely from colleagues in local government who say that this is an excellent settlement for this year? The £1 billion is welcome, but will it be incorporated in the starting base for the settlement for 2006–07? If it is just a one-off amount that is then taken away, the stability that I know my right hon. Friend wants in local government finance will not be achieved. Local government is looking for some certainty in its plans and spending for this year. Will the extra money it has received—those who are genuine will call this a generous settlement—be in next year's base so that what is given this year is not taken away next?

There are some big issues around, such as extra spending on waste management. That, again, is important and to be welcomed; it is not something that anyone is against. My own authority in Sheffield already has advanced plans for a new incinerator and has a long-term policy of developing heat through burning waste, which is supported in the city. My authority is a long way down the road, but there will still be extra costs in paying the contractors. The issue of equal pay is around and although the supporting people programme is excellent, some of its projects are at risk and authorities might want to fund them out of mainstream funding. That could be another burden for the future.

I am sure that my right hon. Friend and his colleagues will listen, however, because of what happened when local authorities put the points about the introduction of the new licensing arrangements for public houses to them and said, "We don't think we can fund this without having to divert money from other services under the indicative licence fees that have been given to us." Ministers listened. There was genuine consultation and increases have now been agreed, plus an independent review process. That is genuinely welcomed and very pleasing for those who are involved.

On the other hand, I hope that my right hon. Friend will begin to listen to the debate on education. I know that he is passionately committed to reducing specific grants and ring-fencing, but to some of us the whole approach to funding schools directly and giving guarantees rather smacks of a large element of ring-fencing. I am still not sure about the amount of joined-up thinking, or even joined-up talking, that has gone on between Ministers at the Department for Education and Skills and the Office of the Deputy Prime Minister on the whole issue of school funding.

I am quite concerned by some of the talk I hear about new localism. I very much support bringing into play the roles that parents, teachers, tenants' representatives and others can play in running local services, but separating out the funding and making the running of those
 
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services completely disparate leads to new localism being in danger of becoming new local fragmentation. There is a lack of joined-up government and of people working together to deliver services, because they think of themselves as being apart and they do not connect with each other. I warn the Government about that and hope that there can be some thinking on the issue, because this trend worries me considerably.

Like other hon. Members, I await the report on the balance of funding and Sir Michael Lyons's inquiry. It is important that we give local authorities more responsibility to raise the money. That would lead them to connect more with their local electorate and it would enhance and support the whole process of local democracy.

At the same time, we need greater fairness in who carries the burden for local services. It is welcome that council tax increases this year will, on average, almost certainly be under 5 per cent., but the reality is that the increase in the business rate is an awful lot less. Year on year, the domestic council tax payer pays a greater percentage of the cost of local government and the business rate payer pays a lower percentage. That is not fair; in the long term, it is not sustainable.

I feel that the logic is to move the business rate back into local government and tie it into the council tax increase so that both go up by the same amount each year. That is a step forward that would be fair in getting more responsibility back to local authorities for raising their own finance. It would also ensure that business rate payers paid a fair share towards their local services.

I also very much welcome the campaign to increase council tax benefit take-up. In the end, more fundamental reform will be needed, but in terms of what comes out of the Lyons inquiry, if we can achieve a better system of council tax benefit and a higher take-up among owner-occupiers, and at the same time stretch the bands at the top end, we can make council tax a progressive form of taxation. At present, it is broadly neutral, the problem being that at the bottom end it is regressive, because many people entitled to benefit do not take it up, and it is also regressive at the top end. If we can tackle those two issues, we can make council tax broadly progressive, which will mean much wider support.

I say to the Liberal Democrats that I have some sympathy for an additional local income tax for larger authorities of the sort that the Chartered Institute of Public Finance and Accountancy has been promoting. But if one takes away any form of property tax to fund local government on the basis that one wants to be more progressive, and if one moves purely to a system of local income tax, the reality in London and the south-east is that none of the very wealthy foreign nationals who live in this city and surrounding areas will pay a single penny in tax towards the local services that they enjoy as local residents. To my mind, it is not a progressive form of taxation to let off all those millionaires from paying any contribution towards the cost of local services. The Liberal Democrats know about that issue, but they simply refuse to address it.

I shall conclude, as I know that other Members wish to speak. The settlement is very much welcomed, certainly in my constituency and by my local authority, and I commend my right hon. Friend for introducing it. It has my full support.
 
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6.6 pm

Mr. Edward Davey (Kingston and Surbiton) (LD): I agreed with a few of the points made by the hon. Member for Sheffield, Attercliffe (Mr. Betts), and particularly his point on education funding, on which I shall touch later. His vital point was that if the Government go down the road of ring-fencing all funding for schools, that is a big step towards centralisation, which will undermine local authorities and local democracy and be one of the biggest retrograde steps under this Government. Certainly, I share his views on that.

Tonight, we are debating not just the settlement but some of the changes made to the provisional settlement in the final settlement tabled early this week. One or two changes to that provisional settlement, although small, have gone in the right direction. That has been beneficial for the council in my constituency—the Government have listened to the representations from the royal borough of Kingston, and I want to put on record my gratitude for that.

On the night of the statement of the provisional settlement, there were many worried people in Kingston. The school settlement looked extremely low, and when we examined the small print we were even more worried. Apparently, nearly 400 children had gone missing and, even more worryingly, a whole school, the Mount school in Norbiton, had gone missing. The House can therefore imagine our relief when we managed to find them and convince the Government that they had been rediscovered. That made a significant difference to the funding for education in Kingston. It did not help the funding elsewhere, because as the Minister for Local and Regional Government knows, that money had to be passported through, but it helped those schools, for which we were grateful. That shows the importance of the consultation period between the provisional and final settlement.

That aside, the whole strategy of the settlement is a pre-election strategy—a strategy to try to get the Government through the election and limit the political damage done to them by their disastrous acceptance of the Conservatives' unfair council tax. The settlement is a mixture of one-year-only bribes and arm-twisting bullying to force councils to cut services and to have low tax rises, all to avoid the real issue of tackling the local government finance problem. The Government may think that if they manage to get council tax rises below 5 per cent. on average, they have been successful. For the ordinary household, however, it is not the rises that are key but the level. The level is already far too high, and the above-inflation rises that are likely will make that worse.

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