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Mr. Eric Pickles (Brentwood and Ongar) (Con): If education and the like are ring fenced, the growth in other services that do not have that benefit that the Minister mentioned is distorted. After all, 12 local authorities received no additional grant once the money had been expended on education. Does he accept that the more areas the Government control, the more they distort the market?

Mr. Miliband: The Government make no apology for saying that the money we raise for education—our top priority—needs to go on education, and I am pleased that local authorities have supported that. On the hon. Gentleman's wider point, if money is specified for one function, it cannot of course be spent on another. However, I am sure that he is pleased, as I am, at the development of the local area agreements that allow local authorities to move money across the piece, because such agreements contribute to the vibrancy of local government, in which I know he believes.

The evidence of the Government's determination to control costs as well as to support local government can be seen in the average increase of 4.1 per cent. in council tax this year, but it is also evident in our drive for efficiency. The Government can play a lead role in that area. That is what we have done through the Gershon review, which has set challenging efficiency targets for local authorities of up to £6.5 billion by 2007–08. For our part, we will continue to work with local government to ensure that those targets are met and the money is then properly spent.

Mr. Geoffrey Clifton-Brown (Cotswold) (Con): The Minister will know better than most that, although he says that local authorities have control over various spending decisions, they in fact do not, because various matters are controlled by the Government—in particular, the increases in taxes that they have put on local authorities, in the form of pensions tax and national insurance. The Government also keep putting unfunded duties on local authorities—for example, local authorities have to comply with the waste directive and face increases in the landfill levy. The Government have also reduced local authority
 
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housing grant, as my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) mentioned earlier. More than the entire increase that the Government have given local government in the past seven years has been taken up by increased taxes and duties.

Mr. Miliband: We can have a debate about national insurance every day of the week as far as I am concerned, but the Conservative party made no proposal to reverse the 1p increase in national insurance that the Government introduced and it is money that has been well spent by the national health service. It is also churlish of the hon. Gentleman not to thank the Government for the £120 million increase in grant for his local authority in the past eight years—in stark contrast to the performance of his party in power.

Mr. Brian Jenkins (Tamworth) (Lab): Can the Minister confirm, off the top of his head, that, over the past 20 years, the amount of spending raised by local councils has been some 25 per cent. and the amount provided by the Government has been 75 per cent., irrespective of the ever-growing burden that this Government are alleged to have put on local councils?

Mr. Miliband: My hon. Friend makes a good point. The amount is certainly about 25 per cent. at present. Of course, there was a certain rupture in the way that local government was organised under the poll tax and, although I am sure he and I could talk for a long time about the vagaries of the poll tax, we are trying to look forward today.

David T.C. Davies: Is the Minister confirming that there is an irrefutable link between the amount of money that local authorities receive from central Government and the amount they have to levy through council tax?

Mr. Miliband: There is an irrefutable link between the amount of money that local authorities raise from a range of sources and the amount that they have to raise in council tax, because they have to bridge the gap, but, as the hon. Gentleman will know and as I shall explain in a moment, local government income is from a range of sources, which I shall set out, as it may be helpful.

Council tax raises about £21 billion, which is equivalent to 25 per cent. of local revenue expenditure. Government grant accounts for about £48 billion and 53 per cent. of revenue expenditure. I urge those who decry that level of Government grant to remember that a smaller contribution from central Government means more from someone else. At the last election, the hon. Gentleman's party proposed to freeze grants to local government for two years—[Interruption.] The hon. Member for Meriden (Mrs. Spelman) says, "We didn't," but let me quote her the words of the then shadow Chancellor, because the policy was clear:

"I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all these departmental budgets, including local government, will be 0 per cent."

Nothing could be clearer than that—[Interruption.] The hon. Lady says that that was before the James review, but we know that the review proposed cuts of £1 billion in local government expenditure for which it had no way of accounting. It is important that the House knows that the Conservatives were claiming
 
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£900 million of savings from reduced costs as a result of inspection and the like but, when pressed, they were forced to rely on a study that concluded that low morale cost £400 million. Their sums simply do not add up.

Mrs. Spelman: To set the record straight, the then shadow Chancellor, before the election, following the savings identified by the James review, gave a commitment to increase funding to local government.

Mr. Miliband: I very much look forward to taking that matter forward. We have quotes from the right hon. Member for West Dorset (Mr. Letwin) and, although I know that he is something of a man of the past in the Conservative party because he is not running for the leadership, we shall certainly pursue the matter.

Council tax raises about 25 per cent. of income, central grant raises 53 per cent. and the national non-domestic rate about £18 billion, linked to the retail prices index. Thanks to the new prudential capital finance regime that took effect on 1 April 2004, local authorities are, for the first time, free to borrow for capital projects without Government consent. Those are the main sources of local expenditure.

Mr. Allen: That is all good knockabout political stuff,   but where the hon. Member for Meriden (Mrs. Spelman) was right was in saying that we should all be thinking about the future of local government finance. Does my right hon. Friend accept that in no other western democracy is local government in thrall to central Government as it is in the UK? Will he look into the constitutional settlement between local and national government, because that is the only long-term way in which local people can take control of their own affairs and have a say in raising money locally in the way they feel is appropriate?

Mr. Miliband: My hon. Friend makes an important point and, as he will know, the balance of funding review addressed that matter directly, as shall I. It was generous of him to focus on the 28th minute of the contribution of the hon. Member for Meriden and I shall try to do so, too.

Dr. Vincent Cable (Twickenham) (LD): Will the Minister return to a point on which there is more consensus: the Gershon savings of £5.6 billion a year? How will we know when they have happened and, as a taster, can he tell us how much was saved in the first year of the programme?

Mr. Miliband: I am pleased to say that I can. Our analysis of plans submitted by authorities suggests that councils are not just making real efforts but achieving real success. The efficiency gains achieved already and those expected by the end of the year add up to £1.9 billion. That is good news, and I think we can all agree on the importance of that.

The property base of local taxation, through the council tax, provides an efficient and workable foundation for taxation.

Sir John Butterfill: In response to the intervention about local government not being in thrall anywhere
 
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else in western Europe, may I cite the fact that local authorities in Germany and Austria get respectively 15 and 18 per cent. of the total national tax take, and they get it from central Government? They are almost entirely funded from the central Government, not from local people.

Mr. Miliband: The hon. Gentleman makes a good point. Of course, there is a big difference between local taxes and assigned national taxes, and the degree of thrall differs according to those two measures. Before hon. Members become too focused on the idea that those in local government are lying inert on the floor underneath the weight of central Government, they should go to any town or city in the country, where they will see a lot of dynamism, with those in local government exploiting quite a lot of freedom in performing their roles. I am sure that every hon. Member can point not just to isolated examples, but to a real drive by those in local government to lead their communities, economically and socially—and in my part of the world, culturally as well.

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