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Mr. Philip Hammond (Runnymede and Weybridge) (Con): I have had three years as an Opposition spokesman on local government affairs, giving me plenty of opportunity to look at issues in their broader context alongside my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles). Today, I can indulge myself in looking at this motion simply from the point of view of Runnymede borough council, my local council.

This capping exercise defies common sense and smacks of political opportunism. Runnymede borough council is being capped in 2005–06 for imposing exactly the same percentage council tax increase as it imposed in
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2004–05. Nobody looking objectively at how it runs its affairs could conclude other than that it is a well run, prudent council that sensibly responds to the Government's decisions about changes in grant distribution.

The truth is that, having set out policies for changing the distribution of local authority grants, the Government are now recoiling from the consequences of those policies in action. I shall set out some of the background to Runnymede's situation. Runnymede is historically a low-taxing authority. It is the lowest-taxing authority in Surrey and the eighth lowest in the country. At £117 this year, its band D council tax is 31 per cent. below the average for district councils.

This year's increase, which the Government found so offensive, amounted to 34p a week. Overall, including the county and police precepts, Runnymede council tax payers faced a total increase of 4.93 per cent. in their council tax bills. Like colleagues, I have had virtually no complaints—a handful—from taxpayers about the increases. The Minister has received letters from the leaders of the Labour group and the Independent group on the council urging him not to cap Runnymede. I am pleased to say that there is no Liberal Democrat group.

Runnymede council is an excellent authority, rated "excellent" in its financial management. It was credited with having

Its strategy now lies in tatters.

Runnymede is also a popular council: in 2001 and in 2004, it was in the top 10 of all councils in England in the Office of the Deputy Prime Minister's residents general satisfaction survey. Part of the reason for that level of satisfaction is the non-statutory services that the council operates—day centres for the elderly, the yellow school bus transport scheme that contributes to a reduction in congestion, the community safety closed circuit television scheme, and an extensive programme of voluntary sector grants. Those are precisely the non-statutory services that will face the brunt of the cuts that the Minister is, in effect, imposing.

In 2002, the then Minister of State, the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), announced a change in the way the grant system would operate. I remember going with other Members to a seminar that he held in Portcullis House, and he was quite open about what he was doing. He was redistributing local authority grant as delivered to councils, and he fully expected that some councils would have to raise their council tax in consequence. That accelerated an existing trend for Runnymede that had seen its formula grant drop 29 per cent. in real terms between 1995–96 and 2005–06. In per capita terms, Runnymede has had only a 0.4 per cent. money increase in formula grant since 1998–99. The Minister, of course, prefers to talk about individual years or the last three years, but what Runnymede and other prudent and sensible councils are doing is responding to a long-term trend of change in the way in which grant is distributed. After adjustment for changes in the benefit system, the real terms reduction from the 1995–96 figure in Runnymede's grant this year represents £2.18 million, and that is on a budget base of £8.5 million.
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The council faces considerable cost pressures, as all councils do. As a council in transition to lower grant, it does not receive any effective grant recognition for the costs imposed by new legislation, particularly the cost of responding to waste recycling and environmental initiatives.

Despite reservations about what the Government were doing to the grant system, Runnymede reacted as a prudent, well managed council would. It responded rationally, as the Government intended, and set out a clear plan to increase, over five years, its council tax levels to something closer to the average. Our—overwhelmingly Conservative—councillors were willing to knuckle down and put into practice the agenda that the Government had dictated to councils that had had grant distributed from them: it increased the council tax. The problem that Runnymede now has is that the Government lost their nerve when they saw the inevitable results of their own policy.

Runnymede's strategy was to reduce revenue budgets by around £2 million over a period, to reduce its working balances to the minimum prudent level during the transitional phase, and to increase taxes to a level that would still be well below the district council average. Those were sensible, rational, medium-term responses to the changed environment in which it found itself. The ODPM was aware of that medium-term strategy, and Runnymede council believed that it had accepted it. Runnymede was not capped last year because the Government recognised explicitly—we have already heard the words of the right hon. Member for Greenwich and Woolwich—the position in which low-taxing authorities found themselves and the absurdity of applying a percentage limit to a very low-taxing authority. Unfortunately, the Government have applied no such absolute criterion this year, so low-taxing authorities are caught by the same percentage criteria that would be applied to higher-taxing authorities.

What is the point of extolling the virtues of medium-term financial planning by local authorities if the Government are going to move radically the goalposts from year to year so that a council with a medium-term strategy finds that it meets the ODPM's approval one year but falls outside the criteria that it has set down the following year? The Government are in an absurd position. They set out a policy of shifting grant away from certain types of local authorities in certain areas, which logically requires higher taxes. Now, they will not allow councils to increase their taxes to fill the void left by the shifting of grants, but there is no sign of their being prepared to change the grant formula back to return to councils such as Runnymede any of the grant support that they have lost.

The Minister and his colleagues know that major service cuts are inevitable, yet they refuse point blank to explain how a local authority in Runnymede's position should respond to the situation in which it finds itself. This is bad government imposed for cynical pre-election political reasons. As a result, for a saving of just £7.23 a year—14p a week after rebilling costs—people in Runnymede face service cuts totalling about £800,000 over the next couple of years. That will fall on the elderly who use day centres, communities who rely on CCTV security provision, and voluntary organisations that depend on the council's grant support programme. I am pleased to say that tomorrow
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Runnymede's Conservative councillors will each make a donation equivalent to their own personal savings as a result of the capping exercise to start a fund to make up the loss of grant for those local voluntary organisations. We hope that that will establish a local trend.

This is a bad day for local government and for central Government, but I assure the Minister that it will also turn out to be a bad day politically for the Labour party, because nobody in Runnymede supports these cuts and the Government will reap the cost of what they have sown today.

3.38 pm

Mr. Jonathan Djanogly (Huntingdon) (Con): I concur with much of what my right hon. and hon. Friends have said this afternoon.

The Government's decision to cap the council tax of Huntingdonshire district council is nothing less than a travesty of what local government should be about. This debate has illustrated the senseless inability of this Labour Government to differentiate effective and inefficient or high-spending and low-spending councils, or even to understand the basic motivators of effective local government.

Let me make it clear at the outset that no one says that Huntingdonshire district council is anything but well run. Indeed, it is one of the few councils in the east of England that the Government rate as excellent. It represents the sort of premier league council that the Government said only recently should be awarded greater freedoms—words that now resemble some hollow joke. Rather than awarding more freedom, the Government are taking a sledgehammer to the council's carefully set plans and thereby undermining the concept of local democracy.

Huntingdonshire should be congratulated rather than capped. It has delivered the Government's agenda for recycling targets, e-government, providing better local transport and regeneration. It has excelled in all those. Even with the increase in tax, the band D rate of £106.54 is the 19th lowest of the 238 districts—in the bottom 8 per cent. in the country.

Earlier, the Minister said that the order was intended to prevent unreasonable increases. What is unreasonable? That has still not been explained to me today. It is bizarre to penalise the council simply because it has a higher percentage increase on a low historical base, when high-taxing, inefficient councils, which have increased council tax by more than Huntingdonshire district council, are ignored.

Huntingdonshire's budget is set to increase by only 3.2 per cent. next year. That is well within the Government's target. However, because it has reduced the subsidy from its reserves this year when compared with last year, the increase in "budget requirement" becomes a figure that is caught by the capping regime. Capping therefore effectively forces the council to maintain a high council tax subsidy. That is simply not sustainable in practice and not honest to my constituents. The Government are forcing my local council to indulge in Mickey Mouse accounting.

I shall explain my deeper fears for Huntingdonshire, its local government and the district's future development in one of the fastest growing populations
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and business environments in the country. I know that my hon. Friend the Member for North-West Cambridgeshire (Mr. Vara), who cannot be here this afternoon, shares not only the district with me but my concerns that the Government are forcing us to build thousands more houses while not only withholding grant but capping a modest council tax increase. So much for joined-up thinking in government.

Huntingdonshire has a low council tax, which reflects the council's careful and efficient management of resources and the significant amounts that are earned by investing its reserves following the transfer of its housing stock in 2000. The council is slowly spending those reserves on service improvements and they will reduce to a minimum in approximately 2011. As the council spends its reserves, its interest income reduces. Despite efficiency savings, which have happened, most of the balance will need to be made up by an increase in the council tax.

With that in mind, the council sensibly decided to make the increase gradual—£12 a year—starting in 2004–05 and continuing for five years. There was none of the stick-your-finger-in-the-air stuff on a yearly basis that happens with poor or deceitful councils. Huntingdonshire district council looked five years ahead and honestly told its residents what it needed to do to continue to provide a decent local service.

That was a good example of efficient budgeting by officers and effective political leadership by the majority party councillors. They consulted widely and the majority party took the plan to the electorate in the all-up elections and received a thumping majority—and therefore an endorsement for their spending policies. Last year, the council was not capped, despite a similar increase in tax.

The Minister is effectively telling me that he does not give two hoots for what my local council has done   or planned, for what the local residents—my constituents—think or even for what the Government thought last year. He is sticking to a bizarre formula and ignoring reason. He shows contempt for local democracy.

What is the effect of all that on Huntingdonshire? It means an average decrease of £6.82 a year—about 13p a week—for band D ratepayers. The cost of rebilling them is £60,000 of wasted taxpayers' money. I ask the Minister whether at least the rebilling can be postponed until next year to save that huge waste of money on administration costs. However, my main concern is that, unless the Government accept the poverty of their own argument, this problem will simply arise again in the future.

In Huntingdonshire, this measure will ultimately result in service cuts of up to £5.6 million a year by 2011–12, which represents 22 per cent. of the council's planned net spending and a similar proportion of its staffing budget. And all this is happening at a time when the Office of the Deputy Prime Minister is still withholding £750,000 a year of grant, which, by its own calculations, the council is due. It seems ridiculous to cap its council tax on top of that.

I have expressed my concerns today, and I sincerely believe that the Government have got this very badly wrong. Capping is a blunt and wholly inappropriate measure for Huntingdonshire. I hope that the Minister
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will withdraw the order, but of course it is likely to be passed. In which case, I ask the Government to review their position, to ensure that this unfair and irrational situation is not repeated next year.

3.45 pm

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