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Mr. Brown: I am grateful to my hon. Friend and will talk to him about the expansion of shared-equity schemes and how they will affect his constituency. We clearly need to do more on social housing, too. We need to build more housing for rent and make it possible for the pilots on disused sites to be successful in different areas of the country. I regard the shared-equity scheme as one of the most exciting developments in recent years. The fact that the building societies, building companies, investment companies and, potentially, housing associations are all examining how they can develop shared equity is an important development for our economy.

Today, I visited the home of someone who could not afford to buy a flat in London if they had to obtain a 100 per cent. mortgage. They have got a 40 per cent. mortgage—the rest is covered by a rent agreement—and can move into their first flat, which they will do before Christmas. Many thousands of people throughout the country depend on the development of shared-equity schemes to have a chance to get on to the first rung of the housing ladder. We are determined to work towards making shared-equity schemes happen as quickly as possible and, again, I hope that the measure receives all-party support.

Mr. Nigel Dodds (Belfast, North) (DUP): I, too, welcome the Chancellor's statement on tackling fuel poverty, especially among the elderly. It is a scandal that in this day and age people still have to choose between heating and eating. Given the levels of fuel poverty in my constituency and in Northern Ireland generally, can the Chancellor confirm that the measures that he announced—welcome as they are, and which I hope will be uprated year on year—will apply to Northern Ireland?

Mr. Brown: That is what the discussion will be about. Funds have been allocated for Northern Ireland. I hope that that means that insulation and central heating programmes will move ahead. I am determined, over the next few months, to ensure that as much as possible is done to insulate and to provide the necessary central heating. As the hon. Gentleman says, it is a scandal that in this day and age too many pensioners feel unable to provide the heating that is necessary for the warmth that they need, and we must take this new initiative to make it possible for them to have it.
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Local Government Finance

4.51 pm

The Minister for Local Government (Mr. Phil Woolas): With permission, Mr. Speaker, I should like to make a statement about local authority revenue finance for England in 2006–07 and 2007–08.

Sensible planning for service delivery needs a stable and predictable funding environment. Freezes on grant distribution changes have helped, but the time has come to go further and give councils firm forward financial allocations. There is no reason why councils cannot now provide similar certainty for their local taxpayers when setting their council tax for 2006–07 by providing an indicative council tax for 2007–08.

To give councils as complete a picture as possible of forward financial allocations, I am today announcing, for the two years 2006–07 and 2007–08, allocations of formula grant and grant for the "Supporting People" programme. The Government will also publish, by local authority, a table of allocations of all the major revenue grants that can be allocated in advance, including the neighbourhood renewal fund, which gives indicative allocations of £525 million for 2006–07 and £525 million for 2007–08 for the 86 most deprived local authority areas in England. By the end of this week, we expect that the vast majority of individual specific grant allocations will be announced to local authorities. The only grants that cannot be announced at this stage will be performance-led or data-driven in their nature.

My right hon. Friend the Minister for Schools will shortly announce the provisional allocations to authorities of dedicated schools grant. Hon. Members should bear in mind that those allocations need to be added to those that I am announcing today to give a fuller picture of the above-inflation funding going to authorities with education and social services responsibilities. With the next spending review period, we will move to give three years of grant allocations to local government.

It is also high time that we overhauled the system that we use to distribute the formula grant. For more than 20 years, successive Governments have used a system based on notional figures for spending and local taxation. In the 1990s, the Government described the old standard spending assessments as

We no longer take that view. The formula is simply a means of distributing Government grant. Notional spending and taxation figures none the less continue to be misunderstood and misused for a variety of purposes, such as spending or tax targets, for which they were neither intended nor suitable. Such notional figures get in the way of sensible budget setting, because councils treat them as targets or going rates, and of a more mature relationship with local government on doing business together. I propose a system that deals in honest currency—cash grant—not fanciful assumptions about spending.

I accept that most responses to the consultation were against our proposal along those lines. However, the arguments supporting that position were not strong. Many stated that the new system would be more
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complex or use more judgment than the existing system; neither is the case. The new system will retain the strengths of the old. It will continue to take account of the relative needs of an area and the relative ability of councils' areas to raise council tax. There will be an element of grant that is distributed on a per capita basis and a grant floor.

Total revenue grants to English local authorities will be £62.1 billion in 2006–07 and £65.1 billion in 2007–08—increases over the previous year of 4.5 per cent. and 5 per cent. respectively. Part of that increase is dedicated funding for schools, leaving formula grant for other services that will total £24.8 billion in 2006–07 and £25.6 billion in 2007–08—increases of 3 per cent. and 3.8 per cent. respectively. That means that, by 2007–08, the increase in Government grant for local services since we took office will be 39 per cent. in real terms.

We have been working with local government over the past three years on possible changes to grant distribution formulae. We consulted publicly over the summer and I am publishing the summary of consultation responses today. Following that consultation, we propose several changes. The main drivers behind the change that I propose are: updating, especially the use of 2001 census data in place of that from the 1991 census; making the system more forward looking by using projections of population and council tax base; and adapting to policy change.

The new formulae for personal social services for children and younger adults are based on extensive research and have a solid evidence base. That makes it clear that there will need to be substantial change to reflect the evidence on service provision and the very different social and demographic environment of the 2001 census. The grant system also takes account of councils' widely varying ability to raise council tax, depending on the council tax valuations of housing in their areas. We propose to increase that resource equalisation because that will make the system fairer for those authorities with relatively low ability to raise council tax locally.

I propose to adjust the grant distribution system to reflect the introduction of free off-peak bus travel for the over-60s and the disabled from next April. I shall do so by increasing the weightings in the district level environmental, protective and cultural services formula that are given to factors that reflect support for the disabled and the needs of areas where take-up is likely to be highest.

Grant floors—the minimum guaranteed increase from one year to the next—are a permanent part of the system. Given the importance that we attach to stability and predictability of grant, we shall phase in the larger changes this year with more than usual care. The changes in children's social services and younger adults' social services will be phased in with specific formula floors. On top of that, we propose grant floors for groups of authorities.

For 2006–07, the floors will be as follows: for authorities with education and social services responsibilities, 2.0 per cent.—that figure excludes the increase in schools funding, which will give all such authorities above-inflation increases in grant; for police authorities, 3.2 per cent.; for fire and rescue authorities, 1.5 per cent.—that figure masks the help we are giving
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those authorities by phasing in recovery of the modernisation grant paid in 2004–05; and for shire district authorities, 3 per cent. For 2007–08, the floors will be as follows: for authorities with education and social services responsibilities, 2.7 per cent.; for police authorities, 3.7 per cent.; for fire and rescue authorities, 2.7 per cent.; and for shire district authorities, 2.7 per cent.

Within each group of authorities, those above the floor will have their grant increase scaled back to pay for the floor. The floor levels that I propose will mean that there will be a fairly narrow range of grant increases in 2006–07, with police authorities in particular all receiving approximately the average increase. For 2007–08, all authorities will receive a grant increase at least in line with inflation, and more formula change will come through for most authorities.

I would now like to come to the "Supporting People" programme, which was introduced in 2003 and is successfully providing support to more than 1.2 million vulnerable people. I am pleased to announce a two-year settlement for this programme. The "Supporting People" grant allocation for 2006–07 will be £1.685 billion, which is a significant investment, and I have also announced guaranteed minimum allocations for 2007–08 to enable authorities to plan their expenditure. Further, I am pleased to announce that authorities will be able to roll forward any savings from 2005–06 to 2006–07 in order to reinvest in the programme. This announcement will bring stability to the sector and enable authorities to work with support providers and voluntary sector and community groups to plan for the future. Building on the success of the "Supporting People" programme, I recently launched a consultation on how the programme can be further improved. Following that consultation, I will announce the full allocations for 2007–08 next summer.

This settlement is good news for councils and for council tax payers. We have been working closely with local authorities this year to identify the extent of the pressures that they face up to 2007–08, and we consider these actions necessary to mitigate those pressures. I am pleased to announce extra formula grant for the two years over and above previous plans of £305 million and £508 million for local government. We have also agreed with local government that we will jointly move forward on a number of fronts aimed at addressing the real pressures that councils face. This includes a continued commitment to the new burdens procedure, working with local government to assess the costs and savings of implementing new polices, and funding the net costs. We will be strengthening the mechanisms to enforce the new burdens procedure. Further, I announced to the House on Friday the agreement that the cost pressures arising from the temporary reinstatement of the 85-year rule in the local government pension scheme will not fall on taxpayers.

We are also aware of authorities' concerns over the costs of the new licensing scheme. I am pleased that we have been able to reassure the Local Government Association on this issue. The Minister with responsibility for creative industries and tourism has today reaffirmed the Government's commitment that the cost to local authorities of meeting the requirements of the Licensing Act 2003 will be fully met by fees within the national fee regime, provided, of course, that they are incurred legitimately and efficiently.
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Local authorities will also benefit from the extra money coming in to local authority budgets through the local authority business growth incentive scheme, and from the new top-up grants for police and fire and rescue pensions, which will help budget planning and, ultimately, the council tax payer.

We have provided a stable and predictable funding basis for local services and we expect local government to respond positively on council tax. We therefore expect to see average council tax increases in each of the next two years of less than 5 per cent. Following today's announcement, there will be no excuse for excessive increases. Local government should be under no illusions—if there are excessive increases, we will take capping action, as we have done over the past two years.

I am also announcing today consultation on alternative notional amounts. The draft alternative notional amounts report sets out the proposed notional adjustments to local authorities 2005–06 budget requirements to help enable like-for-like comparisons with 2006–07 budget requirements for capping purposes. That is being issued for consultation today to ensure that authorities know, in advance of setting their budgets, the budget requirement figure for 2005–06 that the Government will use when considering using our capping powers.

The Government have provided another significant boost to local authorities with a financial package that is stable, predictable and adequate to meet the pressures that local authorities face over the next two years, while keeping down council tax increases to acceptable levels. I have placed copies of tables giving grant allocations and supporting documentation in the Vote Office and the Library of the House, and full details are being made available for local authorities on our website. I look forward to receiving consultation responses, and I commend these proposals to the House.

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