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Mr. Woolas: I emphasise that the needs formula does take into account sparsity and deprivation in rural areas. The percentage increases in grant in Norfolk, for example, are 4.8 per cent. and 8.4 per cent. the following year. Is not the process that the hon. Gentleman is describing that of local authorities ensuring that the budgets balance in future years and that the pressures on councils, which I conceded and helped the Local Government Association to analyse, cannot be blamed on above-inflation grant increases from central Government?

Mr. Pickles: The hon. Gentleman does himself no favours in making such points. It is parallel universe time. At a time when the number of vulnerable elderly is growing significantly and people are living longer—
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which is a pleasing thing—but in a vulnerable state and require additional sums, pressures on a county such as Norfolk have to be understood.

Michael Jabez Foster: Will the hon. Gentleman give way?

Mr. Pickles: I will give way to the hon. Gentleman later; he has a big place in my speech and I want to give him star billing. I will come to him in due course. Let us move on to supported borrowing. I want to make some progress so that my hon. Friends can speak.

Dr. Brian Iddon (Bolton, South-East) (Lab): Will the hon. Gentleman give way?

Mr. Pickles: In a moment.

Part of the formula grant is to pay for borrowing for local authorities' capital programmes. That is allowed for in authorities' relative needs formulae, but it is largely counteracted by the effect of the dampening mechanism, which means that authorities on the grant floor receive no more money than the minimum increase for their class for supported borrowing, and authorities above the grant floor have their increase above the floor scaled back to pay for the floor.

The goalposts have moved in 2006–07 by the scaling back factor of 85 per cent. for education and social services. That was a particular problem for authorities in wave 1 of the building schools for the future programme, but it does have wider implications. I want to look at two authorities—both recently elected Conservative county councils. This may be of interest to the hon. Member for Northampton, North (Ms Keeble), whom I advise to read the Hansard of Prime Minister's questions last week, during which my hon. Friend the Member for Northampton, South (Mr. Binley) pointed out to the Prime Minister that when it was Labour controlled Northamptonshire county council received a 6 per cent. increase, but that this year it was only 2 per cent.

Let us look at what has happened to Northamptonshire because of the effect on borrowing. The council received an overall grant increase of £2.5 million, which is 2.1 per cent., to fund all services, including financial capital investment. After taking into account the cost of capital investment, just £750,000, or a 0.6 per cent. increase, is left for all other services, which may explain why service charges are going up in Northamptonshire.

Ms Keeble: Will the hon. Gentleman give way?

Mr. Pickles: Let me give the hon. Lady the other example, as she might feel that Northamptonshire has done reasonably well compared with Oxfordshire county council, which has also recently become Conservative controlled. The increase in grant for Oxfordshire county council is £1.9 million. If one strips out the supported borrowing, one is left with a decrease of £1.4 million or minus 2.2 per cent.

Ms Keeble : The hon. Gentleman is confusing two councils—Northamptonshire county council and Northampton borough council. The county council received £115 million extra from the Government for its
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school building programme—a record allocation. On the other hand, Northampton borough council, I regret to inform him, has been dubbed the worst council in Britain and it is, indeed, Conservative controlled.

Mr. Pickles: As for the hon. Lady's point about Northamptonshire county council, if she is expecting us to be helpful in future she should show a little gratitude for our intervention, as we are here to help.

Ring-fencing is necessary because the Government want to control everything but, sadly, can manage nothing. In "Strong Local Leadership: Quality Public Services", the White Paper which was published in 2001—not very not long ago—they made a commitment to reduce the amount of ring-fenced grant to under 10 per cent. of the total grant. That seems ambitious, as ring-fenced grant now accounts for more than 50 per cent. of the total grant. That increase is a result of the dedicated schools budget, which was necessary because the Government got into a terrific mess. If I had another name, I would say that they were in a terrific pickle in 2003, when they made a promise to schools that, frankly, could not be met by the grant distribution. The dedicated schools grant is an important symbol, showing that the Government do not trust local government.

In questions to the Deputy Prime Minister last week, I raised the issue of the supporting people scheme. I was sorry that it was dismissed out of hand, because it is a great crisis for local government. Expectations have been raised, but they cannot be met, exposing the most vulnerable to a reduction in their quality of life. To enable Ministers to understand their plight, may I cite a report by Derby city council on the supporting people programme that was published late last year? It predicts a funding shortfall of £534,000 in 2005–06, which will rise to just over £1 million in 2006–07, and to well over £1.5 million in 2007–08. The council proposes to allocate £500,000 from corporate resources to fund the projected shortfall, but the continued use of reserves to fund such deficits is not viable. It says:

The hon. Member for Hastings and Rye (Michael Jabez Foster) is fearless in standing up for his constituents. No doubt, the Friary centre is a valuable and important resource in his constituency, but the local council and East Sussex county council are about to reduce its funding. In the 3 February edition of the Rye Observer, which is on my regular reading list, the hon. Gentleman says that the decision is "blatantly wrong". Echoing Baroness Thatcher, he says it is "wrong, wrong, wrong!" It is

He obviously reads the information distributed by the Whips, because he says that there has been a 2.1 per cent. increase in the social services budget. However, I have a rebuttal from the leader of that fine council, who is known to many Conservative Members as one of the leading experts on local government finance. He says that there has been

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That is why the centre is closing. It is not a matter of councils wanting to close facilities. It is because the Government have set a 5 per cent. limit, and have not allowed a single increase.

Michael Jabez Foster : If the learned leader of East Sussex county council uses such economics and believes that the increase is only 0.6 per cent. that is why the council is in such a pickle. The truth is, it is 2.1 per cent.—the 0.6 per cent. relates to his total budget, not the grant, so he is obviously seeking to mislead. Even if that were not the case, there is absolutely no reason why he should close such establishments unless they have got into a financial pickle. Of course, they need more, but that is not the reason for the closures.

Dr. Iddon rose—

Mr. Pickles: Would the hon. Gentleman do me the courtesy of allowing me to reply to the hon. Member for Hastings and Rye? I regret inadvertently starting the pickle analogy. Peter Jones, the leader of the council, is a man of considerable experience. He has taken the council out of a difficult situation, and his record in local government is second to none. The hon. Gentleman's special pleading is not persuasive.

Mr. William Cash (Stone) (Con): Does my hon. Friend agree that the precept, for example by the police authority, is a matter of the gravest concern when it hits the fan at the level of the council tax? In the case of Staffordshire—which, it was announced today, disgracefully, will be part of the merger in the west midlands—the precept is deeply resented and will have consequences for the financing of the county's constituent authorities. We fear strongly and, I believe, rightly that that will have the effect of increasing the costs, as well as centralising the system, against the wishes of the people of Staffordshire, including my constituency.

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