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Mr. Adrian Sanders (Torbay) (LD): My constituents are extremely confused. They know that there was a 3.5 per cent. increase in grant funding from the Government, which was one of the most generous for many a year. Yet our Conservative mayor proposes cuts of 10 per cent. across the board. Who is telling the truth? Was there an above-inflation increase, or is there really a 10 per cent. cut? If we can find out the answer, we shall know who is accountable for the cuts, or for unnecessary cuts.

Sarah Teather: My hon. Friend raises a number of points, notably about the opacity of the funding formula and the gearing effect and balance of funding, which I shall come on to discuss.

This year, with the dedicated schools grant, which some hon. Members have described as the biggest symbol of the Government's lack of trust in local government, ring-fenced grants now total around 50 per cent. of the whole grant. If budgets are tight, that pushes pressures on to other areas. The total grant may well be above inflation, but non-schools grant increases are below retail prices index inflation, and well below wage inflation, which pushes up the cost of delivering council services much more quickly than RPI inflation does. The pressure is greatest on social services, with some authorities already stating that they may have either to increase charges or increase the qualification criteria for care, a point alluded to by the hon. Member for Wigan (Mr. Turner). The latter policy led, of course, to the now infamous case in Gloucestershire, where Richard and Beryl Driscoll were separated. I know, Mr. Deputy Speaker, that my hon. Friend the Member for Cambridge (David Howarth) wants to catch your eye to speak about some of the specific effects of pressures on funding for social services and supporting people in his constituency, so I shall not speak about that in more detail.

As councils struggle to balance their books and pay for programmes in non-ring-fenced areas, it is council tax payers who bear the brunt as their council tax goes up again. If it goes up by 5 per cent. again this year, the average band D council tax payer will pay £1,275 a year, which is a total increase of 85 per cent. since Labour came to power. If it goes up by 5 per cent. again the following year, the figure will be £1,339, which is up 95 per cent. since 1997. In that time, inflation and the state pension have gone up by 29 per cent. and wages by 53 per cent. We can see the mismatch quite clearly.

Voters protest about council tax partly because it has risen so quickly, but also because it is fundamentally unfair. It does not relate to the ability to pay. As was pointed out in the Lyons report, the initial public view on taxation was that linking tax liability to individual ability to pay was the fairest form of taxation.

It is now more than three years since the Minister's predecessor, the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), set up the balance of funding review, which promised to solve the local government finance system once and for all. However, we are still no nearer a solution. As is proven by the reams of briefing papers that Members need to get through a debate such as this, we have in Britain the most impenetrable, opaque and confusing grants mechanism in the world.
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We need a new system of local government finance that is based on fair local taxes, localised business rates, local income tax and a simple grant mechanism, without ring-fencing, passporting or capping. We need a new system that will let local government do the job that it was elected to undertake. We need also a new system that will stop the nonsensical ritual of financial crisis. I live in hope.

8.57 pm

Mr. Eric Illsley (Barnsley, Central) (Lab): I shall keep my remarks brief because many of the issues have been raised that I wanted to take up about metropolitan authorities. It has been a disappointing settlement for the metropolitan authorities, and that relates to damping. The met authorities are deeply disappointed by what appears to be the new settlement's lack of effective change. The authorities have received the lowest increase in grant—2.4 per cent. compared with the national 3.1 per cent. For the metropolitan authorities, that equates to about £250 million. There are 17 met authorities that will have a floor increase of 2 per cent.

The metropolitan authorities represent about 24.5 per cent. of national need. Their local tax base, unfortunately, allows them to deliver only about 22.2 per cent. of assumed local funding. That equates to 26 per cent. of total Government grant. That means that metropolitan authorities will receive only 27.3 per cent. of resources. That is a difference of £670 million to all the met authorities.

The damping effect that will stem from the settlement is in addition to damping that has occurred in the past. In 2003–04, there were the changes to the education funding formula. Damping was introduced and met authorities lost an estimated £180 million. Changes were made to the funding formula of primary care trusts; again, that was in 2003–04, under the pace of change policy. That was £200 million less than the needs agreed by Government. As for joint funding issues, I was told on Friday that Barnsley PCT might now have to provide the funding to meet the debts of Sheffield PCT because of the political problems of our strategic health authorities. That would be a funding disaster for the area.

Council tax revaluation, if delayed indefinitely, would have resulted in losses to metropolitan authorities. And so it goes on. The new social services formula builds on that. I shall give an example of how such damping has an effect on my area of Barnsley. There is the housing subsidy settlement of 2006–07. My area has suffered from poor housing subsidy settlements in the past. The formula did not reflect our need to spend. In 2004–05, the Government recognised this iniquity and introduced a new system of allowances. However, the pace of that change has been determined by the level of transitional protection to authorities, primarily in London, which were the losers following the 2004–05 changes. My local authority welcomed the 2006–07 draft settlement as it was proposed to move substantially towards our target allowances for housing subsidy.

However, following consultation, additional transitional protection has been given and the top 16 gainers from that protection are all London authorities. As the national pot for management and
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maintenance allowances is fixed, money is being taken from authorities such as Barnsley to meet the cost of extra transitional protection for London authorities. My local authority is thus £350,000 worse off under the final settlement compared with the draft settlement.

As my hon. Friend the Member for Wigan (Mr. Turner) pointed out, it is difficult for areas such as ours to make up any shortfall or address damping under the grant. We do not have wealthy local authorities. They do not receive income from tourism or charges for provision. We thus face pressure when trying to address the situation, which results in cuts to services because we cannot find the extra funding that we need. The authority will not challenge the capping rules set out by the Government, or implement way-out council tax increases, so services will be cut. I can tell my hon. Friend the Minister that redundancy notices were issued in the education department in Barnsley on Friday. Redundancies will occur because Barnsley will have to lose about 200 posts as a consequence of what the hon. Member for Brent, East (Sarah Teather) called an annual ritual. We face cuts and redundancies under our local government settlement, as we did in the bad old days of the previous Government.

May I put forward a suggestion that has been made by the metropolitan authorities to try to resolve the damping situation in social services? It is proposed that an additional £305 million will be provided in 2006–07 and £508 million in 2007–08. Could £100 million of the 2007–08 settlement be brought forward to alleviate the effects of damping in the 2006–07 financial year? That would reduce the impact of the situation on social services and address the problems of four London authorities, 41 metropolitan districts, 22 county councils and 18 unitary authorities? A total of 85 authorities could benefit if £100 million were brought forward, and that would give them time to plan for the shortfall.

As I pointed out, my local authority is once again facing cuts to services. We cannot find the funding to provide the services that are required of us with the grant that is being put forward, so we have to look at cuts, which is why redundancy notices are being served as I speak. In line with the representations that the Minister has received from the metropolitan authorities, will he remove the social services damping to some extent, fund the cost of the overall floors, implement a form of funding to take account of the effects of population decline and put in place a funding mechanism to compensate for the lack of revaluation?

9.3 pm

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