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Mr. David Curry (Skipton and Ripon) (Con): There is always a familiarity to these debates. The Minister stands up like the captain on the bridge scanning the horizon saying, "Well, the weather's absolutely fine and the horizon's quite clear. There might be a very slight swell, but no one need feel the slightest bit seasick." At the same time, down in the engine room, the chief engineer is saying that a horrible clanking noise is coming from the engines, and soon smoke begins to appear. The two views of the settlement are totally dislocated. We have just heard the view from the engine room—the northern metropolitan authorities—from the hon. Members for Wigan (Mr. Turner) and for Barnsley, Central (Mr. Illsley). They said that there are
 
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real difficulties with the settlement and they are the ones who have got it right. Despite the undoubted passion with which the Minister made his speech, he is simply looking at the horizon through opaque spectacles.

Three things are noteworthy about this settlement. First, education spending has now become totally divorced from the rest of local government expenditure. It is distributed by a different Department and according to an entirely different formula; indeed, in many ways it is the opposite formula to the one used by local government. The formula rejected by local government has now been adopted by the Department for Education and Skills, so we are back to the dear old happiness of joined-up government.

The Office of the Deputy Prime Minister has lost a huge chunk of its empire. I never cease to be amazed when I hear Labour Back Benchers chuntering about how the education White Paper has got it all wrong, and local authorities need a much greater, enhanced role supervising the way that education operates. At the same time, they have simply watched the Deputy Prime Minister's authority in this matter draining away. They are rather late in closing that stable door.

The second point about the settlement is that, in fact, schools do rather well, even though the Government have resorted to rather a crude method of buying off the argument because the events of 2003–04—you will remember, Mr. Deputy Speaker, that some local authorities were not given sufficient additional grant in total to fund the increases that they were supposed to give to education—are burned into their consciousness.

Michael Jabez Foster : Has the right hon. Gentleman made any assessment of what the situation would be if the Conservatives had won and given local government a zero increase in real terms?

Mr. Curry: I know that the hon. Gentleman is under pressure, but as my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) pointed out from the Front Bench, we are quite a long way into a Labour Government. The formula has been changed about five times already. This is a Government who said that they were going to find a completely new way round local authority funding, and all they are doing at the moment is sitting there waiting for the Lyons report to come in, rather like Polynesian natives waiting for the cargo boat to arrive.

Because education has done quite well, the rest of local government has done quite badly—we have to be honest about that. There are tough measures for social services, highways, waste and amenities, and that is accounting for the smoke and mirrors of the Gershon review. Curiously enough, the name "Gershon" did not pass the Minister's lips this evening.

The third point, which in many ways is the most important of all, is that, on any reading of the Chancellor's expenditure plans, the future looks pretty tough for all areas other than his three, or two and a half, chosen special areas of health, education and overseas development. After the public expenditure boom, we are now heading for the bust. That means, inevitably, council tax will become much more acute as an issue, rather than less important.
 
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What has been happening? We now have two settlements. In fact, if one counts the police settlement separately, we have three. There is the revenue support grant and the dedicated schools grant, which flows from that debacle in 2003–04. The schools grant rises by 6.4 per cent. in 2006–07 and 6 per cent. the following year, and the grant for other council services rises by about 3 per cent. The schools money is based on existing expenditure—just 5 per cent. and a tiny bit more for London—plus an allocation by formula.

What is interesting is that the Deputy Prime Minister has derided notional spending assessments, such as the standard spending assessments, because they are misused and people dare to extrapolate the level of council tax. Heaven forbid that we should dare to extrapolate by how much the Government might require councils to increase their tax. All those have been dropped, but nobody has passed the message down the road to the Department for Education and Skills. Local authorities whose spending was below the schools' formula spending share will now get extra grant to enable them to move towards it.

I suggest, if I may, that Ministers look back—I know that they constantly do so; the Minister for Local Government is always looking back—to see how their predecessors used to fulminate against need assessment. Lord Hattersley is a wonderful example of the fulmination against need assessment. Believe it or not, need assessment is now enthroned as the basic principle of local authority funding. But that has brought about what I regard as happy ironies. In 2003–04, as my hon. Friend the Member for Brentwood and Ongar will remember, the Government were accused of manipulating the system to direct money towards their friends in the north. The fact is that because population has emerged as one of the few remaining quantitative elements in the determination of the grant, money is now moving back down from the friends in the north. The Minister, for once, is right for the wrong reasons: this is not manipulation in favour of Labour councils; in many ways, Labour councils will feel the pinch of this settlement rather more than other councils. All I can say is that that is ironic, and that it is nice to see the chickens coming home to roost.

We now have a system with so many floors, ceilings and damping mechanisms that the whole thing looks rather like the design for the house of horrors in Hitchcock's "Psycho", and the Minister was rather like the corpse in the cellar, judging by the passion and enthusiasm that he put into his speech this afternoon.

Where are we heading in the long term? The Institute for Fiscal Studies has calculated that the pre-Budget statement indicates a real increase in public expenditure between 2007–08 and 2010–11 of just 1.8 per cent. Once the Chancellor has made provision for his favoured services—health, education and international development—all the other services will have to fight over an increase of about 0.8 per cent. a year. That will include the bulk of the services that now fall under the revenue support grant.

That means that council tax bills will rise, to the extent that they are permitted to do so under the capping procedures, and that there will be cuts in services. It is no good the Minister simply asserting blandly that there is no reason for anyone to cut anything. We all know that the inflation that affects local government services
 
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is entirely different from the broad, RPI-type of inflation, because so many local government services are demand led. So this will hit the services which, by their very nature, find it hardest to marshal a lobby. Social services tend to be fragmented because they involve a host of relatively small-scale support services for families, carers, elderly people and children, for which demography and social change are fuelling increases in demand. They will feel the pain, together with the smaller services that bear crucially on people's quality of life in their immediate environment.

Of course a two-year settlement is welcome, because if councils can have nothing else, at least they can have a certain amount of predictability of their own misery. That will give them some assistance. No doubt, in two years we shall have reached the Chancellor's next cycle of public expenditure, for whose review letters are now dropping into the postbags of the various Secretaries of State. Perhaps we shall also have received the long-delayed, much-deferred and much-hoped-for Lyons review.

The Government talk incessantly about joined-up thinking, yet it is amazing how dislocated the whole process of the grant has become across the public services. Their motto seems to be: "Keep your heads down, chaps, and hope". The Minister made a speech today that put that into language, the poetry of which has entirely overwhelmed me. Local government is going to face some very difficult times.

This is an inevitable settlement; there is no point in pretending that the Government are going to dish out a great deal more money. We all know that the chickens have come home to roost in regard to public expenditure. Local government had better batten down the hatches and prepare for some years of this, and council tax payers had better prepare themselves for council tax increases to go on rising steadily, because we are locked into this syndrome and there is no escape from it.

The Government must regret some of the wonderful promises that they made in their early years about how they were going to introduce an entirely new structure in local government funding. It was as though they were just waiting to discover the north-west passage. As I have said before, we shall discover, unless Lyons proves to be a remarkably efficient icebreaker, that there is no such thing as a north-west passage in local government finance and that, for the time being, we are stuck with this.

9.13 pm

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