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Mr. Binley:
The Minister is always generous, and I recognise that. He will know that there are exceptional circumstances in Northamptonshire, not least because the figures used for growth from 2001 to 2008 were mistakenly accepted, as has been acknowledged. Equally, does he recognise that our revenue support grant has been well below the rate of inflation over the past two years, and that we have made savings of £45 million and £41 million respectively, including 1,030 full-time equivalent cuts in staff? We face similar problems in 2008-09, but
we have been cut to the bone. Will the Minister look specifically at the mistake in population projections made by the Office for National Statistics, and view us as an exception? We desperately need his help.
Mr. Woolas: I thank the hon. Gentleman for his kind words. I shall try to deal with his point about population figures in a moment. First, let me say that the decision on distribution is on how to allocate a certain pot of money between councils, and what benefits one council will be to the detriment of others. During the consultation, a number of councils argued that they are unique; logically, of course, it is not possible for more than one to be unique.
The hon. Gentleman made a serious point about growth. It is important to recognise that authorities face extra costs as a result of growth in terms of both revenue and capital, and that capital in particular can be lumpy in placing demands on authorities. In the two-year settlement, we changed the method of calculation of population to take account of future projections rather than simply relying on historical trends. A number of authorities had asked us to do that.
Jim Cousins (Newcastle upon Tyne, Central) (Lab) rose—
Mr. Woolas: I will give way first to my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) and then to my hon. Friend the Member for Amber Valley (Judy Mallaber), to whom I am sorry I did not give way a moment ago.
Jim Cousins: Between 2000 and 2004, Newcastle was the most rapidly growing of all the neighbourhood renewal fund-supported authorities. The population projections that the Minister is using as a basis for grant distribution reflect previous years of decline rather than the years of growth around 2003-04. As a result, in comparison with the real population of the city, they are out by some 13,000. Those extra 13,000 are a young, transient population who place particular demands on the resources of the city council. Can the Minister not see a way of putting the error right?
Mr. Woolas: That point has been made by my hon. Friend’s local authority, and by council groups across the political spectrum. The population figures will never be fully up to date—there must be a cut-off point, and there will of course always be future allocations—but I reassure my hon. Friend that allocations within a multi-year settlement reflect the population trend. As I have said, we made changes to ensure that that happened.
I should also say—to the House in general, rather than to my hon. Friend in particular—that notwithstanding the large number of representations I have received from local authorities arguing that their populations have risen, I have yet to hear from a council saying that its population has fallen. It is of course possible that no council has a population that is falling.
Mr. Jim Cunningham (Coventry, South) (Lab)
rose—
Mr. Woolas: Has my hon. Friend found one?
Mr. Cunningham: I do not think that I have, but I thank my hon. Friend for giving way. May I ask whether his formula and his population calculations take account of any allowances for refugees or asylum seekers in some of our major cities?
Mr. Woolas: That is an important point, but perhaps it is best if I apologise to my hon. Friend the Member for Amber Valley and give way to her, as I said I would. I shall deal with the population calculation methodology later, if I may.
Judy Mallaber: I thank my hon. Friend. May I return him to the earlier discussion of floors and ceilings? As he will know, ever since I entered the House we have argued vehemently about Derbyshire’s being one of the relatively underfunded authorities. I welcome this year’s 5.8 per cent. increase for the county council—it is one of the authorities that always gets the top performance rating—and the 5.2 per cent. for Amber Valley. We have closed the gap considerably, but will my hon. Friend reassure us that we will continue to close it in decisions on floors and ceilings in future settlements?
Mr. Woolas: I thank my hon. Friend for making that point and for her acknowledgement of the grant increase. It might be timely to remind Members that all local authorities have now received above-inflation grant settlements for 10 years—a point that the Local Government Association has made.
Mr. Woolas: Will Members allow me to answer the question that has been asked before I take an intervention on a different point?
The ceilings have been abolished, which has been welcomed by the authorities that benefit. The calculations that go towards deciding the grant allocation include the resource equalisation calculation as well as others, such as the relative needs formula and per capita calculations. Many councils argue that that creates an unfair advantage, which is why changes were made for the settlement. However, I emphasise to my hon. Friend that the settlement that I am confirming today was announced more than a year ago, and that I am simply delivering what local authorities asked of the Government in the consultation —
Mr. Woolas: Let me emphasise the point that I am making. Local government welcomed multi-year settlements. There is strong support for such settlements across the political parties.
Susan Kramer (Richmond Park) (LD):
I thank the Minister for giving way. I want to correct his statement that every council has received above-inflation increases. Is he aware that the 2007-08 grant to Richmond upon Thames council has been cut by 79p per head? That is partly because of a population issue, but it is also because of the change in the way that the base figure is calculated and the way that capital expenditure is put into that. That authority receives the least money; it has
the lowest grant in all of London, and the gap between it and the next authority is £60.30 per head. Although its grant is far less than that of every other authority in London, it has had a cut for the coming year.
Mr. Woolas: Perhaps I am just getting middle-aged, but the ingenuity of the arguments that Members employ to claim a special case for their authorities never ceases to amaze me. I acknowledge that the hon. Lady is standing up for her area of Richmond—which I think has recently been in the news because of its policy on four-wheel drive vehicles.
Let me correct the hon. Lady’s point. She is referring to the allocation of grant following the changes in the baseline. When any Government allocate grant on a formula basis, they have to do so on the basis of a like-for-like comparison. A number of local authorities, especially in London, made the point in consultation that the allocation appears to be lower in cash grant in some cases, such as when an authority is, so to speak, on the floor at 2.7 per cent.—and I am fairly sure that the hon. Lady’s authority is a floor authority. That appears to be the case because of the like-for-like comparisons year on year. The authorities that have argued that the actual grant is not as much as it appears to be on paper make a point that would be fair if in alternative years, when the like-for-like comparison gives them more than the allocation appears on paper, that sum were returned. I have yet to hear that offer being made.
Jeff Ennis (Barnsley, East and Mexborough) (Lab): I am sure that the Minister agrees that the formula-funded mechanism that we inherited from the previous Government was unfair to many local authorities—particularly metropolitan authorities. As my right hon. Friend the Member for Birkenhead (Mr. Field) has already explained, the children’s social services damping mechanism is having an adverse effect on many metropolitan authorities. Let me give the example of the two authorities that I serve. Barnsley is losing out to the tune of £9.9 million, and Doncaster to the tune of £9.5 million. Can the Minister clarify the stance that his Department will take next year, when we review the damping mechanism? Can he give an assurance that his Department will give active consideration next year to reviewing the damping mechanism, with a view to making it fairer to all authorities, specifically metropolitan ones?
Mr. Woolas: I think that I can give a commitment to making the mechanism as fair as possible; however, I am not sure that making it fairer for a specific group of local authorities is consistent. The serious answer to my hon. Friend’s question is yes—it is incumbent on the Government to do that, in recognition of the points that have been made across the spectrum.
Mr. Edward Davey (Kingston and Surbiton) (LD) rose—
David Taylor (North-West Leicestershire) (Lab/Co-op) rose—
Mr. Woolas:
I will take an intervention first from the hon. Member for Kingston and Surbiton (Mr. Davey) and then from my hon. Friend the Member for North-West Leicestershire (David Taylor). I will then need to move
on to my statement, in order to allow the hon. Member for Brentwood and Ongar (Mr. Pickles) and others to make their points.
Mr. Davey: I am grateful to the Minister for giving way. He said a few moments ago that the Government have given a real-terms increase to every council in the country, but in replying to my hon. Friend the Member for Richmond Park (Susan Kramer), he gave the game away. He made it clear that—on looking at the cash increase, by whatever method of analysis—some London boroughs have had less than that. In my case, Kingston had an increase of just 1.9 per cent. The retail prices index—the inflation index—is running at 4.4 per cent. What inflation index is the Minister using for the real-terms increase that he says he is giving to every council in the country? Such an increase is certainly not coming to the royal borough of Kingston.
Mr. Woolas: I did not say what the hon. Gentleman says that I said; I said that councils said that they were not getting that increase. I am simply making the obvious point that, if we make a like-for-like comparison over the period in question, what I have said is correct. I will give the hon. Gentleman the figures for his local authority if he wants me to. In the case of Richmond, the average increase in formula grant over the 10-year period—over which it is possible to iron out the like-for-like ups and downs—is 3.7 per cent. Although the councils of the hon. Gentleman and the hon. Member for Richmond Park say that there is a reduction this year, that simply reflects the change that has been made over the period. Perhaps I should now stick to my word and take an intervention from my hon. Friend the Member for North-West Leicestershire.
David Taylor: I am grateful to my hon. Friend for giving way. Sadly, Leicestershire had the lowest grant increase of all 150 upper-tier unitary authorities—£0.6 million, or 0.8 per cent. Why was that so? Well, the Minister talks about like-for-like adjustments, but in our case the transfer of supported capital expenditure was based on 2005-06, when there was a significant spike of almost £13 million in capital expenditure because we were replacing a number of schools, one of which is in my constituency. Can Leicestershire be treated in the same way as Norfolk and Lancashire, both of which had their spikes removed? Norfolk’s figure was reduced to £56 million from £71 million, and Lancashire’s was reduced to £32 million from £36 million. Such an approach does make a difference. We are grateful for what has happened, but our increase remains very low, compared with other unitary and upper-tier authorities.
Mr. Woolas: I of course recognise the point that my hon. Friend makes about the treatment of capital and the building schools for the future programme in those cases. I will deal with that issue in a moment, because it has caused concern and some confusion among the local authorities affected.
I want to emphasise that the policy on multi-year settlements is to make changes only in exceptional circumstances, and if those circumstances are revealed by consultation. The stability and predictability that that approach brings are very important for public
finances—more important, in my opinion, than tiny differences in marginal grant increases, and more important even, I venture to suggest, than arguing over the minutiae of some of the grant formula. More widely, stability is vital to enable authorities to plan jointly with local service delivery partners, agree objectives for their area, and deliver them. So I am very happy indeed to be able to say something that is so expected and predictable.
Susan Kramer: Is the Minister conscious that because the NHS is under pressure—for instance, Kingston primary care trust has a significant deficit—a significant amount of cost shunting is going on in many local authorities between partners? That shunting is moving costs on to local authorities which are attempting to keep up even minimum levels of service. The partnership strategy that the Minister mentions is operating in reverse at present.
Mr. Woolas: I had spotted the point that the hon. Lady makes and I was aware of that. The PCTs are one of the major partners, if not the major partner, of local authorities in the delivery of local area agreements. Therefore the alignment of financial periods and spending decisions, both revenue and capital, is very important. It follows that it is essential that the partners work in partnership. I acknowledge the point that in some instances the financial decision making of the local authority and the primary care trust can be out of kilter, but the local area agreement process that we have introduced allows the council and the PCT to work together, and the previous regime did not. The second and more important point, which the hon. Lady must surely acknowledge, is that it is incumbent on the PCT, as it is on the local authority, to balance their books. There is little point having financial stability and predictability if one is simply building up a deficit in one’s accounts. Against the background of increased resources, it is surely right—it is surprising that the hon. Lady disagrees—that PCTs and councils should balance their books.
Mr. Binley: The point I was making about 2008-09 is that local government reorganisation will cost councils in those years. On top of that we have the growth agenda and on top of that we have the mistake—recognised by the Government—that there will have been no growth in Northampton between 2001 and 2008. All those factors come together at a time when we are trying to put into effect single status, because it was neglected before. That is a massive amount of additional expenditure and I want the Minister to recognise the accumulation of problems that we face.
Mr. Woolas: I give the hon. Gentleman the assurance that local government reorganisation will not take place at the expense of the council tax payer. Unless there is a proven case that reorganisation will save money rather than cost money, it will not go ahead. I hope that he is reassured by that. I note that he said that the reorganisation was what his local authority wanted. I repeat for the record that it is not my proposal.
On total grants, I confirm that the Government will provide for £65.8 billion in 2007-08, an increase of £3.1 billion or 4.9 per cent. over 2006-07. Within that total, formula grant, which we are debating today, will total £25.6 billion in 2007-08, an increase of 3.7 per
cent. All of the increases that I have quoted are on a like-for-like basis—this is the important point that the House has just been debating—as they are adjusted for changes in function and financing. That is an important point, because several of the representations that I received—I suspect that the same applies to hon. Members—were on that point.
I shall expand a little further. A simple cash difference in the amount of grant that an authority receives from one year to the next is no doubt a useful figure, but it is not the whole story. That is because from one year to the next we may ask local government to take on a new task, or drop an old one, or to transfer the financing for an existing function to a different body or a different financing route.
To take the most dramatic example of recent years, the introduction of dedicated schools grant from 2006-07 meant a large reduction in cash terms in the formula grant received by education authorities compared with the previous year. However, that would not have been a sensible comparison, because previously they were also receiving DSG, so we adjusted the comparison for formula grant purposes to reflect that.
This year, the main adjustment is for something rather less obvious. When we introduced multi-year settlements, we needed also to make changes in the way support for capital expenditure is provided. Any allocations that needed revenue support through the formula grant needed to be made in advance, so that we could calculate two years’ worth of formula grant. However, some capital programmes are not so predictable: for example, when expenditure is inherently lumpy with large projects, or funding is based on a bidding process. So those programmes were switched to being supported by the Government with a direct capital grant.
The effect of that, financially, was to move the burden of borrowing from councils to the Treasury. Resources that were previously included in the local government settlement to help support borrowing were therefore transferred to the Treasury.
To reflect that financing change, we recalculate the prior year—2006-07 in the case of the settlement that we are debating today—as though the transfer for 2007-08 had already happened. A number of councils objected to the resultant reduction in their base position and, therefore, to the fact that their cash increase from year to year was less than the adjusted, like-for-like increase.
I believe however that councils could hardly object to the underlying principle of adjusting since, if funding were transferred into the settlement, it would give authorities on the floor a larger increase. As I told my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Barnsley, Central (Mr. Illsley), I am certainly prepared to look again at the way in which the grant floor operates from 2008-09 onwards, but I will not change the basis for 2007-08.
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