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Mr. Eric Pickles (Brentwood and Ongar) (Con): The Minister has been very kind about giving way, but I seek clarification on a technical point. The Chancellor’s spending review will have an effect on the move to three-year settlements. I presume that some priorities
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will be changed, with knock-on effects on the various spending blocks, and that the Minister will introduce dampening mechanisms involving ceilings and floors to cushion those changes. Will he be able to oblige local government by giving a description of those mechanisms a little earlier than normal?

Mr. Woolas: The hon. Gentleman raises an important and fair point. As I said earlier, moving to multi-year settlements means that we must make a special effort to look at all the relevant circumstances, and the consultation timetable is being considered at the moment. My policy is to ensure that the spending period of a local authority is aligned with the Treasury’s and also, as far as possible, with the financial periods of its local government partners in the local area. Moreover, that alignment will be reflected in special grant allocation so as to provide a stable framework for public finance. It is too early to give the hon. Gentleman a straight yes in answer to his question, although I acknowledge that it is a valid one to ask.

Councils are understandably keen to get hold of information on the capital grants that will have taken the place of supported borrowing in 2007-08. Some allocations for 2007-08 have been announced but others, mainly bid-based programmes, are not able to work to that deadline. I undertake to keep the latest information on our website, as happens with other revenue grants.

David Taylor: My hon. Friend the Minister acknowledges the impact that atypical capital expenditure, especially in connection with school replacement, can have on the calculated grant increase, but I hope that he will explain a little more about his rationale, either now or in writing. For example, Walthamstow, Knowsley, Solihull, Newcastle city and Sunderland all have smaller amounts of gross atypical capital expenditure adjusted for the calculated grant increase. In contrast, Leicestershire’s amount was larger, but no adjustment was made. Will he revisit that case and write to me?

Mr. Woolas: I looked specifically at the point my hon. Friend raises. There are different routes and frameworks for capital financing and I think that he has tabled questions on that subject, but I will give him further details. The differences between local authorities make the different routes for capital financing difficult to explain in lay language. My hon. Friend indicates that it would be helpful if I wrote to him about the details, and I undertake to do so.

During the consultation period, the Department received 169 written responses from 136 individual authorities, Members, and groups of authorities, and I met delegations from groups representative of the different types of authority. The most frequently raised issue was the way in which grant changes are damped from year to year—a point that has also been raised today. A number of authorities opposed in particular the way in which the new formulae for social services for children and younger adults are being phased in at the same time as the overall grant settlement is subject to the floor, which is another point that has been raised in the debate. However, given that the new formulae produce considerable swings between authorities, I took the decision last year to phase in the new formula
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for at least two years, and I have not been persuaded that I should reopen that decision for the second year of the two-year settlement. However, we will look at the issue again for the next three-year settlement, from 2008-11.

A number of responses raised concerns about the population figures that we use in the settlement. As in other areas, we use the best data consistently available across all local authorities, and for population that means the estimates and projections produced by the Office for National Statistics. As Members know, the ONS is engaged in a programme of work to improve progressively the methodology used in calculating statistics for population and, in particular, for migration. Ahead of the next three-year settlement, the ONS anticipates incorporating in population estimates and projections improvements in data on the geographical location of international migrants. Beyond that time, work will continue, but it is clear that there are no quick fixes and change will be gradual.

A number of authorities and groups asked us to increase the amount of grant available by £1 billion, on the grounds that the yield from business rates had increased since last year. That sounds an agreeable prospect, but unfortunately it ignores how public finances are managed and planned. The Government provide for an aggregate of funding to be distributed to local government for the three years of the spending plans. That aggregate includes business, or non-domestic, rates and revenue support grant. If the business rates yield decreases, the Government bear the risk and increase the RSG accordingly, but it is not a one-way street; if the business rates yield increases, the Government cannot conjure up another billion pounds from thin air.

I considered all the points that bear on the amount and distribution of grant in 2007-08 in the light of the policy on three-year settlements and found no circumstances sufficiently exceptional to cause a change in the plans first announced last January, so I confirm my proposals on grant distribution, including the grant floor levels. Those floors—the minimum percentage grant increase, on a like-for-like basis—are 2.7 per cent. for all authorities, except police authorities, where the floor is 3.6 per cent., which the House debated earlier. For the future, before we decide on proposals for grant allocation from 2008-09, there will be further opportunities for authorities and groups of authorities to make proposals if they want to do so, and there will be a further round of consultation.

Another fair and predictable grant settlement means that there should not be any excuse for large council tax rises. I certainly do not think that the scare stories that are dreamed up sometimes by Opposition Members qualify as factors that councils should take into account in setting their budgets. I am pleased that the Local Government Association predicts that there will be council tax increases below inflation this year. I can confirm to the House that the Government remain prepared to use their capping powers to protect council tax payers from excessive council tax increases in 2007-08. That message applies to all authorities, including fire and police authorities.

Sir Paul Beresford (Mole Valley) (Con): I have a quirky question. The cap is normally assumed to be a percentage. If the percentage rise for a council with an
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expensive council tax—I am not going to mention any, but we have a few—was 2.5 per cent., that would be a considerable increase on the doorstep. But if the percentage rise in the Minister’s favourite council, Wandsworth, was 5 per cent., in money terms that increase could be distinctly lower than in the more expensive council with half the percentage increase. So why is it always said that there is a percentage level set? That appears to be the impression that the Minister and his predecessors have given in the past.

Mr. Woolas: The hon. Gentleman is eloquently trying to tempt me down a route that I do not wish to go down, although he does remind of Rodney Bickerstaffe, who put the same point rather more bluntly in trade union negotiations. He said that x per cent. of nothing is nothing—in more industrial language than I have just used, as the House may imagine. It might help the hon. Gentleman if I laid out the policy towards capping and then answered the specific point that he made in relation to his authority.

Sir Paul Beresford: It is not my authority.

Mr. Woolas: I think that the hon. Gentleman carries a spiritual ownership of it through the generations. Certainly, the hon. Members that represent two of the three constituencies in Wandsworth would blame him for what they see as the problems—perhaps the third would not, but let us not go into that.

No decisions have been taken on capping principles for 2007-08, but no authority should make the assumption that it is somehow immune from the capping policy. As in previous years, we will take action to deal with excessive increases if that proves necessary. The principles of previous years should not be used as a guide for the future. In order to cap, the Secretary of State must decide whether an authority’s budget is excessive according to a set of principles. One of the principles must involve a comparison of the authority’s budget requirement over one or more years. To be capped, an authority must therefore have set an excessive budget requirement increase and have exceeded any other principles the Government decide to use, for example: a principle relating to council tax increases. That would be the case in all authorities.

I said that I would answer the hon. Gentleman’s specific point. As I have just said, we have not decided on the principles for the future. The point that has been made has also been made by a number of authorities. Of course, one has to protect against the inflationary pressure that council tax increases can bring about. The principles that have been used for this year and in previous years have related to budget requirements and council tax increases. That is an important point that addresses the point that he and Rodney Bickerstaffe make.

I am pleased to note that the proposed merger of the fire and rescue services in Somerset and Devon will go ahead next year. I can confirm my proposals for the alternative notional amounts for Devon and Somerset fire and rescue authority and Somerset county council. They will enable like-for-like comparisons to be made between 2006-07 and 2007-08 budget requirements for capping purposes and will also prove helpful to those authorities in setting their budgets.

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Local government finance is not normally described in these terms, but I believe that this year’s settlement is revolutionary. [ Laughter. ]

Mr. Pickles: Go on—I didn’t mean to spoil it.

Mr. Woolas: I will. This is the first time the Government have made allocations to councils of formula grant for more than one year at a time. It is a step on the way to passing on a full three years of grant following the next comprehensive spending review. Almost as dramatically, the settlement continues the sustained investment in services that has taken place under this Government. We have delivered 10 years of above-inflation grant increases to local councils. The distribution of the grant carefully balances greater fairness with stability, and I commend the settlement to the House.

4.25 pm

Mr. Eric Pickles (Brentwood and Ongar) (Con): The settlement is revolutionary, in the sense of listening to the late Enver Hoxha announcing the tractor production figures for the great Albanian republic.

The Minister gave several technical justifications for the settlement, which I am sure that we all enjoyed, but outside the Chamber, the Government seem remarkably content about the projected increase in council tax. Their contentment is almost verging on smugness. The Minister was quoted in The Times last week as saying:

No doubt he had in mind the magnificent London borough of Hammersmith and Fulham, which, after decades of Labour mismanagement and waste, has been able, under a new Conservative administration, to cut its council tax by 3 per cent. However, not all authorities have the mixed blessing of inheriting a badly run council. Elsewhere, we are seeing increases.

Mr. Davey rose—

Mr. Pickles: How nice to see the hon. Gentleman in his customary place.

Mr. Davey: The hon. Gentleman mentions Hammersmith and Fulham. Does he realise that because the authority gets a grant per head of £624, it is one of the better-off London boroughs? If Kingston received the grant per head of Hammersmith and Fulham, we would be able to cut our council tax by 80 per cent.

Mr. Pickles: The borough was Labour-controlled, but is now Conservative-controlled. It is the change from Labour to Conservative about which I am remarking. No doubt the hon. Gentleman will have plenty of time to make various points about the budgetary blocks.

Mr. Andrew Slaughter (Ealing, Acton and Shepherd's Bush) (Lab): I do not wish to detain the hon. Gentleman because I hope to have the opportunity to tell the truth about Hammersmith and Fulham council later—

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Mr. Andrew Pelling (Croydon, Central) (Con): Labour lost.

Mr. Slaughter: That is true.

I assume that the hon. Gentleman agrees with the cut in the council tax. Does he also agree with the extraordinary cuts—schools have been closed and home helps have been sacked—across every single service in the borough, ranging from street cleansing to theatres?

Mr. Pickles: I will come on to this in greater detail, but the council essentially has to pick up the tab for the changes in the NHS. The hon. Gentleman has said that it is important for authorities to balance their budgets and I think that he introduced the concept of robbing Peter to pay Paul.

Council tax will hit the £1,300 mark from April. That is the equivalent to people paying £110 a month out of their pensions or take-home pay. We are well on the way to a band D bill of more than £1,500 in a couple of years. As the Daily Express said when the settlement was announced—I think that it speaks for the nation on this occasion—since Labour came to power, there has been

As the Minister recently admitted:

There has been an increase on top of an increase, on top on an increase, on top of an increase. We have heard the same weary tale for 10 years: increases piled on top of one another. We have seen increases of £59, £51, £48, £55, £74, £126, £65, £47 and £54. There is now an increase this year of £44. There has thus been an increase of £623 for an average home, although that amount is bigger for one of Labour’s millionaire donors. Householders may well wonder if they would achieve better value by clubbing together and using their £623 contribution to buy a life peerage. It is a stark measure of council tax rises under the Government that an increase of 3.5 per cent. above inflation—the Chancellor’s favourite measure—can produce a monetary amount that a decade ago would have required double-digit percentages to achieve. A £44 increase hits someone’s pocket hard, whether it is caused by a 3.5 per cent. increase in council tax or an 11 per cent. increase. It is a big increase if someone is struggling to make ends meet.

Labour inherited a system of council tax finance that worked. It is incredible that as recently as 1998 the Government should declare:

Within nine short years, the Government have wrecked that tax, as they have wrecked so much else in local government. They continue to proceed with the planning and a computer database for council tax revaluation in England. Nice neighbourhoods, scenic views and home improvements have all been targeted, as homes with such features will be subject to a hike in taxes. The hounds of the Minister’s paparazzi-like council tax inspectors have dug even deeper into people’s lives. In Wales, the 2005 council tax revaluation resulted in four times as many houses moving up a band as down.

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Northern Ireland has been used as a testing ground for the new price index scheme by the Labour Government, and from April, every home will be charged 0.633 per cent. of the house price every year. In Scotland, a report by the Liberal Democrat and Labour Executive backs a house price index of 1 per cent. a year. Such a tax is being considered by the Lyons inquiry—we look forward to the publication of that report in March—but if it were introduced in my constituency, a hard-working family living in an average house would have to pay about £2,000 a year. The majority of year-in, year-out council tax increases are the direct result of national pay increases and unfunded burdens imposed by central Government on local authorities. Those arguments are well rehearsed, but I wish to offer the House two new ones.

The latest addition to the list of Government schemes is the free bus pass for over-60s. Everything would be fine if only a few pensioners took up the offer, as funding for the scheme ignored past demand, and assumed a modest increase. Predictably, that assumption was wrong, and demand increased while central Government funding did not. Lord Bruce-Lockhart—the Minister’s favourite Conservative spokesman—said in The Times:

Mr. Mark Prisk (Hertford and Stortford) (Con): Is my hon. Friend aware that East Herts district council has discovered that the cost of that apparently generous scheme is £732,000 this year? Is it not ironic that the very people whom it is meant to help will have to foot the bill?

Mr. Pickles: Yes. We often deal with billions of pounds in the Chamber, so that sounds like a relatively small sum of money. For the good folk of the district council, however, it is an enormous part of their budget. Recently, I had the opportunity to meet some of Hertfordshire’s splendid councillors, and what is true in that county is true across the country. It is a prime example of a proposal that only works if people do not take it up. If people use their pass to travel by bus, the whole thing starts to collapse.

Mr. Pelling: In Croydon, the cost has increased by 8.3 per cent. to £862,000. Does my hon. Friend not agree that the figures quickly accumulate into millions of pounds and more, and the burden will fall on hard-pressed council tax payers?

Mr. Pickles: Yes. The Government had their day, and got all the good press, but the hard fact is that it is not they who will foot the bill, but the hard-pressed council tax payers. Let me give my hon. Friend another example, with regard to licensing. In previous debates, I have raised the worry that licensing authorities would not be fully compensated for the extra costs imposed on them by the Government. Assurances were given in the Chamber that that would not be the case, but we now have the benefit of the Elton report on licence fees, which said:

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