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Local Government Finance

7.31 pm

The Minister for Local Government (John Healey): I beg to move,

On 6 December, I announced plans for Government grant allocation to local authorities in England. I announced grant to councils not only for the next year but—for the first time ever—for the next three years. Councils now know what they will get, and can plan and manage ahead. I also announced not only the core formula grant, but the allocation of 61 other grants from eight different Departments. Local government will therefore get a total of £2.7 billion extra next year, with overall increases in each of the next three years of 4 per cent., 4.3 per cent. and 4.3 per cent. That continues the inflation-busting rises given by the Government to support local councils each and every year since 1997.

Mr. David Clelland (Tyne Bridge) (Lab): I have to challenge my hon. Friend on his comment about inflation-busting rises. He has said that the settlement would

Why, then, has Gateshead—91 per cent. of whose households are in bands A to C—been given a settlement of 2 per cent. when inflation is almost 4 per cent. and the average for the metropolitan authorities was 4.1 per cent.? Why is that four-star authority, which is often held up by Ministers as a beacon of good Labour local government, constantly given such poor settlements? What is wrong with the formula, and when will the Minister put it right?

John Healey: There is nothing wrong with the formula, which is the best and fairest way that we have established for distributing the money available. Last year we consulted on whether to alter the formula, and I confirmed the decisions that I took as a result of that in my statement to the House on 6 December.

The fact is that next year Gateshead will get more than £6.5 million extra overall. Gateshead is also protected by the system of floors, which means that all councils in all regions will get an increase in the core formula grant in each of the next three years. I can tell my hon. Friend that there were, and are, those who argue against the floor system that the Government introduced in 2000. If I had listened to their arguments and representations, my hon. Friend’s authority might not have been as well off as it is today.

Mr. Mark Hendrick (Preston) (Lab/Co-op) rose—

Mr. Alan Beith (Berwick-upon-Tweed) (LD) rose—

David Howarth (Cambridge) (LD) rose—

John Healey: I shall give way to my hon. Friend, and then to the Liberal Democrats.

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Mr. Hendrick: My hon. Friend mentioned inflation-busting increases. For Lancashire county council, which is based in my constituency, we are seeing inflation-busting increases of 8.1 per cent., 5.7 per cent. and 5.1 per cent. for the next three years—well above inflation. However, for some reason the district council is getting increases of only 1 per cent., 0.5 per cent. and 0.5 per cent. again the following year. Why is there that shift of resources away from the district council towards the county council?

John Healey: The principal reason is this. In preparing for the spending review decisions that we took last year, we—with local government, including the Local Government Association—went through a detailed exercise in which we analysed the pressures that councils face in meeting population changes, service demands and people’s rising expectations of local services. It was clear that, as many have told me, there are two main issues—social care and waste disposal—on which the analysis demonstrates that the pressures are likely to be greatest. The larger part of the increase in the core grant to local authorities this year is therefore going to authorities with social care and waste disposal responsibilities. That is one of the principal reasons why Lancashire county council has a larger increase than the district council.

Mr. Beith: On that very point, the three district councils in my constituency are at almost 1 per cent., going down to 0.5 per cent. They are very small authorities, and with a settlement as tight as this, it is extremely hard for them to make the savings necessary merely to keep pace with inflation. Does the Minister understand that problem?

John Healey: I do indeed. A little later I shall talk about the importance of savings and efficiencies. I recognise that things will be different, and harder, for some councils than for others. Nevertheless, I think that the right hon. Gentleman would agree that there are pressures, particularly on social care budgets, and that we should recognise them. That is what we are doing in this settlement, to help councils provide the services that older people, in particular, need in the next three years.

Mr. Philip Dunne (Ludlow) (Con): The Minister says that he is confident about the fairness of his formula. How does he reconcile that with the announcement only last week, by his colleagues at the Department for Children, Schools and Families, that the formula for the dedicated school grant needs to be completely rewritten?

John Healey: Even by his standards, the hon. Gentleman has grossly caricatured and misrepresented the Department’s announcement. If the hon. Gentleman is concerned about rural schools, he should know that we have always been clear in our guidance to local authorities with responsibility for local schools and about the additional support that we give authorities that have to support rural schools. Some such authorities will be smaller, by and large, than other authorities.

If the hon. Gentleman wants me to check his point, I shall do so. However, I think that he will find that the additional money from the Department for Children,
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Schools and Families specifically to help areas under pressure to support local schools is £188 million this year.

Mr. Frank Field (Birkenhead) (Lab): I have had to express disappointment with eight of the Government’s previous settlements as they affected Wirral. Indeed, I so expected that record to continue that I did not thank the Minister when he made the announcement. I should like to put on the record that at least one authority represented here is grateful to the Government for implementing more fully the formula by which they said that they would distribute the money. That formula was based on fairness.

John Healey: I appreciate my right hon. Friend’s remarks—although I am a little taken aback by them. I hope that this year, unlike previous years, he will not have cause to revise his observations. At the centre of the settlement is the implementation of changes to the social services formulae that were decided in 2005, introduced in 2006 and double-damped for the following two years. We are moving to a situation whereby we allow those formulae, which represent our best assessments of relative needs, to reflect the settlements that we give. That is a fairer settlement, based on the principle of the analysis that we have carried out. Let me say to hon. Members on both sides of the House that although this is clearly the right thing to do, the general system of floors damping means that it will take not just this spending review but probably the next as well, before the formula is fully unwound. In that way, we can avoid the extreme changes and volatility that characterised the finance system before this Government introduced the system of floors.

Mr. David Kidney (Stafford) (Lab): It is true that the stability provided by a three-year settlement is welcome in Staffordshire. However, despite my best promptings Staffordshire has not responded positively to the White Paper about unitary authorities or enhanced two-tier working, and this year the shire districts, notably Staffordshire borough council, have very poor settlements. Does any part of the calculation of the settlements suggest that areas with two-tier local government should be encouraged to move to unitary authorities?

John Healey: The short answer is no. The slightly longer answer is that I am reluctant to get tempted into the territory of local government reorganisation, because this is a finance settlement debate. [ Interruption. ] I am glad that my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) calls from a sedentary position, “That’s very wise.”

David Howarth: The Minister mentioned pressures. Cambridge city council is another example of a district council with increases of 1 per cent. and then 0.5 per cent.—well below inflation—and one of the pressures on it is caused by the Government: the concessionary fares scheme. That is a good scheme—but because Cambridge is an urban area in the middle of rural areas, the Government are offering £600,000 for a scheme that is costing it more than £2 million. On a net budget of only about £20 million, that is an enormous charge.

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John Healey: The settlement that I announced on 6 December included £212 million extra from central Government to support the additional right to national free bus travel that people will have, which is of value to perhaps more than 11 million elderly and disabled people. The funding that continues to support the existing concessionary travel will remain, and will continue to be paid through the rate support grant, so this is additional funding just to cover the extra required to fund the new entitlement in April. Clearly, none of us quite knows what the impact of that will be, but the travel figures suggest that at present only 4 per cent. of people’s bus journeys go beyond the county boundary. The cost of the additional journeys that we look to fund is about £1, so the hon. Gentleman could use that amount as a proxy for each additional journey.

The hon. Gentleman has the figures and I do not, but if—through a specific grant to allocate this extra funding, which was what the LGA urged upon us—his authority has indeed been allocated £600,000 next year for the new national travel entitlement, that is the equivalent of about 600,000 journeys from Cambridge. Unusually from the point of the view of the Treasury and the Government, all the assumptions that we built into the aggregate of £212 million extra for next year err on the side of generosity—but we will have to see how it works in practice. The overall provision that we are making for people’s additional responsibilities and rights is generous; even in his own local case, the hon. Gentleman would have to recognise that there would need to be a lot of additional journeys over and above those made and funded at present for it to be insufficient.

Mr. David Burrowes (Enfield, Southgate) (Con): How can this be a settlement for Enfield based on the principles of stability and fairness, when on the one hand the Government give a 4.5 per cent. grant increase, which appears generous compared with the rest of London, but on the other hand they take away £5 million in clawback through the dampening effect? That is the equivalent of the adult social services bill that the Treasury had previously determined was needed. How can the Minister justify that, and how can he look council tax payers squarely in the face and say, as it does on his press release, that we can make a £60 reduction in their council tax bills?

John Healey: Quite easily. The hon. Gentleman cites his constituency of Enfield. I have the figures for his authority here: a 4.5 per cent. increase in the core grant next year and 3.4 per cent. the following year, on top of an increase next year for all grants of more than £18.5 million. I hope that he will put pressure on his authority and say that he expects it, as I do and as do residents in Enfield, to make the same 3 per cent. efficiency savings next year as we expect in the rest of the public sector. Then it will have not only an extra £18.5 million for services next year but another £6.5 million on top of that—money that it can use to improve services or to keep council tax pressures down.

Lyn Brown (West Ham) (Lab): I welcome the continued increases of some 45 per cent. in local government finance by 2011. That is a stark contrast with the record of the Conservatives, who made real cuts in budgets of some 7 per cent.; as a local
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councillor during that time, I know just how difficult those days were. As I am not one for complacency, however, the Minister will understand if I press the case once again for Newham to be classed as an inner-London not an outer-London borough, because it has inner-London needs that are not yet reflected by its area cost adjustment allocation.

John Healey: My hon. Friend hits the mark in two respects. First, Newham will get a substantial increase in its overall grant from Government next year—more than £25 million. That gives the lie to the idea that this settlement works systematically against the interests of all London authorities. Secondly, she is right that there are problems with the area cost adjustment as a mechanism. She argued the case very hard for Newham to be part of a new arrangement. The fact is that we need to take a much more widespread look at how the ACA works, not only in London, and we will do that once this final settlement is passed by the House, as I hope it will be.

Robert Neill (Bromley and Chislehurst) (Con): Before the Minister departs from the subject of London authorities, will he, first, take on board the fact that Newham has the highest and best settlement of any London borough, whereas in the first year 29 of 33 are on the floor? Secondly, if he wishes to assist London boroughs, will he respond to the representations that have been made to include short-term migration figures in the settlement, which otherwise severely disadvantages boroughs such as that of my hon. Friend the Member for Enfield, Southgate (Mr. Burrowes)?

John Healey: First, the hon. Gentleman is wrong about Newham having the highest formula grant settlement of all local authorities in London; in fact, Barking and Dagenham has. Secondly, I share the concerns of many authorities about how good our population statistics are. They are the best and the latest that we can use, but there are clearly ways in which we can improve them to reflect general migration as well as general population changes. I will come to that subject in a moment, which I hope the hon. Gentleman will welcome.

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): May I further compound my hon. Friend’s earlier astonishment by saying that my local authority, Sandwell, is extremely grateful for the extra that it has received? Historically, it has not had the sort of settlement commensurate with its levels of need. However, one puzzling element of the settlement is the difference between the provisional and the final settlement. Sandwell was informed that it had lost £300,000 as a result of the redistribution of the funding mechanism for family law fees. Sandwell is incurring £400,000 in family law fees, and is somewhat mystified as to why it has lost out on that particular distribution. I would be grateful if the Minister would explain that.

John Healey: I am aware of my hon. Friend’s point. It was put to me by a number of local authorities that I dealt with during the consultation, and also by the Local Government Association. The money in the
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settlement is intended to cover the full cost of family law settlements as a result of a change in approach by the Ministry of Justice. What we had not done, but will do—I shall confirm this—is reflect that situation in the baseline figures that we use to calculate the floor. I think that that may help my hon. Friend and his authority of Sandwell.

Simon Hughes (North Southwark and Bermondsey) (LD): The Minister was kind enough to meet the leader of Southwark council, the leader of its opposition group, myself and others. Will he explain how the people of Southwark—it is a social services authority, so could be classified as a unitary authority in that sense—will get increases of only 2 per cent., 1.75 per cent. and 1.5 per cent.? Clearly, they will lose about 2.2 per cent. in real terms during the coming year—about £5 million. How can that be generous to social services, on which there is huge pressure, and how does it reflect the huge migration in a borough such as Southwark, where there is a population turnover of up to 25 per cent. a year?

John Healey: I did indeed meet the hon. Gentleman and representatives from the offices of my two colleagues who serve as members in his local borough area. I was impressed by the way in which he put the case, and the way in which the leader of the council and its Labour group jointly put their case. The short answer is that his authority benefits from the protection of the floor system. Secondly, his authority will have an interest, as we discussed, in ways in which we can increasingly improve the population and migration statistics at our disposal for making distribution decisions in the future.

The third area, which the hon. Gentleman did not mention, but which we discussed in detail, was the concern the council has to continue progress in regenerating some of the areas where a lot still needs to be done, and to continue the programme started by the council when it was Labour led, which continues now that it is controlled by the Liberal Democrats.

Mr. David Drew (Stroud) (Lab/Co-op): My hon. Friend knows as well as anyone in this House that we in Gloucestershire are still recovering from the impact of the floods, and we are grateful for some of the help that the Government have given us. However, in an answer to a written question from the hon. Member for Cotswold (Mr. Clifton-Brown) published in Hansard on Friday, in which he asked about particular flood resilience help, my hon. Friend said, to put it in a nutshell, that money could be found from within existing resources. Does he accept that there are problems ongoing in the county, and will he look for ways in which specific grant aid might be given so that we can deal with the aftermath of what, in one way or another, has been a pretty horrendous year? What does he have to say about that?

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