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I welcome this debate on local government and look forward to the contributions that hon. Members on both sides of the House look set to make.

The Department for Communities and Local Government does what it says on the tin. We are committed to local government delivering for communities. We challenge local government to be the best that it can, and we champion local government because we believe that it has a vital role to play in the way that our country and our communities prosper.

Mr. Charles Walker (Broxbourne) (Con): Will the Minister give way?

John Healey: I am very early on in my speech, but I am delighted to give way to the hon. Gentleman.

Mr. Walker: The Minister referred to championing local government. As he will know, local authorities of all complexions are struggling with losses as their money is locked up in Icelandic banks. Can he assure the House that he is helping counties such as Hertfordshire and Kent to get their money back from those banks and that he is working closely with the Chancellor to ensure the right outcome in the next few months?

John Healey: I can indeed. I am working closely not only with Treasury Ministers and the Treasury but with the Local Government Association and local government itself. If the hon. Gentleman will forgive me, I will deal with the position of councils and the Icelandic banks later, having met the LGA and Treasury Ministers earlier this afternoon.

Some may ask why local government is important when the eyes of the country are on national Government and international governance during this global economic crisis. In these circumstances, local government is even more important. It touches people’s lives—from keeping streets clean, maintaining parks and open spaces and collecting rubbish and recycling, to providing schools and care for the elderly. Local authorities run the services that people see and need every day.

Mr. Graham Stuart (Beverley and Holderness) (Con): Will the Minister give way?

John Healey: Of course.

Mr. Stuart: I am extremely grateful to the Minister, who is as gracious as ever.

On supporting the elderly, the biggest challenge facing local government is the provision of social care for an ageing population. The hon. Gentleman will be aware, not only as a Minister but from his constituency work, that in many cases only those with serious or severe needs receive support in their homes from local authorities. Will he comment on that and on his plans to ensure that local government can be there to help people when they most need it?

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John Healey: Again, I can give the assurance sought. The hon. Gentleman is right: the population changes that we face over the next decade or two, and the changes in the population profile, pose enormous challenges for us all. That is why we are preparing a Green Paper to open up some long-term debate on this. It is why we commissioned an independent review of the guidance on how the entitlement is working in local authorities. It is also why, as he will have noted, when we were able to set the three-year spending review for local government for the first time ever, the authorities with social care responsibilities rightly saw the biggest increases in their budgets over those three years. When we combine the contribution of our formula grant with the grants that the Department of Health is making for these services, we see that over these three years there is a real-terms increase of about 6 per cent. each year for those authorities and for those services. In the longer term, that will not be enough, because the population pressures that the hon. Gentleman rightly mentions require us to rethink how we design, fund and deliver social care for the adult population, particularly for the increasing numbers of elderly people.

Mr. Graham Stuart: I am grateful to the Minister for mentioning three-year financing. Am I right in thinking that the level of finance going to local authorities and thus to social care is a fraction of that given to health? He said that attempts to create a joined-up system between health and social care will be looked at in the rethink. Will we try to ensure that those areas move together? It would make no sense to pour extra funds into health while a great deal less goes to social care, which is often just as needy.

John Healey: I hope that we will have something of a debate, as well as a discussion, but the hon. Gentleman is right. We see throughout the country that local authorities and parts of the health service, particularly go-ahead primary care trusts, are looking to create a joint budget and to joint-plan and joint-manage the sort of services that people need. In the end, people need the services that they need; they do not much care about which agency is responsible for delivering them. That institutional divide should not be apparent to them, and we should make every effort to reduce it further.

Mr. Hugo Swire (East Devon) (Con): I entirely agree with what the Minister is saying. The provision of care, particularly long-term care, is of no consequence to those receiving it—other than that they get it—but the Minister will have to think long and hard with his Treasury colleagues about the impact of the economic downturn. In my constituency, we have an elderly population, a lot of whom are cared for in the longer term by social services, but a lot are privately cared for, and an element of them will no longer be able to afford to pay fees for nursing homes, care homes and so forth, so they will be necessarily thrown back to the public sector. What assessment is the Minister making of long-term care provision for elderly people as a result of the economic downturn?

John Healey: The hon. Gentleman anticipates an area of my remarks that deals with the impact of the credit crunch and the pressure on local government. If he and other hon. Members will forgive me, I shall make a little progress to get to those points. If they feel that I have not adequately covered them, I will give way again.

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Local government is important because it affects and touches directly people’s lives. Local government knows its area. It knows what affects its residents and what concerns them most. It also spends our money, and more than a quarter of public sector spending is spent through local authorities. It would be a mistake for anyone to overlook the capacity, authority or influence of councils. Beyond that, I believe strongly that in this day and age, no part of Government—no Department or agency—can deal with the challenges it faces, or deliver the services it is charged with, on its own. The Home Secretary’s local policing pledges, the jobs ambitions of the Secretary of State for Work and Pensions, and the skills aims of the Secretary of State for Innovation, Universities and Skills all increasingly require the alignment and the effort of others.

No part of Government can any longer deliver a centralised and standardised service if it is to meet successfully the needs, aspiration and performance required in widely differing local areas, and no part of Government can any longer deliver successfully without considering the contribution of local government.

David Howarth (Cambridge) (LD): The Minister talked about the interaction of various Departments with local government and we have seen two particular schemes—one from the Department for Culture, Media and Sport on swimming and the other originating, I think, from the Department for Transport on concessionary fares—where the funding formulas have been extraordinarily crude and inappropriate, especially for two-tier local government. Can the Minister explain to the House the procedures for ensuring that when Departments other than his own deal with local government, they do so in a way that makes sense for local government, and that they consult his Department before they make detailed funding proposals?

John Healey: I can indeed. The Government have a principle of new burdens financing. It is one that the Secretary of State worked hard to insist upon with strong support from the Treasury. If any other Department or Secretary of State wishes to see things done that place a new burden of activity with new cost on local government, they pay for it. In the case of the concessionary travel, which was widely welcomed across the country, local authorities are receiving an additional £212 million this financial year to pay for the additional right for elderly people to travel free on buses, not only in their local authority area but anywhere in the country. [Interruption.]

Mr. Andrew Turner (Isle of Wight) (Con) rose—

Daniel Kawczynski (Shrewsbury and Atcham) (Con) rose—

John Healey: I am clear that I did not misunderstand, but I shall give way to the hon. Member for Isle of Wight (Mr. Turner).

Mr. Turner: The hon. Member for Cambridge (David Howarth) was worried not about the effect on the whole package, but the funding formula.

John Healey: If the hon. Member for Cambridge (David Howarth) checks Hansard, he will read that he raised two concerns in one intervention. He mentioned
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the formula, and the answer to that point is simple. We held extensive consultation before this financial year, which included the Government’s responding to local government’s points. Local government wanted the funding for the additional part of the free travel right to be provided, not through the formula grant, in which we had already invested, but through a specific grant to local authorities. We have done that.

Daniel Kawczynski: The Minister stated that £212 million extra will be provided for concessionary travel and he also said that the Secretary of State for Transport should provide extra capital straight away. Why, therefore, was that funding unavailable last year, when taxpayers in Shrewsbury had to subsidise the local concessionary bus travel?

John Healey: The hon. Gentleman is wrong. Funding was available last year and the previous year. Two years’ funding went into the formula grant—I believe that the amount was around £360 million. The money was available and given to local government. At that stage, it was designed precisely to fund for those two years the right of elderly and disabled people to travel free on buses in their area. As a result of the consultation—the hon. Member for Cambridge asked me how we went about that, and I told him—local government wanted the additional money to be paid instead through a specific grant to local authorities. We are doing that, and we consulted about the basis on which to do it. Clearly, there were options and we chose the one that we regarded as likely to produce the best result. However, no one could say with certainty before the introduction of the new right precisely how people would respond. The Secretary of State for Transport and I believe that, with £212 million this year alone to fund the additional right to travel free, there is enough money, according to anybody’s best modelling, to cover the costs to local authorities.

Mike Penning (Hemel Hempstead) (Con) rose—

Mr. Andrew Turner rose—

Daniel Kawczynski rose—

John Healey: I shall give way.

Mike Penning: To which Member?

John Healey: I give way to the hon. Member for Hemel Hempstead (Mike Penning), because he has not yet intervened and he should have his turn.

Mike Penning: The Minister is generous. Does he realise that another matter is causing concern? Bus companies are encouraging my constituents to take out the free concessionary pass, regardless of whether they will use it, and charging the local authority £30 to do that. There is no point in issuing the pass to those who will not use it. If they intend to use it, it is wonderful, but if not, the bus companies get free money, which costs my constituents and the Treasury.

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John Healey: The hon. Gentleman makes a specific point about his local area, and I am happy to ensure that the Secretary of State for Transport considers it.

David Howarth: Many Opposition Members are trying to make a point about the distribution formulae, which seem constantly to disadvantage specific sorts of authority—namely, those that provide many services to the surrounding area and to people who do not live in the local authority area. That means that local authorities with swimming pools provide swimming services to people outside their area, yet the funding formula gives them no credit for that. Those authorities also effectively pay for the bus journeys of people from outside their district. I do not want to seem ungrateful for the money—the total is very welcome—but the accumulation of the same error, affecting the same authorities over and over again, should surely be looked into.

John Healey: I do not accept that there has been an accumulation or repetition of the same error. We have done our best in consultation to reflect the likely demand in areas such as Cambridge, which are places to which people will wish to travel, particularly with the new right to free bus travel.

Mr. Andrew Turner: The problem facing the Isle of Wight, which is not subject to people travelling in from outside, at least not by bus, anyway— [ Laughter ]—is that normally we pay about £2 million towards the cost of travel for elderly people, but that has increased to £5 million. Can the Minister say whether he would be willing to look into that for the rest of this year, so that a new sum could be agreed that was nearer to £5 million, which is the cost of providing bus travel for elderly people?

John Healey: I have seen some of the estimates of projected cost from local authorities, which understandably want to make the case for their area. Of course Ministers are watching and want to receive reports on how patterns of travel appear to have been affected by the new right. We want as many people as possible to take up the new right, so we will do what the hon. Gentleman encourages us to do. However, I do not want to raise any expectations among local authorities, not least on the Isle of Wight, that when the picture is clearer as a result of that work they may be in line for extra money. A significant amount is going in this year, next year and in the third year of the current spending review, precisely to cover the cost of the new entitlement.

Let me return to a point that was raised earlier. Local government is not immune to the credit crunch. Like families, firms and central Government, councils too must tighten their belts. Local government faces direct pressures as a result of the credit crunch, as well as the rising cost of fuel and other goods. It is more expensive to borrow, which has implications for local authorities, as it does for everyone else. Some councils report losing revenue from planning fees, for instance, as fewer applications are made for building projects. Finally, some councils also report increased demand for local government services and support. All that is happening within a tight financial climate.

Let me turn to the consequences of the collapsed Icelandic banks. The Government have had two priorities. Our first is to do everything that we can to help councils, alongside other creditors, to get back the money that
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they had in the Icelandic banks. Our second priority is to work with the Local Government Association to assess the position, council by council, and agree action that we will take together where some are struggling. Indeed, along with the Economic Secretary to the Treasury I met local government leaders earlier this afternoon.

As things stand, the LGA reports that there are 116 local authorities with £858 million in deposits in the four collapsed Icelandic banks. The LGA also tells us that 13 local authorities have reported that they might face short-term difficulties, but that they have no reason to think that wages will not be paid or that services will be put at risk.

However, we want to be clearer and more confident about the position of these councils, and we want the message to go out that councils that could have severe short-term problems will not be on their own. I can therefore report to the House that financial experts are going into three authorities today, and that the LGA and I expect initial reports by the end of the day. Experts will continue to work with those councils after that. Specialists are also contacting the other 10 authorities today, and offering to help them to assess their position and their options. The Government and the LGA will provide further expertise to those councils if necessary.

Daniel Kawczynski: At the end of the day, one has to ask oneself why those councils invested taxpayers’ money in an Icelandic bank. Shropshire county council and my local borough council were under the same pressure to maximise the return on their investments. Fortunately, however, they did not make that mistake. Why does the Minister think some councils in our country are having to invest their money abroad? Is it not simply because they are not getting enough from the Government?

John Healey: In 2004, fresh guidance was put in place for local councils considering their investments. Those authorities were not under pressure to maximise their investments, as the hon. Gentleman puts it. They were required to make investments prudently, and to give the highest priority to the security and liquidity of the investments that they made, and only then to consider yield in that context, and only to the extent that it was consistent with security and liquidity. I hope that that addresses his point.

Robert Neill (Bromley and Chislehurst) (Con): The result of the Minister’s discussions has already started to be reported in the media. For the sake of openness, and to prevent rumours from going around, does he think it is now appropriate to tell us which local authorities are in that difficult situation? Furthermore, the level of exposure is sometimes now quoted as having moved up to about £950 million. Is it not time for the Government urgently to publish a comprehensive list not only of the local councils affected but of all the other authorities involved, including fire and rescue authorities, housing associations, regional development agencies and local authority-driven private finance initiative projects? As he rightly says, there is much collaborative working in the local government-related sector, and we really need a comprehensive understanding of all the exposure in the sector. We do not have that yet.

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