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John Healey: That is precisely what we are working with the LGA to achieve. Having met its representatives just before this debate started, I can confirm that the
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figure they gave me was their best available figure, and that the current position is that £858 million has been invested by 116 local authorities, including fire and police authorities, in those four collapsed Icelandic banks. Our job, and our top priority, is now to work with the LGA to ensure that any council that reports that it might now face short-term difficulties is not left without support. That is why we are stepping in immediately to the 13 that have reported that they might face such short-term difficulties. As I have said, financial experts are going into three of those councils this afternoon, and the LGA and I expect an initial report by tonight. Those experts will then continue to work with those councils. Specialists are contacting the other 10 councils today, and offering to help them to assess their position and their options before reporting back to us.

Julia Goldsworthy (Falmouth and Camborne) (LD): I am listening carefully to the information that the Minister is giving us. Clearly, things are moving on with every hour that goes by. He has still not answered the question asked by the hon. Member for Bromley and Chislehurst (Robert Neill), however. Why is he choosing not to reveal the names of the local authorities at this stage? People will be concerned that, although we were initially told that no council had done anything reckless and that no one would suffer short-term problems, we are now hearing that some people might. We appear to be hearing this information after the event, rather than in advance. To continue that theme, may I ask the Minister how many authorities the LGA is waiting to hear back from? If it has not heard from certain authorities, is not that a reason for concern?

John Healey: The LGA is pretty confident that it has the full picture, but that will change as the nature of these investments becomes clearer, and particularly as the dates of their maturity become clearer, as the consequences may be different for different councils.

I would like to identify these councils, but I am not in a position to do so this afternoon. The reason is that those councils provided the information to the LGA, which then shared it with us, but it was given in confidence. It is in everyone’s interest—and not least in the interest of having an open and full debate in the House and elsewhere—to identify the councils, but it is equally important to have discussed the issue and cleared it with those councils first. That is our first duty. The second duty then becomes ensuring that the information is made public as soon as possible so that people can see what action we are taking, form their judgments of it and, if that is what they feel, urge us frankly to do more.

Mr. Eric Pickles (Brentwood and Ongar) (Con): The hon. Gentleman is being very gracious in giving way. I understand his position on disclosure because we are in the same position in having a list of roughly 116 councils and we will not release the information until the Government do, for the same reasons. There comes a point, however, when it is better to release than not to release. A number of people who do not understand local government finance may become unduly concerned about cuts in services and reliability, which is why it would be better for the information to be out in the open. Is the Minister relying on the LGA to look at housing associations, PFI bids and regional development agencies; and if not, where is he getting that information from? I crave his indulgence for a few seconds longer
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and ask him to outline the sort of remedies that will be applied, involving the release of payments both from and to the Government, so that taxpayers can have a reasonable assurance about what is likely to be available in respect of indebtedness.

John Healey: I will do my best to answer that triple-pronged intervention. First, I am grateful that the hon. Gentleman and his party adopt the same view as I do on disclosure. I share his view that it is important to be able to disclose and debate the issue fully and I hope that the LGA will be in a position to disclose that information so that we can all do so shortly. Secondly, we in the Department are beyond the local authorities, ensuring that we can gather the information about the position of other bodies that the hon. Gentleman mentioned.

Finally, I have been clear from the outset, as I was with the LGA last week, that the first and most important step is to get financial experts into any councils that may face short-term difficulties in order to assist with their position, clarify their options and deal with any implications. If necessary—it is not necessary to speculate on this at present—we will look at the financial flexibilities that might be required to help the councils to deal with the situation. In the past, we have been able to do a number of things for councils that, for different reasons, faced severe financial difficulties. We are ready to consider the case for taking such steps again, as and when required, but it is important to do so on a council-by-council basis rather than look towards some generalised bail-out or underwriting of all local government deposits.

Julia Goldsworthy rose—

Mark Hunter (Cheadle) (LD) rose—

John Healey: I give way to the hon. Lady first and then to her hon. Friend.

Julia Goldsworthy: I am grateful. The Government’s response to the banking crisis has included a backstop and I wonder whether the Minister and his Department should make it clear that the same backstop will be there for local authorities as well. Even if there is no underwriting of debts, the Minister should perhaps clarify that capitalisation of any debts that cannot be recovered would provide a way forward for some councils that are unable to recover their deposits. Then, at the very least, council tax payers can be assured that they will not see in-year cuts or significant increases in council tax in the future in order to pay off any losses in one go.

John Healey: Capitalisation is a step that we have taken previously when councils have faced severe financial problems. If councils found themselves in such circumstances as a result of the problem with the Icelandic bank deposits and there was a case for doing so again, we would of course consider it.

Mark Hunter: The Minister has referred repeatedly to financial experts from the Department offering help to local authorities that have found themselves caught up in this crisis. Speaking as a former council leader, I am sure that councils would welcome any help and support that the Government are able to offer, but may I ask the Minister about another form of financial
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expertise which, although it has not been mentioned so far today, is central to the subject we are discussing? I refer to the consultants who have been giving advice to local authorities about their investments in Icelandic banks. Does he share my concern about that advice, and does he agree that his Department ought to hold an inquiry into it to establish whether there are—as many suspect—direct links between its quality and consistency and the investments made in those banks in Iceland?

John Healey: I do not accept the case that the hon. Gentleman is making. As Local Government Minister, I am responsible for the investment guidance that provides the framework within which local authorities, drawing on advice that they regard as sufficiently expert and informed, make their own investment decisions.

In 2004, we changed the system that had previously involved central Government telling councils which institutions they should and should not invest in. As I said earlier, important local authorities now have access to good professional advice. Many have well-trained and qualified people on their staff.

Local authorities are now well-informed investors and are in a position to make and explain judgments, including judgments on whom to use for advice and information. Ultimately, the Government’s responsibility is to ensure, through the general requirements set out in our investment guidance, that they invest prudently and give proper priority to the questions of how safe and how readily redeemable the cash will be. In other words, the guidance makes it clear that they must make security and liquidity their top priorities.

David Howarth rose—

John Healey: I give way first to my hon. Friend the Member for North-West Leicestershire (David Taylor).

David Taylor (North-West Leicestershire) (Lab/Co-op): I was actually waiting to intervene on the subject of housing in a moment or two, but, as a member of the Chartered Institute of Public Finance and Accountancy, may I suggest to the Minister that local government is better supplied with top-quality accounting and financial advice than the civil service? I am not being sarcastic. It is clear to anyone who examines the availability of professional people at the top levels of the civil service that those in local government are better qualified than those in central Government to reach a conclusion about these matters.

John Healey: My hon. Friend made the same point to me when I held other ministerial posts, commenting—from a highly qualified and expert viewpoint—on the professionalism in some parts of central Government, particularly in relation to financial affairs. In many ways, our responsibility in central Government is similar to that of local authorities as defined by the hon. Member for Cheadle (Mark Hunter). We must ensure that we can pick, and draw on, the best possible advice. If we do not have it in-house, we must ensure that we have access to it from outside.

David Howarth rose—

John Healey: I will give way once more, and then I must continue my speech.

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David Howarth: The Minister mentioned the guidance issued by central Government, which does not strike me as particularly specific. Authorities are advised to take into account security and liquidity, and then to obtain the best return that is possible given those two concerns. However, it seems that the Government have made a judgment on whether or not local authorities acted recklessly. Do the Government believe that trading on a single A rate for long-term debt and an F1 rate for short-term debt was all right or not at the time?

John Healey: All I can say to the hon. Gentleman about that is that, as far as we have seen, there has been no clear evidence that local authorities acted recklessly in the investments they made in these four Icelandic banks.

Let me say this to Conservative Members: in the current economic circumstances more than ever, an ideology that drives arguments about a smaller state that does less in the modern world would fail the country and would fail the people who need support now and need confidence for the future. The current problems underline the need for active government and an active public sector to protect the poorest, to correct flaws in the market and to exert the sort of leverage needed to secure the proper role and contribution of the private sector. That is true now, in the current economic difficulties, and it is also true in the future for the long-term success of the economy in all parts of the country. This means we in central Government must give more strength to the leadership in local areas and give more scope to local authorities to set the priorities for their area.

David Taylor: The Minister knows I have considerable respect for his talent and his integrity, and I welcome the promotion to Privy Council status that he enjoyed a few days ago. Nevertheless, I have yet to hear in his contribution of the last 37 minutes the facts to bear out his opening remark that central Government have a considerable respect and regard for the potential of local government. I cite the example of housing, and ask whether he—or his ministerial colleague in winding up—will attempt to justify the rationale for excluding local authorities from the direct provision of affordable, decent, well-managed housing within an accountable framework? That is not what we have at present; instead, local authorities—such as that in north-west Leicestershire, with its 4,700 tenants—are currently testing the waters on coerced stock transfer. This is not a vote of confidence in local government’s ability to shape the priorities for the areas for which it is responsible, and I greatly regret that.

John Healey: In fact, we have recently been changing the circumstances; we have been changing the potential, including for local authorities to begin to build again. If my hon. Friend wants further information on that, I am sure the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Tooting (Mr. Khan), will deal with it when he winds up.

David Taylor: The point is that local authorities should operate on the same level playing field as housing associations. If they have demonstrated a capacity, a track record and the experience to manage properly decent housing stock within their area, why are they not
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able to access the funding that is routinely and automatically given to housing associations if a stock transfer has occurred? That cannot be justifiable, either politically or financially.

John Healey: In the current circumstances, we are ready to rethink, and to reinforce the role of local authorities in the provision of housing and in support for people who need some help to stay in their homes. My hon. Friend will have seen some evidence of that in the housing support package we announced several weeks ago.

My hon. Friend has also challenged me to demonstrate how central Government show their respect for the importance of local government. I simply say to him that there have been 11 successive years of above-inflation increases in Government grant to local councils. He, more than anyone, will recognise what a sea change that was after 1997, when the previous three years had seen a year-on-year real-terms cut in central Government funding for local government.

The job is not done, which is why this year an extra £2.7 billion is going into local government. Next year there will be an extra £3 billion, and the year after that a further £3.15 billion on top. That means that every council in every part of the country will get an increase in its core grant from the Government in each of the next three years.

This is not just about the amount of investment that we have made in local government. We have also put in place the first ever three-year funding settlement, so local authorities now have greater certainty and greater flexibility to make long-term plans and investments. Neither is it just about the three-year certainty of the core grant. Alongside that, last November and this February I was able to confirm 61 specific grants from seven different Departments, also for the three years of the current spending review period. Local authorities now get 43 grants paid in a single sum each month through the new area-based grant, with no strings attached to how they spend it.

On top of that, ring-fenced restrictions on the spending of an extra £5 billion over the three years are being removed, giving local government more money and, crucially, more flexibility to make the decisions that are necessary and right for a particular area. We have also reduced the staggering 1,000 or so performance indicators required of local government to just under 200.

On the other hand, we can examine the recent period and say that local government has responded with its own achievements. It has responded on service standards, with the Audit Commission showing four out of five authorities now rated good or excellent and three out of four improving well or strongly. Of course, for the second year running none is in the lowest performance category. It has responded on setting this year’s budgets, with the average council tax rise at 4 per cent., the second lowest since the tax was introduced 15 years ago. It has responded also on council tax collection rates, which are up for the eighth year in a row.

Finally, local government is making the running on efficiency. I was able to announce last month that the local government efficiency gains from the 2004 spending review period totalled £4.3 billion. Three quarters of that saving has directly released cash for reallocation to
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local priorities or to help to hold down council tax. That has been good news for households feeling the bite of the credit crunch, and it is the equivalent of £193 off the average band D council tax bill.

Of course, local government can and must do more. Satisfaction with council services is decreasing despite a significant increase in service improvements across all local authorities. That is a performance paradox, but when satisfaction decreases it is important for local councils to deal with it.

Julia Goldsworthy: Does the Minister think that the reason for increasing dissatisfaction might be the lack of a clear link between what council tax payers pay and the proportion of their services that that money funds? Would it not be better to raise and spend more money locally than to continue to depend so much on central Government grants?

John Healey: No, I do not think that. That is an argument either for massively higher council tax—perhaps the hon. Lady is arguing for that—or, as a substitute, for a massive increase in income tax for many of those who work. She may or may not be advocating that, too. It is not quite clear what the Liberal party stands for in that regard at the moment.

The other area of concern is shown in the latest citizenship survey, which told us in December that fewer than half of people feel well informed by their council about the services in their area, and that although two in five feel that they can influence decisions in their local area, the majority still do not. Just as politics does not end with politicians, so local government cannot stop in the town hall or the county hall. In times of uncertainty, democracy, at all levels, is more important than ever. People need to know that they can have a say in their circumstances and they need to know where their money is being spent on their priorities. Our White Paper “Communities in control” aims to pass more power into the hands of local people and local communities.

Local government is important, more so than is properly recognised in a British parliamentary and political system that is traditionally very centralised. It is my long-held belief that local government is the point at which people can best connect with politics, that local democracy is central to strong communities and that local involvement with and trust in people is how we make public services respond best to people’s needs. Local government can do more, and our Department’s job is to see that it does.

4.31 pm

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