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The Prime Minister: As everybody knows, we do not give a running commentary on the currency, and never
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have. I repeat the words of Lady Thatcher—to talk the currency down, as the Conservatives are doing, is un-British.

Q11. [239205] Christine Russell (City of Chester) (Lab): What steps does my right hon. Friend intend to take to keep construction workers at work building affordable homes to buy and rent in parts of the country where there is a great scarcity of social housing?

The Prime Minister: My hon. Friend is absolutely right. We have advanced public investment in construction and in other areas, particularly in social housing. Again, that is possible only because we are prepared to spend additional money now. This is the real dividing line in politics: we will give real help to families and businesses now; the Conservatives would do absolutely nothing to help people.

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Local Government Finance Settlement

12.30 pm

The Minister for Local Government (John Healey): With permission, Mr. Speaker, I should like to make a statement on finance for English local authorities in 2009-10. Last year, I announced the first ever three-year settlement, giving greater certainty, flexibility and equity in funding for local government. Today, I am confirming the second year, 2009-10, of this settlement for formal consultation, and the indicative allocations for 2010-11. My hon. Friend the Minister for Security, Counter-Terrorism, Crime and Policing is doing the same for police authorities today. In both years, the formula, or core, grant figures are the same as we set out in this House in January. Alongside this, I am publishing second and third-year figures for 70 grants from nine departments, 43 of which will be paid each month through the new area-based grant, with no strings attached.

Let me be clear—in line with the Government’s policy on three-year settlements, it is not intended that the 2010-11 formula grant proposals will be changed from those published today. Formula grant, which includes revenue support grant, redistributed business rates and police grant, will total £28.3 billion in 2009-10 and £29 billion in 2010-11—increases of 2.8 per cent. and 2.6 per cent. respectively. We will also continue with the same grant floors, so every authority will receive a formula grant increase in every year of this three-year settlement. In total, Government revenue funding for local authority services will be £73.1 billion next year and £76.4 billion the year after—overall grant increases of 4.2 per cent. and 4.4 per cent., in line with the figures that we published last year.

This means that with a Labour Government, councils have had above inflation increases every year since 1997, and now have an extra £8.9 billion through this current three-year settlement. In spite of significant pressures on public finances, this confirms the Government’s continuing commitment to local government and continuing investment in the local services that people need. Indeed, in the face of an expected recession, this commitment is even more important. I know that there are pressures on local government—costs, demand for services and revenue streams are all affected by the economic downturn, just as they are for national Government. Our three-year commitment on the core grant and three-year figures for specific grants help councils to take tough longer-term decisions on their budgets. Our mainstreaming of an extra £5.7 billion of grants and the removal of ring-fencing help councils to manage their finances, and our delivery of a single set of 189 performance indicators, together with the local area agreements, help councils to set their priorities for their area.

Included in the grant figures are allocations for the nine new unitary authorities that start in April 2009. I have laid before the House, today, regulations to ensure that the new councils will have the powers that they need to set their budgets and council tax for 2009-10. Also today, I am launching a consultation on alternative notional amounts, which will enable like-for-like comparisons to be made on the budget requirements for the new unitary councils if the Government decide to use our capping powers.

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Last year, I explained to the House that we expect of local government the same 3 per cent. annual efficiency improvements that we expect of the rest of the public sector. Delivering that will mean the equivalent of £89 in council tax for the average band D home this year, and that councils will have an extra £4.9 billion, over three years, to spend on improving services or controlling council tax pressures. The public have a right to expect better value for money from local and national Government. At this time, people expect councils to tighten their belts like everyone else, so I am today publishing figures on the new efficiency savings that councils expect to make in 2008-09. At just more than £1 billion, it is similar to what councils have achieved in the past, but that is not good enough now. Councils need to find more than £1.5 billion in new savings every year.

The efficiency figures that I am publishing also show how each council measures up to its efficiency challenge. To ensure that local residents have easy information about their council’s efficiency performance, and to encourage them to challenge their council to do better, I have decided, following consultation, that councils will be required to set out standard efficiency figures on council tax bills from next year.

The introduction of the three-year settlement, the reduction in ring-fencing, the new local area agreements and the new local performance framework offer substantial opportunities for better working and efficiencies across local services to manage pressures on council tax bills, including in the areas being examined by the five work streams in the operational efficiency programme that was set out in the pre-Budget report earlier this week. For the future, we will build on that to see, ahead of the next spending review, how local authorities and their partners can prepare for the tough challenges that they, like all the public sector, will face from 2011-12.

On Icelandic banks, authorities are uncertain how much they will recover as they prepare their budgets so soon after the failure of those banks. I therefore propose, exceptionally, to make a regulation so that they need not make provision, in their 2009-10 accounts or budgets, for any possible loss on those investments. That will give them time to adjust their medium-term financial plans and time to be clearer about the recovery of their money before they take decisions that will affect their budgets or council tax. We are writing to all authorities today, and I will issue a draft regulation for consultation shortly.

On council tax, I made it clear to the House last year that the Government expected the average council tax increase in 2008-09 to be substantially below 5 per cent. The average actual increase was 3.9 per cent., which was the lowest increase for 14 years and the second lowest increase ever. We also kept our promise to deal with excessive increases by taking capping action against eight authorities. In continuing this, we are today designating the police authorities of Cheshire, Leicestershire and Warwickshire, and proposing maximum budget requirements that will limit their council tax increases to about 3 per cent. next year. For 2009-10, the Government again expect the average council tax increase in England to be substantially below 5 per cent., and we will not hesitate to use our capping powers, as necessary, to protect council tax payers from excessive increases.

In conclusion, I confirm the second year of the three-year finance settlement. I recognise that it is tight, but it is fair and affordable, and it continues our increasing
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investment in council services. To help, during these tough economic times, our settlement maintains the certainty, flexibility and equity that local government says it wants from central Government. We know that councils are capable of innovating, of managing change and of improving efficiency. The challenge on all those fronts is set to become still greater, and councils must demonstrate that they are equal to that task. I commend this statement to the House.

Robert Neill (Bromley and Chislehurst) (Con): I thank the Minister for the statement, and for his customary courtesy in giving me an advance copy. That said, the reality is that bad news, however courteously delivered, remains bad news, and this is a thoroughly bad settlement for council tax payers in this country.

Would the Minister care to confirm that he has introduced his own council tax bombshell for taxpayers in the United Kingdom? By taking together the figures in his statement with the small print in the pre-Budget report, we can see that council tax receipts are predicted to rise by £1.1 billion next year, an increase of about 4.5 per cent. Will he confirm that that would mean an increase of about £62 a year in the council tax bills of hard-working families, and that it would take the average band D bill to more than £120 a month from April, destroying much of the so-called spending power allegedly put back by the pre-Budget report? Will he also confirm that that means that, by 2010, council tax will have risen by 109 per cent. under Labour? That is the legacy of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr. Brown) as Chancellor and Prime Minister.

Page 203 of the pre-Budget report states that there will be council tax increases in the subsequent years of 6 per cent. and 4.7 per cent., representing a further 10.7 per cent. increase over two years, yet the same pre-Budget report postulates that retail prices index inflation will fall into the negative, resulting in a deflationary figure of 2.25 per cent. That is an enormous whammy for council tax payers in real terms.

The Minister also referred to the Icelandic banks. Have the Government made any assessment of the likely loss of investment income to local authorities as a result of the Icelandic difficulties? So far, none has been forthcoming. I note that he intends to assist local authorities with deferment measures, but will there be any other support for them?

The action team that we were promised has turned out to involve two men, without a dog, being sent in to each local authority. What further assistance is to be given to aid the recovery of debt? Perhaps the Minister and I are in agreement that to say—as one Liberal Democrat MEP has done—that Iceland should sue Britain is not helpful. I shall try to be more constructive, and ask what assistance will be given to those authorities, bearing in mind that they have to consult on their draft budgets in December and January and therefore have an urgent need for a degree of certainty.

Will the Minister also consider the position on business rates? I hear what he has said about ports, but, thanks to decisions made when the Prime Minister was Chancellor, the ports industry now faces a set of back-dated tax bills amounting to some £33 million, at a time when the industry is tipping into recession. Nothing that has
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been done, either on Monday or today, will do anything to address the requirement for those businesses to account for the whole of their liability in this year’s accounts. Any degree of deferment will not assist them; it will tip them into insolvency. In some cases, their liability is more than their turnover. Can we please have some serious action on this, rather than what one port operator has described as the Government washing their hands of a sector that employs nearly 100,000 people?

May I also ask the Minister to consider whether the U-turn on the Prime Minister’s policy on empty business rates—introduced when he was Chancellor—will be met with any compensating funding for local authorities, or are they to bear the shortfall? That policy should never have been introduced in the first place, but what is the likely cost to local authorities of that change?

On the long-term future, will the Minister confirm that the Government continue to apply an unrealistic inflation rate to local authority settlements? Has he spoken to any highway authorities about the renewal of highway maintenance contracts which, with fuel and other costs, often carry double-digit increases? What is to be done about the cost to local authorities of the increase in national insurance employers’ contributions? Is that to be borne by the council tax payer or by cuts in services, bearing in mind that figures extrapolated from the pre-Budget report would suggest that the total cost to local authorities could be £305 million?

All in all, is it not time that the Minister conceded that his life in a former post at the Treasury has at least meant that he is consistent? Just as the Treasury clobbered taxpayers with its tax bombshell on Monday, he has clobbered council tax payers with a council tax bombshell today.

John Healey: I have indeed been consistent. I have been part of a Government who, in each and every year since we came to power in 1997, have given above-inflation increases to local government. This is not a bad settlement: there is again an increase this year as part of a three-year settlement totalling £8.9 billion that is available for councils to improve services and control council tax costs, as they have done in previous years under this Labour Government.

The hon. Gentleman quotes figures for council tax increases. Let me be clear: that is not what the pre-Budget report says and he is wrong. Like every previous year, the Treasury publishes forecasts for the purposes of financial accounting. The council tax is determined by local authorities, not by the Government and—like previous years—in each of the last three years, the figure published in the pre-Budget report or the Budget for accounting purposes has been a good deal higher than the actual average council tax increase. I expect that to be the case again for next year, and I repeat that we will not hesitate to use our capping powers to protect council tax payers if they are affected by excessive increases.

The hon. Gentleman asked me to provide an assessment of the losses related to Icelandic banks, but we do not have the information, either from the banks or the administrators, to be able to do that. Nor do local authorities, which is why I propose to make the regulation as I informed the House a moment ago. In terms of other help, we have sent in financial experts to work with more than a dozen of the councils that thought
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that they might face severe short-term difficulties. We have been able to establish with them that they do not, and that there is no threat to staff salaries or to services. We have said that if they want further continuing expert help, we will fund that, and a couple of the authorities are taking up that offer. We have also said that if the case warrants it, we will consider capitalisation requests. We have made that clear to one authority particularly, and we expect to hear from it shortly.

The hon. Gentleman invites me to consider his remarks and the position of businesses in ports. I have to tell him that over the last three weeks I have considered very little else, not least because several of my right hon. and hon. Friends have also forcefully advocated those concerns. I fully understand those concerns and I am determined that the Government should respond to them. They are basically twofold. The businesses do not like the backdated liability for tax—to the beginning of this valuation period—but it is tax that they are legally due to pay. They said—and this was their first problem—that it would hit their cash flow. I will provide detail for the regulation shortly, but what was announced in the PBR will allow them to spread over eight years the payments of the back-tax that is due.

The second thing that they wanted was more rapid action and response. They felt, reasonably, that they had not got that from the Valuation Office Agency, but the special fast-track system now in place will deal with businesses that want to challenge or appeal against their valuation. However, I remind the hon. Member for Bromley and Chislehurst (Robert Neill) that these are businesses like any other: they have an established tax liability that cannot be removed other than by primary legislation that I am not prepared to propose to the House. Indeed, some of them should have been paying the tax for many years before 2005.

Finally, the hon. Gentleman talks about a council tax bombshell, but the real council tax bombshell would hit people in this country if we got a Conservative Government. They would go back to what they did before—cutting and not increasing support for local government, and putting more pressure on councils, council services and council tax.

Dr. Phyllis Starkey (Milton Keynes, South-West) (Lab): To return to the matter of local authority deposits in Icelandic banks, will the Minister confirm that none of the authorities with which his Department has been in contact is experiencing short-term problems with cash flows that will affect services? Will he also confirm that the Government are continuing to work with local authorities to ensure that they have the best possible chance of recovering their deposits from the Icelandic banks?

May I also commend the way that the Department has worked with local authorities and the Local Government Association? It has responded to individual councils and recognised their autonomy in the proper partnership way that central Government should work with local government.

John Healey: I thank my hon. Friend for her questions. We have been working closely with individual councils that told us and the LGA that they might face severe short-term difficulties. We have been able to establish, to their satisfaction and our own, that none of them
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does, but continuing help that we will fund is nevertheless available to any council that needs it. The Government have also been working hard internationally to try and help all depositors, including local councils, to get their money back from the Icelandic banks.

The IMF recently agreed a loan to Iceland of £2.1 billion, and one of the conditions is that the Icelandic Government will treat all depositors fairly when the two banks based in Iceland are wound up. That will include deposits from local authorities that may be at risk. We will continue to work with the administrators, where necessary, and with the LGA, because we are determined to ensure that no councils that may be feeling the pressure of having deposits tied up in failed Icelandic banks will be left on their own without the support that they need.

Julia Goldsworthy (Falmouth and Camborne) (LD): May I thank the Minister for advance sight of the statement? Much of it is as we expected, not least because this is year two of the three-year settlement announced last year, but council tax payers may be in for a nasty shock.

A year ago, the Minister hailed the settlement as delivering real-terms increases, but councils knew that it was very tight. Inflation, which stands at more than 4 per cent., has made things even tighter. Will the Minister come clean about the fact that any real-terms increases have disappeared and that many councils will be facing real-terms funding cuts as a result of this year’s settlement? Is it not correct that that will mean either council tax increases or cuts in services for local council tax payers?

The hon. Member for Bromley and Chislehurst (Robert Neill) highlighted the fact that the PBR figures are based on an assumption of council tax increases of 4.5 per cent. Since council tax is paid from household income net of income tax, such an increase will hit people hard in their pockets—although the hon. Gentleman did not say what the Conservatives would do as an alternative. Does not that go against everything that the Chancellor claimed that he was trying to achieve in his PBR on Monday?

If the Government were serious about delivering tax changes that would make a real difference to disposable income, we should have expected some significant changes to how local government is funded, as well as a fundamental rebalancing of the income tax system. Instead, value added tax is to be tweaked now, and there have been promises of tax increases in the future. That is combined with a local government finance settlement based on assumptions that are a world away from the tumult that we have seen since the Minister’s statement last year.

The great uncertainty already faced by many councils will have been added to by their exposure to the collapse of Icelandic banks. I welcome the announcement that the Minister made on that issue—in the nick of time, as councils begin the process of finalising their budgets. However, will he clarify whether this is a one-year reprieve, or will he be giving councils the power to capitalise, so that they can spread any losses over a number of years rather than having to deal with the problem in one hit?

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