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I have confirmed that the formula grant is set to increase by £780 million, or 2.8 per cent., in 2009-10, and by £747 million, or 2.6 per cent., in 2010-11. The distribution of that formula or core grant to authorities will be as I proposed to the House in November. On top of that, specific and area-based grants take the total increases to £2.97 billion, or 4.2 per cent., next year, and £3.18 billion, or 4.4 per cent., the year after that. It is a tight but fair settlement. It is in line with what I announced in 2007, and every local authority will get an increase in core grant in each year in this three-year period. I am also confirming allocations for 70 other funding streams today, including 43 separate grants from six different Departments, which will be paid in a single sum each month under the new area-based grant system—and central Government have attached no strings, in terms of how local councils decide to spend that money.
Mr. Davey: I cannot let the Minister get away with the statement that every council will get an increase. The truth is that local authorities that are on the floor, such as mine, are getting a real-terms cut in their grant. Is he prepared at least to admit that fact on the record?
John Healey: No, because the hon. Gentleman is wrong. There are two points. First, every council will get an increase in each year of the three-year settlement—fact. Secondly, without that floor, his authority would get a good deal less this year, and possibly next year. That is how the floor, which the Government introduced to try to help local government through periods of funding formula change, assists his council and a number of others.
Included in the figures for the area-based grant is the working neighbourhoods fund.
John Howell (Henley) (Con): Will the Minister give way?
John Healey: Is the hon. Gentleman’s point about the working neighbourhoods fund?
John Howell: No, it is on the earlier point.
John Howell: I thank the Minister for giving way. To go back to the amount of the increase, does he not accept that the inflation rate that councils face is not the inflation rate shown by the retail prices index or other statistics, but is instead in excess of 5 per cent.? For example, for many of them, the energy costs of previous years are yet to come through in the bills that they are paying.
John Healey: Actually, some of the significant costs for local authorities—fuel and, in time, energy costs—are going the other way. The pressures and economic trends vary in their effect on local authorities, but it is for local authorities to manage that. It is central Government’s job first to give local government a sufficient settlement to enable it to provide the services that people need, and secondly to give it, as far as we can, the stability and predictability to allow it to do its job of deciding how to manage its budgets, including in this economic downturn.
The working neighbourhoods fund is our £1.5 billion programme to support local councils in getting people back into work in areas that face the most concentrated worklessness and deprivation in England. Hon. Members may know that we had concluded that there were errors in one of the three criteria that we used for eligibility—the third criterion. Having consulted all authorities on our proposals to revise the third criterion, and having taken into account all the representations that we received, I am today publishing the working neighbourhoods fund allocations for 2009-10 and the indicative allocations for the following year. As a result of these changes—I am sorry the hon. Member for Enfield, Southgate (Mr. Burrowes) has left the Chamber—Enfield is now fully eligible for the working neighbourhoods fund, as is Lewisham. They will receive their full allocations in 2009-10.
On the other hand, Brent, Camden, Westminster and West Somerset are no longer eligible for full funding, but I have nevertheless decided that because they have been adversely affected by the revisions to the third criterion, they will receive the special transitional payments that I proposed and set out in the consultation.
Mr. Mark Field (Cities of London and Westminster) (Con): It would be churlish of me not to give the Minister some credit, although I suspect that the remonstrations of the hon. Member for Regent's Park and Kensington, North (Ms Buck) carried more weight than mine in the various meetings that took place. When the Minister speaks of the working neighbourhoods fund moneys and mentions a considerable number of London boroughs, is he not concerned that London boroughs are so disproportionately represented, with 24 out of 33 getting the floor of the more general funding? As the effects of the recession are likely to reach London and the south-east more quickly than other parts of the country, there are likely to be substantial problems, such as those that other London Members have raised in the course of the Minister’s speech.
John Healey: The hon. Gentleman is right to pay tribute, as I do, to the work of my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck), who made a forceful case. She is very concerned about the most deprived areas of her borough and sees the funding as an important element of supporting those people, as long as the council makes the right decisions in investing in the sort of programmes that will help. However, the hon. Gentleman should not underplay the strength of his own representations. They certainly played a part in the decisions that I reached.
On the hon. Gentleman’s more general point, which takes us back to an exchange during an earlier passage in my speech, the floor is there to assist authorities that would otherwise receive less core grant than they do. I hope he will appreciate that. Moreover, formula grant is part of the total funding that a council will have available each year. As part of their budget planning, councils make their own decisions on council tax levels. In order to judge to some extent whether the core grants that we are providing are a sufficient part for London boroughs such as his, it is important also to look at the council tax levels that his borough and others set.
Mr. Ian Liddell-Grainger (Bridgwater) (Con):
I am grateful for the Minister’s comments about West Somerset, and I am extremely grateful that the Government have
given money back to West Somerset. The council was told about that so close to the time that it had to set the budget that it caused enormous problems in the West Somerset area. Will the Minister consider revisiting the matter? The council will have to go right to the top of the capping level just to try to stand still. I would be grateful for the Minister’s comments.
John Healey: First, we are debating the final settlement for next year, so I do not want to give the hon. Gentleman any indication or encouragement that somehow, as a result of his intervention, I intend to reopen or reconsider the matter. Secondly, the circumstances that West Somerset and the other three authorities were left in led me to the decision to propose the special transitional payment. I hope that will help the council manage its way through this period. I am grateful that the hon. Gentleman is nodding assent to that.
I shall move on and confirm that I am also announcing today the council-by-council allocations of the £100 million from our local authority business growth incentive funding. Those are the final payments of our three-year LABGI scheme, and I am using the same methodology to make the distribution as I did for the payments that we made in June last year. The funds will help local authorities respond to the economic downturn’s impact on jobs and businesses in their areas. I propose to consult for a couple of weeks on the calculations and application of the methodology, before releasing payments to councils rapidly afterwards.
Mr. Philip Hollobone (Kettering) (Con): I am grateful to the Minister for mentioning that scheme, as £100 million has been held back pending the conclusion of various legal cases. Councils such as my own—Kettering borough council—have benefited from the scheme in the past. Will the Minister confirm whether the grant money will go to district and borough councils, and not to county authorities, or whether it will go to both? Will the funds be used only for the purposes of economic development?
John Healey: The funds will be distributed to authorities, whether county or district, in the same way as in June last year. My answer to his second question is no. One of the values of the scheme for local councils has been that central Government have not attached conditions or funding strings to the money. As I said, the money is available now to deal with the impact of the economic downturn on jobs and businesses in local areas. However, it will be for local councils to decide how best to spend any money that they receive as a result of this announcement and the allocations that I am making today; I hope that they will be able to do that in a matter of weeks.
Mr. Davey: I am grateful to the Minister, who is being extremely generous, particularly to me. I welcome the announcement but would like to suggest another way in which he can help small businesses across the country immediately. The Government should consider how to make the small business rate relief automatic. Many businesses are not aware of the relief and pay business rate bills far higher than they should.
John Healey:
Small business rate relief is a valuable scheme that we introduced relatively recently; it probably benefits about 400,000 small firms across the country. It is for the local authorities, as the billing authorities, to
promote the scheme. Back in September, I wrote to them reminding them of that and urging them to do so. Making the relief automatic is not straightforward, not least because there is a difficulty in ensuring that the person liable to pay business rates on one property does not have a string of similar properties, thereby breaching the eligibility criteria for claiming the relief.
However, I recognise that people are making the hon. Gentleman’s argument at present, and there are things that we have done and can do to make the scheme better. Last year, we simplified the administration arrangements for it and we are now changing the eligibility that allows people to claim the relief back to the beginning of the financial year; that will come into play in April this coming year.
Julia Goldsworthy (Falmouth and Camborne) (LD) rose—
John Healey: I shall give way, but then I want to move on to discuss concessionary bus travel.
Julia Goldsworthy: The issue of small business rate relief and whether it should be made automatic has already been raised. Can the Minister do anything else to provide support? Other things that would greatly help small businesses could be done. Can he do anything further to help raise awareness?
John Healey: I am open to suggestions. I have written not only to all local authorities, but to business organisations. I have encouraged them to ensure that they do all that they can through their networks, local groups and membership to promote the scheme and its availability, and I hope that that will also help with take-up in future.
I noticed that I whetted the appetite of some hon. Members by mentioning concessionary bus travel. [ Interruption. ] If the hon. Member for East Worthing and Shoreham (Tim Loughton) wants to intervene, of course he can; or perhaps we can look forward to a speech from him. Funding for free bus travel for 11 million pensioners and disabled people continues to be delivered through two routes: the core grant and the special grant that local authorities requested for last year and the coming year. There is no evidence that the total amount of additional funding that central Government are putting in to support this new entitlement, which we are keen for people to have, is not enough, although some authorities have argued for a change in its distribution. I understand their argument, but I have to say that any change would upset the three-year funding certainty of the settlement. I also have to say that there is no guarantee that any alternative allocation would match needs better than the current one.
Tim Loughton (East Worthing and Shoreham) (Con):
The Minister mentioned people being upset. My constituents are exceedingly upset, for the second year running. He will remember that, over Christmas and the new year, he kindly received a delegation of councillors and chief executives from my constituency. At that stage, Worthing council faced a deficit of more than £600,000 and eight of my other local councils faced deficits of almost £250,000—big hits that will mean big increases in council tax or cuts in services. We have just heard that, this year, Worthing is going to suffer a deficit in excess of £500,000 on top of that, despite
assurances from one of his colleagues that they would reconsider the formula by which these figures were decided. Although I do not dispute that the overall figure for the scheme nationally may be sufficient, in the case of my two local councils and others in my part of the country it is woefully insufficient and is having a serious impact on their finances.
John Healey: I well remember the meeting with Worthing council. I remember, too, that the figures that were set before me were essentially predictions and modelling about which nobody could be entirely certain, not least because of two main factors: first, how people respond to the fact that they can now travel for free anywhere they like on local buses; and secondly, the significant variations in how tough and effective councils have been in negotiating their contracts with local bus operators. If the hon. Gentleman wishes to send me updated figures that are based on actual spend and cost, I will be interested to look at them. However, it is now clear that moving administration of the free bus travel scheme to county level instead of leaving it in the hands of district councils such as his own will help to iron out some of these funding wrinkles. I can confirm to the House that the Government plan to consult on such a move within the next few weeks.
Alistair Burt (North-East Bedfordshire) (Con): I want to probe the Minister’s suggestion that studies were being done to work out the public’s response to the availability of more free travel. Presumably after millions of pounds-worth of consultants, he found that more people might take advantage of free travel. Is there any more to be got out of the studies other than that basic fact and beyond trying to work out exactly where people are travelling?
John Healey: We do not need studies, because we can look at what has happened during the course of this year. The hon. Gentleman refers to studies; I was referring to modelling that local government had commissioned to try to argue the case with central Government. Of course, one of the main results of the free entitlement is that more people travel on buses. That is why this year central Government are putting an extra £212 million into the concessionary travel pot to ensure that we can cover the extra costs for the extra entitlement that people now have to travel free on buses not only within their local council area but anywhere that they choose.
There was strong support in the consultation for three-year settlements; I keep coming back to that. That applies particularly in such economic times, because it gives local government the stability and certainty that it needs to plan and manage its budgets effectively. That, combined with an extra £8.9 billion over three years, and moving £5.7 billion into general grants that are not ring-fenced, allows councils to spend money on what matters most to local people.
A number of councillors commented on the pressures that they faced due to declining income or increasing demand on services. To help deal with the extra work load for housing and council tax benefit services, we have now confirmed that an extra £45 million will be distributed to councils on a monthly basis during 2009-10, using the existing administration subsidy distribution formula.
I also recognise the concerns of local authorities that have made investments in Icelandic banks. They have money that is clearly at risk, but it is not lost, and I want to help to minimise the problems for those authorities. Having completed the consultation on draft regulations that I promised the House in November, I will shortly lay them before the House so that they can come into effect in this financial year. The regulations will mean that the possible losses from Icelandic banks will not affect council budgets or council tax levels during the next year. Representations have been made to me by some authorities about the position of passenger transport executives, which would not be covered by the change in regulations I have proposed. Those are subject to a separate and more flexible financial regime, and unlike local authorities, they are already able to spread revenue costs between years without any Government action being needed.
Like everyone else, however, councils are now making hard budgetary decisions, and while the year ahead will be tough for many people, they need their council to provide services that they can rely on, and they need it to keep council tax down. In December, the Audit Commission published its report “Crunch time?”, which confirmed that councils are generally prepared for the impact that this downturn will have on local services, and that their efforts to find efficiency savings will ensure value for money and minimise the impact on their budgets and communities.
As I said, however, the economic pressures are not all one way. With the expected fall in inflation next year, Government grants will go further. Some council costs are already down, reserves are up and borrowing is cheaper. Keeping council tax down and maintaining improvements in services means being continually more efficient, and low tax does not have to mean service cuts. About a fortnight ago, I visited Newham, Greenwich and Hackney, and saw that it is possible to make that equation add up. In each of those three boroughs, I saw service improvements and further investment at the same time as council tax was frozen. Councils must strive to make every penny of public money go as far as it can. When everyone is tightening their belt, people expect councils to do the same.
Mr. Ronnie Campbell (Blyth Valley) (Lab): Not everyone is capable of taking that advice. I am thinking of Northumberland where the Liberals are in charge, and they have just decided to increase their allowances by 40 per cent.
John Healey: My hon. Friend knows well enough that decisions about allowances for council members and decisions on employees’ salaries are rightly matters for local government itself. I know that he will not agree with this, but I shall say it to him anyway. There are particular problems and financial pressures in Northumberland, some of which derive from the inheritance the new unitary council is taking on from the district authorities. In Northumberland, as in the other eight areas where new unitary councils will come into place in April, the scope to manage difficult economic pressures is much greater than it is for those councils that are continuing without such restructuring and reorganisation.
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