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I now turn briefly to councils’ exposure to the collapse of Icelandic banks. That issue has not affected all local authorities, but it has had a significant impact on a number of councils. Before Christmas, the Minister stated that councils would not need to make provision for any possible loss on those investments in 2009-10; I understand that there will soon be draft regulations for us to consider. However, it now seems clear that many councils do not expect to recover any of the losses for the foreseeable future, and that the process of recovering them will be protracted. Does the Minister accept that we need legislation to deal with the issue beyond next year? Councils would appreciate certainty about their ability to deal with the problems in the long term. Is the Minister seeking to give affected councils the powers to
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capitalise their losses so that they can spread them over a number of years? That would be sensible, as it does not seem as if there will be any short-term resolution to the problem. Today’s debate is an opportunity to try to address the issue, but it has been overlooked.

Councils are not only impacted by the credit crunch themselves; they are already doing a huge amount to respond to it locally and to provide support for people who are struggling. I wonder whether the Government have missed an opportunity to make an announcement offering further support to councils in fulfilling this role. Business rate relief has already been mentioned. There has been talk about whether it would be appropriate to make that relief automatic, because a large number of small business that are entitled to it do not receive it. Surely every effort needs to be made to ensure that those businesses receive what they are entitled to. Why is the Department not following the lead of Her Majesty’s Revenue and Customs, which has offered a great deal of flexibility to businesses in paying their business rates? If it were able to offer the same support to councils in terms of flexibility of payment, that could be handed on to businesses and more could be done to ease the burden of many small businesses locally.

On benefit advice and support, extra resources have been made available to the Department for Work and Pensions to the value of £1.3 billion. There will be similar pressures on councils to deliver council tax benefit and housing benefit, yet they are caught up in the squeeze. I am not entirely certain that the levels of resource that the Minister has mentioned will be sufficient to meet that increase in demand.

Local authorities are in a good position in terms of being able to identify and deliver capital projects on the ground quickly, but I am concerned that projects are being held up. The private finance initiative is becoming more expensive and appears to be slowing down in some places, and capital receipts are not materialising to fund many of the projects that councils have been planning.

What more can the Minister’s Department do to ensure that these projects can be delivered more quickly on the ground? Has he considered allowing councils to bring forward future capital allocations to get projects moving? Will he support the Local Government Association’s recommendation to consider plans whereby councils would pool billions of pounds of existing investment to fund infrastructure projects and support the economy locally? What more can he do to help councils link in to other funds? In Northumberland, particularly in Morpeth, there are huge problems with the capital highway maintenance emergency fund following the huge problems caused by last year’s flooding. That could not have been foreseen, but the council is concerned about its ability to provide match funding and the impact that doing so will have on other budgets. Is there anything more that the DCLG can do to link in with other Departments to ensure that these important projects happen?

Sir Alan Beith: I am grateful to my hon. Friend for drawing the Minister’s attention to this, because he may be able to have a word with the Department for Transport. Only a third of the costs of emergency repairs to the highway system that was so devastated by the floods will be met by the central grant, because the local authority is expected to fund such a large amount from its existing transport grant, which is itself under pressure
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because of the overall effect of those weather conditions and flooding on roads throughout the county.

Julia Goldsworthy: I am grateful to my right hon. Friend. These are unforeseen events that the council has to respond to in the context of a very tight funding settlement. Any kind of flexibility from the Department, or anything that it can do to link up with the Department for Transport, would make a dramatic difference.

Those are all relatively minor proposals that the Government could bolt on to the existing funding arrangements. That is why I am disappointed that no such imagination has been used in this local government finance report. It is a shame that the Minister is not feeling bolder, because we have missed an opportunity to make much more fundamental changes that would give councils a much bigger role in responding to the economic crisis. The hon. Member for Wigan alluded to that.

One of the key challenges is the lack of social housing. At present, councils are completely hamstrung in their ability to respond to that, and the situation does not change as a result of this funding announcement. Surely it would have made sense to link the publication of the report to an announcement on much-needed reforms to housing revenue accounts. This is an arcane system that prevents councils from using future revenue streams from rent to supplement and fund improvements to their council housing stock. Combined with freeing up councils to borrow prudentially, it could play a massive role in tackling the social housing crisis that we face. It would also be a much fairer way of using tenants’ rent, in stark contrast to the current system whereby some of the country’s lowest earners are in effect paying a tenant tax that often ends up, almost in its entirety, in Treasury coffers. That is simply unfair. I know that the matter is under review at the moment, but given the economic situation, would it not have made sense to bring that review forward rather than delay it further, which I hear is likely? There was an opportunity for more straightforward and fundamental change, which appears to have been passed up.

One of the other issues arising from the report is capping. Early indications are that council tax increases for most councils will fall by about 3.5 per cent., but does the Minister have anything to say about the authorities that were capped last time? Does he have any comment on how they fared in the past year, and whether they look likely to be able to deliver within the range that he specified for this year? We are debating the funding formula for new authorities, which I understand has been agreed with those authorities, but I wonder about the impact of many of the efficiency savings that will arise from local government reorganisation in the longer term. By contrast, there will be costs involved in making some of these immediate changes, and I wonder whether that has been reflected in the allocations we have seen.

The Minister announced today that he would require local authorities to provide, in council tax bill statements, details of efficiency savings that they have delivered. Broadly, I welcome that. I wonder whether the Government will make equivalent information available, because a lot of local authorities are much better at delivering efficiencies than Departments are. I look forward to Departments providing readily accessible information in an equivalent way. Perhaps I can look forward to seeing on my P60 the efficiency savings that the Government have promised and delivered.

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On a related point, an awful lot of public money is not spent by the local authority. Public money is spent locally that never ends up on any council tax bill, and is not part of any efficiency saving process. In the Sustainable Communities Act 2007, the Government made a commitment to produce local spending reports that would provide details of all public money being spent at local level, not just by organisations such as the NHS or the education authorities, but by the many quangos for which there is no direct accountability for how money is spent. I wonder whether the Minister has any plans to tie in his statements on delivering efficiencies with more transparency concerning the amount of money spent locally about which the public often know nothing. They do not know where it is being spent, let alone how effectively or efficiently it is being spent.

Last year, the Minister said that the settlement “does what it says on the tin”, and that this year would be a repeat performance. But the fundamental question remains: whether it is right to continue justifying the unchanging nature of the settlement in the light of such uncertain and unstable economic times. A judgment has been made that the assumptions behind the settlement are correct—and that is where we disagree. My party’s view is that such assumptions are wrong. Fundamental problems with the current funding arrangements have to be addressed, and as we face difficult economic times, the need to address those problems becomes more, not less, urgent.

Although we welcome the review of the area cost adjustment, there are wider systemic problems that must be addressed. There is an urgent need to review the formula, and the floors and ceiling system must be looked at. The councils at the floor feel that they are falling further behind, while those at the ceiling that are trying desperately to catch up look as if they will never have any prospect of getting the funds that the Government’s own formula says that they need. There is a need to continue to cut ring-fencing to free councils to raise and spend more of their resources locally. There is a need to recognise how completely inadequate the current system of local taxation is in providing a link for local taxpayers between the services that they receive and the tax that they pay. It must be recognised that the council tax continues to be an unfair burden for those on lowest incomes because it increases above inflation each year, and is paid out of people’s disposable income. They really feel any increases that are made each year. The Government have completely failed to recognise those problems, let alone address them.

I got quite excited in the debate this afternoon because I thought that the hon. Member for Bromley and Chislehurst was going to announce some amazing brand-new long-term plan for what a future Conservative Government planned to do. Sadly, I was disappointed. The worst-funded authorities will be the least able to deliver what the Conservatives claim will be a council tax freeze. That means that those in the greatest need will be the least able to benefit. Their suggestion is not a long-term plan; it is a two-year proposal. That will hardly address the systemic problems that the hon. Gentleman himself identified.

We need not a one-off gimmick but fundamental reform, not only of the balance of what is raised and spent locally but of how it is raised. That is about localising business rates, devolving powers and resources to a more local level from the regions and from Whitehall—
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and, of course, scrapping the council tax. Instead of considering those proposals, the Government have so far refused to act even on the most modest proposals in the Lyons report. They have ducked the matter altogether, and are still in a state of denial, when now, more than ever, we need fundamental reform.

Mr. Geoffrey Clifton-Brown (Cotswold) (Con): On a point of order, Mr. Deputy Speaker. It has been reported on Radio Gloucestershire that Gloucestershire county council has been informed by United Salt, the country’s largest supplier of salt, that it will be unable to supply the county council in the near future. That means that after tonight, Gloucestershire county council will have to ration the salting of its roads severely. I understand that a number of other local authorities are in an even more parlous position. I am sure that you, Mr. Deputy Speaker, and the House will understand that that raises serious road safety concerns.

I ask your guidance on what we can do to get a Minister here tomorrow—[Hon. Members: “Today.”] Or even today, to make a statement, in view of the serious issues involved, about whether the country is running out of salt and, if not, how it can be better distributed among local authorities.

Mr. Deputy Speaker (Sir Alan Haselhurst): I think that the hon. Gentleman knows that that is not strictly a point of order for the Chair to rule on, and that the Chair cannot command the presence of a Minister on the basis of what the hon. Gentleman reports. However, his remarks will have been heard by those on the Treasury Bench, and there is also an opportunity for him to submit to Mr. Speaker an urgent question to seek to achieve a ministerial presence in the House. There might also conceivably be an opportunity for the matter to be aired during business questions tomorrow. I hope that with the matter on the record, and with the suggestions that I have offered the hon. Gentleman, it will be possible for some assurances to be given to the House, and through the House to the public, about what the situation is.

Mr. Mark Harper (Forest of Dean) (Con): Further to that point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker: Order. I think that I have said about as much as I can possibly say—perhaps more than I should have said. However, I shall take the point of order.

Mr. Harper: I thank you for your indulgence, Mr. Deputy Speaker. I simply wish to note that there is a Local Government Minister in his place, so given your suggestion, it might be helpful if before the end of the debate, he could arrange to inform the House of what the Government might intend to do, to save Mr. Speaker from having to trouble himself with deciding on an urgent question tomorrow.

Mr. Deputy Speaker: I think that the hon. Gentleman is trying to be helpful. He will have noted that I used a generic term in referring to the Treasury Bench, in order not to pinpoint or embarrass any particular Minister, but he has probably aimed his remarks in a good direction. Shall we leave it at that?

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5.33 pm

John Howell (Henley) (Con): I start by reminding the House that I remain a county councillor on Oxfordshire county council. I do not wish to use this opportunity to engage in special pleading for the council, but that experience is relevant to how the settlement can be implemented and how past settlements have been implemented on the ground.

For three of the four years for which I have served on the county council, I held a portfolio that was relevant to the debate. Its scope was to drive through efficiencies, make the council more effective and drive through business processes that would enable it to deliver on its financial commitments. I think that we did very well on that, removing several hundred posts from the establishment and introducing business processes in planning and budget management that I think would be the envy of many a multinational. We slashed office costs by creating a shared service centre, which works well and promised £27 million of gross savings in the first seven years. We more than met our efficiency savings targets. However, any sense of pride in those achievements was tempered by the frustration of our expectations that we could, after coming to power with a radical agenda, make radical changes for the benefit of local people. Too often, those aims were frustrated by the fact that the Government perceived us as little more than their local executive arm and placed significant budgetary constraints on us, which reduced our options. The settlement perpetuates that, despite the Minister’s words.

From the outside, councils’ budgets may appear large. My county council has an annual turnover just short of £1 billion. However, the amount of money to play with in terms of local choice is pathetically small—only a few million pounds. At this time of year, when budget debates take place in council chambers, there is a common cry of, “Why is so much time spent on so little money?” It is impossible to adopt a distinctive political slant. The debate always happens because there is so little scope to alter funding objectives in the rest of the budget. There are two reasons for that.

First, some spending could not be cut without catastrophic effects on services to vulnerable people. Secondly, a huge element of the budget is ring-fenced to ensure that it can be spent only to deliver the Government agenda. To add insult to injury, that agenda was often euphemistically expressed as “shared priorities.” I am not sure with whom we were supposed to share the priorities. For example, on highways, five were imposed and our “sharing” was restricted to one, which we had the option to create ourselves.

Despite the Minister’s comments, freeing up the ring-fenced council grants has not gone nearly far enough to bring back control to local councillors and provide that distinctive local feeling. The hard work of making savings and efficiencies was largely simply to stand still, as the cash made from efficiencies was soaked up by pressures from service needs, demography, which has been mentioned, or new impositions from central Government. Again, some of my hon. Friends have referred to the latter pressure.

Let me give an example, albeit a small one. Under the Building Schools for the Future programme, the attendant costs of submitting a bid are considerable in the time that senior council officers have to spend on it. A
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judgment had to be made about whether the costs were worth while, especially given the bias in the programme against affluent areas such as my county.

In the current climate, there is a huge take-up of services, not all due to the recession. After the baby P case, there has been a 32 per cent. increase in the number of referrals. It defies belief that, with such a mountain of evidence, the Minister can still claim that there are no exceptional circumstances.

It is perhaps worth considering where the headroom—the amount that we can decide how to spend to give some local character to a budget—comes from. It does not come from what the Government describe as a generous settlement. The three-year settlement in my council was increased by 2 per cent., 1.75 per cent. and 1.5 per cent. The boasts about investment in local government translate as pure spin and hide the wide regional variations that occur in the settlement as a whole.

The boasts also hide the fact, which I raised in an intervention on the Minister, that the real inflation rate that councils face has been well over 5 per cent. It is made up of various elements, but energy costs incurred when energy bills were much higher are only beginning to come through.

For the reasons that I have given, the headroom does not come mainly from savings, because they are used simply to stand still, nor does it come from excessive council tax rates. Being a good, Conservative county council, we have continued to put downward pressure on the rise in council tax in the three years for which there has been a Conservative administration there. Often, however, a major element of financial stability has had to come from the strategic measures that the council has had to take— for example in maximising its return on investments. It is no wonder that so many councils turned to Icelandic banks, relying on their interest rates in order to fund services.

The amounts involved are not insignificant. In the past, those strategic measures could have accounted for as much as 1.5 per cent. of a council’s total budget requirements. That is a phenomenal amount of money. In the current downturn, a council would be lucky if those strategic measures accounted for 0.5 per cent. of its budget requirements. That has a major impact, in terms of the need both to rethink the strategies for borrowing and to make reductions in the headroom—and, therefore, the need to cut services or achieve further efficiencies.

I do not particularly want to conclude with an image of total frustration, but I am afraid that it is one that many councillors would identify with, owing to the way in which the Government have handled local government and the current settlement. They have eroded the chance to put a local face to local services, undermined local democracy and shown that they simply do not trust local councillors to make good local decisions. The Government have undermined good business practices by making it more difficult for councils to plan for the long term, because all the effort is put into meeting short-term Government targets, and they have imposed a ridiculous and meaningless burden of inspections, the like of which they would not dare to subject themselves to.

In one year, we had the unfortunate experience of having a full comprehensive performance assessment of
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the council, as well as having to put all the information together for the Government’s ill-conceived plans to try to encourage us to bring forward unitary proposals. Both sapped senior resources in the council to a quite unimaginable degree. The effect of that on how we took forward our plans was quite significant. Moreover, the Government have presided over a financing system that is so opaque as to be practically incoherent. Many councillors believe, I think quite justifiably, that its whole purpose is to maximise the opportunities for central Government to get their own way. It is time for the Minister to put forward some proposals that allow the people to whom councils are really accountable finally to make the judgments.

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