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With local area agreements, relaxed targets, Total Place agreements between councils, and health trusts, we have come a huge distance, but we need to go
3 Feb 2010 : Column 396
further. The council tax system is inherently unfair. It was designed to be unfair, so producing such a system was one of the few things that John Major managed to succeed in. It surely cannot be right that a millionaire old Etonian in Notting Hill pays only three times more in council tax as a minimum wage earner pays for the same local services. I personally like banding. It is simple to understand and to administer, but we need to reform it. We need more bands at the bottom and more bands at the top-an open-ended banding at the top, I would suggest-so that, as my hon. Friend the Member for Milton Keynes, South-West (Dr. Starkey) said, the amount of money that is paid more accurately reflects the income of people and their ability to pay for those services.

Revaluations should be carried out on a regular basis. We should never have cancelled them in the first place-we should have gone on with them at the beginning of this Government and done them again since. As the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said, if we do not do this we will bring the whole system into disrepute; it will become similar to the poll tax in having to be totally reviewed in future. We can do that revaluation-it is not a difficult exercise. Every month building societies tell us by how much house prices have risen or fallen over the period. If they can do that on a monthly basis, I do not see why the Government, via the Valuation Office Agency, could not do it every four or five years. Let me reiterate what my hon. Friend said, because it did not seem to have any impact on the Conservative spokesperson. This is a zero sum game. Having a revaluation does not mean that local authorities will get more money. They may choose to get more money from it, but that is a different issue and a different argument. Some people will pay more, and some will pay less. It is important that there is some kind of damping effect in revaluations so that those who pay more are not suddenly faced with 10, 15 or 20 per cent. increases but they are brought in gradually. It is absolutely essential that we have revaluations if we are to ensure that the system does not fall into disrepute again.

The final area in which we need reform is the grant itself. The formula is about right, as it recognises deprivation and the needs of councils to tackle the problems that come from that deprivation. It also recognises rurality and the extra costs of delivering services in sparsely populated areas, but it has not been fully implemented. We are still suffering from the disgraceful way in which the previous Conservative Government gerrymandered the grant to their own local authorities. In the years from 2008-09 to 2010-11, Wigan will have been underfunded by £8 million, £6.5 million and £5.5 million respectively-a total of £20 million over those three years.

There is no doubt that there has been year-on-year improvement, and it has ensured that we are getting closer to the target. We have moved from 6 per cent. below it in 2008 to 4 per cent. below now, but we have to quicken that pace if we are to tackle deprivation properly in areas such as mine. That is all the more important when councils are linked in with primary care trusts. One difficulty is that local authorities and PCTs are now delivering services on a common basis much more. They have common offices, pooled resources and joint funding. When a local authority is underfunded, such
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as Wigan and many others, the PCT that serves the same area is underfunded. In Wigan, the PCT was underfunded by £26 million in 2008-09, £25.5 million in 2009-10 and £25 million in 2010-11, so £76.5 million that should have gone to Wigan borough for its health services has not. If we want to tackle the health and social inequalities that exist in our country, we must urgently tackle health and local authority funding inequalities.

There is no doubt that that would cause problems for local authorities that are overfunded. I heard the hon. Member for Richmond Park (Susan Kramer) complain about the funding for Richmond. We hear a lot from the Liberal Democrats about the fact that they believe in equality, yet here we can make an impact in that regard by reducing the amount of money that Richmond gets-it receives more than 200 per cent. more than it is entitled to. We could reduce that and put it into areas such as mine that are underfunded.

Julia Goldsworthy: I think that my hon. Friend's point was that the situation is a bit similar to that of the council tax revaluation. The longer the period over which we try to deal with such issues, the more out of kilter they get. That makes it more painful for areas waiting to get up to their target funding, and more painful for areas that are a long way above their target to get back down to it. Because the problem has not been addressed over a shorter period, it has become even more of a problem to deal with.

Mr. Turner: That is not my understanding of what the hon. Member for Richmond Park said-I will read Hansard. I believe that the hon. Member for Falmouth and Camborne agrees with my point that we need to move more quickly towards the formula funding, so that each local authority gets the grant that it is entitled to under that formula. I welcome that agreement, as it is very important that that happens as quickly as possible. The pace of change is vital to local authorities if we are to achieve things.

Finally, I welcome the confirmation of the settlement, which I hope will make local authority funding more effective and better in future. The three-year settlement builds on 10 years of growth in funding and allows local authorities to plan. Because of all the things that the Government have done over the past 12 years, local government is in a much better place than in 1997 when we came into power.

6.24 pm

Sir Paul Beresford (Mole Valley) (Con): One of the delightful things about this debate was that the Secretary of State launched it, which is a little unusual. He gave a premier performance. He managed to present figures by using percentages where they were appropriate and actual figures where they were not-it was the performance of a magician, and I look forward to Debbie McGee following it up at the end of the debate to solve the whole thing for us. I suppose, as it has been put to me, I am speaking from a position of poacher turned gamekeeper, or watching from the sidelines. Today's debate has been intriguing. We have wandered round all over the place before eventually coming back to the subject, which I intend to keep to.

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The Minister said that the Government gave a generous cash increase of 4 per cent. to local government. In those broad terms, as a headline, that is correct, but as with all local government announcements, those who gain are silent, with one or two exceptions, such as the hon. Member for Wigan (Mr. Turner), and those who lose complain. In London and the south-east, local authorities have had plenty of opportunity to complain and plenty of reasons to do so. In a way, it is fortunate that they have recognised that we are at the end of the three-year cycle and that they are looking for post-election changes, whoever the Government will be. They have knuckled down to produce savings, to ensure that they provide better services at a lower cost, so they do not hit their local citizens with high charges.

What has happened under the 4 per cent. increase has varied. The Chairman of the Select Committee touched on this but skidded off it almost immediately. A recent Committee report, "The Balance of Power: Central and Local Government", reflected on local government expenditure and local council tax. Successive Ministers, some of whom have attended the debate, would tell us that the ties, targets and bureaucracy for local government have diminished, which they have. However, one must recognise that they have diminished from the enormous high that this Labour Government introduced. There has been a knock-on effect on expenditure and, because of gearing, a massive effect on council tax.

The cry from local government, which is still valid, is that it wants the bureaucracy, auditing, ties and so forth removed, and local councillors, who have been elected by local people, to be given the opportunity to get on with the job with the minimum of direction from above. The implications of that include considerable savings for both central and local government-an easy example is the Audit Commission, which is five times the size it was in 1997.

As a response to that reaction by local government, the Local Government Association recently produced a paper that said it could cut the total bill for local government by £4.5 billion, with a positive knock-on effect for central Government. If that were extended to the structure of local government finance, there could be large reductions in council tax, because there is reverse gearing. Gearing was mentioned earlier, but if savings were made in the right sort of areas, there would be reverse gearing, so council tax would go down.

Perhaps the Government will heed those points. After the election, whoever wins, I hope to have the opportunity to take the new Secretary of State to some local councils-I am thinking in particular of one that my hon. Friend the Member for Putney (Justine Greening) knows. I want to have people explain to him or her in no uncertain terms just how damaging the current Government have been to local government, regarding not financing, but the burdens they have placed on it.

Of course, the behind-the-scenes selective local government funding cuts have not come up in the debate. As I said, we are at the end of the three-year cycle and there are going to be changes. One problem with a set three-year cycle is that the Government are inflexible. In the current financial situation, it would be risky for them to be too dogmatically tied to a three-year spending cycle. Over the next three years, flexibility will be required.

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Local government claims that its cost inflation is running at approximately 3 per cent. In the light of that, the 4 per cent. is generous, but the distribution, even under this Government-or perhaps particularly under this Government-is slanted. For example, it has not been mentioned tonight, but for most authorities in London the grant increase is only 1.5 per cent. Many of those authorities, especially in inner London, face the sort of dire problems that the hon. Member for Wigan raised. Those authorities are struggling with those problems, although hon. Members have failed to recognise that and, indeed, have criticised the funding for two inner-London authorities, one of which I know quite well. It would benefit those complaining to take a tour of those local authorities to see what has been done with much less money than in other local authorities around the country.

There will be the threat of capping, but those London authorities will probably look for, and find, efficiency savings so as not to pass excessive costs on to their council tax payers. The same applies in many south-east authorities. My constituency receives services from Mole Valley district council, Guildford council and of course Surrey county council. All are Conservative controlled and all would have been delighted to have received a 4 per cent. increase in grant. In fact, going by trends over many years, they would have been utterly amazed. Guildford's formula grant increased by 1.45 per cent.-not by 4 per cent. This 1.4 per cent. increases Guildford's grant to approximately £62 per head. The average for English district councils is approximately £79 per head. Mole Valley district council would have been delighted with Guildford council's increase, let alone the 4 per cent. Government headline, because it received a 0.5 per cent. Government grant increase. Following the same trend, Surrey county council's grant increase was 1.5 per cent., which follows on last year's 1.75 per cent. and the year before, which was 2 per cent.

Mr. Neil Turner: I look at the figures for Mole Valley and I see that it will receive 30 per cent. more than the formula funding says that it should get in 2008-09, dropping to 21 per cent. more next year. How can the hon. Gentleman justify any increase above the floor when the council already receives so much more than it is entitled to? Moreover, half of the super-output areas in Mole Valley are in the top 10 per cent. most affluent in the country.

Sir Paul Beresford: It might help the hon. Gentleman if he took half a day to come with me to some of the Mole Valley villages, which have deprivation to match anything he has in Wigan. In addition, he should think back to when we had an Office of the Deputy Prime Minister and the funding formula changed dramatically. That change reduced the grant to Surrey county council and the local district councils dramatically. The year-on-year loss to Surrey county council was £39 million, and that loss was reflected by the other councils. The hon. Gentleman should reflect on the fact that the money moved with the change in the formula, but that does not mean that the formula is right.

I accept that there are differences in needs from authority to authority, and that this must be reflected in the allocation. But even the Audit Commission a few years ago commented on the fact that there had been a huge shift of grant from London and the south-east to
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the north and predominantly-at that stage-Labour authorities. The needs indices calculations are opaque. They are much more unintelligibly dense and complex than pre-1997. Pre-1997, shadow Ministers claimed that they would make the formula more transparent. I note, with some trepidation, that my own Front-Bench team says the same. Of course, it is always a balance. The more transparent and less complex a formula, the more there is rough justice. The fairer the assessment system-taking into account detailed needs-the more complex the formula. However, recent Government formulae have been designed to justify grant movement north despite increasing pressures from population, increased school rolls and increasing Government bureaucratic red tape in London and the south-east. I hope that we will have a new Conservative Government, who will have a massive reorganisation on their hands. It is overdue.

6.34 pm

John Howell (Henley) (Con): I spoke in a similar debate a year ago when we discussed the previous financial settlement. I struggle to see where the massive improvement that the Secretary of State talked about in his opening remarks has come from. Instead, there is greater uncertainty, and the attitude of central Government to local government during this year can be described only in terms of a master-servant relationship. One specific piece of legislation illustrated that fact for me and many other hon. Members when it was in Committee and as it progressed through the House earlier in the year, but I shall come to that later.

Is the settlement really an attempt, as the Secretary of State made out, to talk up a Labour view of localism? I cannot recognise it as localist, and I do not think that any councillors could either. Overriding everything is the feeling of utter powerlessness of councillors, and that was one of the major reasons many stepped down at the last elections. Many still have that feeling of powerlessness, and nowhere is that more apparent than when it comes to money and their ability to set their own budgets.

The Secretary of State referred to the importance of this time of the year, not just in relation to this debate, but because of the budget setting that many councils are going through and how the information before us feeds into it. My former colleagues on my own county council remain as frustrated and disappointed as I used to be every budget time because of the little influence they have in setting the budget and allocating money to their own priorities in the area covering a range of different subjects. That is partly a question of ring-fencing, and again the Secretary of State made great play of having improved the business of ring-fencing.

In preparation for this debate, I asked my local council to give me an idea of the ring-fenced and non-ring-fenced balance amounts. I have an e-mail from the finance and procurement team stating the latest grant figures for 2010-11: a total of £526.2 million, of which £484.8 million is ring-fenced and only £43.2 million is non-ring-fenced. When it comes to councillors being able to use the money and make changes according to their own lists of priorities, even major councils with overall budgets of about £1 billion have just a few tens of millions of pounds at the most. That is not the reason councillors-there are many former councillors in the Chamber-stood for election.

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Mr. Pelling: Does it not have a tremendously debilitating effect on both the quality of candidates and on voting if people do not feel that councillors have real influence in the community or can make a difference? Is it not in many ways a reflection of the pretty poor state of British politics? Does it not in reality underline how the Executive continue to absorb powers whether from Parliament or by abstraction from local discretion?

John Howell: The hon. Gentleman makes some powerful points with which I agree. The Local Government Association has done some survey work showing that a large majority of people think that councillors should have the ability to make financial decisions. If anybody is to cut anything in their own area, they believe that it should be local councillors, who stood for their position, and over whom they have a great deal of democratic control and see regularly. I worry that if we carry on like this, it will be more and more difficult to recruit people to stand for election, because what will be the point of standing for election?

The challenge of running an authority with a budget of £1 billion is completely frustrated when one gets down to the £20 million that can be distributed. The talent that is out there-the people who would otherwise come in and make a contribution-will simply go elsewhere, including to the golf course. I have nothing against golf, but if I had to choose between recommending that somebody play golf in their retirement and recommending that they be a councillor, I hope that I would be able to persuade them that it was still worth becoming a councillor.

Ring-fencing has clearly made no impact whatever on the current situation. However, formal ring-fencing is only part of the problem, because even where it has been formally lifted and the funds transferred to the area-based grant-I am thinking of the Supporting People grant-it is still not possible to show genuine localism. Are the Government seriously saying that simply transferring the Supporting People grant to the area-based grant will give councillors the choice between spending on the Supporting People programme and spending on roads? That simply will not happen. In addition to legal ring-fencing, there is therefore also a practical ring-fencing that has happened with many grants, even where they have been shifted.

We also need to focus again on the need for certainty. There are some examples, which I shall come to, of the Government creating considerable uncertainty about the funding for local councils. However, I do not accept the points made by the hon. Member for Wigan (Mr. Turner) about the reasons why his Government have not pursued a three-year settlement, particularly when the Local Government Association has shown that the funding gap by 2013-14 is likely to be in the region of £11 billion a year. That level of uncertainty is difficult for councils to live with.

The Secretary of State also boasted of the overall increases in local government funding under this Government's administration. However, if he is going down that line, he has to look at the totality of individual councils' settlements. He can no longer concentrate on only one side of the profit and loss account. If he is going down that line, he has to accept the other side of the profit and loss account: the cost side, and the increases in those costs. Indeed, the percentage of expenditure that is borne by council tax increased from 22 per cent. in 1996-97 to 26 per cent. in 2006-07.

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