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Council Tax - 9 April 2003

Mr. David Curry (Skipton and Ripon): This is the first year of a new system of local government finance. The mountain laboured for several years; the Labour Opposition promised that they would change the system, but the Labour Government found it to be much harder than they had thought and, at the end of the day, the labouring mountain has delivered a mouse of a new system.

The Government were anxious that there should be no absolute losers, so the first thing that we should do is admit that the aggregate amount of money available for the settlement is relatively generous. However, there are always relative losers and relative winners. We have already had floors and ceilings, or toppings or tailings, to enable some redistribution within the control totals, but there has been some complaint about that. The main impact of the new system is not simply the dragging funds towards northern metropolitan authorities, although that has been a consequence, but a much more general redistribution. In London, for example, funds have been dragged away from some of the outer London boroughs.

There has been a general change in the way in which funding is distributed. Looking at the tables that the Library helpfully produced, one sees that Merseyside is an obvious winner, although the increase is very modest in Merseyside. South Yorkshire is a winner and quite a number of the metropolitan authorities are clearly winners, but there are also widely distributed losers, as well—we are not talking purely about the larger northern metropolitan authorities. That is a preliminary point that must be made.

I have been considering what has been happening in the shires, because I represent a constituency in North Yorkshire, while it still exists—we will have to wait and see how the regional assemblies legislation progresses to know whether it will continue to do so. We have posted an 11.5 per cent. increase in council tax. I leave aside a large increase in the police grant, because that is a separate issue and I am trying to be fair to the Government. I want to arrive at my conclusion about their culpability by a rational process rather than by prejudice. We will see at the end of my speech whether I reach the same conclusion as my hon. Friend the Member for West Derbyshire (Mr. McLoughlin).

The easiest way to consider local government funding is to say that, in effect, there are three chunks of funding for a local authority. The first chunk corresponds to what the Government describe as a reasonable increase in council tax, which in North Yorkshire's case is about 5 to 6 per cent. That corresponds to inflation, national insurance contributions, teachers' pay and pensions—it is worth noting that in inner London the teachers' pay increase is 4.6 per cent., which is significantly higher than in the rest of the country—the standards fund, about which there is a debate because that is being folded into the general totals, and the demands on social services.

The Government say, "We've given you the money for those things. That's where it should end—there is no reason for any increase in council tax beyond 5 to 6 per cent. Anything above that is unreasonable." I know from my ministerial experience that the word "unreasonable" is wonderfully useful to Governments. They could not do without the words "appropriate" and "reasonable". The whole Government would collapse if those two adjectives were not available for use by Ministers.

Unfortunately, we then come to the second chunk, in relation to which we have that wonderful new invention, resource equalisation. The Government have increased the spending power of local authorities on the assumption that the council tax covers that because local authorities have been spending above what was the standard spending assessment. However, that is a false assumption because local authorities do not have the council tax cover for that increase in expenditure. However, the Government have not provided a grant for it. That is why we have that second chunk of increase in council tax, which in North Yorkshire amounts to something like 5 per cent. The new formula spending share, which replaces the SSA, falls short in that respect. We in North Yorkshire estimate that the shortfall is some £10 million. That must be found from council tax, otherwise a severe pruning of services becomes necessary.

The third chunk is the small chunk that relates to discretionary expenditure in response to local demands. In my constituency, for example, for years and years the highways authority has been the Cinderella and has spent below the SSA in order to meet the Government's demands to push passported money through into education, and to meet increasing demands on social services. Every Member of Parliament knows that the social services sector is under more pressure as more elderly people become dependent on care. If somebody goes into care as a self-funder and is no longer able to pay, there is no Government support in respect of that person. That is a major liability. There are also increasing and entirely justified concerns about vulnerable young people: after a series of spectacular cases, every local authority in the country is desperately anxious to ensure that it has in place thorough safeguards in relation to looking after young people, so that it does not get a Victoria Climbié case or the equivalent in its area. That is a natural reaction.

Discretionary expenditure responds to local demand in relation to youth services, social services and highways. In North Yorkshire, discretionary expenditure adds another 2 per cent. to the total increase, taking it up to 11.5 per cent. Will the Government tell me why and how such an increase is unreasonable? If they dispute the figure, what figures do they believe are correct?

Things will be worse in future. I am wearing my sheep tie in the expectation of being fleeced, as today we have the Budget, which will no doubt indicate that, for reasons with which we are all familiar, the next public expenditure rounds will be much more difficult than the current one. The Minister might not have the amount of money that he has had in the past to put into the local government settlement.

On top of that is the promise in the Local Government Bill of the division and revaluation of council tax bands. Everyone expects that band A will be subdivided, because in many cities—for example, east Lancashire towns such as Blackburn, Burnley, Rossendale and Hyndburn—the value of many properties is nowhere near £60,000. One can buy a house for half that in those towns and in others such as Newcastle and Salford. If council tax bills are cut to correspond to a minus-A band, there will be a significant revenue shortfall for local authorities, particularly those in which properties are concentrated in the bands at the bottom of the pyramid that represents the hierarchy of bands. If those authorities do not have properties at the top end to compensate, resource equalisation will become even more important in the local authority formula.

Authorities such as that of my hon. Friend the Member for West Derbyshire and mine will be hit even harder by the dragging away of funds. The settlement has been extremely unfair to my local authority. The unfairness has been made even worse by the absurd huffing and puffing of the Government about unreasonable demands. The authority has had its hands tied behind its back.

It is terribly inconvenient that the Audit Commission has just given an A for excellence to almost all the local authorities that the Government most hate. Let us take the wonderful case of Wandsworth, which the Minister loves passionately. I thought that I might make some inquiries about that excellent authority. It is, of course, matched by Westminster, which is also an A authority. Wandsworth decreased its council tax last year because it realised a significant number of assets in pursuit of Government policy; for example, in the rationalisation of schools and the disposal of the related assets. The Government have been pressing local authorities to realise the best price for assets—that is a Treasury rule. The council was able to reduce its reserves and hand money back to the taxpayer. As a Conservative, I think that that is always an extremely good plan.

Mr. Leslie : The right hon. Gentleman makes an interesting case. He said that he would be rational rather than prejudicial. From his assessment of Wandsworth, does he think that the fact that there is no election this year might have something to do with the council tax rate?

Mr. Curry : No, I do not. As my hon. Friend the Member for West Derbyshire said, Wandsworth can hold up its head, as it is still charging one of the lowest council taxes in London, despite the increases. We should consider why the increases have been necessary. A former leader of Wandsworth council is in the Chamber. I am doing his work for him.

Sir Paul Beresford : Is my right hon. Friend aware of the Government's rather mixed feelings about Wandsworth? The Minister's colleagues are busy telling Wandsworth to cuts its council tax increase at the same time that Education Ministers are telling it to increase taxes to put more money in schools.

Mr. Curry : The Government make a great thing of getting rid of ring-fenced grants. They have finally accepted that far too much money is ring-fenced, that it should be put back into the kitty and that local authorities should be given more responsibility. However, no one passed that message to the Department for Education and Skills, so while the Office of the Deputy Prime Minister says one thing, the Department for Education and Skills, in its usual Stalinist style, tells local authorities that they have to pass the money straight through, even local authorities in which total spending on education was more than the grant. The Government are actually taking money from other functions such as social services and insisting that it be directed to the education service.

This year, the Government grant to Wandsworth was increased by 3.5 per cent. However, the teachers' pay increase in inner London was 4.6 per cent. and there will be associated pension increases for teachers and local authority workers, as well as the 1 per cent. increase in national insurance contributions. The council has prudently made provision against a shortfall of some £70 million in the interim valuation of its pension funds—prudence dictates that more and more local authorities will have to do that in future.

Finally, there is the great Livingstone levy—£50 out of £181 going straight to Ken. That levy has gone up by 82 per cent. in three years. Do not blame me—I did not give levy powers to the Mayor of London. We all knew what would happen, so there is no point in complaining. It has happened entirely as forecast.

I wish I lived in Wandsworth. I live in Lambeth, which is a great pain. It is convenient, but, by gosh, it is financially punishing. I wish I lived in Much street, which is divided between Lambeth and Wandsworth, because I could live on the Wandsworth side and think how fortunate I am and how much I am saving.

I promised the Minister that I would come to a rational conclusion. All Governments need to modify and amend the local government formula. It is entirely true that efforts to make a formula fairer makes it more complicated. Groups of local authorities used to come to see Ministers. Ministers do not meet local authority delegations any more, but in the old days they used to come in delegations. Representatives of local authorities such as those of the Webber-Craig group in south Yorkshire and Lancashire used to argue a case based on certain social indicators. Sometimes Ministers said that the case made sense, but that the situation might be that little bit more complicated.

The Government say that by creating a new system they have achieved simplicity and fairness, but that is manifestly not the case. They have to defend a system

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that has their finger and thumbprints all over it, in which the winners and losers are perfectly clear. The sensible thing for Government to do is just shut up and stop making idiotic threats. They should sit in the hole and not dig, but not get out of it because they might get hit by the flak. The sensible thing for the Minister to do is to tell the Deputy Prime Minister to stop talking about unreasonable increases or nasty things that he might do in future years. He must realise that he cannot win on this matter—he does not deserve to win, but, for heaven's sake, do not let him lose even more badly than he is already doing.

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David Curry MP | House of Commons, London SW1A 0AA | tel: 020 7219 6202