Local Government Finance (England) Report

Tony Baldry (Banbury): Today's report marks the end of a six-month consultation by the Government on local government funding. By any yardstick, it has been an opaque consultation, obfuscated by the Government themselves. The consultation trumpeted the replacing of the standard spending assessment of grants to local authorities, with a "fair funding formula", but not even post Einsteinium relativity theorem could be as difficult to work out as the formula that the Government have presented; nor can anyone say whether the new formula is fair because we have yet to see all the announcements on local authority funding. That is absurd.

The changes affect every service provided by every local authority, yet the Government have deliberately left councillors compromised by lack of information and lack of explanation. Consider Oxfordshire. Only two things are certain. The first is that council tax will have to rise by at least 13.4 per cent., so band D homeowners in Cherwell will pay £25 more because of today's announcement. The second is that local councillors who provide the services on which so many local people depend now have absolutely no idea what the service provision will be following today's announcement.

The imposition of the grants, ceilings, floors, and resource equalisations, which are now part of the compulsory mumbo-jumbo of local government finance settlements, has yet to be communicated to local authorities, including Oxfordshire. Lack of information creates uncertainty. Uncertainty leads to instability.

In a letter to ODPM officials in December 2002, Oxfordshire county council explained how the proposed settlement

"is extremely complicated and it has been difficult for us to understand the implications of the proposals. Some changes interrelate, making it very difficult to understand what is causing the change in our grant. Late release of information ... has particularly caused problems in terms of providing speedy responses both internally and to media interest".

I would go further. The deliberate late release of information by Ministers has made it practically impossible for Oxfordshire county council and Cherwell district council to stabilise existing services. What do they decide to put out to tender if they do not know what stage their budget is at? How can they properly decide what represents best value, under the Government's own criteria, if they do not know what bit of their budget is doing what?

In the same letter, Oxfordshire county council explained that waiting until February 2003 for the Government to make most of the remaining announcements would

"leave us very little time to set our budget".

Yet here we are, early in February 2003, and councillors are confused. The local media are confused, and council tax payers are so confused that they find it difficult to know whom to hold to account.

Accountability is central to democracy. Without it, democracy is undermined. Of course Ministers and certain Labour councillors are trying to spin the story that any failures are of the councils themselves, but how so? Oxfordshire county council did not draw up the terms of last summer's consultation. It did not dream up thousands of pages of incomprehensible formulae and it did not decide to drip feed local authorities with important financial information that would clearly have a domino effect on their entire provision of key public services. All those are ministerial tactics.

I was initially encouraged when the ODPM announced a local government finance review. I suspect that last summer's consultation document was not intended to be taken to the beach for holiday reading. None the less, the consultation was important for local government and local services, as its aim was, apparently,

"new formulae that are fairer, simpler, more intelligible and more stable".

Sounds good, but then we get to the detail.

Buried away in the Government's document is a sentence that rather alarmingly admits that

"any system based on formulae cannot reflect all possible circumstances, so there will inevitably be an element of rough justice".

Then there is the caveat that rough justice

"tends to be increased as formulae are made simpler".

Council tax payers and business tax payers in Oxfordshire and elsewhere will now experience the Government's "rough justice".

I have referred to the council tax, but there will be no less an impact on business rates in Oxfordshire. Under the consultation options, it was clear that in every case business rates would have to rise by about 7 per cent. It is clear today that that will indeed happen. On that basis, it was somewhat cynical of the Government to trumpet in an earlier local government finance Green Paper that

"we said we would give local authorities limited freedom to vary the business rate in their areas".

Under all those scenarios, it is plain that the Government will pass the buck to local authorities, which will either have to undermine local businesses with higher rates or under-resource local public services.

Mr. Ian Liddell-Grainger (Bridgwater): Will my hon. Friend give way?

Tony Baldry: Sorry, but I am not going to give way. I have only a limited time.

Even more staggeringly, the same Green Paper claims that the business rate is

"not intended to substitute council tax".

Under all the projections for Oxfordshire's budget, the business rate and council tax will have to rise significantly to cover up shortfalls in Government funding. One can only infer that the Government believe that it is acceptable to use those local council tax hikes as a substitute for proper, sustained Government investment in local services.The business rate rise is bad news for small businesses in north Oxfordshire. The council tax rise is bad news for everyone living in Oxfordshire. We are told that the Government grant floors will delay the impact of the changes to grant in Oxfordshire, but that is not a solution and floors do not produce fairness. Delay does not enhance stability.

Then there is the so-called resource equalisation. That term is intended to sound good, but it does not mean what it suggests. The Local Government Association explains resource allocation as

"dealing with the problem of the gap between total formulae spending and budgets ... with a compensating increase in the assumed amount contributed from the council tax".

Put that mouthful into practice for Oxfordshire and it sounds much less promising.Let us consider the last financial year for Oxfordshire county council. The current formulae dictated that it had to spend £20 million more than it was allocated. Council tax was then increased by an average of 10 per cent., as this "resource equalisation" suggests, but there was still an £11 million funding shortfall. In short, resource equalisation simply is not an escape route from the Government's failure properly to invest in local services. If that is what happened under 2001–02 conditions, how on earth would resource equalisation sustain services when council tax increased by nearly 14 per cent? It would not do so.

I remain cautiously optimistic, however, on the area cost adjustment. Under certain scenarios, Oxfordshire county council can lessen the impact of grant losses through top-ups via the ACA. However, that is dependent on Oxfordshire county council convincing the Government that the cost of living in Oxfordshire is as high as in the rest of the south-east. I can tell Ministers that it is. The Land Registry's latest quarterlysurvey showed that house prices in London are rising at a slower rate than those outside the capital in the south-east region. They are still increasing in Oxfordshire.

I am concerned that, in the past, the Government's local government finance arrangements have shown no intention of adjusting for the higher cost of living in the south-east compared with the rest of the United Kingdom. The ODPM might say that that was the reason for the review, but if that was the Government's policy, I am slightly at a loss to understand why pay for teachers, police officers and NHS staff recognises only the high cost of living in London and not the high cost of living in counties such as Oxfordshire.

I submit that it is irresponsible of the Government to present options that might lead to massive cuts in budgets for services. Elderly care will be destabilised and youth groups put under threat, and foster carers do not know where they stand. Not a single vulnerable group that depends on the support of social services provided by counties such as Oxfordshire can feel reassured that their lives will be made more stable or secure by today's announcement. This is not a fair formula. Sadly, it will often be the most vulnerable and the weakest in our communities who will suffer as a consequence of the Government's unfairness.