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Population Growth (Local Government Finance)

Volume 451: debated on Wednesday 1 November 2006

I am delighted to have been selected to introduce this debate, which will contain some complex statistical matter, although I hope not to test your patience too far, Mr. Jones.

The part of west London that I have the privilege to represent has an excellent record of harmonious community relationships. Like much of London, Hammersmith and Fulham is home to people of a wide variety of cultures and religions. Well over 60 languages are spoken by people from all continents. We have large communities from Africa, Pakistan and India, and many people from the nations of eastern Europe, most notably from Poland. Nearly 5 per cent. of residents are of white Irish origin and the area has also become a hub for younger visitors from Australia, New Zealand and South Africa, who want to spend time in London. All those communities, in all kinds of ways, contribute to the vibrancy of Hammersmith and Fulham.

The proportion of non-white ethnic groups in the borough of Hammersmith and Fulham is 22 per cent., and several wards in the borough figure in the top10 per cent. in London in terms of numbers of various ethnic groups. Although ethnic diversity is high as compared with the country as a whole, it is not particularly high as compared with other parts of Greater London or inner London. Crucially, however, the proportions are high in the Irish category and “white other” category, which includes people from eastern European, Australia, New Zealand and the United States, of which I am one. Even though I am a British subject, I was born in the United States and am therefore classified as “white other” for the purposes of census returns and so on, as is my wife, so I know a bit about the issue.

Despite excellent relationships between communities in Hammersmith and Fulham, Government policy penalises such places for taking a huge share of recent immigrants, owing to the Government’s failure to provide proper funding for their impact on basic local government services.

Does my hon. Friend agree that other areas are also particularly affected in a similar way, such as my constituency? There has been a chronic understating of population figures in my constituency, and a ping-pong debate with the Minister concerning that understatement and the inadequacy of the figures from the Office for National Statistics. We have taken a proactive approach by identifying people who have not been included in the figures who equate to at least £2 million of lack of grant. We should like to take up that case further with the Minister.

My hon. Friend is quite right. Others also have the same problem, which is by no means unique to my constituency or local authority. I have spoken with officers in Westminster city council and with London Councils, which used to be known as the Association of London Government. Slough borough council is also playing a leading role in highlighting the issues, and my hon. Friend the Member for Peterborough (Mr. Jackson) has previously made the point in this Chamber about the problems facing his council. I shall return to the problems facing the other councils shortly.

To provide a bit of background, since May 2004 the UK has seen considerable migration from some of the new EU accession countries. Unlike any of the other major economies in the EU, the UK decided not to impose any restrictions on migration. The Prime Minister himself predicted that only 13,000 such workers would travel to the UK and that the bulk of them would return after a short stay. That was a massive underestimate. Even the Government now admit that between 300,000 and 400,000 east European workers have come to the UK since May 2004. That is 25 to 30 times the official prediction.

I believe that the right decision was made to allow the free movement of people from the new accession countries in 2004, and in that I disagree with the line that my party took at the time. In the 1980s I spent a huge amount of time in the old eastern Europe. As I may have mentioned, my wife is from the former German Democratic Republic, and I also visited every other one of the captive nations of eastern Europe at that time.

Calls at the time were made from the west—indeed, from this House—for the free movement of peoples from east to west. It was difficult to imagine then, when the wall was in place, that hundreds of thousands of people would come. Nevertheless, the position that Lady Thatcher and President Reagan laid out was to welcome the peoples of eastern Europe. The phrase that Ronald Reagan used was “Tear down this wall”. I do not know what he would have made of efforts to create a new division of Europe based on where one can and cannot work.

In any case, I am not here to discuss the rights and wrongs of the policy; rather, I should like to highlight for the Minister the impact that such migration has had on my constituency. For a variety of reasons, Hammersmith and Fulham has proved a popular destination for recent migrants. Despite the unprecedented population shift that we have experienced, however, official Government funding remains based on the borough’s population in the 2001 national census, with some flawed estimates of change since then. This situation is unfair and means that the amount of money that the council receives from central Government to provide vital support services for local residents does not reflect the size and the needs of the local population.

I thank my hon. Friend for giving way and congratulate him on securing this important debate. Does he agree that there seems to be a disparity in some geographical hot spots throughout the country, both urban and rural, between the economic benefits of mass migration from the EU10 and its costs, which fall on a small number of local authorities, in terms of the delivery of public services and, importantly, the potential impact on community cohesion?

My hon. Friend is absolutely right. I am a strong believer in the contribution that the recent migrants have made to our national economy, but an important point to make on top of my hon. Friend’s point is that most of their contribution—in higher tax revenues and national insurance contributions—goes to central Government, not to local councils. Those local councils are being short-changed in every possible way because of that.

To return to the Poles, so established is their influence in Hammersmith that the mayoral emblem of my borough has the Polish eagle on it. Polish newspapers and food shops are increasingly apparent. In fact, we now get Polish language-only call cards through the door—I have one here offering a magazine called Cooltura, which appears to be a Polish language magazine in the UK. There are Polish language newspapers, alongside the South African and New Zealand newspapers that one can pick up outside a lot of tube stations. I also have here a leaflet that we received only last weekend in Fulham, which is headed “Polish professional workers” and gives a complete guide to various services—carpenters, nannies and so on—which is a great thing. In addition, POSK, the Polish social and cultural association on King street in Hammersmith, is the largest Polish cultural institution outside Poland.

We have a long record of welcoming people, so our message to migrants from the EU accession countries is clear—I speak not only for myself but for the new administration running Hammersmith and Fulham council: they are very welcome here, as they always have been. We are proud of the established eastern European community, which is an essential part of the fabric of life in our local community. We equally welcome the beneficial contribution that the new accession state nationals make to our local economy and our day-to-day lives.

However, Hammersmith and Fulham council is being short-changed. With an increase in population comes an increase in the demands on local support services. We are starting to see pressure being placed on services such as refuse collection, parks, street cleaning and housing. Hammersmith and Fulham council wants to provide the extra capacity that the recent population increase requires, but it is struggling because Government funding mechanisms do not reflect recent immigration into Hammersmith. That has also been recognised by Dr. Olgierd Lalko of POSK, who has joined the council’s funding campaign and is quoted in the Fulham and Hammersmith Chronicle as saying:

“The Polish Social and Cultural Association recognises the enormous economic and social contribution that the Poles have made to Hammersmith and Fulham and we whole-heartedly support the council's endeavours to secure fair funding for the borough.”

The pressure on support services is likely to become more acute if Hammersmith and Fulham council receives an unfair settlement in the 2007-08 spending review, as is currently expected. The formula grant process uses population data that have been projected forwards from 2003. Recently published figures that look back to 2005 suggest that the projection for the borough of Hammersmith and Fulham understated our population by 2,673 persons—that is a lot of people for an area with a population of about 180,000. A provisional calculation of the effect of that underestimate indicates a loss for 2007-08 of about £448,000 in the formula grant alone. New data will be used for the 2008-09 settlement.

Provisional figures show a considerable increase for Hammersmith and Fulham due to inward international migration. We hope that the new data will be right. The data used for the coming year need to be revised; the data currently in use and many of the methodologies urgently need revision. The ONS uses sub-national population projections, or SNPPs, that project forward the population for each year up to25 years into the future. The SNPP for each year is calculated by ageing the population on from the previous year, applying local fertility and mortality rates to calculate the projected number of births and deaths and adjusting for migration into and out ofthe area.

The population figures for financial years 2007 and 2008 use the 2003 mid-year population estimates as a starting point. Those figures are fundamentally flawed, as the mid-2003 statistics take no account of the huge increase in inward migration following the accession of the eight new EU members in 2004. Ironically, if the original population figure or the projections are wrong, the Government’s move to multi-year financial settlements, welcome to local authorities in many other respects, merely compounds the errors.

Hammersmith and Fulham council reports that the number of its Polish residents shot up by a staggering 540 per cent. between financial years 2003 and 2006. In 2005, the number of non-UK national insurance registrations in the borough rose by 48 per cent., but obviously that has not been reflected in the ONS data from 2003. Meanwhile, the 2005 mid-year ONS estimate for Slough shows that its population should have decreased. Yet the data for NI registrations there showed an increase of 9,000 persons, only 150 of whom were UK nationals.

Slough undertook independent research, which found that there are between 3,000 and 7,000 more people there than the ONS estimates. Meanwhile, Hammersmith and Fulham has seen its projected numbers for 2024 increase by 30,100 in just one year. That estimate looks forward just under 20 years; in just one year, it has changed by 30,000 for a borough of only 180,000.

According to last week’s Local Government Chronicle, Slough estimates that unless the Government find a quicker way to incorporate migration into population estimates, it will lose out on a minimum of £15 million before the 2011 census corrects the figures. Although we are discussing local authorities, I might add that in 2001 my parliamentary constituency already had the second biggest constituency population in Britain after that of the Isle of Wight. That reflects the fact that at the last parliamentary boundary review in the mid-1990s, London’s population was still falling; now, of course, it is increasing very rapidly.

Furthermore, current ONS figures fail to take account of short-term migrants. That is a major problem for many authorities, as such workers use local authority services. The 2008-09 local government finance settlement needs to take proper account of such migrants. ONS methodology for assessing international inward migration is also fundamentally flawed. The ONS data are at odds with other data sets, notably national insurance records, and need major review. Those flaws have been highlighted by the large inflow of workers from the A8 countries.

I have also been made aware that a comparison between inward international migration data from the international passenger survey, the IPS, and non-UK national insurance number registrations between 2002 and 2005 in Hammersmith and Fulham—and doubtless elsewhere—shows a sudden 50 per cent. increase in non-UK new NI number registrations in 2005 that is not reflected in the IPS inflow data. That argument is slightly complicated—basically, those people are not being picked up. We believe that to be an indication that inward international migration statistics were underestimated for last year and the year before.

However, I welcome the news that Hammersmith and Fulham is to be one of four local authorities chosen for case studies on how international migration is measured. Nevertheless, my council needs help now; I understand that the case studies will not be analysed before the next round of the local authority finance settlement.

I turn to some of the extra expenses incurred by Hammersmith and Fulham council as a result of its growing population. All too often, the victims of the pressure placed on support services are the recent migrants themselves. Broadway, a local homelessness project, has recruited Polish-speaking volunteers. Broadway funds an employment project to assist people who have found it hard to get work, and it is seeing an increasing number of eastern European migrants.

Many of the new migrants resort to sleeping in squats in large numbers or, if employed in the building trade, sleeping on site. An eviction from one property in Hammersmith pushed 30 people into short-term rough sleeping, behind Marks and Spencer in King street. They dispersed slowly over the next few days, but the cost that such operations have on our services is difficult to quantify. It is, however, very real. Earlier this year, Kensington and Chelsea borough council and Hammersmith and Fulham council together commissioned a joint strategic review of rough sleeper services. It revealed that 150 clients—about one third of the total number—at the Broadway project are Polish, and that 78 per cent. of them have no usable English.

In our local schools, the number of children of eastern European white ethnic origin is rising year on year—a net increase of 40 to 50 children a year, compared with overall falling roll numbers of about 150 to 200 a year. Other grants will fail to pick up on our increasing and changing population. Due to the fact that, as recent arrivals, they will not have a prior attainment record, and because their families are not entitled to claim income support in their first year of residence, children of A8 nationals will not be able to be recognised as being from deprived backgrounds. Yet English is an additional language to most, if not all such children, and that requires extra spending. That is one of the reasons why our performance at key stage 1 is poor, although primary schools do wonders in lifting performance at key stage 2 to match the national average. Meanwhile, although they are not great in number, looked-after children from the A8 countries are costing the council some £300,000 per annum.

There are impacts on other services too. Before I detail them, I restate that I personally believe that the nationals arriving in Hammersmith and Fulham from the A8 accession countries are a net benefit to our local area. They have probably greatly increased the tax and national insurance intake from my borough. However, my key consideration is that all of that money is going to the Treasury, and none to the local council. The council’s council tax base has not gone up as a result of the new population. It is not as if hundreds of homes are being built to accommodate it.

Meanwhile, the “no recourse to public funds” budget for homelessness at the council is already overspent, not even halfway into the new financial year. That is a good indicator of the number of A8 accession families becoming destitute. Already, three households from A8 countries per week are approaching the council for assistance with housing.

A recent one-day count of street drinkers in my borough found 107 people, of whom 38—36 per cent.—were definitely from the A8 nations. It was not possible to ascertain the nationality of all those counted, and the A8 contingent is likely to have been underestimated; more likely, it makes up close to half the street drinkers.

Of course, the cost of delivering many council services will be roughly proportional to population numbers plus the impact of visitors. Such services would certainly include street cleansing, and might be deemed to include refuse collection as well. The population underestimates for Hammersmith and Fulham and other boroughs simply do not reflect the cost of providing those services.

To conclude, all I am asking for is fairness in a system of central Government funding based on population figures. I hope that the Minister will recognise the impact that migration is having on the funding of local services in a small number of localities such as Hammersmith. I do not need to quote to him the words of the Prime Minister to the Liaison Committee on 4 July this year when he specifically recognised the enormous pressures that are put on local authorities by accession state nationals.

Will the Minister respond directly on the pressures that are being placed on support services in Hammersmith and Fulham and in other councils? Crucially, will he accept that the council is right to request extra resources? The Prime Minister himself has accepted that some councils have added pressures as a result of the level of recent migration and that they should ask for more money. If the Minister cannot commit today to providing extra money, will he at least meet me and councillors and officers from the London borough of Hammersmith and Fulham? I am confident that we can work together on the problem.

We are not asking for the world, just fairness and the resources to manage the recent migration from the EU accession states. I specifically ask the Minister to consider introducing gateway authority funding for councils that are facing such problems, including Slough and Peterborough, and my council, Hillingdon and others in London.

In The Times business section today, the Governor of the Bank of England claims that the 2001 census is now next to useless because of uncertainty about migrant numbers. He says that that is making it difficult to steer the economy. If the 2001 census is not good enough for the whole economy, it certainly should not be good enough for local authority funding either.

Congratulations are due to the hon. Member for Hammersmith and Fulham (Mr. Hands) on securing this debate, and to the hon. Members for Peterborough (Mr. Jackson) and for Enfield, Southgate (Mr. Burrowes) on their interventions. The debate gives me the opportunity to put on the record the effect of population growth between censuses on the formula grant settlement. In the time available, I will try to outline our policy in as much detail as I can.

Perhaps I should begin by providing some background to the way that we use population in the calculation of an authority’s formula grant settlement. The amount of formula grant paid to a local authority is largely based on its socio-economic and demographic characteristics, which are used in the relative needs formulae, and the number of band D equivalent properties within its area. We then ensure that every authority receives at least a minimum increase, which is known as “the floor”, on a like-for-like basis—that is, after adjusting for changes in funding and function. In order to pay for that, we scale back the grant above the floor for other authorities.

Population forms the main element in the relative needs formulae. Following our consultation with local authorities on the way to operate multi-year settlements, it was generally agreed that we use population projections to make settlements more forward-looking. The Office for National Statistics calculates and publishes the population statistics—both the estimates and the projections—that are used by the Department for Communities and Local Government in the formula grant settlement. We then use the population projections, which are split into different age groups if appropriate, as the client group for most of our relative needs formulae. The formulae are generally of the form, client group multiplied by a basic amount plus top-ups for deprivation and wage cost pressures, and other top-ups if appropriate. We use various socio-economic and demographic characteristics of the authority to calculate the top-ups, and it is within the calculation of those indications that we use the mid-year estimates.

When we published the final settlement for 2006-07, for the first time we also published provisional formula grant allocations for all English local authorities for the second year, 2007-08. It is my strong policy to alter that provisional allocation only in exceptional circumstances. We have also announced two-year allocations for all specific grants to councils other than those that are performance-related or expenditure-based. That means that councils have much greater certainty for the next two years about some 95 per cent. of the funding that they are receiving and will receive from the Government.

The overwhelming objective of the financial policy is to provide stability and predictability. Our goal is, first, to ensure that the three-year settlement is a three-year settlement from 2008 onwards, and not a two-year settlement with a guesstimate on the end, and secondly, to work towards a situation where the three-year rolling settlements for local government finance are in line with the Treasury’s three-year spending review period. At present they are out of sync. It is important to provide stability to local government. That will result in more planning on the income and expenditure side and a greater degree of certainty. I strongly believe that what are undermining council tax, in part, are the significant increases in council tax, and that they are made more likely by a lack of stability and the inability of local authorities to plan. That is the context of the policy.

The London borough of Hammersmith and Fulham is concerned that perceived flaws in the formulae used in the local government finance settlement are threatening its ability to meet needs in the borough. It mentioned in particular, as the hon. Member for Hammersmith and Fulham eloquently did today, the influx of Polish migrants. The council wrote to me about that recently.

In making local government finance settlements, we have used the best available data and data that treat all authorities on a consistent basis, which of course I have to do. I took that approach earlier in the year when making the calculations for the final 2006-07 settlement and the provisional 2007-08 settlement. For population projections, the best data that were available were the 2003-based sub-national population projections; for population estimates, the best data that were available were for mid-2004. I recognise that the mid-2005 estimates, which were published by the ONS on24 August 2006, will show differences from the data that we have used. However, use of population projections was part of the introduction to multi-year settlements, which were generally welcomed by local authorities. In the main, it is felt that the benefits of predictability and stability that multi-year settlements bring outweigh the benefits of updating the data on a more frequent basis.

Indeed, in its response to the consultation on three-year settlements, Hammersmith and Fulham borough council supported the use of forward-looking data in the settlement. The hon. Gentleman asked about a comparison between the non-UK national insurance number registrations and the inward migration data from the international passenger survey, which are used in the mid-year population estimates. He should be aware that comparisons between those data sets should be viewed with caution, as there are differences in the data collected. For example, the national insurance numbers cannot distinguish the length of stay of the applicant, so they will include people who may stay in the UK for only a short period. The population estimates and projections use the United Nations recommended definition of an international long-term migrant to measure international migration—that is, someone who enters, or leaves, the UK for a period of at least a year. Short-term migrants—those who spend three to 12 months in a country for certain purposes—are not included. Similarly, visitors staying less than three months are excluded.

I know that the hon. Gentleman is aware of the ONS project to improve migration and population statistics, or IMPS. The ONS has information on its website.

I realise that time is short, but I want to take the Minister back to a point that he made earlier. He said that funding settlements can be altered only in exceptional circumstances. I appreciate what he is saying about the stability provided by projecting forward, which was certainly welcome for local authority finance in many areas, but surely 300,000 to 400,000 people unexpectedly arriving in this country, predominantly in a few local authorities, qualify as exceptional circumstances.

The hon. Gentleman said in his speech that his authority was not unique—that the problem applied also to Enfield and no doubt to other authorities. Perhaps I may respond to the hon. Gentleman by sending him more information on this important subject.

Briefly, there are two points to consider. First, the revenue support grant is a cake that is distributed between all the authorities. Where there are winners, there are losers, and one has to be fair and consistent. Secondly, as I explained, in making the changes to the formula grant that I announced in the House last December, I took into account the need for future projections rather than relying wholly on historical trends. Perhaps I may write to the hon. Gentleman with more detail so that we can discuss the matter elsewhere.