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Local Government Finance (Kingston upon Thames)

Volume 457: debated on Friday 23 February 2007

Motion made, and Question proposed, That this House do now adjourn.—[Liz Blackman.]

Kingston council gets one of the worst grant settlements in the country. That has been the case for some time, which is why I have raised Kingston’s case many times before, perhaps most infamously when Ministers wanted to rewrite the map of Greater London and put Kingston into a group of east London boroughs in a way that would have cut our grant. On that occasion, to be fair to Ministers, they listened to me. However, I have to say candidly to the Minister that Kingston’s case is too often ignored. Indeed, the case for south-west London boroughs, such as Kingston, Richmond, Merton and Sutton, has continuously been ignored by this Government and their Conservative predecessors.

I have been sparked into requesting today’s debate by the financial settlement for Kingston next year. From an historically bad situation, next year’s settlement is pushing the borough over the edge. It will bring about a sharp real-terms cut in the grant and thus, as night follows day, cuts in services accompanied by continued increases in our already high council tax. Today, I want to demand a fair deal for Kingston.

The facts of Kingston’s budgetary position are stark. The council is a low-spend, high-tax authority. When the local tax is high and the local spend is low, it should be obvious that the problem lies with the low grant that Kingston receives from Whitehall. Let me examine those facts in more detail. Last year, Kingston spent £687 a resident. The average London borough spent £852, nearly £200 more. Until the Government removed education funding from council spending, Kingston was either the second or third lowest spending authority in London. Without education included in the figures, it is still the 10th lowest spending authority. The independent Audit Commission confirms that

“the council is providing good quality services at a relatively low cost.”

I am sure that the council could spend less, and spend better. It is embarking on a programme to cut £22 million from its budget, which is a shade over £100 million, over the next four years. In other words, it has to save a fifth of its current budget. Think of what that means on the ground. In the coming year, there will be 70 job cuts, with five senior management posts going, and 59 potential consequential redundancies, many of them front-line jobs. A children’s home will close, and eligibility criteria for elderly care will be tightened, so that only those with the greatest need will qualify for local authority support. The council is consulting on reducing the number of day care facilities for the elderly. In other words, there are to be cuts across the board in a four-year efficiency drive.

That is not unusual for Kingston. The new efficiency savings will be on top of the £48 million in savings and extra income generation, aside from that gained through council tax, that the council has achieved over the past 12 years. Residents understandably find it difficult to believe that Kingston is a low-spending borough, as they are paying the highest council tax in London. As the Minister knows, Kingston is a high-tax authority for one reason: the unfairly low grant given by the Treasury and her Department.

Let me put the situation as starkly as I can. In 2006-07, Kingston received £217 per person in central Government grant, whereas the average London borough got £493 per resident—more than twice as much. I understand that some boroughs have greater social needs, and I accept that. No one from Kingston is proposing that we should get the same as Lambeth or Tower Hamlets, but there must come a point at which redistribution becomes unfair, and at which the gross disparities in grant allocation become totally out of kilter with reality. I should add that in Kingston there are pockets of severe deprivation, and there are seriously vulnerable children and young adults. I feel strongly about that; nearly 10 years ago, I used an Adjournment debate to dispel the myth that the Deputy Prime Minister was putting about that Kingston is a leafy borough. Many parts of Kingston are good places to live, but I showed in that debate that average earning levels are near the London average, not way above it. A small number of seriously wealthy residents skew the figures, and there is a large tail of hard-working families and struggling pensioners on modest pensions.

Let me once again illustrate the unfairness in our grant allocation. If Kingston got the same grant per resident as the average London borough, our council tax would be the lowest in London. If we got the same grant per resident as Hammersmith and Fulham, which is proudly cutting its council tax by 3 per cent. this year, Kingston could cut its council tax by 80 per cent. Because of our low grant, for every pound that Kingston council spends, the council tax payer must cough up 68p. For every pound that the average London borough spends, the average council tax payer pays only 42p. The Government are forcing us to raise far more of our budget locally than other boroughs, using the most unfair tax in Britain today, the council tax.

I hope that the Minister is beginning to understand why my constituents want a better deal for Kingston, and why a large number of them have come to Westminster today to demonstrate, and I thank them for their support. Let me give the House other examples of how we get a bad deal in Kingston. Kingston council collects £67 million in business rates for the Exchequer, but we get back just £27 million. On top of that, we get a grant of only £5.3 million. In other words, the combined support that we get from central Government is less than half the cash that we are forced to send out of the borough.

I should add to that the huge amounts that are taken from our council tenants by Whitehall. Thanks to the pernicious effects of the housing revenue account subsidy scheme, which are made even worse by the rent restructuring, Kingston council will be forced to pay the Government £5.9 million next year in rent collected from council tenants. For every £1 collected in council rent we pay 29p to Whitehall, so there has been a 41 per cent. increase in council rent income taken from Kingston in just two years. Money has been taken from tenants in social housing, almost all of whom are surviving on a low income. I could add other unfairnesses, such as health funding, as Kingston NHS primary care trust has one of London’s largest NHS deficits, and we are concerned that the cost will fall on the council.

The Government appear to regard boroughs such as Kingston as cash cows for the rest of the country, but that simply cannot go on. That is why, when I learned that on top of past unfairnesses, we would receive a real-terms grant cut this year, I asked for this debate. Our grant increase this year is 1.9 per cent., but with retail prices index inflation at 4.4 per cent., it is in fact a huge cut, especially as everyone knows that local government inflation is running at an even higher rate—over 6 per cent., some estimate, with the cost of services such as residential care and street lighting increasing much faster than general inflation. In cash terms, our grant increase was a mere £600,000. Thanks to the Labour Mayor of London, Ken Livingstone, more than two thirds of that sum has immediately been used. The cost of the concessionary fares scheme has risen as a result of the 9 per cent. increase imposed on bus and tube fares, costing Kingston council an extra £400,000.

Another change introduced by central Government that will hit Kingston hard next year is the change to land charge fees. The new regime for land charges was heralded as a way of increasing local autonomy, but in fact it will reduce Kingston council’s annual income by £300,000. Will the Minister look again at the decision on land charge fees, as it surely goes against the thrust of her Department’s policy? There is a further technical point on which I would welcome her comments. Why has there been a delay in announcing the capital grants to replace the revenue funding withdrawn as a result of the accounting changes for supported capital expenditure? It is frighteningly late for many councils to set their budgets, so will she tell me what the capital grant allocation will be for Kingston next year, and can she assure me that it will be generous?

Those are relatively small things that the Minister could do to help our situation in the coming financial year. However, I wish to use this debate to make early representations on future years, because as she knows, this is a critical period for the future of local government finance. I am not talking about the Lyons review but about something much more significant. Few people will have heard of the settlement working group—an innocuous-sounding body which, however, holds the future of Kingston’s grant settlement and thus its council tax in its hands.

Meeting for the first time this week, with a work programme for the next eight months, the group will make recommendations for changes to existing grant formulae and thus future grant allocations and council tax levels for every council in England for the three years until 2010-11. The Minister should therefore regard my contribution as the first stage in some strong, determined lobbying. Will she allow my colleagues in south-west London and me to make a special presentation to the working group? I am sure that MPs and other representatives from the boroughs of Kingston, Merton, Sutton and Richmond would all be prepared to explain our common problems, and to work with Ministers and officials to secure a fairer deal for our part of London.

I have investigated in detail the minutiae of the grant formula that gives Kingston such a bad deal, and causes our high council tax. A key element is the calculation of the grants for social services for children and young adults. In the settlement for last year and for next, those grants were bad for most of London and simply dreadful for Kingston. If the formulae had been enforced in full for next year, we would have lost a further 6.4 per cent. from children’s social services and a frighteningly large 31.6 per cent. from young adults’ services, but thanks to the double dampening of the formulae and the grant, we did not do so. However, those formulae pushed Kingston and other London boroughs on to the grant floor, and as a result, the long-term outlook for Kingston is bleak. It is pinned to the grant floor for a decade or more, unless something changes.

In the local government debate a few weeks ago, MPs from outside London argued for the dampening to be removed, so that boroughs such as Kingston would lose more grant, more quickly. Worryingly, the Minister for Local Government pledged to look at that proposal. Can the Minister imagine for a second the impact of removing that dampening? Our dreadful outlook and unfair situation would be made a thousand times worse.

Far from removing the dampening, the Minister should ask the settlement working group to look again at the overall formulae for children and young adults. I know that her Department does not want to do that. The officials are proud of their formulae. They commissioned expensive research just two years ago to come up with them. I have seen the work programme of the settlement working group. At present there are no plans to look at the formulae, so will the Minister please reassure me that that will change? Will she ensure that the group reopens the matter?

Let me explain why. Take the children’s social services grant. As London boroughs explained last year, the results of the formulae do not fit the facts about what has been happening to London’s children. The number of children on child protection registers in London increased by 22.5 per cent. between 2000 and 2004, compared with an increase in England as a whole of just 0.3 per cent., yet the new formula introduced in 2005-06 removed a massive £180 million from London authorities for children’s services. The problem may be with the formula, the data or the proxies used. I do not know. Surely it is relevant for the settlement working group to address such questions.

Take the younger adult services grant. That uses the number of adults in receipt of disability living allowance as a key proxy for need. However, we know that there is a lower take-up of DLA in London than elsewhere, and many people think that DLA, geared as it is to a physical definition of disability, also underestimates the needs in London boroughs such as Kingston because it does not capture the needs of young people with mental health problems or with learning disabilities.

These are detailed technical points, but I hope they show that the settlement working group should undertake this extra work and receive representations from a group of London boroughs, preferably from south-west London as a whole.

Kingston’s residents should get a better, fairer deal from the Government. I hope today’s debate will make the Minister and her officials think twice. Kingston is a high-achieving council. It is highly rated by the independent watchdog, the Audit Commission. It gets relatively low marks for cultural and benefit services, but it achieves the country’s top marks in the most vital of services, those for children and young people.

Kingston council is an innovative council. It was the first council in the country to win a yes vote for a business improvement district. Businesses voted to pay more tax so that essential investment could be made in our town centre. They voted to pay more because they know that a high proportion of the rates leave Kingston. Of course Kingston council could and should improve itself and try hard to make even more savings than the £22 million planned, but the council estimates that the cost pressures for waste disposal and recycling, care for the elderly and care for severely disabled children will add more than £11 million to the base budget to be set against Kingston’s future efficiency drive.

We need more Government support. We need the forthcoming review of the grant formulae to produce a settlement for Kingston that will not force councillors to consider closing day centres for the elderly, that will not reduce child protection levels for the most vulnerable, and that will not force the council to levy high levels of the most unfair tax in Britain today—the discredited and hated council tax. The residents of Kingston want a better deal from central Government.

As the Member of Parliament whose constituency covers north Kingston, I support all the comments made by my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) and reinforce the view that this is very much a south-west London problem, which has largely been ignored by Conservative as well as Labour Governments.

I draw the Minister’s attention to a pattern that is developing throughout our area, which is recognised by none of the formulae nor by the actions of her Department. I refer to the pattern of growing pockets of deprivation throughout the areas of south-west London. Affordable housing is now part of every new housing development of any size, and that is exactly as it should be, but it means that youngsters who are as deprived as any anywhere in the country are not able to receive the services that are available to them in a wide area of deprivation. Older people whose needs are just as desperate as those in, say, Tower Hamlets or Lambeth are unable to get the kinds of services and support that are inherently part of what is offered to people in those areas.

We want to ensure that people who are deprived and in need can live in all parts of our community and are not forced by the distribution of services into narrow areas and ghettos. Will the Minister please take that on board, review her formulae and understand that pockets of deprivation are an increasing and severe problem for many people?

I congratulate the hon. Member for Kingston and Surbiton (Mr. Davey) on securing this debate, which provides a useful opportunity to discuss the 2007-08 local government finance settlement for the royal borough of Kingston upon Thames. He put comprehensively the concerns of his local council and constituents.

Let me provide some background to how an authority’s formula grant is calculated. The amount of formula grant paid to a local authority is largely based on its socio-economic and demographic characteristics and the relative ability of the area to pay council tax. We then ensure that every authority receives at least a minimum increase—the floor, to which the hon. Gentleman referred—on a like-for-like basis. That ensures stability and predictability of Government grant. This year we have also provided authorities with the grant allocations for two years thus allowing both years’ grant settlements to be taken into account for their medium-term planning.

Kingston upon Thames will receive £33.2 million of formula grant in 2007-08, which is a 2.7 per cent. year-on-year increase on a like-for-like basis. It benefits from the floor protection by £397,000. In comparing that figure with earlier years, we need to bear in mind that since 2006-07, schools are funded separately. Including the schools increase gives a grant increase for 2007-08 of 4.7 per cent.—not quite the “cuts” the hon. Gentleman claims on his website.

The hon. Gentleman raised the fact that local authorities are not able to keep the business rates they collect. It is right that local businesses should contribute to the funding of local authorities, and that we should use the grant within the settlement, including redistributed business rates, to ensure that all councils are able to set realistic council tax increases. If areas with high business rate yields kept the money locally, it would mean a switch of funding from poor and deprived areas to relatively wealthy ones such as the area represented by the hon. Gentleman:

“If it were all done locally, the equity problems would be huge, with poor areas being badly affected because they would be unable to raise the funds they need for vital services. Most people acknowledge the need for some central Government grant to equalise and redistribute resources to poor areas”.—[Official Report, 17 May 2004; Vol. 421, c. 739.]

Indeed, because those are not my words, but the words of the hon. Gentleman in 2004.

The hon. Gentleman has raised a number of concerns, and I shall try to deal with as many as I can in the time available. The formula grant settlement is designed so that more grant will go to authorities with a high need to spend on services—for example, they may have high deprivation levels and a low council tax base. As I am sure that he appreciates, the levels of deprivation are much greater in inner London than in the royal borough of Kingston upon Thames. I would therefore expect Kingston upon Thames to meet more of its net expenditure through council tax than inner London authorities do. The hon. Gentleman puts that another way, saying that the amount of formula grant per head for Kingston is below the average for London boroughs, but I would expect that too, and for the same reasons. After all, how is that different from the Liberal Democrats’ proposals for a local income tax according to which they say they would keep an “equalisation” grant? Their website says:

“Part of the grant councils get from central government reflects a local authority’s tax base—its resource base.”

I would prefer not to because the hon. Gentleman has given me many questions to answer. If there is time at the end, I shall happily do so. Let me finish the quotation from the Liberal Democrat website:

“So poorer areas receive more support than richer ones, now. We would have a similar system to protect deprived areas.”

The hon. Gentleman raised the issue of developing new relative needs formulae for personal social services, which was a priority for the 2005 review of formulae as the old formulae were based on out-of-date evidence. He referred to the fact that a great deal of research was conducted to replace the deprivation top-ups in the three formulae. Large and representative samples of social services clients were included in the research and the progress and outcomes were discussed widely with local authority representatives. We have no current plans to review those formulae.

Let me consider the base position from which the grant floor is calculated. In calculating the grant floor guarantee, as well as in presenting year-on-year grant increases, we use a like-for-like basis and the figures are adjusted for changes in function and financing.

This year, the main adjustment reflects a change in the way capital projects are financed. More are financed directly by central Government grant and fewer are financed through the formula grant settlement. So the cash grant increase for, for example, Kingston upon Thames, which the hon. Gentleman cited as 1.9 per cent., is lower than the like-for-like increase, but it remains correct to use the like-for-like figure of 2.7 per cent.

The hon. Gentleman asks that, when distributing the financial support for the new free bus fares scheme, we take account of the likely scale of future bus travel. That is no easy task—if we could predict exact passenger numbers, we would have no problem. However, I assure the hon. Gentleman that working groups run by both the Department for Transport and my Department, which include local authority representatives, are considering the best way of distributing the funding in advance of the new scheme starting.

The hon. Gentleman mentioned housing surpluses. It is reasonable for Government to claw back surpluses because most council housing has been funded by the Government. If surpluses were not clawed back, we would have to reduce support to more needy areas, cut other forms of public expenditure or raise taxation. None of those options is better than clawing back surpluses and redistributing them according to need. Tenants in surplus areas still get a good deal. Rents are set without any requirement to make a proper return on the capital employed. Consequently, there is a large hidden subsidy—as can be seen from the fact that council rents are generally way below private sector rents.

The hon. Gentleman mentioned capital funding allocations and asked why they had not been announced. In the first multi-year settlement, there are practical reasons for Departments not being able to announce allocations for the next two years. Some grants are based on bidding rounds. Some large projects, such as high value transport schemes, are subject to significant timing uncertainties, and it would be an inefficient use of funds to commit them so far in advance.

The hon. Gentleman referred in spine-chilling terms to the settlement working group, as if it were some secret organisation that met in a basement, possibly in my Department, but that group is not at all sinister. It is a working group at officer level, chaired by my Department, which includes representatives of local authority groups and Departments. All its papers are published. If south-west London authorities wished to put a paper to that group, I am sure that it would be possible. However, it would not be an appropriate forum for hon. Members to put their views. I assure the hon. Gentleman that the group considered in some detail the new formulae for social services that he has criticised so strongly.

The truth about local authority funding is that, in the years of Conservative Government, more than four years before Labour came to power, there was a real-terms cut of 7 per cent. Yet in the 10 years from 1997-98 to 2007-08, overall grant to local authorities has increased by 39 per cent. in real terms. That was not the position with which many of my colleagues and I were familiar in councils in the 1980s and 1990s.

I apologise to the hon. Gentleman for not having a response to his question about land charges, but I am willing to write to him about that.

Hon. Members are used to the Liberal Democrats facing both ways on issues. It is less common for the same Liberal Democrat Member of Parliament to face both ways at once, but here we have it.

I am grateful to the Minister for giving way, especially so that I can correct the record. The Liberal Democrat party and I have never been against redistributing grant or the national non-domestic rate, as is shown by the quote that she cited. I did not say today that I was against redistribution. However, if she bothers to check the record and listen to what we say in the House, she will realise that I said that redistribution can go too far and become unfair. We in Kingston feel that it has gone too far, whether it is on housing, health or local government financial support. That is the message that she should convey to her Department.

The hon. Gentleman speaks powerfully about the situation in his constituency. However, we are talking about the need for mechanisms to operate throughout the country to ensure redistribution, and there are formulae in place to do so.

Does the Minister agree that there are people throughout London living in housing that is far more valuable than the housing in Kingston, yet paying far lower council taxes, because the formula has fundamentally gone wrong? There are many areas in the city where people who live in houses worth £1 million, £1.5 million or £2 million pay a fraction of the council tax that is carried by people who live in south-west London. That alone should raise a flag that tells the Minister that the formulae are not working. As she knows, those formulae provide only very general frameworks, but they do not deal with the situation that we face.

The hon. Lady heard me say that I did not have a problem with the south-west London authorities putting forward their views to the settlement working group. We are a Government who consult on many things and we are always happy to have people’s views, but there must be a mechanism, and I am sorry that hon. Members find that difficult to deal with. The truth is that the Government, like the hon. Member for Kingston and Surbiton, recognise the importance of a redistribution mechanism. Being in government means sometimes having to tell people things that they do not want to hear—in this case, that better-off areas will pay more than deprived areas. That benefits us all. We do not live in a society in which communities are on their own. We need a more equal society, because more equal societies are more cohesive and successful. However, I suspect that the hon. Gentleman and his party will continue to say whatever suits the circumstances, because they will not have to face the difficulties of government.

Question put and agreed to.

Adjourned accordingly at one minute past Three o’clock.