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Local Government Funding (Poole)

Volume 457: debated on Thursday 8 March 2007

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

It is not the first time that I have raised the subject of funding and finance in Poole, and I suspect that it will not be the last. The problems will not go away and I want to make a case for a better deal for Poole.

It is great to have the support of the hon. Member for Mid-Dorset and North Poole (Annette Brooke), who has changed her plans to be here. I do not know whether she will intervene or catch your eye, Mr. Deputy Speaker, and speak for a few minutes later, but the important thing is that we both feel strongly about the way in which Poole is funded.

Poole council is a good council. High quality people, from all parties, serve on it and it attracts high quality officers. I have always been impressed by the way in which they conduct their business. The council has been under the control of different parties but I have never had any great concerns about it. Matters have always been properly debated and efficiently dispatched.

However, life is becoming harder in Poole because the grant settlements that we have received over a series of years put great pressure on the local authority. Poole is a beautiful place. It is also a place of extreme contrasts. Parts of it have some of the highest house prices in the country yet several wards are in the worst 25 per cent. for deprivation. One has to envisage some of the contrasts in London to appreciate what life is like in Poole.

Poole receives only £169 per head of Government funding—it is in the floor. That is less than 50 per cent. of the average figure for unitary authorities. Although council tax in band D is slightly lower than the average—in 2006-07, it was £1,233—that was achieved by superhuman efforts by the local authority, which placed a high priority on keeping council tax down. We have many retired people who are on fixed incomes and, Poole being in the west country, salaries are not especially high. Council tax is therefore a live issue for our constituents.

In 2007-08, the council’s net budget requirement was £84.542 million, of which £61.333 million—72 per cent.—was raised from council tax. Our funding from Government was £23.209 million—27 per cent.—through the general funding formula. The balance between Government support and locally generated council tax leads to a feeling of unfairness about the system of grant distribution.

Since 2003, average unitary authority funding per head has increased by £114 but only by £44 in Poole. We therefore feel not only disadvantaged by being towards the bottom of the league tables—though nobody would expect us to be at the top—but that we are falling behind other authorities because of the operation of the funding formula.

I want to make a specific point. I was here when the Minister for Local Government made his announcement about the grant settlement. He said that no authority would be below 2.7 per cent. The local authority in Poole feels that its grant in the current year has gone up by only about 1.7 per cent. It says that revenue support grant was £22.82 million in 2006-07 and £23.209 million in the current year, which represents an increase of only 1.6 per cent. I understand that there has been some correspondence and debate. Will the Minister point out where the discrepancy lies, as there is a feeling that we are missing out on 1 per cent. of that grant—£235,000, I think—which would make some difference?

In December 2004, the Minister for Local Government announced that he had overhauled the system used to distribute formula grant to local authorities and increased the level of resource equalisation. That has had a substantial detrimental effect on authorities such as Poole, which has high house prices and is assessed as having a relatively greater ability to raise council tax locally. In previous conversations, I think that he acknowledged that that element in the formula is one of the factors that disadvantages Poole.

Resource equalisation was intended to reflect the higher need for spending in authorities that have a weak tax base. However, the difficulty is determining the extent to which higher spending is genuinely the result of higher need, or whether it is attributed to factors that should not be compensated for through the grant system, such as higher levels of service or demand for discretionary services. Increased resource equalisation would appear unfair to lower-spending authorities, where local voters favour lower taxation over a higher service level. That is a key issue for people in Poole.

If there is to be a high level of resource equalisation, the targeting of significant amounts of direct Government funding to deprived and declining areas could also be brought into the resource equalisation system. Without doing that, areas such as Poole, who miss out on much funding, will consider it unfair.

Poole acknowledges that it has received funding to support the regeneration project in the town. One of the main capital projects is the building of a second bridge in the harbour. There is also a building schools for the future project and, more recently, a local authority business grant has been received.

Poole has recently benefited from several extra grants, which have helped the town enormously. The underlying problem, however, is the funding formula for Poole. I was a councillor for many years, and I know that the case for fair funding has been made for a long time. Why cannot the system be more transparent so that the people of Poole can understand why it is funded as it is in relation to other places? Given the number of times that the hon. Member for Poole (Mr. Syms) and I have raised the subject of the high ratio of house prices to wages, is there any prospect of daylight in any subsequent reformulations for the financial settlement?

The hon. Lady makes some good points. The capital projects have helped Poole, but they are relatively small compared with those in some authorities.

When compared with household income, house prices are very high in Poole: the ratio is 5.44:1. That places Poole in the top 10 per cent. of the most costly places to live, based on households aged 20 to 39, among 407 other local authorities. Our house prices are probably more aligned with those in the south-east of England, but our wages are more aligned with those in the south-west, which creates a problem.

Overall unemployment is low at 3.4 per cent., and that impacts on the inability to recruit locally. In addition, recruitment to low-wage jobs is made more difficult when house prices in the area are so high. The average selling price for a house in Poole in the fourth quarter of 2006 was £266,368. The difficulties of recruitment are compounded by the loss of 20 to 29-year-olds within the population in recent years. It is terribly difficult for young people to get on the housing ladder in Poole.

The cost of adult care in Poole is also significantly above the unitary authority average. In 2005-06, the average gross weekly cost of intensive care for adults and older people in Poole was £567 compared with the unitary authority average of £501. The average cost of residential and nursing care for older people in Poole was £528, compared with the unitary authority average of £416. Currently, 21 per cent. of the population is over the age of 65.

A number of things have happened recently that have increased difficulties. An example is the concessionary fares scheme for the over-60s and those with disabilities, although many people welcomed it. Poole has a population of 137,000 and 36,000 residents over 60, and received £800,000 towards a total budget of £1.4 million to reimburse the bus operators. Torbay, which has a population of 132,000 and 34,000 residents over 60, received £1.254 million, significantly more than Poole. Surprise surprise, the scheme in Poole is showing an overspend of £440,000. That is another burden that will fall on council tax payers.

There are many more things I could say, but time is limited. We suffer from a formula that disadvantages us and does not take account of the pockets of deprivation in Poole. My constituency is very mixed, and the circumstances of people living a mile apart may be very different. There is a strong feeling among members of all parties and no party in Poole that we are being unfairly treated. The campaign for fair funding for Poole is gathering thousands of signatures in the shopping centres. On most Saturdays both Liberal Democrat and Conservative councillors are out gathering the signatures, which will be presented at a future date. People feel very upset about the way in which the grant is being distributed.

There is a more important point, however. We might accept our place in the lower half of the table given our position in relation to areas that are rather more deprived, but the gap is widening at a great rate. A great deal of what happens in local government results from national pay agreements. It costs just as much to empty a bin or to employ a teacher in Poole as anywhere else, but it is difficult to provide the same level of service when we do not receive the same level of funding of education, for instance, as many other parts of the United Kingdom. I am not saying that our outcomes are poor. Dorset is very good at delivering good local government outcomes, but it is much harder to do that with a poor funding formula.

I am glad that the Minister has been present at least to listen to what I said and to what was said by the hon. Member for Mid-Dorset and North Poole. Perhaps she will reflect on the fact that people feel they are being treated unfairly. There ought to be more transparency in the system, so that those people can see more clearly why they are in their present position.

Recent grant changes have probably made it rather more difficult to delve into the formula and argue about the methodology. Sometimes people look at the figures and do not quite understand them. I hope that if I do not receive answers from the Minister today, we may be able to exchange correspondence to generate at least a better understanding of our relative positions. I also hope that we can have another debate in the future about why Poole should be treated more fairly so that it can continue to deliver first-class local services.

The Parliamentary Under-Secretary of State for Communities and Local Government
(Angela E. Smith)

I congratulate the hon. Member for Poole (Mr. Syms) on securing a debate on an issue that I know is close to his heart. It has given us a useful opportunity to discuss Poole and local government funding. I want to praise the way in which the hon. Gentleman raised his case. At times we can all speak in the House with passion and commitment, but at other times, when our case is somewhat weaker, we find it more difficult to do so. The hon. Gentleman had a difficult case to make, and he made it well. The people of Poole should be proud that he represented them as he did.

Let me outline the local government funding position. The Government will provide £65.8 billion in 2007-08, an increase of £3.1 billion, or 4.9 per cent., on the previous year’s funding. Formula grant will make up £25.6 billion of that total in 2007-08, an increase of 3.7 per cent. on a like-for-like basis. I shall say more about that, because I think there has been a misunderstanding and that I can help the hon. Gentleman.

The settlement confirms the increased investment announced last year as part of the first stable and truly predictable local government settlement. Allocations for all English local authorities were announced for 2006-07 and 2007-08. We examined the spending pressures with local government. In 2007-08, there is extra provision, over and above the previous plans, of £508 million, following the representations that were made to us. Looking ahead, we are committed to securing a sustainable three-year settlement for local government in the comprehensive spending review 2007, and are working closely with local government to achieve that. We recognise that local government needs that stability and an assurance about what the funding will be.

There has been a continued real-terms increase in investment in local government, which will allow authorities to continue to deliver effective services at a cost that is affordable for them and for local residents. The increase in total Government grant for local services since 1997 is 39 per cent. in real terms—that is 39 per cent. higher than inflation.

On the calculation of formula grant, I take on board the points made by the hon. Gentleman and by the hon. Member for Mid-Dorset and North Poole (Annette Brooke) about complexity. It is not a case of not wanting to be transparent. It is just that the way to reach a fair settlement—the basis of the approach has existed since 1981—is relatively complex. The system of distributing grant to councils according to a formula that reflects the relative needs of an area and the ability to pay council tax in that area is not new.

As I said, the broad approach to reaching a formula has existed since 1981. However, last year, we reformed the grant calculation system itself. The new system has the advantage of removing the old assumptions about spending and tax from the calculation of grant. As a result, it devolves more accountability to local authorities. Grant distribution is now determined by four things: a relative needs formula; an amount relative to the resources that can be raised locally based on the property profile; a central allocation per head; and grant damping.

The relative needs and resource elements should be broadly familiar to hon. Members, since the system has long contained formulaic estimates of relative need, and of relative ability to raise council tax. The central allocation makes explicit what was always implicit in the system: that after taking account of differences in relative needs and resources, some of the grant is allocated on a per capita basis.

We are continuing to protect all local authorities from detrimental changes to their grant allocation through the floor damping mechanism. Local government agrees that stability is an important consideration in the grant distribution system. Floors guarantee a minimum year-on-year grant increase and curb the volatility of grant levels for individual local authorities, thus providing the degree of stability that local authorities requested. I too regard stability as a key issue in local government funding. I have made it clear that the grant floor is a long-term part of the funding system.

The hon. Gentleman raised some concerns about Poole. I will try to assist him, but I will also write to him if that is helpful. Poole will receive £23.209 million of formula grant in 2007-08, and that is a 2.7 per cent. increase on a like-for-like basis. Poole benefits from the floor protection by £65,564.

The hon. Gentleman was kind enough to show me his figures and to raise his concerns before the debate. The figures that he has from Poole council suggest that it has had only a 1.7 per cent. increase. Those are incorrect inasmuch as they are not comparing like for like. The figure on which the 2.7 per cent. is calculated is a like-for-like figure, adjusting last year's figure to reflect the basis on which this year's figure is paid.

That has been made clear to Poole council. I understand that the matter is complex, and I appreciate the work of finance officers and experts in local government. As a former finance officer in local government myself, I can understand the difficulties that are sometimes faced but it has been explained that that is a like-for-like figure.

I think that, when the announcement was made, I heard the 2.7 per cent., but not the caveats. That is perhaps where we differ.

Rather than caveats, I prefer to say “explanation”. It is to do with the change in funding capital. That is what makes the difference. By looking just at the pure cash terms increase, one does not compare what the grant is for one year with what it is for another year. That may be a helpful comparison, and I will put that in writing to the hon. Gentleman, but the council has had that information.

I have to say that I did not recognise some of the figures that the hon. Gentleman mentioned, but I will admit—I think everyone in the House would—that local government finance is a pretty complex subject. I studied for the Chartered Institute of Public Finance and Accountancy exam for two years, and I was somewhat relieved when I was no longer a CIPFA student.

Taking formula grant and schools funding together, in 2002-03, Poole received a total of £68.4 million formula grant and had a population estimated at 140,492. That is equivalent to a per head figure of £486. In 2007-08, Poole will receive £23.2 million of formula grant and provisionally £64.5 million of dedicated schools grants and it has a population projected at 137,644, making a total of £637 per head.

I appreciate that all councils everywhere wish that their grant increases were greater, but those figures hardly square with the picture being painted by Poole council that somehow it is being deprived of funding to which it is entitled. Local government agrees that stability is important. The floor damping system is in place to guarantee a minimum year-on-year grant increase and curb the volatility of grant levels that some local authorities saw in the past. Poole is protected by that floor.

It may be helpful if I say something about the way in which local government grant is formulated. The formula grant settlement is designed so that more grant will go to those authorities with a greater need to spend on services—for example, they may have high deprivation levels—and a low tax base, than to those authorities that have a small need to spend on services and a high tax base. I appreciate, as the hon. Member for Poole said, that Poole has pockets of deprivation—all areas have pockets of deprivation. That is why the deprivation index will take into account the level of deprivation in an area. There are areas of the country that have a higher level of deprivation than Poole.

In Poole’s campaign, it has drawn funding comparisons with areas such as Manchester, Leicester, Middlesbrough and Bournemouth. All those areas have significantly higher deprivation indicators than Poole and therefore would expect to receive more money to deliver their services. One of the deprivation indicators used in the formula is the percentage of people aged 18 to 64 who are, or whose partner is, in receipt of income support, income-based jobseeker’s allowance or the guarantee element of pensions credit. That takes into account the points that the hon. Gentleman made about the higher number of pensioners in Poole.

The areas with which Poole has chosen to draw comparisons in its campaign have high levels of deprivation. I am surprised that they were chosen and not others. Manchester has a level of deprivation of 18.3 per cent. The figure is 17.2 per cent. for Middlesbrough, 13.6 per cent. for Leicester and 8.9 per cent. for Bournemouth. Poole’s deprivation figure is 5.8 per cent. I am sure that it is grateful that that is well below the national average of 8.5 per cent. According to those figures, it is not correct to claim that the settlement is unfair.

The hon. Gentleman’s council could have chosen to make comparisons with other unitary authorities such as Wokingham, Rutland or Windsor and Maidenhead, but Poole chose not to make those comparisons because it does not suit its campaign. It would be fair to look at the relative funding and relative need in other areas to get a broad comparison, not just choose areas that suit the council’s case.

Poole’s relative ability to pay council tax is higher than that in many other areas. That is expressed in terms of the council tax base—roughly, the number of band D, two-adult equivalent households per head. Poole’s tax base is higher than average, at 0.41 compared to 0.36 for England and for Torbay, as I think the hon. Gentleman mentioned. So Poole has a lower-than-average level of deprivation and a higher-than-average tax base, and that is based on the principles of the 1981 formula, which has been updated. It is therefore expected that Poole will meet a higher-than-average proportion of its expenditure from council tax.

The hon. Member for Mid-Dorset and North Poole (Annette Brooke) mentioned that Poole has benefited from other Government grants. It disappoints me sometimes that councils that have benefited in other ways from Government grants fail to acknowledge that. I was grateful for the hon. Lady’s recognition that Poole had benefited in that respect.

The hon. Lady and the hon. Member for Poole asked for more transparency in the system. I have already drawn attention to the complexity of local government funding. We are awaiting Sir Michael Lyons’ report; we hope to see it relatively soon. It may show us a way forward. We need to consider that possibility. I have provided some understanding and some transparency this evening. Perhaps, in the future, the system will be less complex—we will have to see what is in Sir Michael’s report.

The hon. Member for Poole mentioned the fact that a greater proportion of Poole’s expenditure comes from council tax than Government grant. Given the increase in Government grant from the formula that has been given to Poole, I hope that this does not lead Poole council to consider a higher than expected council tax increase for local residents. Investment has been made in Poole council and councils everywhere, and local residents would be somewhat dismayed if the council tax increase were too high.

There is one other point that I want to make, and I hope that the hon. Gentleman will take it in the spirit in which it is intended. The campaign against the formula seems rather late in the day. He has said that his councillors are out every Saturday in the high street collecting names at their street stalls for a petition. Given that local elections are looming, I wonder whether the campaign’s timing has more to do with that. I hope that I am wrong.

I can assure the Minister that these matters are raised even in non-election years and that Liberal and Conservative councillors, who will be fighting each other fiercely in May, are standing shoulder to shoulder on this issue, which is about fairness to Poole.

The Liberal Democrats have been very keen to ensure that there was a technical case to back up the argument for fair funding, appreciating that it is not good enough simply to say, “It’s not fair.” The Minister probably does not want to assist a council in getting more money, but perhaps the council could be given some direction in examining the deprivation calculations, to make sure that Poole is receiving everything that it should. It would be helpful for the town to know precisely to where it should look to make its case, rather than simply saying, “It’s not fair.”

That was a helpful and interesting intervention. The hon. Lady’s party generally talks about council tax and taxation in terms of the redistributive effect. Looking at the deprivation index and people’s ability to pay would deal with the points that her party normally makes. She is right to talk about the need to make a technical case. Of course, any information presented to the Government on a council’s behalf is always taken into account. Indeed, the hon. Gentleman made representations to the Minister for Local Government on this very issue before the announcement, and my hon. Friend has responded to him. So the case was made beforehand, but any case that the council wishes to make to the Government will of course be considered in the usual way; we are happy to do that.

The hon. Gentleman is a consistent campaigner for his area and he has put his case as well as he could, but we are not persuaded by it. He is arguing for a complete change in the formula, which has been used for many years. Sir Michael Lyons will be reporting on the best way forward in paying for local services, and the hon. Gentleman might wish to have an input when that report is published. We believe that we have provided a good settlement overall. I was astounded to hear the hon. Lady say that the Minister will not want to give local councils more money. This Government have provided local authorities with a 39 per cent. increase in real terms since 1997. We believe that this is a fair settlement for local government that offers protection from the grant floor. However, it is up to local councils to set reasonable budgets and acceptable council tax levels, and to deliver good quality services to their residents.

I thank the hon. Gentleman for the way in which he put his case. We will consider his comments and I will write to him about the specific points that he raised.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes past Six o’clock.