In April last year, the Government introduced a scheme that was welcomed in all parts of the House. The national bus concessionary fare scheme means that everyone over 60 and people with certain disabilities are now able to travel on local buses for free in any part of the country, not just where they live. The Government provided £212 million in a special grant to pay for the scheme, money which eventually finds its way into the coffers of the bus companies.

The dispute is not so much about the objective of the scheme, which many people across the country have benefited from, including Members of this House. There are still some problems to be ironed out: for example, campaigners for deaf-blind people point out that it makes no sense to charge a disabled person nothing to travel, but to charge full fare for their helper, without whom they could not travel. However, such difficulties aside, this is a well-intentioned scheme and there is no dispute about its objectives. The dispute is about the route that the £212 million goes on via local councils to the bus companies, and the serious problem that some councils are paying out to bus companies vastly more than the Government are paying to them, whereas other councils are making a handy profit out of the scheme and are diverting the money allocated to them for it to general purposes.

There were already concessionary fare schemes around the country before April, and there has been controversy over their funding, because some councils say that the amounts of money allocated to them for the previous schemes were insufficient and that this underfunding has been carried over into the new scheme. It is difficult to assess those claims, because the central funding used to be wrapped up in a very obscure way in the general grant central Government pay to local government, although I suspect councils would have something to say about that. I do not, however, want to spend time tonight on that old controversy. I want to concentrate solely on the financial effects of the new scheme that came in last April. Because it has been funded by a special grant, its effects are clear.

The problem with the new system is that its starting point is that a local authority pays for the bus journeys not of its residents, but of anyone who gets on a bus within its district. That simple rule has produced two serious anomalies that are having a devastating effect on the finances of a number of district councils, including that of Cambridge, which I represent. The first anomaly, and the most obvious, is that districts that are tourist attractions end up paying for the bus journeys of visitors. If every district of the country was equally likely to attract tourists from every other district, there would be no problem.

I am pleased that Oxford and Cambridge can join forces on this issue. In Oxford, there is the serious problem of underfunding to the tune of almost £500,000 and rising. Although, as the hon. Gentleman says, the intention behind the concessionary scheme is wonderful, this must be addressed by looking at the formula afresh in the interests of Cambridge, Oxford and other such authorities. I think that the hon. Member for Oxford, West and Abingdon (Dr. Harris), who is present, is nodding in agreement.

I am glad to be able to agree with the right hon. Gentleman. I am surrounded by Oxford Members, and I think I heard my hon. Friend the Member for Oxford, West and Abingdon (Dr. Harris) agreeing very strongly with the right hon. Gentleman’s comments.

May I bring the hon. Gentleman to more humble origins and a city such as Norwich, which is also a truly attractive area that brings people in from the county of Norfolk? Norwich City council is £1.5 million down as a result of this scheme, whereas the council next door is £800,000 up. That is because a calculation is made on the basis of the people who come into Norwich and the council has to pay for it. I am sure there are other examples, but people are being disadvantaged in Norwich because the fact that people get off buses there means that the council has to pay—it is completely unfair.

I completely agree with the hon. Gentleman. I shall get on to the details of the scheme later, but what he describes is not uncommon around the country. Paying for visitors has had enormous effects on not only Oxford, Cambridge and, to some extent, Norwich, but on Torbay and the Isle of Wight.

Is it not an unfair system that penalises areas that are successful tourist resorts? Such areas do not receive any extra money to help to promote them or to pay for the additional costs of tourism.

My hon. Friend is right; I shall come to the formula in a moment, because it does not properly reflect the costs being imposed on councils in such areas.

The second anomaly is less obvious, although the hon. Member for Norwich, North (Dr. Gibson) mentioned it, but it is just as damaging. In urban districts that are surrounded by suburban or rural districts, the pay-where-the-journey-starts rule means that if someone comes into town for a hospital appointment or a shopping trip, the council covering where they live pays only for their outward journey—the council covering the place where they go to hospital or shop pays for their journey home. Far more people travel from out of town into town for health care, for shopping and for entertainment than go from town in the opposite direction to the rural areas. The effect is that urban districts pay far more for the journeys of rural dwellers than rural districts pay for the journeys of town dwellers.

The situation can be even worse where there are park-and-ride schemes. In Cambridge, most of the park-and-ride sites are just within the city boundary. People from outside town drive just over the city boundary and park, and the city council then pays for both their journeys on the bus. Just to illustrate how arbitrary this can be, I should point out that a park-and-ride site in Cambridge is being moved less than a mile, from inside Cambridge to south Cambridgeshire and that move alone will transfer about £30,000 a year between the two councils involved.

This second anomaly affects places where the district boundaries are drawn, as I think they largely should be, where town meets country. The result is large effects on places such as Norwich, Exeter, Chesterfield, and Cambridge.

And Oxford.

And Oxford. The fact that both anomalies affect my constituency, as they do the constituency of the right hon. Member for Oxford, East (Mr. Smith), is largely why I am standing here tonight. The effect on the Cambridge City council’s budget is stark. The new scheme alone is costing the council, and thus my constituents, about £1 million a year. The council also thinks that a further £500,000 a year is appearing on its budget because of the old scheme, but I wish to concentrate on the new scheme alone.

I congratulate the hon. Gentleman on securing this debate. No buses come to the Isle of Wight, so people get there, jump on our buses and, thus, we pay for all of them. The Isle of Wight council is spending between £3 million and £5 million on the Government’s free travel. During a meeting with Ministers last week, Councillor Tim Hunter-Henderson pointed out that £1.7 million had been received in grant income and the relevant Minister pointed out the difficulty of identifying what grant had been paid out in respect of the scheme. There might be enough money in the scheme nationally, but it is impossible to get figures at a local level.

The hon. Gentleman might be right about the old scheme, but we have more accurate figures for the new scheme and I shall just set out the figures for Cambridge under the new scheme alone. Expenditure on concessionary fares since last April has increased by £1.6 million a year—177 per cent. The Government grant to Cambridge for the scheme assumed that the increase would be only 60 per cent. The Department described that grant as “generous”, but a better description would be “wholly inadequate”. The Department has got its predictions immensely wrong—by a factor of three—and it should put the situation right immediately.

That £1 million will not sound like much to the Minister, who is used to dealing in billions, but it is devastating to a small district council. It represents 15 per cent. of the money that the council raises in council tax in a year, but it cannot be recouped using council tax receipts, because it would put the council many times over the Government’s capping limit. On the spending side, it represents the loss of some 30 jobs, and the situation in other places is even worse.

Cambridge City council, like all public authorities, is having financial difficulties this year, but this is by far the biggest financial problem the council faces and it is of the Government’s making. In the long run, a £1 million deficit has to be paid for somehow, and that means service reductions, tax increases, increases in charges or all three.

The Government’s response has been to say five things, but they are wrong about all of them. First, the Government say that there is enough money in the special grant overall. Some hon. Members may dispute that, but even if it is true, it is irrelevant to the question, which is about the distribution of the money between councils.

Secondly, the Government say that the grant formula already deals with the problem because it takes into account the number of overnight visitors and the amount of retail floor space in the district. But it is obvious from what has happened in practice that it has not done so enough. Nor has the formula taken into account all the relevant factors such as health care and the positioning of park-and-ride sites.

Thirdly, the Government say that councils could get a better deal with the bus companies to reduce costs, but that argument does not work because even the councils that have achieved the best deals with the bus companies—for example, Exeter—still face massive deficits. In any case, the reimbursement rates in a two-tier area are negotiated not by the district council, which has to pay, but by the county council, which does not.

Fourthly, the Government say that the present scheme will last only three years and that next time they might transfer responsibility for it from district councils to county councils. That might help a little in some places, because there would be fewer problems caused by journeys across boundaries, but it would not stop the unevenness caused by tourism, which is uneven across the country at a county level as well as at a district level. The Isle of Wight is an extreme example of that issue. The Local Government Association points out that it is becoming clear in several areas that even if the grant were to be pooled at county level, there would still be shortfalls. Lancashire, for example, would still be £2 million short, and the deficits in the unitary authorities, such as Nottingham and Brighton, would be unchanged.

My hon. Friend is making a compelling case. The financial evidence from all over England from councils run by all parties—this is not a party political issue—is that the Government have simply not provided enough money for the bus fare scheme. In Chesterfield alone, the underfunding is some £1.7 million, which is equal to a 40 per cent. increase in the council tax or 80 council staff who would have to be sacked by the end of February to set a budget for next year. Are my hon. Friend’s constituents as furious as mine at the devastating effect that the Government’s broken funding promises will have on local services? My constituents are even more furious that the Prime Minister recently found time for a publicity stunt on Chesterfield railway station, but could not find time to meet the council to talk about the appalling results of the underfunding of this Government policy.

My constituents certainly are furious, and they are not convinced by the Government’s argument that there might be a solution in two or three years’ time. That does not deal with the massive financial crisis in council budgets now.

Lastly, the Government have said that councils should get together and sort the distribution out among themselves. But how can that work? Are the councils that are making a tidy profit out of this scheme by receiving more than they pay out going to give up their ill-gotten gains voluntarily? I do not think so. The Government caused this mess and they should sort it out.

The total amount at stake across the country is, according to the LGA, about 10 per cent. of the total grant, but half of that is concentrated in just 10 authorities. At a time when the Government are saying that there should be a fiscal stimulus, and are throwing money like confetti at the banks—and at other Departments, such as the Ministry of Justice, which has just received a £550 million supplementary estimate—this does not seem like a big deal. It is, however, a big deal for the councils affected and for their residents and taxpayers.

At the outset, I want to congratulate the hon. Member for Cambridge (David Howarth) on securing the debate. I am beginning to quite enjoy my attendance at Adjournment debates, whether they are about rail fares or concessionary fares. Both are important.

I am proud of the Government’s record on concessionary travel. In 2000, for the first time, older and disabled people in England were guaranteed the same minimum concession regardless of where they lived, giving them half-price bus travel within their local authority area. From April 2006, we improved that statutory minimum concession from half-price fare to free local travel for those eligible at a cost of an additional £350 million, a sum provided by central Government that rises each year—this year, it is at £377 million—and goes in through the revenue support grant provisions. It was widely recognised at the time that the total sum of £350 million in 2006 was an adequate figure to cover the additional cost.

In addition, the Prime Minister announced that 11 million older and disabled people would be able to use off-peak local bus services free of charge anywhere in England from April 2008. As the hon. Gentleman pointed out, we provided an additional £212 million to pay for that, which was distributed using a formula that reflects areas of likely demand, whether they are shopping destinations or tourist areas such as coastal towns. I shall deal further with the formula in a moment.

The funding is additional funding. I noted that the hon. Gentleman said that we had provided £212 million to pay for the concessionary fares. No. Let me make it absolutely clear that there was already money in the revenue support grant mechanism and the formula grant provisions to local authorities. The £212 million was to reflect the additional cost of going from local free travel in local areas to free travel nationally in England.

I am sure that my hon. Friend will be surprised to know that my constituents are no better off than those of the hon. Member for Cambridge (David Howarth), although West Lancashire district council is a net gainer—it was and is a net gainer under both the old and new systems. The council is using the money and the surplus in the general rate fund and is forcing my constituents to choose between free rail and bus travel. It will not allow them to have both, but next door, in Merseyside, residents have that facility. The Government have given the money and the money is there, but it is being used for something else. My elderly residents are being forced to choose between bus and rail. It is not fair.

My hon. Friend refers to the number of variations that there are. The powers in the Transport Act 2000 that allowed local authorities to make additional provisions still exist, and they are a matter for local authorities. Equally, her point highlights the fact that in some areas the money in a given area is more than sufficient to meet the additional costs. That matter has been raised with me in a series of meetings with individual Members and their delegations.

The £212 million special grant will continue to rise, to £217 million in 2009-10 and to £223 million in 2010-11. That will give councils a significant increase in bus concession funding—typically around 30 per cent., and far higher in many places—so that pass holders can use buses anywhere in England. The change is having a real impact. The new national concession is of huge benefit to millions of eligible people, as I am sure that the House is well aware. It allows them free off-peak travel anywhere in England, and it also helps other Government goals, for example in respect of combating social exclusion, to be met.

The improved concession guarantees people access to facilities outside their local area and helps them to keep in touch with family and friends. It provides new leisure opportunities so that, when they visit other parts of England on holiday, eligible people can travel free on local buses at off-peak times. Moreover, the fact that the concession encourages people to visit popular tourist destinations brings benefits to the wider economy in those areas.

The latest extension to the statutory minimum concession brings the spending on concessionary travel to more than £1 billion each year, and I think that hon. Members will recognise that that is not an insignificant sum. We are confident that the funding that we provide is sufficient to cover the total cost of the statutory minimum concession. The size of the new grant is based on generous assumptions about fares, bus pass take-up rates, extra journeys and additional operating costs.

We also consulted extremely widely on how best to distribute the new funding. No formula will ever be perfect, but the one that we eventually used is based on four factors—eligible population, retail floor space, bus patronage and visitor numbers. All those factors correlate to the actual cost of the concession, but hon. Members need to be aware that an underlying principle of the concessionary scheme’s funding is that bus operators should be no worse and no better off. Obviously, filling an empty space on a bus does not cost as much as the fare that would normally be charged in the first place.

I accept that the discussions and negotiations with the bus companies will be complex, but I have met people from all the areas represented by those hon. Members who have spoken in the debate. That is, I have met people from Torbay and the Isle of Wight, and I am due to meet people from Chesterfield. Moreover, I know that my officials have met representatives from all the councils and areas referred to in the debate.

I am aware that reimbursement rates have reached as high as 70-odd per cent. in some areas. In contrast, reimbursement rates in other authorities have been in the region of 40 to 50 per cent.

If the Minister were to do the arithmetic in his head, he would realise that many councils, including Cambridge, would still be massively out of pocket even at the higher reimbursement rate that he mentioned.

I note that, through the special grant, Cambridge has received an increase on its 2007-08 allocation worth £650,000, or a 57 per cent. increase on the actual costs last year. In addition, the hon. Gentleman is claiming that it is anticipated that another £400,000 will be needed. That means that Cambridge will need in excess of £1 million on top of last year’s provision—and anyone can work out that the new amount is almost double the cost of last year’s provision. The formula that was provided was based on estimates that took account of exactly those points that he raised. The formula does not work against tourist destinations, as he claimed. In fact, it allows such matters to be taken into account.

The hon. Gentleman referred to urban districts surrounded by rural areas, but that is another factor that the formula takes into account. Obviously, the amount of retail floor space can be one of the attractions for visitors, and that is why South Cambridgeshire received an increase in its special grant allocation of only 29 per cent. on 2007-08. So the formula is working to reflect exactly some of the factors raised by the hon. Gentleman and some of the other hon. Members who have contributed.

There is all the difference in the world between a formula that takes into account factors and one that takes them into account enough. It is plain from what has actually happened on the ground that the formula is inadequate in the weighting that it gives. It might have some of the right factors, but that is not the same as doing the job.

Let me add in response to that intervention that, when we looked at which formula should be used, we obviously had to take into account who should pay for the travel and at which end of the journey. When introducing a nationwide travel scheme throughout England, we soon realised that, if the old way had remained and areas paid for their own residents who travelled, a lot of cross-working out would have to be done and that that would be a terribly complex system. Therefore, the decision was not just taken in Great Minster house—discussions were held through the various normal channels, the travel concession authorities and the Local Government Association about the best and most appropriate way forward—and the system was based on where the travelling starts, so there was a need to take that into account.

On the other comments that have been made, the hon. Member for Chesterfield (Paul Holmes)—I am due to meet him shortly with a delegation, and I obviously look forward to that—claims that there is £1.7 million of underfunding. In fact, the out-turn for expenditure in 2007-08 was £1.44 million on bus fares. Again, it has been claimed that an increase of more than 100 per cent. has been happening, that the requirements have not been met and that all councils have been affected. May I respectfully point out that some 219 local authorities are involved as travel concession authorities and that by no means all of them are saying that they are suffering problems in the way that the hon. Gentleman suggests, so the issue needs to be put into balance?

Authorities all over the country, run by different political parties, are saying that the formula is not working and that the money is not adequate. The figures that I have quoted are not mine; they were proposed by Labour-run Derbyshire county council and show that three of the councils in Derbyshire are grossly underfunded by the scheme. Even if we took the overfunding for six of the councils, it would still only make up 40 per cent. of the underfunding for the three that are badly hit, such as Chesterfield.

In all the discussions that I have had, invariably what is being indicated—if not on the record, certainly unofficially—is that people other than the Government believe that there is enough money in any given area, usually a county. Perhaps it is a question of how the formula is working in given areas. One of the reasons why we shall consult shortly is to consider how the scheme can be administered in a way that provides better distribution, or what is believed to be better distribution, across the board.

One reason why we said that if an area decides that one authority will be the funding authority and the others agree, we would follow that route, is that we can do the same thing now. What I cannot do is impose such a decision on an area. Equally, we must recognise that there is a three-year deal, and the vast majority of local authorities have planned on a three-year basis; hon. Members will appreciate that there would therefore be consequences to a change. I am meeting Members and their delegations to assess exactly what issues are being faced by some concessionary travel areas.

Let us be clear about what the Minister is saying: is he saying that following the consultations, such revisions could happen before the end of the three-year period?

It is unlikely that we would be able to move before the three-year period ends in 2011, but we have made it clear that the aim of the process is to listen to the issues that hon. Members and their local authorities face.

I have constantly made it clear that the single grant was for the additional part of concessionary fares. Underlying that is the provision within the rate support grant. In total there is more than £1 billion to give 11 million people the opportunity to travel freely. We need to work through the issues, but I welcome our discussions as part of the debate surrounding the provision of concessionary travel to 11 million people across the length and breadth of the country. The scheme gives them additional freedom to travel and to meet friends.

Question put and agreed to.