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Local Government Funding: Isle of Wight

Volume 634: debated on Tuesday 16 January 2018

I beg to move,

That this House has considered local government funding on the Isle of Wight.

It is a pleasure to serve under your chairmanship, Ms Dorries. I am most grateful to the Minister for attending, and I extend to him an invitation to visit my wonderful constituency. I want to raise the issue of the Isle of Wight’s local government funding, to explain why that system is prejudiced against the Island—why it is not fair—and why recognising that disadvantage and rectifying it would in no way set a precedent. Indeed, I hope that the Minister will see it as the right thing to do.

In this debate, I will focus on local government finance for the Island and I hope to call debates in future to examine the Island factor for health, housing and other policies. Overall, I want to work towards an Island deal that includes a settlement over local government funding but, more broadly, a partnership with central Government across Departments that recognises the unique and valuable role that the Isle of Wight plays in our national life. It is not only about money—although that comes in slightly—but about helping us to make the Island even more of a success.

We are an island. I know that is a statement of the obvious, but I say that because I feel that sometimes Whitehall assumes that we are not really an island in the true sense of the word—surrounded by water. We are an island; we are surrounded by water and we are dependent on the ferries to get us to and from the mainland, which is the bit that the Minister lives on, otherwise known as north island. We have a unique place in the nation’s artistic, cultural, scientific and political heritage. Our geology is unique, too: we have some 70 miles of coastline, parts of which contain the richest dinosaur finds in Europe. Half the Isle of Wight is an area of outstanding natural beauty and, arguably, we should be England’s next national park. We are the largest constituency in Britain, with some 140,000 souls. Ours is a little island, but one that has inspired great things and achievements. I would not wish to be anywhere else.

From a Government perspective, we aim to be national leaders in recycling, in the integrated public services model and in combining health and social care, to name but three areas. However, there is a problem with local government funding. Put simply, the Island’s status as an island is not taken into account. In the 1990s, the John Major Government promised the Isle of Wight a study of the extra cost of being an island. Nothing ever came of that proposal, yet the costs remain. Will the Minister consider honouring that pledge? In the meantime, or instead, I am presenting another option to the Minister.

In a 2015 study by the University of Portsmouth, the extra cost of providing local government services on the Isle of Wight—the island factor—was estimated at £6.4 million per annum based on 2015-16 data, which is an additional 3% on the public service provision. That information is on page 2 of phase 2 of the report, “Impact on Physical Separation from the UK Mainland on Isle of Wight Public Service Delivery”. I have circulated copies to the Minister and to his excellent team of civil servants, whom I also thank for being here. That report has been peer reviewed and is undergoing further review.

The University of Portsmouth broke down those extra costs into three. The first is forced self-sufficiency—the lack of spillover of public goods provision to and from neighbouring authorities. We have an obligation to provide a service on the Island, but sometimes we cannot share costs with the mainland. The fire service is an example of that. The second extra cost is the island premium, which refers to the additional cost of conducting business on and with the Isle of Wight. For the provision of public services, that may refer to the relatively higher prices that may be charged by contractors or reflected in the price of goods and services. We try to be as competitive as possible but, clearly, within a confined space there are limits. The third extra cost is what the university has described as “dislocation”—the costs associated with physical and perceived separation from the mainland. Sometimes referred to as “isolation”, it is a common characteristic of all islands, and it is seen in terms of small area, small population and small market.

Other reports have said much the same. They include the report by Coopers & Lybrand in 1996, the Joint Strategic Needs Assessment in 2000, the report by PricewaterhouseCoopers in 2004, the report entitled “The effects of being an island” by the Isle of Wight Council in 2005, the report by the European Spatial Planning Observation Network in 2013 and the University of Portsmouth report in 2015.

Does the Minister agree that we are potentially dealing with decades of historical underfunding? Does he agree that the review by the University of Portsmouth is academically rigid and backed by a wealth of primary and secondary material?

Moving back a little further, I believe that the Island is a victim of the funding system. I will outline briefly the reasons why. First, we are victims of prejudice in public project funding. The Green Book assessments—the way the Government rate public sector investment—does not work for the Island because we are physically separate. That separation results in a lower cost-benefit ratio. We do not have spillover: I cannot prove that a project that would do great things for Sandown, Newport or Freshwater has an effect in Fareham, Southampton or Portsmouth, because we are an island. We cannot make the same arguments as everywhere else in Britain that is connected physically to the mainland or is part of the mainland. We simply do not have that connection. What does the Minister suggest that we and the Government can do about that?

Secondly, we are isolated, but because we are isolated by water we fail to qualify for the rural services delivery grant, because that grant’s funding basis does not recognise the isolation of being an island and does not take into account physical separation in its definition of isolation. Can the Minister suggest a reason why that may be the case, and what does he think Government could do about that?

Thirdly, the ferries were privatised with no public service obligation. That is a significant and pretty unique error. There appears to be no desire to rectify that situation, yet elsewhere, public money tends to get thrown at locations with isolation issues. On the Isle of Wight, we spend more than £100 million a year on the ferries. What does the Minister think of this situation? Does he think that it is acceptable?

Fourthly, health model funding calculations for over 80-year-olds arguably are seen as inadequate, because of the complex health and adult social care needs of people when they hit 80 and get into their ninth and 10th decades. The Island has more 80-plus residents than the national average, and that has a significant impact on our adult social care costs.

Fifthly, recent NHS reports have simply ignored the island factor, as if the Solent somehow did not exist. Those are just some factors that I bring to the Minister’s attention. Please, do not get me wrong, Ms Dorries: we love being an island, having that wonderful identity and a different festival every weekend, and being a fantastic place that people come to, with our wonderful quality of life. This is not some special pleading, but when Government write the rules they do not seem to take the Island into account.

I am presuming that Government funding formulas are based on the idea of broad fairness. If the Minister says that, actually, they are based on the idea of broad unfairness, I will go away, but I assume he will say that the Government try to be fair. If that is the case, can he please not be permanently prejudiced against my Island, and will he recognise that the Island has issues in public service provision by dint of being an island? As we know, Scottish islands receive extra money from the Scottish islands needs allowance based on a number of factors. Welsh islands seem to have bridges galore. We have none of that. We have only the world’s most expensive unregulated ferries. I asked one of the ferry owners whether there was a more expensive ferry anywhere in the world. He said, “Try the chain link between Cowes and East Cowes.” I thought, “That’s not a great answer.” The Government recognise that islands play a special role in Britain. We would like the same recognition for the Isle of Wight—England’s island.

The fair funding formula is due to be implemented in 2021. A previous Secretary of State said that

“the costs associated with being an Island separated from the mainland will be given due consideration…as part of the fair funding review.”

The word “island” appears in the fair funding review technical consultation, along with the question, “Should island status be taken into account?” When I read that, I thought, “Hallelujah.” Clearly, we believe that the answer should be a resounding yes. Will the Minister indicate whether he thinks there is a case for island status being taken into account in the fair funding formula?

We generally have been given two answers at this point: first, “Devolution is the answer to all your problems,” and secondly, “You’re setting a precedent, so we’re not interested.” Devolution is not the answer, for the following reasons. First, there was extraordinarily little information on the Solent devolution package. Secondly, it was clear that that was simply a device to force more housing on the Island. Housing is a problem on the Island. The Government’s housing targets are completely unacceptable, and the current system on the Island serves no one. By building on greenfield sites, we provide housing neither for our youngsters nor for the people on the housing list who need it, and we damage our economy, which is in part dependent on tourism. That is not a conversation for now, but I would like to return to it in due course. Thirdly, the Solent devolution deal that was offered was a Treasury construct. The Treasury is full of wise and sensible people who have difficult jobs—I respect that—but what looks good in London may not work on the Island. Fourthly, to put it bluntly, there was nothing in the deal for the Isle of Wight.

The key power we want to be devolved is the power to impose a public service obligation on the ferries. The ferries would pay for that—its cost would be covered by their inflated profits—and there would be no reduction in services elsewhere. For the Minister’s information, because he may not be aware of their history, those are the ferries that were privatised badly in the 1980s without a public service obligation and are among the most expensive in the world. Their profits are multiples of the public infrastructure industry standard, and hundreds of millions of pounds of debt have been racked up, which Islanders pay for. Will he support giving us such PSO powers, which may mean having to cap the ferries’ profits and debts? I am genuinely interested in his opinion.

The second answer is that the Government cannot possibly give us an island factor because it would set a precedent. I do not understand that. Are the Government implying that Cornwall is going to dig a ditch a mile wide, fill it with water and declare itself an island? Is Northamptonshire somehow going to up sticks and move? Is Lindisfarne going to go on some three-dimensional steroid programme? I think not. Recognition that there is an island factor for the Isle of Wight would not set a precedent, unless that precedent was the Government accepting that we are a little bit different—a little bit special and unique—and working with us so that the Island became the jewel of southern England, as it was and we hope it will be. Listening to us and working with us on a new deal—an island deal—would set a wonderful precedent.

I thank the Minister for being here. I remind him that the amount of money we seek—£6.4 million—is small. It is a tiny part of Government expenditure. It is a margin of error in the Government accounting system. Whitehall probably spends more on paperclips every month. I also remind him that a previous Government made promises about Isle of Wight funding that were not kept, so will he support a study to honour those promises? In the meantime, does he agree that there are additional costs to being an island, which the University of Portsmouth has quantified and which I have quoted, and that those costs are unique to islands? Will he respect, accept and act on, this year and in the future, the costs outlined in the University of Portsmouth report?

Does the Minister also agree that devolution is not in itself an answer, and that no conceivable precedent would be set by honouring a fair funding formula that recognised the Island as just that—an island? Will he assure us that our submission for extra funding will be looked at seriously this year? If there is any doubt about that, may we have the promised meeting, which has not yet materialised, before the settlement for this year is finalised? Will he commit to including an island factor in the fair funding review, and to accepting and implementing that funding formula in full?

I thank the Minister once again for his time, and again extend an invitation from the people of the Isle of Wight to come and visit us. Like our 2 million annual visitors, he will have a wonderful time.

It is a pleasure to serve under your chairmanship, Ms Dorries, in my first Westminster Hall debate in my new role. I congratulate my hon. Friend the Member for Isle of Wight (Mr Seely) on securing this vital debate. In the short time that he has been in Parliament, he has already made an impression as a passionate and committed advocate for the Isle of Wight, and his speech demonstrated exactly why he has that reputation.

I welcome the chance to respond to my hon. Friend and thank him for sharing his knowledge of the Isle of Wight, an island of which I am particularly fond, having grown up just across the water in Southampton—or, as he described it, on the “north island”. His reflections on the Island, which is, as he says, the jewel of southern England, prompted me to recall the summers I spent enjoying all it has to offer to visitors. Just this weekend, while I watched Gary Oldman bring to life Winston Churchill in “Darkest Hour”, I recalled the Island’s Churchill trail. I remembered that, as a child, the former Prime Minster stayed at the home of his friend Jack Seely, and I wondered whether he had any connection to my hon. Friend’s family. Perhaps he will touch on that when he winds up the debate. Regardless, whether it is the Isle of Wight festival or Carisbrooke castle, Blackgang Chine or the Needles, I know just how much there is on the Island to enjoy, to educate and to entertain.

Members may know that today is the last day for responses to the consultation on the provisional local government finance settlement. I will say a few words about that before I come to the specific points my hon. Friend made. Last month, the Secretary of State confirmed the local government settlement, which provides two years of real-terms increases in the resources available to local government. The extra council tax flexibility that we have announced means that total core spending power, which is £44.3 billion this financial year, will rise to £45.6 billion by 2019-20. For the Isle of Wight, that means £132 million in 2019-20, up from £127 million in 2015-16. That represents a 4% cash increase overall, which is double the national average.

Councils know their communities best. They know their priorities, challenges and opportunities. I am aware that my hon. Friend is already looking at ways to raise the Island’s profile, generate jobs and support the tourism industry, and my Department applauds and supports those efforts. Indeed, councils across England are showing that they are capable of finding efficiencies while continuing to provide for their communities. They are playing their part in tackling the deficit, to which this Government remain committed. I am keen in my new role to build on the good work that is already under way. An important aspect of that will be giving local authorities the levers and incentives to grow their local economies. I was delighted to hear that the Solent authorities have been selected as one of the 100% business rate retention pilots for the forthcoming year.

The pilots have proved incredibly popular, with more than 200 authorities having put themselves forward for consideration. I therefore know that the Isle of Wight authority will be excited to have this special opportunity and am keen to see what we can learn from it. It is worth noting that the ability to retain 100% of business rates is estimated to benefit the Solent authorities by up to £3.3 million this year—extra resources that will be welcome and are a due benefit from driving local economic growth.

I turn to the specific points made by my hon. Friend, first and most importantly in relation to the geographical position of the Island. I am grateful to him for comprehensively setting out a number of the key issues affecting his constituency. I have noted carefully his concerns about how we currently distribute the funding available across local government. Clearly, the Isle of Wight’s geography makes the council’s position distinct and creates both opportunities and challenges. My hon. Friend made that point passionately, and it was acknowledged by the former Secretary of State for Communities and Local Government, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), on a visit to the Island in 2016.

It is right that we recognise the specific situation of the Isle of Wight and our other islands in many areas of policy, and not just fiscal policy. What do we intend to do? First, I have asked my officials to continue exploring the various mechanisms in place in Scotland in relation to islands, which my hon. Friend mentioned, with a view to building our knowledge and evidence base. The Department will continue to take steps to inform our understanding of the various factors affecting the cost of delivering services on islands. For that reason, I was delighted to receive copies of the important research undertaken by the University of Portsmouth regarding the Island’s particular situation and potential consequences. Although I am not in a position to comment academically on the report as my hon. Friend asked me to do, it is welcome to have such thoughtful and detailed analysis to help inform the Department’s work. I note that he highlighted several other reports in addition.

I can tell my hon. Friend that this will not be analysis for analysis’ sake. He highlights this issue at a once-in-a-generation time when there is a possibility to do something about it. That is because my Department is embarking on a fair funding review. I reiterate the Secretary of State’s commitment to undertake a thorough, evidence-based review that uses the most up-to-date information available to assess both current and future resources and needs of local authorities. Members may be aware that we issued a 12-week technical consultation seeking views on exactly that at the end of last year. The idiosyncratic island factors we heard about today that drive specific costs are exactly what we need to hear about and consider in formulating a new funding formula.

I urge the Isle of Wight Council to submit any relevant evidence it has alongside other points it wishes to make in its response to the consultation, which we will consider carefully. Furthermore, I will take the opportunity offered by my hon. Friend to meet him and perhaps colleagues from the University of Portsmouth and his local authority to discuss the findings in more detail, as part of future conversations on the fair funding review. More broadly, I will be encouraging input from all Members and representatives from across local government so that we can work together to create an updated and more responsive local government financial system.

My hon. Friend also raised the rural service delivery grant, noting that the Island is not currently a recipient. That is, as he said, due to the particular sparsity methodology it uses. We recently announced that the grant will be funded through increased business rate retention from 2020-21, when we aim to implement our fair funding review, which will redistribute business rates across the sector. He may well have given us a good example of why we need to revisit the underlying basis for relative needs allocations between local authorities, as many of the formulae have not been updated in more than a decade.

Similarly, my hon. Friend made the point about population growth, particularly in the age categories that drive social care. As I have discovered in the past week, the formulae we currently use are relatively old and do not dynamically take into account changing populations, which his council is experiencing. As I have said, the review is looking afresh at how we take such key factors—rurality, remoteness and population growth—into account. I therefore welcome Members’ support in helping us to deliver an outcome that is robust, collaborative and evidence-based. This is the perfect time to shape the discussion, with our consultation currently live.

My hon. Friend mentioned the local government finance settlement. As he knows, we are three years into a four-year deal that provides funding certainty for those councils that published efficiency plans. I am delighted that the Isle of Wight took up that offer. We recognise the pressure faced by all local authorities, particularly in the light of pressures in areas such as social care. That is why, subject to Parliament’s approval, the Government will increase the core referendum principle. As a result, the Isle of Wight specifically will have the flexibility to increase its council tax by up to 6% this year, delivering funds of up to £4.9 million.

I understand that the council is awaiting responses to its consultation on the 2018-19 budget and that there is to be a public meeting today with members about how best to allocate funding. It is good to see the Island’s community steering the council’s vision on issues such as partnership working, adult social care and housing. I look forward to receiving the council’s response to the provisional settlement. My officials will look carefully at that and consider all the responses ahead of the imminent final settlement in a few weeks.

On devolution, the Government are committed to empowering local authorities and rebalancing the local economy through local devolution and growth deals. We know that devolution can bring multiple benefits, including more accountable and effective institutions at the right scale, but I note my hon. Friend’s points. It is clearly important that we work towards a model that works for each individual area. I understand that the Minister for Local Growth, my hon. Friend the Member for Rossendale and Darwen (Jake Berry), is visiting my hon. Friend’s area in March, and I look forward to hearing about those discussions.

Lastly, on infrastructure, skills and business support, I recognise that my hon. Friend has an inspiring vision and strong ambitions for the constituency he represents so proudly. It is right that Government do their best to support those aspirations. I am pleased to note that the Government have supported investment in those areas on the Isle of Wight through the growth deal awarded to the Solent local enterprise partnership. Through the LEP, £14.7 million of funding has been invested locally, through the centre of excellence for composites, advanced manufacturing and marine at the Isle of Wight College and the Floating bridge at Cowes. The LEP has also invested £750,000 of regional growth funding, which was used to set up the rural business fund. All of that will help contribute to the Island’s economic growth, leveraging private investment, creating jobs and assisting the rural sector.

Again, I thank my hon. Friend for calling this important debate and for bringing these issues to my attention so early in my tenure. He is right to be ambitious for his Island and to fight for it to get the consideration it deserves. I look forward to working closely with him in the coming months to address the challenges and opportunities he has highlighted.

I thank my hon. Friend for his words. Just a point of fact: Jack was a great-great uncle and was elected as a Conservative despite the fact that he was a Liberal. It is a long story.

I thank my hon. Friend for recognising our distinct nature, for his words on the Scottish islands needs allowance and for his comments on the fair funding formula, which is so important to us. We will submit much evidence. Finally, although public services debates can sometimes seem arcane, it is important to remember their purpose—to build a fair and just society—for which we all aim.

Question put and agreed to.

Sitting suspended.