Having taken the long-term decisions to achieve and sustain low inflation and stability, the task of this pre-Budget report is to meet and master global economic challenges and to make the critical decisions to secure Britain's long-term economic future. The theme of this report is that by combining our enterprise with investments in skills and science, in infrastructure and in housing, at every point matching investment with reform, Britain can lead in the world's most wealth-generating and dynamic sectors—in science and modern manufacturing, in finance and capital markets, and in education and the creative industries. With fiscal discipline, and by matching investment with reform in welfare and in public services, we can combine a strong economy with opportunity and security for all.

The past year has seen a virtual doubling of global oil and commodity prices. In the United States, inflation has risen to 4.3 per cent. In the euro area, inflation forced a rise last Thursday in interest rates. Across Europe and America, almost a million manufacturing jobs have been transferred to Asia, and a quarter of a million service jobs have been outsourced to that continent.

While all countries have faced global inflationary pressures, the British economy has also had to deal with domestic inflationary pressures to achieve what we and the Bank of England identified early last year as the necessary slowing of house prices and of consumer spending, which some in this House predicted would return Britain to the old familiar stop-go cycle of overheating, inflation and recession, and which, under previous monetary and fiscal regimes, did so time and time again.

In the past eight years, our new monetary framework has been tested: in 1997 when domestic inflation had to be curbed; and then in 1998 and 2001 when we had two global crises, the first starting in Asia, and the second the IT crash, the US downturn and of course falling stock markets around the world. Now, in 2005, tested by both domestic and global pressures, we are on course to meet our inflation target of 2 per cent. House prices, which were rising at 15 per cent. each year for three years, and at their peak rose by 25 per cent., have moderated to 3 per cent.

This is in stark contrast to previous decades when our economy faced simultaneous domestic and global inflationary pressures, in 1990, when inflation went above 10 per cent., in 1980 to over 20 per cent., and in 1975 to over 27 per cent.; when in the past a cycle of overheating and inflation could only be brought back under control by mortgage rates above 10 per cent., recession and unemployment.

Now today, when, more than ever, stability and low inflation are the essential foundation for investment and job creation for our future, Britain ends this year with inflation lower than America, the euro area and the European Union. We are on course to meet our inflation target not just this year but next year and the year after that.

The average inflation in Britain from 1970 to 1997 was 8 per cent., with inflation often going above 20 per cent. Our stability since then is such that, in the past seven years, inflation has been at or around 2 per cent. [Interruption.]

Order. Let the Chancellor make his statement. Perhaps if hon. Members catch my eye later, they can question the statement then, but not now.

As Chancellor, I have always understood that the strength of a monetary and fiscal regime is how it performs not only in good years but in this, the toughest and most challenging year for the economy. It has been a tough year, but by facing up to global and domestic inflationary pressures, inflation is not—as it was in the past—above 10 per cent. but 2 per cent. Interest rates are not above 10 per cent. but below 5 per cent. Unemployment is not, as it was in the past, at record highs but at record lows.

The economy is not in recession; growth, even in this toughest year, is at 1.75 per cent. This is the 34th quarter of continued growth under a Labour Government. We are the first Government of any party to achieve eight years of uninterrupted growth since 1805.

For the fifth successive year, British growth is higher than that of France, Germany, Italy, the euro area and the European Union. British business investment is already rising this year by 3 per cent. and is expected to increase next year by 3 to 3.5 per cent. and in 2007 by 4.5 to 5.25 per cent.As production grows, we expect exports to rise by more than 5 per cent. next year and the year after.

Globally, there are continuing risks from trade imbalances, exchange rate movements and commodity price shocks. Domestically, monetary policy will continue to monitor closely the housing market and consumer spending. Domestic demand is projected to grow at the same rate of the economy. Overall growth is projected in 2006 at 2 to 2.5 per cent. and in 2007 and 2008 by 2.75 to 3.25 per cent.

Some people said that, as we moderated the housing market and responded to the oil shock, employment in this country would fall. Some predicted that we would end this year with fewer people in work. In fact, I can report to the House that, in just 12 months, employment in this country has risen by 330,000 to 28.8 million—the highest in this country's history. It is higher in every region and nation of the country.

This year, the economy has been generating 6,000 new jobs every week and 3,500 new companies are being formed every week. Indeed, of the extra jobs since 1997, almost 1 million have been generated by small businesses alone.

By tackling youth and long-term unemployment, the new deal has helped ensure that, while unemployment in America is higher than ours—and in France and Germany, it is much higher, at nearly 10 per cent.—in Britain, unemployment is lower than 5 per cent.

We know that continuing that record of high employment with low inflation demands continued wage responsibility in all sectors. So the Secretary of State for Health is submitting evidence to the pay review body that the headline rise in national health service pay should be based on our 2 per cent. inflation target, and the Secretary of State for Education and Skills is announcing that, even after taking account of the normal annual increments and performance pay, the total increase in the education pay bill will be just 2.8 per cent. These are both signals of our determination to keep public pay costs under control and to contribute to continued low inflation in this country.

On this foundation of stability, our task is to match investment with reform in science and skills, infrastructure and housing, and to show that working in partnership with the private sector, we can best meet the challenge of globalisation. Although we have already doubled investment in science, global competition requires us continuously to update our 10-year framework. With, this week, a new public private partnership, supported by £50 million of new public investment, Britain is determined to lead the world in the new frontier of genetics and stem cell research. With the establishment of a new national institute for health research in the NHS, pharmaceutical and biomedical companies have just announced a new £500 million a year investment in Britain, making Britain the leading location for research in new drugs and treatments.

To support research and development across modern manufacturing, I am publishing today reforms to help access the research and development tax credit. The design of new products and services is now such an important sector that we propose a network of creativity and innovation centres—one in each region—offering start-up help to new design talent and supported by an expanded national centre in London to showcase British design. Because we have learned in the past that the neglect of investment in science held our economy back, we are determined to make the necessary long-term investment, with Government and private sectors working together to make us fully equipped for the global challenges ahead.

The same is true in skills and education. The successful economies of the global era will be the high-skill economies. Published today is the interim report of Lord Leitch, the first long-term assessment of Britain's skills needs. Since 1997, we have more than doubled investment in education, and the Leitch report finds that the number of adults with skills has risen from 79 per cent. to 86 per cent. But workers will, on average, change their job seven times during their working life, and the vast majority of today's workers will need to train or retrain for tomorrow's skills. The final Leitch proposals will come next year, but to step up the pace of change now, the national employer training programme, which offers free training for employees and help for all small firms with their costs, will be expanded nationwide from next summer to provide training in 50,000 companies for 300,000 new employees a year.

Some people seek to abolish the new deal, but, more than ever, a Britain equipped for the global economy needs a new deal that continuously equips people for jobs and skills. So this Government will not abolish the new deal; we will strengthen it. In eight areas of the country, teenagers who have too often fallen through the net and are receiving no training will be offered learning agreements: a training wage in return for gaining skills. No teenager in our country should be denied the opportunity to acquire the skills and employment that they need. With opportunities come responsibilities. The new deal pilots to help lone parents back to work will be extended to new areas of the country. From April, for men and women unemployed for six months or over, we will pilot personal action plans that involve compulsory interviews and intensive work plans.

Our third economic challenge is to make more affordable housing available for the rising number of families seeking homes. In the last eight years, low inflation and low interest rates have given homebuyers the lowest mortgage rates for 40 years. There are 1 million more homeowners now than in 1997. But to build more affordable homes of high quality in strong communities, Britain must—as the Barker report recommended—put in place long-term reforms in planning, land use, the competitiveness of the construction industry, and infrastructure in both the private and social sectors across the country.

The Deputy Prime Minister is today responding to the joint representations of the CBI, the Town and Country Planning Association, and Shelter. He is publishing new planning guidelines that will bridge the gap between the 150,000 new houses that we build each year and the 190,000 new households that are formed, in particular to help to build houses that young couples can afford. To provide land for new houses while protecting and improving the environment, he is asking local authorities to bring forward more brownfield areas for development. Where proposed new housing is of high quality, meeting the design code, local authorities will be obliged to accelerate planning consent. The construction industry must also rise to the challenge, particularly of investing in skills. To widen the number of investors in the residential and commercial property markets, we will this month publish legislation to set up in Britain real estate investment trusts to increase the funding for new property developments.

Because our aim is to build not just homes but communities, and to fund the new roads, schools, hospitals and infrastructure that convert estates into genuine communities, building on the recommendation of Kate Barker, we are today publishing for consultation proposals for a local planning gain supplement, which will give local authorities a fair share of planning gains to invest locally. Investment in social housing has almost doubled since 1997 but will have to rise further. We are announcing pilot projects today to encourage local authorities to bring derelict sites back into use and to build new housing for rent.

We know that shared equity has an increasing role to play in helping young couples in all our constituencies to get on the first rung of the housing ladder, and I can tell the House how we plan to extend equity share schemes. I can announce that three of the biggest building societies and banks have joined the Government as partners in shared equity; that building companies, including four of the biggest builders, are also now able to offer shared equity purchases; that we are now in discussion with investment companies on their possible involvement; and that we see a possible role for housing associations in extending shared equity.

Our aim is a new consensus across our country on the extension of home ownership and affordable housing—public and private sectors working and investing together to strengthen the economy, protect the environment and meet the housing needs not just of some but of all in our country.

As part of the figures that I am publishing today, let me confirm that already this year the first £4.7 billion of savings identified by the Gershon review have been achieved, with the Government's target of £3 billion in procurement savings exceeded by £1 billion, one year early. On target, we are also seeing a further 18,500 reduction in civil service posts, including 10,000 from the Department for Work and Pensions and 3,500 from Revenue and Customs. I can also confirm that we are on target with the relocation of a further 2,000 civil service posts out of London. Ahead of schedule, £5.7 billion of assets have been sold, on target to meet our objective of £30 billion of sales by 2010. In the coming year, we will conduct a zero-based asset review.

In addition to the new measures that we have announced to implement our new risk-based approach to regulation, I am proposing at the EU Finance Ministers meeting tomorrow competitiveness tests for all new and existing European regulations. I am closing a relief under which, for tax reasons only, people are being persuaded without changing what they do to set up a company, replacing the £10,000 starting allowance with a rise in the investment allowances for smaller business to 50 per cent.

I have today written to the European Commission asking for a derogation so that over 1 million businesses with turnovers not at the current two thirds of a million but at one and a third million or less will be able to take advantage of more flexible VAT payment options that will suit their business needs.

After consultation with British film makers, I can announce a new film tax credit to support British films. To increase support directly for producers, we can guarantee a credit worth 16 per cent. for large-budget films and at least 20 per cent. for small-budget films.

Anti-avoidance and fraud measures published today, including new requirements for disclosure, will address artificial tax arrangements involving capital gains and losses, trusts and offshore companies, rebated oils and the misuse of self-invested personal pension schemes to purchase second homes.

From reallocations to local councils from Departments, £305 million in 2006 and £508 million in 2007 will be made available to reduce pressures on the council tax. Later this afternoon my hon. Friend the Minister for Local Government will give full details to the House.

I can tell the House that the current budget deficit, which reached a peak of £55 billion in 1993, will fall from £19 billion last year to £10 billion this year and then to £4 billion, and then zero. There will then be a surplus of £7 billion, then £11 billion and then £13 billion in future years, meeting the fiscal rule in this cycle by more than £16 billion, in contrast to the deficit over the last cycle, 1986–97, of £157 billion.

It is on the basis of this fiscal rule and our second fiscal rule, the sustainable investment rule, that the Government will plan our 2007 spending review, including our response to the long-term reviews on transport, pensions, energy and skills. Our second rule allows us to borrow for essential public investment, as long as there is a sustainable level of debt.

In 1997, the capital investment being made by this country in schools and colleges was just half a billion pounds a year. Today, we are investing £7 billion a year, and we are on track to renovate 12,000 more primary and secondary schools in our country. In 1997, Britain invested just over £1 billion a year in building and renovating our hospitals. Today the figure is £5 billion and it is rising to £8 billion by 2008. And investment in transport is doubling.

In total, net public investment, which was just £5 billion a year in its overall total in 1997, will this year be £26 billion and next year £29 billion. Even with this record investment, we meet our second rule, which ensures borrowing for investment within sustainable levels of debt. Net debt levels will be 36.5 per cent. this year and in future years 37 and 37 per cent., and then 38, 38 and 38 per cent., at every point lower than today's 44 per cent. in France, 47 per cent. in America, 60 per cent. in Germany and 80 per cent. in Japan. So, our debt levels are lower than those of our major competitors. Even as we borrow not for short-term consumption but for long-term investment, our borrowing levels are lower than that of our competitors. Total net borrowing, which reached £51 billion in 1993, will fall from £37 billion this year to £34 billion, £31 billion and then £26 billion, £23 billion and £22 billion. Cyclically adjusted, our net borrowing this year is just 2.2 per cent. of GDP, and it will fall to 1.6, 1.6 and 1.6 per cent., and then 1.5 and 1.4 per cent. in the years that follow.

Within these figures public investment, which I remind the House was just £5 billion in 1997, will continue to rise to £31 billion in 2007, then £32 billion, £34 billion and finally £35 billion in 2010. That is on average £40 million a year today per parliamentary constituency rising to £55 million a year by 2010, contrasted to just £10 million per constituency in the years before 1997. In just five years, from now until 2010, Britain will see more investment in its social and economic fabric than in the entire 18 years from 1979 to 1997.

Our two fiscal rules enable us to meet the country's priority to invest more not just in schools and hospitals but in transport, housing and, of course, in sport and the Olympics. I have, however, noticed representations that a third fiscal rule should be adopted. It is, each and every year, irrespective of the needs of the economy and the case for investing in public services, to restrict public spending growth to a lower rate than the growth of the economy in order to cut taxes. On closer examination, what has been called sharing the proceeds of growth would mean this year spending at least £12 billion lower and, by next year, £17 billion lower than plans, and I have concluded that this rule, however rebranded, is simply a new gloss on an old proposal advanced before previous Budgets, which would undermine our public services, our infrastructure and our economy.

It is our commitment to investment for the long term that allows us not only to address global economic challenges but to combine prosperity with fairness to all. Within the fiscal figures we can now do more to help families, the elderly and young people, and to meet our obligations on security and defence.

Defending our country is the first duty of Government. In response to the bombings in London in July and to the terrorist threat, it is right to do all that we can to support our police, our armed forces and our security and emergency services, whose bravery we commend and on whom we depend each and every day for our security and safety. Since 11 September we have doubled the budget for national security. Today we are making available an additional £135 million for security and counter-terrorism, and we are providing an additional £580 million for the armed forces for Iraq, Afghanistan and other international obligations.

At the end of a year in which we have seen the doubling of aid to Africa, promised at the G8 summit, and of debt relief, multilateral and bilateral, to 100 per cent.—which is just the start of what we must do in future years—the Secretary of State for International Development, to expedite the critical negotiations on trade, is offering to treble Britain's aid for trade to £100 million. It is unacceptable that the world is insufficiently prepared for natural disasters, so Britain will contribute to an expanded United Nations emergency fund. We will also contribute £50 million to a new IMF shocks facility.

Child tax credit is benefiting 6 million families, with 1.5 million poor children already lifted out of poverty. The mobility of our economy is now such that each year 200,000 men and women who move into new and better jobs see their family incomes rise by more than £10,000. Some have suggested that we should cut back child tax credit. This I refuse to do because, with child benefit, child tax credit is doing more to help families meet the costs of bringing up their children, and helps more families out of poverty, than any single measure from any previous Government.

Although a case has been made for fixed awards based on last year's incomes, to which we will continue to listen, it would be better to have a system that responds flexibly to changes. While requiring earlier notification of changes in circumstances, the Paymaster General is today making a detailed statement that from April next year we will allow annual income changes not of £2,500 but of up to £25,000. That will cover 95 per cent. of all income rises during a year. Where recovery takes place during the year, we will adopt new rules on repayment to address potential hardship.

Our policy is opportunity for all, and it is matched by responsibility expected from all. Today the Treasury and the Department for Education and Skills are jointly publishing plans showing how parents who want to do their best by their children can be given the support that they need, from child care tax credits and maternity pay to support for parenting at Sure Start centres and the increase in mentoring for children in care that we are announcing today.

But what parents often seek is early help, the most effective measure and the best hope we have to keep children out of trouble later. There are a dozen agencies that often duplicate each other's efforts without reaching that troubled child. To inform decisions in our spending review, the Secretary of State for Education and Skills is piloting a new concept—that of one lead professional, based around the school, using funds brought together in one budget, with the authority to identify problems early and the freedom and capacity to intervene quickly and do what is right before a child's future is blighted.

The oil shock of this year has led to calls for more efficient use of energy and support for alternative fuels. Today I am enhancing the capital allowances for production of the most environmentally friendly biofuels. That will include help for oil companies to meet the agreed biofuel obligations.

Carbon capture and storage protect the environment from carbon emissions by containing them at source and transporting them to the North sea, where they make it easier to extract remaining oil from mature fields. I can announce a new partnership with the Norwegian Government. Together we will consider the right level of incentives to speed up the adoption of this important new technology. Because the United Kingdom can also become a world leader in clean coal, the Secretary of State for Trade and Industry is today announcing further support for clean coal and all carbon abatement technologies. That is part of our wider energy review.

Because we need to encourage energy efficiency in small and medium-sized businesses, the Secretary of State for Environment, Food and Rural Affairs is today announcing further funding for the Carbon Trust.

So that all import capacity for gas is put to use, Ofgem is announcing today that it will use its powers to intervene where necessary to ensure that importers either "use or lose" their capacity to import. The Secretary of State for Trade and Industry and I have today written to the European Commission supporting Ofgem's call for an urgent investigation to make sure that this winter there are no blockages to the full use of the interconnector with Europe and thus no restriction on imports of gas from Europe.

Our economy has had to withstand an oil price rise from around $25 to a current price of around $55, which is also close to the level of almost all future projections. Returns in the North sea are now nearly 40 per cent. on capital, compared with ordinary returns of 13 per cent. With the tax on new development in the North sea now lower than in the USA, the Gulf of Mexico, Norway, Italy and Australia, and in order to strike the right balance between producers and consumers, I will raise the supplementary North sea charge from 10 per cent. to 20 per cent., while giving new incentives to companies for exploration and development of the most difficult fields by extending the exploration expenditure supplement to all their ring-fenced activity.

I am also now able to freeze petrol and diesel and road fuel gases duties for this full financial year at an Exchequer cost for the full year of £600 million. I am also able to set aside resources, so that the winter fuel payment—the universal payment tax free to all pensioner households—will be £200 not just this year, but next year, the year after that and every single year of this Parliament, and it will be £300 for the over-80s, paid every year before Christmas.

In addition to the winter payment, I want to ensure that for pensioner households energy costs are as low as possible while ensuring the most efficient and effective heating system against the winter cold. Insulation and central heating can reduce heating bills for the typical pensioner household by £300 a year. The energy savings are so great that no pensioner household should be without insulation and no pensioner should be without help to install central heating. After many years, it is time to complete that insulation and the installation of central heating where it is possible to do so.

The Government's warm front programme has so far insulated 1 million homes but there are still 500,000 with no central heating and 2 million without insulation. Separate announcements will be made for Scotland, Wales and Northern Ireland. By setting aside an additional £300 million over the next three years, the Government's warm front programme will not only be able to offer pensioner households on pension credit free installation of central heating, but we will offer all other pensioner households without central heating £300 towards the costs of installing it. We can go further. I am grateful to the energy companies that are matching our offer by announcing this afternoon that they will extend their offer of insulation. There will be free insulation for all pensioner households on pension credit, with, for all other pensioner households, between £125 and £175 paid towards the costs of insulation.

Let me conclude with a set of measures in an area which is not fashionable today, but I believe vital for the long-term future of our country. It is an area where we can make progress only if the Government invest and work together with the voluntary and community organisations that are at the heart of every community in this country. A responsible society requires strict measures to combat vandalism and violence. It also requires that society fulfils its responsibility to encourage what is best in our young people, and we have to do far more where in the past too little has been done, investing in youth and community facilities that are modern, relevant and welcoming for teenagers up and down the country.

Today, I can announce an agreement with the banks and building societies that unclaimed assets held in bank accounts will, once realised, be put to use to improve youth and community facilities throughout Britain. It is right for us as a Government to make a start now. First, the Government are joining with seven of Britain's leading companies to launch the country's first national youth community service. With up to £100 million of initial finance, it will fund gap-year volunteering in Britain and abroad for young people who otherwise could not afford gap years, and it will fund part-time and full-time community service in every constituency. Secondly, because we want the 2012 Olympics and, beyond that, any English bid for the 2018 World cup, to regenerate sport for young people in our country, the Culture Secretary and I are today announcing details of a national sports foundation, modelled on the Football Foundation's successful investment in football facilities. We will invest new money in improving facilities, amenities and participation across all sports in every area of the country.

But as the Youth Green Paper said, more can be done not only to support wider youth services, but to put decisions about the programmes for young people in the hands of young people themselves. So as a first step, we will provide finance for each local authority to set up a young people's fund; for amenities and activities run by young people, and decided on by young people themselves. On average, half a million pounds will be provided for each local authority over the next two years, so that they can strengthen local communities.

Stability is the foundation. More investment, not less; responsibility from all; opportunity for all, not just the few: I commend this pre-Budget statement to the House.

Let me begin by welcoming the measures that the Chancellor announced on trade justice, the international finance facility and debt relief for the poorest nations, which we support. We also support the new measures on youth projects and the extension of shared equity schemes—a policy that, as he well knows, we proposed at the last general election. We will study the proposals on planning, but we believe that decisions on planning should be taken by local communities, not by unelected, unaccountable and unwanted regional assemblies.

The real story from today's report is that the Chancellor's deficit has gone up to £10 billion. He is borrowing £151 billion over the next five years—£17 billion more than he predicted. He has just announced that growth this year is half what he predicted before the general election—he did not linger on it, but I understand that to be his announcement—and his forecast for next year is also lower. [Interruption.] His golden rule is now tarnished and discredited; productivity growth has slumped; business investment has collapsed; and this year, Britain's economic growth is among the weakest in the developed world. [Interruption.]

Order. It is not the habit of the hon. Member for Northampton, North (Ms Keeble) to shout; perhaps she should not do so today.

Thank you, Mr. Speaker.

The Chancellor was supposed to come to the House to deliver an accurate report on the state of the British economy; instead, his speech sounded more like tractor production figures from the old Soviet Union. This is a tragic story of a Chancellor who has been forced to wait so long to get into No. 10 that his reputation in charge of No. 11 is crumbling. This is the iron Chancellor, who has single-handedly destroyed the public finances; the prudent Chancellor, whose means-testing has devastated pension savings; the business-friendly Chancellor, who is presiding over the lowest rate of investment in business since records began; the progressive Chancellor, whose own shambolic tax credit scheme has left families relying on food parcels; the long-serving Chancellor, who is now presiding over a long-term decline in this economy's ability to compete. No wonder he looks so gloomy. The longer he stays at the Treasury, the more his chickens are coming home to roost. For this is a Chancellor who is the roadblock to reform; a Chancellor who is now holding Britain back.

Let us look at those growth forecasts. In March, the Chancellor told us that the economy would grow by 3.5 per cent. In September, he downgraded that to 2.5 per cent. and today—in case you missed it, Mr. Speaker, because he rushed through that bit—he downgraded the growth forecast again, to 1.75 per cent. He also downgraded it for next year. I do not remember him telling the electorate before the general election that the economy was facing a tough and challenging year. What he told the country at the time of the election about the state of the economy was not true, and it is difficult to believe that he did not know it at the time.

When the Chancellor was comparing us with other countries in his statement, why did he not want to tell us that this year our economy is growing more slowly than 18 of the 25 members of the European Union—slower, to date, than Germany, Ireland and Spain? Why did he not tell us that our growth in the last quarter was slower than every major economy in the world except Italy?

The Chancellor blames the high price of oil, but that hardly explains why our oil-exporting economy is growing slower than other oil-importing competitors. He blames weak overseas markets, but almost every other developed economy is growing faster. The Governor of the Bank of England told us the true cause last month. He said that a "sharp rise" in taxes has caused a "sharp slowing" of household incomes and economic growth. But what is the Chancellor's response today? It is more stealth taxes, including a doubling of the supplementary tax rate on oil companies—[Hon. Members: "Hooray!"] He can go back to Scotland and tell them about that. We also heard about a new land development tax—a tax on affordable homes—which is something that all Labour Governments do when they run out of money.

With all the Chancellor's extra taxes, it is amazing that he still has a budget deficit. But he does—and that is another forecast that he got wrong. First, he told us that there would be an £8 billion surplus this year. Then in March he changed that to a £6 billion deficit. Today, the deficit has gone up again. Why was he in such a rush to go through his borrowing figures? He should have slowed down. He should have told us that he plans to borrow £37 billion, £34 billion, £31 billion, £26 billion, £23 billion and £22 billion, or £151 billion over the next five years.

The fiscal rules were supposed to keep the deficit and the debt under control. The Chancellor was meant to have fixed his spending to fit his golden rule. Instead, he fixed his golden rule to fit his spending. I congratulate the Chancellor on finally adopting our policy of making Government statistics independent, so that he cannot fiddle with the nation's balance sheet anymore. Why does not he also set up an independent body to monitor the golden rule? That way, he will not be able to claim that an entire economic cycle began without anybody else noticing.

The Chancellor talks about the great challenge that Britain faces from China and India, but with falling research and development, falling productivity growth and falling business investment, his policies are simply not rising to that challenge. They are holding Britain back. In 1998, he said that

"Productivity . . . is a fundamental yardstick of economic performance".

Does he remember saying that? Well, he did. So let us use his own yardstick. In 1998, productivity growth averaged 2.75 per cent. Today, it is 0.5 per cent., or one fifth of the rate that he inherited. If productivity was his fundamental yardstick, he has failed fundamentally on his very own measure.

Unreformed public services are holding Britain back, too. The Prime Minister will remember telling his party conference that each time he had tried to reform the public services he wished that he had gone further. Well, who stopped him? Who frustrated him? It was the Chancellor of the Exchequer, the roadblock to reform. He blocked health reform. He blocked education reform. He blocked welfare reform. Now he is blocking pension reform, too.

With all the talk of reports in the pre-Budget statement, why did not the Chancellor mention the Turner report more than once? The fact is that he sabotaged the Turner report, even though it is his means-testing and his pensions tax that has destroyed savings. The man who created the pensions crisis is the very same man who is standing in the way of providing a solution. No wonder Lord Turner describes the Chancellor's position as

"not a contribution to a sane argument".

How the Prime Minister must love Lord Turner. This country needs a Chancellor who is interested in reforming Britain for the future, not in defending his failed policies of the past.

I have no doubt that when the Chancellor gets up, he will deliver in public all those one-liners that he normally reserves for the Prime Minister in private, but let him answer these simple questions. Why were his growth forecasts so wrong? Why is the deficit so high? Why is productivity so weak? Why is investment in business down? Why is red tape up? Why is bureaucracy up? Why are taxes on the rise? Why did he sabotage Turner? Why does he block every real attempt to reform public services? Let us hear his answers. Let us hear why he is holding Britain back.

The Chancellor could have used today's report to prepare our economy for the future, to set out the reforms this country so desperately needs, but he did not. Instead, this is a Chancellor forced into the humiliation of admitting that he got it all wrong. This is a Chancellor who is past his sell-by date. This is a Chancellor who is holding Britain back.

Why does—[Hon. Members: "Answer."] I will answer each question, but why does the shadow Chancellor not have the courage to come to the House and say to the House what he has been saying outside it. I have the article he has written—

Answer.

Order. I will decide whether the Chancellor of the Exchequer is answering in a proper way. I will be the judge of that.

I have the article that the shadow Chancellor published only a few days ago. What does he say? In place of all the allegations he made today, he talks about

"Labour's success on macroeconomic policy".

Then he says that Labour has improved the macro-economic management of the UK economy and that Labour has established "economic credibility". He then says that there is "public confidence" in Labour's

"ability to manage the economy".

Then he says, against the Conservative party, that its short-termism

"has hampered . . . a long term economic policy"

for the country. Then he says that Conservatives

"still lag a long way behind the Labour party when it comes to public confidence in our ability to manage the economy."

The reason why the hon. Gentleman cannot acknowledge that we have the longest period of sustained growth, the lowest inflation, the lowest interest rates for 30 years and the highest employment ever is that he knows that at no point under a Conservative Government would that ever have been possible to deliver.

In the Financial Times on Saturday, the hon. Gentleman complained that I had been "too brutal" with him in the last three months, but having heard his speeches I am afraid that I have not been brutal enough. They say that the Conservatives are about to skip one generation. Perhaps it is time that they skipped another one as well.

On forecasts, the only party in this country in the last 30 years that has forecast growth and given us recession is not the Labour party, it is the Conservative party. On productivity, which the hon. Gentleman mentioned, the only party that has had negative productivity growth in this country in the last 30 years is the Conservative party. On manufacturing, the only party that has had negative manufacturing growth is the Conservative party. On child tax credits, I think the whole country will resent the fact that the shadow Chancellor suggests that somehow the Labour Government are putting children into poverty when it was the Conservative opposition to child tax credits and to child benefit that put so many children into poverty.

Why will the hon. Gentleman not defend his own policies? [Interruption.]

Order. I have given the Chancellor a lot of elbow room, but the policies of the hon. Member for Tatton (Mr. Osborne) are nothing to do with the Chancellor. I know that he has disowned himself in that way, but perhaps he can continue.

The hon. Gentleman complains about investment. Business investment was £87 billion in 1997; it is £110 billion this year. How can he say that there has been a collapse in business investment when business investment continues to rise? He says that the new deal is not working, but we have 330,000 more people in jobs this year. He complains about our regulation, but we are getting rid of some of the ridiculous regulatory agencies created by the Conservative Government. We the Labour Government are taking to Europe the proposal to put a competitiveness test on regulations and to end the gold-plating of European Union regulations.

The Conservative party's policies are to abolish the new deal, to cut the child tax credit and to announce—[Interruption.] The hon. Gentleman said that our growth was lower than that of Spain and Ireland. What he did not say is that our growth is higher than that of France, Germany, Italy, the euro area and the whole European Union. If he wants to look at differences in growth in the economy, let us look at the comparison between two recessions under the Conservative Government and growth in every year under a Labour Government.

The hon. Gentleman's policies are to abolish the new deal, to scrap the child tax credit—[Hon. Members: "What are your policies?"] Conservative Members do not like it, do they? At the last election, they said that they would spend more—[Interruption.]

Order. The Chancellor will assist me by not referring to the Conservative party's policies. I know that he has got a lot of material there, but perhaps he could use material that will not embarrass the Speaker.

Our policy is to keep the new deal, to keep children out of poverty, to increase public investment in this country and to increase enterprise efficiency and productivity in our economy. The Conservatives were in power for 18 years; from what we have heard today, they will be out of power for 18 years.

Three years ago, the Chancellor told us that Britain was recording its best economic performance for 50 years. Two years ago, he told us that it was the best economic performance for 200 years. On his last outing, he told us that it was the best economic performance for 300 years. We are all rather disappointed that he has not come along today and told us that he is outperforming the Romans.

The Chancellor has demonstrated his talent for producing rabbits from hats, while disregarding the big long-term challenges, such as creating a sustainable state pension system and reforming the unfair system of local taxation—but we welcome some of his rabbits. I am glad that he has listened to representations from Liberal Democrat Members and others and scrapped the tax relief on second homes under the self-invested personal pension scheme. That is very welcome. I also welcome the substantial relief from overpayment—the £25,000 ceiling—that he is now giving on tax credits.

The Chancellor is having to acknowledge, however, that we are now in the process of what economists call a growth recession. It might have been desirable if he had gone next door to the Prime Minister to ask for a short seminar on how to do humility, but instead he has tried to blag his way through by blaming the problems on the oil producers and slow-growing Europe. He knows that that is complete nonsense. If the problem is oil, why are the oil-importing United States and Japan booming? If the problem is a slow-growing Europe, why has Britain been consistently outperformed by Sweden and Spain? The problems, as he well understands, are domestic.

Does the Chancellor accept the explanation that a large part of the slow-down in consumer spending is caused by growing anxiety about private debt? Does he accept that the share of our income that is spent on debt servicing—20 per cent.—is almost the same as it was when personal finances collapsed under the last Conservative Government? If he does not accept that explanation, does he accept the explanation of the Governor of the Bank of England that consumer anxiety about taxation has produced the slow-down in spending? How does he explain the fact that private investment in the economy is half what he forecast in the Budget? In particular, why has commercial research and development fallen, despite the fact that he is spending £800 million a year of taxpayers' money subsidising it?

The Chancellor is quite right to say that the big long-term challenge is about public spending, the public finances and how to make tough choices on public spending—we endorse that. However, may I ask him a series of specific questions? Can he explain why no Treasury Minister publicly contradicted the Home Secretary after he promised that compulsory identity cards would be made available free of charge at a cost of £6 billion to the Home Office, excluding the cost to other Departments? Has the Chancellor put any financial limitations on the Prime Minister's expressed enthusiasm for nuclear power? Will there be any limitation of the subsidies and guarantees that could become available?

The Chancellor has written eloquently in the past few weeks about the evils of the common agricultural policy. Can he explain why the Prime Minister is now on the brink of surrendering £1 billion of British taxpayers' money, despite having achieved no single concrete concession on the common agricultural policy? Can the Chancellor explain where he was when his deputy and the Secretary of State for Trade and Industry reached an agreement on public sector pensions that was such that a rising star in the Treasury could join the civil service at 20 or 21 years of age and retire 40 years later on a generous final salary scheme, while the rest of the population has money purchase pensions, or a state pension scheme that Lord Turner has described as "not fit for purpose"?

In conclusion, I speak as someone who I think has more time for the Chancellor than many of his own colleagues. Why cannot he stand up in Parliament and say, "Yes, indeed I am proud of my record as Chancellor in presiding over economic stability and low unemployment and fighting poverty"—I endorse all those things—and also say, "I have made mistakes. We've exaggerated the projections and there has been administrative over-centralisation."? Why cannot he simply stand up and acknowledge his own failures?

I, too, have a great deal of time for the shadow Chancellor who resides in Twickenham, rather than the shadow Chancellor for the Conservative party. However, the hon. Gentleman must recognise what has happened to the economy during the course of this year: we have been able to maintain stable growth.

When the hon. Gentleman gave his press conference on Thursday, he said:

"Compared with Europe Britain has . . . low inflation."

On public sector debt, he said:

"The big picture is basically very good".

On investment in public services, he said:

"There has been an enormous injection of money into the public services, which we support."

On employment, he said:

"A world where we have full employment—this is, you know, Gordon's great achievement".

On monetary policy, he said:

"Monetary policy has generally been a big success story".

He acknowledged all those things; at least he did so at a press conference, while the Conservative shadow Chancellor tries to write them in an obscure article that he hopes that no one will be able to read.

The fact is that the Liberal Democrats have dropped all their tax proposals, but are still making public spending commitments. If the hon. Gentleman is really going to be a successful shadow Chancellor for the Liberal party, he must stop the barrage of public spending commitments that have been made by his spokesmen and women in only the past few days. I have press releases that have come out on transport, the Home Office, child care, more money for dentistry and, of course, the Liberals' London manifesto. They are all public spending commitments, but the hon. Gentleman has dropped all his tax pledges and has no way of paying for them. As far as we are concerned, a public spending review will take place in 2007. All the issues the hon. Gentleman raises will be examined during the course of that.

On public sector pensions, the hon. Gentleman should know that £13 billion of public sector money was saved as part of the negotiations. All the other issues will be part of our public spending review in 2007. I would rather be in my position on public sector finances, looking at increased public investment and taking the right decisions for Britain, than in his position of being forced by his colleagues to drop all the tax plans while still being unable to control their spending plans.

I am sure that my right hon. Friend's proposals to use unclaimed money in so-called dormant bank accounts for youth and community programmes will be welcomed. Will he ensure that the banks do not use the definition of dormancy as a way of hanging on to that money unnecessarily?

I am grateful to my hon. Friend for that. He has taken an interest in unclaimed assets for a long time. The problem has been dealt with and considered by successive Governments for many years. It involves a negotiation with banks and building societies, and there is still the issue of pension funds and insurance companies to address.

However, as far as banks and building societies are concerned, he will see in the print of the Treasury documents that an agreement has been reached whereby once the money is released from the dormant assets, it will be used for youth and community services. The full negotiation on the detail of the money to be released is still to be completed, but there is an agreement in principle, first, that the money will be provided and, secondly, that it will go to youth and community services, and some to financial education. That will allow us to build the youth and community services that our country has long needed. Those have been neglected. As each of us, in every one of our constituencies, knows, young people are being asked to behave properly, and so they should, but at the same time they say that they do not have proper community and sports facilities. If we can make an impact on that with the unused assets, it would be a great advance for Britain.

Surely even the Chancellor would agree that, since this time last year, the main event is that British growth has fallen below the most pessimistic independent forecasts. It is now among the lowest in the developed world and in the last quarter was the lowest in the G7 apart from Italy. It is unlikely to recover quickly because it has been accompanied by a fall in personal consumer demand, crushed by the level of household debt, and an impending fall in public demand because of the fiscal crisis and mounting debts. Even if the people who still believe in his fiscal rules and his description of the public finances also believe in fairies, does he accept that the two big economic announcements of new taxes are both dangerous? Oil tax slowed down development of the North sea gas fields in 2002 and a land development tax has never worked and will go against all his measures to restore the housing market.

Given that the right hon. Gentleman is planning to slow down the rate of public spending beyond 2008, does he not accept that he has to accelerate that and, before his review in 2007, show that it is possible to slow down public spending without sacking policemen, doctors and nurses? Does he also accept that he will not be a responsible Chancellor until he demonstrates that he can do that and unless he gets on with it now?

I know that the right hon. and learned Gentleman makes a more comprehensive contribution to the debate than the Conservative Front-Bench spokesman, but if he reads the Conservative research department brief, he will find himself misled about what is happening to the British economy. Despite what he says, growth is higher than it is in France, Germany, Italy, the euro area and the European Union. The figures, as published, show exactly that.

As for his objections to our two policies, the land development proposals are part of a consultation document. We look forward to the consultation that will take place over the next few months. However, on planning gain, when builders make money out of the sale of development land where infrastructure is needed in areas where housing is being built, the question is not whether the infrastructure should be provided, but who takes responsibility for financing it. The right hon. and learned Gentleman may agree with me that the developer and companies should make a contribution—indeed, a bigger contribution—to the development of the infrastructure. This is an argument that we can have in the next few months, and it is an argument that is certainly needed if we are to build the houses that we need in this country.

I disagree with the right hon. and learned Gentleman's statements on oil. The argument is exactly the same as the one that we advanced, to which he refused to listen, on the effect of VAT on fuel. He has to face the fact that returns on the North sea, at about 40 per cent., are quite different from the returns on ordinary investment in other firms. He has to accept that even in countries such as America, tax measures are being considered or used to ensure that more of the return from changes in oil prices comes to the consumer. In the past three years $1.2 trillion has been transferred from consumers to producers because of the escalating price of oil. I think that if he were Chancellor, he would be the first to want to do something about that.

While congratulating my right hon. Friend on his statement, may I welcome in particular what he said about housing? Does he agree with me that building more homes, especially in areas such as central Oxfordshire where his science investment is so important and welcome, can both increase economic growth and tackle acute housing need? Is not that precisely the combination of social justice and economic opportunity that will be welcomed by businesses large and small, by public services and especially by those who desperately need housing and whose hopes are blocked by Conservatives in local government?

I agree with my right hon. Friend and thank him for his contribution to the debate over many years. The fact is that we have to face up to the need for housing and for infrastructure around housing. Those who are not prepared to face up to that fact will find either that waiting lists for houses in their local authority areas grow, or that we are unable to attract to this country some of the people whom the financial services industry and other industries need for their expansion. Given the increasing number of households, it is necessary to be able to build more houses. We have made a number of proposals on planning, land use, social housing and the development of shared equity. I had hoped that there could be an all-party consensus on what needs to be done to build the houses that we need—high-quality, affordable houses that build communities as well as homes—but if that is not to be, we will have to press ahead to make sure that we build the housing and infrastructure of the future and do not get stuck in the past.

Today the Chancellor has announced a doubling of the North sea supplement from 10 per cent. to 20 per cent., in effect creating a 50 per cent. corporation tax regime in the North sea or imposing a 25 per cent. hike in tax on the sector. Is he aware, as many in the industry are, that that fiscal regime may well lead to a rapid and irreversible loss of key resources, skilled people and equipment; that that resource flight may in turn lead to the loss of many of the 260,000 jobs in the sector, 60 per cent. of which are in Scotland; and that it may lead to the sector being unable to deliver the benefits to the economy that it has been delivering? Is the Chancellor confident that the £1 billion cash grab that he has made today will not lead to a massive reduction in revenue in the medium and long-term future?

First, we have given new incentives for the development of smaller oil fields. Secondly, the hon. Gentleman will know that the tax rates on new developments in other parts of the world are higher than they are in Britain and that we are bringing ours into line. Thirdly, the hon. Gentleman has to face up to the fact that the oil price when we established our regime was between $22 and $28 a barrel. Even in the last year it was estimated to be about $40, but it has risen to nearly $70 and fallen back to $55 a barrel. It is right to strike a balance between the needs of producers and consumers. The last people who can complain about taxation in relation to Scotland are the Scottish National party. In the past few weeks and months in the Holyrood Parliament SNP Members have proposed more money for child care, more money for children in care, more money for the fishing industry, more money for GPs, more money for police officers, more money for the arts, more money for local authorities and more money for social workers. They could not pay for any of it under their party's plans.

I welcome the Chancellor's announcement of 1 million new homes and in particular what he said about shared equity schemes. Can we encourage more building societies such as Halifax and Nationwide to become involved in that important scheme?

I realise that negotiations on unclaimed assets are continuing with the banks and building societies. Will my right hon. Friend ensure that the money is not only distributed from those sources, but that, as in the Republic of Ireland, local communities are able to put in bids in relation to their own areas? They know their areas well and they know how to build them up, and it is important that they share in the windfall.

I am grateful to my right hon. Friend. I look forward to discussing those issues with the Treasury Committee on Thursday. On unclaimed assets, we are publishing more information today, and the debate about the way in which those assets can be used in other areas—not just the banks and building societies—will continue. I look forward to dealing with all the other issues raised by my right hon. Friend at the Select Committee on Thursday.

Does the Chancellor feel any sense of anguish that his tax policies have wrecked the retirement expectations of millions of our occupational pensioners?

If the hon. Gentleman looked at the issue, he would see that pensioners in Britain today, with the measures that we have introduced, are better off than they would have been if a Conservative Government had been in power. Not only has the basic state pension risen faster—

What about occupational pensions?

Let me deal with the question in my own way. The basic state pension has risen faster than inflation. We have introduced pension credit, as well as the winter fuel allowance and free TV licences, which the Conservative party opposed at one stage. As for occupational pensions, the savings regime and the pension tax reliefs in this country are designed to help people save more for their retirement. We will have a debate now—[Interruption.] The savings ratio in this country is higher than in America, the fastest growing country in the industrialised world. The British savings rate is higher and has been—[Interruption.]

Order. Perhaps, one day, the hon. Member for Braintree (Mr. Newmark) may have a chance to put a case, but not today. It is the Chancellor of the Exchequer who is replying.

The debate on occupational pensions will continue as a result of discussions on the Turner report.

Employees at Glaxo in my constituency will undoubtedly welcome what the Chancellor said about the pharmaceutical industry, and the employers at Farmway will undoubtedly welcome what he said about the capital allowances for biofuels. Can he confirm that, in addition to those measures, he will continue to support the science base, unlike the Opposition parties?

I am grateful to my hon. Friend, who has a great knowledge of these issues, having worked on many of them as an official at the Treasury. She takes a special interest in science and the environmental issues that led us to introduce the proposals on biofuels. Let us be honest: the science base of this country—one of the most inventive countries in the world—has been neglected over the years. The fact that we now have a 10-year plan for science and are doubling investment in science is essential for our global economic future. The medical investments that are now under way as a result of the partnership between the NHS, universities and pharmaceutical companies will lead to £500,000 of new investment in the next few years, with the potential for £1 billion-worth of new investment just in medicine and medical science. That is one step towards Britain leading the way in a range of medical and other sciences, which means that we will be well placed to be one of the great success stories of the global era.

We must assume that the real estate investment trusts that the Chancellor announced are based on the American model—they will be straightforward, simple and offer real incentives to investors—and are not based on the Treasury's original thinking that they should be revenue neutral. Does he not realise that previous land development taxes have failed, partly because of their complexity, but also because developers speculated against political change? Given the profits to be had, people will hold back development in the expectation of a change of policy, such as tax abolition. That means that there will be less land available for development, house prices will go up and home ownership will become a distant dream for a new generation of Britons under this Government.

The hon. Gentleman had better look in detail at the consultation document published today. The fact of the matter is that in an honest debate about what planning gain involved in the past, the amount of planning gain resources that have been given to local authorities for the building of infrastructure—schools, hospitals, but particularly transport and especially roads—has been small in relation to the needs of those local authorities. He would agree that if we are expanding the number of houses and if a development gain is being made it is a fair question as to how it is shared between the different beneficiaries and the different groups in a local area. That is what the debate about the planning gain supplement is about. It is a local planning gain supplement, because the money will principally go to local authorities and local areas where housing development is under way. As I understand it, planning gain provides about £1 billion of extra funds for local authorities during the year, but the fact is that local authorities are spending far more to develop the infrastructure, particularly the transport that is necessary for these services. The consultation document is there for people to see, and the Conservative party would be wise to consider the issues before it makes a wrong decision once again.

As we are facing one of the worst winters for many years, I congratulate the Chancellor on providing £300 million for central heating for pensioners on pension credit. I also congratulate him on the new initiative to provide an additional £300 million subsidy for private sector pensioners to install central heating. Will he assure the House that he will keep those figures under review and ensure that that excellent initiative continues in future years and future programmes?

My hon. Friend takes a big interest in the needs of both pensioners and people without high resources in the communities of this country. I hope that the insulation and central heating scheme receives all-party support. It is a scandal that as we face the winter months, large numbers of pensioners are unable to afford either insulation to cut their heating bills or central heating, which is why the measure is open to all pensioner householders and is not restricted to one group of pensioners. Where pensioner households do not have central heating, it is possible to obtain a £300 grant to install central heating, starting immediately. Equally, where pensioner households do not have insulation, the energy companies—I am really grateful to them for what they have proposed today—will offer between £125 and £175 towards the cost of insulation. As I have said, I hope that the measure receives all-party support. We face cold winter months, so the sooner that pensioners can access the scheme, the better.

International competitiveness is one of the things that the Chancellor glossed over in his statement. In its latest annual report, the Treasury has produced a helpful table based on the World Economic Forum international competitiveness league. During the right hon. Gentleman's time as Chancellor, Britain has slipped from fourth to 13th in that league—why?

If the hon. Gentleman examines the different leagues for competitiveness, productivity, stability, efficiency and regulation, we are doing very well. [Interruption.] If Conservative Members look at the figures, they will see that we are ahead of Germany and Japan in productivity, and we are catching up with France. Yes, we are behind America, but the measures that we are proposing are designed to enable us to catch up. In 1997, when we came into power, we had the lowest GDP per head in the G7, but now it is the third highest. It is important to look at all the different comparisons, and Conservative Members will be particularly interested in one of them: the Heritage Foundation, which is one of the more right-wing institutes in the United States, has stated that in terms of economic liberalism, deregulation and flexibility of the economy, we are better placed in the rankings than when the Conservative party was in power.

I welcome the Chancellor's announcement of the shared-equity scheme. Does he agree that areas such as my black country constituency, which historically contains low incomes and a lot of brownfield sites, could particularly benefit from the scheme? Will he also ensure that local authorities are involved in the dialogue between banks, building societies, developers and the Government? Young people who are searching for accommodation often make the local authority their first port of call, and local authorities have an important part to play in assessing the need and potential for the scheme in areas such as mine.

I am grateful to my hon. Friend and will talk to him about the expansion of shared-equity schemes and how they will affect his constituency. We clearly need to do more on social housing, too. We need to build more housing for rent and make it possible for the pilots on disused sites to be successful in different areas of the country. I regard the shared-equity scheme as one of the most exciting developments in recent years. The fact that the building societies, building companies, investment companies and, potentially, housing associations are all examining how they can develop shared equity is an important development for our economy.

Today, I visited the home of someone who could not afford to buy a flat in London if they had to obtain a 100 per cent. mortgage. They have got a 40 per cent. mortgage—the rest is covered by a rent agreement—and can move into their first flat, which they will do before Christmas. Many thousands of people throughout the country depend on the development of shared-equity schemes to have a chance to get on to the first rung of the housing ladder. We are determined to work towards making shared-equity schemes happen as quickly as possible and, again, I hope that the measure receives all-party support.

I, too, welcome the Chancellor's statement on tackling fuel poverty, especially among the elderly. It is a scandal that in this day and age people still have to choose between heating and eating. Given the levels of fuel poverty in my constituency and in Northern Ireland generally, can the Chancellor confirm that the measures that he announced—welcome as they are, and which I hope will be uprated year on year—will apply to Northern Ireland?

That is what the discussion will be about. Funds have been allocated for Northern Ireland. I hope that that means that insulation and central heating programmes will move ahead. I am determined, over the next few months, to ensure that as much as possible is done to insulate and to provide the necessary central heating. As the hon. Gentleman says, it is a scandal that in this day and age too many pensioners feel unable to provide the heating that is necessary for the warmth that they need, and we must take this new initiative to make it possible for them to have it.

With permission, Mr. Speaker, I should like to make a statement about local authority revenue finance for England in 2006–07 and 2007–08.

Sensible planning for service delivery needs a stable and predictable funding environment. Freezes on grant distribution changes have helped, but the time has come to go further and give councils firm forward financial allocations. There is no reason why councils cannot now provide similar certainty for their local taxpayers when setting their council tax for 2006–07 by providing an indicative council tax for 2007–08.

To give councils as complete a picture as possible of forward financial allocations, I am today announcing, for the two years 2006–07 and 2007–08, allocations of formula grant and grant for the "Supporting People" programme. The Government will also publish, by local authority, a table of allocations of all the major revenue grants that can be allocated in advance, including the neighbourhood renewal fund, which gives indicative allocations of £525 million for 2006–07 and £525 million for 2007–08 for the 86 most deprived local authority areas in England. By the end of this week, we expect that the vast majority of individual specific grant allocations will be announced to local authorities. The only grants that cannot be announced at this stage will be performance-led or data-driven in their nature.

My right hon. Friend the Minister for Schools will shortly announce the provisional allocations to authorities of dedicated schools grant. Hon. Members should bear in mind that those allocations need to be added to those that I am announcing today to give a fuller picture of the above-inflation funding going to authorities with education and social services responsibilities. With the next spending review period, we will move to give three years of grant allocations to local government.

It is also high time that we overhauled the system that we use to distribute the formula grant. For more than 20 years, successive Governments have used a system based on notional figures for spending and local taxation. In the 1990s, the Government described the old standard spending assessments as

"intended to represent the amount which it would be appropriate for the receiving authority to calculate as its budget requirement".

We no longer take that view. The formula is simply a means of distributing Government grant. Notional spending and taxation figures none the less continue to be misunderstood and misused for a variety of purposes, such as spending or tax targets, for which they were neither intended nor suitable. Such notional figures get in the way of sensible budget setting, because councils treat them as targets or going rates, and of a more mature relationship with local government on doing business together. I propose a system that deals in honest currency—cash grant—not fanciful assumptions about spending.

I accept that most responses to the consultation were against our proposal along those lines. However, the arguments supporting that position were not strong. Many stated that the new system would be more complex or use more judgment than the existing system; neither is the case. The new system will retain the strengths of the old. It will continue to take account of the relative needs of an area and the relative ability of councils' areas to raise council tax. There will be an element of grant that is distributed on a per capita basis and a grant floor.

Total revenue grants to English local authorities will be £62.1 billion in 2006–07 and £65.1 billion in 2007–08—increases over the previous year of 4.5 per cent. and 5 per cent. respectively. Part of that increase is dedicated funding for schools, leaving formula grant for other services that will total £24.8 billion in 2006–07 and £25.6 billion in 2007–08—increases of 3 per cent. and 3.8 per cent. respectively. That means that, by 2007–08, the increase in Government grant for local services since we took office will be 39 per cent. in real terms.

We have been working with local government over the past three years on possible changes to grant distribution formulae. We consulted publicly over the summer and I am publishing the summary of consultation responses today. Following that consultation, we propose several changes. The main drivers behind the change that I propose are: updating, especially the use of 2001 census data in place of that from the 1991 census; making the system more forward looking by using projections of population and council tax base; and adapting to policy change.

The new formulae for personal social services for children and younger adults are based on extensive research and have a solid evidence base. That makes it clear that there will need to be substantial change to reflect the evidence on service provision and the very different social and demographic environment of the 2001 census. The grant system also takes account of councils' widely varying ability to raise council tax, depending on the council tax valuations of housing in their areas. We propose to increase that resource equalisation because that will make the system fairer for those authorities with relatively low ability to raise council tax locally.

I propose to adjust the grant distribution system to reflect the introduction of free off-peak bus travel for the over-60s and the disabled from next April. I shall do so by increasing the weightings in the district level environmental, protective and cultural services formula that are given to factors that reflect support for the disabled and the needs of areas where take-up is likely to be highest.

Grant floors—the minimum guaranteed increase from one year to the next—are a permanent part of the system. Given the importance that we attach to stability and predictability of grant, we shall phase in the larger changes this year with more than usual care. The changes in children's social services and younger adults' social services will be phased in with specific formula floors. On top of that, we propose grant floors for groups of authorities.

For 2006–07, the floors will be as follows: for authorities with education and social services responsibilities, 2.0 per cent.—that figure excludes the increase in schools funding, which will give all such authorities above-inflation increases in grant; for police authorities, 3.2 per cent.; for fire and rescue authorities, 1.5 per cent.—that figure masks the help we are giving those authorities by phasing in recovery of the modernisation grant paid in 2004–05; and for shire district authorities, 3 per cent. For 2007–08, the floors will be as follows: for authorities with education and social services responsibilities, 2.7 per cent.; for police authorities, 3.7 per cent.; for fire and rescue authorities, 2.7 per cent.; and for shire district authorities, 2.7 per cent.

Within each group of authorities, those above the floor will have their grant increase scaled back to pay for the floor. The floor levels that I propose will mean that there will be a fairly narrow range of grant increases in 2006–07, with police authorities in particular all receiving approximately the average increase. For 2007–08, all authorities will receive a grant increase at least in line with inflation, and more formula change will come through for most authorities.

I would now like to come to the "Supporting People" programme, which was introduced in 2003 and is successfully providing support to more than 1.2 million vulnerable people. I am pleased to announce a two-year settlement for this programme. The "Supporting People" grant allocation for 2006–07 will be £1.685 billion, which is a significant investment, and I have also announced guaranteed minimum allocations for 2007–08 to enable authorities to plan their expenditure. Further, I am pleased to announce that authorities will be able to roll forward any savings from 2005–06 to 2006–07 in order to reinvest in the programme. This announcement will bring stability to the sector and enable authorities to work with support providers and voluntary sector and community groups to plan for the future. Building on the success of the "Supporting People" programme, I recently launched a consultation on how the programme can be further improved. Following that consultation, I will announce the full allocations for 2007–08 next summer.

This settlement is good news for councils and for council tax payers. We have been working closely with local authorities this year to identify the extent of the pressures that they face up to 2007–08, and we consider these actions necessary to mitigate those pressures. I am pleased to announce extra formula grant for the two years over and above previous plans of £305 million and £508 million for local government. We have also agreed with local government that we will jointly move forward on a number of fronts aimed at addressing the real pressures that councils face. This includes a continued commitment to the new burdens procedure, working with local government to assess the costs and savings of implementing new polices, and funding the net costs. We will be strengthening the mechanisms to enforce the new burdens procedure. Further, I announced to the House on Friday the agreement that the cost pressures arising from the temporary reinstatement of the 85-year rule in the local government pension scheme will not fall on taxpayers.

We are also aware of authorities' concerns over the costs of the new licensing scheme. I am pleased that we have been able to reassure the Local Government Association on this issue. The Minister with responsibility for creative industries and tourism has today reaffirmed the Government's commitment that the cost to local authorities of meeting the requirements of the Licensing Act 2003 will be fully met by fees within the national fee regime, provided, of course, that they are incurred legitimately and efficiently.

Local authorities will also benefit from the extra money coming in to local authority budgets through the local authority business growth incentive scheme, and from the new top-up grants for police and fire and rescue pensions, which will help budget planning and, ultimately, the council tax payer.

We have provided a stable and predictable funding basis for local services and we expect local government to respond positively on council tax. We therefore expect to see average council tax increases in each of the next two years of less than 5 per cent. Following today's announcement, there will be no excuse for excessive increases. Local government should be under no illusions—if there are excessive increases, we will take capping action, as we have done over the past two years.

I am also announcing today consultation on alternative notional amounts. The draft alternative notional amounts report sets out the proposed notional adjustments to local authorities 2005–06 budget requirements to help enable like-for-like comparisons with 2006–07 budget requirements for capping purposes. That is being issued for consultation today to ensure that authorities know, in advance of setting their budgets, the budget requirement figure for 2005–06 that the Government will use when considering using our capping powers.

The Government have provided another significant boost to local authorities with a financial package that is stable, predictable and adequate to meet the pressures that local authorities face over the next two years, while keeping down council tax increases to acceptable levels. I have placed copies of tables giving grant allocations and supporting documentation in the Vote Office and the Library of the House, and full details are being made available for local authorities on our website. I look forward to receiving consultation responses, and I commend these proposals to the House.

I thank the Minister for early sight of his statement, and particularly of the supporting documents. It has been a good and worthy tradition that we get plenty of time to respond to this particular statement, and it is partly due to him giving me so much information that I missed the first 15 seconds of his statement. No disrespect was intended.

I welcome the move towards a three-year programme and settlement, which is extremely sensible, and the Opposition support the Government in their aim to achieve that in the long term.

About a month ago, we were regaled with headlines in the national press suggesting that the hon. Gentleman and his friends in the Department were wandering around Whitehall with a begging bowl for local government, as previous settlements had proved to be inadequate. That followed the same practice last year. The House will recall the views last year of a senior and, sadly, anonymous mandarin, who, when asked to spare additional funds for the hon. Gentleman's Department, told the asking official to vacate his office as expeditiously as possible. To emphasise the point, the mandarin preferred to use the shorter Anglo-Saxon version of that request, and it seems that the spirit and the gesture remain firmly embedded in this settlement.

We were told that this year things would be different. We were told that the one-off bung of £1.4 billion would be added permanently to the local government settlement. It now looks like a £2 billion bung over two years. It was a settlement and then an amendment, but it need not be so. In the pre-panto season, we were promised a Robin Hood settlement in which hard-pressed local authorities would receive resources to do their job properly. On examination of the hon. Gentleman's statement, it is clear that the settlement would not please Robin Hood, but would find considerable favour with Guy of Gisborne, chief torturer to the sheriff of Nottingham.

The settlement envisages an increase in council tax of twice the rate of inflation. This year, council tax payers will see their bills approach an 80 per cent. hike since Labour came to office. Will the hon. Gentleman confirm that the small print in the Chancellor's pre-Budget report, on page 229, reveals that council tax receipts are forecast to rocket by a massive 7.1 per cent.—an extra £1.5 billion snatched from hard-working families and pensioners? That is an intolerable burden, particularly at a time when the Government have allowed a shameful drop in the take-up of council tax benefit.

Next year, like this year, we will see the sad parade of old-age pensioners being threatened with jail. Next year, like this year, we will see significant cuts in services by councils trying to keep their tax increases to as reasonable a level as possible. Next year, like this year, we will see that the optimism of the Minister's statement, as council budget meetings are held, will prove to be a false hope and a bitter reality.

Last year, we were promised that Sir Michael Lyons would have reported on this year's settlement. In October, we were promised an interim report this autumn. In today's pre-Budget statement, there was not a mention of that interim report. When will we receive it? Will it be before Christmas, after Christmas or in the early spring?—[Interruption.] It seems that the Minister of Communities and Local Government suggests early spring. It is no use to talk about an increase in funding without talking also about an increase in burden. The Minister's predecessor, the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), who I am pleased to see in his usual place, became a late convert when addressing this problem. Some of the right hon. Gentleman's handiwork can be detected in the statement, and I am sure that many councillors will be grateful for that.

I understand that there will be a written statement today from the Secretary of State for Culture, Media and Sport on the levels of licence fees that a local authority can charge. I understand also that there will still be a lack of clarity on the level of costs that local authorities face. Will the Minister give an undertaking that local authority taxpayers will not have to fund any part of the burden? How will the Government ensure that the full start-up costs or new licensing burdens on local authorities will be fully met? In particular, how will the cost of appeals be fully met?

Last year, the Chancellor of the Exchequer announced a discretionary fare scheme for pensioners. The Minister will recall that I raised the problem of floor authorities, which he has mentioned. These are authorities that are in the process of losing grant across the board. Each year their losses are limited to the amount that is specified for the floor.

If the money designated for concessionary fares was simply included in the floor calculations, many district councils would effectively receive nothing for concessionary fares. Will the Minister clarify the position? Will he confirm that the £200 pensioners' discount was a pre-election, one-year wonder and has now disappeared? Were not the promises made to pensioners by the Government of a £200 discount on their council tax merely a simple one-year pre-election bribe? Will he further confirm that that has now gone? The Deputy Prime Minister tabled an order bearing on the local authority pension scheme. It is identical to the one submitted, only to be withdrawn, a year ago. That created a unique double U-turn, separated only by a general election.

We have heard about the 85-year-old rule, but what of the rest? Can the Minister give an assurance that no part of the burden of the Government's change of approach to the local government pension scheme will fall on council tax payers?

The Government, against the wishes of the public, are seeking to impose a regional police force. Will the Minister give an indication of how large the increase is expected to be on the police precept to pay for the rearrangement of the furniture in police headquarters? Does he recognise that the money would have been better spent on catching criminals rather than wasting it on Powerpoint presentations at headquarters?

There is the issue of external finance. The new planning gain supplement is nothing more than a new Labour land tax and, just like the old Labour land tax, it will fail. No doubt the House will have an opportunity to debate the issue in some detail. However, I have a few questions about the financial division of the tax. How will it be divided between the Government, the regions and local councils? It looks like a rip-off by the regions. Given that it is to be collected by HM Revenue and Customs, can we be sure that there will be a return to local people? It has the appearance of another stealth tax.

Given that there is a fragile housing market, is the Minister worried that, perversely, the approach might dry up housing developments? As for London, does the increase include the Olympic precept? What protection is there from the excessive city hall demands by Mayor Livingstone on the people of London?

The council tax is now in deep trouble. There is no sign of it coming out of intensive care. It is kept going by whip-rounds and the odd bone from the Chancellor of the Exchequer. It is not a strategy for independent living; it is a recipe for delay in the hope that something will turn up or that Ministers will move on to a new job. There will be another year with bills going through the roof; another year with increases that are twice the rate of inflation; another year with the council tax being Labour's stealth tax. The Government have yet again let down the people.

I believe that the contribution of the hon. Member for Brentwood and Ongar (Mr. Pickles) has left the House in some confusion. I am not sure whether he welcomes the extra money that will enable council taxes to be kept down, or whether he is privately gritting his teeth so greatly as to rattle his fillings with anguish at the rug being pulled from under his feet. His authority in Brentwood will receive 3.1 per cent. and 2.7 per cent. increases, while in Epping Forest, which I believe forms part of his constituency, the increases will be 9 per cent. and 6.1 per cent.

What about pensioners?

I intend to tell the hon. Gentleman about pensioners. First, let me say that I am grateful for his welcome for the two-year settlement, and—I think that he said this as well—for the indication of our intention to move towards three-year settlements in line with the spending review periods. Our policy is to provide predictability and stability for funding, so that local authorities and their partners can deliver services at stable council tax levels.

I reject the hon. Gentleman's interpretation of the 7.1 per cent. figure. This hoary old chestnut comes up every year, and is based on regressive estimates of council tax receipt. Again, the hon. Gentleman seems to be seeking to sow confusion—I do not say that he is doing so intentionally, although I have my own views—about the differences between council tax yield and council tax levels. The two are, of course, entirely different.

The hon. Gentleman said again that OAPs had been threatened with jail. Let me repeat, for the benefit of the House and the honourable ladies and gentlemen from the press, that no pensioner has been or will be jailed for not being able to pay council tax. There have been two instances this year of pensioners' receiving prison terms for being unwilling to pay the tax. I am surprised that the hon. Gentleman and his party should seem to seek to promote the idea that those who are unwilling to pay taxes should not do so. It is, of course, the hard-working, honest majority who suffer. [Interruption.] I am coming to the point about which the hon. Gentleman is shouting at me from a sedentary position. He asked 17 questions; 13 of them made sense, so I shall answer those.

I covered the hon. Gentleman's serious point about licensing fees in my statement. The written statement today from the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Stalybridge and Hyde (James Purnell), the Minister who is responsible for creative industries and tourism, confirms that the system will be self-funding under the new licensing regime.

The hon. Gentleman talked about the £200 discount that was announced in this year's Budget—in the last financial year, but the current calendar year. I am sure he will join me in welcoming the fact that, as we speak, cheques for £200 are arriving on the doormats of his constituents. I note that his party is very silent on the policy for the future.

A statement on the local government pension scheme was laid before the House on Friday. The hon. Gentleman accused the Government of a double U-turn, but I can give him the assurance that he seeks. The scheme is funded, and the changes proposed following discussions between employers and employees will impose no extra burden on the taxpayer.

The hon. Gentleman asked about planning gain supplement. I can reassure him that the money is to pay for infrastructure, as requested constantly and sometimes reasonably by Opposition Members for their constituencies, and that the majority will go straight to the local area. That which is regional is, of course, for the local area, if the funding stream must inevitably be at a higher level.

I confirm that the precept for the Olympics is not included in the figures that I have given today. In answer to the hon. Gentleman's proposition that the council tax is in deep trouble, it is his policy that is in deep trouble. The predictability, the stability of funding and the extra money that is being provided following reasonable discussions with the Local Government Association mean that the Government will not tolerate excessive increases. We see no reason now why council tax increases should be above 5 per cent. Indeed, average increases could be well below that.

I congratulate my hon. Friend and his colleagues on securing additional funding to that provided for in the provisional settlement, which means that this is a better settlement than was anticipated. However, I do not think that he would ignore the fact that it is a tight settlement, with increases on average for education and social services authorities, excluding the dedicated schools budget, of only 3 per cent. this year, and in London of only 2.5 per cent. If I read the figures correctly, the increase is only 2.5 per cent. for my own authority, while Rutland, curiously, secures the best settlement of all education and social services authorities—a 6.8 per cent. increase. Does my hon. Friend feel that that reflects the aim of ensuring the targeting of resources on those in the greatest need?

I welcome my right hon. Friend's contribution, given his deep and extensive knowledge of the system. One of the other reasons that Opposition Members are grating their teeth is that today's announcement scuppers the suggestion that there is a bias in the settlement against the south-east. The Government do not follow that policy; they have a fair policy. I warn my right hon. Friend that one has to look at the amended tables to ensure that we are comparing like with like, but I believe that we have provided a very fair settlement to authorities throughout the country and to different types of local authorities.

I thank the Minister for his statement. It is a pleasure for me to make my first contribution from the Front Bench on this subject, having spent the best part of the past 20 years in local government and as someone who still passionately believes in the case for local government.

It is interesting to see in today's statement the contortions that the Government are going through again to lay the blame for council tax rises squarely at the feet of local authorities. Let me remind the House that it is not local government's fault that Labour has failed to introduce a decent funding system for councils, just as it is not local government's fault that the only way in which it can raise money is through the abysmally unfair and unpopular council tax.

Today, we have another "one-off" bung, although this year it will fall well short of filling the black hole that councils face, which according to LGA estimates could still be the best part of £2 billion. Will the Minister confirm that this is the third one-off grant in as many years? Perhaps he should consider renaming it an annual grant. Whatever we call it, though, the sad fact is that it will not be enough.

To fill the gap, councils would need to raise council tax by around 8 per cent. Of course, the statement has shown that such rises will not be permitted, thanks to the capping rules that were announced today. The planned cap of 5 per cent., far above inflation, does nothing to alleviate the problems for people who already struggle to pay their council tax bills—nothing will, frankly, except the abolition of council tax itself. Of course, the cap is an affront to local democracy. Perhaps the Minister will explain why Labour, which has boasted of its achievement in ending the Tories' "crude and universal" capping mechanism, now sees fit to introduce a two-year capping regime that is both crude and universal in itself.

Is the Minister aware that, thanks to the combination of spending pressures, tight grants—the right hon. Member for Greenwich and Woolwich (Mr. Raynsford) described this settlement as tight—and no freedom on council tax, councils will once again be forced to cut services? Did the Minister read the social exclusion unit's report, "Improving Services, Improving Lives", which concluded that the quality of services provided by local government is fundamental to tackling social exclusion? Is he not therefore concerned that this settlement, combined with absolute restrictions on council tax rises, will force cuts in services? It is likely to worsen social exclusion. After all, cuts will not be easy to come by in many local authorities; councils are already striving to be ever more efficient. Is he aware that councils are producing £58 million-worth of efficiency savings every month—more than any other sector of government? Why, therefore, are they not believed when they speak of spending pressures?

The Minister has been quick to dismiss the LGA's assessment of spending pressures, but it personally surveys every local authority's finance department; the Office of the Deputy Prime Minister does not. Does the Minister think it wise to scoff at the LGA's estimates, given that the ODPM makes so little effort to establish the situation on the ground? Will he now acknowledge that the LGA is indeed right to warn of a black hole of some £2 billion? For the benefit of councils struggling to balance next year's budget, perhaps he can tell the House where precisely he would like services to be cut. Would he prefer a reduction in care for the elderly or cuts in children's social services; or would he like the streets to be left littered with rubbish and graffiti?

As we are all too well aware, Sir Michael Lyons is conducting a review of local government and local government finance. Enjoyable though it may be—

On a point of order, Mr. Deputy Speaker. Is this a question to the Minister or a speech?

Order. I think that the hon. Gentleman can safely leave these matters to the Chair. The Minister will have detected questions here and there.

You are very kind, Mr. Deputy Speaker.

Enjoyable though it may be for us to assemble here every year—with the eyes of local council employees, fearful for their jobs and their futures, on us—we Liberal Democrats hope that Lyons will bring an end to this whole sorry charade. Why do we put up with the most centralised and antiquated local government finance system in Europe? Why do the Government ignore all the evidence that demonstrates that the system is failing the people of this country? Given that local government is raising only 25 per cent. of its revenue, and given that it is not even allowed to make decisions about that 25 per cent., this grant statement is councils' only hope of securing adequate resources to serve their communities.

An out-of-date statistic here or a change in Whitehall priorities there can cost councils dearly. Just last year, my own council of Stockport—

Order. I am reluctant to stop the hon. Gentleman during his first attempt at such questioning, but he has said enough for the Minister to respond to.

I congratulate the hon. Gentleman on his appointment to the Liberal Democrat Front Bench and on his contribution. I suspect, however, that the "Focus" leaflet was written irrespective of what I announced today. Against the background of a now 39 per cent. increase in real-terms Government grant to local authorities, it is not credible—and taxpayers know it—to paint the picture that the hon. Gentleman has attempted to paint. I suspect that, rather like the hon. Member for Brentwood and Ongar (Mr. Pickles), the Liberal Democrats feel the rug being pulled from underneath them, given the fair settlement that has been announced today and its two-year nature.

The Local Government Association's claim of a £2.2 billion shortfall has now been revised downwards, following sensible and mature discussions with the association, which is led by a very able Conservative leader. The figures have been revised, discussed and analysed, and we have a joint programme of action to pay the fair extra burdens, under the policy introduced by my right hon. Friends the Member for Greenwich and Woolwich (Mr. Raynsford) and the Deputy Prime Minister. If local authorities face genuine extra cost pressures, we have a joint strategy to address those costs, which contrasts with the yah-boo approach of the Liberal Democrats to criticise and blame every problem in local authorities on the Government, while at the same time calling for further devolution. I suspect that the "Focus" editor is at his or her word processor as we speak, making amendments.

I thank my hon. Friend the Minister for the amount of time that he spent with Councillor George Davies and other senior councillors from the Wirral as they expressed the injustice that they feel over the level of Government support. My hon. Friend will know from those conversations that a particular concern for the Wirral is the level of support for social services. To what extent has his statement today made good the injustice that we feel about the level of support we receive from the Government compared with that received by comparable local authorities in the south-east?

I know that my right hon. Friend has taken a close personal interest in that matter, and especially in the Supporting People budget. Several representations have been made on that issue. I may be able to give him some reassurance, because his authority is looking at increases above the floor level, and it is also in receipt of neighbourhood renewal funds and allocations for Supporting People. I look forward to the response from his local authority when it has studied the details of the figures.

Given that the Chancellor's figures show that more than 7 per cent. extra will be collected in council tax this year, would not the Minister have been better advised to have listened to the strong representations from local government that it was not a good idea to ring-fence, in a separated grant, the amount of money for schools? Would it not be much easier for authorities to make their own decisions about priorities between schools and social services, which are the two main areas of spending? Is the Minister really saying that schools are always more important than social services? Is he saying that he thinks that councils can keep council tax down when they have their hands tied behind their back by requirements from the Government to spend certain sums in certain areas?

The right hon. Gentleman would have a point were it not for the fact that, as I announced in the statement, we now have a floor for education and social services functions for local authorities. That will be widely welcomed by local authorities across the country and across the political spectrum. I am sure that when the right hon. Gentleman studies the figures for his area, which show above-inflation increases and—by 2007–08—an average increase in formula grant over 10 years of some 5.2 per cent. in Wokingham and 5.1 per cent. in West Berkshire, he will feel able to welcome the announcement that we have made.

My hon. Friend has received many representations about area cost adjustment. What is his attitude to the geographical spread of area cost adjustment in the light of those representations?

The current area cost adjustment, which was introduced in 2003–04, is generally regarded as a considerable improvement on its predecessor, and I pay tribute to my predecessor for that. Of course, the ACA is a national funding formula and any changes to it must be nationally applicable. We have taken the opportunity of the review of the ACA to implement some minor updates, simplifications and improvements. However, I recognise the real concerns felt in different types of local authority areas, and I will look again at the geography of the ACA.

Banbury young homelessness project is quite likely to close as a result of the Government's severe cuts to the Supporting People programme in Oxfordshire: a cut of £2.5 million next year, £3.5 million the year after and over the next 15 years to £11 million in year 15—a cumulative cut of £106 million. The consultation paper that the Minister issued in no way mitigates those reductions in the Supporting People projects in Oxfordshire. Those are real cuts for vulnerable people—those with learning difficulties, the homeless and others—and the Minister does not seem to be listening to the united representations of all parties and MPs in Oxfordshire, including his colleague the right hon. Member for Oxford, East (Mr. Smith) and the hon. Member for Oxford, West and Abingdon (Dr. Harris). When the Minister considers the Supporting People budget, will he look again at his consultation paper to ensure that counties such as Oxfordshire do not suffer those severe cuts and that valuable projects such as the Banbury young homelessness project can continue?

I am of course aware of the strength of feeling and that an all-party delegation made representations on the issue. It is in part due to that that I very much wanted to be able to make guaranteed minimum allocations—and they are minimum allocations—for 2007–08, to ensure that counties such as the hon. Gentleman's could plan with some certainty. That is of course not the end of the story. The allocations of the 2007–08 Supporting People budget will, as I said in my statement, be subject to both the consultation currently taking place on the overall strategy and further announcements in the course of next year.

I welcome the extra measures that the Minister has announced to assist local authorities with the introduction of new free off-peak bus travel schemes from next April. I thank him for the sympathetic way in which he listened to those of us who lobbied him on the matter over the past few months. Will he assure the House that the measures he has announced today will ensure that no local authority will have either to increase council tax or to cut services in order to introduce the new system, and that no eligible traveller will pay more after its introduction than they do at present?

In the run-up to the settlement, there have been several representations from authorities across the country, including my hon. Friend's transport authority. The measures that I announced today reflect a change in the proposed formula for allocations, especially in areas where there is high usage by pensioners and disabled people. I am sure that my hon. Friend will recognise that the change has been made in response to representations from both sides of the House, and I look forward to pensioners benefiting from free bus travel in his area.

The Minister said that he was keen to look again at the geography of the area cost adjustment. Well, will he look at mine—because he also said that he wanted greater reliance on and greater scope for resource equalisation, which means that my constituents, for whom, in effect, no account is taken of the higher costs associated with Hampshire, are expected to pay for services not in the New Forest but, increasingly, in places such as Durham? That is behind their increasing unwillingness to pay up.

What is wrong with Durham?

I think the hon. Member for New Forest, West (Mr. Swayne) suspects that they are all poor up north.

In answer to the charge that has been made, the serious point is that resource equalisation is not the method by which the funding formula compensates authorities for the income, and relative income, of people in local authority areas. It is the measure in the formula whereby we take account of the type and spread of houses in the local authority area. When the hon. Gentleman gets the opportunity to look at the figures, he will see that in Hampshire there has been a 2 per cent. and 2.7 per cent. increase and that in his constituency of New Forest—

West.

East and West—it is all one council. There will be a 4.7 per cent. increase for the council in both years. I hope that the hon. Member for New Forest, West will issue a statement to his local paper welcoming the fairness of the settlement.

On the excellent free off-peak bus travel scheme for the over-60s and the disabled, my hon. Friend will realise that the Department's initial draft was not favourable to Carlisle. He has received representations from the chief executive, and I have had conversations with him. Can we take it from the statement today that the problems that we had with the draft have been sorted out and that the good people of Carlisle will all be able to enjoy that service free?

It is, of course, the Government's intention to ensure that that is exactly the case. It is in the nature of grant allocations using formulae that the proof of the pudding is in the eating. That is why I have made the announcement in the manner that I have today, so that all local authorities can join one another—particularly at district level in county schemes, as well as in strategic transport authorities—and the Government to ensure that we achieve what I hope we all want to achieve: free bus travel for pensioners and disabled people outside peak hours.

Can we take another run at the concessionary travel issue, because I am not sure that the House is clear about it? Can the Minister say whether any part of the cost of the Chancellor's pre-election promise of free concessionary travel for pensioners now falls on any council tax payer, or is that completely funded by additional grant?

The Chancellor has allocated £350 million, which is adequate to cover the costs of the concessionary scheme, as is recognised by all parties concerned. The hon. Gentleman is shaking his head, but the hon. Member for Cheadle (Mark Hunter) criticised me a moment ago with the allegation of centralising and taking powers. The hon. Gentleman can either have devolution or not. If he wants the concessionary fare system to work—I know that he does—I hope that he supports my attempt to implement that policy using the formula grant rather than a centralised grant, which is, of course, the alternative.

I welcome the increase in the resource allocation equalisation element, which is partly intended to ensure that local authorities such as mine that would suffer because of the lack of the revaluation will be compensated somehow, but I doubt very much whether it will fully compensate them. Will my hon. Friend ensure that the neighbourhood renewal fund is extended at least until the Lyons review is implemented? Will he also ensure that the cap on that fund comes off, so that authorities such as mine will get the full amount that they are entitled to under the formula, rather than the reduced amount that they get at the moment?

I thank my hon. Friend for his support. For the benefit of the House, I should say that the move towards full resource equalisation has been taken because it appeared to my right hon. Friends and me to be the sensible way to implement the new system, particularly given the announcement of the abolition of the formula spending share, which has been criticised by some local authorities.

My hon. Friend's authority—Wigan metropolitan borough, which is rated as an excellent authority by the independent Audit Commission—will receive grant increases of 2.3 per cent. next year and 3.8 per cent. the following year and neighbourhood renewal funds of £4.1 million for 2006–07. That fund is, of course, subject to a transitional relief scheme whereby, as areas become more prosperous under the scheme, the funding is tapered away.

The Minister's announcement of a two-year settlement is to be welcomed if it is a good one; of course, if it is a bad one, it merely prolongs the agony for a further year. In that connection, Gloucestershire's fire and police settlements look particularly challenging. In Gloucestershire, our fire service has already been regionalised and our police force is about to be merged. No doubt, that will be followed by the Crown Prosecution Service, the probation service and the youth offending service. Will the Minister give us an absolute assurance today that, if the savings from those mergers do not occur—in fact, if there is a cost—none of the costs of those mergers will accrue to the council tax payers of Gloucestershire?

The proposals on police authorities, which are under consultation, are driven by the policy of improving the effectiveness and efficiency of police authorities. However, I can reassure the hon. Gentleman, because the floor level announced for next year for the fire and rescue service of 1.5 per cent. must be viewed in conjunction with the generous approach that we have taken on the repayment of modernisation fund money. Additionally, new arrangements for fire and police authorities for paying pensions—the scheme for each is unfunded—have been devised in such a way as to benefit those authorities, so I expect that they will be widely welcomed. Before the hon. Gentleman draws his conclusions, I would ask him to read the small print, although I am not accusing him of not doing so.

I welcome the increase of 5.2 per cent. in grant formula for Luton council up to 2007 and the stability that the Minister is offering. I understand that this is the eighth consecutive year in which we have received an inflation or inflation-plus settlement for local authorities. However, is he aware that Liberal-Tory Luton council has already indicated that it will make swingeing cuts to social services on the basis of anticipated Government grant cuts, thus ending day care to the elderly and all but the most acute social services? Will he clarify that that is not necessary and investigate Liberal-Tory Luton, the financial mismanagement of which appears to be putting the most vulnerable in jeopardy?

I thank my hon. Friend for her contribution. Proposals that are put forward on the basis of formulae that have not been consulted on are not real proposals. I sometimes think that those who advocate opposition to the formulae on which there has been consultation are the same people who ask for more consultation. Perhaps in this area, if not in others, we are damned if we do and damned if we do not.

I can give my hon. Friend the reassurance for which she asks. The proposed net increase in the 2006–07 formula grant for Luton is 2.8 per cent. The figure is 5.2 per cent. for South Bedfordshire council and 2 per cent. for Bedfordshire council. In the following year, the figure for Luton will be 4.9 per cent., and it will be 4.6 per cent. and 2.7 per cent. for South Bedfordshire and Bedfordshire councils respectively.

I declare an interest as a member of Kettering borough council. Is the Minister aware of the special situation that faces Northamptonshire, given that it is the county that faces the highest proportionate increase in its population as a result of the Government's growth area agenda? Will he advise the House which—and whose—population projections have been used by the Registrar General? The brief look that I have had at the document that has been produced today suggests to me that the Registrar General is rather underestimating the population increase in the county.