Goldsworthy quizzes Healey on Local Government Finance

• ' . . COUNCIL tax payers may be in for a nasty shock.'

[Nov 26]: Julia Goldsworthy (Shadow Secretary of State for Communities and Local Government, Department for Communities and Local Government; Falmouth & Camborne, Liberal Democrat): May I thank the Minister for advance sight of the statement? Much of it is as we expected, not least because this is year two of the three-year settlement announced last year, but council tax payers may be in for a nasty shock.

A year ago, the Minister hailed the settlement as delivering real-terms increases, but councils knew that it was very tight. Inflation, which stands at more than 4 per cent., has made things even tighter. Will the Minister come clean about the fact that any real-terms increases have disappeared and that many councils will be facing real-terms funding cuts as a result of this year's settlement? Is it not correct that that will mean either council tax increases or cuts in services for local council tax payers?

Robert Neill highlighted the fact that the PBR figures are based on an assumption of council tax increases of 4.5 per cent. Since council tax is paid from household income net of income tax, such an increase will hit people hard in their pockets-although the hon. Gentleman did not say what the Conservatives would do as an alternative. Does not that go against everything that the Chancellor claimed that he was trying to achieve in his PBR on Monday?

If the Government were serious about delivering tax changes that would make a real difference to disposable income, we should have expected some significant changes to how local government is funded, as well as a fundamental rebalancing of the income tax system. Instead, value added tax is to be tweaked now, and there have been promises of tax increases in the future. That is combined with a local government finance settlement based on assumptions that are a world away from the tumult that we have seen since the Minister's statement last year.

The great uncertainty already faced by many councils will have been added to by their exposure to the collapse of Icelandic banks. I welcome the announcement that the Minister made on that issue-in the nick of time, as councils begin the process of finalising their budgets. However, will he clarify whether this is a one-year reprieve, or will he be giving councils the power to capitalise, so that they can spread any losses over a number of years rather than having to deal with the problem in one hit?

On population, the Minister last year announced a review of migration statistics: will he update the House on that, as there are no details in today's statement? On efficiency, councils will need to make savings, and they have demonstrated already that they have a better track record than the Government. However, will the Minister explain why he is expecting local councils to achieve a 50 per cent. increase in efficiency next year, when we expect the country to be in recession, while at the same time the Government are indulging in a splurge worth £15 billion and families will be queuing out of the door for housing help?

Today's statement is a tacit admission that councils will be facing cuts and further increases in council tax. If the PBR was intended to tempt shoppers into spending before Christmas, this settlement will leave council tax payers with a stonking new year hangover.

John Healey (Minister of State (Local Government), Department for Communities and Local Government; Wentworth, Labour): The hon. Lady is right that councils have a good track record in making efficiency savings, especially over the past three or four years of the previous spending review period. For this current year, they are being allowed to carry over about £1 billion of those savings, and that is the right thing to do. However, as I said in my statement, we are expecting at least the same level of efficiency from local government that we expect from all parts of national Government and the public sector.

On migration statistics, the hon. Lady may know that the national statistician is leading a task force drawn from senior people in all Departments and local government. The task force is looking to improve the use of administrative data so as to render migration and population statistics more accurate. It also wants to improve projections and to find a better way to track people who enter, leave and move around our country. That will provide a better basis for making policy and funding decisions across a number of areas of Government in the future.

The hon. Lady also asked about the effect of the settlement on councils with deposits in Iceland. In practice, it means that they will not need to account for any impairment in their budgets until the year 2010-11. By that time, they should be clear-or certainly clearer-about the level of loss that they have to provide for.

Finally, the hon. Lady is right that this is a "steady as she goes" financial settlement. She said that there were no surprises but, given that this is the second year of a three-year settlement, that should be no surprise to the House. She upbraided me for not coming up with alternatives, but her only alternative to the funding pressures that all parts of the public sector, especially local government, inevitably face at this time is the removal of the council tax and the introduction of a local income tax. That would place enormous pressure on working families and local businesses at the very time in this economic downturn when they could least afford it.