Cornwall (Government Funding)

(Limited Text - Ministerial Extracts only)

Tuesday 18th December 2012 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I am grateful for the opportunity to speak again under your chairmanship, Mr Gray, and to discuss the issues raised by my hon. Friend the Member for North Cornwall (Dan Rogerson). I congratulate him on securing this debate. He has been a vociferous campaigner for all things Cornish—the Cornish economy, the Cornish language and, more recently, the Cornish pasty. I am pleased to discuss Government funding for Cornwall today.

I will turn specifically to funding in my hon. Friend’s region shortly, but first I should like to talk more generally about the way in which Government funding is allocated throughout the UK, and to describe the changes we are making to encourage growth at national and regional levels. The 2010 spending review set out how the Government would carry out the UK’s deficit reduction plan over four years, and included fixed departmental budgets. We protected spending on the NHS, schools, and overseas aid, and we chose to prioritise fairness and social mobility, to focus on spending that promotes long-term economic growth, to reform public services, to shift power away from central Government to local level, and to improve value for money.

Some of those decisions at national level will have a significant impact in Cornwall. Having enjoyed a splendid holiday in my hon. Friend’s constituency a couple of years ago, I know that tourism is of considerable importance to Cornwall, although he is right to point out that its economy is much more than merely tourism; it is more diverse than that. We invested in the “Great” campaign, which was launched to deliver long-term trade and tourism benefits throughout Great Britain, and I am sure that Cornwall will benefit significantly from that.

The most important decisions for Cornwall have been those on local authority expenditure in the region—a point that my hon. Friend raised. Local authority expenditure is split between grants from central Departments, which are set in the spending review, and localised expenditure, which is largely funded by council tax. I am sure my hon. Friend will be pleased to note that during the current settlement period, Cornwall’s reductions in spending power have been smaller than the average in England. Spending power in the county fell by minus 3.3% in 2011-12 and minus 2.9% in 2012-13, compared with an average of minus 4.5% and then minus 3.3% for councils in England. I want to turn to the point my hon. Friend raised about the damping mechanism.

[Dan Rogerson]

I did not use all the time I might have done, so I hope that we can continue our discussion a little further. The problem for some areas such as Cornwall is that historically the council was run by independents who took a firm view on keeping the old rates down, so historically the area has low council tax, compared with counties such as Surrey. The Government are seeking to limit the impact of council tax rises—they have extended proposals for that through the Department for Communities and Local Government—but our base is already low, so there is an impact from that as well as the central grant.

[Mr Gauke]

My hon. Friend raises a fair point, and has put it on the record. I recognise that councils that have, over many years, shown greater determination to control their costs have less fat that can be cut than other authorities where that has not been the case.

On the damping mechanism, it is right that the Government must balance the interests of places with growing and declining needs, and Cornwall is an area with growing needs. Damping has been used to avoid steep jumps in council tax and demands on areas with declining needs. DCLG has consulted on a new funding system from 2013, and the Government have indicated that we want to move away from damping. My hon. Friend referred to rurality, and asked whether that is taken sufficiently into account. Again, DCLG has consulted on changes to the formula, and he will be aware that it will publish the draft local government finance settlement for 2013-14 for consultation shortly. It will set out funding amounts for each authority, and I am sure that my hon. Friend will be interested to read it. It will shed some new light on damping. I hope that he finds that helpful.

The formula exists for a reason—to strike a balance between the needs of areas with growing and declining populations—and it seeks to make an assessment that strikes that balance. We will say more about that shortly.

[Dan Rogerson]

Another area that the National Audit Office highlighted in its report on academy schools, particularly the early academies that were set up under the previous Government, is the generous settlement they were given, perhaps to encourage people to take a new step. However, as the number of academies has risen, there is an issue with that funding, which is perhaps over-generous compared with that for maintained schools. The report acknowledges that gap and the need for convergence, and the Minister’s ministerial colleague, Lord Hill, talked to us about that. The issue is the direction of travel, because the damping effect will be difficult to achieve.

[Mr Gauke]

All I would say about that is that the Department for Education is also looking at the school funding formula in the light of some of those issues, and I am sure that Education Ministers will respond in due course.

Until now, the main local authority grant from central Departments has been a formula grant distributed by DCLG through local government finance settlements. In line with our priority of encouraging growth, from April 2013, we will replace the current fairly complex formula grant regime with a business rates retention scheme to help provide a stronger local growth incentive. Councils that succeed in growing their local economy will have a direct boost to their coffers. Quite simply, the rationale behind the change is that we want to give individual councils, including those in Cornwall, every opportunity to promote growth. We want them to use their influence in planning, their investment in skills and infrastructure, and their relationship with local businesses to create the right conditions for local economic growth. This year’s local government finance settlement from April 2013 will be the first under the new arrangements.

The new scheme incorporates strong protections as well as incentives. There will be a safety net for places that, in any year, see their income from business rates fall by more than 7.5% below their baseline funding level. Following consultation, we have strengthened the incentive by ensuring that the maximum levy will be capped at 50p in the pound. That will mean that at least 25p in every pound of growth will be retained locally, and shared between billing authorities and any major precepting authorities. Recent economic analysis, carried out by DCLG, suggests that the proposals could deliver a £10 billion boost to gross domestic product by 2020. Obviously, that figure covers the whole UK, but the change will, I am sure, mean real benefit in Cornwall.

Having set out how the system works and the improvements that we are making, I shall quickly discuss the measures announced in this year’s autumn statement. Then I shall deal specifically with Cornwall. The autumn statement from my right hon. Friend the Chancellor of the Exchequer contained measures to do three things: first, to protect the economy; secondly, to promote growth; and thirdly, to ensure fairness. As part of that statement, we have had to ask all areas of Government, including local authorities, to go further. For most areas of Government, that means an additional top-slice of 1% in 2013-14 and 2% in 2014-15. However, recognising that local authorities are already receiving a funding reduction from holding down council tax in 2013-14, and to support them in transforming services to meet future reductions, we took the decision to exempt local government from the top-slice in 2013-14.

However, looking towards long-term economic stability, we needed to be wary. Local government spending accounts for about one quarter of all public expenditure, so we have asked local government to join other Departments in absorbing the 2% cut to departmental expenditure limit grants in 2014-15—that is £447 million—and prepare for further reductions. The savings made thus far on administration, property costs and IT services across Whitehall have proven that significant savings can be found, and those savings will have a significant impact for the whole UK, because it was through them that we were able to announce a number of measures that will have positive impacts across the UK, including in Cornwall.

[Dan Rogerson]

I am grateful to the Minister for setting out the approach that the Treasury is taking in negotiation with other Departments. He is right to point out that local government is doing all that it can to achieve the targets, which are quite challenging. He refers to the potential reduction in future years of 2%. In line with the concept of fairness, which is at the heart of what the coalition is trying to do across income levels, is the geographical issue also being considered, so that those local authorities that have been more disadvantaged, as he acknowledged earlier, might feel slightly less of that pain than those that have been over-funded historically?

[Mr Gauke]

Again, I am inclined to refer my hon. Friend to the DCLG announcement to be made very shortly on the local government formula, and the consultation that will follow. I have no doubt that he will look closely at that. I do not think that he will have too long to wait before he has the opportunity to do so.

It is worth pointing out that the difficult decisions that we have made enable us to take a number of steps that will benefit the country as a whole, including Cornwall and the rest of the south-west. For example, the further increase in the personal allowance will benefit 2.1 million people in the south-west, lifting an additional 20,000 people out of income tax entirely; and 1.2 million pensioners will benefit from an additional £2.70 a week increase in the state pension. The significant temporary increase in the annual investment allowance from £25,000 to £250,000 will help businesses across the south-west.

We announced £300 million of additional investment in empty homes and affordable homes across England. I know that housing is an important issue in Cornwall, and my hon. Friend has raised it. That announcement is in addition to more than £150 million of planned investment to build more than 9,000 new affordable homes in the south-west and return about 500 empty homes to use across the south and south-west.

We will invest further in flood defences—another point raised by my hon. Friend—and, significantly for households and businesses in Cornwall, we are cancelling the fuel duty rise planned for January 2013. That will help the owners of the 3.5 million motor vehicles in the south-west, saving a typical driver £40 a year and a haulier £1,200 a year. However, as my hon. Friend mentioned, that is not the only good news for motorists in and around his constituency. The autumn statement announced a number of key infrastructure projects, one of which involves the £30 million that we will contribute towards a 2.6 mile dualling of the single carriageway section of the A30 between Temple and Higher Carblake, which will include changes to junctions.

[Dan Rogerson]

I am grateful to the Minister for giving way again. He is being extremely generous, as was the Treasury with the project that he describes, although I have to acknowledge that half the costs will be funded locally, through local authorities. That is an excellent example of what he was talking about earlier: £30 million is coming from central Government and £30 million from local government. He also raised the issue of fuel duty. Again, I welcome the Government’s decision on that. I understand that they are also having discussions with the European Union in relation to what it has done for islands, such as the Isles of Scilly in the constituency of my hon. Friend the Member for St Ives (Andrew George), and whether rural parts of mainland Britain could also benefit from a further reduction—

[Dan Rogerson]

A 5p reduction. That would have a huge impact, particularly on small businesses in my constituency. I urge the Minister to redouble his efforts to secure that.

[Mr Gauke]

My hon. Friend is right to say that we are having further discussions with the European Commission about that. Obviously, we will update the House as soon as we are able to do so. However, I do not want to leave the A30 just yet—not a comment that people often make. The scheme to which I referred, and for which I know my hon. Friend has campaigned long and hard, will relieve congestion and improve journey times. It will also attract business growth and inward investment to Cornwall by improving links to the rest of England. The Government welcome the commitment from Cornwall council, to which my hon. Friend alluded, to deliver and part-fund the scheme on behalf of the Secretary of State. Its drive in taking the scheme forward demonstrates how much of a priority it is to the council and to Cornwall generally. Work on the scheme is set to start in 2014-15, subject to the completion of planning processes and funding agreements, and the road is due to be open to traffic in 2016. I am sure that it will bring real benefits to the area.

My hon. Friend may feel that my contribution took a long time to reach Cornwall, and I am sure that is a feeling that many motorists will at times sympathise with. However, it is important for us to look at the national context of spending and the impacts that decisions made at that level will have in each region. I hope that my comments have been useful in laying out the Government’s position.

[Andrew George]

I know that my hon. Friend the Member for North Cornwall (Dan Rogerson) raised, while I was still in Committee, the issue of health funding and the principle of parity. Cornwall has received more than £200 million less over a six-year period than the Government themselves have said it should receive—than its target funding. I know that the Minister has deferred to each Department when he has answered questions on these issues, but as for his opinion, does he think that such a distance between what is allocated and what the Government say that a local area should get is acceptable?

[Mr Gauke]

Of course, as a Government, we are committed to ensuring that there is a fair funding system. As a constituency MP, representing a Hertfordshire seat, I know that often one can look at particular areas, including health funding, where there are disparities between what one might expect—what one might see as the right amount for one’s area—and the national average, and that can be deeply frustrating for Members for Parliament and for our constituents. My hon. Friend the Member for St Ives (Andrew George) makes the case well for Cornwall. Of course, as a Government, through all Departments, including the Treasury, we will look at what we can do to ensure that we have a funding system that is fair.

I am conscious of the time, so I will conclude. I congratulate my hon. Friend the Member for North Cornwall on securing the debate, on his work in relation to the A30, and on raising the points that he has raised today. Of course, as a Government, we want to ensure that we have a fair funding formula, whether that be for health, education or local government. That is something that we recognise across Government, including in the Treasury. On the specific issue of damping that my hon. Friend raised, I think that more information will be available to him very shortly.