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Population Growth (Local Government Finance)

Congratulations are due to the hon. Member for Hammersmith and Fulham (Mr. Hands) on securing this debate, and to the hon. Members for Peterborough (Mr. Jackson) and for Enfield, Southgate (Mr. Burrowes) on their interventions. The debate gives me the opportunity to put on the record the effect of population growth between censuses on the formula grant settlement. In the time available, I will try to outline our policy in as much detail as I can. Perhaps I should begin by providing some background to the way that we use population in the calculation of an authority’s formula grant settlement. The amount of formula grant paid to a local authority is largely based on its socio-economic and demographic characteristics, which are used in the relative needs formulae, and the number of band D equivalent properties within its area. We then ensure that every authority receives at least a minimum increase, which is known as ““the floor””, on a like-for-like basis—that is, after adjusting for changes in funding and function. In order to pay for that, we scale back the grant above the floor for other authorities. Population forms the main element in the relative needs formulae. Following our consultation with local authorities on the way to operate multi-year settlements, it was generally agreed that we use population projections to make settlements more forward-looking. The Office for National Statistics calculates and publishes the population statistics—both the estimates and the projections—that are used by the Department for Communities and Local Government in the formula grant settlement. We then use the population projections, which are split into different age groups if appropriate, as the client group for most of our relative needs formulae. The formulae are generally of the form, client group multiplied by a basic amount plus top-ups for deprivation and wage cost pressures, and other top-ups if appropriate. We use various socio-economic and demographic characteristics of the authority to calculate the top-ups, and it is within the calculation of those indications that we use the mid-year estimates. When we published the final settlement for 2006-07, for the first time we also published provisional formula grant allocations for all English local authorities for the second year, 2007-08. It is my strong policy to alter that provisional allocation only in exceptional circumstances. We have also announced two-year allocations for all specific grants to councils other than those that are performance-related or expenditure-based. That means that councils have much greater certainty for the next two years about some 95 per cent. of the funding that they are receiving and will receive from the Government. The overwhelming objective of the financial policy is to provide stability and predictability. Our goal is, first, to ensure that the three-year settlement is a three-year settlement from 2008 onwards, and not a two-year settlement with a guesstimate on the end, and secondly, to work towards a situation where the three-year rolling settlements for local government finance are in line with the Treasury’s three-year spending review period. At present they are out of sync. It is important to provide stability to local government. That will result in more planning on the income and expenditure side and a greater degree of certainty. I strongly believe that what are undermining council tax, in part, are the significant increases in council tax, and that they are made more likely by a lack of stability and the inability of local authorities to plan. That is the context of the policy. The London borough of Hammersmith and Fulham is concerned that perceived flaws in the formulae used in the local government finance settlement are threatening its ability to meet needs in the borough. It mentioned in particular, as the hon. Member for Hammersmith and Fulham eloquently did today, the influx of Polish migrants. The council wrote to me about that recently. In making local government finance settlements, we have used the best available data and data that treat all authorities on a consistent basis, which of course I have to do. I took that approach earlier in the year when making the calculations for the final 2006-07 settlement and the provisional 2007-08 settlement. For population projections, the best data that were available were the 2003-based sub-national population projections; for population estimates, the best data that were available were for mid-2004. I recognise that the mid-2005 estimates, which were published by the ONS on 24 August 2006, will show differences from the data that we have used. However, use of population projections was part of the introduction to multi-year settlements, which were generally welcomed by local authorities. In the main, it is felt that the benefits of predictability and stability that multi-year settlements bring outweigh the benefits of updating the data on a more frequent basis. Indeed, in its response to the consultation on three-year settlements, Hammersmith and Fulham borough council supported the use of forward-looking data in the settlement. The hon. Gentleman asked about a comparison between the non-UK national insurance number registrations and the inward migration data from the international passenger survey, which is used in the mid-year population estimates. He should be aware that comparisons between those data sets should be viewed with caution, as there are differences in the data collected. For example, the national insurance numbers cannot distinguish the length of stay of the applicant, so they will include people who may stay in the UK for only a short period. The population estimates and projections use the United Nations recommended definition of an international long-term migrant to measure international migration—that is, someone who enters, or leaves, the UK for a period of at least a year. Short-term migrants—those who spend three to 12 months in a country for certain purposes—are not included. Similarly, visitors staying less than three months are excluded. I know that the hon. Gentleman is aware of the ONS project to improve migration and population statistics, or IMPS. The ONS has information on its website.