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Lord Boardman: My Lords, I made the point that, on average, superficially they would appear to be about right. But one has to take into account the fact that special circumstances apply to these counties. In Northamptonshire the growth in the numbers at school has been much greater. I showed that the differences which apply there are very significant.

Viscount Ullswater: My Lords, I intended to come onto that point in a few minutes.

The noble Lord, Lord Varley, referred to the increases in standard spending assessments for the East Midlands over a number of years. It is misleading, I believe, to compare rates of increase. Standing spending assessments do not work simply by deciding how much increase to allow from one year to the next. They are based on objective methodology and objective indicators. If the data for indicators used in the standard spending assessments show a more rapid increase in one area than those in another, there will be, quite properly, a difference in the rate of growth of the areas' SSAs. For instance, we were able to reflect the results of the 1991 census in the standard spending assessments for 1994-95. If the methodology is changed from one year to the next, some areas will have greater increases in standard spending assessments than others.

The noble Lord, Lord Williams, suggested that there was a need for another review of SSAs. There was a review in 1993, as the noble Lord will recognise. He asked that there should be no obscurity in the development of SSAs. The SSAs are developed in full and open consultation with the local authority associations. All the information on which they are based is shared with the associations. It is an entirely open system. It is not hidden in any way. There were many changes following the review in 1994 and many fewer this year. The system of standard spending assessments is an open one. We discuss at great length with the local authority associations possible changes which might improve the SSAs. We share with them the objective evidence for the formula which has been adopted. We openly acknowledge those instances in which the formula has to draw, to some extent, on judgment.

For 1995-96, we propose a measure of stability in the SSAs. This follows a year in which we reviewed the methodology for most of the standard spending assessments and made a considerable number of changes. But we remain willing to consider further changes if they are well founded. The formula we adopt

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is a common formula for all authorities which provide the same services. There is completely even-handed treatment of authorities. The reason some authorities have a larger standard spending assessment than others is the difference in the characteristics in their area and the people in it and their differing responsibilities for the services.

The noble Lord, Lord Boardman, drew attention to the problems of education in Northamptonshire. I agree that the authorities have a duty to provide education for the years of compulsory schooling. But authorities have discretion as to their use of the revenue support grant for particular services. Authorities have to decide for themselves the priority to attach to the education service and have discretion in deciding the level of spending on primary, secondary and other education.

Whatever formula is proposed it is the subject of debate. The noble Lord, Lord Varley, referred to one component of the formula which is particularly significant for the standard spending assessment in the south-east of England. In this area the standing spending assessments are increased by what is known as an "area cost adjustment". I do not believe that in the debate tonight the area cost adjustment had a friend. It reflects the mainly higher rates of pay in that region among those occupations with which local authorities are likely to have to compete in recruiting and retaining staff. The noble Lord, Lord Williams, indicated that that may be flawed. It is something, I know, which arouses considerable passion. Those in the area in which it applies are very often convinced that it ignores elements of extra cost which they regard as important such as the higher rents for offices in London and the south-east.

My noble friend Lord Kimball was fervently convinced that the area cost adjustment is already over generous and should be reduced considerably. I believe that all noble Lords who have spoken subscribe to that view. It is a point of view which the Association of County Councils has been researching. My honourable friend the Minister for Local Government, Housing and Urban Regeneration, met the association in September to discuss its concerns. He agreed that we would look further at ways in which the area cost adjustment might be refined in future years. I understand that the association is seeking to develop its case for a change.

The noble Lord, Lord Varley, would, I am sure, be interested to know that for the year 1995-96, on a like-for-like basis, the area cost adjustment is a slightly lesser share of the total SSA at 4 per cent. compared with 4.1 per cent. in 1994-95. The right reverend Prelate the Bishop of Lincoln addressed the specific cost approach to area cost adjustment. The Association of County Councils would prefer a specific cost approach. The association discussed the matter with my honourable friend the Minister for local government. The association is developing its proposals further and my honourable friend has said that he will consider the association's proposals when it has been able to develop its methodologies. I hope that your Lordships will understand that the Government and my department have not closed their ears to the development of the area cost adjustment. If we see that there is a reason for it to be changed there is no reason for it not to be considered.

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Nevertheless, I believe that we must keep a sense of perspective. It is true that the average standard spending assessment of authorities in the south-east is higher than that of counties in the East Midlands. But the difference is not great. The average for shire authorities in the south-east is £726.45 and the average for those in the East Midlands, as I originally said, is £718.36--not a great deal of difference. Nonetheless, I can assure the noble Lord, Lord Varley, that there is, in my view, no possibility that this issue will fall from our attention.

The noble Baroness, Lady Hamwee--unusually in the debate --complained more about the overall settlement than perhaps the East Midlands grant itself. The speech of the noble Baroness went rather wider than the Question on the Order Paper. I can answer at least two of her questions. She was worried about the Isle of Wight fire service. I am glad to be able to tell her that the anxieties of the Isle of Wight about its fire service have been recognised. The part of its SSA for the fire service has been increased substantially for 1995-96, recognising the difficulty it has in sharing any of its service with its neighbours.

Baroness Hamwee: My Lords, perhaps the noble Viscount will agree that the fact that this is an issue which has been recognised and had particular attention this year indicates how complex the system is and the flaws which need to be addressed. When I say that it is recognised for this year, I am of course referring to the fact that the issue is recognised for the forthcoming year. The flaws have been highlighted by the problems which have been experienced this year.

Viscount Ullswater: My Lords, I did indicate that there were some small adjustments to the SSA for this year. One of them is for the fire service of a coastal district which, as I indicated, has difficulty in sharing some of its services because there is the coast on one side.

There is provision for the cost of local government reorganisation in 1995-96 at £50 million. The cost of the reorganisation is relatively modest set against the total standard spending which is £43.5 billion for next year. The noble Baroness also commented on capital control. I believe that the system which we now have gives authorities a good deal of flexibility both in how to fund capital projects and how to set their own priorities. But local authority borrowing is part of public sector borrowing and it must make a contribution to achieving a sound and prudent control of public expenditure.

In conclusion, the East Midlands is by no means ill-favoured in the allocation of standard spending assessment. The average of its standard spending assessment stands in the middle ranks of the regions, as I hope I have been able to demonstrate, and just above the national average for the shires. It has its position through the application of an objective formula built up in discussion with the local authority associations. In short, I believe that it is getting its proper due--no more and no less.

        House adjourned at twelve minutes before nine o'clock.

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