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Baroness Blatch: My Lords, I am grateful to the Minister for giving way. A question arises from what the noble Baroness said. What is the legal authority for the purchasing company to continue its work to recover the debt some years into the future of those who take out loans under the present system if that legal authority is removed by the repeal of this Bill in the next few weeks?

Baroness Blackstone: My Lords, this Bill will not repeal the role of the Student Loans Company in continuing to collect debt under the existing scheme. However, perhaps I may seek to clarify it further in writing for the noble Baroness.

I have tried to answer as many questions as I have been able in the time available to me. I have gone beyond my time. This Bill is a straightforward measure. It is about carrying forward the previous Government's

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policy to meet our key manifesto commitment to stick to the already announced spending plans. The receipts from the debt sale will ensure that we achieve this. Education is our key priority. The Bill will extend opportunities and ensure that we continue to make high quality provision, as was the policy of the previous Government. I look forward to the Opposition's support of the Bill at this and further debates in the House. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

Local Government Financial Settlement

5.8 p.m.

Baroness Farrington of Ribbleton: My Lords, with the leave of the House, I should now like to repeat a Statement which my right honourable friend the Deputy Prime Minister has made in another place about the local authority revenue finance settlement for England for 1998/99. The Statement is as follows:

    "As you know, Madam Speaker, the Secretary of State comes before the House at about this time each year to make a statement about local authority finance for the following financial year. There will follow a period of consultation with local authorities and others and I will then bring a report to the House which, when approved, will finalise the arrangements.

    "My Statement today is important to local authorities since it gives them firm information on which to make progress in setting their budgets.

    "This Statement concerns England. My right honourable friend the Secretary of State for Wales will be making an announcement today and my right honourable friend the Secretary of State for Scotland will make an announcement very shortly.

    "As this is the first such Statement of the new Parliament, I hope that it will be helpful if I put today's Statement into a wider context. We were elected on a manifesto which pledged us to a renewal of local government. We aim to achieve: re-invigoration of local democracy; a commitment to best value; a prospect of greater fairness and; increased local discretion allied to greater local accountability. We have made good progress so far, though we have still some way to go.

    "We have set up a new central local partnership to help local and central government work in harmony. We have signed the Charter of Local Self Government which the previous Administration refused to sign. We have taken legislation to provide for the release of some £800 million in additional capital expenditure in England under our capital receipts initiative. This money will help the unemployed; build and refurbish homes for those in need; and support our wider New Deal objectives. We have put local authority public private partnerships on a clearer footing. We are supporting the Bill of the noble Lord, Lord Hunt, on local authority innovation.

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    "We are discussing with the Local Government Association ways of renewing local democracy. We are decentralising decision making to the local level. We have introduced a Bill to give London a voice once again. Tomorrow we will publish our White Paper on regional development agencies, setting out how we will work with local government and others to revive the regions of England. And we will very shortly announce the pilot local authorities for our "best value programme". Finally we have started, in co-operation with the Local Government Association, a review of the system of local government finance.

    "Each of those items is important in its own right. Taken together, they demonstrate that we really mean it when we talk about a new relationship and partnership with local government. All this in just seven months of government. But our full progress will be judged not in seven months but over a full five years of a Labour government.

    "We will be issuing consultation papers starting later this year and, following consultation, a White Paper in the late spring. This new relationship follows many years when the previous government did not listen to local authorities and squeezed their expenditure year after year after year. Despite all this, local government has survived that period, I am glad to say. My aim is to build a strong partnership between central and local government to the advantage of our citizens and our communities.

    "The first important element of the local authority settlement is my proposals for the Government's provision for spending by local authorities. In forming my proposals, I have of course considered the pressures which local authorities will face in the coming year--which are considerable--and I have listened carefully to the views of the Local Government Association. In line with these views, we have chosen in this settlement to concentrate on the policy priorities, which we set out in our manifesto and which were endorsed by the electorate--above all, education.

    "We were elected on a pledge to stick to the previous government's public expenditure totals for 1998/99. Nevertheless, my right honourable friend the Chancellor of the Exchequer announced in his Budget on 2nd July that by careful consideration of the priorities for public expenditure we had been able to make available an extra £835 million for revenue expenditure in English schools in 1998/99. I can confirm today that we will provide an extra £835 million of revenue support grant for our schools. This means that none of the cost of this extra schools spending will fall on the council tax payer.

    "We are also providing £662 million for local authorities for the education of four year-olds, following the abolition of nursery vouchers. I also propose to provide up to £130 million for the transitional costs of local government reorganisation, such as for the unitary authorities. We have also taken into account smaller changes which will take place in local government functions. Taken together, these factors mean that the Government's view is that the

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    appropriate level of total standard spending (TSS) for local authorities in England in 1998/99 will be £48.2 billion.

    "My right honourable friend the Secretary of State for Health will today be making a separate announcement on resources for community care. My right honourable friend the Home Secretary will today be making a separate announcement on resources for the police. Both are included in the figure I have just quoted. This £48.2 billion provides for an increase of £1.78 billion (or 3.8 per cent.) in local authority spending year on year. That is expected to be 1 per cent. above inflation, therefore allowing an increase in real terms, to reflect our key policy priorities.

    "Education is the top priority for this Government and the nation. Raising standards in schools is not only a benefit to children. It is an investment in our country's future. Altogether we have made extra provision of £1.06 billion, or 5.7 per cent., to go into English schools in 1998/99. It can and should be spent in the classroom, reversing the years of neglect. This meets the pressures identified by the Local Government Association and enables a start to be made on raising educational standards, which we all are determined to see. That is a big step.

    "Community care is another important area in which local authorities are facing up to the difficulties involved. Local authorities provide a vital service by looking after elderly and disabled citizens. We have maintained previous plans to make resources available in this area. We expect to see a reduction in the net costs of financing outstanding debt. So we have been able to make a larger than average increase in provision for some services, including a further £70 million for children's social services--the first substantial increase for three years. Fire services provide an essential and much appreciated service to the community. So I am pleased to announce that we have increased provision for the fire service by 4.8 per cent., within an overall increase for other services of 1.4 per cent. These other services include highways, libraries and the Probation Service.

    "Now I want to turn to how much assistance local authorities will get from the business rates and the national tax payer which together give a total of £37.51 billion. That includes the £835 million extra to ensure that the cost of our extra provision for schools does not fall on council tax payers. It also includes £20 million extra to make possible the development of £200 million worth of local authority private finance projects. The business rate will be increased to 47.4 pence in the pound, as provided by the legislation, following the 3.6 per cent. increase in the September retail prices index. This means that we can distribute £12.52 billion of business rates to local authorities in 1998/99. I am today publishing the detailed basis for that distribution to local authorities.

    "I propose that the revenue support grant should be £19.5 billion. In addition, some £5.49 billion of specific and special grants will be available. The total of revenue support grant for England on which I am consulting may need to be altered slightly as a result

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    of consultation. The total may be increased, if it appears that less provision is needed for the transitional costs of local government reorganisation.

    "I turn now, to the means of distributing revenue support grant. At its heart is the standard spending assessment for each authority. An authority's SSA is its share of the total provision for all authorities, taking account of its local circumstances. It is not a spending target.

    "We were elected on a pledge to remove the unfairnesses which have dogged standard spending assessments since they were first introduced. We have discussed with local government during the summer a wide range of ideas for improving fairness. I am today announcing changes which are well founded in research evidence which respond to long-standing concerns of many local authorities and which remove the more blatant cases of unfairness.

    "I first propose a new basis for assessing spending needs for the education of under-fives. The nursery voucher scheme was a wasteful and bureaucratic paper chase. The money released by its abolition will assist in our programme to make universal provision for 4 to 5 year-olds. The new distribution will recognise the number of pupils for whom local authorities currently provide. Authorities which need to expand their nursery education, and put forward sound plans for doing so, will be able to get an additional grant from the Department for Education and Employment. This is just one element of the national childcare strategy, of which after school clubs form another part.

    "Secondly, I propose to tackle a piece of nonsense in the present formula. Currently some authorities have an incredible ranking on the measures of neediness. It is hard to believe that leafy Kingston upon Thames is as needy as beleaguered Barnsley. We have carried out with the Local Government Association a very thorough re-examination. We have at last applied explicit principles to these calculations. I believe the new measures of neediness which we are proposing are a clear improvement on what went before.

    "Thirdly, I propose a new basis for the allocations for elderly residential social services. The formula has had a thorough overhaul using research commissioned by the Department of Health from the University of Kent. For the first time, it takes proper account of the changes in social services in the past five years following the introduction of community care.

    "Fourthly, I propose a new treatment of debt incurred by local authorities before the current system was established in 1990. During the 1980s local authorities had a choice. They could either use capital receipts to pay off debt or they could use them to finance new capital expenditure. But in 1990 the previous government decided to penalise those who had chosen new capital expenditure during the previous decade. They treated everyone as if they had chosen to repay debt, whether they had done so or

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    not. I am proposing to put right that wrong. I propose that we should reflect in the standard spending assessment each authority's actual debt as at 1990, if that improves its position.

    "Finally, I have given priority to tackling the great unfairness whereby visitors and commuters were assumed to have the same economic and social characteristics as the residents of the authority they were visiting. This was an anomaly exposed time after time in this House. The previous government's formula treated people staying in the Ritz in London as if they were as deprived as the average local resident. Even the research on this commissioned by the central London authorities themselves, which were the greatest beneficiaries, did not recommend keeping the existing approach. So from next year we will get rid of this glaring injustice. We shall take account of visitors and commuters; but only fair account.

    "I will mention only one of the many other proposals for changes which were pressed on me but which I have not taken up. It concerns the area cost adjustment. That is the means by which higher employment costs, particularly in London and the south east, are recognised in standard spending assessments. I do not believe the evidence is yet sufficiently clear enough to warrant a change this year. However, I am commissioning further research to see whether there is a sound basis upon which to consider changes for this time next year.

    "The changes which I have outlined, with some smaller technical changes, are a big step towards making the grant system fairer, as we promised. These changes would have a large impact on council tax levels in some authorities, if the authorities do not adjust their spending accordingly. I accept that authorities and their council tax payers may need a period in which to adjust to these changes. So I propose to phase in changes in the way that standard spending assessments are calculated.

    "I propose that "damping" or "phasing-in" of the larger corrections we have introduced should be limited to the equivalent of half the SSA reduction. This strikes a reasonable balance between the need for time to adjust and the need to get more fairness into the system. There will again be separate "phasing-in" schemes for police and non-police authorities.

    "I also propose to repeat this year's scheme to phase in those council tax increases which are directly due to reorganisation. The scheme would "damp" such council tax increases which are above a threshold of £52 a year at band D, for authorities which are subject to reorganisation from April 1998. It would also provide continued damping for authorities reorganised in earlier years where they exceed a threshold of £104 a year at band D.

    "Let me now turn to council taxes. We are examining in the local government finance review ways in which the fairness of the council tax might be improved. I do not propose to make any changes ahead of the results of that review. I expect that for

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    the foreseeable future the council tax will remain the prime means by which local residents contribute to the cost of local services.

    "Each year the Government identify a notional tax level for each valuation band. This is known as the council tax for standard spending. We do this to calculate a distribution of grants which would enable all authorities to provide a standard level of service for a similar council tax level, for a similarly valued property, whatever the differences in needs and resources. My proposals set this figure at £635 for a band D property. That reflects the previous government's plans to increase council tax by 7 per cent. This increase was built into the previous Administration's spending plans. That is not a prediction of the average level of council tax nor of the band D bills for individual authorities.

    "The actual council taxes in individual authorities will vary considerably depending on their own spending decisions; their financing decisions; their collection performance; and their efficiency. No Secretary of State could predict those factors with a high degree of accuracy for individual authorities.

    "This pressure on council tax is inherent in the public expenditure totals set by the previous government. We have sought to relieve pressures by a number of means, in particular by fully funding the £835 million extra for education. This extra funding for schools is worth £50 a year to the typical tax payer. But, as I made clear earlier, local authorities must give full weight to the burden on their tax payers when they come to set their budgets.

    "We remain committed to the ending of crude and universal capping. But in the light of our public expenditure plans, as both the Chancellor and I made clear to the Local Government Association conference in July, capping will remain in place for 1998/99. We have provided extra money for schools. We cannot risk that being undermined by unplanned increases in spending.

    "I am today announcing my provisional capping principles for 1998/99. I am also issuing proposals for the calculation of notional amounts for those authorities whose boundaries or functions will change from 1st April 1998. These include reorganised authorities and local education authorities affected by the abolition of the nursery voucher scheme. The notional amount is the base level from which I will measure the increase in budget in determining whether that increase is excessive. My provisional capping principles themselves make allowance for expenditure on community care which is being met in 1997/98 by the special transitional grant; and changing funding arrangements for the National Criminal Intelligence Service. Those adjustments are necessary to make a fair year-on-year comparison of budgets.

    "I am making a number of changes to provisional capping principles this year. These will give local authorities more room to exercise local discretion and will help them to direct the additional provision for education to the schools for which it is intended.

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    "Subject to the allowances I have already mentioned and other technical adjustments affecting individual authorities my proposals for capping are as follows. As in previous years, authorities whose base budgets are more than 12½ per cent. above their standard spending assessment will not be permitted any increase over their 1997/98 base budget. Nor will any other authority be allowed an increase which would take it beyond 12½ per cent. above its SSA. However, I propose to allow each class of authority to increase its base budget more than in recent years. That will be helped by changes to so-called "passporting" about which I shall tell the House. Let me just explain this term "passporting". In the past, the Government recognised increased spending needs on a particular service, but prevented councils from spending that money--through the capping system. That was a ridiculous situation. "Passporting" is designed to deal with that problem.

    "Where an authority's standard spending assessment increases, that will follow through into its capping limit so the money can really be spent. The permitted increases I propose for classes of authority are as follows: for inner London boroughs, the City of London and shire districts, I propose that the year-on-year increase should be limited to 1½ per cent.; for outer London boroughs, metropolitan districts, county councils, unitary authorities and the Isles of Scilly, I propose that the increase should be limited to 3 per cent.; for police authorities outside London, I propose that the increase should be limited to 3.2 per cent.; for the London and metropolitan fire and civil defence authorities, I propose that the increase should be limited to 4½ per cent. For all classes of authority other than police, these year-on-year permitted increases are substantially greater than last year, particularly reflecting the extra provision we have made for schools.

    "Shire districts have been treated especially harshly in recent years. So for shire districts I am permitting an increase in 1998/99 which will be three times more than in previous years. But I am going further than that.

    "I can announce today that for all authorities (other than police authorities) budgeting up to 12½ per cent. above their standard spending assessment, I intend to "passport" the increases for all service blocks within the spending assessments. This will extend the benefits of passporting to shire districts for the first time. It will also be the first time that increases in highway maintenance, other services and capital financing blocks have been passported.

    "These are important changes in the capping regime. They give greater discretion to local authorities. I do, however, expect local authorities to look carefully at their permitted increases, including passporting, and make a careful judgement about whether they need to make those increases in budget and whether their council tax payers can afford them. Many authorities have budgeted below their capping limit in the past. I have given local authorities extra room within which to exercise their discretion. I expect them to do just that.

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    "These principles are necessarily provisional. I cannot take my firm decision on capping until authorities have set their budgets for 1998/99. When I come to take those decisions, I shall of course, take into account all relevant considerations.

    "My department is today writing with the details of the settlement to every local authority in England. That package includes a consultation paper setting out how we propose to distribute central government support between authorities, including my proposals on standard spending assessments and damping. It sets out my provisional capping criteria, and includes my proposals for notional amounts. Copies of this package have been placed in the Vote Office and the Library.

    "The package is large and some elements are very complex and precise. That is possibly unavoidable for a system which distributes huge sums of money among more than 400 local authorities with different needs and resources. The basis of the calculations has to be set out in detail to assure the House and local authorities that each authority is being treated in exactly the same way as others. We are reviewing how we might simplify the process in the longer term, while retaining that reassurance. I know that if we can make this whole exercise simpler, it will be much appreciated by Members of the House, local authorities and the general public. For the immediate future I plan to provide for the House before the Revenue Support Grant Report is debated in the New Year, a plain English guide to these aspects of local government finance.

    "The proposals I have outlined today represent a substantial improvement on the settlement that local government could have expected, following the Budget of the last administration a year ago: there is £835 million extra provision for education; standard spending assessments will be made fairer; and local authorities will have more scope to exercise their discretion on budgets. This is a better and a fairer settlement than in previous years.

    "Too often in the past two decades, central Government in Whitehall seemed to be waging war on local government in the town halls. When Labour was elected on 1st May, we declared it was time to bury the hatchet. Whatever the considerable difficulties we found--financial, social, or environmental--we would face them together, with local government, regardless of the party in charge in any particular town hall. In just seven months, we have taken the first steps in developing this new partnership. We will be judged on our full five-year programme; but the direction is right--the priorities are different.

    "The Government believe in local democracy. This year and next will be tough financially. But we are firmly on the road to reinvigorate local democracy and restore a new and more positive relationship between central and local government".

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My Lords, that concludes the Statement.


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