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Lord Roberts of Conwy: My Lords, once again we have had an interesting debate. Perhaps I may refer to the Solicitor-General's remark to the effect that the Government might appear to be on the defensive. I think that they are very much on the defensive on this issue. I am still not absolutely clear in my mind why our Amendment No. 103 would mean the abandonment of the Barnett formula.

I am grateful to the noble Lord, Lord Thomas of Gresford, and to the noble and learned Lord, Lord Simon of Glaisdale, for their support. I am grateful, too, to the noble Lord, Lord Prys-Davies, who is absolutely right in saying that there is concern in Wales about the absence of a key underlying principle for this clause. It is an extremely bare clause and gives no underpinning whatever for any principle whereby:

This is a matter of fundamental importance not only to the assembly but, as my noble friend Lord Dixon-Smith said, to the United Kingdom as a whole. The problem will not go away. It will stay with us. My guess is that the assembly will raise expectations and will require considerable resourcing, as the noble Lord, Lord Elis-Thomas, intimated when he read sections from The Pathway to Prosperity and referred to the needs of Wales.

All we are asking for is a fair basis for the settlement, as indicated by my noble friend Lord Rees. The noble Lord, Lord Desai, is right in saying that we anticipate that we may not receive as much as we have done in the past from the European Union because of enlargement and other factors. That makes it all the more essential that we should know on what principle the assembly is financed.

The noble and learned Lord the Solicitor-General said that we did not require a rolling principle of the kind that we have put forward in Amendment No. 103. However, I say to your Lordships that the clause as it stands is totally lacking in any kind of principle and, depending as it does entirely on the discretion of the Secretary of State, is totally unacceptable. I detect that the feeling of the House is very much in support of the position that we have taken on this amendment. But in view of what the Minister said and the doubt that he has cast, and persists in casting, on the continuance of the Barnett formula, I have no option but to withdraw the amendment for the time being. But we may well return to it at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9 Jul 1998 : Column 1392

5.15 p.m.

Lord Roberts of Conwy moved Amendment No. 104:

Page 41, line 28, at end insert--
("( ) The Secretary of State may designate payments for the provision of services by the unitary authorities in Wales.
( ) The Assembly shall not use such payments for any other purpose.").

The noble Lord said: My Lords, your Lordships will see that we have two amendments on the Marshalled List relating to local authority finance. The first, Amendment No. 104 to Clause 80, empowers the Secretary of State to designate payments for the provision of services by unitary authorities and prevents the use of such payments for any other purpose. Our second amendment, Amendment No. 210 to Clause 113, requires the assembly to consult the Partnership Council before it allocates funds to the unitary authorities.

These amendments reflect a variety of concerns, the first being that local authorities should be adequately provided for and properly enabled to provide services of good quality. As has already been said today, traditionally Welsh local authorities have been generously supported by central government through the rate support grant because of the comparatively low rateable values prevailing in Wales. Low rateable values reflect the character of the housing stock and the general levels of income, which are well below the United Kingdom average.

A higher proportion of local authority costs met by the rate support grant means that levels of service--educational, social and so on--can be maintained at United Kingdom national standards. It is clearly important that after the assembly assumes control of allocations to local authorities the authorities should not be put in a position where it is impossible for them to maintain services at an acceptable level.

Why, one asks, should that happen? The answer lies in our anticipation that the assembly will face ever-growing demands upon the limited resources available to it. That is very clear from the Bill. The assembly may well be tempted to reduce its allocation to local authorities, especially since they have the ability to raise their own council taxes, an ability that is likely to increase, certainly if rate capping is ended and the business rate returns to local authority control.

One way of trying to stop such regressive action would be to ensure that the assembly consults the Partnership Council before allocating funds to unitary authorities. I dare say that that is not a complete action in itself which might prevent local authorities from increasing taxes at the behest or under the influence of the assembly. But at least the assembly will then be fully aware of local authorities' financial needs and requirements and their estimate of their electors' ability to pay, and to pay more

The alternative approach is for the Secretary of State to hypothecate the sums payable to unitary authorities when he makes his grant allocation under Clause 80 and to ensure that such sums shall not be used for any other purpose. We are talking about a substantial sum; it is about one-third of the £7 billion budget of the assembly.

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I believe that there is a degree of hypothecation under the present system, although theoretically the Secretary of State may allocate the contents of his block as he wishes. But the truth is that the Welsh local authority annual settlement has to take into account the similar settlement in England--there is some reference to it--and the previous year's settlement in Wales.

What concerns us is that there are no constraints on the assembly. It could come to some pretty revolutionary decisions. As I said, we are talking about a very large sum--it is almost one-third of the assembly's entire budget--and radical changes could affect the quality of service that people receive in their communities and from their local authorities. The Secretary of State, as the source of grants for the assembly, must be interested in the destination of those moneys. The amendment that we propose would enable him to exercise a modicum of restraint on the assembly in this all-important area of local government finance. I beg to move.

Lord Falconer of Thoroton: My Lords, perhaps it might assist your Lordships' consideration of these amendments, which relate to local government finance, if I were to give a brief summary of the functions with respect to that finance which we intend the assembly to have. We propose that the assembly should inherit from my right honourable friend the Secretary of State all his functions with respect to council tax and non-domestic rates, such as the powers to make regulations about administration of these taxes and the arrangements for appeals.

The non-domestic rate multiplier for Wales increases each year by the retail prices index. While there is no power to increase the multiplier by more than the rate of inflation, there is a power--currently vested in the Treasury--of allowing the annual increase to be less than RPI. We propose to transfer this modest power to the assembly. If it chose to exercise the power and local government spending was not being reduced, any shortfall in non-domestic rate income would have to be made up either by the assembly increasing the amount of revenue support grant that it provides to local government or by increases in the amount of council tax raised by councils.

The most significant responsibility to be vested in the assembly will be that of deciding the local government revenue and capital settlements for Wales. The assembly will decide the total amount of revenue funding to be provided to local authorities in the form of revenue support grant and specific grants. The whole assembly will vote on the local government finance reports, which are currently debated in another place, and the formulae that are used for distributing the funding. The assembly will issue basic and supplementary credit approvals to county and county borough councils and national park authorities. Finally, the assembly will have available to it the capping powers which are currently in the Local Government Finance Act 1992, although, as your Lordships will know, we shall bring forward proposals that will put an end to crude and universal capping.

9 Jul 1998 : Column 1394

Amendment No. 104 (proposed by the noble Lord, Lord Roberts of Conwy) would permit the Secretary of State to designate payments for the provision of services by unitary authorities in Wales and would not allow the assembly to use this money for other purposes. This would be fundamentally at odds with the spirit of devolution. The assembly will be an elected body responsible to the people of Wales. It will be for it to decide its priorities, and it would be quite wrong for this legislation to allow the Secretary of State to specify how it should spend its money and to bind its hands.

More fundamentally, the amendment would be in conflict with the statutory functions for deciding local government funding that we intend the assembly should have. The Secretary of State would in effect be able to usurp or override the assembly's decisions; for example on revenue support grant, which, as I have indicated, will be voted on by the assembly as a whole. It cannot be a desirable outcome that the assembly's discretion should be fettered as the amendment proposes.

We have heard from noble Lords opposite on more than one occasion about tax raising powers by the backdoor. There has always been the ability to alter the share of local government expenditure that is met by council tax. Those decisions are taken by the Secretary of State now. The difference is that under our proposals those decisions will be taken by a body that is directly accountable to the Welsh electorate, and it is that that the amendment seeks to prevent.

Amendment No. 210 would require the assembly to consult the partnership council before allocating funds to unitary authorities. The provision for the Secretary of State to consult local authorities already exists in Section 78 of the Local Government Finance Act 1988, which requires him to,

    "consult such representatives of local government as appear to him to be appropriate".
This duty will pass to the assembly. It will be open to the assembly to consult the partnership council if it so wishes, so there is no need for provision to be included on the face of the Bill.

My noble and learned friend Lord Williams of Mostyn was chided last week for allegedly seeking to let nanny into the nursery. I must say to noble Lords opposite that these amendments go well beyond that. By allowing the Secretary of State to hypothecate the assembly's funds, it would mean nanny would not even need to enter the nursery: she could keep a rein on her charges by remote control.

Someone has to determine local government funding in Wales. The question is simply whether it should be a directly elected assembly, backed by a partnership council, or the present system under which the Secretary of State takes the decisions. I must say I am disappointed that noble Lords opposite have chosen the latter course and sought, perversely, to impose centralist controls in a devolution Bill. I must therefore urge your Lordships to reject these amendments.

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