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Lord Hunt of Kings Heath: My Lords, before we move to the Statement on local government revenue finance, I should like to take this opportunity to remind the House that the Companion indicates that discussion on a Statement should be confined to comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

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Local Government Finance Settlement

4.17 p.m.

Baroness Farrington of Ribbleton: My Lords, with permission, I shall now repeat a Statement on local government finance revenue for 1999-2000 that has been made in another place by my right honourable friend the Deputy Prime Minister. The Statement is as follows:

    "With permission, Madam Speaker, I should like to make a Statement about the Local Authority Revenue Finance Settlement for England for 1999-2000.

    "The services local councils provide are vital to economic success and to making Britain a better place to live in. We are working with local councils through our Central Local Partnership to modernise and support local government.

    "On this occasion last year, I set out the Government's programme for the renewal of local democracy--an ambitious and long-term programme--and I have further progress to report.

    "In July, we published our White Paper on modernising local government. Yesterday we published our Local Government Bill to sweep away the wasteful and unfair system of compulsory competitive tendering and replace it with Best Value--so that local people can get the quality of service they expect, at a price they are willing to pay.

    "The Bill abolishes crude and universal capping of council budgets, and in its place provides more flexible reserve powers to prevent excessive increases in council tax, as we promised in our manifesto. These measures give local authorities greater responsibility for managing their own resources, whilst providing protection for the local community.

    "Madam Speaker, today's announcement on revenue funding should not be seen in isolation. We are tackling problems in a co-ordinated way, with extra resources to help local communities tackle deprivation and improve housing and transport.

    "Our spending plans for local government offer the most generous council tax settlement ever; extra spending and extra protection for the taxpayer; a fairer distribution of grant; three years of funding stability. These are the key elements of our approach to this year's local government settlement.

    "Total Standard Spending: total standard spending is the total amount of local authority spending to which we are prepared to contribute. Next year this will be £50.62 billion. This is £2.6 billion more than this year--an increase of 5.4 per cent.

    "Education and health are our main priorities. Next year, we are investing an extra £1.4 billion in modernising education, an increase of 7.2 per cent. And there will be over £500 million extra for social services, where the Government's reforms are set out in Monday's White Paper.

    "We have announced further increases in the following two years. Over the three-year period, total standard spending assessments or SSAs will increase by about 7 per cent. more than expected inflation.

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    This new certainty helps councils plan ahead with greater confidence. Better forward planning and greater flexibility mean better standards of service and better value for money.

    "Support from government grant and business rates: about half of the money to fund total standard spending will continue to be funded by the Government. I propose that the revenue support grant should be £19.9 billion. In addition, some £5.9 billion of specific and special grants will be available to councils. The revenue support grant figure may need to be altered slightly, following consultation. The business rate poundage will be increased by the September retail price index, to 48.9 pence in the pound. We will redistribute £13.6 billion to local authorities next year. I am publishing the basis for the distribution today.

    "Council Tax: Madam Speaker, we are asking the council taxpayer to contribute a fair share to the cost of providing local services, no more, no less. We will increase funding from the government grant and the business rate broadly in line with the overall increase in SSAs. If local authorities increase spending in line with the increase in their own SSA, then, on average, council taxes will go up by 4.5 per cent.

    "As I told the House last December, this is the last year of crude council tax capping. So I am the first Secretary of State not to set capping criteria in advance criteria since the council tax was introduced seven years ago, after the disaster of the poll tax. But I would make it clear: we expect local authorities to exercise self-restraint. We are providing substantial real increases in funding. Local authorities should be concentrating on securing greater efficiency in the delivery of services and financial management, to increase their spending power further.

    "There is no justification for excessive council tax increases. If we are faced with such increases, we shall not hesitate to act, as I have made clear to this House before. We have to protect the country's interest as a whole. We will not pick up the cost of excessive council tax increases through higher council tax benefit subsidy payments. We announced our intention to tackle this problem in the July White Paper.

    "We are setting a guideline figure, which will be a 4.5 per cent. increase in council tax or a higher increase if needed to allow a council to budget in line with the cash increase in its SSA. A council which keeps within this guideline figure will have its council tax benefit subsidy payments reimbursed at the full rate. But a council which exceeds the guideline will have to make an extra contribution to the cost of paying for the extra benefit. The council's contribution will increase gradually for each half a percentage point that the council tax increase exceeds the guideline.

    "I would make absolutely clear that this does not impact on people in receipt of benefit. And those councils with a higher than average proportion of income from council tax benefit will be treated as

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    though they had the average proportion. This means that poorer areas will be treated no worse than the average.

    "Standard spending assessments: the national totals are important. But what every council wants to know is how much they will get, and to be assured that the distribution is fair. Last year, I announced a number of changes to the SSA formula to make it fairer. For example, I brought up to date the formula for elderly residential social services, and ended the fundamentally unfair assumption that visitors and commuters were as deprived as local residents.

    "This year, along with the Local Government Association, we considered many possible changes. I should like to mention three areas where we are proposing change and a couple of areas where we have not reached a satisfactory conclusion. First, the children's social services. After three years of discussion and research, we now have a new formula that is well-founded. It is undoubtedly an improvement on the formula that has been used for the last few years. Secondly, I have introduced an allowance for sparsity in the part of the SSA that allows for the extra cost of providing social services for the elderly in their own homes. So there will be more for rural areas in that part of the SSA. Thirdly, we are taking account of deprivation in the part of the formula that deals with what are called 'county services', such as libraries and probation.

    "Sometimes the search for an improvement is unsuccessful. This year, we did a great deal of work, with the local authorities, on two other big issues. One was the additional educational needs of some children. The other was the area cost adjustment which deals with the fact that pay costs vary significantly from region to region. In both cases, there are some valid objections to the current formula. And, in both cases, we had many alternative proposals for reform to choose from. For instance, we had 21 detailed options on the area cost adjustment. But there was no clear front-runner, either on merits or on its support within local government.

    "It would not have been right to take decisions on area cost adjustment and additional education needs now, when it was clear that there were unresolved issues raised by local government which need further work during the period of SSA stability.

    "Phasing in SSA changes: I recognise that councils need time to adjust to these changes in SSA. So I shall pay a grant that limits the impact on council tax for those authorities where the amount they have lost through changes in the SSA formula go beyond a threshold. In fact, I will go further than the traditional 'damping' arrangements. I make this guarantee for next year. No local authority will receive less government grant support than they did this year. It follows that there is no case for steep council tax increases.

    "The future: this Government understand that the uncertainty created by an annual review of the SSA formula is unhelpful to local authorities who are trying to plan ahead. So we now have a three-year

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    period of funding stability for local government, during which we shall seek to find a long-term solution to the continuing difficult issues in the local government finance system.

    "We need to look at the scope for reform within the existing SSA system; for example, whether we can find solutions to the area cost adjustment and additional educational needs problems. We also need to look at the case for more radical reform, to produce something which is clearer and more robust than the existing system. We need a system which is more easily understood by the voter, and accepted as fair and stable.

    "Local authorities must use this period of stability in their financing to concentrate on increasing efficiency and improving services, not fighting their corner in the annual battle over their share of grant, but developing best value services for their community.

    "In conclusion: my department is today writing with details of the settlement to every local authority in England. That package includes papers setting out how we propose to distribute central government support between authorities, including my proposals on SSAs and phasing in changes. It also includes details of how council tax benefit subsidy will be reduced above the guideline increase in council tax. Copies of that package have been placed in the Vote Office and in the Library.

    "Madam Speaker, the proposals I have outlined today represent a break from the kind of annual ritual that we have witnessed in the past: they represent the best settlement for seven years; they include changes to distribution to give a fairer and more stable system; they ensure that no one loses grant; and they protect council tax payers from excessive increases in their bills. It is the best deal for years for local people and I commend it to the House."

My Lords, that concludes the Statement.

4.31 p.m.

Lord Bowness: My Lords, I thank the noble Baroness for repeating the Statement made in the other place. No doubt she, like me, having had a previous incarnation before this House, feels that attendance on this day when we are discussing the rate support grant settlement indicates that there is no remission for reasonably good conduct!

The subject is complex and not one which is easy to understand. I note from reading the report of this occasion last year that in another place the Secretary of State said that he would review how the process might be simplified while ensuring that each authority would be subject to the same methodology. Given that statement and the repeated Statement this year to simplify the process, and given that the accompanying papers for this year appear to be as complex as ever, if the Minister were able to tell the House what real progress was being made in that regard, I am sure that we should all be very grateful.

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Of course we welcome the additional money for local government and particularly for education, but a number of questions arise. The settlement indicates that the average council tax increase is estimated to be 4.5 per cent. if councils spend within the guidelines. I wonder whether the noble Baroness is able to tell the House, on the basis of the information which her department must have, what she believes the real levels of council tax increases are likely to be across the country.

Turning to the standard spending assessment, a number of questions also arise here. Is it not the case that the standard spending assessment for fire has been increased by 3.6 per cent. but the staffing costs which form 85 per cent. of the cost of the fire service have risen by 5.6 per cent? That surely must mean cuts in the fire service and difficulties, particularly for those fire authorities that are single purpose authorities.

Secondly, can the noble Baroness confirm that the settlement includes no moneys to compensate local authorities for losses to their pension funds following the Chancellor's abolition of advanced corporation tax? Indeed, if it does contain any money, perhaps she would be kind enough to tell the House how much is involved. It is my understanding that the Government have agreed a figure of £130 million as the loss to local government, but at this time last year in another place the Secretary of State said, in reply to my right honourable friend Sir Norman Fowler, that if extra costs were incurred they would be taken into account. The message from local authorities is that extra costs have been incurred; they have to make a provision now and it is prudent to make a provision now. I submit that it is not good enough for the Government to say, "wait for the revaluation of your fund."

The Statement refers to the end of the abolition of crude and universal capping, but there is no indication in this Statement of the capping criteria. I acknowledge that in the early days of capping under the previous government this was done, but that process soon changed. I would say to the House that, as a consequence of what is being said this afternoon, there is neither abolition of capping nor any transparency about the level of increased expenditure that the Secretary of State is prepared to countenance. I submit that the Secretary of State must have formed a view about these matters and that the House, local authorities and, more importantly, the council tax payers should be told what that view is if the budgeting process of local government is to have any meaning at all.

Turning to council tax benefits, central Government currently meet all the costs of these. The Government's proposals announced yesterday mean that those who actually pay the council tax from their own resources will be faced in some instances with increased levels of council tax. This seems to be an additional tax imposed upon them by central Government. I would in no way wish to deny help to those in need, but there is a real question to be decided and discussed here as to whether that help should be provided by local council tax payers. Although there are some safeguards in the Statement, a particular burden may be placed on council tax payers in particular areas. I think there is a real subject for

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debate as to whether or not that help should be provided through those council tax payers or through the national taxation system.

Turning to distribution, last year there was a major change, with some £50 million being taken away from London and £100 million being taken away from the shires and given to areas towards the north. Apart from the specific change on the sparsity factor for the care of elderly people in their own homes in the social services block, this settlement appears to contain nothing to reverse that very unfortunate trend. I am sorry to put so many questions to the Minister, and I do not intend any criticism of the Minister or of the Government, because the method of dealing with this announcement of the settlement has been the same for many years. However, I do believe it raises questions.

This Statement is different in many ways from statements on other matters which are made to Parliament from time to time, frequently about a particular policy. This Statement is supported by a mountain of detailed figures which really ought to be given proper time for consideration before questions are asked. Given the limited time involved, I suggest that it is difficult for your Lordships to do real justice to this important topic. Therefore I ask the noble Baroness--as I say, this is not a criticism as she has suffered from this system, with me, in other places and at other times--to consider whether or not there is a better way of making this announcement.

4.38 p.m.

Baroness Maddock: My Lords, I too thank the Minister for repeating the Statement this afternoon. I only wish I could say how much more encouraged I and my colleagues are this year compared with last year. Almost everybody who has ever been involved in local government will welcome the fact that we now have three-year funding proposals. That must be an improvement.

Two other points that the Government were singing loudly about at the beginning of the Statement concerned extra spending and protection for local tax payers and fairer distribution. When one looks more closely at the figures they are not quite as they seem. One area where I am particularly disappointed concerns area cost adjustment, where we seem to have made little progress. I welcome the frankness of the Statement regarding this. I appreciate it, but this is a problem which has been going on for many years and we really ought to be able to get to grips with it. I campaigned about this endlessly when I was in the other place and I think it indicates the urgency with which we need to deal with reform here. From the statements made last year, I think we were hopeful that this year reform would have gone a little further than it has. Perhaps the Minister might be able to indicate some sort of timescale as to how she sees the progress of reform in the future.

As the noble Lord, Lord Bowness, has already said, we have a problem in the way in which this is presented and it may be that some of the figures I shall produce may not be exactly right, in the light of the figures

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which have just been produced in the Statement. I apologise and I will say more about that and about how I think we might proceed in just a moment.

The Local Government Association has estimated the revenue increases that it believes are needed to meet inflation and the spending pressures on councils--particularly the fact that there are more elderly people and more children in schools, and so on--to be in excess of £3 billion. The Government have said that it is £2.6 billion. However, I believe that the extra government funding does not meet it and that there is a shortfall of about £1 billion. Perhaps the Minister can clarify that point. Clearly, any bridging will have to come from council tax.

We have heard from the Minister this afternoon, and from the Minister in another place, Hilary Armstrong, on the radio this morning, that council tax rises should not be more than 4.6 per cent. There are all kinds of reasons why it would be rather dangerous if councils increased it by that amount. Having regard to the Red Book, I and others who have studied the figures believe that there is a need to increase council tax by about 8 per cent. to bridge the gap. Perhaps the Minister can clarify that this afternoon.

I move on to council tax benefit subsidy payments which are all tied up with this area. For some authorities this will pose a problem. The words of the Statement remind me very much of the approach of another government--dare I say--who expected local authorities to exercise self-restraint and said that there was no justification for excessive council tax increases. Later on they spelt out clearly what would happen if councils did that: they would be capped. We have already heard that it is not known how that will work. It would help if the Minister could clarify this area.

Another area about which I have a particular concern is education. Figures put forward before the Statement this afternoon indicated that the Government expect to spend about £19 billion extra on education over three years. The figure for England is £16 billion. However, those figures include the whole of education: the funding of colleges, universities, inspections, special grants, capital expenditure and so on. When one considers what is to come via the settlement today the figure is nothing like it; it is about £1.5 billion. There are great pressures on local authorities. The percentage of pupils in classes over 30 rose again this year. Although the growth in pupil numbers is slowing down, it is likely that there will be another 60,000 pupils in our schools in the next three years.

There are all kinds of other drains on education budgets, particularly in rural areas. One particular area of which I am aware is Dorset, part of which I represented in the past. Such areas have tremendous problems in funding school transport. The total cost of the school transport budget is about £6.4 million but the grant from the Government meets only half of that sum. That illustrates the kinds of problems that councils will face in trying to keep their council tax increases to 4.5 per cent. I hope that this year the Government will spend more time on the difficult question of how to deal with these inequalities. Perhaps a timetable can be provided.

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Capping has gone. The bottom line is that what is now proposed may still force councils to recalculate their budgets and reissue council tax bills. That is fairly disappointing in view of the fact that in the past year the Government have signed the European Charter of Local Self Government. I do not believe that the capping procedure is exactly in line with that. How do the Government believe that local authorities will deal with the ever-increasing demands on social services? If I have the figures right, the funding of social services is predicted to rise by less than inflation. In the past two weeks a number of good intentions have spelt out how local authorities should run their social services. This will be a problem.

In the past year one has seen increases in the cost of some of the social services provided by local authorities, particularly those for elderly people. I hope that the Minister can reassure me that my worst fears will not materialise.

I end by reiterating the words of the noble Lord, Lord Bowness, about the method. At a quarter past three we are presented with huge wadges of paper. In this country we pride ourselves on strong government and strong opposition. I am not sure that I am in total agreement with it. Yet the manner in which we run our Parliament means that the Opposition is very weak on days like this. Ministers have the assistance of hundreds of civil servants and many days to prepare their proposals. We do not even have a Dispatch Box on which to put our papers. We have a few people working for us and must do our best. The fact is that the headlines on the news tonight will be about the ballpark statements that have been made today. I do not believe that that is a fair way to do it. I know that the Government are committed to modernising the way in which we run our democracy. Here is a golden opportunity. I hope that we shall hear something positive from the Minister this afternoon.

4.46 p.m.

Baroness Farrington of Ribbleton: My Lords, the noble Lord, Lord Bowness, with whom I have worked for many years in local government, complained that he was unable to come up with sufficiently well thought out questions and pleaded for more time, as did the noble Baroness, Lady Maddock. All I can say is that I prefer to be here given the high quality of the questions that have been asked this afternoon. However, the point is a very serious one and I note it. I shall take it back and look at whether something can be done. Perhaps a three-year period of stability will allow us to look at the process for consideration of the details during that time.

The noble Lord, Lord Bowness, asked about stability and the need for simplification. As he recognises, this is a very complex issue. As he is aware from his great knowledge of local government, while everyone wants the system to be more transparent it remains the case that when looking at area cost adjustments and additional educational needs consideration must also be given to whether more fundamental changes are worthwhile. In that context one would want to look at

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the timing of such changes. It is important for people to understand the circumstances in which their councils spend public money.

I have been asked by the noble Lord to predict the amount by which council tax will rise. That is a matter for local authorities. We have made a proper assessment on the basis of what is a very generous settlement-- I welcome the fact that noble Lords have recognised that--compared with previous settlements. It is important that councils concentrate very hard.

We are looking at the creation of fairer standard spending assessments. We have announced a number of changes in children's social services and have taken account of deprivation in that part of the formula that deals with services such as libraries and probation. We have sought to mitigate the need for large council tax increases by ensuring that no one loses grant. That should help to protect people.

The noble Baroness, Lady Maddock, referred to rural services. She cited Dorset, the authority with which she is most closely connected. I am sure that she, too, will be delighted that its education SSA has increased by 7 per cent. That is the highest increase for any of the counties. Additional money has been provided for rural transport. We have given general levels of support to meet rural needs. If those needs are not met, many of the costs will fall directly or indirectly on the local authority. The rate relief for village shops, extra protection for rural schools, the essential small pharmacy scheme, all combine to recognise the many needs of the rural areas.

The noble Lord, Lord Bowness, referred to the north-south factor. We have sought to treat all authorities fairly in whatever part of the country they are. In general, London and the south-east has done less well than the remainder of the country; and the northern region has done best. One of the main reasons for that is the change to the children's social services formula. We are convinced that the new formula is fairer. In response to concerns raised by authorities in London, it also takes account of uneven costs in foster care around the country.

We have said that when setting their budgets local councils should consider carefully their local circumstances and the scale of the SSA increases. We reserve the power to cap authorities if necessary. It would be unhelpful to speculate about councils' behaviour. That might give the impression that there is some assumption about a "going rate".

The noble Baroness, Lady Maddock, raised the issue as to whether the education SSA increases pass through to the education service. During the current year, 86 per cent. in total of the additional resources for education went through into the education service. It is for each authority to make decisions on its budget level and to be answerable to its electorate. The noble Lords who spoke from the Opposition and Liberal Democrats Front Bench are fully aware that school governors these days are extremely well informed and will be studying the figures almost as avidly as Members of your Lordships' House.

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A question was asked about the council tax benefit subsidy limitation. We believe that it is extremely important for councils to face up to the fact that there is a consequence if they wish to raise their council tax above the guideline figure of 4.5 per cent. However, we believe that that is fair. We have sought to mitigate against unfair pressure on those authorities with a greater than average number of beneficiaries of council tax benefit. They will have their subsidy abated only to the average level and not to the higher level which may apply in those authorities.

The noble Lord, Lord Bowness, asked about the effect of the abolition of advance corporation tax. We met our commitment to provide for the effects of the abolition of ACT on the local government pensions scheme. I can confirm that we took account of the best estimate available to us and to the Local Government Association--£130 million--of the effect of the ACT change on employers' contributions. We shall not revisit this year the total level of provision announced under the CSR. The actuarial valuation may suggest that the net effect of the abolition of ACT may be less than estimated at the time of the CSR. Were that to be the case, noble Lords will be pleased to learn that we do not intend to claw back the money from the local government settlement.

The noble Lord asked about the fire service pay settlement. The settlement takes account of pressures facing local government services as a whole, including pay and prices, as well as the opportunity for them to make savings. We believe that best value will help to identify areas in which savings can be achieved.

The noble Baroness, Lady Maddock, and the noble Lord, Lord Bowness, asked whether the council tax benefit subsidy limitation was in some way a form of capping. It is extremely important to distinguish between capping and the changes which my right honourable friend the Deputy Prime Minister announced today, and the council tax benefit subsidy limitation. We believe that the council tax benefit subsidy limitation is justified by a Government who wish to control and to use their own resources wisely.

The Government have responded to the majority view of the Local Government Association in not wishing to see capping limits pre-announced. One of the most vicious flaws in the crude and universal capping which pertained was that it did not allow the Secretary of State to have regard even to year on year planning so that an authority could bring its budget into line in a measured and well thought out way.

I hope that I have answered all the questions. If I have not done so, I shall write to noble Lords.

4.58 p.m.

The Lord Bishop of Lincoln: My Lords, I thank the noble Baroness for those reassurances, in particular, the period of stability which the announcement gives. I support the noble Baroness, Lady Maddock, on the cost of transport in rural areas. I represent a diocese which has areas of deprivation in the countryside. Although the local authority seeks to improve social

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services and educational provision, it is frequently crippled by transport costs. It is important that the cost of transport in rural areas is acknowledged. Some three years ago a number of us spoke about the bias of the standard spending assessment towards the south-east, and made a plea for the East Midlands, in particular my own area. I hope that the Government will use the stability provided by the three year period to review carefully and rigorously cost adjustment.

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