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Lord Hunt of Tanworth: These are clearly important amendments and I support them very strongly. I shall not repeat the arguments for them. Many people from all parties have felt that capping should go. It is probably also accepted that it would be politically and for many other reasons difficult to do it in one fell swoop, as many of us would like to have seen. However, the way the Bill is drafted does not really foreshadow the end of capping. It is capping in a different form, possibly with some relaxation, with some greater tolerance, but nevertheless a capping regime continuing.

I do not consider that the Bill can be seen as the end of a process because there are many questions such as, is it how the best value regime develops; how does it make capping unnecessary; what happens to business rates; and what powers local authorities will have over rating revenue. I do not see that a situation should be foreseen where those reserve powers should hold good for all time, so I support very strongly the amendments to put a date on them.

5.15 p.m.

Lord Whitty: I regret that we shall probably not agree on this. I am certainly not a pessimist and, as noble Lords will know, I am not a cynic, but I am rather cautious here. I understand and sympathise with the wish that these powers are not used after 2005. Indeed, I hope their use will cease, if possible, before 2005. However, 2005 is not very far off. We are engaged, in partnership with local government, in a whole range of measures to modernise local government. We hope that most of that agenda will be in place by 2005, and best value is clearly a major part of that programme.

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There is another side of the issue which relates to financial accountability, and there is yet another side which relates to modernisation of decision making. There will be some hiccups in the process of modernising local government. We could not put our hands on our hearts and say that all the financial accountability will have been achieved through best value by 2005. There is a continuing responsibility on government to represent national taxpayers as well as to protect the local taxpayers in this. Therefore we consider that we need to retain reserve powers. While we expect all local authorities to be responsible and prudent and to provide their local taxpayers with a decent service at a price they are prepared to pay, even in 2005, despite all our reforms and best intentions, there may still be one or two authorities which decide to act irresponsibly. If they do so, we intend both to protect the local taxpayers and to protect the national taxpayers' interests. These are, however, reserve powers. I can assure the noble Baroness of that. We hope that they will hardly be used, if at all. But, as of today, I cannot be as optimistic as the noble Lord in predicting that by the year 2005 all financial irresponsibility will have been removed from local councils. We cannot write in that date and leave local people open to the risk of some irresponsible council exceeding what would be a reasonable limit. I therefore ask noble Lords not to press this matter. I note the noble Baroness's remark that it may be returned to. I look forward to more detailed debate at that stage.

Lord Dixon-Smith: I have to say, sadly, that I am not grateful to the Minister for his reply. It was not wholly unexpected--I did not expect that we should be fortunate enough to receive an immediate concession based on the absolute good sense and the force with which we have argued the point.

I remember all too well how capping began. It was introduced as a reserve power for emergency use and it was remarkable how it evolved into something that was controlling virtually everybody. I must admit that I am still concerned, and I shall continue to feel concern for as long as the provision remains. This is an issue on which we shall probably have to beg to differ. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 agreed to.

[Amendment No. 85 not moved.]

Schedule 1 [Limitation of Council Tax and Precepts]:

Lord Dixon-Smith moved Amendment No. 86:

Page 20, line 20, at end insert--
("( ) An authority shall not be eligible for designation or nomination unless its proposed expenditure per head of population falls within the upper quartile of per capita expenditure for that class of authority and its rate of increase in expenditure is also within the upper quartile rate of increase for that class of authority.")

The noble Lord said: The purpose of this amendment and the other amendments grouped with it is to place some limitations on capping, if capping there has to be. Amendment No. 86 is designed specifically to remove

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a very large group of local authorities from the capping regime. It states that,

    "An authority shall not be eligible for designation or nomination unless its proposed expenditure per head of population falls within the upper quartile of per capita expenditure for that class of authority and its rate of increase in expenditure is also within the upper quartile". That is actually rather modest. I could perfectly reasonably have produced an argument to say that the exemption should apply to everybody in the 90 per cent below the upper decile, but I thought I would give the Minister the chance to agree with me again. I do not seem to be very successful in persuading him of the virtue of my proposals. The effect of this proposal is simply to specify those authorities that might, if the reserve power, as we shall call it, has to be used, have it applied to them.

Amendment No. 87 simply flows from that. If Amendment No. 86 were to succeed and be accepted, then Amendment No. 87 would be necessary to make sense of the English within the Bill and it would have no greater effect than that. The provision in Amendment No. 88, also in this group, is what I have now come to regard as a standard request. Amendment No. 89 is rather more important. It is an attempt to have the capping criteria defined in advance and published. At present, local authorities set their budgets, the Secretary of State examines them, says he does not like this one or that one and that he therefore intends to cap them, and the orders are passed accordingly, or the procedure is entered into. If knowledge of the criteria he intended to apply were to be available to local authorities before they entered into their budget process, most of them might have some recognition of those criteria and seek to avoid capping and the administrative trouble that it causes.

I am aware of the argument that this proposal creates a pre-capping condition and that it enforces capping. Indeed, it could; but the whole idea is to give local authorities the option to decide for themselves whether they want to run into this barrier, with the administrative procedures that it implies. They would then have to make their case to the Secretary of State for a variation, if that was their choice, which might or might not succeed; or they could choose not to do so, and comply with the conditions that they know are coming. Since we know that there are reserve conditions, one must assume that they would not be set in too onerous a fashion. Amendment No. 90 is tabled simply for the sake of producing consistency and Amendment No. 91 is the standard after consultation with best value authorities.

This group of amendments is important. The amendments seek to ensure that, if capping is to have effect, it really does affect only those authorities that are already high spenders and those that are increasing their council tax at a rate which is among the highest for that particular group of authorities. If capping is to continue, I believe that that is not an unreasonable restriction to place on its use. I beg to move.

Lord Whitty: Amendment No. 86 is understandable in terms of the objective of the noble Lord and the noble Baroness of getting rid of capping altogether. It is

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presumably, therefore, an attempt to get rid of capping for 75 per cent. of all authorities. Nevertheless, I feel that the selection of the 25 per cent. as described by that amendment cannot be the correct choice even from the noble Lord's own point of view. He is effectively saying that only those authorities with a high level of spending per head of population as well as a high rate of increase in spending should be capped.

Most governments have recognised that there are inevitable and justifiable differences in levels of expenditure. Local authorities might spend more per head of population because they have a relatively high number of school children, or a relatively high number of elderly people, or people who need help from social services, or because there is a sparseness of population, or because they have a higher level of deprivation and there are a number of other reasons why services might cost more. As a result, their absolute level of expenditure and their rate of increase of expenditure might be in the upper quartile simply because numbers are increasing more than in other authorities.

We recognise that when we distribute grant and we use a formula that takes this and many other factors into account, as indeed did the previous administration and every administration I can remember. It is slightly odd, therefore, to pick out the definition of those to whom a capping regime would apply by these criteria. As I have said, it would exclude 75 per cent. but it would hit those who have the highest need and the highest level of expenditure reflecting that need. In other words, by and large the poorer areas of the country could be capped and the more well-off areas of the country could not be capped whatever the rate of increase in their council tax.

I would say in passing that, if that were the case, most, if not all, of those authorities with which the Deputy Prime Minister has had to have words this year would escape entirely any future capping regime and that would be a cumulative case in the future. In other words, while it would no doubt be an achievement from the noble Lord's point of view to exclude a significant number of authorities from capping, he would be penalising those who are least able to take that degree of penalty and allowing to escape many who may be highly profligate in areas that do not have the same level of need. For example, an authority such as Torbay, which had one of the highest increases in council tax this year, would escape from being capped while an authority like Blackburn, which had a much lower increase in council tax, would be susceptible to capping under this formula. That is probably not the intention. The intention is to get as many councils as possible out from under capping, but this is not the right approach.

I am also slightly bemused by Amendment No. 89. This would, in effect, achieve the opposite of what the noble Lord intends. It would mean a degree of return to the crude, universal capping policy which he is so against. Even though some of his colleagues in the previous regime were not, I understand the consistency of view of the noble Lord on this matter. If we are to set effectively the criteria and therefore the implied level before budget setting, then we are basically returning to a crude, universal form of capping which the Government have undertaken to abolish. We want local

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authorities to take responsibility themselves for deciding the budget, not with regard to a level preset by the Government but in the light of their own spending needs and the available resources. The old system of capping, which this would bring in by the back door, meant that some authorities simply set their budget requirements at the level of the capping limit. That is not a sensible system of financial accountability and we do not want that to happen under the new regime.

We hope that the new "best value" part of this Bill and other changes we are proposing on the structure of local government and so forth will help local authorities to modernise and improve. We therefore hope that we will not have to use these reserve powers. We would not wish to reintroduce by the back door a system of universal capping.

Amendments Nos. 88 and 91 deal with consultation. They seek to ensure that there is consultation between the Secretary of State and, presumably, the authorities subject to the use of reserve powers, although the draft refers to best value authorities. Not all best value authorities will be affected by this part of the Bill. It will only be the billing authorities. We agree that it is important to work closely with local government and to have a good consultative relationship with local government. The amendment as drafted will not be practical. It is important both to local authorities and to their taxpayers that if there is designation of an authority, then that authority is informed as quickly as possible and that if a local authority is to be capped under these powers, it needs to know its maximum budget requirement as soon as possible, so that it can revise its spending plans and inform its taxpayers accordingly. Any requirement to engage in any wide-ranging consultation at that stage would introduce an unacceptable delay into that process. This would not be in the interests of local authorities to impose. While I accept the general commitment to consultation which lies behind this clause, laying down such consultation during that period would not help. Neither would it help the financial accountability of the local authorities which are targeted under the capping regime, limited though they may be. I hope, therefore, that the noble Lord will see that these clauses are inappropriate and will see fit to withdraw them.

5.30 p.m.

Lord Dixon-Smith: For a moment there I hoped to achieve a wipe out because the Minister was going to accept that the upper quartile needed to spend the money and that he would accept my removal of the lower 75 per cent.--the lower three quartiles--and we would have done it and we would not need the sunset clause. That was clearly too much to hope for. I shall have to read the Minister's response with considerable care to make up my mind whether I wish to take this matter further. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 87 to 91 not moved.]

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