HC Deb 11 March 1998 vol 308 cc465-87

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Clelland.]

9.34 am
Mr. Graham Brady (Altrincham and Sale, West)

I am grateful for this opportunity to initiate a debate on an important, if rather abstruse, issue of local government finance. Just the name of capital financing adjustment seems to lead to people's eyes glazing over and their turning quickly to another matter. However, it is important that we consider the issue. It is particularly important that the Minister should hear the views of hon. Members on this important element of capital financing for local authorities.

The issue sounds dull and complex. Sadly, little attention has been paid to it. It is fortuitous that this debate is taking place only one day after a debate on the hidden tax increases that the new Government have already introduced. For my constituents—and all the residents of the borough of Trafford—this is yet another hidden tax. The Government's changes to the calculation of the capital financing adjustment will mean a tax increase for millions of people throughout the United Kingdom.

Like many of the Government's changes, those changes have been introduced by stealth, taking funds away from Trafford and many other local authorities. Perhaps worse than that, not only have the Government taken funds from authorities that have traditionally been prudently managed, but they have transferred them to some of the most profligate and ill-managed authorities in the country.

Trafford councillors are appalled as much by the way in which the new charge has been sneaked into place as by the financial penalty that is being imposed on them. The complexity of the matter is being used to cover the Government's tracks. That tactic has also been used for the introduction of the £5 billion annual pension tax through a technical adjustment that was little understood at the time. The same approach to taxation was shown by the Government's shift to quarterly payment of corporation tax. At the time, it was portrayed as a benefit for business, but it will be a £22 billion cash flow cost for businesses during this Parliament.

During this short debate, I hope to shed a little light on the complex matter under consideration and to attempt a simple explanation of the impact of the Government's changes. The previous Government calculated the capital finance standard spending assessment on the basis of a notional 1990 debt level. That rewarded councils that had behaved thriftily and responsibly during the 1980s—councils such as Trafford, which had benefited from good Conservative administration through the 1980s. Indeed, Trafford had benefited from Conservative administration from its inception in 1974 until the tragic events of a couple of years ago, which, I trust, will be only a brief interlude of insanity for the borough.

The Government's new system adopts a different approach, taking into account the higher of either notional or actual debt in calculating the capital finance SSA. That reallocates the given cake that is available to favour profligate authorities—very often, it hardly needs to be said, Labour authorities—at the expense of those that have been better managed. Many of the councils benefiting from the change are those that flouted public spending controls in the 1980s, often through creative accounting techniques that have since been made illegal.

Mr. Tony McNulty (Harrow, East)

Such as?

Mr. Brady

If the hon. Gentleman is patient, he will hear some examples. I know that he does not expect to be disappointed.

The history of the capital financing adjustment is like a trip through an old Labour theme park. From newspaper reports from the 1980s, I have found a series of examples, which the hon. Member for Harrow, East (Mr. McNulty) has asked for. The Times of 24 June 1987 stated: Local ratepayers could face a 357% increase to finance creative accountancy debts: unions in Manchester fear 16,000 council workers may have to be dismissed", and David Blunkett admits that his authority's capital programme stands to be 'devastated'". That was at a time when Manchester city council raised £200 million by selling civic buildings, including the central library, to a company that it wholly owned, and arranged a two-year rent holiday. Similar tactics were used in Brent and Lambeth. Some of the perpetrators of such scandalous abuses are now members of the Government; others sit on the Government Back Benches—although I do not see any present for this debate.

Labour claims to have changed, but in office, stealthy changes to the capital finance system for local authorities are often portrayed as technical changes, which people will not understand or notice. Changes are being introduced in a quiet, cautious way, with no fanfare or announcement of the impact that they will have. Such changes are rewarding old friends and punishing well-managed authorities.

My borough of Trafford will lose £700,000 from its SSA. That equates to the cost of 28 teachers, whom the borough could otherwise have employed. It amounts to the funding of two primary schools for a year. It could have been used to reduce each council tax bill by £10.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

Is my hon. Friend aware that, in West Sussex, the result of fiddling with the formula is a £2 million reduction in our central Government grant, which is equivalent to a rise of 1.5 per cent. in council tax?

Mr. Brady

I am grateful to my hon. Friend for bringing that to my attention. It is by no means an isolated incident. The change in capital financing has shifted funds from prudent authorities, from authorities that have borrowed sensibly or not at all, to authorities that indulged in very high levels of borrowing before April 1990. Such a perverse policy rewards activities, policies and management techniques in local government that any Government would say they wish to avoid. The Minister must therefore explain why his Government feel it appropriate to reward authorities that have behaved badly at the expense of those that have behaved well.

The reduction in Trafford's SSA is equivalent to the cost of 350 secondary school places, which could otherwise have been provided. That is particularly relevant in Trafford, because our excellent local schools are so popular that they should be given funds to expand, and not be deprived of the funds that they need. The loss of £700,000 combines with other factors in this year's SSA settlement to mean a real-terms cut of £3 million. That will mean higher taxes, together with lower service levels. The same pattern is being repeated across the country as local authority budgets are fixed for the coming year.

Mr. Brian White (Milton Keynes, North-East)

Is the hon. Gentleman saying that, until 1 May, all local authorities were given lots of money and that the activities that he is describing have occurred only since 1 May? Many of us were in local government for a long time and experienced the previous Government's restrictions on local authority capital financing, which were far worse than anything that the hon. Gentleman is describing. He ought to be addressing the previous Government.

Mr. Brady

We would all be delighted with more resources in national and local government, in order to provide services. Such resources must be divided fairly, in an understandable way, which rewards and is seen to reward good, not bad practice.

Mr. McNulty

Will the hon. Gentleman give way?

Mr. Brady

No, I am dealing with the previous point. My contention, which the Minister must answer, is that the Government's policy on changing the way in which the capital financing adjustment is calculated effectively rewards bad practice and penalises good practice.

The overall loss to well-managed authorities will be significant. The loss of about £50 million in the shire counties compounds the sense that they are being penalised, often at the expense of cities. The example of Trafford illustrates that the change is not simply a raid on shire counties. The policy also penalises metropolitan boroughs that have been better managed.

The worst thing about the policy change is not its day-to-day effect or its effect on particular local authorities—it is the principle that the Government are setting out as a guide for local authority practice. The message of the policy is that the Government intend to reward and encourage bad management, profligacy and waste, and to punish good, thrifty councils.

Mr. Ken Purchase (Wolverhampton, North-East)

Will the hon. Gentleman give way?

Mr. Brady

I am coming to a conclusion; I shall not give way.

If Labour has changed, it must review the decision and reverse the policy. I urge the Minister to address that.

9.45 am
Ms Sally Keeble (Northampton, North)

I am grateful for the opportunity to speak in the debate. I had not intended to do so, but, given the remarks of the hon. Member for Altrincham and Sale, West (Mr. Brady), I felt it necessary to spell out some of the thinking in Labour-controlled local authorities during the 1980s and to support the steps that the Government are taking.

The hon. Gentleman is quite right that local government financing is extremely abstruse. I and many of my colleagues wrestled with it in the 1980s and the early 1990s, so we know very well that, when spending allocations were fixed around some notional figure, strange anomalies sometimes arose. One found that spending programmes were moved between revenue and capital purely because of the availability of finance and not necessarily because that was the best way of financing or because the projects concerned were top priorities.

Underlying what the hon. Gentleman said, I detected a desire to draw distinctions between good and bad local authorities, and the implication that the good ones were Conservative and the bad ones Labour. That is the complete opposite of the truth. If Conservative authorities had been so good, more might have been left. Conservatives lost profoundly at the ballot box, which, in any democracy, is the ultimate test.

Mr. Brady

I am sure that the hon. Lady is well aware that, over the years, many factors have resulted in certain changes in local authority control. One of the principal factors in recent years was that the Conservative Government had become unpopular. There is no question about that, and we are well aware of it. Even though that happened, the borough of Trafford remained under Conservative control from 1974, when it was set up, until 1995. The Labour party has only a very tenuous grip on it, and should wisely consider some of the specific examples that I quoted.

Ms Keeble

That was a speech, not an intervention. The reason why people supported Labour-controlled local authorities in the 1980s and the 1990s when, I admit, some of us made mistakes, was that we were overwhelmingly seen to be supporting the communities that we represented. People supported us because we had that link. As leader of an inner-London authority, I had to grapple with supporting and protecting communities against the appalling scandals of Tory economic policy and the impact that it had.

During all the Tory years, male unemployment in the ward that I represented was about 35 per cent., and unemployment among women was so high that I think that it would have been virtually impossible to calculate. Local shops closed down not because of lack of trade but because people in the community did not have enough money in their pockets to be able to buy enough to keep the shops open. There was low income and unemployment. Whole communities were discarded by the Tory Government as being unworthy of, for example, job creation schemes. Disadvantages were not tackled. Such communities were deemed unworthy of programmes that could deal with disadvantages of race, sex and disability.

Labour councils had to pick up the tab for protecting the communities that Tory central Government had discarded. In Southwark, we used to call the Tory Government the "shower across the water". It was apparent what was happening. In examining our management of local finances, we had to bear certain things in mind. My council was much criticised by the shower across the water—I was going to say "you lot", but I thought that I might get into trouble.

Most local councils look to maximise spending on local services, because they are the only services that people will get. Labour councils offered the only lifeline out of poverty and unemployment. By reorganising their operations, most Labour councils sought to maximise spending on services and not on bureaucracy.

Mr. Tim Yeo (South Suffolk)

The hon. Lady is obviously concerned that Southwark should have enough money to spend on services. Does she share the concern expressed by my hon. Friend the Member for Altrincham and Sale, West (Mr. Brady) about the effects of the change to the capital financing adjustment? In Southwark, the standard spending assessment for next year will be reduced by £860,000 as a direct result of that change. Does the hon. Lady believe that that will help the voters about whom she is so concerned?

Ms Keeble

I do not represent any of the Southwark constituencies, so it is difficult to comment on the details of those figures. I am talking about the council's history and how we have arrived at our present position. In that context, I am explaining why the Government are taking the right decisions. The council sought to maximise expenditure on services, which meant that the money spent—be it revenue or capital—was geared directly to ensuring maximum service provision.

Mr. Tony Colman (Putney)

Does my hon. Friend agree that all debt entered into during the 18 years of Tory central control was approved by the then Department of the Environment? Local authorities could not go it alone: their debt was always fully approved by the Tory Government of the day.

Ms Keeble

Exactly. I thank my hon. Friend for that comment, which brings me to my next point—and if the hon. Member for Altrincham and Sale, West objects, I shall certainly give way.

Southwark council was aware that, despite opposition to Conservative policies on local government finance, we had an obligation to operate within the law and to ensure that we made sound financial arrangements for local services upon which the community relied. That is why we adopted both capital and revenue spending regimes that were not always incredibly helpful: we had to live within them in order to ensure that services were not disrupted by intervention from central Government via the Department of the Environment. That is why my hon. Friend's point is so important.

Mr. Brady

I am keen to reply to that specific point. It takes no account of the case that I made regarding some of the creative accounting techniques used. A key problem in the 1980s was not the levels of debt authorised by the Department of the Environment, but the mechanisms that local authorities sometimes used to avoid those controls.

Ms Keeble

I am sure that those creative accounting techniques have no bearing on the changes that we are discussing today. The most scandalous accounting—I shall not call it creative accounting—was practised by Westminster council. Southwark council examined the local government spending rules and worked out how we could use those rules—completely within the law and approved by the Department of the Environment, as my hon. Friend the Member for Putney (Mr. Colman) said—to maximise spending on the local services on which our community relied.

That brings me to a matter which I am sure that my hon. Friend the Minister will mention. The experience of those years left me—and probably most my colleagues—in absolutely no doubt that the rules for local government spending were abstruse and chaotic and urgently needed reform. Both the revenue and capital rules should match closely the needs of the area, so that SSA calculations are not based on the nonsense of hotel nights, and so on. Capital should reflect expenditure. It should be calculated in such a way that money allocated may be spent on capital projects, such as schools, and is not allocated to different forms of notional spending that would ultimately skew the way in which the money is spent.

I had to wrestle with those problems for eight years, and for three years as leader of Southwark council. I am extremely pleased that the Government are considering ways of changing both revenue spending and capital spending to ensure that they provide a good, sound basis for service provision. I am absolutely delighted that, through some other departmental and job creation programmes, the Government are addressing some of the employment issues that were such a problem for the council. That will automatically ease the serious pressures on council revenue spending with which I and many of my colleagues have wrestled in the past.

9.56 am
Mr. Laurence Robertson (Tewkesbury)

I congratulate my hon. Friend the Member for Altrincham and Sale, West (Mr. Brady) on the way in which he introduced the debate. He put his finger on a complicated matter which has a great effect across the country, particularly in councils such as Trafford and Tewkesbury. I thank my hon. Friend for bringing the issue to the attention of the House.

The information that I shall use in my brief contribution was provided by the Under-Secretary of State, the hon. Member for Greenwich and Woolwich (Mr. Raynsford), a short time ago by way of a written answer. I am grateful for his assistance. When I examined the settlement in Tewkesbury, I found that the council faces a 5.1 per cent. reduction in its standard spending assessment. I found that quite odd, so I examined the situation more closely—the Minister was kind enough to provide the details—and I discovered that, if national totals had been taken into account, Tewkesbury would have received an increase of 0.8 per cent. If demographic changes in Tewkesbury had been taken into account, it would have had an increase of a further 0.6 per cent. However, the method of distribution would have meant a loss of 6.5 per cent.

Because of the changes, the net reduction in Tewkesbury is 5.1 per cent. I am told that changes in the composition of the indices in the all other services block and changes in the treatment of debt are responsible for that. That seems rather unfair. Tewkesbury does not have any debt, and that seems to have cost it dearly. My office contacted Tewkesbury's finance section yesterday, which agreed that the settlement was unfair. The council said that it might not have paid off its debts if it had known that the new system would be introduced. I am sure that many councils will be encouraged to take on more debt, in the knowledge that the Government will bail them out. The Government seem to have created a rather odd system that will encourage debt, which must lead to a reduction in council services throughout the country.

Mr. Colman

Will the hon. Gentleman join me, as a Member of Parliament with a Tory-controlled council—Wandsworth—which has reduced its services, in condemning Tory Wandsworth for sitting on more than £30 million of balances and refusing to pass a Labour group proposal for a lower council tax of £295, when it has been affected in a similar way to the hon. Gentleman's council?

Mr. Robertson

I will certainly not join the hon. Gentleman in condemning any council. I am not making that point, and I do not have the knowledge to speak about Wandsworth, although I understand that it has held a responsible level of council tax, community charge or rates for many years.

If a council increases its debt, the voters in the area should, unfortunately, have to pay for it until the next opportunity to kick out that council. I do not see why people in Tewkesbury, which has incurred no debt, should have their grant reduced simply to pay for the sort of councils that my hon. Friend the Member for Altrincham and Sale, West discussed.

Ms Keeble

Can the hon. Gentleman relate figures for finances to the services provided? People are extremely interested in what they get for their money. In particular, could he say what his county council is doing about some of the services that are most important to local people, for example, nurseries?

Mr. Robertson

The hon. Lady may recall that I asked a question of the Secretary of State for Education and Employment about Gloucestershire county council. Mistakenly, the right hon. Gentleman assumed that it was under Conservative control and condemned it for its nursery policy. In fact, for many years, it was controlled by the Liberal Democrats, so he got that wrong. He also got another aspect wrong, as the Labour group on the council has tried to deny passported money going to schools, and it is going to the schools only because of the Conservative group on the council. Therefore, perhaps the hon. Lady ought to look a little more closely at the matter than the Secretary of State did on that occasion.

To return to the reply that the Under-Secretary was kind enough to give me, it seems that the reduction in total of revenue support grant and redistributed non-domestic rates in Tewkesbury exceeds the reduction in the SSA. The hon. Gentleman informed me that that follows changes to the SSA system and, crucially—this will come across to council tax payers in the near future—one of the causes of the change has been a shift in the cost of local authority services from central Government to council tax payers. With the new change, it seems that the cost has been shifted only to certain council tax payers—in other words, those in prudent authorities and not those who live in the sort of authorities that my hon. Friend the Member for Altrincham and Sale, West so eloquently described.

10.1 am

Mr. Tim Yeo (South Suffolk)

I am grateful to you, Mr. Deputy Speaker, for calling me rather earlier than I had expected. That gives me the chance first to congratulate my hon. Friend the Member for Altrincham and Sale, West (Mr. Brady) on what everyone present would recognise as a speech impressive in its command of a complex subject, eloquent in its trenchant denunciation of the extraordinary change that the Government have made in the capital financing adjustment this year and powerful in its conclusions, to which I will return.

The debate is important because we are just beginning to see the consequences of the changes to the capital financing adjustment and timely because those changes will become apparent to council tax payers throughout the country in the next few weeks as demands hit mats. Although change in the capital financing adjustment is a complex issue, the consequences of that change are fairly simple and I shall concentrate on them. The effects of that change, and a number of other changes in the way in which SSAs are calculated, are beginning to be revealed in a series of record increases in council tax. In the next five or six weeks, council tax increases in a large number of authorities will be higher than any increase since the system was introduced.

Mr. White

In the 1996 Conservative Government's Budget, it was stated that council taxes for last year and this would be raised far higher than inflation, to shift the balance back to local tax payers. That was the your Government's policy, but you seem to have forgotten that.

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I must remind the hon. Member that I was not a part of any Government.

Mr. Yeo

I am glad that the hon. Member for Milton Keynes, North-East (Mr. White) raised that point, as I intend to come directly to it. The Secretary of State for the Environment, Transport and the Regions has confirmed that, had the Conservative party remained in power, the average rise in council tax would have been significantly less than the rise that results directly from the Labour Government's decisions. We have him on record in the House saying so, and I shall quote the relevant section of Hansard in a moment. This year will be notable for record increases in council tax and, unfortunately, for reasons that I shall explain, it may not be the last year in which we have such increases.

I was surprised by the speech of the hon. Member for Northampton, North (Ms Keeble), who spoke of her experience in Southwark. Given the record of that borough, frankly, I would rather have kept quiet in the House about my involvement.

Ms Keeble

As I said, all of us have made mistakes. However, is the hon. Gentleman aware that Southwark was the only council that froze the poll tax for the whole three years that it was in existence?

Mr. Yeo

I am afraid that we are not debating the poll tax and it was not even directly the cause of the Conservative defeat at the election last year, since it was abolished before the previous election, which the Conservative party won. It is difficult to see how one can relate that tax to the change in the capital financing adjustment, which is the subject under debate. The hon. Lady referred to Southwark at some length and, given the borough's record, I should have thought it wiser to keep quiet about any connection with it, had I had any such connection—I am glad to say that I do not.

If the hon. Lady had troubled to inquire about the subject that we are debating, she would have found that Southwark has lost £862,000 of SSA directly as a result of the change. Like many other inner London boroughs, it has suffered badly in the SSA calculations this year because the Government and the Labour party are so consumed with envy at the outstanding success of Westminster and Wandsworth they have deliberately fiddled the formula to attack Westminster and, unfortunately, have swept up a lot of other inner London boroughs as well. I hope that, after they have seen enormous rises in council tax in London, that point will not be lost on voters in inner London on 7 May.

Mr. Adrian Sanders (Torbay)

It is not merely the London borough of Westminster that has lost out in the settlement. One of the other changes in the formula has been the adjustment to the bed nights, which has cost many coastal resort local authorities and areas that receive visitors a great deal in their SSA this year—something which the Minister, in a recent debate, agreed to reconsider for next year. I hope that the hon. Gentleman will re-emphasise that. The restoration of the special recognition of the extra costs of being a tourist area, such as providing more public conveniences, car parks and leisure facilities, would be welcome. The loss of that recognition has also cost council tax payers dear.

Mr. Yeo

The hon. Gentleman is right to draw attention to that matter. I confess to having some sneaking sympathy for the Minister. Dividing up the cake among the local authorities is a problem for any Government. They will never produce a formula that will satisfy every local authority or even every group of authorities, because they have directly competing interests in this matter. Whatever the size of the overall cake, some will be disappointed.

As my hon. Friend the Member for Altrincham and Sale, West rightly pointed out, the problem about those changes is that they seem to have been motivated by a desire to penalise authorities that have been acting responsibly. Southwark has lost out, and I hope that the former voters in Southwark of the hon. Member for Northampton, North will be aware of that. Northamptonshire county council has also lost badly as a result of the change, and I am sure that her voters will be interested in the enthusiasm with which she supported the Government's decision to make the change when it has clearly penalised them so directly.

The consequence of the changes is a huge rise in council tax. Throughout the country, council tax payers and service users are starting to learn exactly what it means to have a Labour Government at Westminster. It is clear, even before next week's Budget, that Britain cannot afford a Labour Government.

The capital finance adjustment and the other changes to the calculation of SSAs will result in an increase in council tax in Devonshire of 19 per cent., in Northumberland of just under 18 per cent., in Cheshire of 17 per cent. and in Norfolk of nearly 16 per cent. I could name several other councils that face equally formidable increases. For example, Gloucestershire, which includes the constituency of my hon. Friend the Member for Tewkesbury (Mr. Robertson), faces an increase of almost 11 per cent.

Mr. Andrew Reed (Loughborough)

Does the hon. Gentleman accept that the standard spending assessment is a complex issue? Last year, under a Conservative Government, my local authority of Charnwood—of which I was then a member—faced a 12 per cent. increase because of the changes in the SSA, despite the fact that it raised its spending only in line with inflation. Does he accept that, because the SSA is so complex, there will always be such variances?

Mr. Yeo

As I said in response to an earlier intervention, I recognise that any change in the SSA formula is likely to produce losers as well as winners, which is a matter of concern to those authorities and residents that are affected. Our concern is whether the capital financing adjustment is justified, why it was made and what its consequences will be.

The effects of the change are by no means confined to the shire counties that I mentioned. In Wakefield, for example, the increase in council tax will be nearly 12 per cent. and in South Tyneside it will be nearly 10 per cent. Even in London, where there will be elections on 7 May, there will be substantial increases—Hillingdon, for example, faces an increase of 12 per cent.

Mr. Gibb

Is my hon. Friend aware that none of those figures take into account the consequences of the Government's decision to end dividend tax credits paid into pensions funds, which means that there are further increases in the pipeline? The county council in West Sussex, which covers my constituency, is £4 million a year short because of that measure, which is equivalent to a further 3 per cent. rise in the council tax.

Mr. Yeo

My hon. Friend makes a most important point, to which the House will soon want to return, especially when, in the next few months, the results of the actuarial valuation are published. The Government have been waiting for those results to establish what action should be taken to deal with the huge burden that has been placed on all employers, particularly local authorities.

The pensions tax will lead directly to substantial increases in council tax or to substantial cuts in services unless the Government give an unequivocal assurance that the full amount of any shortfall—any additional employer's contribution that councils will have to make—will be covered by an increase in the SSA. The Government have refused to give such an assurance, which is extraordinary, as the more prudent councils may want to start taking into account that huge new burden in their longer-term spending plans. Without that assurance, they may find it necessary in the next budget round to start planning substantial service cuts or even more swingeing increases to the council tax.

Mr. Colman

I declare an interest as the chair of the United Kingdom standing committee on local authority superannuation funds. The average funding is just over 90 per cent. of the full funding level. For a number of local authorities, it is significantly higher—way above 100 per cent. The main reason why the figure is 90 per cent. is that, in 1990, the previous Government asked for a reduction in funding levels to 75 per cent. to pay for the implementation of the poll tax.

Mr. Yeo

The hon. Gentleman emphasises the gravity of the situation. If he is concerned that the funding level is inadequate, how can he support a tax that makes the position very much worse? He has made the case for the Opposition more eloquently than anyone has before. It is precisely because there is concern about funding levels in local authority pension funds that it is a disaster for the Government to refuse to give the assurance that the councils need.

Council tax payers in the various types of authority will face increases—if I had time, I could give a much longer list. The local authorities that I mentioned have one factor in common: they have all suffered as a result of the Government's decision to change the treatment of local authority debt that was incurred before 1990—in other words, to change the capital financing adjustment.

Mr. Colman

The constituency that I represent is covered by Wandsworth local authority, which has also "suffered"—to use the hon. Gentleman's word—because of the change. Will he join me in condemning the fact that Wandsworth has refused to reduce its council tax to the level that the Labour group wanted—£295—despite the fact that it was able to build up a balance of £30 million through the Tory years of special treatment?

Mr. Yeo

I am happy to debate with the hon. Gentleman—all day, if necessary—the merits of the London borough of Wandsworth, which is an absolutely outstanding example of how to run a local council. It is a byword for efficiency, innovation, satisfactory service and value for money, as the residents have shown by continuing to return a Conservative majority.

I had the pleasure of visiting Wandsworth the other day; it was the same day that I happened to visit Hampstead, in the London borough of Camden. In Wandsworth, I was told how public libraries were to be open on Sundays; in Hampstead, I was told that public libraries were closing—they were closed not only on Sundays, but on every day. That is the difference between an authority that embraces the opportunities of partnership with the private sector and is determined to continue increasing value for money and the quality of its services, and one that sits back and adopts the old socialist local government nostrums, which have been tried and which have failed so many times.

Mr. Brady

I was intrigued by my hon. Friend's mention of libraries. He may be interested to note that, in my constituency, the borough of Trafford, which is now under Labour control, has recently decided to close three public libraries. The Government are supposed to be championing literacy, but they are taking away money from the borough.

Mr. Yeo

My hon. Friend makes a most important point. That is another example of how the Government like to say one thing when their actions cause the opposite result. We have seen that time and again.

Each of the authorities that I have mentioned have suffered as a result of the change to the capital financing adjustment. On 2 December, in the statement on the revenue support grant settlement for next year, the Secretary of State for the Environment, Transport and the Regions confirmed—it can be found at column 161 in Hansard—that the council tax rise should be 7 per cent. if the Government continued to use the Conservative Government's figures and estimates on public spending. By the time that the Secretary of State and his fellow Ministers had finished fiddling the formula, many local authorities faced increases of double that amount—some of the ones that I have mentioned face increases substantially more than that.

My hon. Friend the Member for Altrincham and Sale, West rightly described the changes in the capital financing adjustment as a stealthy and hidden way of taxing people. As he pointed out, the effect of the change is to penalise local authorities that have chosen to repay their debts rather than to spend more money. That is a legitimate choice—many people would call it prudent. It certainly should not lead to council tax payers being penalised by a funding fiddle and a distortion of the formula.

Let us consider Hampshire county council, whose SSA was cut by more than £;3 million as a result of the change. Not surprisingly, on 2 January, the council wrote to an official at the Department of the Environment, Transport and the Regions about the change. It says in paragraph 14.1—in case the Minister's officials happen to have one to hand for his benefit: Hampshire County Council considers the change to the 1990 debt indicator in the Capital Financing SSA a retrograde and unfair amendment to SSAs. It effectively transfers support from councils who prudently used capital receipts to reduce debt to those who used them to increase their capital programmes. Whilst this was a perfectly legitimate decision to take, it should not result in higher SSA. This breaches the fundamental principle that SSA distribution should not be influenced by the spending decisions of individual councils…councils like ours are being unfairly penalised for their prudent policies. My fear, which I think may be shared by my hon. Friend the Member for Tewkesbury, as well as by my hon. Friend the Member for Altrincham and Sale, West, is that the change has been made not for reasons of need or because a careful study has been made of the relative levels of deprivation in one authority as compared with another, not because there has been some move of population, not even because the Government have reconsidered what kind of facilities are needed in places such as holiday resorts on the south coast, but purely for political reasons.

It is mostly—not all, I accept—Conservative local authorities that prudently repaid their debt, so it is mostly Conservative local authorities that suffer under the change. The trouble is that, whichever party controls the local authority affected by the change, it is the people who live in that area who suffer and will have to pay higher council tax, and will find that local authority services in their borough, district or county are reduced.

As the change rewards authorities that were high spenders, people are likely to suffer even more in the future. Councils can read signals as well as hon. Members. My hon. Friend the Member for Altrincham and Sale, West was right to draw attention to this point. The Government are encouraging spendthrift councils and penalising prudent councils.

Ms Keeble

I am surprised that the hon. Gentleman regards the measure as unfair. Surely, if councils do not have capital spend because they have repaid debt, they do not need recognition of the impact of their capital spend on revenue budgets. Surely it is right that the Government should take cognisance of the impact of capital programmes that were approved by the Department of the Environment on revenue budgets. Otherwise, revenue budgets, especially for road improvements, get clogged up by the servicing of debts.

Mr. Yeo

The difference between us is simply that the Conservative party has a different approach. We believe that, if a council can see ways of saving money on behalf of its taxpayers, it should be encouraged to do so, not discouraged from doing so. That is why we structured the SSA calculation to give that encouragement. That is why I find the change so alarming, not just for this year—although it is bad enough for this year—but for future years. If councils are told, "Don't worry. Don't bother to do anything prudent. Don't say that you believe in saving or investment but just go ahead and be as extravagant as you want," that is what some councils will do. Not all councils will do so. Councils under Conservative control—too few at present, but about to increase in number, I am sure—are unlikely to respond to that signal, but other councils may do so. That is what is so worrying. People in those areas will suffer.

Mr. Andrew Lansley (South Cambridgeshire)

I apologise to you and the House, Mr. Deputy Speaker, that I cannot be here for the whole of this debate.

The point that my hon. Friend makes is a good one. Does he recognise that the authorities that underspent on capital in respect of debt interest payments in relation to the SSA, such as mine in Cambridgeshire, were able to use that excess headroom to support service provision elsewhere? Is there not a corollary that those who were spending on debt interest over and above the SSA ought not to be bailed out so that they do not suffer the income detriment?

Mr. Yeo

My hon. Friend has put his finger on an important point which goes to the heart of the matter. I agree with what he says. I am glad that he has drawn attention to the record of his authority. Hon. Members on both sides of the House ought to be aware of the consequences of the change now and in the longer term for their local authorities and the people who live there.

On a number of matters, the Government have been at pains to lay great stress on the importance of consultation. I pay tribute to the volume of consultation papers coming out of the Minister's Department in recent weeks. I believe that we shall be getting some more on such alluring subjects as whether the Minister will honour the Government's election pledge to end crude and universal capping. We await that one with great interest. I hope that it will give some explicit answers, perhaps more explicit than the recent paper on best value, which left unanswered almost as many questions as it dealt with. If the Minister would like to give us any hints of what will be in the paper on capping, it would be riveting information for those of us who have troubled to come along for today's debate. Everyone in the House has an intense interest in the financing of local government. It is not a particularly fascinating debate for those who do not have an interest, but we should like a clue about what is coming up on capping.

The Government have laid great stress on consultation. That is why I was surprised to read in the letter from Hampshire county council, to which I have already referred, in paragraph 14.3: It was not the subject of consultation with the Local Government Association in this year's SSA SubGroup meetings. I find it rather shocking that a Government who keep telling us that they want to consult before they make changes have slipped this one through. Perhaps they were afraid of the response that the consultation might produce.

Overall, the effect of the change has been to remove £52 million from the SSAs of shire counties. It has added £33 million to the SSAs of metropolitan districts. Once again, the Government's priorities are clear. When it comes to allocating public money, new Labour always favours the towns and hits the countryside. My hon. Friend the Member for Altrincham and Sale, West drew attention to Trafford council libraries in his constituency. We keep hearing from the Government that they are governing in the interests of all the people and want to respond to the recent impressive demonstration of concern by people from rural areas, yet when it comes to making a hard choice between town and country, they choose to take the money away from the shires.

Out of the 34 shire counties, all but two lose SSA directly as a result of this change in the methodology. Lancashire loses more than £3 million and will have to raise its council tax by 14 per cent. Essex loses close to £3 million and will have to raise its council tax by almost 15 per cent. Lincolnshire loses more than £1.5 million and will have to raise its council tax by more than 13 per cent. The list goes on and on.

Mr. Lansley

The list could go on. Will my hon. Friend reflect that it is not only that a county council such as mine will lose £1.5 million and will have to increase its council tax by 10.2 per cent. but that, as a consequence of capping—Cambridgeshire is capped at a relatively low level of council tax—it will have to cut services? There is a threat to close four old people's homes in Cambridgeshire alone.

Mr. Yeo

My hon. Friend is right. I am glad that he quoted Cambridgeshire. I should have included it on my list if I had realised that he would be present, but it is better that he should do so. He is also right to draw attention to the fact that not only is this about increases in council tax—painful as they will be for people who were told last year that Labour would not increase taxes—but it is a clear example of broken pledges even before we have had what we understand will be further substantial taxes on motoring. My hon. Friend is right to say that this is also about cuts in services. We shall see wholesale cuts in services throughout the country in the next few months, made by Conservative, Labour, Liberal and coalition councils. They all face the same dilemma. That is the direct consequence of the decisions made by the Labour Government since 1 May last year.

Ms Keeble

I thank the hon. Gentleman for giving way again. I appreciate that I have been up and down quite a lot in this debate. I do not understand why councils should have to make cuts. If the SSA provides them with an element of spending to service debt and if your argument is that good councils have paid off their debts and do not need the money to service their debts, they should not have to raise revenue to compensate. That is my understanding of your argument.

Mr. Deputy Speaker

Order. The hon. Lady has been here long enough to realise the form of address.

Ms Keeble

That is what I understand the hon. Gentleman's argument to be. He undermines his own argument.

Mr. Yeo

Those authorities could see what the standard spending assessment calculations were last year. As we learn from Hampshire, they did not have a chance to express a view about the changes this year. I see the Minister shake his head. He will be able to respond in due course. I quoted from a letter.

The change clearly has an adverse effect on the authority's SSA. To compensate, it will have to raise tax or cut its services, and many authorities will do both.

Mr. Lansley

My hon. Friend has been generous in giving way to me, as I arrived late. Does he recognise that, last year, for authorities such as mine, a notional debt level was built into their SSA allocation and, because they had extinguished their debt, they could use that SSA for service provision whereas, this year, because of the Government's change in funding, that notional debt has been reduced, the SSA has been reduced, and the money is not available for service provision?

Mr. Yeo

That is exactly the point. I congratulate my hon. Friend on expressing it so succinctly. A change that was not based on an assessment of changing need, but was simply a financial change—made out of pique, I suspect, for political reasons—has reduced the resources available to authorities such as Cambridgeshire county council, which will therefore have to cut services, raise council tax or both. The service cuts will be painful for those who have relied on local authority services hitherto.

The settlement will be expensive for council tax payers throughout the country, especially in the authorities to which I referred. In the shire counties, the average council tax rise is almost 12 per cent.—three times the rate of inflation. Band D taxpayers in shire counties will pay an extra £120 next year. The average council tax rise across the country looks as though it will be about 8.5 per cent. Even in the metropolitan districts, the group most favoured by the Government, the increase will be more than twice the rate of inflation.

Mr. Reed

Does the hon. Gentleman accept that Charnwood borough council hardly represents an urban area, yet our council tax increase this year will be 7 per cent., and the Labour-controlled local authority there, in a shire borough, will raise its spending by 3.4 per cent. again, almost in line with inflation? Does he recognise that the urban-rural myth that he is trying to perpetuate is unacceptable?

Mr. Yeo

It is not a myth, but a fact, and it is unacceptable. It is revealing of the situation that we have now reached that the hon. Gentleman gets up and says proudly that, in his area, the council tax will be up by only 7 per cent. If we had had a Conservative Government, that would have been the average for the whole country. A loyal Government Back Bencher would not get up and boast what a wonderful outturn it was for Charnwood that its council tax was up by only double the rate of inflation, and only double the rate at which actual spending has increased. That would have been the case across the country, had the Conservatives still been in government.

I have had rather longer than I expected to explore the subject, and I am grateful for that opportunity and for the contributions of my hon. Friends. There are plenty of questions for the Minister to answer. I hope that he will explain why the change is justified, and confirm that the consequences are as they have been described. I hope that he will give an assurance that, next year, proper account will be taken in good time of the concerns of authorities that are adversely affected by any proposed changes.

We have concentrated this morning on the capital financing adjustment, but, as the Minister knows, there were other changes to the SSA methodology about which we were concerned. It is an important and complicated subject, on which genuine consultation is necessary. I hope that he will give us some assurances about that.

10.33 am
The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Nick Raynsford)

I congratulate the hon. Member for Altrincham and Sale, West (Mr. Brady) on his success in securing this debate. By the end of it, he may feel a little less satisfied at having chosen the subject because a great deal of the innuendo and comment from his side of the House has been incorrect, is based on a misunderstanding of what has happened and has no substance in fact, as I shall demonstrate during the next 20 minutes or so.

As we probably expected, the debate has ranged more widely than the SSA element for debt repayment. It might therefore be appropriate if I make some general points before dealing with the specific subject raised by the hon. Gentleman.

This Government have a new agenda for Britain's future and a vision for local government's place in that future. We want to reinvigorate local government in ways that encourage increased democracy, with local people having the chance to have more of a say in the affairs of their council; increased autonomy, with more freedom for authorities to take their own decisions; increased accountability, with elected representatives being more visibly accountable for their actions; and increased partnership between central and local government and between local authorities and people, businesses and groups in their areas. As the hon. Member for South Suffolk (Mr. Yeo) observed, we are issuing a number of consultation papers that focus on those and other matters to encourage a serious debate about how we take forward the future of local government.

As part of the process required to achieve our aims, a review of local government finance is being carried out by our Department, working closely with local government, business and other representative organisations and other departments. Consultation papers on possible changes to aspects of the local government finance system will be issued over the next month or so, as part of the wider consultation on modernising local government.

The volume of local government business reflects the importance that we attach to local government. The local government agenda will keep us all busy over the current parliamentary term and, I hope, beyond it. We need to make prompt progress. Our agenda is positive. We are a Government who want to be judged on our success in improving the quality of life for all people and by the extent to which we have made a difference. The extent to which local government is delivering services efficiently and in an accountable way to local communities is extremely important to us.

On local government funding, all public expenditure programmes must be examined rigorously each year; local government spending, which accounts for a quarter of all public expenditure, is no exception. Decisions on local government spending must look not only at the pressures on local authorities, but at the scope for greater efficiency and effectiveness within local authorities.

We are committed to working within the public expenditure plans that we inherited from the previous Government. While keeping within existing spending targets, we have reorganised priorities. We have put £835 million more into education, every penny of which will be covered by an extra £835 million of revenue support grant. That is a better, fairer, more flexible settlement than in previous years and has allowed an increase of total standard spending by 3.8 per cent.

We have provided an extra £350 million for community care. We have also provided £1.3 billion for capital spending needs to improve the state of school buildings through the new deal for schools and £800 million extra for housing through the capital receipts initiative.

We are committed to reviewing the local government finance system in future years, but we will continue to expect local authorities to behave prudently and responsibly.

Mr. Gibb

I was interested in that list. How much did the Minister allocate to local government when he heard the July Budget and the announcement that dividend tax credits repayments would be ended? What assessment has he made of the impact that that will have on local authority pension funds?

Mr. Raynsford

The hon. Gentleman raises an issue which was raised in the earlier debate. He will know from earlier discussions that there is no impact in the current year as a result of that change. As the hon. Member for South Suffolk recognised, the actuarial assessment is currently taking place. The Government have always made it clear that as and when that assessment has been made and the net cost—I emphasise the net cost, after compensating savings have been taken into account, rather than the gross cost figures which are misleading and have been unwisely bandied about in recent months—is known, the Government will take those figures into account in framing the appropriate support for local authorities in future years. I repeat that there is no impact in the current year.

Mr. Brady

I am concerned by the Minister's suggestion that there is no impact in the current year. Surely the fact that there has been no actuarial revaluation yet does not mean that there has been no impact in the current year. It simply means that in a future year, when the revaluation has taken place, a greater provision will have to be made to make up for this year when nothing has been done.

Mr. Raynsford

The hon. Gentleman fails to understand that local authorities must act on the basis of an actuarial assessment and that their contributions are fixed on that basis until the next valuation. When the next valuation takes place, the impact is taken into account and the contributions, net of savings which may result, will be decided. That is why there is no impact in the current year.

SSAs are the basis for the distribution of revenue support grant. They are based on measures of spending need that apply to all authorities and are discussed with local government representatives. I want to knock on the head one of the falsehoods that have been peddled this morning—the suggestion that the changes have been introduced by stealth and that local authorities had no opportunity to discuss them. That is not true. They were discussed at the SSA sub-group which discusses the local government settlement each year. The issue has been debated on numerous occasions and was raised at the sub-group this year.

The SSAs for 1998–99 were debated in the House on 5 February, and the local government finance settlement for 1998–99 has been agreed. Having said that, we are committed to a fair distribution of Government grant among authorities and believe that there is still scope for improvement in the arrangements in future years. My colleagues and I will look closely at the current SSA system. We will listen to local government views on how SSAs might be improved, both for 1999–2000 and in the longer term.

As the hon. Member for South Suffolk said, changes inevitably produce gainers and losers. Some authorities will plead for changes that benefit them—it is the nature of their role—and others will plead against them because they adversely affect their future prospects. That is why the Government must reach an informed judgment about the balance of merits and disadvantage in deciding what is best. That is what we have done this year and it is what we will seek to do in the future.

Mr. Lansley

The Government felt able to make changes to the SSA methodology for this year, but they failed to live up to their promise to introduce the changes recommended by the Elliott review into the area cost adjustment. Will the Minister give a pledge that the review will be completed in time for changes to the area cost adjustment to occur for the 1999–2000 financial year?

Mr. Raynsford

The area cost adjustment has been debated previously: the hon. Gentleman raised it in an Adjournment debate I answered some time ago. I made it clear at the time that we had undertaken to review ACJ this year before the settlement was reached. The fact that we have not carried out the proposed changes is simply a reflection of the fact that there was a stark division of opinion in local government about the impact. Some authorities—notably the hon. Gentleman's local authority, Cambridgeshire—were keen because they would gain from it. Others who would lose were opposed.

In our discussions, it emerged that there were possible alternatives, including a specific cost option, which had not been researched thoroughly. We believed—it is an entirely responsible decision—that that research should be undertaken and evaluated before any final decision was taken on a matter that is inevitably controversial, as it benefits some authorities and damages others. That is in train and we will discuss it further when we have the benefit of the further research on the specific cost option.

If the hon. Member for Altrincham and Sale, West believes that the SSA system does not treat Trafford fairly, I would be happy to examine any proposals he has for different methods of calculation. However, I stress to him—and to any other hon. Member who raises these issues—that any decision has to be universal and the changes must apply to all authorities. We must consider the impact in the round—both the negative and the positive. We want to feel confident that the changes will produce a sounder assessment of need.

Mr. Brady

I thank the Minister for his generous offer to take account of any proposals I may make about a fairer way of assessing SSA for the borough of Trafford, provided they can be taken in the round. The point he made about gainers and losers is important. As a matter of generality and principle, will the change reward or benefit authorities with high levels of debt in the 1980s and penalise those with low levels of debt in the 1980s?

Mr. Raynsford

I will come to that point in a moment. I have advised the hon. Gentleman that he might not be happy with the evidence I shall present to him.

For 1998–99, we decided that it was sensible to change the method of calculating the capital financing SSA. During the 1980s, local authorities had a choice of whether to use capital receipts to pay off debt or to finance new capital expenditure. That choice was made available by the then Conservative Government and it continued until 1990. Decisions taken on whether to apply receipts for debt redemption purposes or for new investment were entirely legitimate, and authorities were perfectly free to come to a decision under the arrangements.

When SSAs were introduced in 1990, the previous Government decided to favour those who had applied capital receipts to debt reduction and penalise those who had chosen new capital expenditure by treating everyone as if they had chosen to use capital receipts to repay debt early. I stress that that was not a requirement of the regime that existed prior to 1990. There was a retrospective process of rewarding some and penalising others for decisions taken prior to the introduction of the new arrangements.

Mr. Yeo

Does the Minister think that it is wrong to reward prudent councils?

Mr. Raynsford

It was wrong to introduce regulations that had a retrospective impact when authorities had no way of knowing that they would be penalised as a result of acting in a way accepted by the then Government as entirely proper. It was a shabby change in the regulations and it caused widespread concern in local government. I am surprised that the hon. Gentleman is defending it.

Mr. Yeo

If the Minister thinks it is so shabby, why is he doing exactly the same thing now?

Mr. Raynsford

If the hon. Gentleman listens, he will hear that we are making a change to restore the fairness that should have existed from 1990. We are not making a change that will benefit any authority as a result of their decisions on whether to use receipts for one purpose or another. Their decisions will have no impact on their SSA entitlement. Decisions taken prior to 1990—decisions taken one way or the other in a perfectly proper way within the rules that applied at that time—should not retrospectively result in an authority getting more or less SSA than they should be entitled to. That was the error of the Conservative Government. I am surprised that the hon. Gentleman is defending it.

Mr. Yeo

The only difference between what the Minister is doing now and what the previous Government did—which he says was shabby—is that the effect of the change made by the previous Government was to benefit prudent authorities and to damage spendthrift ones. In line with old Labour thinking on this matter, he is making the same type of change—the only difference being that he has chosen to benefit the spendthrift authorities and to hit the prudent ones.

Mr. Raynsford

The hon. Gentleman is wrong on this, as on so many other issues. The change is creating a fair framework that will treat all authorities on an equitable basis. The debt is being assessed on either the actual or the notional—whichever is the greater. This will be a fair system, reflecting the position as at 1990, so that authorities will be subject to a regime they can understand and of which they know the consequences. However, they will not be retrospectively penalised for decisions they took in good faith before that date—perfectly legitimately—for which the previous Government penalised them.

That was a typical example of the previous Government making assumptions after the event about how local authorities should have treated capital receipts. Authorities that had properly decided to use their receipts to finance new capital expenditure felt justifiably aggrieved. To correct this, we decided that the debt calculation for the 1998–99 settlement should be based on an estimate of 1 April 1990 debt which is the greater of actual or notional debt. This will enable authorities that chose in the 1980s to undertake capital expenditure rather than repay debt early to meet their unavoidable loan charges while allowing them to spend at SSA on services such as education, health and police.

Mr. Gibb

The change in the formula will result in West Sussex receiving £2 million less from central Government. How can that be fair?

Mr. Raynsford

The hon. Gentleman clearly has not been listening. Any changes in the formula will have an impact. There are gainers and losers. If he will wait a moment, he will understand that the changes will not have the consequences that he and his colleagues have suggested. They are not designed to reward the profligate and penalise the prudent. That is simply not the case, as I shall demonstrate in a moment.

By taking the larger of the actual or notional debt, we have ensured that other authorities that chose before 1990 to repay debt early will continue to receive SSA provision for the capital expenditure required to provide necessary services. Thus both groups of authorities are treated fairly, whereas the previous arrangement penalised one and rewarded the other.

As the hon. Member for Altrincham and Sale, West pointed out, the change to the treatment of debt at 1 April 1990 has resulted in a reduction in the SSA element of debt charges for some authorities, including Trafford.

That is not the case in Tewkesbury. As a result of the adjustment to the capital spending SSA, some —20,000 extra was given to Tewkesbury.

Mr. Laurence Robertson


Mr. Raynsford

From the hon. Gentleman's earlier intervention, he seemed to have a rather different impression.

Mr. Robertson

I am grateful to the Minister, who has been generous in giving way. I was quoting from the written answer that he gave me.

Mr. Raynsford

The hon. Gentleman must look carefully at the response. The overall impact was a reduction, because there were a number of changes. In terms of the change to capital financing, Tewkesbury was a gainer, so the change does not have an adverse effect at all on Tewkesbury, which demonstrates the incredible complexity of the process. When one is juggling a number of different indicators, there will be some that gain and some that lose. The overall impact is not terrifically predictable. That is why it is so important to try to ensure that we are as fair as we possibly can be.

It is inevitable that there will be some losers when there is a change to SSA methodology, particularly with a service such as debt charges, where the national amount is determined in relation to the amount that authorities will in aggregate spend on borrowing costs in the coming year. However, I am convinced that the change to the methodology was fair and proper. It was discussed with local authority associations in the SSA sub-group and the outcomes are a major improvement on the previous methodology. There would, of course, have been no need for any painful adjustments in the coming year if the previous Government had adopted a fairer basis for sharing the costs of borrowing when SSAs were introduced.

Mr. Sanders

Is the debate not connected to the use of the public sector borrowing requirement and how it impacts on local spending decisions on capital items? Does the Minister favour the alternative—general government financial deficit system—which would iron out many of the anomalies that stem from the 1990 changes?

Mr. Raynsf ord

The debate has ranged widely, but I suspect that I would incur your wrath, Mr. Deputy Speaker, if I were tempted to stray into the territory of the public sector borrowing requirement, which the hon. Gentleman invites me to do, so I shall stick closely to the subject of the debate—capital financing SSA rules.

It has been argued that the change allows authorities to influence their SSAs. That is one of the charges that the Opposition have made. Let me make it absolutely clear that we have no intention of allowing authorities to take decisions that will affect their SSA entitlement. The adjustment simply reflects the position before the introduction of SSAs in 1990. There is no possibility of authorities taking decisions that will influence their entitlement in any way.

Mr. Lansley

The Minister is mis-stating the proposition in order to attack it. The point is that, through the change, he is seeking to replace a notional basis of debt calculation in an SSA with an actual debt calculation from the 1980s, when the SSA, as we know in respect of expenditure, is a notional rather than an actual figure. It is not a target for spending but an assumed level of spending, just as there was an assumed not an actual level of debt.

Mr. Raynsford

The hon. Gentleman has clearly not been following the debate closely. The whole basis of the assessment is to ensure that legitimate decisions taken by authorities before 1990, when the new system was introduced, should not have an adverse impact on authorities' entitlement to SSA.

Neither does the change condone creative accounting. The suggestion that it does is one of the more preposterous arguments advanced by the Opposition this morning. Any creative accounting would, by definition, have been used to get outside the normal borrowing procedures. It is not taken into account in the provision of SSA cover for debt repayment.

It has also been argued that the change to the debt charge methodology is designed to favour so-called high-spending profligate Labour authorities at the expense of low-spending Conservative authorities. That is not the case. It is always difficult to convince Opposition Members of this because there are so few Conservative authorities left where one could demonstrate the impact, but one of the largest gainers from the change is the royal borough of Kensington and Chelsea. I hope that the hon. Member for Altrincham and Sale, West will recognise either that that borough is profligate and Labour controlled or that his argument is false.

The reality is that the royal borough of Kensington and Chelsea has been Conservative controlled throughout the past 20 or 30 years and is one of the largest gainers from the change, which entirely kills the preposterous argument that we are acting in a partisan way.

Mr. Brady

I thank the Minister for giving way once again, but is the best that he can do to find a particular case that he claims disproves the generality of the situation? Boroughs such as Trafford, which was under Conservative control throughout the 1980s and, like many other local authorities, ran its affairs prudently, are being punished. The Minister cannot escape from that by using Kensington and Chelsea as an example.

Mr. Raynsford

I thought that the hon. Gentleman might say that, so I have some examples of prudent authorities that have been penalised as a result of the changes. Those suffering a larger reduction than Trafford include Lancashire, Sunderland, Coventry, Liverpool and Tower Hamlets. Does he regard those as prudent, well managed and being penalised unfairly? If he does not, his argument is false.

Mr. Brady

The principal mass of authorities that are being hurt by the measure are in the shire counties. My authority, and others that the Minister has named, may be exceptions of metropolitan areas that are suffering from the Government's attack, but the shire counties are losing £50 million.

Mr. Raynsford

The hon. Gentleman is extremely confused if he believes that Liverpool, Tower Hamlets, Sunderland and Coventry are shire counties. Even my authority, Greenwich, is in virtually the same position as Trafford, so I hope that Opposition Members will recognise that the change has been introduced because we believe that it is right, not because of its impact on the party political nature of any authority, or on particular benefits to any local authority.

Mr. Yeo

No amount of selective quotation from the list of more than 400 authorities can alter the fact that it is primarily, but not all, Conservative authorities that have been penalised, and it is primarily spendthrift Labour authorities that have benefited. If the Minister publishes the complete list in Hansard, those facts will be apparent to even the most casual reader.

Mr. Raynsford

The hon. Gentleman, like his hon. Friends, is confused. That intervention was in the same vein as his speech, which was full of inaccuracies and verged at times on the hysterical. He made a number of ill judged and unfounded allegations. The reality is that we have introduced the change because we believe that it is logical and that there is justice in it.

The particular circumstances of metropolitan districts such as Trafford are recognised in SSAs in several ways, including population density, shared facilities and various indices of need.

Trafford's 1997–98 SSA has increased by £4.75 million—3 per cent.—for 1998–99. That is the figure arrived at after adjustments for changes in function have been made. Much of that rise is due to the adjusted increase in SSA for education, everyone's top priority service, which in Trafford represents an extra £4.031 million—a 5 per cent. increase. The hon. Member for Altrincham and Sale, West must recognise that the Government are putting money into education in his area, which is right both for the nation and for the people of Trafford.

The RSG distribution for the 1998–99 settlement is a closed matter, following approval of the local government finance settlement by the House on 5 February, and it will not be reopened. It is now up to authorities to set their budgets in the light of all their circumstances, including the provisional capping principles.

We shall consult widely on the best way to take forward the future financing of local government. As I have already said, we are issuing several consultation papers, and will enter detailed discussions with representatives of local government on the matter. We also intend, as my right hon. Friend the Deputy Prime Minister has made clear—

Mr. Deputy Speaker (Mr. Michael Lord)


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