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Council Tax

Sir Hector Monro: To ask the Secretary of State for Scotland what steps he plans to take to protect Scottish council tax payers. [3236]

Mr. Michael Forsyth: During the past 10 years, current expenditure by Scottish local authorities has increased in real terms by 20 per cent., even after adjusting for additional responsibilities on authorities. In the same period, there has been an increase in Scottish local authority manpower levels. Since 1987, those levels have increased by almost 6 per cent. In the same period, staffing levels have reduced in England by over 6 per cent., despite the fact that English authorities have also had additional responsibilities such as care in the community transferred to them.

Since its introduction in 1993-94, the council tax in Scotland has risen faster than in England. The average band D tax has increased from £559 to £624 in the current year in Scotland and from £569 to £609 in England. In other words, there has been an increase of 11.6 per cent. in Scotland as compared with only 7.0 per cent. in England.

Against this background, I have decided that action must be taken to protect Scottish council tax payers. In addition to the significant increase in Government support for local authority spending next year which I am announcing separately, I plan to take the following two further measures.

The first concerns the use of CFCR by Scottish authorities. In the current year, authorities budgeted to spend a total of £132 million on CFCR, nearly three times the level in 1991-92. As CFCR is funded entirely from the council tax, increase in its use has pushed up tax levels. In the current year it has added £79 to the average band D council tax. Particularly in view of the predictions by some authorities of large tax increases next year, I have concluded that the use of CFCR needs to be curbed. For 1996-97 my intention is to use my powers under section 94 of the Local Government (Scotland) Act 1973 to limit consents for CFCR to a total of £62 million. As compared with the level of budgeted expenditure this year this will reduce the average band D council tax by £41. The detail of this, including how the £62 million will be distributed amongst authorities, will be the subject of discussion with the Convention of Scottish Local Authorities.

Despite my general desire to reduce controls on local government, I have concluded, especially against the background of the growth in expenditure, staffing levels and council tax levels in Scotland, that capping must be

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retained. I have therefore decided to announce provisional capping principles for the year ahead in order to assist local authorities in their budgeting process.

I have the power to cap a local authority either where I consider that its planned expenditure is excessive or where there is an excessive increase in its planned expenditure as compared with the previous year. My provisional capping principles for 1996-97 are:


Local Government Finance

Sir Hector Monro: To ask the Secretary of State for Scotland if he will announce details of the 1996-97 Scottish local government finance settlement. [3237]

Mr. Michael Forsyth: I have decided to improve on last year's plans and to allocate to Scottish local authorities the full amount of the extra sum added to the Scottish block as a consequence of the English settlement. Scottish local authorities are therefore being treated very favourably, despite the difficult public expenditure round. Next year, the level of local authority spending in Scotland will be 31 per cent. higher per head in Scotland than in England and the level of Government support will be no less than 44 per cent. higher.

Within the settlement, priority is being given to the police and education services and a further transfer of resources is being made to local authorities in respect of their care in the community responsibilities.

On the basis of this settlement, there should be no need for cuts in front-line services or excessive council tax increases, especially if the new councils grasp the opportunity present by reorganisation to streamline their management structures and take a fresh approach to the way services are delivered to ensure that both the national and the local taxpayer receives best value for money.

The details of the settlement are:


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Sir Hector Monro: To ask the Secretary of State for Scotland what is the level of local authority debt in Scotland and if he will make a statement. [3238]

Mr. Forsyth: At the end of March 1995 local authorities' outstanding debt on general fund services was £5,338 million. This represents an increase of £2,114 million or 65 per cent. since 31 March 1987. The level of loan charges and repayments associated with that debt is an estimated £799 million in the current year, £42 million higher than in 1994-95. At over 13 per cent. of all Government-supported expenditure, these loan charges are pre-empting an increasing proportion of the resources available for local authority services in Scotland. They are also pre-empting resources for other public services since rising loan debt is a factor I have had to take into account in deciding the share of the Scottish block which is allocated to revenue support for local authorities.

Outstanding capital debt on local authorities' housing revenue accounts has also increased since 1987, despite a 25 per cent. fall in the number of council houses over that period. Outstanding debt at 31 March 1995 was £3,938 million and debt per local authority house was £6,166, compared with £3,930 per house eight years earlier, a 57 per cent. increase. As the size of the local authority stock has declined, the burden of loan charges is being shouldered by a decreasing number of tenants.

The high debt levels in Scotland are the product of two factors: the high levels of capital spending by Scottish local authorities, 75 per cent. higher per head than in England; and the absence of a policy which encourages the use of receipts to repay outstanding debt.

Provided they spend them in the same year, local authorities in Scotland are currently allowed to use the full proceeds of asset sales to incur new investment, without having to pay off debt. This contrasts with the position in England and Wales where councils are in general required to use 50 per cent. of general receipts and 75 per cent. of most housing receipts to repay outstanding debt.

I have decided that it is necessary, in the interests of future generations of council tax payers, council tenants and customers for local services, to encourage greater

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prudence in the use of capital receipts. From 1 April 1996, therefore, the new Scottish authorities will be obliged to use 25 per cent. of their capital receipts for the repayment of debt. My present intention is that from 1 April 1997, the proportion of receipts to be used to repay debt will be 50 per cent. The details of the new regime, including the question of any exceptions to these general rules and the implications for large-scale disposals of housing stock, will be the subject of detailed consultation with the Convention of Scottish Local Authorities in the near future. As announced separately, I have also decided to control the level on capital expenditure financed from general revenues, in order to protect council tax payers.

By allowing councils to spend 75 per cent. of their receipts next year, I am giving them an incentive to dispose of assets quickly after local government reorganisation. If councils take full advantage of this opportunity and make sufficient progress in reducing their outstanding debt, I hope to be able to allow them in future to spend 50 per cent. of both housing and non-housing receipts, a more favourable position than in England. I shall, however, keep the position under review.

Councils' ability to incur capital expenditure at their own hand will obviously be curtailed. There is, however, plenty of opportunity for them to meet the needs of their communities by doing more to involve the private sector in meeting local needs. The outgoing councils have in general been able to pursue the outdated philosophy that where needs exist they must be met by direct public investment. The Government's approach, reflected in the private finance initiative, is that the public sector should increasingly focus on specifying the services its customers need and look to others to incur the necessary investment. By actively promoting the private finance initiative and pursuing joint ventures with the private sector, the new councils should be able to attract private investment on a scale which more than offsets the effect of these changes.

Sir Hector Monro: To ask the Secretary of State for Scotland if he will announce the non-domestic rate poundage for 1996-97. [3239]

Mr. Forsyth: Yes. I propose that the Scottish non-domestic rate poundage for 1996-97 should be 44.9p. An order prescribing the poundage will be laid before Parliament in due course. This poundage maintains the link between the Scottish and English poundages and ensures that Scottish business will continue to benefit from the Government's unified business rate policy.

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