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Mr. Austin Mitchell (Great Grimsby): Will the right hon. Gentleman give way?

Mr. Gummer: No, I must finish.

I cannot take my decisions on capping until authorities have set their budgets for 1996-97. When I come to take those decisions, I shall of course take into account all relevant considerations, to ensure that any cap set for an authority will be reasonable, achievable and appropriate. The House will, of course, have an opportunity to debate any orders that cap individual authority budgets.

I am also specifying a base budget in the relevant notional amounts report for authorities that are being reorganised or are subject to a boundary change. That will allow me to make a fair comparison between years for capping purposes.

I now turn to other aspects of local authority finance. Hon. Members will recall that I told the House in November that the Government wished to build on the successes we have already had with challenge funding of local authority spending. In particular, we want to explore whether that approach offers a better and more efficient way of funding authorities' capital expenditure and attracting private capital to supplement public money.

In my November statement, I promised that we would publish a discussion document on taking forward challenge funding in the near future. I am pleased to tell the House that, yesterday, my Department sent a consultation paper on this subject to English local authorities. This outlines proposals for a capital challenge fund that would provide support for the best capital spending proposals submitted by local authorities. We propose that our ideas be tested--

Mr. Betts: That is local authority money.

Mr. Gummer: It is interesting that the hon. Gentleman says that it is local authority money. It is the taxpayers' and the people's money. The proposals would bring in more private money, so that, for every pound that the local authority spends, at least £1, and probably £2 or £3, more will be brought in.

The Labour party thinks of only one stakeholder--the local authority stakeholder: it is not the people's money, it is local authorities' money. They say "our money" like they say "our schools". They mean that they are longing to get their fingers on what they think is their money. That money is earned by men and women, who want to make sure that every penny is spent properly. If we can get an extra pound from the private sector, we can provide something much better. [Interruption.] The hon. Member for North-West Durham ought to know that.

That shows what is different about Labour. It wants to talk in modern terms, but has the same atavistic view of everything that happens. Labour Members say, "It's our money, and we are going to spend it. We don't care about partnership when it comes to getting more money for the things that really matter."

That is why the outline proposals for the capital challenge fund will enable us to have a better system, which will ensure that the money goes not only where it

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is needed but where the schemes to meet those needs are the best, and where they can bring in more money from outside, so that what can be done can be better done. We propose that our ideas be tested by a pilot scheme that will be run in the 1997-98 financial year.

The scheme that we propose would give local authorities a clear lead in deciding on local priorities for capital spending. The best, most imaginative, authorities will be given an incentive to work with local people and businesses to create and implement a local strategy for investment. That would target resources at the areas where they can do most good.

Consultation on those ideas finishes in mid-March. I anticipate announcing our conclusions and the next steps shortly after that. In the meantime, I look forward to a positive and constructive response to the consultation paper because it will mean more money for the very capital projects that all of us want--those that are best fitted to the needs of the people.

I have dealt with the main issues that are covered by the four reports before the House. This year's settlement will help local authorities meet the needs of their citizens in education and other key service areas, but authorities will need to continue to get better value for every pound they spend. They will be watched most carefully by the public to see what their priorities are and whether they are spending that money on the things they said the public most wanted. I commend the settlement to the House.

5.7 pm

Mr. Frank Dobson (Holborn and St. Pancras): The central message from today's debate is that, in the coming year, council tax payers will end up paying more and getting less. As happened last year, there may be a few parts of the country where the council tax does not rise or where services to local people are not reduced, but in most places the council tax will go up and services will come down; local people will have to pay more, and will get less.

Last year, our initial estimate was that the council tax would go up by about 6 per cent. The average turned out to be 5.2 per cent. but before the Secretary of State starts crowing in one of his mini-raves, I remind him that the council tax increase in his constituency was exactly as I had predicted, 6 per cent; in the Prime Minister's constituency it was 8.5 per cent; and in the Deputy Prime Minister's it was 7 per cent.

This year, on the basis of the Government's original statement, we predicted similar increases. It now seems that, even according to the Government, the average increase may be quite a bit higher. When the Chief Secretary to the Treasury gave evidence to the Treasury Select Committee, he let the cat out of the bag. He admitted that the Treasury was working on the assumption that the average council tax rise would be 8 per cent., showing that I was guilty of the serious political offence of failing to exaggerate.

If the average council tax rise is 8 per cent., that will cost council tax payers some £780 million. That is equivalent to adding about half a penny to the standard income tax rate. If the Chief Secretary is right, therefore, the Government's promised 1p reduction in the standard rate will be immediately halved in value by the council tax increase. That is a perfect example of the Government giving with one hand and taking away with the other.

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It does not stop there. Budget documents show that the Government expect council tax payers over the next three years to cough up an extra £3.5 billion, equal to almost 2p on the standard rate of income tax. That was recently confirmed by the head of local government finance at the Department of the Environment, who said that the Government were aiming to increase the council tax payers' contribution to council expenditure from 21 per cent. to 26 per cent. He added:

Mr. Eric Pickles (Brentwood and Ongar): Will the hon. Gentleman give way?

Mr. Dobson: Let me finish the quotation. The official said:

Mr. Pickles: Is the hon. Gentleman familiar with the publication "Renewing Democracy: Rebuilding Communities", which advocates on page 18 that local democracy would be more responsible if a much higher proportion of money to be invested and spent was raised locally? It appears therefore that the Labour party is proposing exactly what he is condemning the Government for.

Mr. Dobson: As I wrote every word of that document, I am quite familiar with it and it does not mean anything that the hon. Gentleman thinks that it does. The Labour party is saying that, for a start, it would return the business rate--which the Government nationalised, just as they nationalised the water industry--to local control. If he is so concerned about tax rates, he should remember that, if his local authority received from the settlement the same amount of help to provide local services as Westminster city council, rather than paying council tax, people would receive a £489 rebate this year. If Essex county council received the same amount of help per pupil as Westminster council, it would be able to take on 5,350 extra teachers.

Mr. Gummer: As the hon. Gentleman feels that the Government are not giving enough money to local authorities, will he tell us how much more a Labour Government would have given, and how much more of taxpayers' money it would give to local authorities? We want to know how.

Mr. Dobson: The Secretary of State took one hour and two minutes to try to tell us his settlement is. We are now going to question it--that is what we are here for today. The settlement that I am talking about is part of that process. [Interruption.] The object of the debate is to consider the Government's proposed settlement and to find out whether it is adequate. As I always say to the Secretary of State, come the general election, we shall make things clear. We shall not make any promises, as the Tories did at the last election, when they said they would reduce tax and then put it up. We shall not make promises to protect people with mortgages and then take that protection away. We shall make sensible, careful

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promises. When we go into the general election, people will know what we shall do, and when we win, we shall do it.

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