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10.28 pm
Mr. John Morris (Aberavon): As I am anxious to allow the Minister time to reply, I will say only a few words in support of the able speech by my hon. Friend the Member for Neath (Mr. Hain) on behalf of his and my constituents.
I anticipated in my speech to the Welsh Grand Committee on 29 November the dire state in which our constituents would find themselves if nothing was changed. I spoke to the Secretary of State on the eve of the announcement--unfortunately, to no avail. The situation has been revealed in the past few months by the amounts that have had to be levied in tax increases, which have been wholly disproportionate for that part of West Glamorgan that has gone to Swansea and that part that has gone to Neath, Port Talbot and Upper Lliw.
The Parliamentary Under-Secretary of State for Wales (Mr. Gwilym Jones):
I acknowledge the courteous contribution of the right hon. and learned Member for Aberavon (Mr. Morris). I am glad to have the opportunity to respond to the hon. Member for Neath (Mr. Hain). I will try to set the record straight on Neath, Port Talbot's funding.
Naturally, there has been considerable interest both inside and outside the House over the past few months in the Welsh local government revenue settlement. In the limited time available, I do not intend to dwell on what has already been well rehearsed. Tough choices have to be made, but it is a matter of record that I consider it a reasonable settlement that furthers the Government's aim of restraining public expenditure while providing a reasonable spending opportunity for local government.
In that, we are asking no more of local government than of other parts of the public sector in Wales. It is fair that local government should contribute to such restraint, and always be mindful of more cost-effective ways of carrying out its functions.
I would, however, like to recap the main features of the settlement, to put Neath, Port Talbot's position into context. Total standard spending has increased by 3.1 per cent. After provision for the police and specific grants are excluded, the level of unhypothecated funding available to local authorities through standard spending assessments has increased by 2.9 per cent. Both those levels of increase are above the level of inflation, which is forecast to remain low.
The support that we are providing through aggregate external finance towards that spending has increased by 2.8 per cent. when the additional £15.8 million that we are providing in council tax reduction grant is taken into account. In the past, local government has argued for greater flexibility to raise revenue from local taxpayers, to whom it is accountable.
In addition to the settlement, we have provided Neath, Port Talbot with resources to cover the transitional cost of local government reorganisation. In the last financial year, the Neath, Port Talbot shadow authority was allocated £950,000 in special grant, with a supplementary credit approval of £900,000. The authority has been allocated a further supplementary credit approval of
£980,000 this year. That demonstrates the Government's commitment to ensuring the smooth transition to the new local government structure.
Local government has, I am afraid, historically spent above the level of its standard spending assessment, financing the additional spending through local taxation, and, to a lesser extent, the use of reserves. In appreciation of that, provisional capping principles allowed local authorities the opportunity to set their expenditure at a specified percentage over the preceding year's spending level.
This year, capping allowed all Welsh local authorities to increase last year's spending by 3 per cent., if they insisted. I should add that the £25.2 million in new community care funding that we are providing this year is not covered by capping. With that, the increase in budgets implied by capping principles is around 4 per cent.
Against such a background, I cannot accept the assertion of the hon. Member for Neath that Neath, Port Talbot has been discriminated against. Its SSA of£120.5 million represents an increase of 2.7 per cent. on its notional SSA for last year. That is slightly below the average increase because of a reduction in the authority's share of the total number of school pupils in Wales, but at £860 per head, its SSA is £14 per head above the Welsh average.
As the hon. Member for Neath knows, the Welsh settlement provides local government with more than£60 per head more in spending power than is provided for English authorities. The new unitary authorities' SSAs and revenue support grant entitlements were calculated using a distribution formula developed in consultation with local government over the past two years. It was ratified by the Welsh Consultative Council on Local Government Finance last November as the best objective methodology available for distributing resources.
Work on the distribution formula is an example of co-operation between the Welsh Office and local government, which we all find most desirable. That has been the case since the start of present Welsh local government finance arrangements in 1981-82. I hope that co-operation will continue to be the cornerstone of the work, not least in that both sides acknowledge the need for improvement of the formula to reflect more closely the most up-to-date position.
My right hon. Friend and I are anxious to see greater local government involvement in the settlement process. We agreed to the request of the Welsh Local Government Association that elected members should, for the first time, participate in the working groups on revenue and capital spending. The local authority representatives on the distribution formula working group include the leader and the chief executive of Neath, Port Talbot.
However, all this work has been severely disrupted by the association's boycott of discussions with the Welsh Office. I fail to see how the association expects to make the case for its spending requirements 1997-98 if it refuses to talk to me and my right hon. Friend the Secretary of State and our officials, but that is a matter for it. I have some hopes that progress can be made in discussing the distribution formula for 1997-98. We would welcome local government views on ways in which the formula could be strengthened.
Before I turn to the concern that the hon. Member expressed about council tax levels, I should like to correct a misconception. Both this evening and during Welsh
Questions last week, he referred to council tax payers in one half of Trebanos paying £90 a year more than those in the other half. That is not the case. The whole of Trebanos is in the community of Pontardawe, which is wholly within the county borough of Neath, Port Talbot.
The level of council tax in a particular area depends on the extent to which authorities have chosen to spend above the Government's recommended maximum, because all spending above SSA is funded from council tax. It has always been the case that communities in close proximity to each other but within different local authority areas can have significantly different council tax levels. The considerations that affect council tax levels in Neath, Port Talbot are essentially the spending decisions of the authority for 1996-97. Inevitably, the spending patterns inherited from the council's predecessor authorities will have some influence.
Provisional capping principles give Neath, Port Talbot the opportunity to set expenditure levels 3.9 per cent. above its 1995-96 spending level. The authority took full advantage of this opportunity, and I trust that, in doing so, it took account of the effect on council tax payers.
The level of expenditure inherited by the authority is reflected in its 1995-96 notional budget amount, which was debated and approved by the House on 8 February. The notional amounts for all the new unitary authorities were derived from a joint Welsh Office/local government exercise to disaggregate the 1995-96 budgets of predecessor authorities on a unitary authority basis.
A parallel exercise was undertaken to disaggregate SSAs. The new authorities were consulted on the figures, which were generally accepted by them as a fair reflection of spending patterns. Certainly this was the case for Neath, Port Talbot. The disaggregated budget figures showed that West Glamorgan county council spent proportionately more in the Neath, Port Talbot area than elsewhere in West Glamorgan. This spending pattern has been preserved in Neath, Port Talbot's notional amount and reflected in the authority's capping limit for 1996-97.
The hon. Member for Neath argued that the authority's SSA and revenue support grant allocation is inadequate to support the chosen level of spending, and that the Government have an obligation to intervene to reduce council taxes. In response to that naive argument, I have to tell him that it is essential that the SSA distribution formula is based on objective indicators of need, which apply consistently to all local authorities.
Any distribution system which reflected the discretionary spending decisions of individual local authorities would result in a discredited free-for-all. The principle of a sound, objective basis for distribution is one which I am sure local government will continue to endorse. It has certainly been one of its key priorities in a decade and a half of co-operation on formula work.
Inherited levels of spending are a matter of fact, and the costs involved have been derived from the disaggregation exercise. The exercise certainly does not imply acceptance by the Government in terms of the appropriateness of spending levels. Our views of recommended maximum levels of expenditure are reflected in total standard spending for Welsh authorities and individual SSAs.
Capping limits exist in recognition that local authorities may prefer to spend at above the standard spending assessment. They are not spending targets set by Government. It is for local authorities to make their own decisions in the light of local circumstances.
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