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Local Government Finance
3.30 pm
The Secretary of State for the Environment (Mr. John Gummer): With permission, Madam Speaker, I should like to make a statement about the local authority finance settlement for England for 1997-98.
In forming my proposals, I have considered the pressures that local authorities will face in the coming year and I have listened carefully to the views of the local authority associations. I have taken account of the important functions for which local government is responsible and weighed carefully the interests of local citizens in the services that they have a right to expect and the taxes that they have to bear.
The Government remain committed to rigorous control of public expenditure, as my right hon. and Learned Friend the Chancellor of the Exchequer made clear yesterday. I am pleased that this year my statement comes the day after the Budget statement, because what I have to say is a continuation of yesterday's message of good government. The Government have inflation firmly under control, with underlying inflation remaining very low. Even if this settlement did no more than confirm the figures in last year's Budget, it would be worth significantly more for local government spending than was envisaged because of the good housekeeping of this Government and because of the underlying low inflation rate.
Local government accounts for almost a quarter of general Government expenditure. It would be absurd to imagine that within this large total there was no room for greater efficiency--[Interruption.] It would be absurd to imagine it and I note which hon. Members are therefore imagining it. I make no apology for the fact that we have pursued such efficiencies vigorously, but I also assure hon. Members that we approach our assessment of what is needed to maintain key services with equal vigour.
This is the background to the aggregate figures that I published yesterday. The Government's view is that the appropriate level of total standard spending--TSS--for local authorities in England in 1997-98 will be £45.66 billion.
My right hon. Friend the Secretary of State for Health will be making a separate announcement on resources for community care. My right hon. and Learned Friend the Home Secretary will be making a separate announcement on resources for the police. Both are included in the figure that I have just quoted. The TSS figure is adjusted to take account of the move to vouchers for under-fives education provision. The figures also take account of other changes in local government functions. Provision of £150 million has been made for the transitional costs of local government reorganisation.
My proposal, including provision for community care, reorganisation costs and the police, provides for a 2.5 per cent. increase in local authority spending year on year. In distributing this provision, we have, as usual, adjusted provision for capital financing to bring it in line with authorities' need to spend.
In allocating TSS between services, we have decided to give priority to education, the police, and the fire service. My proposal is that, after adjusting for vouchers and changes in function, education standard spending should
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I will ensure, as last year, that authorities can actually spend the increase in their education provision. Each local education authority must set its own budget and reach its own decision on how much money goes to schools. However, if an LEA decides not to spend the money that we have allowed, it will have to explain that decision to an electorate who have made it increasingly clear that education is a priority.
The settlement also provides year-on-year increases, after adjusting for changes in function, of 4.2 per cent. for fire services. The provision of £150 million for transitional costs of reorganisation will cover the new tranche of reorganised authorities as well as remaining costs in those areas reorganised already.
I want to forestall some of the nonsense that often comes from Opposition Members. They compare TSS for this year not with TSS for last year, but with budgets. That is analogous to comparing a person's weekly basic wage for this year with his weekly wage plus his overtime plus any bonuses for last year. It is not surprising that the two are different. We have to compare like with like. [Interruption.] The very fact that the Opposition will not listen reminds us that they were intending to do what they have tried to do in the past. We need to compare this year's TSS with last year's TSS, in the knowledge that local authorities have other resources from balances, fees and charges and interest receipts, and now the extra money that successful schools will get from nursery vouchers. Therefore, they will budget at a different level. That always happens. The budget of a local council is greater than the TSS simply because local authorities have other sources of income. Therefore, we always compare budget with budget and TSS with TSS--a basic financial problem that most hon. Members understand.
To put the difference in context, last year English authorities budgeted for revenue expenditure some £2.5 billion above TSS. I should like to score a first this year by ensuring that all sides of the House compare like with like.
Now I want to turn to how much assistance local authorities will get from the non-domestic ratepayer and the national taxpayer--[Interruption.] When I was a Whip, Whips did not spend their time talking.
Together their contribution will total £35.77 billion. Within that figure the distributable amount of non-domestic rates in 1997-98 should be £12.03 billion, and I am today publishing the detailed basis for the distribution. I propose that the revenue support grant should be £18.69 billion. In addition, some £5.05 billion of specific and special grants will be available. The total revenue support grant for England on which I am consulting may need to be altered slightly if the balance of the police funding formula between Welsh and English police authorities changes as a result of consultation.
I turn now to the means of distributing revenue support grant. At its heart is the standard spending assessment for each authority. The House will know that the SSAs are made up of a whole series of elements, each of which has been crawled over by the local authority associations and the Government. The individual factors reflect the concerns of different authorities. Rural areas are most
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The corollary of the system being the most sophisticated in the world is that, every year, new population and other changing factors are taken into account, and there is usually pressure to review particular factors. Last year, I announced that we would be reviewing the area cost adjustment; we would commission research on the effects of sparsity and density of population on the cost of local authority services and the Department of Health would receive the conclusions of research relating to the social services SSA.
All that work was completed by the summer and has been discussed in detail with the local authority associations. We also had the benefit of research commissioned by local government on some of those subjects. The Department of Health has thus received a very full examination. Nevertheless, there remain strong differences of views within local government about the merits of what has emerged from the work.
In assessing the findings and responses, I wanted to be confident that any changes would represent an improvement in the standard spending assessments. I have to say that it has been difficult to reach that view. I believe that all the work has been valuable in improving the understanding of the issues in central and local government and has made plain how difficult some of them are, but it is clear that further work will be needed on some of the issues if we are to reach conclusions with sufficient confidence. I shall deal with each of the main studies in turn.
The review of the area cost adjustment must be the most comprehensive examination of the subject that has been undertaken. I am grateful for the considerable contribution of the local authority associations and groupings and their researchers. Two of the local authority associations found the review's general approach convincing, but seek further refinements of particular aspects. The other two associations were unconvinced.
Many individual authorities have made strong representations both for and against. The associations, however, were unanimous that they did not wish the recommendations of the review to be introduced for 1997-98. We have therefore accepted that view. [Laughter.] The Labour party might note that all the associations are Labour-controlled. It is therefore curious that it should laugh at their unanimous decision, but there we are. The Labour party appears to cover all embarrassment with laughter.
We shall wish to discuss with the associations what further work, based on the research on the area cost adjustment, will be necessary to resolve areas where there are clear concerns about the report's analysis. I am not sweeping the report of the review off the table. It has been very valuable, but it needs to be developed, and further
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We had the benefit of three research reports on the effects of sparsity of population on the cost of providing local authority services. Members who represent rural constituencies will know how important that is to their assessments. The research commissioned by the Department was supplemented by research conducted for the sparsely populated authorities and the metropolitan authorities. We have also received a great many representations on the subject. The conclusion of the research commissioned by the Department was that the present allowances for sparsity of population in the SSAs for education and for what are known as "other services" were about right. We therefore propose to leave the sparsity allowances unchanged for 1997-98.
The Department of Health commissioned two research studies in connection with the SSAs for personal social services. The research relating to social services for children proposed radical change. We needed to be particularly sure that the changes were justified, given the substantial effects on SSAs that they implied for some authorities. We had sympathy with those who felt that the general approach might help us to improve this element of the SSAs, but the analysis on which the recommendations were based is very novel in the SSA context, and has yet to command wide support in the local authority world. More time will be needed, I believe, for local government and its advisers to examine the new techniques, satisfy themselves as to their appropriateness and pursue the points of concern that have been raised. The Department of Health intends to take this forward in 1997.
The Department of Health also commissioned research on residential social services for the elderly. I believe that research has taken us some way towards an improved formula. Again, there remain areas of doubt where the arguments for and against might be easier to resolve if more work was undertaken. If those areas of doubt can be tackled successfully, we shall consider the research proposals again in the next round.
We nevertheless believe that we should continue to refine the SSAs where we can be sufficiently confident that we are making improvements. We are therefore proposing a number of changes of this kind, but their effect on the SSAs is noticeably less than the changes we introduced a year ago. I would mention, in particular, the formula for the police standard spending assessment where a number of improvements have been possible, following the collection of new data by the police service.
Lastly, there are changes to the SSA for the education of children under five, to take account of the introduction of nursery vouchers nationally from next April. We propose that the SSAs for all authorities should be adjusted in a similar way to those of the four authorities that conducted phase 1 of the nursery voucher scheme this year. That method of adjustment ensures that authorities can replace the reductions in SSAs by a similar amount of income from vouchers, if they continue to attract as many four-year-olds as in recent years.
I propose to continue damping the effect on the council tax of past changes in the way SSAs are calculated. Although fresh SSA changes will be small, I propose that
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I also propose to repeat this year's scheme to damp council tax increases directly attributable to reorganisation, above a threshold that I shall set. The scheme would damp such council tax increases that exceed a threshold of £104, or £2 a week, at band D for authorities subject to reorganisation from April 1997. It would also provide for a second year of damping for authorities reorganised this year, by damping such council tax increases where they exceed a threshold of £130, or £2.50 a week, at band D.
The council tax is well established as an equitable means whereby local residents contribute to the cost of local services. Council taxes vary widely, depending on the spending decisions of each local authority and its performance in collecting the tax, which is very important. Variations also occur in the circumstances of each household, and on individual entitlement to exemptions or benefits. There is therefore no real significance to be attached to the concept of average taxes within or between authorities.
However, I am required to identify notional taxes for each valuation band, for a standard level of spending--the so-called council tax for standard spending or CTSS. My proposals incorporate a CTSS for band D of £591. I would emphasise to the House that that is merely an element in the grant distribution formula. It is neither a prediction of individual council tax bills nor a national average.
We remain determined that local authorities should make a full contribution to the control of public expenditure and set budgets that their local taxpayers and the country can afford. I am today announcing my provisional capping principles for 1997-98. I am also issuing proposals for the calculation of notional amounts for those authorities whose boundaries or functions will change from 1 April 1997.
Those include constituent authorities of national parks; local education authorities, to take account of the introduction of the nursery voucher scheme; and the reorganised authorities of Bedfordshire, Luton, Buckinghamshire, Milton Keynes, Derbyshire, Derby City, Dorset, Bournemouth, Poole, Durham, Darlington, East Sussex, Brighton and Hove, Hampshire, Portsmouth, Southampton, Leicestershire, Leicester City, Rutland, Staffordshire, Stoke-on-Trent, Wiltshire and Thamesdown. The notional amount is the base from which I will measure the increase in budget in determining whether that increase is excessive.
My provisional capping principles themselves make allowance for expenditure on community care which is being met this year by the special transitional grant; the introduction of a new metropolitan railways passenger services grant payable next year to passenger transport authorities; the removal of discretionary non-domestic rate relief from the capping regime; the capital limits for residential accommodation charges grant payable this year; and the transfer of voluntary schools into the state sector to be maintained by local education authorities. These adjustments are necessary to make a fair year-on-year comparison of budgets. Subject to these and other technical adjustments affecting individual
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As in previous years, when authorities set budgets that are 12.5 per cent. or more above their standard spending assessment, the proposed principles will not permit them any increase over their 1996-97 base budget. For shire districts, I propose that the principles should be the same as last year. For all other authorities budgeting up to 12.5 per cent. above their SSA, I propose a continuation of passporting.
This means that an authority will get an increase which is the greater of the increases compared to 1996-7 in the authority's SSAs for education, police, personal social services, fire and revenue support for private finance initiative projects, and a flat rate year-on-year increase compared with its 1996-7 base budget. [Interruption.] Labour Members demanded that councils be able to spend the money that we allowed them to have, and they also demanded passporting. We have now given them passporting, which they either do not like or do not understand. I rather think that it is a mixture of the two.
I propose that the flat rate increases should be as follows: for county councils, outer London boroughs and the City of London, I propose that the year-on-year increase should be limited to 2 per cent; for inner London boroughs, metropolitan districts, unitary authorities and the Isles of Scilly, I propose that the increase should be limited to 1 per cent; for police authorities outside London, I propose that the increase should be limited to 3.2 per cent.; for the London and metropolitan fire and civil defence authorities, I propose that the increase should be limited to 3 per cent. These principles are necessarily provisional and I cannot take my decisions on capping until authorities have set their budgets. When I come to take those decisions, I shall, of course, take into account all relevant considerations.
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