| Previous Section | Index | Home Page |
Area Cost Adjustment
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Pope.]
2.30 pm
Mr. Andrew Lansley (South Cambridgeshire): I am grateful for the opportunity to raise an issue that is of great importance to my constituents and to other hon. Members. My predecessor in the House, Sir Anthony Grant, raised the issue in the House with Ministers on several occasions and I pay tribute to his efforts in that regard. At the time of the last revenue support grant allocation, he received positive indication that action would follow from the Elliott review of the area cost adjustment. I now wish to encourage Ministers to grasp the nettle and implement the review.
It may be for the convenience of the House if I explain briefly why the review was needed and why it should now be implemented. It is generally agreed that the standard spending assessment system needs to adjust for unavoidable, externally generated--that is, external to the management of the local authority--differences in cost between different parts of the country. The area cost adjustment within the SSA formula is intended to adjust for differences in employment costs, reflecting real differences between earnings in different areas. However, in effect the current system assumes that there are no differences in cost between local authorities outside the boundaries of London and the south-east. Within London and the south-east, differentials are allowed in three broad areas--inner London, outer London and the south-east counties.
The present system has led to substantial differences in SSA and, hence, in revenue support grants between authorities. Those differences are insupportable in relation to the relative costs in those areas. Those "cliff-edges" between authorities create enormous discontent. The Elliott review team pointed out that
When my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) was Minister with responsibility for local government, he rightly commissioned Professor Elliott and his review team to look again at the area cost adjustment. The Elliott review concluded that regional pay premiums could be identified using labour force survey data adjusted for factors such as education, qualifications and the industrial or occupational make-up of an area and that this could be disaggregated down to county level outside London.
The approach that the Elliott review advocates, known as the general labour market approach, is based on the proposition that local authorities compete for staff in the general labour market. That is intuitively right and is supported by evidence that was adduced by the Elliott review that pointed to ways in which authorities used the flexibility in national pay scales to adjust to local labour market conditions or accepted differences in employee qualifications and tenure in order to make such adjustments.
On 27 November last year, the then Secretary of State, my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), acknowledged that the review was
Two elements of further research are under way. One deals with obtaining labour force survey data for the relevant base year. That should be technically achievable, either directly or by close comparators. The second element, concerning the geographical definitions used for these purposes, is the more significant in policy terms. Although there is every reason in equity to pursue a solution at district level--for example, within the current county boundaries of Cambridgeshire, to assume that labour costs are higher in south Cambridgeshire than in Peterborough--implementation of geographical definitions down to district level should not be used to hold up implementation of a more workable solution at county level.
One piece of research not being undertaken is the question of the interaction of national pay scales--for example, for police or teachers--and local labour market conditions. It may be that the adjustment in costs and quality is not so great as the general labour market approach implies and may not go as far as if no national pay scales existed. Therefore, there may be some differences between authority costs where national pay scales apply, just as there would be in an open labour market in which no national pay scales applied. However, that a substantial adjustment towards local labour market conditions is undertaken by authorities is undeniable. That can be seen in the way in which, within national pay scales, staff move between authorities, and in the way in which certain bodies such as teachers' employers have to employ more junior staff or release more expensive teachers. Interestingly, the national health service revenue resource allocation system has an equivalent to area costs, which is adjusted for national pay scales. Even if there were to be some subjective abatement of the result from the general labour market approach advocated by the Elliott review, that is again not something which should prevent the acceptance and implementation of the review more generally.
That brings me to the current position. In May, the Minister for Local Government and Housing courteously met an all-party delegation from Cambridgeshire, but was not then in a position to offer any specific assurances. I hope that, in reply to this debate, the Under-Secretary of State, the hon. Member for Greenwich and Woolwich (Mr. Raynsford), will be willing to say more and put on record the Government's intention to implement the review in time for the next financial year. That would simply be to give effect to the commitment made on 30 April 1997 by the current Prime Minister when he was still Leader of the Opposition. When asked by the Cambridge Evening News whether he would reform the area cost adjustment, he replied:
Mr. Edward Davey (Kingston and Surbiton):
Is the hon. Gentleman aware that the borough in which my constituency lies would benefit significantly from the Elliott review? Indeed, it would benefit by £2.7 million under one of the geographical proposals put forward by the review. Although he has been advancing the case in favour of the counties, many outer London boroughs such as Kingston-upon-Thames are manifestly prejudiced by the current area cost adjustment.
Mr. Lansley:
The hon. Gentleman makes a good point. Indeed, I was about to refer to it. Even in the outer London borough of Hillingdon, which is a beneficiary of the current area cost adjustment as it falls within the London area, implementation of the Elliott review, which would mean labour costs could be disaggregated to a lower level, would add £5 million to the SSA. I entirely agree with the hon. Gentleman that part of the argument is that there should be such adjustments and that the present area cost adjustment does not take that into account.
Other authorities would lose out. It is often said that this is a zero-sum game, but that is no reason to do nothing. There is every point in getting on with this. The standard spending assessment system is intended to evaluate the cost of providing a given level of service and enabling grant to be distributed to equate that to a standard council tax level. If the SSA is not accurate in measuring the costs falling on an authority, it will be wrong; hence the grant received will be inadequate to maintain that given level of service.
It is no surprise, therefore, that Cambridgeshire has to spend over its SSA and has done continuously over the years, but struggles to maintain service levels. As the SSA underestimates the real cost of providing services in Cambridgeshire, those services are under pressure. It is right and necessary, therefore, to implement those changes. Not to do so is justice delayed, and justice delayed is justice denied.
"a particularly strong criticism of the present arrangements was the phenomenon of 'cliff-edges' whereby adjoining authorities, which were perceived to have similar labour markets with comparable cost levels, received markedly different labour cost adjustments."
To those who live in Cambridgeshire, especially South Cambridgeshire, the proposition that local labour market costs are higher in Bedfordshire than Cambridgeshire is obvious nonsense.
"the most comprehensive examination of the subject that has been undertaken".--[Official Report, 27 November 1996; Vol. 286, c. 339.]
He accepted that further technical work was required before the review could be implemented. On 3 February this year, my right hon. Friend the Member for Skipton and Ripon reinforced the then Government's intention of proceeding towards a workable mechanism to be included in the standard spending assessment as soon as possible.
"We will review the Area Cost Adjustment in time for the next financial year."
18 Jul 1997 : Column 665
In relation to Cambridgeshire, he added:
Moreover, it is not only Cambridgeshire that would benefit, but many other authorities that have not received the grant support that they deserve.
"Changes in line with the recent Elliott review would bring the county an extra £10 million."
| Next Section
| Index | Home Page |