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House of Commons

Wednesday 11 March 1998

The House met at half-past Nine o'clock


[Madam Speaker in the Chair]

Local Authority Debt Repayment

Motion made, and Question proposed, That this House do now adjourn.--[Mr. Clelland.]

9.34 am

Mr. Graham Brady (Altrincham and Sale, West): I am grateful for this opportunity to initiate a debate on an important, if rather abstruse, issue of local government finance. Just the name of capital financing adjustment seems to lead to people's eyes glazing over and their turning quickly to another matter. However, it is important that we consider the issue. It is particularly important that the Minister should hear the views of hon. Members on this important element of capital financing for local authorities.

The issue sounds dull and complex. Sadly, little attention has been paid to it. It is fortuitous that this debate is taking place only one day after a debate on the hidden tax increases that the new Government have already introduced. For my constituents--and all the residents of the borough of Trafford--this is yet another hidden tax. The Government's changes to the calculation of the capital financing adjustment will mean a tax increase for millions of people throughout the United Kingdom.

Like many of the Government's changes, those changes have been introduced by stealth, taking funds away from Trafford and many other local authorities. Perhaps worse than that, not only have the Government taken funds from authorities that have traditionally been prudently managed, but they have transferred them to some of the most profligate and ill-managed authorities in the country.

Trafford councillors are appalled as much by the way in which the new charge has been sneaked into place as by the financial penalty that is being imposed on them. The complexity of the matter is being used to cover the Government's tracks. That tactic has also been used for the introduction of the £5 billion annual pension tax through a technical adjustment that was little understood at the time. The same approach to taxation was shown by the Government's shift to quarterly payment of corporation tax. At the time, it was portrayed as a benefit for business, but it will be a £22 billion cash flow cost for businesses during this Parliament.

During this short debate, I hope to shed a little light on the complex matter under consideration and to attempt a simple explanation of the impact of the Government's changes. The previous Government calculated the capital finance standard spending assessment on the basis of a notional 1990 debt level. That rewarded councils that had behaved thriftily and responsibly during the 1980s--councils such as Trafford, which had benefited from good

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Conservative administration through the 1980s. Indeed, Trafford had benefited from Conservative administration from its inception in 1974 until the tragic events of a couple of years ago, which, I trust, will be only a brief interlude of insanity for the borough.

The Government's new system adopts a different approach, taking into account the higher of either notional or actual debt in calculating the capital finance SSA. That reallocates the given cake that is available to favour profligate authorities--very often, it hardly needs to be said, Labour authorities--at the expense of those that have been better managed. Many of the councils benefiting from the change are those that flouted public spending controls in the 1980s, often through creative accounting techniques that have since been made illegal.

Mr. Tony McNulty (Harrow, East): Such as?

Mr. Brady: If the hon. Gentleman is patient, he will hear some examples. I know that he does not expect to be disappointed.

The history of the capital financing adjustment is like a trip through an old Labour theme park. From newspaper reports from the 1980s, I have found a series of examples, which the hon. Member for Harrow, East (Mr. McNulty) has asked for. The Times of 24 June 1987 stated:


    "David Blunkett admits that his authority's capital programme stands to be 'devastated'".

That was at a time when Manchester city council raised £200 million by selling civic buildings, including the central library, to a company that it wholly owned, and arranged a two-year rent holiday. Similar tactics were used in Brent and Lambeth. Some of the perpetrators of such scandalous abuses are now members of the Government; others sit on the Government Back Benches--although I do not see any present for this debate.

Labour claims to have changed, but in office, stealthy changes to the capital finance system for local authorities are often portrayed as technical changes, which people will not understand or notice. Changes are being introduced in a quiet, cautious way, with no fanfare or announcement of the impact that they will have. Such changes are rewarding old friends and punishing well-managed authorities.

My borough of Trafford will lose £700,000 from its SSA. That equates to the cost of 28 teachers, whom the borough could otherwise have employed. It amounts to the funding of two primary schools for a year. It could have been used to reduce each council tax bill by £10.

Mr. Nick Gibb (Bognor Regis and Littlehampton): Is my hon. Friend aware that, in West Sussex, the result of fiddling with the formula is a £2 million reduction in our central Government grant, which is equivalent to a rise of 1.5 per cent. in council tax?

Mr. Brady: I am grateful to my hon. Friend for bringing that to my attention. It is by no means an isolated incident. The change in capital financing has shifted funds from prudent authorities, from authorities that have

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borrowed sensibly or not at all, to authorities that indulged in very high levels of borrowing before April 1990. Such a perverse policy rewards activities, policies and management techniques in local government that any Government would say they wish to avoid. The Minister must therefore explain why his Government feel it appropriate to reward authorities that have behaved badly at the expense of those that have behaved well.

The reduction in Trafford's SSA is equivalent to the cost of 350 secondary school places, which could otherwise have been provided. That is particularly relevant in Trafford, because our excellent local schools are so popular that they should be given funds to expand, and not be deprived of the funds that they need. The loss of £700,000 combines with other factors in this year's SSA settlement to mean a real-terms cut of £3 million. That will mean higher taxes, together with lower service levels. The same pattern is being repeated across the country as local authority budgets are fixed for the coming year.

Mr. Brian White (Milton Keynes, North-East): Is the hon. Gentleman saying that, until 1 May, all local authorities were given lots of money and that the activities that he is describing have occurred only since 1 May? Many of us were in local government for a long time and experienced the previous Government's restrictions on local authority capital financing, which were far worse than anything that the hon. Gentleman is describing. He ought to be addressing the previous Government.

Mr. Brady: We would all be delighted with more resources in national and local government, in order to provide services. Such resources must be divided fairly, in an understandable way, which rewards and is seen to reward good, not bad practice.

Mr. McNulty: Will the hon. Gentleman give way?

Mr. Brady: No, I am dealing with the previous point. My contention, which the Minister must answer, is that the Government's policy on changing the way in which the capital financing adjustment is calculated effectively rewards bad practice and penalises good practice.

The overall loss to well-managed authorities will be significant. The loss of about £50 million in the shire counties compounds the sense that they are being penalised, often at the expense of cities. The example of Trafford illustrates that the change is not simply a raid on shire counties. The policy also penalises metropolitan boroughs that have been better managed.

The worst thing about the policy change is not its day-to-day effect or its effect on particular local authorities--it is the principle that the Government are setting out as a guide for local authority practice. The message of the policy is that the Government intend to reward and encourage bad management, profligacy and waste, and to punish good, thrifty councils.

Mr. Ken Purchase (Wolverhampton, North-East): Will the hon. Gentleman give way?

Mr. Brady: I am coming to a conclusion; I shall not give way.

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If Labour has changed, it must review the decision and reverse the policy. I urge the Minister to address that.

9.45 am

Ms Sally Keeble (Northampton, North): I am grateful for the opportunity to speak in the debate. I had not intended to do so, but, given the remarks of the hon. Member for Altrincham and Sale, West (Mr. Brady), I felt it necessary to spell out some of the thinking in Labour-controlled local authorities during the 1980s and to support the steps that the Government are taking.

The hon. Gentleman is quite right that local government financing is extremely abstruse. I and many of my colleagues wrestled with it in the 1980s and the early 1990s, so we know very well that, when spending allocations were fixed around some notional figure, strange anomalies sometimes arose. One found that spending programmes were moved between revenue and capital purely because of the availability of finance and not necessarily because that was the best way of financing or because the projects concerned were top priorities.

Underlying what the hon. Gentleman said, I detected a desire to draw distinctions between good and bad local authorities, and the implication that the good ones were Conservative and the bad ones Labour. That is the complete opposite of the truth. If Conservative authorities had been so good, more might have been left. Conservatives lost profoundly at the ballot box, which, in any democracy, is the ultimate test.

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