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Mr. Gibb: Is my hon. Friend aware that none of those figures take into account the consequences of the Government's decision to end dividend tax credits paid into pensions funds, which means that there are further increases in the pipeline? The county council in West Sussex, which covers my constituency, is £4 million a year short because of that measure, which is equivalent to a further 3 per cent. rise in the council tax.

Mr. Yeo: My hon. Friend makes a most important point, to which the House will soon want to return, especially when, in the next few months, the results of the actuarial valuation are published. The Government have been waiting for those results to establish what action should be taken to deal with the huge burden that has been placed on all employers, particularly local authorities.

The pensions tax will lead directly to substantial increases in council tax or to substantial cuts in services unless the Government give an unequivocal assurance that the full amount of any shortfall--any additional employer's contribution that councils will have to make--will be covered by an increase in the SSA. The Government have refused to give such an assurance, which is extraordinary, as the more prudent councils may want to start taking into account that huge new burden in their longer-term spending plans. Without that assurance, they may find it necessary in the next budget round to start planning substantial service cuts or even more swingeing increases to the council tax.

Mr. Colman: I declare an interest as the chair of the United Kingdom standing committee on local authority superannuation funds. The average funding is just over

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90 per cent. of the full funding level. For a number of local authorities, it is significantly higher--way above 100 per cent. The main reason why the figure is 90 per cent. is that, in 1990, the previous Government asked for a reduction in funding levels to 75 per cent. to pay for the implementation of the poll tax.

Mr. Yeo: The hon. Gentleman emphasises the gravity of the situation. If he is concerned that the funding level is inadequate, how can he support a tax that makes the position very much worse? He has made the case for the Opposition more eloquently than anyone has before. It is precisely because there is concern about funding levels in local authority pension funds that it is a disaster for the Government to refuse to give the assurance that the councils need.

Council tax payers in the various types of authority will face increases--if I had time, I could give a much longer list. The local authorities that I mentioned have one factor in common: they have all suffered as a result of the Government's decision to change the treatment of local authority debt that was incurred before 1990--in other words, to change the capital financing adjustment.

Mr. Colman: The constituency that I represent is covered by Wandsworth local authority, which has also "suffered"--to use the hon. Gentleman's word--because of the change. Will he join me in condemning the fact that Wandsworth has refused to reduce its council tax to the level that the Labour group wanted--£295--despite the fact that it was able to build up a balance of £30 million through the Tory years of special treatment?

Mr. Yeo: I am happy to debate with the hon. Gentleman--all day, if necessary--the merits of the London borough of Wandsworth, which is an absolutely outstanding example of how to run a local council. It is a byword for efficiency, innovation, satisfactory service and value for money, as the residents have shown by continuing to return a Conservative majority.

I had the pleasure of visiting Wandsworth the other day; it was the same day that I happened to visit Hampstead, in the London borough of Camden. In Wandsworth, I was told how public libraries were to be open on Sundays; in Hampstead, I was told that public libraries were closing--they were closed not only on Sundays, but on every day. That is the difference between an authority that embraces the opportunities of partnership with the private sector and is determined to continue increasing value for money and the quality of its services, and one that sits back and adopts the old socialist local government nostrums, which have been tried and which have failed so many times.

Mr. Brady: I was intrigued by my hon. Friend's mention of libraries. He may be interested to note that, in my constituency, the borough of Trafford, which is now under Labour control, has recently decided to close three public libraries. The Government are supposed to be championing literacy, but they are taking away money from the borough.

Mr. Yeo: My hon. Friend makes a most important point. That is another example of how the Government like to say one thing when their actions cause the opposite result. We have seen that time and again.

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Each of the authorities that I have mentioned have suffered as a result of the change to the capital financing adjustment. On 2 December, in the statement on the revenue support grant settlement for next year, the Secretary of State for the Environment, Transport and the Regions confirmed--it can be found at column 161 in Hansard--that the council tax rise should be 7 per cent. if the Government continued to use the Conservative Government's figures and estimates on public spending. By the time that the Secretary of State and his fellow Ministers had finished fiddling the formula, many local authorities faced increases of double that amount--some of the ones that I have mentioned face increases substantially more than that.

My hon. Friend the Member for Altrincham and Sale, West rightly described the changes in the capital financing adjustment as a stealthy and hidden way of taxing people. As he pointed out, the effect of the change is to penalise local authorities that have chosen to repay their debts rather than to spend more money. That is a legitimate choice--many people would call it prudent. It certainly should not lead to council tax payers being penalised by a funding fiddle and a distortion of the formula.

Let us consider Hampshire county council, whose SSA was cut by more than £3 million as a result of the change. Not surprisingly, on 2 January, the council wrote to an official at the Department of the Environment, Transport and the Regions about the change. It says in paragraph 14.1--in case the Minister's officials happen to have one to hand for his benefit:

My fear, which I think may be shared by my hon. Friend the Member for Tewkesbury, as well as by my hon. Friend the Member for Altrincham and Sale, West, is that the change has been made not for reasons of need or because a careful study has been made of the relative levels of deprivation in one authority as compared with another, not because there has been some move of population, not even because the Government have reconsidered what kind of facilities are needed in places such as holiday resorts on the south coast, but purely for political reasons.

It is mostly--not all, I accept--Conservative local authorities that prudently repaid their debt, so it is mostly Conservative local authorities that suffer under the change. The trouble is that, whichever party controls the local authority affected by the change, it is the people who live in that area who suffer and will have to pay higher council tax, and will find that local authority services in their borough, district or county are reduced.

As the change rewards authorities that were high spenders, people are likely to suffer even more in the future. Councils can read signals as well as hon. Members. My hon. Friend the Member for Altrincham and Sale,

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West was right to draw attention to this point. The Government are encouraging spendthrift councils and penalising prudent councils.

Ms Keeble: I am surprised that the hon. Gentleman regards the measure as unfair. Surely, if councils do not have capital spend because they have repaid debt, they do not need recognition of the impact of their capital spend on revenue budgets. Surely it is right that the Government should take cognisance of the impact of capital programmes that were approved by the Department of the Environment on revenue budgets. Otherwise, revenue budgets, especially for road improvements, get clogged up by the servicing of debts.

Mr. Yeo: The difference between us is simply that the Conservative party has a different approach. We believe that, if a council can see ways of saving money on behalf of its taxpayers, it should be encouraged to do so, not discouraged from doing so. That is why we structured the SSA calculation to give that encouragement. That is why I find the change so alarming, not just for this year--although it is bad enough for this year--but for future years. If councils are told, "Don't worry. Don't bother to do anything prudent. Don't say that you believe in saving or investment but just go ahead and be as extravagant as you want," that is what some councils will do. Not all councils will do so. Councils under Conservative control--too few at present, but about to increase in number, I am sure--are unlikely to respond to that signal, but other councils may do so. That is what is so worrying. People in those areas will suffer.

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