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Mr. Raynsford: I will come to that point in a moment. I have advised the hon. Gentleman that he might not be happy with the evidence I shall present to him.

For 1998-99, we decided that it was sensible to change the method of calculating the capital financing SSA. During the 1980s, local authorities had a choice of whether to use capital receipts to pay off debt or to finance new capital expenditure. That choice was made available by the then Conservative Government and it continued until 1990. Decisions taken on whether to apply receipts for debt redemption purposes or for new investment were entirely legitimate, and authorities were perfectly free to come to a decision under the arrangements.

When SSAs were introduced in 1990, the previous Government decided to favour those who had applied capital receipts to debt reduction and penalise those who had chosen new capital expenditure by treating everyone as if they had chosen to use capital receipts to repay debt early. I stress that that was not a requirement of the regime that existed prior to 1990. There was a retrospective process of rewarding some and penalising others for decisions taken prior to the introduction of the new arrangements.

Mr. Yeo: Does the Minister think that it is wrong to reward prudent councils?

Mr. Raynsford: It was wrong to introduce regulations that had a retrospective impact when authorities had no way of knowing that they would be penalised as a result of acting in a way accepted by the then Government as entirely proper. It was a shabby change in the regulations and it caused widespread concern in local government. I am surprised that the hon. Gentleman is defending it.

Mr. Yeo: If the Minister thinks it is so shabby, why is he doing exactly the same thing now?

Mr. Raynsford: If the hon. Gentleman listens, he will hear that we are making a change to restore the fairness

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that should have existed from 1990. We are not making a change that will benefit any authority as a result of their decisions on whether to use receipts for one purpose or another. Their decisions will have no impact on their SSA entitlement. Decisions taken prior to 1990--decisions taken one way or the other in a perfectly proper way within the rules that applied at that time--should not retrospectively result in an authority getting more or less SSA than they should be entitled to. That was the error of the Conservative Government. I am surprised that the hon. Gentleman is defending it.

Mr. Yeo: The only difference between what the Minister is doing now and what the previous Government did--which he says was shabby--is that the effect of the change made by the previous Government was to benefit prudent authorities and to damage spendthrift ones. In line with old Labour thinking on this matter, he is making the same type of change--the only difference being that he has chosen to benefit the spendthrift authorities and to hit the prudent ones.

Mr. Raynsford: The hon. Gentleman is wrong on this, as on so many other issues. The change is creating a fair framework that will treat all authorities on an equitable basis. The debt is being assessed on either the actual or the notional--whichever is the greater. This will be a fair system, reflecting the position as at 1990, so that authorities will be subject to a regime they can understand and of which they know the consequences. However, they will not be retrospectively penalised for decisions they took in good faith before that date--perfectly legitimately--for which the previous Government penalised them.

That was a typical example of the previous Government making assumptions after the event about how local authorities should have treated capital receipts. Authorities that had properly decided to use their receipts to finance new capital expenditure felt justifiably aggrieved. To correct this, we decided that the debt calculation for the 1998-99 settlement should be based on an estimate of 1 April 1990 debt which is the greater of actual or notional debt. This will enable authorities that chose in the 1980s to undertake capital expenditure rather than repay debt early to meet their unavoidable loan charges while allowing them to spend at SSA on services such as education, health and police.

Mr. Gibb: The change in the formula will result in West Sussex receiving £2 million less from central Government. How can that be fair?

Mr. Raynsford: The hon. Gentleman clearly has not been listening. Any changes in the formula will have an impact. There are gainers and losers. If he will wait a moment, he will understand that the changes will not have the consequences that he and his colleagues have suggested. They are not designed to reward the profligate and penalise the prudent. That is simply not the case, as I shall demonstrate in a moment.

By taking the larger of the actual or notional debt, we have ensured that other authorities that chose before 1990 to repay debt early will continue to receive SSA provision for the capital expenditure required to provide necessary services. Thus both groups of authorities are treated fairly, whereas the previous arrangement penalised one and rewarded the other.

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As the hon. Member for Altrincham and Sale, West pointed out, the change to the treatment of debt at 1 April 1990 has resulted in a reduction in the SSA element of debt charges for some authorities, including Trafford.

That is not the case in Tewkesbury. As a result of the adjustment to the capital spending SSA, some £20,000 extra was given to Tewkesbury.

Mr. Laurence Robertson rose--

Mr. Raynsford: From the hon. Gentleman's earlier intervention, he seemed to have a rather different impression.

Mr. Robertson: I am grateful to the Minister, who has been generous in giving way. I was quoting from the written answer that he gave me.

Mr. Raynsford: The hon. Gentleman must look carefully at the response. The overall impact was a reduction, because there were a number of changes. In terms of the change to capital financing, Tewkesbury was a gainer, so the change does not have an adverse effect at all on Tewkesbury, which demonstrates the incredible complexity of the process. When one is juggling a number of different indicators, there will be some that gain and some that lose. The overall impact is not terrifically predictable. That is why it is so important to try to ensure that we are as fair as we possibly can be.

It is inevitable that there will be some losers when there is a change to SSA methodology, particularly with a service such as debt charges, where the national amount is determined in relation to the amount that authorities will in aggregate spend on borrowing costs in the coming year. However, I am convinced that the change to the methodology was fair and proper. It was discussed with local authority associations in the SSA sub-group and the outcomes are a major improvement on the previous methodology. There would, of course, have been no need for any painful adjustments in the coming year if the previous Government had adopted a fairer basis for sharing the costs of borrowing when SSAs were introduced.

Mr. Sanders: Is the debate not connected to the use of the public sector borrowing requirement and how it impacts on local spending decisions on capital items? Does the Minister favour the alternative--general government financial deficit system--which would iron out many of the anomalies that stem from the 1990 changes?

Mr. Raynsford: The debate has ranged widely, but I suspect that I would incur your wrath, Mr. Deputy Speaker, if I were tempted to stray into the territory of the public sector borrowing requirement, which the hon. Gentleman invites me to do, so I shall stick closely to the subject of the debate--capital financing SSA rules.

It has been argued that the change allows authorities to influence their SSAs. That is one of the charges that the Opposition have made. Let me make it absolutely clear that we have no intention of allowing authorities to take decisions that will affect their SSA entitlement. The adjustment simply reflects the position before the

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introduction of SSAs in 1990. There is no possibility of authorities taking decisions that will influence their entitlement in any way.

Mr. Lansley: The Minister is mis-stating the proposition in order to attack it. The point is that, through the change, he is seeking to replace a notional basis of debt calculation in an SSA with an actual debt calculation from the 1980s, when the SSA, as we know in respect of expenditure, is a notional rather than an actual figure. It is not a target for spending but an assumed level of spending, just as there was an assumed not an actual level of debt.

Mr. Raynsford: The hon. Gentleman has clearly not been following the debate closely. The whole basis of the assessment is to ensure that legitimate decisions taken by authorities before 1990, when the new system was introduced, should not have an adverse impact on authorities' entitlement to SSA.

Neither does the change condone creative accounting. The suggestion that it does is one of the more preposterous arguments advanced by the Opposition this morning. Any creative accounting would, by definition, have been used to get outside the normal borrowing procedures. It is not taken into account in the provision of SSA cover for debt repayment.

It has also been argued that the change to the debt charge methodology is designed to favour so-called high-spending profligate Labour authorities at the expense of low-spending Conservative authorities. That is not the case. It is always difficult to convince Opposition Members of this because there are so few Conservative authorities left where one could demonstrate the impact, but one of the largest gainers from the change is the royal borough of Kensington and Chelsea. I hope that the hon. Member for Altrincham and Sale, West will recognise either that that borough is profligate and Labour controlled or that his argument is false.

The reality is that the royal borough of Kensington and Chelsea has been Conservative controlled throughout the past 20 or 30 years and is one of the largest gainers from the change, which entirely kills the preposterous argument that we are acting in a partisan way.


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