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Local Government Finance
3.30 pm
The Secretary of State for the Environment, Transport and the Regions (Mr. John Prescott): With permission, I should like to make a statement about the local authority revenue finance settlement for England for 1999-2000.
The services that local councils provide are vital to economic success and to making Britain a better place to live in. We are working with local councils through our central/local partnership to modernise and support local government.
On this occasion last year, I set out the Government's programme for the renewal of local democracy. It is an ambitious long-term programme, and I have further progress to report. In July, we published our White Paper on modernising local government. Yesterday, we published our Local Government Bill to sweep away the wasteful and unfair system of compulsory competitive tendering and replace it with best value, so that local people can get the quality of service that they expect at a price that they are willing to pay. The Bill abolishes crude and universal capping of council budgets and in its place provides more flexible reserve powers to prevent excessive increases in council tax, as we promised in our manifesto and as I have set out in the House on several occasions. The measures give local authorities greater responsibility for managing their own resources while providing protection for the local community.
Today's announcement on revenue funding should not be seen in isolation. We are tackling problems in a co-ordinated way, with extra resources to help communities tackle deprivation and improve housing and transport. Our spending plans for local government offer the most generous council tax settlement ever. They include: extra spending and extra protection for the taxpayer; a fairer distribution of grant; and three years of funding stability. They are the key elements of our approach to this year's local government settlement.
Total standard spending, as the House is aware, is the total amount of local authority spending to which we are prepared to contribute. Next year, it will be £50.62 billion. That is £2.6 billion more than this year, an increase of 5.4 per cent.
Education and health are our main priorities. Next year, we will invest an extra £1.4 billion in modernising education, an increase of 7.2 per cent. There will be more than £500 million extra for social services, in respect of which the Government's reforms werer set out in Monday's White Paper on social services.
We have announced further increases in the following two years. Over the three-year period, total standard spending assessments will increase by about 7 per cent. more than expected inflation. That new certainty helps councils plan ahead with greater confidence. Better forward planning and greater flexibility mean better standards of service and better value for money.
About half the money to fund total standard spending will continue to be provided by the Government. I propose that the revenue support grant should be £19.9 billion. In addition, some £5.9 billion of specific and special grants will be available to councils. The RSG figure may need to be altered slightly following consultation.
The business rate poundage will be increased by the September retail price index to 48.9p in the pound. We will redistribute £13.6 billion to local authorities next year. I am publishing the basis for that distribution today.
We are asking council taxpayers to contribute a fair share--no more, no less--to the cost of providing local services. We shall increase funding from Government grant and the business rate broadly in line with the overall increase in SSAs. If local authorities increase spending in line with the increase in their own SSA, council taxes will rise on average by 4.5 per cent.
As I told the House last December, this is the last year of crude council tax capping. I am therefore the first Secretary of State since the council tax was introduced seven years ago--after the disaster of the poll tax--not to set capping criteria in advance. However, I should make it clear that we expect local authorities to exercise self-restraint.
We are providing substantial real increases in funding, and local authorities should be concentrating on securing greater efficiency in the delivery of services and financial management, to increase further their spending power. There is no justification for excessive council tax increases. If we are faced with such increases, we shall not hesitate to act, as I have made clear to the House before.
We have to protect the country's interests as a whole. We shall not pick up the cost of excessive council tax increases by higher council tax benefit subsidy payments. We announced our intention to tackle that problem in the July White Paper.
We are setting a guideline figure, which will be a 4.5 per cent. increase in council tax, or a higher increase if needed to allow a council to budget in line with the cash increase in its SSA. A council that keeps within that guideline figure will have its council tax benefit subsidy payments reimbursed at the full rate. However, a council that exceeds the guideline will have to make an extra contribution to the cost of paying for the extra benefit. The council's contribution will increase gradually for each half a percentage point that the council tax increase exceeds the guideline.
I should make it absolutely clear that that provision will not impact on people in receipt of benefit, and that councils with a higher than average proportion of income from council tax benefit will be treated as though they had the average proportion. Poorer areas will therefore be treated no worse than the average.
On standard spending assessments, the national totals are important, but what every council wants to know is how much it will get and to be assured that the distribution is a fair one. Last year, I announced a number of changes to the SSA formula to make it fairer. For example, I brought up to date the formula for elderly residential social services, and ended the fundamentally unfair assumption that visitors and commuters were as deprived as deprived local residents.
This year, with the Local Government Association, we considered many possible changes. I should like to mention three matters on which we are proposing change, and a couple on which we have not reached a satisfactory conclusion.
First, after three years of discussion and research on children's social services, we have found a new formula, which I believe is well founded. It is undoubtedly an improvement on the formula that has been used for the past few years.
Secondly, I have introduced an allowance for sparsity in the part of SSAs that allows for the extra cost of providing social services for the elderly in their own homes. There will, therefore, be more for rural areas in that part of the SSA.
Thirdly, we are taking account of deprivation in the part of the formula that deals with what are called "county services", such as libraries and probation.
Sometimes, the search for an improvement is unsuccessful. This year, we have done a great deal of work, with local authorities, on two other big issues. The first, of course, was on the additional educational needs of some children. The other was on the area cost adjustment, dealing with the fact that pay costs vary significantly from one region to another.
In both cases, there are some valid objections to the current formula, and, in both cases, we have had many alternative reform proposals from which to choose. We had, for example, 21 detailed options on only the area cost adjustment. However, there was no clear frontrunner, either on merits or on its support within local government. It would not have been right to take decisions on the area cost adjustment and additional education needs now, when it is clear that there are unresolved issues raised by local government that need further work during the period of SSA stability. Maximising consensus is important to this Government--as it was not to the previous Administration.
I recognise that councils need time to adjust to the changes in SSAs. I shall pay a grant to limit the impact on council tax for those authorities whose losses due to changes in the SSA formula go beyond a threshold. I shall go further than the traditional damping arrangements. I guarantee that no local authority, north or south, will receive less government grant support next year than it did this year. It follows that there is no case for steep council tax increases.
The Government understand that the uncertainty created by an annual review of the SSA formula is unhelpful to local authorities who are trying to plan ahead. We now have a three-year period of funding stability for local government, during which we shall seek a long-term solution to the continuing difficult issues in the local government finance system.
We need to look at the scope for reform within the existing SSA system. For example, we are looking for solutions to the area cost adjustment and additional education needs problems. That is not an easy task. We also need to look at the case for more radical reform, to produce a system that is clearer and more robust. We need a system that is more easily understood by the voter and accepted as fair and stable.
Local authorities must use this period of stability in their financing to concentrate on increasing efficiency and improving services, rather than on fighting their corner in the annual battle over their share of grant, but developing best value services for their community.
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