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Mr. Nigel Waterson (Eastbourne): The Minister cannot divorce herself entirely from the impact of the

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settlement on council tax, because real people pay that tax through real councils. Many of those people face hardship in paying increased council tax.

Ms Armstrong: That was an interesting intervention. Given the hon. Gentleman's predictions, I wonder about his intentions. Today, he predicted increases of more than 10 per cent. Is he trying to encourage authorities to do that? Last year, Labour councils increased council tax by 6.1 per cent., whereas Tory councils raised it by 7.6 per cent. Perhaps the hon. Gentleman is trying to encourage profligate spending by Tory authorities. Thank goodness there are not many of them.

It is important that councils consult local people and consider fully the scope for increased cost-effectiveness before setting their budgets. I am delighted to say that, since I announced the provisional figures in November, efficient management of the transitional costs of local government reorganisation has produced a saving of £35 million. As part of the Government's continual drive to ensure that investment is focused on front-line services, I decided to return the £35 million through an increase in grant support to local authorities to help them fund service improvements and keep council tax increases down.

In addition, my right hon. Friend the Secretary of State for Education and Employment recently confirmed that an extra £50 million for schools will be paid through a special grant to all education authorities.

Mr. Adrian Sanders (Torbay): But to qualify for that £50 million, local education authorities must maintain last year's education budget as well as finding extra cash to match the Government's increase on the education SSA this year.

Ms Armstrong: My right hon. Friend has written to local authorities to say that he is interested in the way in which they will pass the education money to schools. He will examine that before he makes a decision. I am happy to support my right hon. Friend.

Overall Government grant to local authorities will be £41.9 billion in 2000-01. That is nearly £2.3 billion or 5.8 per cent. more than in 1999-2000.

Mr. David Watts (St. Helens, North): Depopulation in many poor areas causes severe problems in maintaining standards and services, and for the council tax. Will my right hon. Friend specifically consider the poorest areas, such as St. Helens and Barnsley, which are suffering while we wait for the review of the SSA system? We all want that to happen as soon as possible.

Ms Armstrong: I shall tackle that later in my speech.

As I said, the overall effect of our policy is an increase this year. Total standard spending will be £53.6 billion, which is £2.9 billion or 5.8 per cent. more than in 1999-2000. Individual authorities' SSAs will have moved slightly since the provisional figures were announced in November to reflect updating or corrections to data. I do not propose a change in the method of calculating SSAs, except when that is needed to take account of the changes that are connected with establishing the Greater London Authority. However, in a formula-based system such as the standard spending assessment, changed circumstances change the amount of grant that individual councils

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receive. Specifically, when the data that feed into the formula change, the SSAs for individual authorities change. Those changes led to representations on three issues in particular.

Lower interest rates affected the distribution of the element of the SSA that relates to capital financing. The authorities that lost by that change--principally metropolitan authorities with debt, but low interest receipts--suggested to me an alternative means of calculation. I understand their argument that using an interest rate at a particular point in time may not be representative of a whole year. However, we have said that we intend to stick to the existing method of calculating SSAs and we have to be consistent in that. I must also make the obvious point that reducing interest rates results in a reduced cost to authorities of servicing debt. That is reflected in the particular SSA.

A number of representations suggested that more grant be given to those authorities with the lowest grant increases and that the threshold of 1.5 per cent. that we had proposed for central support protection grant be increased. The Government, though, have to strike a balance between protecting authorities with low increases and allowing the new data to work through the grant formula to give larger increases to others. I consider that we have that balance right.

Authorities such as those to which my hon. Friend the Member for St. Helens, North (Mr. Watts) referred--which lost grant because of data changes and, in particular, declining population--suggested that we should introduce a mechanism to phase in those losses. I am not persuaded that that would be sensible. It must be true that, other things being equal, a decline in local population will feed through to lower spending. However, that is one of the issues that we shall continue to examine as we consider the review.

I have considered those and other points carefully. However, I remind the House that our July 1998 White Paper, "Modern Local Government--In Touch with the People", set out our plans for the period of the review of revenue grant distribution. We stated that although we did not expect to change the method of distribution, we would update the SSAs of individual authorities to reflect changes in the demands for their services, as reflected in the data used to calculate SSAs. We see no reason to change that view. Therefore, I do not intend to make any changes to the basis of grant distribution that I proposed on 25 November.

The Local Government Association sought information about the arrangements for phasing in the effect of grant changes. I accept its argument, which chimes with the Government's emphasis on providing a stable financial environment in which authorities can plan and deliver better services. I therefore announce today that we intend, for 2001-02, to use the same arrangements for phasing in grant changes as for 2000-01. That means that no authority will lose grant, and local authorities with education and social service responsibilities will receive a grant increase of at least 1.5 per cent.

I also intend to maintain stability in another area that relates to council tax benefit subsidy. We received and considered representations on our proposals for subsidy limitation. Some were opposed to the scheme itself and some sought modifications. However, none convinced me that the basic principle behind subsidy limitation is wrong.

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Local authorities will therefore continue to contribute to the benefit costs of council tax rises, if those are above a guideline. The guideline will operate cumulatively, as we said last year. In other respects, the scheme remains as last year.

Mr. Christopher Chope (Christchurch): I understand that the guideline is about 4.8 per cent. Why is that so much above the rate of inflation? Does it not demonstrate that the Minister knows that the consequence of the grant settlement is that council tax rises will be significantly above the rate of inflation next year, as they have been in the last two years under this Government?

Ms Armstrong: The hon. Gentleman has a short memory. He knows that when he was in charge of these things--or at least when he was one of the Ministers in the Department--he supported changes that drastically changed the amounts raised through central Government grant and locally. The balance was redressed slightly by changing the basis of that, but his Government changed those amounts. That has been maintained, but we are considering it in the review. It is not true that the guideline is 4.8 per cent. and it is not true that councils have to spend up to it. Councils have already planned to spend well below the guideline, which is not a suggested council tax increase but the guideline at which council tax benefit subsidy limitation kicks in. That is a very different matter.

Mr. Harry Barnes (North-East Derbyshire): An aspect of the council tax benefit subsidy limitation scheme presents a problem. Parish council precepts are included in the amounts to be considered, but parish councils are in control of their own expenditure. Some authorities have a great number of parish councils in their area, so should not that matter be removed from these considerations?

Ms Armstrong: I have considered that. It would be difficult to administer my hon. Friend's proposal and the cost of administration might far outweigh the amount that would be taken. Following discussions with the National Association of Local Councils, we decided not to go down that road. However, I understand his point.

Mr. Sanders: I am grateful to the Minister for giving way a second time. Combined fire authorities, which have no control over the local authorities that set their budgets, are affected by the council tax benefit subsidy limitation scheme. Will she consider making reforms, as the scheme is very unfair to them?

Ms Armstrong: I do not accept that argument. Combined fire authorities comprise representatives from member authorities, and it is their responsibility to ensure that decisions taken by the combined fire authorities do not inflict exacting tolls on the council tax payer. It would not be fair to put that liability on to the other authority, which does not set the tax.

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