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8.5 p.m.

The Lord Bishop of Lincoln: My Lords, I, too, am grateful to the noble Lord, Lord Varley, for the opportunity to speak in this brief debate. As the noble Lord, Lord Boardman, said, I shall indeed speak mainly on behalf of Lincolnshire. The county of Lincolnshire co-incides with the area of the diocese of Lincoln, so it

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is an area that I know particularly well. Since 1989-90, Lincolnshire has received less through standard spending assessments than the average for the shire counties. The effect of that in this current year is a loss of some £9 million. That is a serious matter in a widespread agricultural area.

The chief culprit appears to be the area cost adjustment mechanism, by which extra resources are pumped into London and the south east to compensate for above-average costs. Noble Lords have already referred to the inadequacy of that concept in these present times. We in Lincolnshire believe (like 26 of the other shire counties) that the area cost adjustment significantly over-compensates London and the south east.

Everyone recognises that the local government settlement for next year will be very, very tough. As such, surely it is vital that disadvantaged counties receive a better share of what cake there is. The correction of the area cost adjustment over-compensation will make a very marked contribution here.

Lincolnshire is not a wealthy county. Wage rates are the second lowest in the country--and in European terms Lincolnshire is on a par with Corsica. If that is to change, we in the county of Lincolnshire must attract inward investment to generate economic development.

Sadly, the present system does not recognise the potential benefits of economic development. It simply distributes grant on the basis of what there is now. Nor does the transport supplementary grant system help in this regard. A sound road infrastructure is vital to economic development; and yet for this current year Lincolnshire received over 30 per cent. less of the transport supplementary grant than in the previous year compared with a national reduction of 14.5 per cent.

I have what is, in many ways, the benefit of serving an area which has no motorways in it whatever. There is the very serious matter of the dualling of the A.46 between Newark and Lincoln, which forces Lincoln into some kind of economic decline. I have seen that decline over the years of my episcopate there. As my noble friends have pointed out, the area as a whole is losing out, and Lincolnshire is particularly disadvantaged. I make a plea to the Minister for a specific cost approach in local authority finance in order to anchor the area cost adjustment in reality again and to bring an end to the present injustice.

8.9 p.m.

Lord Kimball: My Lords, we are all very grateful to the noble Lord, Lord Varley, for introducing this Unstarred Question.

Like other noble Lords who have spoken, I emphasise that none of us is asking for any new money or any more money. We are all asking for a fairer share of the funds that are available. That fact was recognised unanimously by the Association of County Councils, which acknowledged the unfairness of the present system. The five great shire counties of the Midlands of England--Leicestershire, Lincolnshire, Nottinghamshire, Northamptonshire and Derbyshire--are all represented in this Chamber tonight. They all

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speak with one voice about the unfairness of the area cost adjustment formula since its introduction, which has resulted in the standard spending cost assessment short-changing our counties.

It is a terrible state of affairs that the suburban counties --as I call them--south of the Thames have been given a larger increase in the standard spending assessment. If it had been evenly worked out, it would have resulted this year in £37 million being taken from the south and the east and given to those five great shire counties.

Some of us--I hope that the noble Lord, Lord Varley, appreciates the point--will have some doubts about the past antics of the Derbyshire County Council. But that is no reason why the other counties should in any way be penalised. The right reverend Prelate, speaking about Lincolnshire, spoke for the county which has the soundest financial record of any county in Great Britain. Unfortunately, it is being penalised for its sound financial management over the years.

I thought it was very interesting that in this short debate there should be a great financial expert, a former Chief Secretary to the Treasury, coming to your Lordships' House and admitting quite honestly and truthfully that in all the years he worked for the Treasury, he did not have a clue about how local government finance was worked out. We would do much better to recognise that this is the state of affairs that we are in.

There was an announcement today from the other place that there would be a 2.2 per cent. increase in government grants to local authorities. If the extra expense of the work involved with the boundary commission is taken into account, and in which those five counties have been involved, the real increase is only 0.8 per cent. In addition to the review, there is the extra imposition of a common funding formula for schools. That will further pressurise local authority expenditure next year.

Whatever the technicalities of local government finance, let us be absolutely honest and straightforward about it. There is a feeling abroad in the county of Leicestershire that the county is being short-changed by this system.

8.12 p.m.

Baroness Hamwee: My Lords, I too thank the noble Lord, Lord Varley, for bringing this important issue before your Lordships. I shall become a little less involved in the geographical battles, though perhaps I may share with your Lordships what I heard from a colleague in the south west. The Western Mail--or at any rate, the major paper in the south west--has recently discovered the subject of the area cost adjustment and is currently running a major campaign, accusing the Government of being friendly to their friends in the south east, to the disbenefit of the south west. It asks what politics underlie decisions about the area cost adjustment. I understand that local politicians are standing back and letting the press raise the questions for them.

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It is an issue that we in London have also faced. I recall two or three years ago complaining on behalf of London boroughs about the problems that they were suffering. Inevitably, I was faced with counter-accusations about unfairness to other areas with London benefiting. I fear that it is a subject on which statistics can be traded in a way that leads to confusion and not clarity.

I suggest that the problem is that the standard spending assessments and their whole basis are unrealistic. Yesterday, we heard in the debate on community care about the mismatch between spending on education and the SSA in the Isle of Wight. If that authority were to spend on the fire service at the level recommended by the DfE, it would be prosecuted by the Home Office. We know that its social services budget has run dry, as indeed it has in other authorities. Also, we know that last year's teachers' pay award was not fully funded.

There are complaints and squabbles, such as we have just heard. Local government is not in a position to plan further than one year ahead at a time. I appreciate that situations change and that every business--local authority is very big business--has to keep its budget under review. But learning of decisions relatively late in the process, in the way that it happens, is not conducive to good financial management.

For many years councils have absorbed cuts made necessary by government management or mismanagement of the economy. Inevitably, there is a cumulative effect in the funding shortfall. We should all like to see improvements in services such as nursery education, and that simply cannot happen without money. That money is to be provided by authorities which have been raiding their reserves and balances, so that in many cases the cupboard is nearly as bare as the auditor will allow.

There are always possibilities for cutting out waste and bureaucracy. Many authorities have made very great efforts and, having made the cuts required, they are now into real service cuts. There are also problems where the system of finance for local government cannot accord with local democracy and autonomy. The constraints are those of central government. There are limits on capital borrowing which are set by central government. It seems absurd that in running such a big business one cannot take one's own decisions about borrowing. Indeed, there are restricted sources of finance for borrowing by local government.

Since joining your Lordships' House I have on many occasions heard people in the City, and those involved in finance in other countries, ask why local authorities in this country cannot raise money through bonds and different systems of fund raising. We all know about the problem of capital receipts, where spending is restricted. The noble Lord, Lord Kimball, talked about certain counties being proud of their record in sound financial management. I wish that they were able to exercise their abilities far more.

As we heard, the announcement yesterday stated that SSAs would go up by 2.2 per cent. for community care and local government reorganisation. I wonder how far

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that increase will meet the requirements in both those areas. With regard to local government reorganisation, the costs of the review will be enormous--those that can be calculated and the hidden costs of the hundreds and thousands of man-hours that will be spent, not on the reorganisation when and where it happens but on the process. I suspect that they will have an effect for years to come.

Having the benefit of the previous debate going on for rather longer than I had expected, I was interested to read a comment in today's Evening Standard on the business rate. The London paper complains about changes in the business rate benefiting what they describe as "areas like the Midlands and the North", in that rather arrogant way of Londoners, at the expense of London businesses, whose business rates will not be reduced to the extent expected, given the reduction in rateable values. Tonight's editorial states that the Chancellor,

    "caps the rate in the North and he limits rates reductions in the South. A more blatant, glaring, outrageous, unashamed and unconscionable example of discrimination and provincialism can hardly be imagined".

The writer of the editorial warns that the Tories have got seats to lose in London as well as outside. He says,

    "It is time for London MPs, especially Tories, to make the Government's life difficult".

I thought they had been doing a fairly good job of that over the past few days.

I shall not trade claims as between areas. When I first became involved in local government a colleague said that local authority finance was as obscure and complicated as problems in the Middle East. We heard the confession made tonight by the noble Lord, Lord Boardman, and nothing could more demonstrate that.

My plea is for more transparency to make it easier for everybody to understand what the issues are. Standard spending assessments are extremely difficult to understand. I suspect that central government have a tool with which they manage to confound those who seek to understand the system. I wonder whether it is in fact to the advantage of central government that they allow a system to continue which enables local authorities too easily to get into a squabble between themselves.

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