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Earl Peel: My Lords, the noble Baroness referred to maintaining the status quo, but surely she would accept that those farmers who have maintained their habitat and have done better than the rest would hardly be described as the status quo.

Baroness Hayman: My Lords, I accept the noble Earl's point. I should like to turn now to the hill farm allowance scheme and to the point made by the noble Baroness, Lady Miller, on small farms. We are consulting on our proposals and will reflect on the points that she raised. The issue of modulation has been raised, and specific questions were asked about how and at what levels the Government would seek to implement modulation. We have consulted on the basis of a form of modulation which fell more or less proportionately on all farmers and would be justified

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as a means of redirecting some CAP money to certain measures available under the Rural Development Regulation.

My right honourable friend the Minister of Agriculture hopes to make an announcement on implementing the Agenda 2000 options as soon as possible, so the specific questions raised by the noble Earl about whether we would modulate, at what level and at what level of funding, I am unable to answer today. However, I can assure him that they will be answered in the eventual outcome of rural development. We are currently drawing up a rural development plan for England, with a national framework and eight regional chapters. I know that the noble Lord and the noble Baroness, Lady Miller, have been particularly interested in this area.

Perhaps I might go on to say briefly, because I am conscious of the time, that the noble Lord, Lord Reay, asked about cross-compliance. Of course this is not a new option. We at present apply it already to all livestock subsidies, which can be reduced where significant over-grazing occurs. In the consultation document issued in August we sought views on whether to extend the use of environmental conditions on direct payments and, if so, what conditions should apply and to which schemes. We have also commissioned research into the practical issues associated with the various options. I am afraid that this is another case of "watch this space". Certainly the issues that I think have concerned noble Lords who have spoken today will be addressed in reaching decisions on these areas.

My noble friend Lord Tomlinson raised the issue of a specific appointment in the anti-fraud unit of the Intervention Board. Perhaps I could write to him on the details, but in the meantime I would say to him that the unit is a substantial one. It comprises a staff of 60 in six offices throughout the United Kingdom. I think that reflects the serious approach to CAP fraud and the rigorous application of anti-fraud measures that we want in this country as well as at the European level.

My noble friend Lord Bruce of Donington asked two specific questions. In so doing, he said that he liked to base his contributions on a full knowledge of the facts. I equally like to do so in my responses. If the noble Lord will allow me, I should like to write to him on the specific points and perhaps send a copy to the noble Baroness, Lady Byford, who followed up those areas of inquiry.

I believe that we have had a useful debate. I recognise that those who have been involved in this subject for a long time feel that there is an inevitability about the way in which we are progressing and about the difficulties that abound. However, I hope that the Government's response to the committee's report, and the moves which we are making in consulting on the various areas where there is discretion and room for

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manoeuvre, make people feel slightly less gloomy than some of them did when contributing to the debate today.

Lord Willoughby de Broke: My Lords, before the noble Baroness sits down, will she be kind enough also to place in the Library a copy of the letter to the noble Lord, Lord Bruce, so that we can all have a look at it? I believe that it will be of general interest.

Baroness Hayman: My Lords, I should be delighted to do so.

5.30 p.m.

Lord Reay: My Lords, I am extremely grateful to all who have taken part in the debate. There have been many exceptionally distinguished speeches, all from noble Lords with great experience, either in agriculture or in European affairs or, in several cases, in both. I agreed with a great deal of what I heard and disagreed with very little, so there is little role left for me in winding up. The speeches will stand on their own and undoubtedly will reward careful study.

I believe that my noble friend Lord Willoughby de Broke made perhaps the most controversial proposal. He wished to repatriate the CAP, or, at least, to explore the possibility of doing so. I am sceptical. I doubt whether a repatriated CAP could be compatible with a single market in agricultural produce and probably not with our continued membership of the European Union. However, paragraph 22 of our report welcomes those elements in the Berlin deal which allow member states to adjust their policies to suit their own circumstances. We say that it is in those discretionary areas that it may be possible to get the most out of what we see as a disappointing outcome. Therefore, I believe that it might be interesting to examine in the future how far a policy of expanding the scope for national discretion within the CAP could be extended. No doubt the sub-committee on which my noble friend will continue to serve will decide whether or not it wants to conduct such an inquiry.

I am grateful to the noble Baroness for the tone of her winding-up speech, for giving us answers to some of the questions which were put to her and for trying to raise the mood of the House on the subject which we have been debating. She was not in a position to say what decisions the Government have taken over modulation. Obviously, we shall await with interest forthcoming announcements from the Minister of Agriculture.

My noble friend Lord Jopling referred to the fact that my time is now up as chairman of Sub-Committee D. It has been for me a great honour, a great pleasure and an absorbing interest to have had the opportunity to chair the sub-committee through a series of fascinating inquiries. I wish my successor well.

On Question, Motion agreed to.

Lord McIntosh of Haringey: My Lords, before we move to the Statement on local government finance, I should like to take this opportunity, perhaps

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somewhat despairingly, to remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

Local Government Finance

5.33 p.m.

Baroness Farrington of Ribbleton: My Lords, with the leave of the House, I should like to repeat a Statement made in the other place. The Statement is as follows:

    "With permission, Madam Speaker, I should like to make a statement about local authority revenue finance for England for the year 2000-2001.

    "Local councils across the country deliver services which strengthen our communities and are vital to our future economic success. As my right honourable friend the Chancellor of the Exchequer explained to the House in his pre-Budget Statement, this Government's reforms are creating a stable economy and sustainable public finances. That means we can invest for the future--combining enterprise and fairness. This Government invest for a purpose, to secure better delivery of services. And we are investing: in nursery education, with an additional 48,000 new nursery places for three year-olds by next March; in schools, with rigorous targets for higher standards in literacy and numeracy, and, by next April, a new grant to local authorities of £140 million over the next three years to enable carers to take a break.

    "This action to secure a platform of economic stability and steady growth has enabled this Government to give local government a measure of stability which is widely welcomed. This stability means that local government can focus its efforts on delivering better services.

    "At the same time as ensuring local councils receive the funding they need to deliver high quality local services, this Government are modernising the way in which councils are managed to ensure local people get a better deal. We will shortly publish our Local Government Bill, paving the way for people to play a bigger part in shaping their local communities.

    "In July 1998 the Comprehensive Spending Review White Paper set out the spending totals for next year, and the details of revenue funding I am announcing today confirm those totals with minor adjustments. The CSR provides local government with the additional resources needed to deliver better services to local people. My right honourable friend the Secretary of State for Education and Employment is announcing today the provision of an additional £64 million for education spending, bringing the total additional revenue provision for education next year to £1.8 billion. He is also announcing that we will reschedule the introduction of increased employer contributions to teachers'

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    pensions which will ease the pressure on school budgets next year by a further £90 million. These announcements reflect the top priority which the Government continue to give to ensuring that schools have the funds they need. The CSR gives three years of substantial growth in government funding for local authorities. It was, and remains, the best settlement for local government since the introduction of council tax.

    "We have not only provided significant increases in funding. We have also given local authorities the opportunity to undertake sensible forward planning in a way that was not possible in the past. Local authorities can now broadly predict the grant they will get from government, because we do not propose to make changes to the grant distribution formulae over the CSR period.

    "Local government has welcomed this greater certainty about future funding levels. I am sure this House will endorse that view.

    "Support from government grant and business rates will be £41.76 billion next year, an increase of £2.2 billion or 5.5 per cent. This increase is more than twice the underlying rate of inflation.

    "I propose that the revenue support grant should be £19.44 billion, subject to any slight alterations following the consultation I am launching today, and which runs until 6th January 2000. In addition, some £6.92 billion of specific and special grants will be available to councils.

    "We will redistribute £15.4 billion of business rates to local authorities next year. I am publishing the basis for that distribution today.

    "Honourable Members will be aware that the next revaluation for the purpose of non-domestic rates will take effect from 1st April 2000. I am announcing today the details of the transitional relief scheme to phase in changes to non-domestic rate bills as a result of the revaluation. I am pleased to say that there will be limits on the size of annual increases in rate bills over all five years of the new rating list. In order to give added protection to small businesses, I shall give additional protection to small properties. This will be offset by limits on the amount by which bills can decrease, which will also be more favourable to enterprises operating from smaller properties. Nearly half of all small properties will see their rate bills fall next year and none will see an increase of more than 5 per cent in real terms.

    "Revaluation does not mean that more money will be raised from the rates over the next five years. We propose to reduce the national non-domestic rate multiplier 41.6 pence in the pound in 2000-2001, to take account of the increase in rateable value across the country. That compares with 48.9 pence in 1999-2000. The revaluation will ensure that the burden is spread fairly between ratepayers, in line with changes in the property market since the last revaluation.

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    "Following this revaluation, the Government will be reviewing the current system. This will not be a fundamental review of the business rate. It will look for ways of improving the approach to valuation in order to increase stability, certainty and simplicity in the system. We will consider changes to the frequency of valuations. Details of the review will be announced in due course.

    "Increases in council tax are a matter for individual local authorities to decide. But before they do so, we expect local authorities to look first at how they could be more efficient and effective. They should reflect that, for most councils, we have provided substantial increases in grant. They should exercise restraint. In 1999, many councils clearly did think much harder about what increase was really needed, and what local people would be prepared to pay. The average council tax increase came down from 8.6 per cent to 6.8 per cent, and we did not have to use our capping powers at all last year. We want all councils to think this way in future. We are willing and able to act to prevent excessive council tax increases.

    "I have already announced that we shall continue the scheme for limiting the benefit subsidy which central government pay, where council tax increases are above a guideline. The guideline for the 2000-2001 scheme will be the same as last year: a 4.5 per cent increase in council tax or such higher increase as is necessary to give the council an increase in its budget requirement equal to its full cash SSA increase. As indicated last year, the scheme will operate cumulatively. For each authority, we will use its previous year's council tax at guideline as the starting point. I am issuing today full details and an explanatory note about the scheme for 2000-2001.

    "As we explained in our July 1998 White Paper on local government, we propose to keep the method of grant distribution stable while we see whether we can devise a system which is more effective in putting money where it is most needed and will do most good. In keeping with that policy, and as I have already explained to the House, I propose to make no new changes this year in the general method of grant distribution.

    "Although the method of calculation will not change, some of the actual standard spending assessments (SSAs) to be used next year will change because of the new local government structure in London. There will be two main changes. Some functions, such as maintenance of certain roads, will transfer from London boroughs to the Greater London Authority, and we shall need to make a transfer of SSAs to reflect that. Secondly, the boundaries of the Metropolitan Police District will be reduced to cover the Greater London area only, and the areas of the police authorities of Surrey, Hertfordshire and Essex will increase. Again, SSAs will need to be adjusted.

    "We cannot ignore data changes, such as changes in resident population. These changes inevitably mean some authorities do better than others,

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    However, the effects of data changes are smaller than the changes which would have resulted from adjustments to the grant distribution formulae. We have also given local authorities as much advance notice of data changes as we can, releasing the figures as they became available.

    "I also propose similar arrangements to last year for phasing in grant changes. This means that no authority will receive less central support from government in 2000-2001 than in 1999-2000, and every education authority will receive at least a 1.5 per cent increase in central support. These comparisons will make allowance for the changes connected with the creation of the GLA.

    "My department is today writing with details of the settlement to every local authority in England. Copies of that material have been placed in the Vote Office and the Library. In keeping with our promises to modernise government, all the details are available over the Internet.

    "This settlement is another step in the Government's modernising agenda. It provides a good grant increase and a stable financial environment. Together with Best Value and our other reforms, these will enable councils to plan and deliver better services for their people. I believe that the settlement will be widely welcomed. I commend it to the House."

My Lords, that concludes the Statement.

5.45 p.m.

Lord Dixon-Smith: My Lords, I am sure that the whole House will join me in thanking the Minister for repeating the Statement made by her colleague in another place. Over the years the two of us have debated in another forum financial statements of this kind. It is a particular pleasure, although a completely unforeseen one, that the two of us should now be facing each other here.

The annual statement is the culmination of what seems to be something equivalent for local authorities to the game of musical chairs that we used to play as children. Of course, this is an adult game of musical chairs, so the number of chairs does not actually reduce. What happens in this game is that if one is fortunate, one finds oneself provided with a cushion or perhaps a slightly bigger chair; or even, if one is very fortunate indeed, an easy chair. But if one is unfortunate, one's seat becomes harder, one may find that the back of one's chair has been removed, or one may find oneself only with a stool or possibly even only with a three-legged stool. That is a not unapt comparison.

I find the Statement itself interesting because it contains so many things. Paragraph 2 refers to additional nursery places for three year-olds by next March. It is perfectly appropriate for the Government to have something to say about that, and indeed to take credit for it, but it has nothing to do with the financial year to which the Statement applies. It actually applies to the current financial year. With regard to paragraph 4, I found myself thinking that I

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was once again reading the Queen's Speech. I found myself wondering exactly what that was doing in this Statement. I suppose that noble Lords generally will have noticed the tendency of this Government to repeat many things very often. I infer that that is so that Members in another place will learn and will actually keep in mind the points that the Government wish them to keep in mind. I infer that they must be relatively slow learners, given the amount of repetition that seems to be required.

As the Statement says, the Comprehensive Spending Review and the stability in the revenue support grant mean that this year's Statement is relatively more straightforward to interpret than others have been in the past. That is all to the good. But that stability locks in gains for the gainers and losses for the losers. So the country areas which lost last year will lose again this year and London boroughs which lost last year will lose again this year. I am sure that the council tax payers in those areas will be immensely grateful that that has happened.

It is perhaps an unnecessary observation to make, but we should just remember that council tax payments average out at 6.8 per cent. The figures are set out in paragraph 14 of the Statement. Councils are given credit for getting down to that figure from 8.6 per cent in the previous year. We need to remind ourselves that that is still around three times the rate of inflation. The Statement last year provided for something rather less than that; namely, a figure in the order of two times the rate of inflation.

However, if one considers that figure in the context of the putative capping regime--which may or may not be called into play, but clearly the threat of it is still there because it was repeated in the Statement--one might say, as a local authority member working out the budget, that since 6.8 per cent was praised last year then it will be praised again this year. The circumstances are similar and therefore a council tax increase of that order would not be unreasonable. We shall therefore continue to see an element of taxation by stealth.

Another point that interested me in this year's Statement derives from the key statistics set out in Annex 1 to the papers attached to the spending Statement. They reveal two salient facts: the first is that the revenue support grant has been reduced while special and specific grants have increased. Revenue support grant has dropped by 2.3 per cent on its total, while special and specific grants have risen by 13.9 per cent. That represents a shift in local authority funding from funds that local authorities can control in their own interests to funds that are specifically and directly controlled by the Government. The changes in those figures therefore represent a loss of independence for local government. I believe that we should regret that.

Secondly, sandwiched between those statistics in the annex is an even more odd figure; namely, the figure for non-domestic rates. In 1999-2000, non-domestic rates were distributed to the order of £13.6 billion. For the year 2000-0l, they will be

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distributed at the rate of £15.4 billion. That is a 13.1 per cent increase. I am bound to say that I have some difficulty in squaring that figure with the 5.5 per cent mentioned in the Statement. From that I can only infer that the 5.5 per cent applies specifically to small properties. I believe that it can be read in that context. Perhaps the noble Baroness will confirm that point. If that applies only to small properties, it means that somebody else is getting an even heavier increase. That figure will cause real concern to those involved in industry and commerce.

This is an ordinary Statement. As a result of it, I expect that we shall see some transfer of taxation, or, if I may put it differently, some transfer of the cost of public services from central government to local government. Before the noble Baroness intervenes to say that that was ever the case and that every government have always done it, I should observe that I had understood that this Government were meant to have been elected with higher aspirations to do things differently. However, I regret to say that, two and a half years through this Parliament, we must judge that the Government have the same feet of clay as their predecessors.

5.55 p.m.

Baroness Maddock: My Lords, from these Benches we also thank the Minister for giving us the opportunity to hear the Statement and to comment on the local government settlement. The spin suggests that the local government settlement this year is the best ever and that everything in the garden is rosy. However, it is worth looking underneath that gloss. Almost the opening lines of the Statement remind us of the importance of local councils and their services to the communities they serve, and in particular the economic well-being of those communities.

At the end of the Statement we are told that this is another step in modernising the way in which we deal with local government matters. Yet we are still using the same formula to redistribute grants that the Conservative Party used in its government for many years and which this Government have now used for three years. I ask the Minister whether the Government can urgently examine the possibility of really modernising local government finance either--as we have proposed many times from these Benches--by giving local councils and their communities more financial autonomy, or by looking at the basis on which the standard spending assessments are decided. In particular--other Members of your Lordships' House who have served in local government will know this--can the Government examine that demon, the area cost adjustment. Local councils and communities have changed beyond recognition since these formulas were put in place.

What is particularly disappointing is that the central-local partnership appears not to have helped as much as some of us would have liked in the short term. Can the Minister confirm that while local authorities, through their local government associations, have estimated

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that they need £3.2 billion additional revenue to meet inflation and spending pressures for 1999-2000, and that the spending needs for 2000-01 will be similar, the Government have assessed that an increase of just over £2 billion is needed? That represents a £1 billion difference. Can the Minister comment on the usefulness of the central-local partnership if there is such a wide disparity between the estimates? I understood that the central-local partnership was provided as a method for agreeing new and extra pressures on councils, in particular rising numbers of children in schools and rising demand for social services.

I should like to press the Minister on other central control matters. What will be the cut in council tax benefit for local authorities next year? Can the Minister confirm that council tax benefit limitation this year has cost local authorities something of the order of £30 million? In addition, can the Minister confirm that council tax benefit limitation has a disproportionate effect on more deprived areas because of the higher concentration of benefit claimants in such areas? Can the Minister tell us how she thinks that assists the Government's social inclusion policy?

Shifting the burden of tax from central government to local council tax payers has continued in this Statement. Can the Minister confirm that the high gearing means that the amount raised directly from council tax payers by local authorities is disproportionate and does not help us to view local government finance in a transparent way? On a slightly different point, but still pursuing the theme of the local-national financial split, can the Minister tell us what is the cost to local authorities of the inspections they are now required to have of their services? In raising the point, I do not want to indicate that we should not have high standards and carry out inspections. I merely point out that these matters are important but do not come without a cost.

I now turn to consultation. Will the Minister tell the House exactly where local authorities stand as regards the ability of councils to discuss their budgets directly with Ministers? Is it still the case that the Minister for Local Government does not propose to meet individual local authorities this year to discuss their budgets? For example, it would appear that performance related pay for teachers will not be fully funded. Rural areas are particularly discriminated against in some local government settlements. These are legitimate matters that can be brought to the attention of Ministers through meetings with individuals. That may be time-consuming, but, if local democracy is to mean anything, it is essential.

I have not covered everything. I know that my noble friend Lady Harris would like to press the Minister on the matter of police funding. I hope that the Minister will be able to answer some of the questions that I have put to her.

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