§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert G. Hughes.]
2.52 pm§ Mr. Nigel Spearing (Newham, South)I do not have pleasure in drawing the attention of the House to the subject of calculations for SSAs, which are better known as standard spending assessments, because to most people in local government they are a curse, most Members of the House of Commons find them difficult to grasp and to members of the public they are an invisible weapon.
Under the Government, and indeed under Governments of all complexions, there has been a natural desire to limit the public expenditure of local authorities. Of course, we do not like to see wrong and inefficient expenditure. But, in the past 10 years, we have seen a progression of measures that have put local authorities into a more or less helpless position and even now are a danger to the citizens whom they represent. I honestly believe that we are reaching a stage in the next financial year when Her Majesty's Government, particularly those who inhabit the Treasury, are not aware of the effects of formulae for SSAs.
I know that when the era of block grants came to an end and we had clawbacks, grant-related expenditure—GRE—and all the rest of it, some enlightened members of the Government did what they could to ameliorate what were clearly anti-social and sometimes semi-workable or unworkable measures. I believe that, in the past 12 years, 13 measures on local government finance have passed through the House—the Minister may correct me if I am wrong—most of which have not worked.
The Treasury's objective, reinforced by macroeconomic theory about the proportion of expenditure in the country that is public expenditure as distinct from private expenditure, is to push local government expenditure down. That has not worked. Time after time, various ways round various arrangements have been found. The public, of all political parties, have objected to the manacles placed on local government.
With the system of SSAs, coupled with the capping on expenditure, a new cage has been placed round local authorities or, rather, round the public that they represent. We are now in a new era of grave injustice, particularly for inner-city areas—I note that one of my hon. Friends who also represents London is present.
§ Mr. Gordon Prentice (Pendle)No, my hon. Friend is thinking of my wife, the hon. Member for Lewisham, East (Mrs. Prentice).
§ Mr. SpearingI apologise.
The local authorities will be blamed for something for which they are not responsible and which appears incredible to the public.
Newham is the second most deprived borough in the country according to most statistics—Hackney beats it by a short head. I ask the Minister to refute my assertion that we are being defrauded—I use that word advisedly—of £20 million worth of services, many of them crucial. That is equivalent to about £120 per adult member of the borough. Any local authority officer knows that that extra amount, per head, would provide a tremendous amount of flexibility. We do not enjoy that now.
685 How has this come about? I challenge the Minister to deny the arithmetic, even if he gives me some philosophical explanation of the new arrangements. The Government say that the SSA is based on what they think is the standard level of service that the councils should provide. I do not know whether that standard is what we would accept. The Government then calculate roughly how much those services would cost, multiply that by various types of formulae and, Bob's your uncle, that is the SSA.
The assessment of services is carried out by dividing the key ones into five broad categories. The first is education, which accounts for half the given expenditure. In fact, education expenditure is divided into subgroups covering primary and secondary education. One also used to cover further education, but there is not much of that now. The other four categories relate to social services, highways, other services and capital charges.
Despite recent changes, educational costs can be broadly assessed on the number of teachers, pupils and buildings and so can all the rest. The figures are totted up. The only thing that the Government do not appear to tot up is the capital charge, which is known and reasonably predictable within a certain range, just as a mortgage payment is for a householder. It is the first charge upon a borough or a district council that must sustain borrowings. I must emphasise that those borrowings, for the most part, have been permitted by the Government.
The Minister is aware of a number of letters that I have received—I shall not quote them because time is short—in which Ministers say that not all capital borrowing has been permitted by the Government. Nevertheless, a great proportion of it has, at some time or other, been given the go-ahead by the Government. In other words, the Government have said that that capital expenditure is necessary—that is a very important moral point.
In Newham, next year's total SSA is supposed to be about £255 million—these figures are provisional and I know that the Minister will tell me that, but it gives me some hope for the future—of which education accounts for £120 million, social services £43 million and other services, such as administration and everything else that the borough must do, £66 million. Capital charges account for £18 million.
However, the real capital charge that Newham must pay, mostly for expenditure that the Government have agreed is necessary, is about £30 million, give or take £1 million as I am dealing in rounded figures. We have a shortfall in payment of capital charges of between £11 million and £12 million.
The only way in which that sum can be obtained is by withdrawing funds from other sections of expenditure for which an SSA has already been calculated. They may not be big enough for what is required—we may think that other SSAs are not sufficient—but they must be further reduced.
The Minister has agreed that education accounts for half the cost. If there is a shortfall of roughly £10 million in capital charge deficiency—I am being very conservative—education will have to be cut by £5 million beneath the SSA which even a not very beneficent Government have agreed is necessary. That means additional cuts in education above even what the Government think is necessary.
I believe that Birmingham is in a similar position to Newham. We are blamed for not doing very well and the Government say that we are not spending what they have 686 given us. However, they omit to say that they have not given us what we require under the SSA for capital charge. That has a secondary effect which is even more drastic than people realise.
Much of public expenditure in local authorities is statutory. Various Acts of Parliament lay down what a council must do and if it does not do it, it can be taken to court. However, many of the services that are most prized, especially in areas such as that which I represent—Plaistow, Custom House, East Ham, West Ham, Stratford and the whole of the borough—involve discretionary money. I add that everything that I am saying has the backing of my hon. Friends the Members for Newham, North-West (Mr. Banks) and for Newham, North-East (Mr. Leighton). The borough council may pay that discretionary money if it wishes to or if it has it.
I use the specific example of nursery schooling. Irrespective of party, politicians get into terrible trouble if nursery education does not expand and still more trouble if it has to be cut. What about discretionary grants for the over-16s for further education or extras for old people's centres, for a little more transport, for a little more time from home helps and respite care for relatives who do so much for the ill and the sick? The relatively small sums involved, when spread around the community, provide a good deal of social easement which would not otherwise exist. That goes first, because such services are the only ones that can be cut if one has already cut to the bone.
What is the basis of not providing a standard level of service of capital debt—here I use "service" in another way—that is comparable to the standard service provided for consumer services? The Minister will probably say that a borough should sell some assets and should not be so much in debt, but what happens if there are no assets to sell or if the assets that might be sold are those that provide social services for the area? That is an impossible position, but matters are even worse than I have outlined.
Having to find £10 million out of all the services in the borough to make up for the deficiency in capital payment leads to another problem—homelessness. It might be easier for the Government to do something about this problem because it affects fewer boroughs than the capital deficiency which, I suspect, affects many. In fact, I know that it does. That problem exists in London because of the many evictions or repossessions which occur for many different reasons.
Newham has had to budget for about £10 million for next year and the figure is rising. That is not the borough council's fault, yet notionally the money has to come from the SSA for other services, which is based on a formula calculated for the whole country. I have yet to hear that it contains any specific element for expenditure on homelessness. As the Minister knows, despite its name, that expenditure does not come under the housing account, which is separate from the financial matters that I am discussing and, quite properly, is ring-fenced.
To find that £10 million next year we shall have to make more reductions even from the mingy amounts that the Government provide. I am still being conservative—with a small "c"—when I say that there will be a deficiency of roughly £10 million on capital and £10 million for homelessness, so we reach a figure of about £20 million. I do not think that the Minister will be able to refute that figure.
If we are to find that money, terrible things will have to happen in the community. Long-serving public servants, 687 who have given a lifetime of skill and have more skill still to give, will be made redundant compulsorily or voluntarily. They will no longer be working for the local authority and for the people, who greatly value their services. They will go on the dole, perhaps with some redundancy money, too, and twiddle their thumbs at home, when they could be providing services for needy people in the borough.
Nursery education will have to be cut, because it is not a statutory requirement. In Newham we have a well-based drugs unit, dealing with prevention among young people, which has had some great successes. As we all know, in the future we shall face much greater challenges on that front. But the expenditure is discretionary, so the borough is considering the unit's future. We should not have to do that.
What about education? The Minister may not know, as it does not involve his Department, but the Department for Education has cut section 11 grants for additional teachers for children for whom English is a second language. Newham, and Tower Hamlets next door, are full of such children—and we are having to cut the number of their teachers.
Other elements are involved, but I shall not deal with those today. I shall concentrate on two factors. The first is the capital element, which is £10 million short, and the second is the fact that the charges for homelessness are improperly put into a classification in which no provision has been made for them. It would be better to take that element out of the SSA altogether and provide a grant to cover the cost—given, of course, a reasonable degree of efficiency which could be monitored.
I shall not deal with too many other areas of the country, but what has been experienced in our borough provides a clue to what is happening elsewhere. I see from the Association of Metropolitan Authorities returns that Barnet is suffering £40 million in cuts this year and its education department says that it may be unable to provide schooling for all. Birmingham faces cuts of £35 million and 2,000 jobs are being lost. Incidentally, Birmingham's SSA for capital charges of roughly £100 million was about £50 million. So it is in a similar position.
Enfield has a £21 million gap and is cutting £10.5 million from education. I believe that Sutton has had an efficient Conservative administration—[Interruption.] Yes, we have expertise on both sides of the House this afternoon. Sutton has cuts of £8.5 million and is discussing the possible closure of day centres for the elderly. Think of that.
This is supposed to be a country at ease with itself, yet the Treasury and the Department of the Environment are scattering disease and social tension with their stupid formulae which take no account of reality. I may be asking for more money, but I suggest to the Minister that—bearing in mind the unemployment and the redundancies among skilled people who are only too anxious to help others—the amount of social damage and the stupidity in relation to the total amount of public expenditure are something which history will find it hard to understand.
I ask the Minister to consider two points. First, he should make some adjustment on the capital servicing to bring it more or less into line with the proportion of capital expenditure that has been permitted by the Government. 688 I go no further than that. Secondly, there should be a separate system for the homeless. Without that, can there be justice? Without justice, can there be peace?
§ 3.9 pm
§ The Parliamentary Under-Secretary of State for the Environment (Mr. Robin Squire)In congratulating the hon. Member for Newham, South (Mr. Shearing) on obtaining this debate, I am pleased to have the opportunity to speak about the calculation of standard spending assessments, or SSAs as we hereinafter agree to call them. The assessments, as the hon. Gentleman pointed out, play a key role in the system of local government and they are often misunderstood. I hope, therefore, that this debate will help to contribute to a wider understanding of SSAs within the House. I am sure that the hon. Gentleman joins me in regretting that some of the hon. Members who were present a few minutes ago are not with us now. They will no doubt read the debate in Hansard in due course.
The SSA for any authority represents the Government's assessment of the level of revenue spending by that authority that should enable it to provide services to a common standard. This common standard is that which is consistent with the Government's view of the appropriate level of revenue expenditure for all local authorities combined, bearing in mind the position of the economy.
The SSA has two main functions. First, it helps to determine the amount of revenue support grant received by each authority. I hope that the hon. Gentleman will forgive me if I go into a little detail on the background. I know that he is more than aware of it. In effect, the grant is distributed in such a way that, if all authorities were to spend at the level of their SSA, the level of local tax could be broadly the same in all areas of the country. This applies not only to the community charge, but to the council tax in 1993–94.
Secondly, SSAs are used as a benchmark for comparison within the capping framework when forming a view about whether the level of an authority's budget or the proposed increase in that budget is reasonable or excessive.
There can be no doubt, therefore, that SSAs are extremely important. As such, they must be calculated on a basis that is seen to be fair. I would not want anybody, for example, to imagine that SSAs are dreamed up by a few Ministers on the basis of arbitrary factors designed to favour certain authorities and to penalise others. Nothing could be further from the truth and I should like to spend a few minutes explaining the basis of the calculations.
Although, as the hon. Gentleman said, SSAs were actually introduced for the first time in 1990–91, they are the end result of a long period of evolution. They are an improvement on their predecessors, which were known as grant-related expenditure assessments, especially in respect of their reduced complexity. They do, however, build on the large body of detailed research evidence that underpinned the earlier assessments. They also share with them the characteristic of having been extensively discussed, over a number of years, with the local authority associations.
SSAs aim to take account of the main characteristics of an authority that will affect its spending requirement. This is a daunting task covering expenditure in 1993–94 of some £37 billion by more than 400 local authorities. There are, 689 of course, constraints on the extent to which this objective can be achieved at any one time. It is, for example, a fundamental principle of SSAs that they are based on sound data sources that are available on a consistent basis for all authorities. Many factors are taken into account in the SSA formula. These fall into three main categories.
First, there are demographic factors, such as what proportion of the population are children or elderly. Those are crucial determinants of the need to spend on education and on personal social services.
Secondly, there are the socio-economic characteristics of the population. Research has shown that, for some services, the need to spend can vary with the number of people falling into certain disadvantaged categories, such as the numbers in single-parent families or receiving income support. These indicators are reflected in SSA calculations. More than one fifth of the education SSA element, for example, is distributed by reference to an indicator of this kind, representing additional educational needs. Thirdly, there are adjustment factors to allow for higher employment costs in London and the south-east.
Such detailed adjustments—there are many more—can have very marked effects on the calculation and are evidence of the thoroughness of our approach. They show our determination that SSAs should be as fair as possible within the constraints imposed by data.
The authority represented by the hon. Member for Newham, South is certainly a major beneficiary of many of the factors used. It is undeniable that under the proposals announced on 26 November by my right hon. and learned Friend the Secretary of State, Newham's SSA, expressed in terms of pounds per head of population, will be one of the highest in the country. I suspect that that will remain the case when the provisional figures are finalised. For example, in the case of personal social services, Newham's provisional SSA is nearly twice the national average and some 20 per cent. higher than the average figure for London authorities. In the case of education, Newham's SSA is over 60 per cent. above the national average, and over 70 per cent. above the average for shire counties.
Newham has also fared well from some of the specific changes that we have introduced for 1993–94, such as, for example, the incorporation of population estimates based on the 1991 census. The result is that, after adjustments for major changes of function, Newham's provisional SSA for 1993–94 represents an increase of nearly 5 per cent. in comparison with 1992–93. This compares with an average increase of less than 3 per cent. for England and for London authorities as a whole.
I draw attention to those figures not to argue that Newham's SSA is too high, although I am sure that there are some hon. Members representing shire areas who might take that view. I think that they show the extent to which the SSA formula reflects genuine differences in authorities' spending needs by means of the factors that it includes.
Many criticisms are made of SSAs, but I think that those who make the criticisms should consider what the alternatives are before they shout too loudly. The most simple and obvious alternative to the current system might be one that simply apportioned all SSAs in proportion to the total population. Such a system would work very much against the interests of Newham and would, I am sure, not be welcomed by the hon. Gentleman. It is up to those who criticise to propose alternative schemes rather than simply to attack the current system, which represents a very fair 690 attempt to distribute money in line with need. To clarify that point, I absolve the hon. Gentleman from taking that line in his speech this afternoon.
In general terms, the proposed SSAs for 1993–94 are the result of a careful examination of a number of difficult issues. We have had to take into account the various pressures on local authorities, as well as a number of changes in local authority functions, most important of which is the loss of most of their responsibilities for further education. We have also had regard to the potential for value-for-money savings. In our view, the settlement that we have proposed should allow authorities to maintain services, provided that they exercise good stewardship and adhere to the pay policy announced by my right hon. Friend, the Chancellor of the Exchequer, in his autumn statement.
Having said all that, I am not so complacent as to believe that SSAs are perfect or, indeed, that perfection is achievable in such a complex field under which the ground is ever-shifting. That is why we engage in continuous discussions with the local authority associations. It is also one of the reasons why the announcements made by my right hon. and learned Friend consisted of proposals for 1993–94—the accompanying figures were provisional SSAs.
We have just completed a period of extensive formal consultation, during which we met delegations from many authorities. Indeed, my hon. Friend the Minister for Local Government and Inner Cities met a delegation led by the hon. Members for Newham, South and for Newham, North-West (Mr. Banks) just before Christmas, giving them the opportunity to raise with him personally several of the points that have been concerning them.
We have also received written representations from many other authorities on all aspects of the settlement. We have been giving very careful consideration to all the points that have been made to us and will be announcing shortly our proposals for the final settlement.
The hon. Member for Newham, South raised several specific issues and, in the time available, I shall endeavour to deal with them. If I fail to do that, I shall of course write to him in respect of any residual points.
The hon. Gentleman referred to the general question of capital finance. In fairness to him, he returned to a subject in respect of which he has previously communicated with the Department. Assumed debt, based on capital allocations in the 1980s, is used in the calculation of capital financing SSAs, rather than actual debt, for several reasons. A big problem with using actual debt is that the level of actual debt is affected by past decisions taken by different authorities about the use of capital resources. For example, it would not be right if those authorities that have used capital receipts to keep down the level of their debts were to lose the benefits of that prudence through a reduction in their SSAs.
Another point is that debt charges incurred in respect of trading services are not taken into account because the cost of such borrowing should be covered by trading revenue. The hon. Member for Newham, South repeatedly said why he believed that Newham would benefit from reverting to a system of actuality. I will undertake to reconsider the points that he made. There is a sound underlying reason why using notional rather than actual debt is preferred in this case.
The hon. Member referred to homelessness. He suggested that SSAs take no account of growing levels of 691 homelessness. The Government are well aware of the problem of homelessness. They have taken that into account, together with many other factors, in setting the total standard spending for 1993–94.
As far as the SSA for individual authorities is concerned, we have considered the possibility of a separate indicator for homelessness. Unfortunately, there is no consistent and reliable statistic count of homelessness that covers all local authorities. The statutory count of homeless people who are provided accommodation by housing authorities can vary according to local policy and is volatile from year to year. That is one matter which we shall be examining in the light of the 1991 census. However, the district level of the services SSA already includes an indicator of social conditions that reflects factors that are likely to be associated with above average levels of homelessness. In particular, Newham has a per capita SSA for that element which is more than twice the national average.
The hon. Gentleman referred to projected cuts and effects on jobs. Perhaps the safest thing for me to say at this stage is that it is too early to know what the effects of 692 the settlement will be on jobs because authorities have not yet set their budgets. Experience of previous settlements suggests that initial estimates of job reductions proved to be much too high, and some of the figures being bandied about at present are absurd.
As I said earlier, the process of trying to improve and update SSAs is never ending. The coming year will be particularly busy in terms of SSA development because we expect to take on board the full range of indicators from the 1991 census. That will represent a challenge as well as an opportunity. It will require a full review of many of our key indicators, such as the additional education needs indicator to which I have already referred.
All the factors that go to make up the SSA for each authority are publicly available. It is open to any hon. Member to make alternative proposals, and I undertake to consider them all carefully. Ultimately, the Government's prime concern is in ensuring that those authorities that face inevitably higher demands from their resources are properly compensated through the revenue support grant. We will continue to strive towards that aim.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-two minutes past Three o'clock.