HC Deb 18 July 1997 vol 298 cc663-70

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pope.]

2.30 pm
Mr. Andrew Lansley (South Cambridgeshire)

I am grateful for the opportunity to raise an issue that is of great importance to my constituents and to other hon. Members. My predecessor in the House, Sir Anthony Grant, raised the issue in the House with Ministers on several occasions and I pay tribute to his efforts in that regard. At the time of the last revenue support grant allocation, he received positive indication that action would follow from the Elliott review of the area cost adjustment. I now wish to encourage Ministers to grasp the nettle and implement the review.

It may be for the convenience of the House if I explain briefly why the review was needed and why it should now be implemented. It is generally agreed that the standard spending assessment system needs to adjust for unavoidable, externally generated—that is, external to the management of the local authority—differences in cost between different parts of the country. The area cost adjustment within the SSA formula is intended to adjust for differences in employment costs, reflecting real differences between earnings in different areas. However, in effect the current system assumes that there are no differences in cost between local authorities outside the boundaries of London and the south-east. Within London and the south-east, differentials are allowed in three broad areas—inner London, outer London and the south-east counties.

The present system has led to substantial differences in SSA and, hence, in revenue support grants between authorities. Those differences are insupportable in relation to the relative costs in those areas. Those "cliff-edges" between authorities create enormous discontent. The Elliott review team pointed out that

a particularly strong criticism of the present arrangements was the phenomenon of 'cliff-edges' whereby adjoining authorities, which were perceived to have similar labour markets with comparable cost levels, received markedly different labour cost adjustments. To those who live in Cambridgeshire, especially South Cambridgeshire, the proposition that local labour market costs are higher in Bedfordshire than Cambridgeshire is obvious nonsense.

When my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) was Minister with responsibility for local government, he rightly commissioned Professor Elliott and his review team to look again at the area cost adjustment. The Elliott review concluded that regional pay premiums could be identified using labour force survey data adjusted for factors such as education, qualifications and the industrial or occupational make-up of an area and that this could be disaggregated down to county level outside London.

The approach that the Elliott review advocates, known as the general labour market approach, is based on the proposition that local authorities compete for staff in the general labour market. That is intuitively right and is supported by evidence that was adduced by the Elliott review that pointed to ways in which authorities used the flexibility in national pay scales to adjust to local labour market conditions or accepted differences in employee qualifications and tenure in order to make such adjustments.

On 27 November last year, the then Secretary of State, my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), acknowledged that the review was the most comprehensive examination of the subject that has been undertaken".—[Official Report, 27 November 1996; Vol. 286, c. 339.] He accepted that further technical work was required before the review could be implemented. On 3 February this year, my right hon. Friend the Member for Skipton and Ripon reinforced the then Government's intention of proceeding towards a workable mechanism to be included in the standard spending assessment as soon as possible.

Two elements of further research are under way. One deals with obtaining labour force survey data for the relevant base year. That should be technically achievable, either directly or by close comparators. The second element, concerning the geographical definitions used for these purposes, is the more significant in policy terms. Although there is every reason in equity to pursue a solution at district level—for example, within the current county boundaries of Cambridgeshire, to assume that labour costs are higher in south Cambridgeshire than in Peterborough—implementation of geographical definitions down to district level should not be used to hold up implementation of a more workable solution at county level.

One piece of research not being undertaken is the question of the interaction of national pay scales—for example, for police or teachers—and local labour market conditions. It may be that the adjustment in costs and quality is not so great as the general labour market approach implies and may not go as far as if no national pay scales existed. Therefore, there may be some differences between authority costs where national pay scales apply, just as there would be in an open labour market in which no national pay scales applied. However, that a substantial adjustment towards local labour market conditions is undertaken by authorities is undeniable. That can be seen in the way in which, within national pay scales, staff move between authorities, and in the way in which certain bodies such as teachers' employers have to employ more junior staff or release more expensive teachers. Interestingly, the national health service revenue resource allocation system has an equivalent to area costs, which is adjusted for national pay scales. Even if there were to be some subjective abatement of the result from the general labour market approach advocated by the Elliott review, that is again not something which should prevent the acceptance and implementation of the review more generally.

That brings me to the current position. In May, the Minister for Local Government and Housing courteously met an all-party delegation from Cambridgeshire, but was not then in a position to offer any specific assurances. I hope that, in reply to this debate, the Under-Secretary of State, the hon. Member for Greenwich and Woolwich (Mr. Raynsford), will be willing to say more and put on record the Government's intention to implement the review in time for the next financial year. That would simply be to give effect to the commitment made on 30 April 1997 by the current Prime Minister when he was still Leader of the Opposition. When asked by the Cambridge Evening News whether he would reform the area cost adjustment, he replied: We will review the Area Cost Adjustment in time for the next financial year. In relation to Cambridgeshire, he added: Changes in line with the recent Elliott review would bring the county an extra £10 million. Moreover, it is not only Cambridgeshire that would benefit, but many other authorities that have not received the grant support that they deserve.

Mr. Edward Davey (Kingston and Surbiton)

Is the hon. Gentleman aware that the borough in which my constituency lies would benefit significantly from the Elliott review? Indeed, it would benefit by £2.7 million under one of the geographical proposals put forward by the review. Although he has been advancing the case in favour of the counties, many outer London boroughs such as Kingston-upon-Thames are manifestly prejudiced by the current area cost adjustment.

Mr. Lansley

The hon. Gentleman makes a good point. Indeed, I was about to refer to it. Even in the outer London borough of Hillingdon, which is a beneficiary of the current area cost adjustment as it falls within the London area, implementation of the Elliott review, which would mean labour costs could be disaggregated to a lower level, would add £5 million to the SSA. I entirely agree with the hon. Gentleman that part of the argument is that there should be such adjustments and that the present area cost adjustment does not take that into account.

Other authorities would lose out. It is often said that this is a zero-sum game, but that is no reason to do nothing. There is every point in getting on with this. The standard spending assessment system is intended to evaluate the cost of providing a given level of service and enabling grant to be distributed to equate that to a standard council tax level. If the SSA is not accurate in measuring the costs falling on an authority, it will be wrong; hence the grant received will be inadequate to maintain that given level of service.

It is no surprise, therefore, that Cambridgeshire has to spend over its SSA and has done continuously over the years, but struggles to maintain service levels. As the SSA underestimates the real cost of providing services in Cambridgeshire, those services are under pressure. It is right and necessary, therefore, to implement those changes. Not to do so is justice delayed, and justice delayed is justice denied.

I hope that the Local Government Association will have regard to our debate and support my proposal. Before the election, Ministers were inhibited from proceeding with the Elliott review not only because of the need for further technical work, but because local authority associations disagreed—two were convinced by the methodology of the review and two expressed themselves unconvinced. Having created a single voice for local government within which the issues can be resolved, it is important that the Local Government Association looks beyond the parochial interests of given sets of authorities to what is an obvious fairness in the system, which is to make the SSA and the area cost adjustment within it, more equitable in the treatment of labour costs.

I also hope that the Minister will today give us a commitment to implementing the review and will respond positively to my argument. I am grateful to the House for this opportunity to make the case for a fair deal for Cambridgeshire.

Mr. Graham Brady (Altrincham and Sale, West)


Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. For the hon. Gentleman to intervene in an Adjournment debate, he has to have the permission of the mover of the motion and the Minister. If he does not have that permission, I must call the Minister.

2.41 pm
The Parliamentary Under-Secretary of State for Environment, Transport and the Regions (Mr. Nick Raynsford)

I am grateful to the hon. Member for South Cambridgeshire (Mr. Lansley) for raising this important subject and I congratulate him on his good fortune in securing the debate.

The area cost adjustment is an important part of the standard spending assessment. The Government are committed to a fair distribution of Government grant and we want to ensure that we have an area cost adjustment mechanism that works correctly.

I realise that issues connected with local government are of particular importance in Cambridgeshire at the moment as the county prepares for local government reorganisation. My Department has recently published indicative SSA figures for all reorganising local authorities, which should help Cambridgeshire county council and the new Peterborough unitary council in their planning.

Before I discuss the area cost adjustment, I must remind the House of some of our other actions on local government finance issues. In that area, as in so many others, we are pressing ahead with important changes to honour our commitments.

First, on local government spending, if we are to have high-quality local services, local government needs adequate resources. The previous Government left plans for total local government standard spending that were inadequate. We have responded to that challenge.

In the Budget, my right hon. Friend the Chancellor announced that an additional £835 million would be taken from the contingency reserve for 1998–99 and passed on to English local government in education SSAs. That is a huge boost to local government and to education. It has been achieved within the overall spending plans left to us by the previous Government. I trust that local government will make the best possible use of those extra resources.

We also recognise that capital spending is needed as well, and £1.3 billion from the welfare-to-work programme will be spent on improving school buildings and equipment during this Parliament. At present, we are legislating to clarify local authority powers to enter into public-private partnerships and we are enabling local government to use nearly £800 million of additional resources for housing in England, through the Government's capital receipts initiative. Those initiatives will ensure that local government has the financial resources required, this year and next, to provide local services—especially education—to the high standard that we all expect.

In central-local government relations, we intend to forge a new relationship with local government. We have signed the Council of Europe's charter on local self-government. That is a pledge of our commitment to forge a new and constructive partnership with local government at home.

Local government has a central role to play in tackling many of the problems of local communities that we want to overcome. We recognise and believe in the importance of local government as an independent democratic institution. We want to reinvigorate local government in ways that encourage increased democracy, giving local people the chance to have more of a say in the affairs of their council; ways that encourage increased autonomy, giving authorities more freedom to take their own decisions; ways that encourage increased accountability, making elected representatives more visibly accountable for their actions; and ways that encourage increased partnership between central and local government and among local authorities and people, businesses and other groups in their area.

The Government are committed to building a new relationship between central and local government and to genuine co-operation and partnership. That was demonstrated on the morning of Wednesday 16 July 1997, at the first central-local partnerships meeting, at which my right hon. Friend the Deputy Prime Minister, six of his Cabinet colleagues and many Ministers—including me—met local government leaders for a wide-ranging and wholly positive discussion on several concerns and major issues involving local government.

The Government as a whole are committed to creating that spirit of partnership, and Ministers throughout Whitehall are involving local authorities in discussions on their policies and recognising the important role that they can play in helping to deliver the Government's programme.

I shall now discuss standard spending assessments. In our manifesto, we recognised that the changes in relationships that we envisage could not take place without changes to the local government finance system. We have set ourselves a challenging programme, on which we are making progress.

As part of that programme, we are examining standard spending assessments in the light of our commitment to a fair distribution of Government grant between local authorities. We are already discussing a range of options for change with local authority representatives in the SSA sub-group. If a good case is made for making changes, we shall in due course propose to make changes that will affect the 1998–99 standard spending assessments.

Although I am keen to make standard spending assessments fairer, I want to be sure that any changes are a genuine improvement and that they will be durable, before we put them in place. The last thing that the Government should do is to make hasty changes that prove unsatisfactory and need later amendment. That brings me to the area cost adjustment.

The hon. Member for South Cambridgeshire has set out a strong case for the way in which the area cost adjustment, as it is currently organised, works to disadvantage Cambridgeshire. He suggested that introducing the proposals of the Elliott review, which examined the area cost adjustment last year, would make the system fairer. I know that that issue is taken very seriously indeed in Cambridgeshire.

The hon. Member said that he and some colleagues had met my hon. Friend the Minister for Local Government and Housing in, I believe, May 1997 to discuss that issue. I believe that the discussion was constructive, although, as the hon. Gentleman said, my hon. Friend was unable to give commitments, because of factors to which I shall refer later.

For many years, hon. Members representing Cambridgeshire have consistently expressed concern that Cambridgeshire falls just outside the south-east region and so does not qualify for the area cost adjustment. As the hon. Member for South Cambridgeshire said, that is referred to as "the cliff edge phenomenon". I find it slightly ironic that what is probably one of the flattest counties in England should be treated as part of a cliff-edge group, but I understand that in this case the cliff is metaphorical. I understand the concerns of hon. Members representing Cambridgeshire and other areas that fall just outside—

Mr. Brady

I thank the Minister for his kindness in helping me through the procedural ignorance that I demonstrated earlier. I am keen that he should appreciate the case that can be presented by authorities lying some way away from the cliff edge. My own borough of Trafford would benefit to the tune of £2.36 million on this year's SSA under the Elliott proposals. I am keen that the case for the north should be heard.

Mr. Raynsford

The hon. Gentleman makes a fair point. In arguing the case, he further reinforces the fact that we are talking about a metaphorical cliff, rather than a cliff that occurs around any one region. There are authorities in the north that would stand to benefit from the changes proposed by the Elliott report. The new map that would apply would not have the same simple cliff edge that applies currently with the area cost adjustment.

I understand the concerns about areas beyond the current cliff edge, although that is a problem that cannot be avoided when boundaries are drawn. One of the pieces of research that my Department has commissioned this year examines issues specifically relating to the geography of the area cost adjustment. We need to take account of those factors before reaching firm decisions about the future.

The area cost adjustment element of standard spending assessments seeks to allow for higher unit costs faced by local authorities in some parts of the country. If allowance is not made for extra costs, an authority will be less able to meet the needs of residents than authorities elsewhere with lower costs. Equally, we must be careful not to overcompensate authorities with higher costs, as that would inevitably work to the disadvantage of authorities elsewhere.

As the hon. Member for South Cambridgeshire pointed out, we are dealing with a zero sum process. Therefore, an adjustment that increases the allowance for one area will work to the disadvantage of others. That is why we must be extremely careful not to overcompensate. We see the need for compensation, but it must be a scrupulously fair arrangement, or it would rightly prompt expressions of concern from authorities that stood to lose.

The current method of calculation considers higher costs only in the south-east region relative to the rest of England. It looks at information from the new earnings survey on the relative level of earnings in a series of occupations relevant to local government employment. These are taken as estimates of the extra costs for which local authorities in the south-east should be compensated.

This method of calculating the area cost adjustment has been the subject of much criticism—much of it entirely justified—from various groups within local government.

To seek a way forward on the area cost adjustment, the previous Government commissioned a review of the area cost adjustment, chaired by Professor Robert Elliott of Aberdeen university.

The review reported in July 1996. It considered a wide range of issues. It involved the local authority associations in its work, it invited all local authorities in England to comment and it commissioned several detailed studies from consultants. The review recommended a new method of calculating the area cost adjustment—the regional pay premium approach.

However, the proposals did not meet with agreement in local government. As the hon. Member for South Cambridgeshire acknowledged in his speech, unhappiness was expressed in various quarters. All four local authority associations asked that the review's recommendations should not be implemented for 1997–98 SSAs. There were three broad issues on which the review did not produce a generally acceptable conclusion.

First, the review did not convince critics that the system recommended by the review team would not overcompensate some authorities. Concerns remain in local government about exactly how far variations in labour costs depend on wage scales, and how far they depend on other costs of employment. That is a complex and difficult subject, but, given the zero sum process, it is understandable that those concerns must be given serious weight. Secondly, the geography of the review's proposals proved contentious. Thirdly, there was a technical concern about the correct data to use in the statistical analyses underlying standard spending assessments.

In response to those concerns, my Department has commissioned additional research to examine the issues involved. That research is due to report soon. Once we have the results, we will discuss them with the local government associations. We shall need to see how far the concerns expressed last year have been dealt with adequately by the further studies. I hope that the hon. Gentleman will appreciate that, as I have not seen the research—it is not yet available, although it is expected imminently—I cannot provide the commitment that he seeks. However, I assure him that we shall study the further surveys carefully and discuss them, as a matter of urgency, with the local government associations. We shall not be precluded from taking decisions at the earliest opportunity about possible adjustments that might be appropriate.

As I have said, we will need to be convinced that any changes and improvements to the system are durable and well grounded technically. At present, it is too early to say whether the further research we have commissioned will meet those criteria. I cannot, therefore, give a commitment that we shall move to adopt the Elliott review's recommendations, or any proposals arising from them. However, I repeat my conviction that a fair distribution system for government grant is a very important goal. If a strong case can be made for a change to standard spending assessments, we will seriously consider implementing it.

Question put and agreed to.

Adjourned accordingly at five minutes to Three o'clock.