Standard Spending Assessment

HC Deb 30 October 1997 vol 299 cc1075-82

Motion made, and Question proposed, That this House do now adjourn.—[Ms Bridget Prentice.]

6.23 pm

Mr. John Healey (Wentworth)

I am grateful for the opportunity to debate the Government's plans for the standard spending assessment system. Although I represent part of the borough, my purpose is not special pleading for Rotherham. My purpose is to put the case for those urban authorities outside London which have been systematically short-changed by Government grant settlements under the Tories. I say "short-changed", but we are not talking about small sums.

In the last decade alone, £400 million has been taken from metropolitan local authorities and allocated to others. The previous Government rigged the system to benefit some councils at the expense of others. The winners, of course, were the usual Tory suspects—Wandsworth, Kensington and Westminster. The losers were Labour authorities such as Rotherham, Barnsley, Doncaster and Sheffield in South Yorkshire.

That led many of our authorities to set up a special interest group within the Local Government Association, known as SIGOMA. Local government has a special capacity to come up with awkward and unattractive acronyms. It stands for the Special Interest Group of Metropolitan Authorities (outside London). It is now 41 strong, because the 35 metropolitan authorities have been joined recently by six unitary authorities. A total of 138 Members of Parliament represent constituencies within those authorities, including some Opposition Members.

It is important to stress that SIGOMA operates within the LGA and should not be seen as a fracture within the newly—and rightly—unified local government. It should be seen as an acceptance of the fact that those authorities have a special interest. We are looking to explain our special interest and argue our special case, but we are not looking to win special favours. We simply want a fair system of finance for local councils, and we want to work with the Government to help devise it.

We recognise the constraints on what can be done immediately. We recognise the constraint of the public spending control total and the constraint of having been in office for only a short time. However, the early signs are good.

The decision to postpone changes to the area cost adjustment is right, and a commitment to commission research on a "specific cost" approach is a better way forward than proposals in the previous Government's 1996 review. The genuine consultations with local authorities on new options for this year's SSAs suggest that, at last, we have a national Government who want to work with, not against, local government. The root and branch review of the system promised for future years is very welcome. SIGOMA authorities and Members of Parliament look forward to playing a part in that work.

That is for the long term. In the short term, Ministers must make decisions on this year's SSAs. My aim tonight is to expose the worst anomalies in the SSA system with which we have been left by the previous Government, and to encourage my hon. Friend the Minister for London and Construction to give these anomalies special attention as he and his colleagues finalise their decisions in the next week or so. We are not looking for the Government to fix our problems, because we can do that for ourselves, if we have a fair system to work within.

I have five points on my priority list for reform this year. First, we should look at the infamous "social index" for district council functions. That is the Tory index that makes Westminster the fourth most needy borough in the country. The index ranks Runnymede as 37th most deprived, and puts Windsor at 101–180 places above Rotherham, and 225 places above Barnsley.

There is also the index of additional need for county council functions which turns only on density of population. Westminster is not ranked as the fourth most deprived on that measure, but is ranked as the second most needy, topped only by Kensington and Chelsea. Those two authorities have the greatest proportion of properties in the country valued at over £320,000 for the purposes of the council tax. That is absurd, iniquitous and indefensible.

Over the summer, the Government have been looking at new indices of social need for district councils and the introduction of a new index for counties. I urge Ministers to finish the job and to bring in changes for the coming settlement.

Ms Rosie Winterton (Doncaster, Central)

Is my hon. Friend aware that Doncaster metropolitan borough council faces difficulties similar to those that he is describing? However, it might be possible to alleviate some of the service cuts this year if the rate capping limit was altered to allow the council to use its collection fund. That fund has been accumulated from a successful council tax collection scheme.

The use of that fund would not alter the amount ultimately paid by council tax payers, nor would it affect the public sector borrowing requirement. Does my hon. Friend agree that, if Ministers were to take that matter into consideration when setting rate capping limits, it could improve the position of councils that have collection funds?

Mr. Healey

My hon. Friend makes a good point. According to her analysis, efficient local councils are being penalised by being more efficient than the targets set for them. I hope that the Minister will bear that point in mind when he replies.

The second point on my priority list for change is how an area's population is counted. It is simple enough. Tourists and commuters are added to the resident population, but they are added on the basis that two tourists staying in an hotel place the same burden on a council as one resident, and six commuters cost the council the same as one resident. We can guess who wins on that basis.

Mr. David Watts (St. Helens, North)

Does my hon. Friend agree that people in our constituencies are expecting a radical change in the SSA system this year? In particular, we want the Kent and York studies to be part of the review. We are well aware that they are not perfect, but the present system is an absolute scandal. St. Helens and Westminster have the same population, yet Westminster receives £995 in grant per person, while St. Helens receives only £583.

My council, like my hon. Friend's, has had to make tremendous cuts over the past few years. Since 1993, it has made cuts totalling £16 million, but it still had the highest increase in council tax in the north-west last year. Is it not crucial that, even if the two studies are not completed and are not perfect, some dramatic change must take place this year if we are to avoid serious cuts in our education and social services, as well as other council services?

Mr. Healey

If I did not know my hon. Friend better, I would have thought that he intervened while I was in full flow in an attempt to stop me attacking Westminster council. He made an important point. He said that some councils were expecting radical change, but I am not as confident as my hon. Friend, as I believe that the scope for radical change this year is relatively limited. However, my hon. Friend mentioned a matter which is on my list of five priorities—the studies on care services.

I shall return to the theme that I was warming to before I was interrupted—the question of who wins when, for the purposes of grant, we count commuters and people who are staying overnight in hotels. Westminster wins handsomely. Some 81 per cent. is added to its resident population for SSA purposes, while 12 per cent. of those staying in hotels are assumed for grant purposes to be staying in overcrowded accommodation.

The upshot of those tricks in the Tory system is that this year's SSA for Westminster is £249 million, while its budget is just £215 million. In other words, this year Westminster is spending 14 per cent. less than the Government say it needs and are giving it in grant. That area is ripe for action by a Government determined to restore some fairness to the local government financing system.

Thirdly—I promise not to mention Westminster again—let us consider two serious academic studies, both mentioned by my hon. Friend the Member for St. Helens, North (Mr. Watts), designed to rebate SSAs for two critical areas of service: children's social services and residential care for elderly people.

York university and the Department of Health have studied children who come into contact with social services and what characterises their background areas. They have extrapolated the data nationally to produce a new formula. The methodology and the model are accepted, and the main research and work was completed a full 12 months ago.

Kent university has produced a soundly based, independently developed model for elderly people in residential care. It looks at the circumstances of people before they move into residential homes. The present SSA for elderly care predates community care. It is rooted in the 1980s, when local authorities were responsible only for financing and maintaining people in their own residential homes, whereas they are now responsible for all community care provision. That prospective SSA gives us an important and proper indicator of likely need.

I recognise that there are subsidiary questions about weightings, costings and the use of particular proxies within the equation, but with both those options for reform, the models are sound, well researched and overdue. I hope that Ministers will have the courage to introduce them in this year's settlement, even if we have to fine-tune them for future settlements.

Fourthly, I want briefly to discuss capital SSAs. Unlike many other SSAs, that critical SSA is based not on patterns of past spending, but on notional totals introduced in one big hit in 1990.

That means that urban authorities such as Manchester, Birmingham, Sheffield and Rotherham, which invested heavily in large-scale city centre regeneration, were clobbered. Rotherham still has a £6-million-a-year gap between the cost of actual borrowing and the level of notional borrowing used to determine the capital SSA. Again, like many other SSA blocks, the commitment to service capital debt cannot be varied by councils year on year; it cannot be cut by policy change or by reductions in service.

Two options for change in that area have been developed by the Department's settlement working group—one to move from notional to actual capital commitments for individual authorities, and the other to move to an actual base for classes of authorities. I urge the Minister seriously to consider either of those changes for this year.

Fifthly and finally, I want to talk about the interplay between the SSA and the cap. An increase in SSA does not help areas such as Rotherham to meet local needs if there is not a pound-for-pound increase in the cap. We expect an announcement on and confirmation of the capping rules for next year at the same time as the announcement of the provisional SSA, which simply underlines the integral link between the two. As Ministers reach their final decisions over the next fortnight or so, I simply ask them to bear that matter in mind.

Mr. Jeff Ennis (Barnsley, East and Mexborough)

My hon. Friend has outlined many of the inadequacies of the current formula-funded mechanism. I am sure that he agrees that it cannot be right for there to be an 80 per cent. expenditure differential per head between the winners and some of the losers—such as the Barnsleys, the Doncasters and the Rotherhams of this world—under the SSA formula.

I accept, as I am sure my hon. Friend accepts, that there will be winners and losers under any formula-funded mechanism. Because of the enormous differential, does he not agree that the Government—if they cannot radically overhaul the SSA system this year—should consider introducing some form of damping mechanism to reduce the current gap between the winners and the losers?

Mr. Healey

My hon. Friend is absolutely right. A damping element will be crucial in the impact that any changes to the SSA system will have in subsequent years on both winner and loser authorities. He also cited figures that some hon. Members are familiar with and that many of us have used. That list of figures shows how, throughout the Tory years, some authorities consistently won and others consistently lost, and the list is endless. I got fed up looking at league tables in which Tory authorities were consistently on top and authorities in strong, traditional Labour areas—such as South Yorkshire—were consistently near the bottom.

The prospects for next year are good. At last, it looks as if we have a Government who are ready to act on the injustices that we inherited from the Tories—although Ministers are determined to make councils argue their case. The SIGOMA group accepts that challenge, because its case is strong.

We look forward to a settlement for next year that begins the job of rebalancing the system. Moreover, we look forward to such a settlement as only the first step in establishing a fair framework for council finance, which will at last provide us with a period of long-term stability in relations between local and national Government.

6.41 pm

The Minister for London and Construction (Mr. Nick Raynsford)

I congratulate my hon. Friend the Member for Wentworth (Mr. Healey) on his success in securing this debate, and on providing us with an opportunity to discuss a subject that is of particular concern for many local authorities, whose interests within the Local Government Association are represented by the Special Interest Group of Metropolitan Authorities (outside London)—or SIGOMA, as it is commonly known. As my hon. Friend said, that is an unattractive acronym, but it encompasses many authorities that have very real needs, of which the Government are extremely mindful.

I congratulate my hon. Friend the Member also on his generosity in willingly allowing so many interventions in his speech by other hon. Members. I will attempt to do justice to the comments made in the debate by him and by my hon. Friends the Members for Doncaster, Central (Ms Winterton), for St. Helens, North (Mr. Watts) and for Barnsley, East and Mexborough (Mr. Ennis).

My hon. Friend the Member for Wentworth will be aware that we are in the process of finalising our proposals for the local government revenue finance settlement for 1998–99. My right hon. Friend the Deputy Prime Minister will make a statement on his proposals later in the autumn.

We have considered whether it would possible to be more helpful to the House and to local authorities by making the statement earlier than usual. However, I hope that hon. Members and local authorities will understand that we must use the most up-to-date data to ensure that the distribution is as fair as possible. Moreover, we must spend time ensuring that we get the very detailed calculations right. Authorities might like to note that, despite our best efforts, it seems unlikely that the statement will be made before December.

As we have not announced the provisional settlement, the House will appreciate that I am not in a position to give a detailed response to the matters raised by my hon. Friend the Member for Wentworth. SIGOMA will no doubt wish to consider its concerns in the light of our proposals. If he and other hon. Members would like it, I should be very happy, during the consultation on the settlement, to meet a delegation from SIGOMA.

Although I am not able to give detailed responses, I should like to reassure my hon. Friend the Member for Wentworth that we are very well aware of the concerns that he has articulated in this debate and that have been brought to our attention by many authorities both inside and outside SIGOMA. We promised a fairer distribution of Government grants to local authorities, and, later in my reply, I will explain the work that we have undertaken with local authorities to ensure that we deliver on that pledge in the coming settlement.

First, however, I should like to explain the far-reaching programme of work that we have initiated to review local government finance, because the conclusions of that review will have important implications for all local authorities. The review—which was announced on 24 July 1997, in parallel with the comprehensive spending review—is being conducted by task groups comprising officials and representatives from the Local Government Association.

One of the review's key elements is to examine the rationale for and effectiveness of measures to reduce needs and resource inequalities. That part of the review will examine more fundamental issues in relation to the future shape of SSAs.

We intend, for example, to commission research to investigate the scope for SSA formulae based on data other than historic spending by individual local authorities. One piece of work is expected to examine the extent to which the technique used by York university in its review of the children's social services formula—to which my hon. Friend referred—might be used for other SSA elements. Another project is due to examine whether the statistical technique that underlies most existing SSA formulae can be usefully applied more widely to non-expenditure data.

Those involved in our review of local government finance are also standing back from the technical detail to consider whether SSAs should be made more detailed, to deal more accurately with some of the spending needs that currently are reflected only implicitly. I should say, however, that others believe that the current system is too opaque and incomprehensible, and that changes should be made in the other direction, so that SSAs become easier to understand.

That provides a classic illustration of the dilemma facing any Government, and certainly this Government, in trying to ensure that we create a system that is not only fair but not totally incomprehensible, and so detailed as to defy understanding.

The review is touching also on wider distribution issues, such as equalisation, which is the process of enabling local authorities to provide a similar standard of service while charging similar council tax rates, despite variations in spending needs, costs and local tax bases. We are also reviewing the current arrangements for local authority revenue raising—including full consultation with business—and whether the business rate should be set locally.

We are examining ways in which to encourage cost-effective and efficient delivery of services. That work is being conducted in parallel with the development of a framework for the introduction of best value. We are considering what must be done so that we can end crude and universal capping and what reserve powers we will retain to control excessive tax rises. The final element of the review is to consider possible improvements to the capital finance system, including an examination of the allocation system.

Mr. Andrew Stunell (Hazel Grove)

Will the Minister give way?

Mr. Raynsford

I cannot give way, because this is a time-limited debate. As the hon. Gentleman will understand, I have to reply to my hon. Friend the Member for Wentworth and other hon. Members who spoke in the debate.

From late autumn onwards, key outputs from the review will consist of a short sequence of consultation papers on specific aspects of the system, followed in the spring by proposals for change contained in a White Paper on local government. The White Paper will cover both finance and other, non-financial changes, including best value and democratic innovation.

I shall now deal with the work that we have been doing this year to ensure a fairer grant distribution. SSAs form the basis for the distribution of revenue support grant and are based on measures of spending need that apply to all local authorities. SSA calculation is discussed with representatives of local government. Having said that, we realise that there are ways in which SSA distribution might be improved to enable a fairer distribution of Government grant between local authorities.

My officials, together with those in other Departments, have covered a great deal of ground this year in discussing with local government, in the SSA sub-group, possible changes to SSA formulae for 1998–99. We are currently considering the options that are on the table, and our provisional decisions will be announced later in the autumn.

Among the issues that have been considered this year are several about which my hon. Friend the Member for Wentworth and, indeed, Rotherham council and other SIGOMA authorities have expressed concern. We have reviewed the social and economic indices in the all other services SSA. This review involved the scrutiny of more than 100 possible indicators and led to agreement with local government on a set of ground rules to be applied in the statistical process involved. As with all investigation of changes to SSA methodology, the work has been carried out in the open.

With colleagues in the Department of Health, we have examined most of the elements of the personal social services SSA this year. This includes a review of the other social services index in the other social services SSA, which followed the same approach as the review of the social and economic indices.

Together with researchers at York university, to whom we have already alluded, we have done some more work on a new formula to reflect the need to spend on children's social services following the implementation of the Children Act 1989. Many local authorities consider it a clear improvement on the present formula, but others believe that some important issues have yet to be resolved. One such issue is the extent to which variations in fostering costs are reflected, and another is whether there should be an indicator of ethnicity.

In a similar vein, we have taken forward the work done last year by Kent university in deriving a formula for elderly residential social services which takes account of the community care changes of 1993. This has also had a mixed reception. Some authorities believe that it should be implemented because they think it is a clear improvement on the present formula; others would like further investigation of some of the data before a change is adopted.

The way in which visitors and commuters are treated in the all other services SSA formula has also been the subject of investigation. The fact that the present formula implicitly assumes that visitors and commuters are as deprived as the people who live in the area to which they travel has often been criticized.

There are several options for changing this aspect of the formula for 1998–99. The available options cover a range of different assumptions as to how the costs relating to visitors and commuters in areas of high population density or sparsity should be applied. We shall need to decide whether any of the options represents a clear improvement on the present formula.

The area cost adjustment allows for higher costs in London and the rest of the south-east. It is another element of SSAs which is often subject to criticism. More work on this has been done this year to build on the findings of the 1996 Elliott review. Although those options remain available for consideration, we have recently announced that we intend to commission further research to examine the specific cost approach to calculating the ACA. The research is expected to be concluded in May next year.

Metropolitan authorities have this year been involved in discussions about the capital financing SSA, the other issue raised by my hon. Friend. An option using figures for actual, rather than notional, levels of debt in 1990 has been proposed, and several more technical adjustments have been suggested. We recognise that a move to the use of actual debt has many advocates, including my hon. Friend, but it also has many opponents. Although some see it as a more accurate way of reflecting authorities' need for spending, others suggest that it would unfairly penalise authorities which have chosen to pay off their debts.

I have outlined just some of the aspects of SSA methodology which have been considered this year. They highlight the difficulty of trying to achieve a balance and fairness. We are clear that any system we adopt must be lasting and must command the confidence of local government. We will not rush into changes.

For that reason, I have to disappoint my hon. Friend the Member for St. Helens, North, who called for radical changes this year. As my hon. Friend the Member for Wentworth rightly recognised, we have to be very careful about making changes that will have a dramatic effect on local authority budgets. My hon. Friend the Member for Barnsley, East and Mexborough made that very point.

My hon. Friend the Member for Doncaster, Central mentioned the collection fund. Sums raised in one year in excess of the anticipated yield of council tax must rightly be applied to the following year's budget; otherwise, there could be a perverse incentive for authorities to collect more than the council needed to meet its budget.

This has been an interesting debate on an important subject, and I am grateful to my hon. Friend the Member for Wentworth for giving us the opportunity. I hope that I have been able to show the Government's real concern to ensure a move towards a fairer system of support for local authority spending. I hope that, as and when my hon. Friend sees the results of our discussions later this autumn, he will feel that his confidence that we are making progress is fully justified.

Question put and agreed to.

Adjourned accordingly at six minutes to Seven o'clock.