Local Government Finance (Wales)

HC Deb 11 February 1998 vol 306 cc381-425

4.4 pm

The Secretary of State for Wales (Mr. Ron Davies)

I beg to move, That the Local Government Finance Report (Wales) 1998–99 (Revised) (HC 541), which was laid before this House on 9th February, be approved. It may also be convenient to discuss the other two motions on the subject: That the Limitation of Council Tax (Relevant Notional Amounts) Report (Wales) 1998–99 (Revised) (HC 542), which was laid before this House on 9th February, be approved. That the Special Grant Report (No. 2) (Wales) 1998 (HC 504), which was laid before this House on 2nd February, be approved. The local government finance report contains my decisions on the local government revenue settlement for 1998–99. The report replaces the original report, which was laid before the House on 2 February. A small error in the standard spending assessment calculations came to light last week and had to be corrected. The relevant notional amounts report sets out the upward adjustments that I propose to make to local authorities' budgets for 1997–98 to reflect the return of the £37 million that was taken from the 1997–98 settlement to fund the nursery voucher scheme.

Mr. Michael Ancram (Devizes)

It would be helpful if the Secretary of State could explain the correction. The documents are fairly complicated, and trying to compare one with the other is a lengthy process.

Mr. Davies

It is a small, technical correction. Even if I took the time to explain it, the right hon. Gentleman might find that my explanation was deficient. I assure him that the change is minor and technical. I shall certainly write to him in great detail drawing his attention to it, but I assure him that the technical change will have no impact on the substance of the debate. If the right hon. Gentleman wants further details, perhaps he could say so in his reply to my opening speech and I shall happily send him details of the change.

The relevant notional amounts, which I have set out in the reports, provide a fair and consistent basis for calculating capping limits for 1998–99. The report has also been revised because it refers to the finance report. None of the figures in it has been amended. The special grant report sets out the grant allocations that I propose to make to local authorities to help them improve food safety standards in line with Professor Hugh Pennington's recommendations following the fatal outbreak of E. coli food poisoning in central Scotland in 1996.

I have three main messages for the House. First, my settlement proposals this year give Welsh local government an increase in spending power of about double the increase that was provided by the previous Government for 1997–98. Secondly, the formula for distributing resources between local authorities has been agreed with the Welsh Local Government Association. I know that there has been concern over the distribution arrangements since reorganisation in 1996.

Mr. Barry Jones (Alyn and Deeside)

rose—

Mr. Llew Smith (Blaenau Gwent)

rose—

Mr. Davies

I shall happily give way to my hon. Friends, but perhaps they would allow me to finish the sentence. There has been concern over the distribution arrangements since reorganisation in 1996, and I am tackling that by commissioning jointly with the Welsh Local Government Association an in-depth review of the formula.

Mr. Jones

I thank my right hon. Friend for the best settlement for perhaps 19 years. Is he aware of the dismay in my constituency about the closure of the factory known as Optec DD in the township of Buckley, where more than 70 jobs are to go? I think it is the consequence of financial upsets in the Pacific rim. The company is Japanese. Can he help my constituents? Will he and the Welsh Development Agency make up an urgent action plan?

Mr. Davies

I can confirm that I am aware of that distressing news, principally because my hon. Friend lobbied me long and hard last night and put a forceful case on behalf of his constituents. I assure him that I shall be in urgent contact with the Welsh Development Agency to see what assistance can be given.

Mr. Smith

As my right hon. Friend is aware, the total settlement is 4.8 per cent. while the settlement for Blaenau Gwent, one of the poorest communities in Wales, is 3.8 per cent. When we disregard ring-fenced services, the other services get a percentage increase of 1.3 per cent. Can the Secretary of State tell my local authority which of those services are to be cut? Will he also comment on the fact that, some 30 years ago, he and I used to attend the same Labour party young socialist branch, both of us arguing that investment should go where the need is greatest? I still believe in that philosophy—does my right hon. Friend believe? It is relevant in relation to the distribution of this grant, particularly to Blaenau Gwent.

Mr. Davies

I well remember the time that my hon. Friend and I were members of the young socialists. We argued vigorously for the election of a Labour Government and for that Government to be true to their election promises. I still hold that view and I know that, by and large, my hon. Friend does too.

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)

rose—

Mr. Davies

My hon. Friend the Member for Blaenau Gwent (Mr. Smith) asked a couple of additional questions with which I should like to deal. I shall take other interventions because I know that some of my colleagues want to press constituency matters.

I am aware of the problems in Blaenau Gwent. There is no getting away from the fact that it is facing difficulties. However, it is not for me to second-guess the local authority. It is elected by the people of Blaenau Gwent and they must choose their own priorities. I can tell my hon. Friend that I have met representatives of the local authority—the leader came to see me last week. On Friday, I met representatives of the principle trade union and I have discussed and explained the position facing the local authority.

It is true that that local authority has had some difficulties, but I must tell my hon. Friend two things. First, the local authority was party to the overall settlement and to the agreement that was arrived at by the Welsh Local Government Association. Secondly, it did not dissent from it, and we must accept that, in an overall package, there are winners and losers.

The standard spending assessment for Blaenau Gwent shows a reduction this year, but the damping grant, which is the mechanism I am using to ensure that resources are put into places of greatest need, has been increased by 20 per cent. Over £1 million extra has gone in to Blaenau Gwent to help with the problem of resource allocation.

I acknowledge my hon. Friend's point about the fact that some local authorities are facing difficulties. Blaenau Gwent is one, as is Merthyr Tydfil and Rhymney. I do not know whether my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) is present.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

Very much so.

Mr. Davies

Well, I shall make a pre-emptive strike. I acknowledge the difficulties in Merthyr Tydfil, Neath and Port Talbot and Rhondda, Cynon, Taff. It is for that reason that I want to see a reworking of the formula. I have the agreement of the Welsh Local Government Association that officials of the Welsh Office will sit down with officials and members of the Welsh Local Government Association to rework the formula so that we can iron out the worst of the anomalies.

My hon. Friend the Member for Blaenau Gwent made a fair point, but the local authority has done as well as can be expected in the circumstances. It is party to the agreement, and we are trying to work to improve the formula in future years.

Mr. Llwyd

Will the right hon. Gentleman acknowledge the difficulties in Conwy, Gwynedd and other semi-rural unitary authorities? I want him to confirm that three major issues will be within the brief of the review: first, the rurality aspect; secondly, the sparsity aspect; and thirdly, the increase in day population in places popular with tourists—that is totally ignored at the moment. In my home village of Betws-y-Coed, the winter population is 500 and the summer is 12,000. That is just a snapshot of the problem and it should be included in any sensible formula.

Mr. Davies

I do not want to be too prescriptive about the terms of the review. I hope that the hon. Gentleman will accept that. I accept the value of the arguments that he is pressing. The central problem facing local government is the weight to give to deprivation as opposed to rurality. That issue consumed much of the time between May and September last year, when the formula was being reworked. In the autumn of last year, I asked for the formula to be reworked because I did not believe that the balance was right and that that was leading to problems in the more deprived areas. I take the points that the hon. Gentleman has made, but it is for local authorities themselves to decide, through the WLGA, the review's terms of reference. However, his points will be taken into account.

Conwy has had an increase of 4.7 per cent. this year, so it has not done badly. [Interruption.] It seems that the right hon. Member for Devizes (Mr. Ancram) is now assisting you, Madam Speaker, in saying who I should give way to.

Madam Speaker

No. I think that the Secretary of State's own Back Benchers were keen to ensure that he realised that the right hon. Member for Swansea, West (Mr. Williams) was trying to intervene.

Mr. Davies

There we are. If the right hon. Member for Devizes will forgive me, I shall take an intervention from my right hon. Friend the Member for Swansea, West (Mr. Williams). I shall give way to the right hon. Gentleman, but I have to take interventions one at a time.

Mr. Alan Williams (Swansea, West)

My right hon. Friend will recognise that some authorities were more enthusiastic about the formula than others, but all of them, including mine, went along with it in a spirit of good will, Will he bear it in mind that we are losers because we have three of the most deprived wards in the whole of Wales; we suffer from the same problems as Blaenau Gwent and Merthyr? Will he confirm that the formula's revision cannot help us next year and will not help us even in the year after that: it is going to be put to the assembly in 1999, so we will have to wait until the year 2000–01 to achieve any redress of the current imbalance?

Mr. Davies

There are two points. First, the local authority that my right hon. Friend represents, Swansea, has done reasonably well out of the settlement. It has received an increase as a result to the damping grant, which, as I have said, is our mechanism for giving added assistance to areas of deprivation. He rightly makes a constituency point, but, in cash terms, Swansea has received an increase of £1.9 million in damping grant alone, as well as an overall increase as part of the settlement, so it has not done badly. Many other authorities would argue that they have done worse.

The review is likely to take a long time, because it is a complex exercise. We have to take many issues into account, including the views of local authorities. My right hon. Friend knows that Swansea is one of the leading local authorities in Wales. If Swansea and the WLGA come to me in the summer of this calendar year and say, "We have come up with a magic formula that addresses these problems; can we apply straight away?", I would be happy for them to do so.

It so happens that the exercise is complex. It will be long and it is therefore not likely to produce a result until the year that my right hon. Friend mentions.

Mr. Michael Ancram (Devizes)

I was not trying to conduct the right hon. Gentleman's business. Out of courtesy, I was pointing out merely that sometimes it is difficult for Ministers to see an hon. Member trying to intervene behind them.

I am grateful to the right hon. Gentleman for telling us that the review will now take place. Will he ask the people who will conduct the review—this is an old chestnut of mine—to try to produce a formula that is at least comprehensible to people other than the most expert in this sector? As we do not, at present, have that review, will he explain why, on page 2 of the local government finance report, paragraph 3.2 on the distribution of revenue support grant sets out two qualifications to which his determination is subject? I have examined those qualifications closely and I cannot see any difference between them. Perhaps he will explain why we have those two different qualifications.

Mr. Davies

On the right hon. Gentleman's first point, it is my desire to ensure that the review's outcome is clear and understandable. I assure him that the message that he conveys is a message that I have conveyed to local government and to officials who advise me professionally but tirelessly on the intricacies of local government finance. I shall ask the Under-Secretary, my hon. Friend the Member for Bridgend (Mr. Griffiths), who will reply to the debate, to respond to the right hon. Gentleman's second point, because my hon. Friend will have a chance to consider that paragraph. I do not have the opportunity to consider the precise point at this moment, but I know that he will give the right hon. Gentleman a full and comprehensive reply.

On the third main message, I am putting in place a scheme to limit council tax increases, which will be funded partly through an additional £6 million that I am making available at the request of the WLGA.

There are some important messages there. We have agreement, it is a good settlement—it is much better than last year's—and additional resources are available to local government this year.

Mr. Richard Livsey (Brecon and Radnorshire)

The right hon. Gentleman has reached capping—a subject on which the Welsh Office has been quite prescriptive. Does he see any end to it, particularly as ring-fencing in education is being introduced? More funds for education are, of course, very welcome, but ring-fencing hamstrings local authorities in providing adequate resources.

Mr. Davies

I would not use the word "hamstring". The Government's intention is certainly to put extra resources into education, and, later in my speech, I shall specifically deal with that point. I have asked the Under-Secretary, my hon. Friend the Member for Neath (Mr. Hain)—who has direct responsibility for those matters—to ensure that the extra funds that are available this year for education are spent on education. I hope that the hon. Gentleman is not suggesting that those additional funds, which we have earmarked for classroom improvements, should be used on unnecessary bureaucracy or diverted into other services.

Mr. Livsey

indicated dissent.

Mr. Davies

I am glad that we have agreement on that point.

Certainly I want to get away from the capping regime. I think that it is unhealthy, because, at heart, it undermines democratic local government. I shall deal with that point later in my speech. If the hon. Member for Brecon and Radnorshire raises it then, I shall happily deal with it.

Sir Raymond Powell (Ogmore)

I have read the documents sent to hon. Members by the Under-Secretary, my hon. Friend the Member for Neath (Mr. Hain), dealing with the money provided to local authorities to fund education. How will Ministers control how local authorities in Wales spend that money? How will spending be monitored to ensure that the money is being spent for the purpose for which it was granted?

Mr. Davies

I am grateful for my hon. Friend's support in the matter. Certainly, my hon. Friend the Under-Secretary, the hon. Member for Bridgend, has written to every local authority with details of their precise allocation, making it clear that we expect that those additional resources will be used exclusively for education. He is also in discussions with those in local government on the best way of ensuring that that money goes directly to front-line education.

My hon. Friend the Under-Secretary will also keep his eye on each and every local authority. If he is disappointed, I know that he will be very robust. After the intervention of my hon. Friend the Member for Ogmore, I know that my hon. Friend the Under-Secretary will be especially robust with Bridgend if it were to step out of line. Having committed both of my Under-Secretaries of State for Wales to a course of action, perhaps I can move on to the next point.

In last year's debate, I said that I wanted local authorities to become dynamic and independent. I am now in a position to help achieve that. Nine months ago, when I came to office, I was struck by the sense of alienation within local government—which felt ignored and undervalued by the previous Administration and that its views and aspirations did not matter. Since arriving at the Welsh Office, I have made it a priority to change those perceptions and to show quite clearly that local government does matter, both to me and my colleagues and to the 3 million people in Wales who rely on local government for the services that it provides.

I am committed to working in genuine partnership with Welsh local government through the Welsh Local Government Association. In the autumn, I agreed a framework for partnership with the association that set out the basis for joint working and effective consultation. It provides the ground rules for a constructive relationship, but not a cosy or compliant one.

Partnership can help us achieve our common goal of providing the best possible service for the people of Wales. It will enable us to take a more inclusive approach to service provision and to breaking down the organisational barriers that hinder us from doing so. Services must not be treated in isolation and viewed from narrow organisational standpoints. There is a very strong link between, for example, good education and better housing, and between more effective social policy and better health. Future policy must therefore be shaped by developing a holistic approach to economic and social policy.

There will inevitably be disagreements and tensions along the way, but local government should be in no doubt that its opinions and ideas are of great value to the Welsh Office and will inform my decisions.

If the partnership is to work well, it is essential that the association is recognised as the authoritative voice of local government. I have made it clear that I should like to see the two authorities that are currently outside the association return and play their full part in the partnership process. The final decision, of course, is a matter for them, but I know of absolutely no advantage to them in remaining outside.

I shall deal now with my settlement proposals. [Interruption.] I thought that this was the most exciting part of my speech, and that is proving to be the case—total standard spending is enough to bring the roof down.

Total standard spending plans, or TSS, are my plans for local government spending. Given the overall level of resources available for public services in Wales, they are the best that can be made available. I propose to set TSS for 1998–99 at £3,090 million. This is an increase of 4 per cent. on 1997–98. TSS comprises £352.9 million for Welsh police authorities; £2,656.6 million in standard spending assessments for the 22 local authorities; £79.3 million in specific grants; and £1.7 million in allocations to specified bodies such as the Local Government Management Board. The increase in police provision represents a rise of 3.6 per cent. on 1997–98.

The amount of central Government support—aggregate external finance, or AEF—that I propose to provide towards TSS is £2,701.9 million. This is an increase of 3.2 per cent. on 1997–98. AEF is made up of £1,799.9 million in revenue support grant; £612 million in distributable non-domestic rates; £258.8 million in specific grants, which includes £179.5 million in police grant to be paid by my right hon. Friend the Home Secretary; and £31.2 million for council tax reduction measures, a matter on which I was pressed earlier.

The hon. Member for Brecon and Radnorshire (Mr. Livsey) mentioned capping. I remind him that one of the Government's key election pledges was to keep a firm grip on public expenditure, a commitment which we did not enter into lightly and which we are determined to honour. In last year's debate, I referred from the Opposition Front Bench to the high level of national debt and the public sector borrowing requirement. Instead of investing in the future, it was then accepted that public expenditure was being used to meet the social cost of the previous Government's failed economic policy. We are determined to redress that situation.

However, as a Government we are opposed to the crude and universal system of capping, introduced by the last Government, which we have inherited. We are working with the Welsh Local Government Association on the future of local government finance. That will deal with the issue of capping, and I hope to be able to produce the promised White Paper on this matter in the summer.

The provisional capping principles that I announced in December enable Welsh local authorities to increase their current year budgets by, on average, 4.8 per cent. As I said, that is double the provision made last year. Last year, the settlement for 1997–98 was a very difficult one. The current year's settlement is much better and offers a higher level of spending per head than that available to English authorities. I understand that it is perhaps not as much as some right hon. and hon. Members would wish, but, given the fact that there is a spending limit, that those allocations have to be made within the Welsh block, and that the increase is double that available for last year, I believe that it is a reasonable settlement. Most Welsh local authorities have accepted it as such.

All local authorities in Wales will be able to increase their spending by a minimum of 3.9 per cent. My capping principles for police authorities enable them to increase spending by 3.8 per cent.

I share with local government its ambitions for prosperous and secure communities, and I realise that the settlement falls short of what, in an ideal world, they would want. It means that some local authorities will have to face tough decisions. However, the 4 per cent. increase in TSS compares with a year-on-year increase in the control total for my block of 2.7 per cent.

I take this opportunity to reinforce one very important message. It is vital that all local authorities pass on their full share of the extra £50 million to schools. I very much welcome the early signs that almost all Welsh local authorities are planning to do just this. I am grateful to my hon. Friend the Member for Bridgend for his intervention. I said in reply to him that the Under-Secretary, my hon. Friend the Member for Neath has made it clear that we shall monitor the position carefully.

Sir Raymond Powell

Ogmore, not Bridgend.

Mr. Davies

I was referring to the Bridgend local authority, not the parliamentary constituency. I apologise principally to my hon. Friend the Member for Bridgend and to my hon. Friend the Member for Ogmore (Sir R. Powell).

Mr. Nigel Evans (Ribble Valley)

I am following the Secretary of State's argument. He says that he wants all the extra resources that have been made available for education to be passed across to schools to ensure that Labour's manifesto commitment to reduce class sizes is met. The Western Mail of 5 February says that half that money will be diverted away from the targets that the Government have set to meeting the teachers' pay settlement. Would the Secretary of State care to say something about that?

Mr. Davies

The hon. Gentleman should not get too excited by what he reads in the Western Mail, which invariably gets such matters wrong. A provision was made in last year's Welsh local government estimates for the teachers' pay award. That should have come from the existing local government budget. The £50 million that is being made available should go directly to schools. I hope that local authorities will work with the Government to ensure that we get those improvements.

Mr. Lembit Öpik (Montgomeryshire)

Is the Minister aware that many local authorities feel that they are having to find that so-called ring-fenced money at the cost of other services for which they are responsible? They do not feel that the money is there to be passed on. They are having to make cuts in other areas to achieve the education targets that the Secretary of State has described.

Mr. Davies

I do not accept that. I want local authorities to regard education as their priority. The hon. Member for Ribble Valley (Mr. Evans) was talking about the additional £50 million that the Government made available last year. I want to make sure that that money goes directly to schools. It is important that it should, because it was made available for that purpose. My hon. Friend the Member for Neath will keep a close eye on local authorities to ensure that it goes where we intend. We shall review the options open to us if any authority refuses to honour the terms on which those hard-won resources have been made available.

Several of my hon. Friends have raised the situation of their local authority in relation to council tax damping. The council tax reduction scheme that I propose will protect council tax payers from the continuing mismatch between spending and grant allocations, to which I have already referred, and the impact of the grant formula changes for 1998–99. I propose to make £31.2 million available to fund the scheme. That includes £6 million of additional money, to which I have already referred.

The scheme, along with the efficiency savings that local authorities can achieve, should ensure that increases for around two thirds of council tax payers in Wales are limited to about £1 a week. Unlike the previous Government, we do not want to drive up council tax charges in Wales compared with those in England. Perhaps the right hon. Member for Devizes will tell me whether he wishes me to continue that Conservative policy, or whether he wants me to minimise the increase in charges to council tax payers in Wales, which is my policy.

Mr. Desmond Swayne (New Forest, West)

It might not be the Secretary of State's intention to drive council tax up, but is it not an inevitable consequence of aspects of Government policy, such as the rise in interest rates, which has a knock-on effect on local government debt, and the abolition of advance corporation tax?

Mr. Davies

The hon. Gentleman misunderstands my point. He was not in the House last year when we debated the issue. I remind him that my predecessor, in his short period as Secretary of State for Wales—he is now the leader of the Conservative party—had a deliberate policy of driving up local authority charges in Wales to bring them more into line with those in England. There are historic reasons for the differences. I am explaining that my policy is not to remove that relative advantage that we in Wales enjoy. I am just testing him to find out whether it is his desire that I revert to my predecessor's policy.

Most of the decisions on the 1998–99 settlement have been taken in the framework of an inherited system, which we are subjecting to a root and branch review. The comprehensive spending review should be completed this year, and will give us a clear picture of the priorities on which public spending will be focused. It will give us a sound basis for putting in place a new system of democratic and financial checks and balances, which will enable local government to provide and be more locally accountable for the range and quality of services which people have a right to expect.

Mrs. Betty Williams (Conwy)

Is the Secretary of State aware that, in this financial year, due to the situation that we inherited and as a result of the rate-capping procedure, my constituents in Conwy and Gwynedd are suffering? Indeed, the local authority has had to make cuts in education and social services. Although I welcome the increases that Conwy particularly will receive in 1998–99, is my right hon. Friend aware of its problems this year, given that my predecessor was a Minister in the Welsh Office?

Mr. Davies

I certainly would not suggest for one moment that Ministers favour their own local authorities or constituencies. If I were to do so, I know that many of my colleagues would very rapidly draw my attention to it. It would be unfair of me to suggest that my hon. Friend's predecessor, who now sits in the other place, should have been more vigorous in defending his local authority interest.

My hon. Friend's local authority has had an increase in the SSA of 4.6 per cent. for the coming financial year, which is certainly not bad in Welsh terms. It has also had an increase of 4.7 per cent. in spending power, which is marginally higher than the Welsh average. I have been trying to make it absolutely clear that these are difficult times for local government. We have to rework the formula. There are anomalies; there is no point in me trying to deny that. I want to work out a constructive relationship.

Conwy would be well placed if it played a constructive and forceful role in reviewing the formula. I understand its difficulties given the mixed pattern of economic and social activity. It is for that authority to play a full role in the review so that the formula is better suited to meet its problems. My hon. Friend obviously makes a strong case on the part of her local authority.

A key public expectation will be that local government—along with all other public sector organizations—spends taxpayers' money in the most efficient way possible to achieve its objectives. The Government's best value initiative, with which we are making excellent progress in Wales, is fundamental to achieving better quality and more cost-effective services.

My settlement proposals give Welsh local government a fair deal in a tight public expenditure climate. They balance my responsibilities to local government with those that I have to other public services in Wales. They begin to address the problems that local authorities face, which we will be able only to address fully over the longer term. In the meantime, I commend the proposals to the House.

4.37 pm

Mr. Michael Ancram (Devizes)

Revenue support grant debates always attract many hon. Members. Such debates are a chance to represent local concerns, raise local points and ensure that local causes are well publicized—and they are very valuable for that. They are a central part of our parliamentary life. Today's debate is obviously no exception, given the interventions so far. It is therefore a little strange to think that this is probably the last but one such debate, and the last but one chance for Members who represent Welsh constituencies to participate on behalf of their constituents—unless, of course, they stand for the Welsh assembly.

Once the Welsh assembly is in place, obviously the allocation of RSG will be a matter for that body. Although hon. Members here will still represent their constituents and legislate for them, they will no longer be able to fly the local flag as they can now.

As a revenue support grant debate junkie, after all these years I must confess that I find that rather sad. However, there is an inexorable logic behind a parliamentary majority of 179, before which I must bow. I am sure that hon. Members will make up for the impending end of such occasions with enthusiasm today, and ensure that the fine old tradition will go out not with a whimper but with a bang.

I have always seen such debates as something of a refined sort of blood sport, with the Minister as the target. I remember taking them as a Scottish Office Minister—especially, if I may say so to the junior Minister, as the Minister who had to wind up. I remember my Secretary of State adopting the same practice adopted today by the Secretary of State, of batting any difficult question on to the junior Minister to respond to at the end of the debate.

If I may offer the Under-Secretary of State some advice, I remember saying at the end of the debate that a question was so clever and so difficult that I would rather "write to the hon. Gentleman" about it. So if the junior Minister does that to me, I shall certainly understand.

The Minister has to know not only the formula by which the allocation of grant has been decided and how it works in each case, but the answers to the individual local problems that are invariably—and rightly—raised, and over which offence is always taken, in a sense, if the Minister does not seem to know the answers.

One of the consolations of opposition—they are fairly rare—is that I can ask the questions in such a debate rather than having to answer them. I have no intention of exploring the byzantine complexities of local government funding formulae. I am told that, if one does, one tends to go mad. I thought that instead I would try to ask questions that need answering, but which do not go into the depths of the formula.

Mr. Dafydd Wigley (Caernarfon)

I do not want tempt the right hon. Gentleman along the lines of his suggestion that he may go mad in trying to reply to questions, but if he does not intend to get involved in the question of the formula, may I assume that he agrees that the way in which it is working out for the coming year is extremely unfair for several authorities, including some of the poorest in Wales—in some of the industrial areas in the south, and especially in my county of Gwynedd? Even if he does not intend to go into the detail, does he accept the principle that there should be a stringent examination of the problem to achieve a more equitable distribution?

Mr. Ancram

I certainly agree that it is necessary not only to hold the review, which I welcome, and which the Secretary of State confirmed again today will take place, but to keep any resulting formula under constant review. In my experience of operating such formulae, criteria that may be relevant for one year, or even for one Parliament, may not be so relevant a little later.

It is such criteria that, by becoming outdated, create the unfairness that the right hon. Gentleman mentioned. I would not dispute with him the fact that the formula works unfairly at the moment, and I hope that the review will go some way towards correcting that. However, I reiterate that it would be helpful if that were done in a way that we could all understand.

As I have said, local government finance is never the easiest subject to understand. In the thicket of figures and formulae, important aspects are often overlooked, and it is necessary to try to get behind the figures and find out what is really happening. I hope that the Minister will be able to give me some idea of the background to some of the questions I pose.

In relation to paragraph 2 of the main report, what was the basis of the Secretary of State's determination of the core revenue support grant figure of £1,799,880,452? There must be a complex formula to produce such an exact figure—down to the last £52—but in reading the report I have not been able to find it. I have found out how the standard spending assessments are arrived at, but not the strict relationship between them and that very accurate figure for the RSG.

It would be helpful if we were told how the figure is arrived at. Whether the distribution is fair must essentially depend on the basis upon which the figure has been produced.

What representations were considered about last year's revenue support grant, and what were their results in terms of the year-on-year comparison between last year's and this year's grant? What changes were made, and what were the reasons for those changes, in practical terms rather than in terms of the formula?

I realise that, in the eyes of local authorities, the revenue support grant will never be enough, whether or not there is a review—it is in the nature of local government always to look for more than central Government is likely to provide. Nevertheless, I assume that, just as need is taken into account in the formulation of assessments—as set out in annex D to the report—some recognition is given to local need aggregated over Wales as a whole in determining the core revenue support grant figure.

What consideration was given this year to such need factors, and how were they reflected in the overall outturn in comparison with the last two years to which the Secretary of State referred? I have already asked the right hon. Gentleman that question, but I want to put it on the record. I am interested to know the difference between the two qualifications in paragraph 3, but would be very happy for the Secretary of State to write to me on that.

Mr. Ron Davies

I am grateful to the right hon. Gentleman for giving way, and for the way in which he is presenting his case. The Under-Secretary of State—my hon. Friend the Member for Bridgend (Mr. Griffiths)—officials and I had many meetings with Welsh local government representatives to arrive at the re-worked formula for this year. Need was one of the considerations that I wanted to be brought more heavily into the calculations to deal with the smaller urban local authorities.

As a result, Rhondda Cynon Taff, for example, has received an additional damping grant of £6.7 million; Swansea has received an increase in the damping grant of £1.9 million; Neath Port Talbot has received £2.5 million; Merthyr Tydfil more than £3 million; and Blaenau Gwent more than £1 million. There have been increases in this settlement as a result of our discussions during the past year.

Mr. Ancram

I am grateful to the right hon. Gentleman for that, and I am pleased to have given him the opportunity to put on the record the answers to my questions. However, if those adjustments are being made within a given total figure, money is being taken from other areas. Some of the remarks that hon. Members have made today may reflect the fact that they have not been on the receiving end, but have lost out because of the adjustments. That underlines the need for a clear indication of how the determinations are made.

Mr. Ron Davies

I shall not intervene again on the right hon. Gentleman, but I agree that there have been winners and losers. The important point, which I have stressed throughout the debate, is that we have reached agreement with the Welsh Local Government Association. Even those local authorities that have not done as well this year—because of the tilting towards deprived local authorities—agreed to the total package. The settlement represents the collective view—certainly of 20 of the 22 Welsh local authorities.

Mr. Ancram

I hear what the right hon. Gentleman says. I did not know that local government associations had to have a unanimous view; I tended to find that the view that was given was that of the majority, and that there were members who, for the sake of their own authorities, did not necessarily agree.

Paragraph 3.3 of the report states that, in drawing up the standard spending assessments, the Secretary of State has assumed that there is no use of … financial reserves". Does that mean that, in distributing revenue support grant to the principal councils, no account is taken of alterations to any outstanding debts? It appears that, in calculating SSA need, loan charges are a capital charge. Is a similar calculation made in terms of grant, or are councils left to make up the shortfall, not least that created by the expectation of a higher SSA? Is there any element that rewards thrift and penalises debt? If so, can the Secretary of State give examples?

That brings me to an important question. What is happening to the outstanding loan debt? The figures are broken down in the report, but the ones on page 18 are startling. If my calculations are correct, there is an overall outstanding loan debt of more than £2.75 billion for the principal councils alone. That is £275 million more than this year's total grant. On any view, that is a staggering figure, which requires a little more exploration.

What is the net position? The figure is described as the outstanding loan debt. Have we any indication of reserves, held on deposit or otherwise, that may be put in the balance against it? That would obviously make some difference to the weight of the figure. How does the debt figure compare with previous years? Am I right in thinking that, in 1994, the figure was £1.661 billion or thereabouts and, in 1995, £1.875 billion? Are those figures correct?

Is the figure now going up, or is it beginning to come down? How many of those councils are Labour-controlled? Do principal councils make the repayments assumed on page 18 of the report, where various assumptions are made? How does this enormous debt figure affect the public expenditure profile? It can have macro-economic effects down the road. Is the debt owed to the national loans fund, or elsewhere? Again, that would have some bearing on its macro-economic effect. Will any liability for the level of debt transfer from the Secretary of State to the assembly? In that case, will the assembly be informed of what the liability is?

How much are councils spending in their promotional efforts to persuade the Secretary of State to site the assembly in their patch? I was interested in this because the decision rests with the Secretary of State—it is his alone. Given the constant cries by local government that it is underfunded, does the Secretary of State think that that is a proper use of council tax payers' money? Will he really be persuaded by glossy promotions? Would it not be rather cheaper for him to be persuaded by cogent arguments? It certainly throws into relief the demands made of council tax payers by the councils which have incurred such expenditure.

In the interests of open government—which, I understand, is now the flavour of the day—local council tax payers should be told now what those amounts are and where they have occurred. My information is that Cardiff, Swansea and Wrexham have put huge amounts into putting together bids for the assembly. Given that Cardiff is indebted to the tune of over £219 million and Swansea to the tune of £196 million, and given that Wrexham has a poor reputation in terms of directing resources to where they are most needed—such as education—questions need to be asked on behalf of council tax payers.

I ask—in a spirit of friendship—whether those three councils are Labour-controlled. New Labour—old financial habits. Under Labour, you still pay more and you still get less. These are important questions, and I would be happy for the Minister to write to me if he does not have all the information to hand.

Mr. Gareth Thomas (Clwyd, West)

Does the right hon. Gentleman accept that the introduction of the assembly is an exciting innovation in Wales, which will bring in its train considerable economic prosperity for the community which houses it? Would it not be a dereliction of duty for councils within Wales not to try their hardest to attract the assembly to their territory?

Mr. Ancram

If it were an assembly wandering around waiting to be attracted, that might make sense. However, the Secretary of State is the arbiter of where it will go. I was merely questioning whether the Secretary of State would be so easily persuaded by the spending of money on glossy advertisements, rather than by cogent argument which might cost nothing.

Mr. David Hanson (Delyn)

On the subject of waste, would the shadow spokesman take this opportunity to welcome the return of £37 million from the nursery vouchers scheme to local authorities next year by the Secretary of State? That scheme was a great waste of money by the previous Administration. Any allegation of waste in local government pales into insignificance when we consider the taxpayers' money—both local and national—wasted on that scheme.

Mr. Ancram

You would probably call me to order, Mr. Deputy Speaker, if we were to enter a long debate on education. However, we will wait and see whether the provision of pre-school learning is achieved under the dispensation that has now been made as well as it would have been under the voucher scheme. I doubt it.

Curiosity prompts me to ask one question—what is a "centroid"? We are treated to that gem in paragraph 17 on population dispersion on page 14. We are told where to find it and what can lie between two of them, but we are not told what it is. I should be glad to know what it means before I add it to the vocabulary on my word processor.

I have outlined the basic questions that need answers, and between them they make up the broader picture, to which I now turn. The Secretary of State took the opportunity to look forward, and to say that he set great store by local government. I agree, but it is strange for him to set out his plans for the future with such vision, when all those issues will be handed to an assembly in two years' time.

Unless the Secretary of State comes clean and divulges whether he intends to stand for the assembly, I fear that his vision will be short-lived. He has a problem, as was demonstrated again today, because he has to try to ride two horses. He said that the settlement was generous and should be welcomed. He also acknowledged the difficulties and hardships it would cause, and the serious decisions that have to be taken. His attempts to drive a path between those conflicting demands reduced the value of what he had to say.

The overall effect of the reports will be substantial council tax increases throughout Wales. It will not do for the Government to shelter behind the provisional planned public spending figures of the previous Government. A new financial year will start in April, over which this Government will have control and which will be influenced by the decisions that this Government have taken. The increases that we will see in Wales will be down to them alone.

Mr. Ron Davies

That is why there have been increases.

Mr. Ancram

Yes, but the increases are in council tax, when we look at the bottom line.

My hon. Friend the Member for New Forest, West (Mr. Swayne) was right to point out that, since the Government took office in May, they have loaded new costs on to councils and relaxed the capping restrictions by extending the ability of local councils to translate increases in standing spending assessments into increased spending power, without a commensurate increase in the revenue support grant. Those factors will mean higher council taxes for people in Wales.

The Secretary of State said that he was not pushing up council tax. Tell that to the council tax payers of Wales. Government figures show that, if councils spend at cap, the average bill for band D will go up by £60 this year. The average increase for the whole of Wales across all bands will be £55, or a staggering 12 per cent. The Secretary of State mentioned increases of 3, 4 and 5 per cent., but the average increase will be 12 per cent. I do not remember hearing promises to that effect during the general election, but perhaps that was an oversight while the Secretary of State was telling the people of Wales to trust him.

Within the national figures are concealed some even starker local figures. Cardiff's council tax will increase by 12 per cent., or £59 more a year; Blaenau Gwent's will increase by 14 per cent., or £52 more a year; and Swansea's will increase by 15 per cent., or £65 more a year. New Labour certainly means new council tax increases.

Let us look at the new costs that the Secretary of State and his colleagues have placed on the councils. The Budget in July abolished advance corporation tax credit for pension funds, meaning that those funds will be able to claim less tax back, will have less money to invest, and will need to meet the shortfall. That amounts to an effective tax on pensions, which is now having an impact on councils. Many Welsh councils' pension funds are in deficit, and are having to take action. In any event, the change involves higher levels of employer contributions, and thus higher council taxes to meet that cost. Once again, new Labour means higher council tax.

Inflation is up from 2.5 per cent. to 2.7 per cent. under Labour. Until today, this Government have missed their target every month. That alone will have a severe effect on many Welsh authorities, as will interest rates—also up under this Government from 6 per cent. to 7.25 per cent. All that impacts on councils with outstanding debts. That includes most of the principal councils in Wales.

New Labour, higher local government costs, higher council tax. Further tax hikes lie ahead. The current restraint on council tax increases brought about by capping is to go. The Minister responsible for local government in England told BBC's "On the Record" on 3 November last year: It's a manifesto commitment that we will get rid of crude universal capping, and it's my job to make sure that we deliver manifesto commitments. The Secretary of State said today that that was also his intention. Within what timetable? Is he going to increase substantially the revenue support grant to allow higher spending, or will all the effect of taking off the cap fall on the Welsh council tax payer again? There are no prizes for guessing which it will be. The interesting bit will be learning why the prospect of higher council tax was not in the famous manifesto that asked the people of Wales to trust new Labour.

Will we see other changes, only rumoured as yet, but about which I hope the Government, in pursuit of their professed belief in open government and freedom of information, will come clean this afternoon? People are asking about them.

Are the Government planning an additional tax to be levied on local businesses on top of the uniform business rate? If so, will there be any protection for already hard-pressed small businesses in Wales? Do the Government still intend to increase the number of council tax bands? That proposition drifts in and out of the picture, causing enormous concern to thousands of Welsh households that would be adversely affected by it. The Government must make their position on that clear, and they must do so now.

There have been rumours, or purported leaks, floating the idea of extra council tax benefit to meet the extra burden on that benefit of removing or changing the capping rules. Is it true that council tax payers, rather than the Department of Social Security, would have to foot the bill for such higher council tax benefits? We need the answers to those questions now. It is unsettling and alarming for councillors, residents and businesses in Wales alike to be left in the dark. It is not good enough for the Government to delay announcements on such important issues.

There are concerns about what will happen to local government, revenue support grant and council tax with the coming of the assembly. There will be a period of uncertainty and change. For example, we know that the assembly will take on the Secretary of State's responsibility for funding local government. The amount of revenue support grant is not specified by law, and will therefore ultimately be entirely at the discretion of the assembly. The Government of Wales Bill provides no protection for councils in the north, east or west from domination by the southern part of Wales. That is of concern in Wales.

Moreover, the assembly would be able to reduce the total amount of money that it gives to local authorities in Wales. It could give the funds to any other body, such as the Welsh Development Agency, or retain them for itself. More importantly, it could introduce tax by the back door, although it has no tax-raising powers, by holding back revenue support grant and thereby forcing councils to put up council tax to meet the difference. Those matters are of major concern to people paying council tax in Wales. We need the answers.

All those matters are crucial for the people of Wales, both immediately and in the near future. New Labour is failing Welsh council tax payers. The only certainty is that they will pay more this year, and even more in years to come. The Government will have to do a lot more explaining and give many more answers than has the Secretary of State today. I hope that they will start to do it at the end of this debate. They owe those explanations to the House, to councils in Wales and, above all, to the Welsh people.

5.3 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

I hope that the right hon. Member for Devizes (Mr. Ancram) will not mind if I do not follow him, tempted as I am by the host of interesting points that he made. I have a specific task this afternoon: to bring to the attention of the House the desperate plight that faces Merthyr Tydfil county borough council in the next financial year. I shall confine my remarks to that, except to say that I was interested by the right hon. Gentleman's remarks about the byzantine character of local government finance settlements. I have always found them incomprehensible and tried to avoid them. It is a maze into which one should not wander, but I have had to because of the nightmare that faces our council.

Complicated as the problem facing Merthyr county borough and its citizens seems, in some ways it is simple. It emerges starkly from the figures in all the documents available. I shall lay the figures before the House.

In 1997–98, the county borough's budget was £60.953 million. In 1998–99, the cap-limited budget will be able to rise to £63.341 million, an increase of £2.388 million. My right hon. and hon. Friends in the Government are rightly giving new money to finance and develop education. The money for Merthyr is £1.128 million for schools, another £27,000 for the national grid link and £97,000 of additional money to provide for four-year-olds. With the earmarked £435,000 for care in the community, the total is £1.7 million. Merthyr county borough rightly wishes to follow the Government's guidance that money should be earmarked for those purposes.

The House will already have noticed the dilemma confronting the county borough. Of the £2.388 million increase in budget allowed under the capping arrangement, almost £1.7 million is earmarked. That leaves some £700,000 to finance all the other increased costs that will emerge in the next financial year. That is the nature of the dilemma that confronts Merthyr Tydfil county borough.

I shall take the House through the additional costs that the council faces. The assumption of 3 per cent. inflation in wages, increments and costs is not excessive. That will cost another £2.5 million. The council believes that it has to make a contribution of 2 per cent. to employee superannuation. That is essential. It will cost another £500,000. The district auditor has recommended that the county borough increase its balances by a further £500,000. Most astonishing—this is a matter that I have explored with my right hon. and hon. Friends on the Front Bench—there will be an increase in capital financing charges of £1.5 million in 1998–99. There will be additional levies of £200,000 for services such as the fire service. I shall return to the capital service charges later.

In total, the county borough council faces a £5 million difference between its budget proposals and the capped budget. That is in spite of a 12.4 per cent. increase in the council tax. The right hon. Member for Devizes mentioned council tax increases this year. We have suffered them in previous years—25 per cent. the year before last and 15 per cent. last year. So the county borough council faces the prospect of trying to find £5 million worth of cuts in services and a 12.4 per cent. increase in its council tax. That is the dilemma it faces. A conjunction of unfortunate circumstances has led the county borough into this situation.

In the disaggregation of the Mid Glamorgan expenditure, Merthyr county borough inherited a series of heavy spending patterns related mainly to the high level of need in the area. That has led to the highest spending per head, which my hon. Friends will no doubt mention, although the figures reveal that the council has the smallest budget of any local authority in Wales.

As a result of the difficulties in disaggregating Mid Glamorgan expenditure, debts and loan charges in the past year or two, the county borough finance officers now have to assume that an extraordinary debt burden will fall on the council in 1998–99. We are talking about £1.5 million of charges of one kind and another, some of which have been inherited from Mid Glamorgan.

The right hon. Member for Devizes seemed to suggest that the authorities are spendthrift. I do not know whether he has ever visited Merthyr, but if he did so he would appreciate that it is trying to regenerate itself. Its regeneration programme based on capital expenditure has received tremendous backing from successive Secretaries of State, the Welsh Office and the Welsh Development Agency. Sadly, as a consequence of certain factors, exceptional accumulated costs will be incurred by the authority in 1998–99, which mean that it faces the prospect of making cuts of £5 million.

No decision has yet been made about which projects should suffer, but I should like to draw hon. Members' attention to the serious candidates. One of the saddest and unkindest cuts is the proposal to end the provision of hot school meals and instead opt for sandwiches. Inspection reports of our primary schools reveal that up to 50 per cent. of children receive free hot school meals. It would be terrible if they were denied that meal in 1998.

Another proposal is to lease the county borough's part III elderly accommodation. The closure of leisure facilities and branch libraries has also been suggested. A huge cut in the budget for the maintenance and repair of roads has also been proposed, with the result that not only would existing potholes and cracked pavements go unrepaired, but their number would be bound to increase.

Support for our youth orchestra is also in danger, and the free transport arrangements, which bring the over-16s up from the valleys to Merthyr college, are clearly also threatened. Another possibility is to increase charges to support the elderly in the community. It has even been suggested that the concessionary fares for old-age pensioners should be reduced from one half of the full fare to one third. Those are the dilemmas and problems confronting Merthyr Tydfil because of the peculiar conjunction of circumstances and costs bearing down on it during the financial year 1998–99.

I have studied the way in which the Welsh Local Government Association drew up the formula according to which the settlement has been made. When I cast my eye down the list of figures, I was astonished to discover that some of the poorest authorities have been hit hardest according to this year's financial settlement. I know that the review that my right hon. Friend the Secretary of State and his colleagues are currently conducting is an acknowledgement of that odd outcome. This year, Merthyr county borough is the only county borough with a minus standard spending assessment. Our neighbouring authorities of Blaenau Gwent and Rhondda Cynon Taff are just on or above the SSA figure.

I do not want to be confrontational, but when the figures appeared on the provisional list, did no official at the WLGA say that there had to be something wrong with a formula that produced such results? I know that there were healthy, vigorous discussions between my right hon. Friend and his colleagues and the WLGA. Surely someone should have stopped and said, "For goodness sake, this cannot be right."

I have studied the official documents, which contain statements such as: The distribution formula was decided by the WLGA. The Welsh Office merely applied this formula". I suggest to my right hon. Friend that it is time to claim back policy making on the local government financial settlement for the Welsh Office. He should by all means seek advice and consult, but such fundamental policy decisions should not be put in hock to other organisations.

I do not want to be malicious, but I wonder whether Merthyr county borough can afford the £62,000 cost for its membership of the WLGA next year. Will that association share the burden of costs and cuts that many of its members now face? If that £62,000 was not paid this financial year, the authority would avoid the need to cut the concessionary fares to old-age pensioners. I appreciate the value and importance of collective decision making through the WLGA, as described by my right hon. Friend, but given its performance and, to say the least, the doubtful way in which it reached its formula, I wonder whether we should give it such extensive responsibilities and powers.

I know that I am engaging in special pleading on behalf of one county borough, but I have never concealed the fact that I believe that Merthyr Tydfil is a special place, with a special role. It is right that I should make its case. Consider the turbulent civic history of the county borough. It started the century by obtaining county borough status and it has had that status restored to it as we approach the end of that century. There have been some amazing moments and crises in that near-century of civic experience—the current crisis will take its place among them.

As a result of the 1935 royal commission into local government expenditure, the men from the Ministry pressed the then Merthyr county borough council to sack many teachers and push up the teacher-pupil ratio. I am so glad that those now occupying the Government Front Bench have a different set of values from those prevalent in the mid-1930s. Indeed, they are encouraging us to expand and protect our educational expenditure. According to the reports of the 1930s, there was even the barbaric suggestion that the wonderful flower beds of Cyfarthfa park should be grassed over. I fear that that might still happen as a result of the cuts that will be necessary in 1998.

I accept that some of our problems are shared by local government in general. I hope that I have made it plain to my right hon. Friend, however, that, this year, Merthyr, one of the smallest authorities in Wales, is faced with an exceptional set of circumstances and an accumulation of costs. Because of that it will face a crisis in 1998–99. Apparently, it is possible to reschedule the debts of sub-continents, so surely it is not beyond the wit of local officials and those at the Welsh Office to devise some means to spread the burden that faces Merthyr. Surely they should be able to reach a solution to alleviate the worst impact of those accumulated costs and expenditure requirements that are bearing down on the county borough of Merthyr Tydfil.

My right hon. Friend and my hon. Friend the Under-Secretary of State, the Member for Bridgend (Mr. Griffiths), have been nothing but kindness and patience in all our discussions prior to the debate. Although it appears that the settlement was set in stone by the WLGA, are there not means by which the Welsh Office and the county borough council could get together and devise a more ameliorative package than that which currently confronts the county borough?

Mr. Ron Davies

I must tell my hon. Friend that there is no prospect of doing so. I do not say this lightly, but we must face reality. My hon. Friend must understand that, had there been an alternative, it would have been explored. He has queried whether anyone asked how it was that such deprived communities apparently received the rough end of the deal. That is precisely what I asked in September and why I asked the WLGA to rework the package. That was done and, according to the settlement that my hon. Friend's local authority agreed, the SSA has been reduced by about £1 million but the damping grant—the additional resources that have been made available to local government—will benefit his local authority by more than £3 million.

I acknowledge that there are structural problems with Merthyr, but a few years ago my hon. Friend fought a valiant campaign to retain Merthyr's status as a county borough, and it is largely as a result of the disaggregation of the old county council budgets that Merthyr is now confronted with this problem.

I assure my hon. Friend that we are doing all that we conceivably can to tackle the problem, but that will be done only by reworking the formula, and I can assure him that Merthyr's best interests lie within the Welsh Local Government Association, arguing for the reworking of that formula to meet the needs of communities like his.

Mr. Rowlands

I am sorry that my right hon. Friend has been adamant about that, because the disaggregation costs are a grey area. Doubt about which disaggregation costs should be borne by Merthyr county borough has led the county borough to include in the 1998–99 budget about £1.5 million in capital charges and debts.

I ask my right hon. Friend, in that grey area, which is partly historic and partly a consequence of the disaggregation process and uncertainties created by it,

might we not be able to devise something that does not lead the finance officers of the Merthyr county borough council to conclude that they must pile all those debts into one year—1998–99? I hope that my right hon. Friend will reconsider the matter in that context.

I simply say to my right hon. Friend that I believe that we all have a powerful common interest in maintaining and sustaining a sense of civic effort, pride and commitment. There has been that historic pride and commitment in Merthyr Tydfil county borough, but it will be sorely tested and severely soured as a result of the financial settlement.

5.21 pm

Mr. Richard Livsey (Brecon and Radnorshire)

I have great sympathy with the case that the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) made on behalf of the county borough of Merthyr Tydfil. I know some of the figures involved, and the county borough has been hit especially hard. In the 19th century, half my family lived in Merthyr Tydfil, and I know a great deal about its history. I pay tribute to the hon. Gentleman in fighting his cause for a community that knows what a fight is all about. I hope that, in the long term, the Secretary of State will help such deprived communities, where there is great unemployment.

Given the complexity of the formula for local government finance, it is difficult to take an overview of what is happening. It is much easier to talk about one's own patch because it is so much nearer to the grass roots. I am sure that neither Ministers nor the Secretary of State would wish it to happen, but it appears to some of us that the Labour Government are introducing Tory pain by sticking to the Tories' budget. I do not think that the Secretary of State especially likes doing this sort of thing, and I believe that Treasury rules force him to impose a settlement, albeit following pretty painful negotiations with the Welsh Local Government Association; that results in a formula that produces anomalies.

However, I would be less then generous if I did not congratulate the Government on providing more resources for education, which is very important. I especially congratulate them on their abolition of nursery vouchers—one of the first acts of the Welsh Office under the new Government. Liberal Democrat Members feel that that was absolutely right. It would be extremely churlish not to give credit where it is due, as we would have acted similarly if we had been in that position.

The problems arising from the latest local government settlement are connected with the capping mechanisms—an issue which I raised with the Secretary of State earlier. It imposed a ceiling on council tax—a policy that the previous Government practised to the detriment of local democracy in Wales. I was pleased to hear the Secretary of State say that he would not necessarily continue along that path for ever. I hope that he will change direction before long, because his current course is causing great damage.

The formula agreed by the WLGA has a measure of unfairness in it. That is inevitable, but let us hope that the final formula will be fair to different parts of Wales, with their differing problems. In an intervention, the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) rightly mentioned the importance of population sparsity. In the final formula, sparsity in rural areas must be given the due regard that is given to deprivation in urban areas. We must pay attention to both parts of the equation because, in areas of sparse population, those people who are working have far lower wages than those in the urban areas.

Urban areas suffer from so much unemployment that, by comparison, the poverty that exists in sparsely populated rural areas is often overlooked. We may not take account of the fact that people cannot get around and the lack of public transport. The cost of providing school transport impinges greatly on the budget of many a rural authority in Wales. In order to get the formula right—which is very important—all those aspects must be taken into consideration.

The county of Powys has been in close contact with the Welsh Office, negotiating directly and within the WLGA, and we recognise the hard work that has been done in that regard. However, one impact of capping on Powys—as on many local authorities—deserves attention.

We have a net relevant expenditure in Powys, including new education money, of about £131 million. The total net relevant expenditure that would have occurred if no new education money had come in would have been £128.56 million, but the capping limit is set at £126.59 million, so we must achieve savings of £4.4 million to remain within the cap with new money in the budget. Therefore, the additional education money has come within the cap.

We have an extraordinary problem. We must make savings—which would have been required because not enough new money was coming in—of £1.973 million, so we are suffering because the capping limit has not been raised to take account of the new education money. More money would have been available in Powys if the new education money had not been given to us. Every council in Wales is confronted with that problem, and I know that it impinges on places like Merthyr Tydfil.

Because the capping limit has not been raised to take account of the new education money, the cuts in other council services are much greater than they would otherwise have been. I am sure that that was not intended when the exercise was embarked on. I do not think that the Secretary of State or his Ministers would have deliberately gone along that path, but that has been the impact of the settlement.

Extraordinarily, in Powys, only a 1.16 per cent. increase is available for other services. The impact has fallen on the other services. Housing is to be cut by 7 per cent., highways by 7 per cent. and the highways budget by more than £1 million. The configuration of parameters in the settlement has cut social services by another 7 per cent., and social service funding in Powys has been reduced by £1.3 million. As a result, the council has been forced to increase charges for domiciliary services by twice—and, in some cases, three times—their present level in order to save the social services budget. There is now talk of closing local social services homes. That is a very hard decision to take in a rural area where many people are the poorest in society. Given their track record and their philosophy, I am sure that the Government do not wish to go down that path. However, that is the impact of this settlement.

We must also consider the legacy of the previous Government, who—I am sure for good environmental reasons—imposed a landfill tax. There has been much discussion about that. The landfill tax in Powys costs £2 million, which is no longer available to invest in services.

The settlement has caused many problems. Local democracy is vital: we believe in it and think that it should be developed further. We believe also that local government should assume some of the functions of the quangos. I am certain that local authorities would spend the money wisely. I hope that the drive to abolish quangos and transfer their functions to either local authorities or the new Welsh assembly will continue, and become even stronger.

The right hon.Member for Devizes (Mr. Ancram) lamented the fact that the House will not be involved in many future discussions about the details of Welsh local government settlements. I believe that it is right that such settlements should be considered in the National Assembly for Wales, where well-informed assembly representatives will have the opportunity to go into great detail and represent their areas in a very forthright manner. The assembly is the right place to do that. I hope that the assembly will show great vision when deciding spending priorities in Wales. I am pleased that education has received a high priority, and I am sure that health and many other issues that are close to our hearts in the rural areas will receive similar treatment in the future.

I believe that there is hope for the future. However, the settlement contains many unfair aspects, which have resulted in a £70—or 15 per cent.—increase in band D council tax in my county. That situation must change.

Mr. Öpik

Does my hon. Friend agree that that is completely contrary to the expectations of the people of Powys, who must pay a 15 per cent. increase in council tax when many services are being cut by about 7 per cent? They are not efficiency savings: we are losing real services. That is not what people expected from the Labour Government.

Mr. Livsey

I agree entirely with my hon. Friend. People are paying more in council tax and not only receiving fewer services but losing some services altogether. I am sure that the Government will examine that problem in greater detail in the future—particularly as regards the formula. We do not wish to see the Government follow the same path as the previous Administration—although that is what they have done this year by adopting the Conservatives' budget. The previous Government's politics should be designated to the dustbin of the past. We want to look forward; we must show that we have a social conscience and believe in local democracy. We are certain that the new era of democracy signalled by the Welsh assembly will herald a brighter future.

Mr. John Hayes (South Holland and The Deepings)

On a point of order, Mr. Deputy Speaker. Before you call the next speaker, could you inquire as to whether the annunciators are working? There are very few Welsh Members in the Chamber given the importance of the debate. I wonder whether hon. Members are aware that the debate is taking place.

Mr. Deputy Speaker (Sir Alan Haselhurst)

That is an extremely frivolous point of order, which has nothing to do with the proceedings.

5.35 pm

Ms Julie Morgan (Cardiff, North)

I served as a councillor from 1985 until 1997, when I came to the House, so I am pleased to speak in a debate about local government finance as a member of a Labour Government who are committed to local democracy and to restoring powers to local government. That is a refreshing change after 18 years under Conservative Governments who consistently took powers from local government and centralised them. At times, their relationship with Welsh local authorities was positively hostile.

It will take years to recover from the Tory legacy in Wales. Several years of appalling settlements in the Cardiff area have forced deep cuts in important services, including the community education service and the youth service. Those high-quality services are tremendously important to the young, the unemployed, pensioners and to women.

Mr. Swayne

In what respect does the hon. Lady believe that this settlement will begin to redress the damage to which she refers?

Ms Morgan

I shall come to that issue in a moment.

When my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) referred to the possibility of concreting over the flower beds in Cyfarthfa castle, I was reminded of when we were unable to tend the flower beds in Queen street. My hon. Friend mentioned people's civic pride: people certainly felt despondent when we were not able to tend the flower beds. Those are the sort of problems that we faced during the long years of Tory government.

Those years are now over, and Labour has delivered a reasonable financial settlement to Cardiff—it is certainly much more favourable than recent settlements. The new Government have earmarked nursery voucher money for the general schools budget and have revised the standard spending assessment slightly to the local authority's benefit. I accept that the process of disaggregation has been easier for Cardiff than for Merthyr Tydfil. Cardiff is a much larger organisation and, as such, is able to cope better with changes and spread resources more easily. Therefore, Cardiff has advantages that Merthyr Tydfil does not. However, I remind the House that Cardiff also includes four wards with the highest unemployment in Wales. There is great need in Cardiff that is concentrated in particular areas.

The authority's capping limit has been increased by 5.1 per cent. above the current year's figure, and our SSA has increased by 5.2 per cent. Some £5.5 million has been earmarked for the general schools budget, an extra £2 million is allocated for care in the community, and there is almost £3 million from the revised distribution formula.

The general increase for inflation is just 1.2 per cent., which must be used to meet many demands. That will cause some problems. The extra money for schools will be directed to schools and used to try to improve standards. Efforts are being made by the local authority to protect the social services budget. However, the money that is provided for community care is unlikely to meet the demands of all the elderly or disabled people who want to remain in the community.

In my constituency, a great deal of anxiety has been generated by the threat to close the Alzheimer's Disease Society day centre in Whitchurch, which provides day care for elderly people who suffer from dementia. I am hopeful that negotiations with the local authority will result in a viable package that will enable the society to continue its operations. In view of the rise in the elderly population and the increase in the number of elderly people suffering from dementia, it is essential for respite care to be provided for them and their families.

Mr. Öpik

The hon. Lady says that the Government are righting previous wrongs. What words of comfort does she have for pensioners who expect the cost of their domiciliary care to triple? What words of comfort can she offer to those who will lose many of their rural bus services as a direct result of her Government's financial decisions?

Ms Morgan

Cardiff feared that the community care settlement would be much worse. We said that there would have to be a limit of £107 for each community care package. Fortunately, we have been able to adjust that to a limit of £127, and we hope to provide most of the services for most of the people. I accept that there will still be problems for some people. I hope that the Alzheimer's Disease Society day centre will be saved. I and the people who are affected are negotiating with the local authority about that. That offers some hope, and the Government are helping on the issue. Obviously, in my constituency I cannot have an intimate knowledge of rural bus services, so I cannot comment on that.

The first groups to suffer cuts in an austerity programme are the voluntary sector and outside organisations that are funded by local authorities. That is short-sighted, because, although the staff of such groups are not local authority employees, they provide services on the authority's behalf and bring the added value of voluntary bodies.

One of the outstandingly successful examples of an independent organisation being funded by the local authority in Cardiff and by Europe is the South Glamorgan women's workshop, which is now called Cardiff and the Vale women's workshop. It was set up in 1984 to train women over the age of 25 who had no qualifications, and it provides training by women for women. It has a day nursery, arranges its hours to suit women with children at school, and provides training in computer technology, confidence building and preparation for employment.

The activities of the women's workshop fit in totally with the Government's welfare-to-work programme, because it helps women to get off benefits and into work. It has won numerous awards such as the Fawcett Society award for positive action in training, national education and training awards, and equality exchange certificates. It is recognised as a centre of excellence. In a time of cuts, it seems to be the sort of organisation that is one of the first targets of local government. Every pound of local authority funding it loses reduces its European funding. I hope that the settlement will enable the proposed funding cuts in that workshop to be adjusted so that it can survive, because, as I have said, it fits in well with what the Government are trying to do and is a flagship project for Cardiff.

The nursery voucher money that will come to Cardiff is helping the local authority to extend its programme of nursery education throughout Cardiff and especially in my constituency. When I was campaigning in the general election, I found that one of the big issues was the almost complete absence of local authority nurseries. Since being elected, I have had the pleasure of opening two nurseries, and two more are planned in my area. I hope that we shall be able to develop a comprehensive pattern of nursery education in my constituency and to link it with pre-school play provision so that parents have a choice.

Like the Secretary of State, I hope that Cardiff council will rejoin the Welsh Local Government Association. I am extremely concerned that my constituents do not have a voice, through the council, in that association. An overall body with which the Welsh Office can negotiate is essential. The association is the best we have, and we must try to support it. Wales is to have an assembly, and a partnership council is to be set up. The Secretary of State has said that he will negotiate on capping, and it is essential for my constituents to have a voice in that.

This is an exciting time for local government. I was pleased to hear the Secretary of State talk about an holistic approach to services because that is the key to creating a vibrant, exciting, local government service in Wales and a meaningful assembly. I was a member of the local authority for 12 years; some of our contributions to tackling grass-roots issues and drawing together the different threads of education, health, social services and economic development provided me with some of my most exciting times in politics. I hope that initiatives on those matters will develop in the National Assembly for Wales and in local government.

This is my first debate on the revenue support grant. Unlike the shadow Secretary of State for Wales, the right hon. Member for Devizes (Mr. Ancram), who is not in his place, I am pleased, as was the hon. Member for Brecon and Radnorshire (Mr. Livsey), that this is the last time that I shall take part in such a debate in the House. I welcome the fact that, in future, the settlement will be debated in the National Assembly for Wales by all the representatives from whatever parties they come. It will be good if all parties are represented in the assembly because that will lead to good debates and sound solutions. All the representatives will be from Wales, and that is bound to lead to better debates.

5.47 pm

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)

I should like to refer to some of the matters that were raised by the hon. Member for Cardiff, North (Ms Morgan). I cannot call the hon. Lady my hon. Friend, not least because her husband is sitting next to her. She said that this is probably the most exciting time for local government. I take it that she was borrowing from the Chinese proverb. We are living in exciting and interesting times in local government.

Although I agreed with much that the hon. Lady said, I empathise more with the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). He represents an area of some deprivation, while my area is sparsely populated, and both of us have emerged rather badly from the review.

The settlement is totally insufficient to meet the needs of Welsh local government. No doubt that is because the Government have had to make the hard choices we hear about almost daily. If the Government have, as they always confirm, inherited a difficult scheme and spending plans from the previous Government, it is clear what they should do. Anyone with a burdensome legacy can relinquish it at law. Simply hiding behind spending limits all the time is wearing a bit thin, and the word "inheritance" seems to be the most important one in this Parliament.

In any event, the Government voluntarily signed up to the spending plans. The idea was to attract the well-heeled of middle England and the south-east. Why on earth should the impoverished communities of the valleys in Wales and the people in rural areas, where there is less obvious but real poverty, be sacrificed on the altar of Labour's burning ambition? I believe that, although the commitment not to increase income tax may have been a vote winner for the Government, it will surely come back to haunt them in the next two or three years. The Government will then realise that no one can possibly empathise with an Administration who are so morally bereft as to target single mothers, students, the disabled and the ordinary council tax payers simply to prop up their regime.

Last year, the anthem was "Things can only get better". Now, all we hear from the Government is that things can only get worse because of the difficult decisions they have to make. That is what we hear day in, day out. I believe that it is indefensible for any Government not to use all the instruments at their disposal to assist in governing. The backdrop to consideration of this settlement is the fact that they have ruled out any question of tax increases.

The Government's spending plans for Wales are as bad as those of their predecessors. Had these plans been offered last year, Labour Members would have been howling and in uproar. For example, because of the severe cuts and the likely loss of more than £500,000 in the current financial year in Denbighshire, about 50 social workers may be made compulsorily redundant.

One of my local authorities, Gwynedd, welcomed the £50 million extra for education—it would be churlish not to—but it does not believe that it will be able to use all of it for education. I am sure that other authorities in Wales will feel the same. It is a question not of failing in their priorities, but of having to make savings almost equal to the amount they receive. We are probably talking about the status quo.

The problem is that the Secretary of State has not increased the external support. It has not been increased sufficiently to match the committed increase in spending power. Council tax payers will have to shoulder the burden of the difference, which will entail council tax increases averaging 12.5 per cent. The figures range from an estimated 10.5 per cent. in Flintshire to a huge 17 per cent. in Powys. Clearly there are some hard times ahead.

As I have said, the extra resources for schools under the capital receipts initiative are to be welcomed. However, one long-standing problem for local government has been the operation of the SSA. I am aware of the recent SSA formula review, which we are discussing, and I am also aware that the Welsh Local Government Association agreed to it. However, I echo the remarks of the hon. Member for Merthyr Tydfil and Rhymney. There must be an input from individual councils in the bargaining process. If there is not, we will see special cases fall through the net—I believe that we are seeing that now.

Like many others, I believe that the formula needs to be revisited yet again. Some of the key issues that need to be addressed are those of rurality, sparsity of population and the seasonal increase in population, all of which greatly influence spending power and the way in which councils are able to conduct their business.

I also represent the area covered by Conwy county borough council. That council is pleased to have received the so-called new deal for schools. However, it says that it will not achieve the purpose for which it was intended. I am told that the reason is that the council has to expect the education committee to save about £745,000 towards the overall requirement of council spending in 1998–99. I stress that that is not being used to fund teachers' pay awards. Because the new deal money does not match the demographic changes in the schools, there will be a shortfall and, consequently, the money will not achieve the purpose for which it was honestly paid.

In social service£834,000 is being excluded from the budget plan, although just over £1 million has been added in from the care in the community transfer. The social services committee is greatly concerned about the impact on children's services because of the funding restriction. Elsewhere in the council, there will be concerns about the impact on regulatory services, environmental health, food inspection, dog warden services, housing fitness, and so on, all of which are important. There will be concerns about other equally important matters such as local Agenda 21, access officers, and so on.

If the funding of pay awards were contained within the settlement, the position in Conwy would be very different. The council fully understands the economic policy adopted by the Government when they were conducting reviews into local government as a whole. In terms of distributing SSA, it cannot be argued that the council has been treated unfairly, but it feels that there is some unfairness in the position with regard to capping and expenditure levels per head of population. Conwy's spending power per head of population is about £885—the second lowest in Wales. The expenditure per head of population in neighbouring areas is about £120 higher. That is a considerable difference. A relaxation of capping may be part of the review, and I urge the Minister to consider these points when the relaxation comes about.

Gwynedd council, which is a well-run and efficient council, is unhappy about the settlement. The council leader, Alun Ffred Jones, was quoted recently as saying: This new formula does not give sufficient consideration to the high costs of delivering services in rural areas. It is an unjust formula which is costing some of Wales's poorer areas millions of pounds. He said that the council's current spending level was £6 million lower than that of its predecessors. He added: Most of these savings were made by reducing administration costs, but it will be very difficult to do this again this year as these costs have been cut to such an extent over the last two years. Despite this difficult situation, we will do everything within our powers to protect direct services to the public.

In order to make as many savings as possible, Gwynedd council members have taken substantial cuts in their allowances for the coming year. Food allowances have gone completely, and reductions have been imposed voluntarily on all allowances.

There will be cuts in the maintenance and renewal of roads. That is inevitable. There is already a poor infrastructure. In fact, it is so bad that it may soon hamper economic development.

Extending car parking charges is also being considered, as is the removal of car parking concessions for some pensioners. The council does not want to contemplate that, but it is on the table.

Spending on library books in the county, which is already well below Welsh average, is likely to be cut further. The grants to the local theatre, Theatr Gwynedd, are likely to be cut by a considerable percentage. The grants for the national eisteddfod are likely to be affected as well.

It has been estimated that 50 jobs could be jeopardised because the authority is having to cut its budget for economic development by nearly £140,000. Officials are recommending cutting more than £25,000 from a grant to fund small businesses in the county. That is likely to leave the council unable to gain an equivalent amount of European funding. All in all, it is a sad position for Gwynedd.

I cannot accept the view that this is the best settlement there is. Bus services in rural areas will be affected, and there will be cuts in every area of local government. That follows year-on-year cuts. Gwynedd will have to cut £3 million from its budget. Since the council came into being 20 months ago, it has been forced to cut and cut again. To date, it has cut £9 million of spending. That is equal to the annual revenue spending of the old Meirionnydd district council and the old Dwyfor district council which it replaced.

Therefore, it is a dire position, which is made worse by the fact that there was no start-up assistance when the unitary authority came into being. Increasing the spending that is available to Gwynedd by 1.2 per cent. is totally inadequate to meet inflationary costs and necessary spending on the servicing of the annual debt. It is crippling.

The obvious question one has to ask is: when will all this stop? The Government pretend that they seek to bolster local government, but those are empty words when, year after year, councils are cash strapped, services are cut and council tax payers are hammered to maintain just a shoestring budget. I venture to suggest that the enmity between central and local government will be made worse by this Government, not better, as we had all expected.

One of the changes in the manner in which the settlement is arrived this year is extremely detrimental to Gwynedd, Conwy, Denbighshire, Ynys Môn and virtually all other unitary authorities in Wales.

Mr. Rowlands

I do not wish to make bids and counter-bids, but, looking down all the tables, no way is Denbighshire a loser. It seems to be a substantial gainer in the system.

Mr. Llwyd

If hon. Members will bear with me, I will make the point and then I will give way, if they wish to ask me about it.

There has been a change in the way in which moneys have been allocated this year and it has not been based on any reasonable or objective criterion. I think of the huge increase in summer population that those areas experience. If anyone wants to question me about that, I will give way.

Mr. Rowlands

I thought that I heard the hon. Gentleman say that Denbighshire had suffered from the settlement. Looking at the report, I find that it is receiving a 7.3 per cent. increase. Merthyr Tydfil would be happy to receive half that.

Mr. Llwyd

My point is that those areas have a large summer population, which differs from their winter population. That criterion has not been included in the settlement. That causes difficulty. I shall speak for Gwynedd and Conwy with complete confidence because I have been instructed to put this point to the Minister, and I hope that he will respond.

May I cite one small example from personal knowledge? The winter population of Betws-y-Coed, the village in which I was born and brought up, which is in my constituency, is roughly 500; in summer, it is between 11,000 and 12,000. My point is well made by those statistics. We may argue about whether Denbighshire, a semi-rural and tourist area, is affected, but I reiterate the point on behalf of Conwy and Gwynedd. I am sure that other areas are affected.

Mr. Rowlands

I would correct the hon. Gentleman's point, because, in considering the increases, we find that Denbighshire has a 7.3 per cent. increase and Merthyr Tydfil a 3.9 per cent. increase. I do not wish to make bids and counter-bids, but it is unfair to say that, in this settlement, Denbighshire has been badly served.

Mr. Llwyd

I will not argue the toss, because I know that other hon. Members want to speak, but I make the point on behalf of those other authorities, and it is a proper point.

The hugely increased cost of delivering services to sparsely populated areas is another element that is not receiving due prominence. For example, emptying a litter bin in my constituency can cost four or five times more than in Cardiff, Swansea or Wrexham. Insufficient regard is paid to that and its impact.

Last week, inresponding to a Home Office debate, the Minister of State, Home Office, the hon. Member for Cardiff, South and Penarth (Mr. Michael), said that there would be a review of police spending and, in particular, a review of police spending in rural areas. I welcome that, and urge the Government to reconsider the current criteria to ensure that the extra cost of serving a sparse population in all unitary areas, including rural areas, is considered and that they all get a fair deal.

The other aspect that needs a more considered approach is deprivation. We see it in the urban areas. The hon. Member for Merthyr Tydfil and Rhymney has made his case well, despite trying to destroy mine. His area has come off worse. I respect the way in which he puts his case, and I support it, but, at the other end of the scale, more rural areas have also suffered in this review. Both ends of the scale, as it were, need to be considered. It is vital that any further SSA review commands support throughout Wales—that means every part of it. I am sure that, in due course, those points will be borne in mind.

I trust that the damping grant will remain for at least two years, or for as long as it takes to bed down any new formula. I am sure that that obvious point will be taken into account.

I finish where I started. The settlement is not good for Gwynedd or Conwy. It will inevitably lead to service cuts and council tax increases. Let the people of Wales be under no illusions about the cause of that: it is the Government's adherence to the previous Government's spending plans, which they criticised severely 12 to 18 months ago.

The ordinary citizens of Wales will now have to suffer because of Labour's seeming pact with the devil. It is unfortunate. I expected better, but, unfortunately, the settlement is insufficient, and Ministers well know it. I am sure that other hon. Members would have spoken up in the Chamber, were it not for their loyalty to the Government.

Several hon. Member

rose—

Mr. Deputy Speaker

Order. About eight hon. Members are still seeking to catch my eye and limited time remains. May I encourage very brief speeches so that I can fit in as many hon. Members as possible?

6.6 pm

Mr. Martin Caton (Gower)

Thank you, Mr. Deputy Speaker, for calling another ex-councillor.

From the revenue support grant settlement, it seems that my right hon. Friend the Secretary of State for Wales has started to apply the brakes on the decline in local government services which we have witnessed and painfully experienced in Wales over recent years. For most of us, the settlement does not yet start to reverse that decline or, in the main, provide the means to commence rebuilding and renewing those vital services, but it is welcome because it begins to stop the rot.

In the circumstances—we are living with the commitment to the previous Government's spending plans—what we have is probably rather better than we might have expected. The decision to increase the total Welsh Office block by 2.7 per cent. is a recognition of real need and a statement of Ministers' priority: to put local authorities in a position whereby they can increase their budgets in the new financial year by, on average, 4.8 per cent.—in effect, double last year's increase.

We accept that that is as good as it could get this year, but we have to face up to the scale of the task ahead in reconstructing local public services. Local government has endured 18 years of sustained onslaught from the previous Government, including more than 60 pieces of legislation that were intended to emasculate our councils, shift power from democratic representatives to a quangocracy, and starve locally provided services of vital resources. It is testament to the resilience of local democracy in Wales that, in the face of wave after wave of dogma-driven attack over that long period, our councils managed to defend their communities as well as they did.

When he was leader of the Labour party, Neil Kinnock memorably described local government as a battered shield that defended local communities from the worst of Conservative Central Government's policies. It was, and thank goodness for that, but, by 1 May last year, that battered shield was badly damaged. A huge repair operation needs to get under way. Our local councils must be empowered to provide the range and quality of services that our communities are entitled to expect as we near the new millennium. That will be one of our Government's major challenges in the years ahead.

For this year, I warmly welcome the extra resources that were earmarked for schools in last year's Budget. In my own local authority of Swansea, that extra funding will mean £3.6 million for schools that would not otherwise have been available. It will also stop the haemorrhaging of teachers from Swansea's education service, which reached such alarming proportions last year. Keeping teachers in the classroom and class sizes down is the best contribution that we can make now to raising education standards. However, really meeting the challenge of raising education standards will require considerably more resources than we are yet able to provide.

I look forward also to the money allocated to improving school buildings reaching our local schools. On Monday, I visited a rural primary school in my constituency. The fabric of its buildings and the condition of its toilets and other facilities were not anywhere near the standard that we want for our children. However, it is good news that we now have a Government who are prepared to take action, to remedy more than one and a half decades of Government neglect of the buildings in which our children are educated.

Especially welcome in my part of the world is restoration of the money taken from local government to fund the nonsensical nursery voucher scheme. In Swansea—thanks to our inheritance from the old West Glamorgan county council—every four-year-old and 80 per cent. of three-year-olds were already receiving reception class or nursery education when nursery vouchers were introduced. The voucher scheme threatened to damage that service provision, but, thankfully, we got rid of it before that could happen. Thanks to the money for the nursery voucher scheme being restored to local authorities, that local service will be sustained and improved. Moreover, the emphasis that we want to place on early learning will be ensured.

Beyond education, it is only fair to acknowledge that local democracy faces a hard year ahead. In Swansea, all services other than schools will have to absorb inflation, spending pressures created by new legislation and increased demands. The year will be tough, and, in Swansea, it will mean a 15 per cent. council tax increase for the community. I support the call from the hon. Member for Brecon and Radnorshire (Mr. Livsey) and my hon. Friend the Member for Conwy (Mrs. Williams) to end capping as soon as possible, but I do not think that ending it would have made any difference this year in Swansea, as the council would not have seriously considered a council tax increase of more than 15 per cent.

I am confident that Swansea will manage to protect front-line services, and I suspect that most other local authorities in Wales will be able to do the same. However, I do not believe that they will be able to continue managing so well for much longer if there is not a real change in direction and if greater resources are not made available. Specifically, we are moving ever nearer to a crisis in community care, with demand far outstripping what can be supplied with current and proposed funding. Our elderly and our young people with learning disabilities are in particular danger of being the victims of a resource shortfall.

Although I accept that the formula on which the settlement was based was devised and agreed by the Welsh Local Government Association, I do not think—as hon. Members on both sides of the House have said—that the association got it right. Specifically, I am concerned that inadequate weight has been given to measuring deprivation. I know that need assessment is a difficult matter—which we started to explore in our debate on the Barnett formula during the Committee stage of the Government of Wales Bill—but we must tackle it. We have the assessment formula wrong, and some of the worst-off communities in Wales are the losers. We will have to re-examine the very basis of assessing need and resource allocations to Welsh local government.

I welcome the fundamental review that the Secretary of State mentioned in his speech and accept that, inevitably, that will take considerable time. However, I hope that, even before next year, some improvements can be agreed between the Welsh Local Government Association and the Welsh Office.

6.13 pm

Mr. John Hayes (South Holland and The Deepings)

The hon. Member for Gower (Mr. Caton) made some points about the expectations raised and commitments made by the Government, when they were in opposition, to local councils in Wales and across the kingdom that have not been met. By any reckoning, this settlement is a bad one for local government, especially for local government in Wales.

I should like to raise four issues. First, Ministers should put aside the nonsense about inherited spending plans and patterns. As the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) said, the Government's decision to stick with the previous Government's spending plans was a conscious political decision and a matter of policy. The requirement to stick to those plans was not set in stone—like the commandments sent to Moses—but a political decision that Ministers must learn to live with. As the hon. Gentleman said, it is beginning to wear a little thin to hear Ministers still whingeing about their decision.

Secondly, local government in Wales faces extra costs because of the Government's policies. I think that all hon. Members will acknowledge that local government faces enormous extra costs because of the tax on pension funds. As other policies are implemented, they, too, will put extra pressure on local authorities and absorb more of their scarce resources. Inflation must also be considered by local governments when they are developing their budgets, as they are doing, because it will create additional pressures. Therefore, the Government's own actions have created additional costs that local government must absorb.

Thirdly, the Government have failed to deal with some of the matters that they complained about when in opposition, especially the issue of sparsity in rural areas. Sparsity particularly affects Wales, and it is sad and surprising that, as I said earlier, hon. Members representing constituencies that are so adversely affected by sparsity are not in the Chamber. The Government's lack of will in addressing the sparsity issue and in adjusting the funding formula to deal with it is a great disappointment, not only to the House and to local authorities and councillors but to the public. The settlement is therefore a lost opportunity.

Fourthly, education must be taken seriously, and bogus claims and assertions about extra money will have to be countered. The technique is simple: spend unallocated reserves, which are then brought forward by about nine months. No extra Government money is going to education—money which could have been spent anywhere has simply been adjusted within current budgets and applied to education. Although unallocated Budget reserves are being brought forward, we are told by Ministers, and by people across the kingdom, including Wales, that extra money is available.

What is the net effect on local government of that reallocation? It is to squeeze other vital services. Therefore, even if one accepts that the Government have fulfilled some of their pledges on education, there is very bad news for highways, social services, public protection and libraries. Across Wales and across the kingdom, local authorities are facing cuts and closures. People should understand that that is a direct result of this settlement and of the Government's policies. Across Wales, old people in old people's homes and small communities that lose their libraries and must squeeze their fire brigade budgets should know that that is the price of a Labour Administration in Westminster. Let them know it with no uncertainty.

Mr. Öpik

Presumably the hon. Gentleman will also agree that those cuts are a direct result of the Labour Government's continuation of the Conservative party's policies?

Mr. Hayes

The Deputy Prime Minister said: The last Government's spending plans implied a council tax increase of 7 per cent. By keeping within spending limits, that is the legacy we inherit. However, given that local authorities in Wales will not wish to draw on reserves or to make cuts, the settlement will lead to an average council tax increase of between 10.5 and 17 per cent. The figures are as follows: Conwy 14 per cent., Denbighshire 13 per cent., Swansea 15 per cent., Newport 13 per cent. and Cardiff 12 per cent. Therefore, even on the Deputy Prime Minister's own admission, this is a very bad settlement for Wales.

Mr. Swayne

Does my hon. Friend agree that for a band D property those figures translate into £60 a year? That might be only £5 a month, but add the additional mortgage payments of £30 a month, which are also the consequence of Government policies, and the total represents serious money for precisely the sort of families that Labour used to represent.

Mr. Hayes

I am sure that you will not allow me, Mr. Deputy Speaker, to stray into consideration of the Government's policies on mortgage rates, but I cannot help but agree with my hon. Friend.

The truth is that the settlement will mean cuts in all sorts of vital services. The paradox is that, simultaneously, it will mean significant council tax increases. In other words, there will be reduced services and higher charges. We do not yet know the figures, because local government budgets are being considered, but the projected increases could be up to 17 per cent. That is Labour's responsibility.

Mr. Chris Ruane (Vale of Clwyd)

The hon. Gentleman mentioned cuts. I was a schoolteacher for 15 years before becoming a Member of Parliament, and there were cuts in education spending for five consecutive years out of the last six. Last year, there was a 6 per cent. cut in Denbighshire, but this year there is an 8 per cent. increase in funding. I have a letter from the director of education outlining where that money is going—to the chalkface to help all pupils, including those with special needs. These are not bogus claims, but real ones.

Mr. Hayes

Clearly, the hon. Gentleman was not listening or he did not understand what I was saying. I made a grudging acknowledgement on education. I did not say that the Government were not funding education; I said that they were funding it out of unallocated reserves. I said that the net effect of concentrating on education was a reduction in funding for other critical services.

When Labour Members speak to their constituents on these subjects, they must face the reality that by prioritising one service, they are disadvantaging other services—spending on the elderly, children, libraries and highways. These are all service areas that mean a great deal to small communities, and may perhaps mean more to some electors than increases in education spending. That is a matter of judgment, but the Government have not helped in any of the other service areas.

I will take no lessons from Labour Members on local democracy and local government. We have a Prime Minister who has served no apprenticeship in local government, which is unfortunate and, I think, sad. I have been a county councillor for 13 years. Indeed, I still am a county councillor, and am proud of that. Local government is a vital part of this country's democratic infrastructure because it enables ordinary folk to have some contact with and understanding of the exercise of political power. I believe in local democracy as strongly as any Labour Member.

No one can tell me that this is a good settlement for local government. Things have been made worse by the high expectations created by what the Secretary of State and others said before the election. People in local government and in villages, towns and cities throughout Wales feel not only a sense of anger at this settlement, but a sense of betrayal.

6.23 pm

Mr. Rhodri Morgan (Cardiff, West)

It is a pleasure to follow the hon. Member for South Holland and The Deepings (Mr. Hayes) whose speech was very spirited, although of a "put a penny in the slot, Tory Opposition attack anything and everything that Labour has done in its first nine months" character. Nevertheless, I welcome the hon. Gentleman's speech for its spirit, and I shall follow it in one sense.

This is a good settlement in that it is far better than anything that the previous Government ever gave in the 10 years that I have been a Member of Parliament, but it is not good enough. As my hon. Friend the Member for Gower (Mr. Caton) said, we cannot undo in one year what it took the Tories 18 years to do. That is the legacy we have inherited, and things cannot be put right overnight. In the short time available, I shall concentrate on one matter which shows clearly why we cannot put right in one year the problems created by the Tories during their four consecutive terms in office. I shall refer to social services.

As the hon. Member for South Holland and The Deepings said, there are problems in the provision of social services. Some of them can be self-inflicted by mismanagement—that can undoubtedly happen—but there are particular difficulties with the care of the elderly in the community.

A couple of months ago, we thought that we were facing Armageddon in Cardiff when we examined the budget for 1998–99. The local authority was proposing to put a limit of £107 a week on domiciliary care services. My hon. Friend the Member for Cardiff, North (Ms Morgan) has already mentioned that figure, but I shall go into a little more detail. The situation does not look quite so bad now that the authority has reassessed the limit at £127 a week. That is the maximum allowable cost that the local authority will pay for domiciliary services—subject to the means test, of course. It still means that many people whom it has been decided would benefit from domiciliary care, not residential care, will not be able to get the care that would suit them best.

People face going into a nursing home or an old people's home instead of getting the care that they and their families would have preferred, which it has been assessed would be right for them but which is simply not affordable, given Cardiff county council's budgetary conditions. As I said, the limit was raised by £20 to £127, but it still means that many people will be put into nursing and residential care homes although they should not be there.

It is also interesting to note that the local authority has reversed another decision. It had decided that home helps, or home carers as they are now called in Cardiff, should not be allowed to do any housework. There are times when they should specialise in the new duties that they now undertake—for example, help people get up, get dressed and have breakfast or encourage people to eat if they would otherwise not do so—rather than buying the occasional lamb chop and doing a bit of light housework, but sometimes people need to have their housework done. I am pleased that the decision has been reversed.

A case involving a constituent of mine was highlighted in the local evening newspaper, the South Wales Echo, only a couple of days ago. It centred on a 93-year-old blind woman who lived in a sheltered, warden-assisted housing complex. Because she lived in sheltered housing, she did not have her own washing machine. She lived at the far end of the complex and had to carry her washing across a courtyard to the communal washing area. The home carer used to do that for her, and that service was going to be stopped.

The lady was blind and could not get down the 14 steps or walk across the courtyard with washing in her hand. As she was 93, her children were pensioners themselves and none lived in Cardiff. They were all in their late 60s or early 70s, as one would expect with a mother of 93. What was she to do? Luckily, the decision has been reversed and, when required, the housework element of the home carer's duty for that elderly woman and people like her has been restored. I am glad that the easing of Cardiff's budgetary constraints means that some of the more horrific cuts in social services are to be made good. We are no longer facing Armageddon, but there are still problems.

I hope that many of the problems will be solved by what the Government do over the next few years. We have talked about fundamental reviews, and I hope that the Government will try to create a level playing field for domiciliary care and nursing home care for elderly or other dependent people who require continual care.

If a person goes into a nursing home or an old people's home, the local authority may take into account the capital value of his home, take it off him and use the proceeds to fund his care. It cannot do that with domiciliary care because the person is living in his home. The option of taking the home off the person and leasing it back until he dies should be available to the local authority. That would provide a level playing field for domiciliary care and residential care, removing the current biased financial basis.

The local authority can help, but the rest has to be done by reviewing the rules on community care so that decisions on whether old people should go to a nursing home, go to an old people's home or stay in their home with domiciliary care support are made on the basis of what is best for each old person, rather than some of the peculiar rules between central Government and local government from which we still suffer.

6.29 pm

Mr. Laurence Robertson (Tewkesbury)

I am surprised that I have heard talk about 18 years of Tory misrule. Wales has received a disproportionate amount of inward investment given its population. The Labour party should take note of a former Chancellor, who described the state of the economy as the best in a generation. Labour has inherited that. My hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) correctly pointed out that the Labour Government decided to stick to the Conservative spending limits; they were not forced to do so.

In the brief time available to me, I should like to draw attention to one or two points. People in Wales face massive council tax increases. My hon. Friend the Member for South Holland and The Deepings pointed out several areas that will have high increases. Rather than going over the many factors behind that, I should like to point out some future costs. The Welsh assembly may have added costs. It will be able to reduce the amount of money that it gives to local authorities in Wales and could give that money to other bodies, such as the Welsh Development Agency. It could also introduce a tax-raising power through the back door by deliberately holding funds back from local authorities, forcing council taxes up.

Businesses in Wales will also face a threat. Responsibility for the calculation of the national non-domestic rate will pass to the assembly after devolution. It will also be able to decide how much money local authorities can borrow. There is no guarantee that the assembly will not cut funding for councils, forcing them to incur even more debt.

Hon. Members on both sides have said that the settlement is inadequate. As my hon. Friends have pointed out, it leads to massive increases in council tax for many people. If that is not bad enough, there could be worse to come.

6.32 pm

Mr. Nigel Evans (Ribble Valley)

I declare an interest, because I have a family business in Swansea. The majority of my family still live there. I am disappointed to have seen so few Labour Members from Welsh constituencies. Either they are with the Minister of Agriculture, Fisheries and Food in the Smoking Room or they are embarrassed by the settlement.

Mr. Öpik

The hon. Gentleman will acknowledge that the entire Welsh parliamentary party has been here for the majority of the debate.

Mr. Evans

If the hon. Gentleman is talking about the Conservatives, that is a cheap shot.

Mr. Öpik

No; Liberal Democrats.

Mr. Evans

The Liberal Democrats have only two Members of Parliament for Welsh constituencies, who seem to have had a rota during the debate.

Council taxes in Wales will go up by between 10 and 17 per cent.—between £49 and £70—after a general election campaign when we heard that there would be no income tax rises. What is the council tax rise but an attack on people's income? It will have to come out of already taxed income.

This is not a good settlement for the people of Wales, who will have to stump up the extra money. It is the first time in 18 years that people have had to experience Labour local authorities and a Labour Government. We were told: Things can only get better. Things can only get dearer, things can only get more expensive, things can only get more miserable for many Welsh people living on limited incomes and having to find extra money from a dry well.

The settlement adds insult to injury for many pensioners living in Wales. They were told in an enormous advertising campaign—at great cost—that they would get an extra £20 to help with their heating bills. The increase in their council tax will more than eat up that extra £20. I suspect that there will be no Government advertising campaign to tell them that. The situation is a great shame.

I was a county councillor in west Glamorgan for six years. I know that local government has some soul searching to do at this time of year. It is not the best of jobs at the best of times, and this is not the best of times, as we have heard. The hon. Members for Blaenau Gwent (Mr. Smith) and for Merthyr Tydfil and Rhymney (Mr. Rowlands) have told us the problems that their local authorities will face. My hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) spoke about the priorities that local authorities will have to consider. With money being targeted at education, they will have to look at other departments to find somewhere to make cuts. Will it be in highways? Most certainly yes for most local authorities. Social services? Yes, there will be deep cuts in social services in many areas. Libraries? Yes, there will be cuts there as well.

I have spoken to representatives of several local authorities in north Wales, west Wales and south Wales in the past two days. They are concerned about the cuts in social services that they face. We have heard about the extra demands that Powys faces, with an aging population and deprivation in some areas.

In the past 12 months, the incomes of farmers in Wales have dropped by 50 per cent. They already feel badly let down by central Government. They now face hefty increases in their council tax. The Secretary of State will know that tenant farmers living in farmhouses that they do not own will face higher than usual band charges. What attention will be given to those farming areas that are facing ruin because of cheap imports, higher interest rates, the extra costs of traceability and renderers charges and the limitation on weight limits on the over-30-months scheme? What extra attention will the Government give to help those families to cope with the deprivation that they are facing?

We have also heard discussion about reform of the formula, particularly from the hon. Member for Merthyr Tydfil and Rhymney. We cannot say hand on heart that this is a good settlement, given some of the choices that he was talking about. It is a disgrace that cutting out hot meals for school children is being considered. For some children, the school meal may be the only hot meal that they get during the day. I thought that that was one reason why we ensured that our schoolchildren in the most deprived circumstances had assistance with school meals.

Mr. Llew Smith

I was somewhat critical of the present formula. How would the situation be different if the hon. Gentleman's regime had continued? Members of my local authority and I met previous Secretaries of State for Wales, who refused to introduce an element in the formula to take account of deprivation to the extent that we wanted.

Mr. Evans

All we have heard for the past 18 years is how much better things would be if the Labour party came to office. In the first debate on this subject since Labour came to power, we are talking about cutting hot meals for school children. That is a disgrace. I hope that the formula revaluation will ensure that councillors and officers will not confront such decisions again. The review is urgent. Councillors and officers will certainly get assistance from the Conservative party to ensure a fair review which will take account of all areas—north, south, east and west—of Wales.

Mr. Rowlands

Whatever criticism I might have made of the settlement, I dissociate myself completely from the 18 years of the hon. Gentleman's Tory Government, who did so much damage to all our communities. We are trying to pick up the pieces.

Mr. Evans

I expect no less from the hon. Gentleman. When some of the schoolchildren in his area are eating cold sandwiches, perhaps some of them will reflect that this settlement has not been particularly good for Wales.

In the review, will the Minister look into the enormous disparities between neighbouring areas in authorities such as Denbighshire and Conwy? The formula has worked better for Denbighshire, but not as well as it should have.

Another problem is the aging population. That is a particularly bad problem given that we are talking about cutting the funds and resources of social services departments throughout Wales. As we have heard, Conwy will have to get rid of 28 home care workers and is making cuts of £250,000 in its social services budget. In Powys, there will be cuts of £1.3 million in social services, 49 care workers are going and social services charges are to be tripled. That is quite appalling. I could mention several other areas, but we want to give the Minister as much time as possible to answer some of the points made by my right hon. Friend the Member for Devizes (Mr. Ancram).

We want to know something far more certain about the future of capping. We know what Ministers have said. The Local Government Chronicle cites one Environment Minister, from whose comments it seems that the Government are not so keen on relaxing of capping. At the same time, the Local Government Association is keen that the Government remove capping. We want to know exactly what will happen. If capping goes, what sort of protection will there be for people, especially those on limited incomes just above income-support levels, against hefty rises in council tax bills?

We hear the suggestion that referendums will be held. I know that the Minister is conducting a review on how to make local government more democratic and more accountable to the people. Is he considering referendums in Wales? If so, who will pay for them? They will be extremely expensive. Will the cost come out of local authority budgets? How would a referendum be triggered by ordinary people if they thought that they were to be confronted with higher than reasonable council tax bills?

What will happen to the unified business rate? As a county councillor in west Glamorgan, I experienced business men and women trooping in so that councillors and officers could listen to them and be told that businesses could not meet hefty increases in what was then the business rate. As soon as the consultation process was over, up went the business rate enormously. We do not want such clobbering of businesses in Wales. We want small businesses in particular to thrive. What future protection will there be for such small businesses?

What action is the Minister taking to ensure that local authorities will be able to meet budget demands as a result of changes to advanced corporation tax? When the actuarial changes come about next year, some authorities will face very hefty increases. Will he please take some account of that? What assistance will he give them?

What assurance will he give local authorities that, when the assembly is up and running, it does not top-slice for its pet projects some authorities' revenue support grants? Will he assure local authorities that the money will find its way through to them, especially given the new formula that we are talking about?

I mentioned education in an intervention. We need assurances that the money that has been provided will find its way into the classroom. Despite what the Secretary of State said about the Western Mail, I shall quote a letter written by the Under-Secretary of State for Wales, the hon. Member for Neath (Mr. Hain), which it reported. The letter says: I do not accept that funding for schools will fall or that resources will be swallowed up in meeting teachers' pay increases. The overhang of the 1997 pay settlement will cost around £7m in 1998–1999 and the pay offer announced last week will cost around £17m. In a number of cases, these costs or a proportion of them will be covered by local authorities' planned increases in underlying provision for education. Even if this was not so, around half of the new revenue money would still be available to schools to rectify existing problems or invest in new teaching posts or other provision. Will the extra money find its way into schools or is it possible that some of it will go towards the teachers' pay settlement, and therefore not fulfil the promise on class sizes made during the general election campaign?

My right hon. Friend the Member for Devizes mentioned local authority debt, which is enormous. It is more than £2 billion in Wales. We need to know the net figure. Interest will be paid on it. How much does each authority pay in interest on debt? Local authorities which are taking out new loans at higher interest rates will be paying much more.

The settlement for Wales is predictable and had been predicted. Wales is living on the never-never. It is up to its neck in debt. The settlement means cuts in social services, and it hits the aging population and children's school dinners. Local authorities are facing enormous uncertainty. In certain circumstances, council tax bills have been hiked by 17 per cent. We have always said that, if the people vote Labour, they will pay more and get less. With this settlement, we have been proved right.

6.46 pm

The Parliamentary Under-Secretary of State for Wales (Mr. Win Griffiths)

This debate has turned out to be very interesting. Opposition Members have filled it with internal contradictions and crocodile tears. Before I turn to the major concerns that have been aired, about some of the practical applications of the money available, I should take up some of the technical questions asked by the right hon. Member for Devizes (Mr. Ancram).

The right hon. Gentleman asked about the effect of paragraph 3.2 of the report. Two assumptions are made in calculating revenue support grant. First, we assume that the council tax base used in calculating the revenue support grant is the full tax base of the authority. No allowance is made for assumptions of different rates of collection between authorities. Every authority is treated the same. Secondly, we do not take account of what might be termed very local charges which a local authority may visit on a small part of its area. The revenue support grant is based on the assumption that all local authorities will collect all their council tax. I shall write in more detail to the right hon. Gentleman on that issue if he so desires.

The right hon. Member for Devizes asked about an error in the report. Its origin lay in a mistake in the credit approval figure for Carmarthenshire county council. As a result, Carmarthenshire's SSA has been increased in the revised report by about £137,000. That has meant that the SSA of other authorities has had to be recalculated. The largest reduction was £15,000, and the majority of reductions were about £5,000.

On the outstanding loan debt, as the right hon. Member for Devizes will know, local authority capital expenditure is funded through a mixture of grants and credit approvals—their borrowing. The costs of serving outstanding debt are met through the revenue support grant settlement. In 1998–99, authorities in Wales will be able to invest about £500 million in capital projects funded by a mixture of grant and borrowing.

The debt figures on which the RSG calculations are based show an increase of about 10 per cent. over the equivalent figures last year. Most local authority debt is held with the Public Works Loan Board, although the overall proportion is falling.

The assumptions on repayment rates in the report are based on an average of three years' repayments made or budgeted to be made by local authorities—that is, their actual repayments.

Mr. Hayes

Can the Minister give me some assessment of the likely effects of any supplementary credit approvals on local authorities? As he will know, authorities can apply on the basis of particular schemes or projects for supplementary approval to borrow. Secondly, what are his estimates for Welsh local authorities in terms of capital receipts and the reinvestment of capital receipts in projects as a result of the disposal of assets?

Mr. Griffiths

In relation to capital receipts, it is planned that next year about £34 million, if my memory serves me correctly, will be made available for local authorities to obtain credit approvals. On the more general question, we always aim to ensure that such credit approvals are affordable and local government can make the repayments.

I know that the issue that the right hon. Member for Devizes is keen to have settled is the definition of a centroid. The word is explained in one way in paragraph 17 on page 14 of the report, but to put it in terms that both of us can understand, a centroid is each authority's centre of gravity in terms of population. Once determined, it is used to reflect the effect that the pattern of population has on the cost of delivering services. It is such a straightforward concept that I am surprised that the right hon. Gentleman did not understand it from the beginning.

As several hon. Members on both sides of the House have pointed out, we inherited a situation in which British local government had been subjected to under-investment for almost two decades. The position had become especially acute over the past five years, when the previous Government's revenue spending plans did not even keep pace with inflation, let alone make adequate provision for increased demographic and service pressures on local government.

In that context, it is especially galling to hear the hypocritical way in which Opposition Members such as the hon. Members for South Holland and The Deepings (Mr. Hayes) and for Ribble Valley (Mr. Evans) speak about the present settlement, which is so much better than the settlements made by the Conservative Government.

As my right hon. Friend the Secretary of State said at the start of the debate, we are determined to tackle and rectify that inheritance. The hon. Member for Brecon and Radnorshire (Mr. Livsey) spoke of hope for the future. Yes, with a Labour Government there is hope for the future. My hon. Friends the Members for Cardiff, North (Ms Morgan), for Cardiff, West (Mr. Morgan), and for Gower (Mr. Caton) were right to express the view that things are beginning to move in the right direction, but that there is more to be done.

We accept the fact that there is more to be done. We cannot rectify in one year 18 years of neglect of local government in Wales, but we are determined to rectify some of the major problems. We see that as a task for this Parliament, and perhaps even beyond. There is no magic formula by which we can conjure up the money needed, and yes, we made a commitment to the electorate at large about our overall spending plans. It is true that it has taken us some time to work out what resources to make available for local government and public services in Wales.

None the less, let us look at the settlement before the House. We are certainly making more money available than was provided for in the Conservative spending plans. The 2.7 per cent. increase in the Welsh block has not simply meant a 2.7 per cent. increase in the money made available to local government. Local government has more than that.

We must bear in mind the mixture of the commitments that we have made about public expenditure and the need to support other public services in Wales, such as the health service. We cannot neglect the health service, either, and we have given it, too, an increase above the level of inflation.

There are difficult decisions to be made. In preparation for the decision that we have now made, we announced the global picture in December. The Welsh Local Government Association acknowledged that, although the settlement was hard, it was a fair one in all the circumstances.

That settlement represents a turning point in the attitude of central Government, including the Welsh Office, to local government—an attitude that we did not see from the previous government, which was all too often dismissive and confrontational.

Mr. Evans

If the settlement is so good, will the Minister tell the people of Wales why they will face an average 12 per cent. increase in their council tax, although many councils—I have mentioned Conwy and Powys—are cutting their social services? In Powys, cuts of more than £1 million are being made. If the Government have delivered such a good settlement, why do those cuts have to be made?

Mr. Griffiths

The answer is simple. The settlement is good but it is not perfect. When, after 18 years of Tory government, we find ourselves 500 m down a mine shaft, we cannot leap out in one local government announcement; we must begin to crawl back out, and that is what we are doing. We are not going down, because we have made a 4 per cent. increase in total standard spending and a 3.2 per cent. increase in support for the spending that we propose. Both those increases are above the projected levels of inflation, which the previous Government's last settlement did not even meet.

The minimum increase that any local authority will have if it goes to the top of its capping limit is 3.9 per cent., which is above the rate of inflation. All in all, total standard spending in Wales for the coming year represents £1,060 for every person in Wales. In England, that figure is £980. External aggregate finance represents £925 per head, which is £160 more than the English figure.

Total maximum local authority budgets under capping represent a figure of £950 in Wales, compared with £880 in England. Those substantial differences reflect the increased needs of the people of Wales. Unlike the previous Secretary of State for Wales, who had a deliberate policy of increasing the council tax without looking at the global picture—

Mr. Hayes

I accept some of what the Minister says, but surely he would acknowledge that the position on the SSAs is patchy. With social services, changes in the way in which the SSA is calculated have hit residential care and other personal social services. That point is not about the settlement alone, but about the Government's decision to change the calculation—

Mr. Griffiths

I let the hon. Gentleman intervene, but I did not expect him to make a speech.

We all accept, as does the Welsh Local Government Association, that the settlement is not perfect. We do not have bundles of money to throw around, but we have provided additional money. At the request of the Welsh Local Government Association, we have provided a further £6 million to help people through a difficult period.

Council tax levels in Wales are about 25 per cent. below those in England. We also have a council tax reduction scheme whereby most council tax payers in Wales will pay only about £1 a week extra. The House should remember all the difficulties that we faced and the commitment for an extra £50 million for schools—money that would not have been forthcoming if the country had been so unfortunate or foolish as to re-elect the Conservatives.

The hon. Member for Brecon and Radnorshire mentioned the problems in Powys, but there is a 4 per cent. increase for that authority. Gwynedd, Conwy, Denbigh and Swansea authorities have all received above-inflation increases. Merthyr has a difficult problem, but it will receive an above-inflation increase and the settlement allows it high per capita spending. We believe that the settlement as a whole is sufficient to enable all authorities to spend at above the level of inflation.

It being Seven o'clock, MR. DEPUTY SPEAKER put the Question, pursuant to Order [6 February].

Question agreed to.

Resolved, That the Local Government Finance Report (Wales) 1998–99 (Revised) (HC 541), which was laid before this House on 9th February, be approved.

MR. DEPUTY SPEAKER then put the remaining Questions required to be put at that hour.

Resolved, That the Limitation of Council Tax (Relevant Notional Amounts) Report (Wales) 1998–99 (Revised) (HC 542), which was laid before this House on 9th February, be approved.

Resolved, That the Special Grant Report (No. 2) (Wales) 1998 (HC 504), which was laid before this House on 2nd February, be approved.—[Mr. Ron Davies.]