HL Deb 01 December 1994 vol 559 cc772-86

7.49 p.m.

Lord Varley rose to ask Her Majesty's Government whether they will take action to ensure that the standard spending assessment is applied consistently to local authorities in the East Midlands.

The noble Lord said: My Lords, I am particularly pleased to have the opportunity of initiating this short debate and delighted that the noble Lords, Lord Boardman and Lord Kimball, and the right reverend Prelate the Bishop of Lincoln are also taking part in it. All three have a long and deep commitment to the East Midlands and I am glad of their support this evening. I am also pleased that the noble Baroness, Lady Hamwee, will speak from the Liberal Democrat Benches and my noble friend Lord Williams of Elvel will speak from the Opposition Front Bench. I look forward to listening to the Minister and hope that at the end of what we say he will be able at least to give us some assurance that the adverse situation which we face in the East Midlands will soon be rectified.

I raise the issue of the standard spending assessment not in any party political or partisan manner, but on the basis of what I and many others believe to be the unfair way in which it operates in relation to the East Midlands. I became interested in this subject after reading a report of a conference held in Derbyshire on 11 th October which 120 representatives attended from the five counties which form the East Midlands: Derbyshire, Leicestershire, Lincolnshire, Northamptonshire and Nottinghamshire. The representatives at the conference came from business and commerce. The Confederation of British Industry was represented, as were the Institute of Directors, the Churches and the voluntary organisations. The Lord Lieutenants of Derbyshire and Nottinghamshire and the High Sheriff of Derbyshire also attended, as did the local politicians from all the political parties. At the end of the conference, the representatives, covering all shades of opinion, pledged unanimous support for a fairer grant settlement for the region.

As I understand it, the standard spending assessment was designed to allow councils sufficient resources to provide a standard level of service. But there are wide and increasing discrepancies between the standard spending assessments of different local authorities.

Since the system was introduced in 1990–91, the East Midlands has consistently lost out to other regions, particularly to the south of England. Compared with the English county average, the region has been deprived of (or some would say has lost) £94 million in this financial year alone. Since 1990–91, the figure is over £300 million. Counties in the south east and south west of England and, to a lesser extent, in East Anglia, have all received much larger increases in the standard spending assessment than the East Midlands. For example, local authorities in the south of England have had increases of over 40 per cent. compared with the East Midlands on 28 per cent. with, so far as I can see, no realistic justification for the difference.

The main problem with the standard spending assessment system is the area cost adjustment factor which over-compensates counties in the south east for supposedly higher employee costs. But that argument, or alleged argument, in favour of the difference is not valid. Local authority pay scales are nationally based and outside the London weighting area there is little, if any, difference in employee costs between the East Midlands and the counties in the south east. In fact, it could be argued that with the greater turnover of staff in the south east, with new employees starting at the bottom of grades, there is some evidence that average costs can be lower.

This point is clearly illustrated by a comparison of education standard spending assessments. The major cost in education is the employment of teachers. Teachers are employed on national salary scales. So why does Hertfordshire's educational SSA provide £240 per secondary school pupil more than the corresponding SSA in Derbyshire? The same point arises with just as much force in the other four East Midlands counties.

The standard spending assessments are important because they are used to determine the amount of government grant that councils receive, and also because they are used to control the total amount of spending on local services. Councils are allowed by the Government to spend only a certain percentage above their SSA before being capped. Being forced to spend up to their capping limit so soon after the introduction of the system gives a very good indication of the inadequacy of the assessment they receive. In stark contrast, only in this financial year have most of the south east counties come close to spending at their cap limit.

Despite the unfairness of the area cost adjustment being acknowledged by 27 out of 39 English counties, and consequently taken up by the Association of County Councils as a major issue, a government review of the system this year served only to exacerbate the problems. It brought about a 15 per cent. increase in the area cost adjustment, while the SSAs as a whole only increased by 2.7 per cent. As a result, even more resources are now being diverted towards the counties in the south of England, widening the gulf in resources between them and other parts of the country. There is about £1.5 billion at stake across the country as a whole.

If implemented, the changes to the area cost adjustment system, supported by the majority of the Association of County Councils—and I am sure that the Minister is aware of this—would provide a fairer deal for all; and for the East Midlands it would return more than £37 million to the region. The East Midlands' difficulties have been compounded by the Government's strict controls over the expenditure in the region. Over the past three years, the amount the Government have allowed the East Midlands counties to borrow to fund capital projects has declined by over 25 per cent. compared with the national total.

The East Midlands counties emphasise—and it goes for the vast majority of authorities throughout the country—that they are not necessarily seeking extra resources for local government as a whole, just a fairer distribution within the overall total. I know that it is always difficult to say, "We want more overall", but that is not what we are arguing for in the East Midlands at this stage. We do not think the distribution is fair. I looked at what the Secretary of State for the Environment said today in his Statement in another place and tried to wade through some of the weighty documents which are available. I do not think that he has addressed the matter at all.

So I ask the Minister in his reply to recognise the problems of the SSA system, particularly the area cost adjustment factor, and to act as quickly as possible to make amendments. If the Government stick to the present arrangements, I am afraid that it will mean further cuts to the essential services and to the infrastructure within the East Midlands. It will deprive areas such as the declining coalfield in the north east of Derbyshire—in fact, I do not think there is any longer a coalfield in north east Derbyshire. A reduced coalfield exists in Nottinghamshire, but certain parts of those two counties which I know well are utterly devastated. There are communities, former mining villages, with unemployment levels of 50 per cent. It is essential that we obtain help from the centre so that economic regeneration can take place.

If the Government do nothing, that will perpetuate what I believe to be an injustice which is acknowledged across the political spectrum, in all elements of the community and all sections of the economy. So I urge the Government to take action now to rectify the unfairness in the system for next year at least and for future years. I believe that the East Midlands has an entirely legitimate case and I hope that the Minister will acknowledge that tonight when he replies to the debate.

7.59 p.m.

Lord Boardman

My Lords, I am grateful to the noble Lord, Lord Varley, for raising the matter, as it is one on which I share his concern. He said, quite rightly, that it was not with a matter of overall totals that we were concerned but with the distribution. I share that view and I suspect that the right reverend Prelate the Lord Bishop of Lincoln will raise similar problems relating to the area of Lincolnshire. I am sure that my noble friend Lord Kimball is likely to raise similar difficulties with regard to Leicestershire. My home area is Northamptonshire. It is to that area that I shall largely confine my remarks, although I am sure that they are equally applicable to the other parts of the East Midlands.

I recognise clearly the problems in the allocation of resources. The last time that I had any experience of this matter was a very long time ago when, as Chief Secretary to the Treasury, I had the problem of trying to agree what I believe was then the rate support grant, the various grants that were paid to local authorities. I must confess that I did not understand them; nor did I think most of my advisers understood them. I felt that the Secretary of State for the Environment had little idea of what they were all about. The matter was left until one man somewhere in the bowels of the Treasury who knew something about it appeared. So it was with some hope and confidence that today I went along to the other place to hear the Secretary of State for the Environment making his Statement on the expenditure for next year. I must say that I was disappointed and I came away rather more confused than I was when I went. But I was fortified by the knowledge that there was a large bundle of papers in the Printed Paper Office. I went along and collected them, and they added to my confusion. If I have to disappoint my noble friend, it will be to say that he will not be asked to reply to me on any question that arises from that large bundle of papers which I am sure he has studied carefully and with great experience.

My complaint is that Northamptonshire, like the other parts of the East Midlands, has a loading against it. Superficially, the standard spending assessment (SSA) for Northamptonshire looks as though it is probably about right for the average of the shire counties. But that 'is only a superficial figure. It ignores entirely the average percentage of population in the statutory education system. I do not want to quote a large number of figures; but I think it is important to give an example to make this point. In 1994–95, for children in education between the ages of five and 11, Northamptonshire is £59 per pupil worse off than the average of the other shire counties. It is £145 per annum worse off per pupil than England as a whole. Out of 39 shire counties, Northamptonshire stands 31st in the list of disadvantaged counties. Moving up the age scale, to age 11 to 16, the county is £84 per pupil per year worse off than the other shire counties; £194 worse off than the average for England; and 30th in the list of disadvantaged shire counties. When we come to the post-16 age group, it is £270 per pupil worse off than the average for the shire counties; and £454 worse off than the average for England; it is 37th in the list of 39 counties.

The position of Northamptonshire has deteriorated over the years since 1990–91. Over that five-year period, population percentage increases were some three times greater than in the neighbouring counties of Buckinghamshire, Bedfordshire and Oxfordshire. Yet the SSA has not increased nearly as much as it has in those counties. Again, to quote an example, in Northamptonshire, where the population has increased by 3.47 per cent. against Bedfordshire's 1.09 per cent., Northamptonshire's SSA increase has been only 22.5 per cent. against Bedfordshire's 30 per cent. Similar figures could be produced for other counties in that area south of the Northamptonshire borders. I am not just talking about education. It applies right across the social services.

I am told—and indeed the noble Lord, Lord Varley, made reference to this—that the main problem seems to be in the Area Cost Adjustment. The three counties that adjoin Northamptonshire—Bedfordshire, Buckinghamshire and Oxfordshire—all participate in this on the assumed basis that they have to bear increased cost of services. The noble Lord, Lord Varley, is absolutely right. This really is nonsense. It costs no more to employ a teacher in Buckingham than it does to employ one in Northamptonshire. If we compare Banbury in Oxfordshire and Brackley in Northamptonshire, for example, one has the area cost adjustment while the other does not. The difference made is very significant. The majority of costs that come into the calculation are for wages and salaries—yet for example the teachers have a national scale for all those who are outside the London outer weighting area. I ask that my noble friend, when he replies, will regard the unfairness of what is happening to those East Midland counties as a matter of very considerable concern. I am afraid that he will only be able to say that today's announcement may have made slight differences in some particulars but has not in any way affected the principle, and the complaint which I have —as does the noble Lord, Lord Varley; and other noble Lords may well make—as to the unfairness that operates against those counties that have a loading against them which is monstrously unfair. I hope that my noble friend will take some steps to ameliorate that situation.

8.5 p.m.

The Lord Bishop of Lincoln

My Lords, I, too, am grateful to the noble Lord, Lord Varley, for the opportunity to speak in this brief debate. As the noble Lord, Lord Boardman, said, I shall indeed speak mainly on behalf of Lincolnshire. The county of Lincolnshire co-incides with the area of the diocese of Lincoln, so it is an area that I know particularly well. Since 1989–90, Lincolnshire has received less through standard spending assessments than the average for the shire counties. The effect of that in this current year is a loss of some £9 million. That is a serious matter in a widespread agricultural area.

The chief culprit appears to be the area cost adjustment mechanism, by which extra resources are pumped into London and the south east to compensate for above-average costs. Noble Lords have already referred to the inadequacy of that concept in these present times. We in Lincolnshire believe (like 26 of the other shire counties) that the area cost adjustment significantly over-compensates London and the south east.

Everyone recognises that the local government settlement for next year will be very, very tough. As such, surely it is vital that disadvantaged counties receive a better share of what cake there is. The correction of the area cost adjustment over-compensation will make a very marked contribution here.

Lincolnshire is not a wealthy county. Wage rates are the second lowest in the country—and in European terms Lincolnshire is on a par with Corsica. If that is to change, we in the county of Lincolnshire must attract inward investment to generate economic development.

Sadly, the present system does not recognise the potential benefits of economic development. It simply distributes grant on the basis of what there is now. Nor does the transport supplementary grant system help in this regard. A sound road infrastructure is vital to economic development; and yet for this current year Lincolnshire received over 30 per cent. less of the transport supplementary grant than in the previous year compared with a national reduction of 14.5 per cent.

I have what is, in many ways, the benefit of serving an area which has no motorways in it whatever. There is the very serious matter of the dualling of the A.46 between Newark and Lincoln, which forces Lincoln into some kind of economic decline. I have seen that decline over the years of my episcopate there. As my noble friends have pointed out, the area as a whole is losing out, and Lincolnshire is particularly disadvantaged. I make a plea to the Minister for a specific cost approach in local authority finance in order to anchor the area cost adjustment in reality again and to bring an end to the present injustice.

8.9 p.m.

Lord Kimball

My Lords, we are all very grateful to the noble Lord, Lord Varley, for introducing this Unstarred Question.

Like other noble Lords who have spoken, I emphasise that none of us is asking for any new money or any more money. We are all asking for a fairer share of the funds that are available. That fact was recognised unanimously by the Association of County Councils, which acknowledged the unfairness of the present system. The five great shire counties of the Midlands of England—Leicestershire, Lincolnshire, Nottinghamshire, Northamptonshire and Derbyshire—are all represented in this Chamber tonight. They all speak with one voice about the unfairness of the area cost adjustment formula since its introduction, which has resulted in the standard spending cost assessment short-changing our counties.

It is a terrible state of affairs that the suburban counties —as I call them—south of the Thames have been given a larger increase in the standard spending assessment. If it had been evenly worked out, it would have resulted this year in £37 million being taken from the south and the east and given to those five great shire counties.

Some of us—I hope that the noble Lord, Lord Varley, appreciates the point—will have some doubts about the past antics of the Derbyshire County Council. But that is no reason why the other counties should in any way be penalised. The right reverend Prelate, speaking about Lincolnshire, spoke for the county which has the soundest financial record of any county in Great Britain. Unfortunately, it is being penalised for its sound financial management over the years.

I thought it was very interesting that in this short debate there should be a great financial expert, a former Chief Secretary to the Treasury, coming to your Lordships' House and admitting quite honestly and truthfully that in all the years he worked for the Treasury, he did not have a clue about how local government finance was worked out. We would do much better to recognise that this is the state of affairs that we are in.

There was an announcement today from the other place that there would be a 2.2 per cent. increase in government grants to local authorities. If the extra expense of the work involved with the boundary commission is taken into account, and in which those five counties have been involved, the real increase is only 0.8 per cent. In addition to the review, there is the extra imposition of a common funding formula for schools. That will further pressurise local authority expenditure next year.

Whatever the technicalities of local government finance, let us be absolutely honest and straightforward about it. There is a feeling abroad in the county of Leicestershire that the county is being short-changed by this system.

8.12 p.m.

Baroness Hamwee

My Lords, I too thank the noble Lord, Lord Varley, for bringing this important issue before your Lordships. I shall become a little less involved in the geographical battles, though perhaps I may share with your Lordships what I heard from a colleague in the south west. The Western Mail—or at any rate, the major paper in the south west—has recently discovered the subject of the area cost adjustment and is currently running a major campaign, accusing the Government of being friendly to their friends in the south east, to the disbenefit of the south west. It asks what politics underlie decisions about the area cost adjustment. I understand that local politicians are standing back and letting the press raise the questions for them.

It is an issue that we in London have also faced. I recall two or three years ago complaining on behalf of London boroughs about the problems that they were suffering. Inevitably, I was faced with counter-accusations about unfairness to other areas with London benefiting. I fear that it is a subject on which statistics can be traded in a way that leads to confusion and not clarity.

I suggest that the problem is that the standard spending assessments and their whole basis are unrealistic. Yesterday, we heard in the debate on community care about the mismatch between spending on education and the SSA in the Isle of Wight. If that authority were to spend on the fire service at the level recommended by the DfE, it would be prosecuted by the Home Office. We know that its social services budget has run dry, as indeed it has in other authorities. Also, we know that last year's teachers' pay award was not fully funded.

There are complaints and squabbles, such as we have just heard. Local government is not in a position to plan further than one year ahead at a time. I appreciate that situations change and that every business—local authority is very big business—has to keep its budget under review. But learning of decisions relatively late in the process, in the way that it happens, is not conducive to good financial management.

For many years councils have absorbed cuts made necessary by government management or mismanagement of the economy. Inevitably, there is a cumulative effect in the funding shortfall. We should all like to see improvements in services such as nursery education, and that simply cannot happen without money. That money is to be provided by authorities which have been raiding their reserves and balances, so that in many cases the cupboard is nearly as bare as the auditor will allow.

There are always possibilities for cutting out waste and bureaucracy. Many authorities have made very great efforts and, having made the cuts required, they are now into real service cuts. There are also problems where the system of finance for local government cannot accord with local democracy and autonomy. The constraints are those of central government. There are limits on capital borrowing which are set by central government. It seems absurd that in running such a big business one cannot take one's own decisions about borrowing. Indeed, there are restricted sources of finance for borrowing by local government.

Since joining your Lordships' House I have on many occasions heard people in the City, and those involved in finance in other countries, ask why local authorities in this country cannot raise money through bonds and different systems of fund raising. We all know about the problem of capital receipts, where spending is restricted. The noble Lord, Lord Kimball, talked about certain counties being proud of their record in sound financial management. I wish that they were able to exercise their abilities far more.

As we heard, the announcement yesterday stated that SSAs would go up by 2.2 per cent. for community care and local government reorganisation. I wonder how far that increase will meet the requirements in both those areas. With regard to local government reorganisation, the costs of the review will be enormous—those that can be calculated and the hidden costs of the hundreds and thousands of man-hours that will be spent, not on the reorganisation when and where it happens but on the process. I suspect that they will have an effect for years to come.

Having the benefit of the previous debate going on for rather longer than I had expected, I was interested to read a comment in today's Evening Standard on the business rate. The London paper complains about changes in the business rate benefiting what they describe as "areas like the Midlands and the North", in that rather arrogant way of Londoners, at the expense of London businesses, whose business rates will not be reduced to the extent expected, given the reduction in rateable values. Tonight's editorial states that the Chancellor, caps the rate in the North and he limits rates reductions in the South. A more blatant, glaring, outrageous, unashamed and unconscionable example of discrimination and provincialism can hardly be imagined". The writer of the editorial warns that the Tories have got seats to lose in London as well as outside. He says, It is time for London MPs, especially Tories, to make the Government's life difficult". I thought they had been doing a fairly good job of that over the past few days.

I shall not trade claims as between areas. When I first became involved in local government a colleague said that local authority finance was as obscure and complicated as problems in the Middle East. We heard the confession made tonight by the noble Lord, Lord Boardman, and nothing could more demonstrate that.

My plea is for more transparency to make it easier for everybody to understand what the issues are. Standard spending assessments are extremely difficult to understand. I suspect that central government have a tool with which they manage to confound those who seek to understand the system. I wonder whether it is in fact to the advantage of central government that they allow a system to continue which enables local authorities too easily to get into a squabble between themselves.

8.20 p.m.

Lord Williams of Elvel

My Lords, the House is grateful to my noble friend Lord Varley for raising this question, which is not entirely about the East Midlands, though I recognise the strength of the case made by my noble friend. Important issues are raised in relation to what I believe the noble Lord, Lord Kimball, referred to as "a share of the cake". We are not asking for more cake; we are asking for a "share" of the cake.

As the noble Baroness, Lady Hamwee, said, it is important in this House, as it is in another place, that there should be more transparency as to how the cake is shared out. Since the resolution of the poll tax fiasco—I am sorry to introduce a slightly party political atmosphere into the debate—there is no doubt that central government have much more influence over the distribution of the cake than they had before. We are now talking of something like 80 per cent. of local authority revenues which come from central government. It is therefore even more important that in your Lordships' House and in another place we are quite clear about the ground rules as to how that will be shared out.

The original SSA formula was designed—and still is designed—to allow each local authority to provide a standard level of service. We must accept that there must be a formula on which the cake is shared out. But I wonder whether the present SSA formula, with the adjustments to which I shall come in a moment, is something at which the Government should look again. After all, the major objections to the formula are: first, that Whitehall knows best; Whitehall knows what the standard service is. Whether one is talking of Lincolnshire, as was mentioned by the right reverend Prelate, Northamptonshire or Derbyshire, Whitehall knows what the standard level of service should be. That in itself is a questionable assumption.

The second problem with SSAs, as was confirmed today in the Secretary of State's Statement, is that they are the fundamental fulcrum for determining local authority expenditure. If a budget in this financial year—this has now been confirmed—is above a SSA by 12.5 per cent., it is regarded as excessive unless it is no greater or less than last year's expenditure; but that is irrelevant.

The third major problem with SSAs is that until the 1993 review they were largely based on the 1981 census. Now we have the 1991 census, which is a broad national picture and does not reflect the needs and specific circumstances of the counties about which noble Lords have been talking in the debate this afternoon.

I accept that there have been improvements to the formula. I welcome the inclusion of economic deprivation, stronger weighting for sparsity of population, recognition of community care and so forth. Nevertheless, as of this afternoon we know that local authorities are to be squeezed again. These are general points I am making. Leaving aside the police, there will be a 2.2 per cent. increase—a figure mentioned by the noble Lord, Lord Kimball—in local authority spending, including community care and the costs of local government reorganisation. That means a net cash increase of around 0.8 per cent.—again a figure mentioned by the noble Lord, Lord Kimball. On any measure of inflation or services, that is a cash squeeze on local authorities.

I turn now specifically to the East Midlands, referred to by my noble friend Lord Varley and other noble Lords. Even given the cash squeeze which is about to hit that area, is the East Midlands getting its fair share? I turn also to the area cost adjustment—a definition of which I believe to be, a formula attached to the basic standard spending assessment to allow for the higher costs of providing services in London and the South-East". When the SSA formula was reviewed during 1993–94 for the current year 1994–95, the result assumed much higher costs for an equivalent level of service in London and the south-east. But given that nearly 90 per cent. of local authority expenditure (after debt charges) goes on wages and salaries, and that both salaries and debt charges—leaving aside London weightings—are determined nationally, what is the justification for the more generous area cost figures for the south-east? Logically there can be no justification whatever.

In the same review, weightings were altered. In relation to additional educational needs, under the new formula the amount to be distributed fell from 21 per cent. to below 17 per cent. That will disadvantage those local authorities which have ethnic problems, statemented children and all those matters with which the East Midlands is concerned. It appears to us that some of the adjustments favour the leafy suburbs rather than the areas with genuine needs to which my noble friend referred. Furthermore, there are some adjustments to SSAs for districts. For example, extra money is provided for buildings for day visitors. That is a clear advantage to London and not a clear advantage to Leicester, Northampton, Lincoln or any of the other counties to which my noble friend referred.

As other noble Lords said, today's announcement—in so far as I was able to digest that monumental tome—will do nothing either to help the generality of local authorities in England or to help the local authorities referred to by my noble friend. With a net cash increase of 0.8 per cent. generally and capping criteria very severe, I am not convinced that the new arrangements for the business rate will help the East Midlands.

I am most grateful to my noble friend Lord Varley for raising the matter. I suspect that this kind of debate will come up more often in your Lordships' House because, unless the Government are absolutely clear—and, as the noble Baroness, Lady Hamwee, said, absolutely transparent—in how the cake is to be shared out, there will be a natural suspicion (if I may put it like that) in the minds of noble Lords from counties or districts who feel they are disadvantaged or indeed noble Lords who may think that there is some party political rigging going on. There will be a natural desire to have debates on this matter. I have deliberately abstained, unaccustomedly, from making this a partisan debate. I believe that my noble friend was right in introducing it as a non-partisan debate. But I believe that the Government have a case to answer.

8.33 p.m.

Viscount Ullswater

My Lords, this has been a very timely debate, coinciding as it has with the publication of the finance figures for local government. The noble Lord, Lord Varley, although he himself kept his remarks entirely to the East Midlands, has raised important and topical matters. I am pleased to think that the noble Lord, Lord Williams of Elvel, has dealt with it on a non-partisan basis. I believe that the debate is improved for that. The noble Lord, like all other noble Lords who have spoken, indicated that he was not really worried about the level of the expenditure but about the share of the cake, except perhaps the noble Baroness, Lady Hamwee, who said that it was not enough.

Lord Williams of Elvel

My Lords, I do not wish to give the noble Viscount the impression that I am satisfied with the total cake.

Viscount Ullswater

My Lords, I was indicating that this debate is more about the share of the cake than it is about the total cake.

Perhaps I may spend a minute or two on the settlement. We have decided that the appropriate amount for local authorities in England to spend in aggregate in 1995–96 will be £43.511 billion. Central government support for this spending will be £34.672 billion, of which some £11.4 billion will be redistributed non-domestic rate, £18.2 billion will be revenue support grant and£5 billion will be grants for specific purposes.

For the standard spending assessments, we propose changes relating to the police element of the formula. This begins to base the formula on the underlying need for expenditure, rather than wholly on the side of the police establishment. In the bulk of the SSAs, there will be only limited change. The consultation documents which have been made available to this House set out the proposed changes.

We have announced our provisional capping criteria for local authority budgets in 1995–96 and our intentions for "notional amounts". These are necessary to calculate a base budget for capping; for example, in the case of shire counties which will lose responsibility for the police service after this year. The criteria set out in full in the consultation papers are necessarily provisional as legislation allows final capping criteria to be set only after the deadline for local authorities to make their budgets.

The noble Lord, Lord Williams, said that the settlement reflected a squeeze on local government. I believe that the proposals which my right honourable friend the Secretary of State has announced represent a balanced and reasonable response to the conflict between the pressure to provide ever more resources for local government and the need to control public spending. I believe that they represent a package which the country as a whole can afford.

My right honourable friend's statement concerns national aggregates and changes to the standard spending assessments, which will affect authorities at large. The noble Lord, Lord Varley, has drawn our attention, in particular, to the circumstances of the East Midlands. He argues that the authorities of the East Midlands stand at a disadvantage to those in other parts of the country in their standard spending assessments. I think it would be helpful if I summarised the position of the East Midlands, following my right honourable friend's statement.

The East Midlands can truly be described as "middle England", so far as concerns the standard spending assessments. The SSAs per person proposed for 1995–96 are almost identical to the national average for the shire areas. The average for the East Midlands is £718.36; the average for England is £717.77. The picture is the same if we consider each class of authority separately: the county councils; the district councils; and the police authorities. I would say to my noble friend Lord Boardman that the shire county SSA for Northamptonshire is £584.64 whereas the average for the East Midlands is £572.06. The average for England on the whole is £572.15. All these figures are very similar between the individual counties. The right reverend Prelate mentioned the county of Lincolnshire. There is a figure of £573.92 for that shire county. Therefore, the figures are very similar to the average for England.

Lord Boardman

My Lords, I made the point that, on average, superficially they would appear to be about right. But one has to take into account the fact that special circumstances apply to these counties. In Northamptonshire the growth in the numbers at school has been much greater. I showed that the differences which apply there are very significant.

Viscount Ullswater

My Lords, I intended to come onto that point in a few minutes.

The noble Lord, Lord Varley, referred to the increases in standard spending assessments for the East Midlands over a number of years. It is misleading, I believe, to compare rates of increase. Standing spending assessments do not work simply by deciding how much increase to allow from one year to the next. They are based on objective methodology and objective indicators. If the data for indicators used in the standard spending assessments show a more rapid increase in one area than those in another, there will be, quite properly, a difference in the rate of growth of the areas' SSAs. For instance, we were able to reflect the results of the 1991 census in the standard spending assessments for 1994–95. If the methodology is changed from one year to the next, some areas will have greater increases in standard spending assessments than others.

The noble Lord, Lord Williams, suggested that there was a need for another review of SSAs. There was a review in 1993, as the noble Lord will recognise. He asked that there should be no obscurity in the development of SSAs. The SSAs are developed in full and open consultation with the local authority associations. All the information on which they are based is shared with the associations. It is an entirely open system. It is not hidden in any way. There were many changes following the review in 1994 and many fewer this year. The system of standard spending assessments is an open one. We discuss at great length with the local authority associations possible changes which might improve the SSAs. We share with them the objective evidence for the formula which has been adopted. We openly acknowledge those instances in which the formula has to draw, to some extent, on judgment.

For 1995–96, we propose a measure of stability in the SSAs. This follows a year in which we reviewed the methodology for most of the standard spending assessments and made a considerable number of changes. But we remain willing to consider further changes if they are well founded. The formula we adopt is a common formula for all authorities which provide the same services. There is completely even-handed treatment of authorities. The reason some authorities have a larger standard spending assessment than others is the difference in the characteristics in their area and the people in it and their differing responsibilities for the services.

The noble Lord, Lord Boardman, drew attention to the problems of education in Northamptonshire. I agree that the authorities have a duty to provide education for the years of compulsory schooling. But authorities have discretion as to their use of the revenue support grant for particular services. Authorities have to decide for themselves the priority to attach to the education service and have discretion in deciding the level of spending on primary, secondary and other education.

Whatever formula is proposed it is the subject of debate. The noble Lord, Lord Varley, referred to one component of the formula which is particularly significant for the standard spending assessment in the south-east of England. In this area the standing spending assessments are increased by what is known as an "area cost adjustment". I do not believe that in the debate tonight the area cost adjustment had a friend. It reflects the mainly higher rates of pay in that region among those occupations with which local authorities are likely to have to compete in recruiting and retaining staff. The noble Lord, Lord Williams, indicated that that may be flawed. It is something, I know, which arouses considerable passion. Those in the area in which it applies are very often convinced that it ignores elements of extra cost which they regard as important such as the higher rents for offices in London and the south-east.

My noble friend Lord Kimball was fervently convinced that the area cost adjustment is already over generous and should be reduced considerably. I believe that all noble Lords who have spoken subscribe to that view. It is a point of view which the Association of County Councils has been researching. My honourable friend the Minister for Local Government, Housing and Urban Regeneration, met the association in September to discuss its concerns. He agreed that we would look further at ways in which the area cost adjustment might be refined in future years. I understand that the association is seeking to develop its case for a change.

The noble Lord, Lord Varley, would, I am sure, be interested to know that for the year 1995–96, on a like-for-like basis, the area cost adjustment is a slightly lesser share of the total SSA at 4 per cent. compared with 4.1 per cent. in 1994–95. The right reverend Prelate the Bishop of Lincoln addressed the specific cost approach to area cost adjustment. The Association of County Councils would prefer a specific cost approach. The association discussed the matter with my honourable friend the Minister for local government. The association is developing its proposals further and my honourable friend has said that he will consider the association's proposals when it has been able to develop its methodologies. I hope that your Lordships will understand that the Government and my department have not closed their ears to the development of the area cost adjustment. If we see that there is a reason for it to be changed there is no reason for it not to he considered.

Nevertheless, I believe that we must keep a sense of perspective. It is true that the average standard spending assessment of authorities in the south-east is higher than that of counties in the East Midlands. But the difference is not great. The average for shire authorities in the south-east is £726.45 and the average for those in the East Midlands, as I originally said, is £718.36—not a great deal of difference. Nonetheless, I can assure the noble Lord, Lord Varley, that there is, in my view, no possibility that this issue will fall from our attention.

The noble Baroness, Lady Hamwee—unusually in the debate —complained more about the overall settlement than perhaps the East Midlands grant itself. The speech of the noble Baroness went rather wider than the Question on the Order Paper. I can answer at least two of her questions. She was worried about the Isle of Wight fire service. I am glad to be able to tell her that the anxieties of the Isle of Wight about its fire service have been recognised. The part of its SSA for the fire service has been increased substantially for 1995–96, recognising the difficulty it has in sharing any of its service with its neighbours.

Baroness Hamwee

My Lords, perhaps the noble Viscount will agree that the fact that this is an issue which has been recognised and had particular attention this year indicates how complex the system is and the flaws which need to be addressed. When I say that it is recognised for this year, I am of course referring to the fact that the issue is recognised for the forthcoming year. The flaws have been highlighted by the problems which have been experienced this year.

Viscount Ullswater

My Lords, I did indicate that there were some small adjustments to the SSA for this year. One of them is for the fire service of a coastal district which, as I indicated, has difficulty in sharing some of its services because there is the coast on one side.

There is provision for the cost of local government reorganisation in 1995–96 at £50 million. The cost of the reorganisation is relatively modest set against the total standard spending which is £43.5 billion for next year. The noble Baroness also commented on capital control. I believe that the system which we now have gives authorities a good deal of flexibility both in how to fund capital projects and how to set their own priorities. But local authority borrowing is part of public sector borrowing and it must make a contribution to achieving a sound and prudent control of public expenditure.

In conclusion, the East Midlands is by no means ill-favoured in the allocation of standard spending assessment. The average of its standard spending assessment stands in the middle ranks of the regions, as I hope I have been able to demonstrate, and just above the national average for the shires. It has its position through the application of an objective formula built up in discussion with the local authority associations. In short, I believe that it is getting its proper due—no more and no less.

House adjourned at twelve minutes before nine o'clock.