Local Government Finance

HL Deb 25 November 1999 vol 607 cc618-30

5.33 p.m.

Baroness Farrington of Ribbleton

My Lords, with the leave of the House, I should like to repeat a Statement made in the other place. The Statement is as follows:

"With permission, Madam Speaker, I should like to make a statement about local authority revenue finance for England for the year 2000–2001.

"Local councils across the country deliver services which strengthen our communities and are vital to our future economic success. As my right honourable friend the Chancellor of the Exchequer explained to the House in his pre-Budget Statement, this Government's reforms are creating a stable economy and sustainable public finances. That means we can invest for the future—combining enterprise and fairness. This Government invest for a purpose, to secure better delivery of services. And we are investing: in nursery education, with an additional 48,000 new nursery places for three year-olds by next March; in schools, with rigorous targets for higher standards in literacy and numeracy, and, by next April, a new grant to local authorities of £140 million over the next three years to enable carers to take a break.

"This action to secure a platform of economic stability and steady growth has enabled this Government to give local government a measure of stability which is widely welcomed. This stability means that local government can focus its efforts on delivering better services.

"At the same time as ensuring local councils receive the funding they need to deliver high quality local services, this Government are modernising the way in which councils are managed to ensure local people get a better deal. We will shortly publish our Local Government Bill, paving the way for people to play a bigger part in shaping their local communities.

"In July 1998 the Comprehensive Spending Review White Paper set out the spending totals for next year, and the details of revenue funding I am announcing today confirm those totals with minor adjustments. The CSR provides local government with the additional resources needed to deliver better services to local people. My right honourable friend the Secretary of State for Education and Employment is announcing today the provision of an additional £64 million for education spending, bringing the total additional revenue provision for education next year to £1.8 billion. He is also announcing that we will reschedule the introduction of increased employer contributions to teachers' pensions which will ease the pressure on school budgets next year by a further £90 million. These announcements reflect the top priority which the Government continue to give to ensuring that schools have the funds they need. The CSR gives three years of substantial growth in government funding for local authorities. It was, and remains, the best settlement for local government since the introduction of council tax.

"We have not only provided significant increases in funding. We have also given local authorities the opportunity to undertake sensible forward planning in a way that was not possible in the past. Local authorities can now broadly predict the grant they will get from government, because we do not propose to make changes to the grant distribution formulae over the CSR period.

"Local government has welcomed this greater certainty about future funding levels. I am sure this House will endorse that view.

"Support from government grant and business rates will be £41.76 billion next year, an increase of £2.2 billion or 5.5 per cent. This increase is more than twice the underlying rate of inflation.

"I propose that the revenue support grant should be £19.44 billion, subject to any slight alterations following the consultation I am launching today, and which runs until 6th January 2000. In addition, some £6.92 billion of specific and special grants will be available to councils.

"We will redistribute £15.4 billion of business rates to local authorities next year. I am publishing the basis for that distribution today.

"Honourable Members will be aware that the next revaluation for the purpose of non-domestic rates will take effect from 1st April 2000. I am announcing today the details of the transitional relief scheme to phase in changes to non-domestic rate bills as a result of the revaluation. I am pleased to say that there will be limits on the size of annual increases in rate bills over all five years of the new rating list. In order to give added protection to small businesses, I shall give additional protection to small properties. This will be offset by limits on the amount by which bills can decrease, which will also be more favourable to enterprises operating from smaller properties. Nearly half of all small properties will see their rate bills fall next year and none will see an increase of more than 5 per cent in real terms.

"Revaluation does not mean that more money will be raised from the rates over the next five years. We propose to reduce the national non-domestic rate multiplier 41.6 pence in the pound in 2000–2001, to take account of the increase in rateable value across the country. That compares with 48.9 pence in 1999–2000. The revaluation will ensure that the burden is spread fairly between ratepayers, in line with changes in the property market since the last revaluation.

"Following this revaluation, the Government will be reviewing the current system. This will not be a fundamental review of the business rate. It will look for ways of improving the approach to valuation in order to increase stability, certainty and simplicity in the system. We will consider changes to the frequency of valuations. Details of the review will be announced in due course.

"Increases in council tax are a matter for individual local authorities to decide. But before they do so, we expect local authorities to look first at how they could be more efficient and effective. They should reflect that, for most councils, we have provided substantial increases in grant. They should exercise restraint. In 1999, many councils clearly did think much harder about what increase was really needed, and what local people would be prepared to pay. The average council tax increase came down from 8.6 per cent to 6.8 per cent, and we did not have to use our capping powers at all last year. We want all councils to think this way in future. We are willing and able to act to prevent excessive council tax increases.

"I have already announced that we shall continue the scheme for limiting the benefit subsidy which central government pay, where council tax increases are above a guideline. The guideline for the 2000–2001 scheme will be the same as last year: a 4.5 per cent increase in council tax or such higher increase as is necessary to give the council an increase in its budget requirement equal to its full cash SSA increase. As indicated last year, the scheme will operate cumulatively. For each authority, we will use its previous year's council tax at guideline as the starting point. I am issuing today full details and an explanatory note about the scheme for 2000–2001.

"As we explained in our July 1998 White Paper on local government, we propose to keep the method of grant distribution stable while we see whether we can devise a system which is more effective in putting money where it is most needed and will do most good. In keeping with that policy, and as I have already explained to the House, I propose to make no new changes this year in the general method of grant distribution.

"Although the method of calculation will not change, some of the actual standard spending assessments (SSAs) to be used next year will change because of the new local government structure in London. There will be two main changes. Some functions, such as maintenance of certain roads, will transfer from London boroughs to the Greater London Authority, and we shall need to make a transfer of SSAs to reflect that. Secondly, the boundaries of the Metropolitan Police District will be reduced to cover the Greater London area only, and the areas of the police authorities of Surrey, Hertfordshire and Essex will increase. Again, SSAs will need to be adjusted.

"We cannot ignore data changes, such as changes in resident population. These changes inevitably mean some authorities do better than others, However, the effects of data changes are smaller than the changes which would have resulted from adjustments to the grant distribution formulae. We have also given local authorities as much advance notice of data changes as we can, releasing the figures as they became available.

"I also propose similar arrangements to last year for phasing in grant changes. This means that no authority will receive less central support from government in 2000–2001 than in 1999–2000, and every education authority will receive at least a 1.5 per cent increase in central support. These comparisons will make allowance for the changes connected with the creation of the GLA.

"My department is today writing with details of the settlement to every local authority in England. Copies of that material have been placed in the Vote Office and the Library. In keeping with our promises to modernise government, all the details are available over the Internet.

"This settlement is another step in the Government's modernising agenda. It provides a good grant increase and a stable financial environment. Together with Best Value and our other reforms, these will enable councils to plan and deliver better services for their people. I believe that the settlement will be widely welcomed. I commend it to the House."

My Lords, that concludes the Statement.

5.45 p.m.

Lord Dixon-Smith

My Lords, I am sure that the whole House will join me in thanking the Minister for repeating the Statement made by her colleague in another place. Over the years the two of us have debated in another forum financial statements of this kind. It is a particular pleasure, although a completely unforeseen one, that the two of us should now be facing each other here.

The annual statement is the culmination of what seems to be something equivalent for local authorities to the game of musical chairs that we used to play as children. Of course, this is an adult game of musical chairs, so the number of chairs does not actually reduce. What happens in this game is that if one is fortunate, one finds oneself provided with a cushion or perhaps a slightly bigger chair; or even, if one is very fortunate indeed, an easy chair. But if one is unfortunate, one's seat becomes harder, one may find that the back of one's chair has been removed, or one may find oneself only with a stool or possibly even only with a three-legged stool. That is a not unapt comparison.

I find the Statement itself interesting because it contains so many things. Paragraph 2 refers to additional nursery places for three year-olds by next March. It is perfectly appropriate for the Government to have something to say about that, and indeed to take credit for it, but it has nothing to do with the financial year to which the Statement applies. It actually applies to the current financial year. With regard to paragraph 4, I found myself thinking that I was once again reading the Queen's Speech. I found myself wondering exactly what that was doing in this Statement. I suppose that noble Lords generally will have noticed the tendency of this Government to repeat many things very often. I infer that that is so that Members in another place will learn and will actually keep in mind the points that the Government wish them to keep in mind. I infer that they must be relatively slow learners, given the amount of repetition that seems to be required.

As the Statement says, the Comprehensive Spending Review and the stability in the revenue support grant mean that this year's Statement is relatively more straightforward to interpret than others have been in the past. That is all to the good. But that stability locks in gains for the gainers and losses for the losers. So the country areas which lost last year will lose again this year and London boroughs which lost last year will lose again this year. I am sure that the council tax payers in those areas will be immensely grateful that that has happened.

It is perhaps an unnecessary observation to make, but we should just remember that council tax payments average out at 6.8 per cent. The figures are set out in paragraph 14 of the Statement. Councils are given credit for getting down to that figure from 8.6 per cent in the previous year. We need to remind ourselves that that is still around three times the rate of inflation. The Statement last year provided for something rather less than that; namely, a figure in the order of two times the rate of inflation.

However, if one considers that figure in the context of the putative capping regime—which may or may not be called into play, but clearly the threat of it is still there because it was repeated in the Statement—one might say, as a local authority member working out the budget, that since 6.8 per cent was praised last year then it will be praised again this year. The circumstances are similar and therefore a council tax increase of that order would not be unreasonable. We shall therefore continue to see an element of taxation by stealth.

Another point that interested me in this year's Statement derives from the key statistics set out in Annex 1 to the papers attached to the spending Statement. They reveal two salient facts: the first is that the revenue support grant has been reduced while special and specific grants have increased. Revenue support grant has dropped by 2.3 per cent on its total, while special and specific grants have risen by 13.9 per cent. That represents a shift in local authority funding from funds that local authorities can control in their own interests to funds that are specifically and directly controlled by the Government. The changes in those figures therefore represent a loss of independence for local government. I believe that we should regret that.

Secondly, sandwiched between those statistics in the annex is an even more odd figure; namely, the figure for non-domestic rates. In 1999–2000, non-domestic rates were distributed to the order of £13.6 billion. For the year 2000–01, they will be distributed at the rate of £15.4 billion. That is a 13.1 per cent increase. I am bound to say that I have some difficulty in squaring that figure with the 5.5 per cent mentioned in the Statement. From that I can only infer that the 5.5 per cent applies specifically to small properties. I believe that it can be read in that context. Perhaps the noble Baroness will confirm that point. If that applies only to small properties, it means that somebody else is getting an even heavier increase. That figure will cause real concern to those involved in industry and commerce.

This is an ordinary Statement. As a result of it, I expect that we shall see some transfer of taxation, or, if I may put it differently, some transfer of the cost of public services from central government to local government. Before the noble Baroness intervenes to say that that was ever the case and that every government have always done it, I should observe that I had understood that this Government were meant to have been elected with higher aspirations to do things differently. However, I regret to say that, two and a half years through this Parliament, we must judge that the Government have the same feet of clay as their predecessors.

5.55 p.m.

Baroness Maddock

My Lords, from these Benches we also thank the Minister for giving us the opportunity to hear the Statement and to comment on the local government settlement. The spin suggests that the local government settlement this year is the best ever and that everything in the garden is rosy. However, it is worth looking underneath that gloss. Almost the opening lines of the Statement remind us of the importance of local councils and their services to the communities they serve, and in particular the economic well-being of those communities.

At the end of the Statement we are told that this is another step in modernising the way in which we deal with local government matters. Yet we are still using the same formula to redistribute grants that the Conservative Party used in its government for many years and which this Government have now used for three years. I ask the Minister whether the Government can urgently examine the possibility of really modernising local government finance either—as we have proposed many times from these Benches—by giving local councils and their communities more financial autonomy, or by looking at the basis on which the standard spending assessments are decided. In particular—other Members of your Lordships' House who have served in local government will know this—can the Government examine that demon, the area cost adjustment. Local councils and communities have changed beyond recognition since these formulas were put in place.

What is particularly disappointing is that the central-local partnership appears not to have helped as much as some of us would have liked in the short term. Can the Minister confirm that while local authorities, through their local government associations, have estimated that they need £3.2 billion additional revenue to meet inflation and spending pressures for 1999–2000, and that the spending needs for 2000–01 will be similar, the Government have assessed that an increase of just over £2 billion is needed? That represents a £1 billion difference. Can the Minister comment on the usefulness of the central-local partnership if there is such a wide disparity between the estimates? I understood that the central-local partnership was provided as a method for agreeing new and extra pressures on councils, in particular rising numbers of children in schools and rising demand for social services.

I should like to press the Minister on other central control matters. What will be the cut in council tax benefit for local authorities next year? Can the Minister confirm that council tax benefit limitation this year has cost local authorities something of the order of £30 million? In addition, can the Minister confirm that council tax benefit limitation has a disproportionate effect on more deprived areas because of the higher concentration of benefit claimants in such areas? Can the Minister tell us how she thinks that assists the Government's social inclusion policy?

Shifting the burden of tax from central government to local council tax payers has continued in this Statement. Can the Minister confirm that the high gearing means that the amount raised directly from council tax payers by local authorities is disproportionate and does not help us to view local government finance in a transparent way? On a slightly different point, but still pursuing the theme of the local-national financial split, can the Minister tell us what is the cost to local authorities of the inspections they are now required to have of their services? In raising the point, I do not want to indicate that we should not have high standards and carry out inspections. I merely point out that these matters are important but do not come without a cost.

I now turn to consultation. Will the Minister tell the House exactly where local authorities stand as regards the ability of councils to discuss their budgets directly with Ministers? Is it still the case that the Minister for Local Government does not propose to meet individual local authorities this year to discuss their budgets? For example, it would appear that performance related pay for teachers will not be fully funded. Rural areas are particularly discriminated against in some local government settlements. These are legitimate matters that can be brought to the attention of Ministers through meetings with individuals. That may be time-consuming, but, if local democracy is to mean anything, it is essential.

I have not covered everything. I know that my noble friend Lady Harris would like to press the Minister on the matter of police funding. I hope that the Minister will be able to answer some of the questions that I have put to her.

Lord Filkin

My Lords—

6.1 p.m.

Baroness Farrington of Ribbleton

My Lords, my noble friend is a new Member of the House. The procedure is that I reply to the points raised by the Opposition Front Bench and the Liberal Democrat Front Bench. Then we move to the next stage.

For me, too, it is a surprise and pleasure to face the noble Lord, Lord Dixon-Smith, across the Dispatch Box. With the change of government and change of role, it is sometimes slightly confusing as to which of us has become a poacher and which of us has become a gamekeeper. Our combined recollections of the period under the previous administration are that it was more like musical chairs. We have worked, planned, and given due warning of our proposals. In those days, it felt rather more as though the chairs were being pulled away as one was about to sit down on them.

The noble Lord raised a series of questions in regard to proposals for the coming financial year. His point regarding authorities with low grant increases is covered by two factors. In some authorities there are adverse changes in data to do with population changes and because some authorities are still suffering the dampened effect of changes in SSA methodology in previous years. For example, for some education authorities pupil numbers, income support and jobseeker's allowance payments are the main relevant data changes, and in some cases the relevant changes concern population and traffic flow. Different factors may affect different areas. For the shire districts, population, rent allowance payments and housing benefit claims can affect the position of individual authorities.

We have made absolutely clear that we believe it is important to see this settlement as an extremely good one for local government. There is nothing hidden in our spending plans. We have provided a substantial increase in government grant: up 5.5 per cent compared to the current year. It is right that local taxpayers and central government should each pay a fair proportion of extra local spending; so local taxpayers can be expected to be asked for more council tax. That partly answers a query raised by the noble Baroness, Lady Maddock.

The noble Baroness raised the question of the limitation on housing benefit and the effect on poorer areas. I remind the noble Baroness—

Baroness Maddock

My Lords, I am grateful to the Minister for giving way. My reference was not specifically to housing benefit, but to the limitation on council tax benefit.

Baroness Farrington of Ribbleton

My Lords, the noble Baroness is right. As regards the council tax benefit limitation, we listened carefully in our consultation with the Local Government Association and the Association for London Government. No authority has its benefit limited by greater than the average, so those authorities that have the greatest concentrations are affected only to the extent of the average.

The noble Baroness also raised the issue of high gearing. There is a point at which the issue of gearing is linked to local choice. Those of us with long memories of local government can remember the point at which governments of both persuasions realised that to continue to pay an equivalent amount of grant however much the local authority chose to pay, was rather like setting open budgets for local authority public sector higher education. It was recognised that they could not go on using the national taxpayer in an open-ended way. The proposals before us make adequate allowance for the role of local choice.

The noble Baroness, Lady Maddock, also referred to the importance of recognising inspection costs. Perhaps I may give one example from the many areas that have been considered. The Government are meeting their commitment in full for the extra £50 million needed for audit and inspection as part of the Best Value project, with £40 million calculated to be the first year costs and additional funding the following year to take account of that.

I was asked by the noble Lord, Lord Dixon-Smith, about recognition of the implications for nursery education. I felt that the noble Lord was critical of its inclusion in the Statement. We are continuing the direct nursery education grant next year, rather than putting it all through SSA from 2000–2001. We should like to continue, in partnership, to develop a full mutual understanding of the different factors that need to be taken into account. We believe it is useful to await the findings of some of the reviews that are taking place in that area.

A sum of £390 million over three years, beginning in April 1999, is available for three year-olds; 57 LEAs with the greatest social need have received £40 million to create £48,000 new free places by March 2000. This is the first time that central government have made money available specifically to cover that issue. A further £350 million will be made available between April 2000 and March 2002 to provide a total of 190,000 places; 66 per cent of all three year-olds will have access.

The noble Lord raised the issue of increasing specific grants at the expense of the block grant. That is a sterile argument. We should focus on the overall increase in grant, which is 5.5 per cent. The increase of 3.7 per cent over £1.2 billion in block grant is one and half times the rate of inflation.

I also point out particularly to Members of your Lordships' House that there is a great deal of interest in and scrutiny of the Government's achievement of policy objectives. I give as an example the need to include funding in a separate crime reduction programme that will, among other things, be used to recruit 5,000 police officers over and above the numbers that forces would have recruited over the next three years. Without a specific grant this kind of money could not be targeted in the way many noble Lords have sought in the past. As noble Lords have a particular interest in the subject of tackling crime in rural areas, I stress that that money is available to police authorities in all areas including rural areas.

The noble Baroness, Lady Maddock, sounded faintly grudging. She complained that not all was rosy in the garden. We are a realistic Government and believe that it is important to provide stability. We also believe that where increases are made available to improve services they should be built into the system. I am sure that the noble Baroness would not wish to return to the days when this year there was an extra £25 million for one particular scheme and next year it was removed and the money was provided for something else. We believe in building in a logical way in partnership with local government.

I was asked about unfairness being locked into the system of SSAs. We are clear that the current system cannot go on as it is, and local authorities share that view. An opinion survey has made clear that the majority of authorities are unhappy with the current system. In partnership with local government we are looking at the issue. We shall continue to study ways to review grant distribution. We have made clear that we want to consult widely, which we are doing, and shall not reach any conclusions until next summer. We have also made clear that decisions will not be taken until there has been full consultation. Ministers do not yet have firm views on what changes, if any, should take place. We welcome suggestions from all with an interest before any change is considered.

The CSR took account of all the pressures. In reply to the noble Baroness, Lady Maddock, we took account of the pressures which were discussed with the local authority representatives in the new partnership arrangement. There has never been a time when central government have been able to meet in full all the aspirations of local government and fully reflect them in grant distribution.

The noble Lord, Lord Dixon-Smith, said he was concerned about the shift in taxation from central to local government. The previous government clearly planned that that should happen. Under this Government plans provide for local taxpayers to make a fair contribution to the cost of local services. Ultimately, tax increases are for individual authorities. I conclude by reminding the noble Lord that for local government it is a very welcome situation to know what the position will be over a three-year period and that no local authority will receive less grant than before.

Lord Dixon-Smith

My Lords, before the noble Baroness sits down perhaps she will deal with my question relating to the very great increase in the national non-domestic rate.

Baroness Farrington of Ribbleton

My Lords, 5 per cent is the cap set on increases in bills for smaller properties. The cap for larger properties will be higher. The increase in the distributable amount from £13.6 billion to £15.4 billion is not surprising in the first year of the new rating period. Among other things, an adjustment must be made to allow for anticipated losses on appeal. The amount of rates paid nationally over the five-year period is expected to remain broadly the same in real terms as in the 1999/2000 year. It is a complex area, and if I have failed to answer the noble Lord's question fully I shall write to him.

6.15 p.m.

Lord Filkin

My Lords, this is incontestably a good settlement for local government despite vigorous attempts to find minor faults with it. But in practice I do not believe that that is the true significance of the Statement. The true significance is that it is not news at all. Most local authorities have been well aware since July 1998 of the amount of grant that they will get for next year as a result of the decision taken by the Government to fix and forecast the amount of grant for the next three years and to state that they will not change the distribution formula. That may sound technical but it is of great importance to local authorities and local politicians.

For years we argued with the Treasury that we should get away from annuality whereby we had to wait until about December before we knew what we would get. That led to frequent budget crises of which many noble Lords are aware from previous experience. As a result of that change, local authorities knew what their budgets and grant would be and so could avoid those crises and set clearer medium-term strategies. That has been a direct consequence of the success of the Government's economic policy. Because the Treasury no longer needs to fiddle with short-term economic management the Government have been able to make this kind of statement to local government with some certainty. As a result, good local authorities have the opportunity to deliver greater benefits from the resources at their disposal. Knowing the budgets that they will have, they have been able to squeeze them to deliver more value to the public. I believe that that is of benefit to local government generally.

Baroness Harris of Richmond

My Lords, perhaps at this stage I may—

Baroness Farrington of Ribbleton

My Lords, I thank my noble friend whose great experience in the field of local government will be of benefit to the House in discussing local government matters.

Lord Simon of Glaisdale

My Lords, did not the Layfield Committee review the manifest advantages and attractions of a phased-in local income tax as part of a source of local authority finance, and did it not finally reject it on the ground of administrative difficulties? Have not those difficulties been virtually met by modern technology; and, if so, should not the matter be reviewed in the light of those advances? I would have apologised more abjectly for not giving the noble Baroness notice were it not for her famous knowledge of all aspects of local government.

Baroness Farrington of Ribbleton

My Lords, the noble and learned Lord puts me on a pedestal from which I can be knocked with swiftness and ease by many Members of your Lordships' House. He is correct in his recollection of the recommendations of the Layfield Committee. However., my recollection, which may not be as accurate or detailed as his, is that local income tax faced problems arising from the fact that many of our communities, unlike those in countries such as the United States, live in areas that are bordered by a number of different local authorities. Therefore, it is perfectly possible for people to live in one area, to send their children to schools in two other areas and to work in and use the services of a fourth. There are many arguments. I believe that I am on very firm ground in saying that the Government have no plans to introduce local income tax.

Baroness Harris of Richmond

My Lords, first, I apologise to the House for not observing the conventions. I hope that my intervention will be overlooked due to my "newness". I offer my apologies.

The announcement will be perplexing for police authorities. We have already indicated that we need £100 million more to run the Police Service than we received last year. That is just to stand still. We have inescapable increases in police pension contributions to which I alluded briefly yesterday. Indeed, in my force in North Yorkshire we know that next year we shall have a shortfall of £5 million. That is partly because of our pension payments. It will be £7 million the following year.

The settlement today gives me no confidence that it will improve matters one jot either locally or nationally. Even the offer of 5,000 more police officers over three years—it equates in North Yorkshire to 51 officers—does not help us when the normal budget for policing continues to go down.

How will the police authorities pay for those parts of essential policing expense which are directly outside our control but which we are still obliged to fund? I speak of the public safety radio communications service (PSRCS) and the national service authority's budget, as well as the awful spectre of the pensions problem. Inflationary pay and pension-related costs alone will eat up all the new money provided by the Government next year.

Baroness Farrington of Ribbleton

My Lords, I am sure that the noble Baroness will be forgiven by the House, not least because she brings o the House very relevant knowledge of the issues facing police authorities at present.

The noble Baroness is right. Over the three-year period there will be an increase of 3 per cent. And there is an increase in real terms in the police authority budgets. I am sure that the increase of 3 per cent over 1999–2000 will be welcomed by those police authorities.

The noble Baroness referred to the importance of new technology. In addition to that money, £400 million is being made available, including £150 million for CCTV schemes and £50 million to protect homes most at risk of burglary.

The noble Baroness graciously recognised the additional money for police recruitment. There will be £35 million additional funding in the challenge fund for 2000–2001; and all forces can put in a bid for that.

The noble Baroness raised the issue of the new national radio communications system. I am pleased to inform her that the £50 million extra investment in that system is genuinely new money.