HC Deb 23 January 1995 vol 253 cc71-3W
Mr. Austin Mitchell

To ask the Secretary of State for the Environment (1) how much more would be distributed to(a) Humberside and (b) east midlands counties if the area cost adjustment was adjusted as proposed by the Association of County. Councils; and if he will make a statement on his reasons for rejecting such an adjustment;

(2) what were his reasons for rejecting the Association of County Councils' proposals in July 1994 for reassessing the area cost adjustment on the basis of actual spending; and if he will make a statement;

(3) what is his estimate of the change in the area cost adjustment if it was based on actual rather than theoretical labour cost differentials as indicated by local authority pay scales and employee budgets; what are his reasons for using theoretical costs; and if he will make a statement;

(4) what is his estimate of the reduction in the gain to the south-east in the current year through the area cost adjustment of basing it only on London weighting;

(5) what are his reasons for rejecting the proposals made by the Association of County Councils in 1993 for adjusting the area cost adjustment on the basis of the actual payments to teachers, firemen and police; how much would have been deducted from the adjustment to the south-east if he had done; and if he will make a statement;

(6) when he expects his new review of costs as a new base for the area cost adjustment to be (a) completed and (b) considered; on what grounds it is being carried out on the basis of travel-to-work areas rather than local authority areas; and what are the actual costs and wages for local authority employees or average costs;

(7) what evidence and research he relied on to demonstrate the existence of a general labour market requiring higher wages to attract good-quality staff in the south-east; and what assessment he makes of the margin of difference this makes in actual average wages of (a) teachers, (b) firemen and (c) local authority manuals between London and the south-east and the east midlands.

Mr. Robert B. Jones

The area cost adjustment is based mainly on evidence of differences between areas in rates of pay in occupations within which local authorities are likely to have to compete for employees. The evidence of rates of pay is taken from the new earnings survey, and is updated each year.

The Association of County Councils has criticised the scale of the area cost adjustment. In 1993, it suggested that the adjustment should, in the case of teachers, police, and firefighters, take account only of London weighting payments. In 1994, the association suggested that other specific employment-related costs might also be included, although it believed that, even if this were done, the total of the area cost adjustment would be less than it is.

We have misgivings, however, about the association's proposals in 1993 to base the area cost adjustment on London weighting payments alone because this would not reflect all the variations in employment costs faced by local authorities. We also Lave misgivings about the association's proposals in 1994 to identify and cost all the extra expenses related to operating in London and the south-east. This is partly because we seek to avoid reflecting in standard spending assessments the actual expenditures of authorities; and partly because we would be reluctant to introduce additional judgments into the determination of the SSA formula. We remain to be persuaded that a generally agreed list of extra costs could be identified and costed objectively, without reference to evidence of prevailing rates of pay in the local employment market of the kind which already forms the basis of the area cost adjustment.

The association's observations in 1994 were not developed into a methodology which could be applied in the calculation of the area cost adjustment. It is therefore not possible to say what the area cost adjustment would have been if the association's views had formed the basis of the calculation. Nor does the Department currently have sufficient information to calculate the level of the area cost adjustment if it were based solely on actual wage payments, local authority pay scales or London weighting. Any change in the basis of the area cost adjustment would also affect other aspects of the formula for calculating SSAs. For example, there would need to be a reappraisal of the weighting given to additional education needs.

Nevertheless, my hon. Friend has discussed with the Association of County Councils its views on the area cost adjustment. We are prepared to consider further any proposals they may make for an alternative methodology for calculating the adjustment.

We also propose to commission research this year which may enable the area cost adjustment to take account of variations in rates of pay between travel-to-work areas in all parts of England. Travel-to-work areas are being considered because they may be a better reflection of the pattern of local labour markets than are the administrative areas of local authorities. The progress of the research will depend both on the availability of the necessary data and the success of the researchers in developing a method by which it could be used in the area cost adjustment. We will consider the findings of the research, once they are available.