HC Deb 28 January 2004 vol 417 cc426-7W
Mr. Luff

To ask the Deputy Prime Minister for what reason the data used to calculate area cost adjustment includes pay data for the public sector; and if he will make it his policy to use only private sector pay rates in future calculations. [151129]

Mr. Raynsford

The area cost adjustment (ACA) is the element of the funding formula which takes account of the different costs of labour and non domestic rates between areas. The labour cost element of the ACA is calculated using hourly wage data for both the public and private sector from the New Earnings Survey (NES).

To use exclusively private sector pay in calculating the ACA would take little account of how any public sector employers, such as the NHS, affect pay in their local labour market. Private sector wages also vary more across the country than public sector wages because many public sector employees are paid according to national pay scales. To base the ACA on private sector wages alone would overstate the variability in staff costs for local authorities across the country.

The Office of the Deputy Prime Minister recently reviewed the grant distribution system and introduced new formula from 2003–04. It was announced in the 2001 White Paper "Strong Local Leadership—Quality Public Services" (CM5237) that the funding formulae will be frozen for at least 2004–05 and 2005–06. The Office of the Deputy Prime Minister does not intend to change the way that the ACA is calculated during this period.

Mr. Luff

To ask the Deputy Prime Minister for what reason the data used to calculate area cost adjustment excludes overtime pay data; and if he will make it his policy to include such data in future calculations. [151130]

Mr. Raynsford

The area cost adjustment (ACA) is the element of the funding formula which takes account of the different costs of labour and non domestic rates between areas. The labour cost element of the ACA is calculated using hourly wage data excluding overtime from the New Earnings Survey (NES). The NES is a snapshot of the wages people earn in a given week in April each year.

In calculating the ACA the Office of the Deputy Prime Minister need to be able to compare wage costs in different areas on a consistent basis. This is why the Office of the Deputy Prime Minister looks at hourly rather than weekly wages, and why the wage data used is only taken from those on adult pay rates, whose weekly wage has not been affected by absence and excludes overtime. The availability of overtime to individual workers is erratic. Because. the NES is a snapshot, it is impossible to tell whether an individual is working overtime as a routine part of their job, or because a colleague is sick and the firm needs cover. And overtime payments often depend on the time and day overtime is worked. All of which diminishes our ability to compare labour costs between areas on a like for like basis.

The Office of the Deputy Prime Minister announced in the 2001 White Paper "Strong Local Leadership—Quality Public Services" (CM5237) that the funding formulae will be frozen for at least 2004–05 and 2005–06. The Office of the Deputy Prime Minister does not intend to change the way that the ACA is calculated during this period.