§ Mr. Alisonasked the Secretary of State for the Environment what factors used in regression analysis for the 1977–78 rate support grant were omitted for the regression analysis for the 1978–79 rate support grant t why these were omitted what new factors were introduced; and why they were introduced.
§ Mr. ShoreThe factors selected in the national regression analysis for 1977–78 and for 1978–79 are listed in Appendix F to the Rate Support Grant Order 1977. which was laid before the House on 30th November. The extra factors included in the new regression analysis for 1978–79 relate to density or sparsity of population for all authorities.
Factors omitted from the new regression analysis for 1978–79 were:
- acres over 1.5 per head: replaced by the new factor of acres per person;
- overcrowding, and shared households: there is evidence of substantial change since the 1971 Census which provided the data;
- elderly living alone, and unemployment: the effects of these proved to be adequately represented by other factors.
The factors omitted from the new regression analysis will continue to influence the distribution of needs element for 1978–79, since the damped distribution formula combines the regression analysis for 1978–79 with those for the preceding three years.
§ Mr. Alisonasked the Secretary of State for the Environment (1) how he arrived at the estimate of inflation in local government which determined the level of the cash limit for 1978–79;
695W(2) what is his estimate of inflation in local government for expenditure other than that directly related to wages and salaries.
§ Mr. ShoreThe cash limit is based on relevant expenditure expressed at out-turn prices on the basis of the Government's anti-inflation policies. The changes in cost fall into three categories—
(a) Employee costs. It is assumed that the 12-month rule will be kept that the guidelines on earnings set for the present pay policy will be observed; and that all pay settlements up to end-March 1979 and not included in the price base will fall within the range 6 to 10 per cent. There will be a reduction in employers' national insurance contributions arising from the contracting out of local authority employees. The effect of the pensions increases operative from December 1977 is included in the price base; the further increase from December 1978 is assumed to lie within the range 6 to 9 per cent. Taken together these factors give rise to likely additional costs of £383 million to £712 million.
(b) Running expenses and revenue contributions to capital outlay. Prices generally are expected to rise by between 6 and 9 per cent. between the average level in 1977–78 and the average level in 1978–79. The corresponding increase between November 1977 and 1978–79 is assumed to lie in the range 5 to 8 per cent. This gives rise to likely additional costs of £142 million to £227 million.
(c) Loan charges, rate fund contribution to the housing revenue account and interest receipts. It has been assumed for present purposes that there will be no change in these items. The first two items will be substantially affected by changes in interest rates the cash limit will be adjusted accordingly. Interest receipts have been forecast at estimated outturn prices, so no addition falls to be covered in the cash limit.
Taken together the increases in cost form a range of £525 million to £939 million, corresponding to increases in grant at 61 per cent. of £320 million to £573 million. Excluding the exceptional reduction in national insurance contributions, the cash limit corresponds to an 696W increase between 1977–78 and 1978–79 in the underlying costs affecting local authority current expenditure of just under 9 per cent.