Local Government Finance (Hansard, 15 May 1996)

§ Mr. Gummer

The challenge approach has already proved its ability to stimulate new and innovative thinking among local authorities and so generate projects which offer excellent value for taxpayers' money. Our consultation paper of 30 January sought views on whether this approach could be brought to bear more widely on local authority capital spending on work such as highway maintenance, school building projects or house renovation.

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The Government have considered carefully the points made by local authorities and others in response to that consultation paper. We have concluded that it is right to proceed with a practical test of how challenge funding of capital spending might work, the benefits it can bring and the possible opportunity costs of the approach. We therefore intend to establish a pilot capital challenge fund to allocate a proportion of total Government support for English local authorities' capital expenditure. The pilot will in particular test whether the challenge approach can: foster local choice and local decision making and provide a clear incentive to developing local partnerships; give positive encouragement to those local authorities which take a strategic approach to planning capital investment; and lift some of the close controls Whitehall exercises over investment decisions.

The scheme that we intend to implement builds on that outlined in our consultation paper. Key elements of the pilot are: it will consist of a single bidding round, with bids to be submitted by 23 September this year, which offers support for capital projects over a maximum of three years, beginning in 1997–98. A total of £600 million of planned support for local authority capital spending will be allocated to successful bids over the three years through the capital challenge fund, with £150 million available in 1997–98, £250 million in 1998–99 and £200 million in 1999–2000; authorities will be encouraged to seek support for broadly based, innovative projects or programmes which meet a well defined local need and offer particularly good value for money. They will not be required to address specific service-led objectives; authorities will be encouraged to submit a single bid encompassing the complete package of projects and programmes for which they seek support from the challenge fund. Where possible, different authorities responsible for different local services within an area should co-operate in deciding priorities and submit joint bids; bids must be submitted to Government offices by 23 September 1996. The names of successful bidders will be announced in December 1996; the capital challenge fund will be allocated on a regional basis. Indicative regional shares will be published; and awards to successful bidders will take the form of supplementary credit approvals (SCAB).

We are today issuing to all local authorities detailed advice on the preparation and submission of bids for support from the capital challenge fund. I have placed copies of this guidance in the Library of the House.

There are, of course, many practical questions about how best the challenge approach should be applied to the full range of local authority capital spending, and a number of authorities have raised important points which need to be addressed. The pilot scheme will give us the opportunity to consider these while maintaining the momentum towards challenge over the three years for which it will run. We will need to evaluate carefully the outcome of this first bidding round and the projects resulting from it before deciding whether to proceed beyond the pilot to a fuller application of challenge principles to the determination of capital allocations.

In parallel with the pilot we will also consider other questions which it does not directly address, but which need to be considered before we decide whether the challenge approach can be taken further. These include the role of some form of assessment of need in the allocation of capital support and how best to ensure 486W authorities can meet their statutory obligations under a challenge regime, and the mechanism for taking into account usable capital receipts. We hope to involve local authority representatives both in the monitoring of the pilot and the additional work we plan to undertake.

I believe the pilot capital challenge scheme will give us a sound basis from which to explore the challenge approach. I hope it will bring greater local choice over spending priorities, better and stronger local partnerships and improved value for money in publicly financed local authority capital expenditure.