§ Ms BuckTo ask the Secretary of State for Transport, Local Government and the Regions (1) what external validation(a) will be and (b) has been applied to the use of New Earnings Survey statistical data used for distribution of the area cost adjustment for 2002–03; [12998]
(2) what steps he (a) will take and (b) has taken to ensure that small sample sizes in the New Earnings Survey data used for distribution of the area cost adjustment for 2002–03 are within acceptable statistical confidence limits; [12997]
(3) what criteria he uses to assess the acceptability of statistical confidence limits for data used for distribution of the area cost adjustment for 2002–03; [12996]
(4) what discussions his Department has had with the Office for National Statistics about the use of the New Earnings Survey in the calculation of the area cost adjustment for 2002–03. [12995]
§ Dr. WhiteheadThe use of New Earnings Survey (NES) data for the purposes of calculating the area cost adjustment have been the same in every local government finance settlement since 1993–94. Ministers at the time, after extensive discussion with local government, decided that the current methodology was the most appropriate use of the data for distributing grant to local government. When the methodology was developed, there was consideration of sample sizes and whether to base the area cost adjustment on one or two years of NES data.
We announced on 20 July that we do not intend to change this long established methodology for 2002–03, while we review the grant distribution formulae as a whole in time for 2003–04. We have made careful checks that we are using the NES data in the usual way for 2002–03. This includes confirming that the NES data supplied to us by the Office for National Statistics (ONS) are correct, and validating the area cost adjustment calculations by ensuring that at least two members of our grant distribution team independently derive the same results. External validation by those outside Government is not possible because of the need to ensure the confidentiality of those included in the survey.
We have also been party to discussions between the ONS and the Association of London Government (ALG), who asked the ONS for an explanation of the movements in the data since last year. The ONS reply to the ALG confirms that the data that underpin the area cost adjustment for 2002–03 are correct. The reply is also a helpful contribution to our formula grant review. For example, it has a bearing on whether we should address possible volatility around small samples by using an 505W average of two or three years of NES data for the area cost adjustment. Smoothing the area cost adjustment in this way is one of the options we are currently discussing with local government.