Local Government Finance (England)

Part of the debate – in the House of Commons at 4:22 pm on 3 February 1993.

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Photo of Michael Howard Michael Howard Secretary of State for Environment 4:22, 3 February 1993

I shall certainly not go into detail on the sort of settlement that we may see next year. The hon. Gentleman knows, from the reports, the basis on which we have reached our conclusions this year.

I have sought this year to be as helpful as I can to local authorities on another matter. As in previous years, councils may be designated for capping if they increase their budgets by more than certain amounts and in doing so set budgets which exceed their SSAs. However, in a year when local authority functions are changing, and when a new system of local taxation is being introduced, it is not appropriate to use councils' actual budgets for 1992–93 as the starting-point for capping. Those budgets need to be adjusted so that the changes in functions, and in the local government finance system, can be allowed for in the capping calculations. The relevant notional amounts, which are set out in the report, are in effect adjusted budgets for individual councils.

These notional amounts relate directly to the real budgets set by authorities for the current year. Therefore, it is important to ensure that the authorities are fully involved in the process. When I announced my proposals for notional amounts last November, I also made it clear that we would listen carefully to the views of individual authorities on the figures that we had calculated for them, and on the methodology in general.

We have had many representations on both counts. I could not say that we have done exactly what every council wanted us to do. In particular, we have had to remain true to our original purpose, which was to adjust the budgets made by authorities when they set their community charges for the current year, and not to reflect changes that they may have made in the course of the year. But, as a result of our consultations, we have made changes both in the methodology and in the calculation of notional amounts for many individual councils.

As a result, the aggregate of notional amounts is now £250 million higher than we originally proposed, and for many councils the effect will be directly to permit a higher budget in 1993–94 without the fear of capping. I know that councils have welcomed our willingness to listen to them, and I hope that the House will today endorse that welcome.

Notional amounts are a demonstration of my commitment to use my capping powers in a way which is fair both to local authorities and to their local taxpayers. It was for that reason that, in my statement to the House last November, I set out the capping criteria that I had in mind to apply for the coming year.

I reaffirm that those are the criteria which I intend to apply. I shall not detain the House by reading them out in full, but I shall remind hon. Members of the broad principles: first, that budget increases—increases over the notional amount—may be subject to capping if the resulting budget exceeds the authority's standard spending assessment; secondly, that a budget is excessive in absolute terms if it is more than 12.5 per cent. above the SSA; and thirdly, that, notwithstanding the 12.5 per cent. criterion, an authority may not be designated if it sets a budget which represents a cash freeze or, in certain circumstances, a minimum cash reduction on the notional amount.

The significance of my announcement last November was that it gave authorities advance warning of what they had to do in order to avoid being designated for capping. I am pleased to say that the great majority of those who have written to us, or come to meet us, during the consultation process have accepted that discipline. I hope that, when they come to set their budgets in the next few weeks, they carry through their intention.

I do not want there to be any doubts on the issue. We want to be fair to councils, so we have listened to their views on notional amounts, but we must also hold faith with the local taxpayers, for whom capping is an important protection. I hope that all councils will act responsibly, and that I will not need to use my capping powers, but I will not hesitate to do so if necessary, in order to restrain excessive spending and hold down council tax levels.

The third of the reports for which I am today seeking the approval of the House is the special grant report. In particular, I wish to draw the attention of the House to two of the items contained in the report: the special grants for population loss, and in respect of displaced persons from the former republic of Yugoslavia.

A few minutes ago, I explained that SSAs this year need to reflect the availability of new data. In particular, we are now able to use population data from the 1991 census. That is a change from previous years, for which we have used 1981 census data, updated, each year by the Office of Population Censuses and Surveys. We are bound to use the more recent data, but for a few authorities, that means a significantly lower SSA—which means less grant—than would have been the case if we had continued on the old basis.

It would be unreasonable to expect them to accommodate this reduction in a single year. I have therefore decided that, for those authorities whose SSA is more than 5 per cent. lower than it would have been if the old basis of estimating had continued, we should provide a special grant to compensate them in full for the excess over 5 per cent. Sixteen authorities will benefit, and a total of £3.5 million will be paid out under that scheme.

The special grant in respect of displaced persons from the former republic of Yugoslavia was announced by my hon. Friend the Minister for Housing and Planning on 16 November. The intention is to compensate authorities which face sudden unexpected additional expenditure as a result of the arrival in their area of the displaced persons. We have modelled the scheme on the more familiar Bellwin scheme, which applies to emergency expenditure following severe storms.

The principles are the same. Authorities can reasonably be expected to hold contingency reserves against minor emergencies, but in exceptional circumstances those reserves will simply not be enough to meet the case. Therefore, under the scheme, expenditure above a threshold qualifies for grant at a high rate—85 per cent. My Department invited authorities to submit estimates of expenditure on displaced persons from the former Yugoslavia. Three authorities have qualified, and will receive a total of £80,000 under the scheme.