I move: "That the Bill be now read a Second Time."
One of my top priorities since appointment as Minister for the Environment in December 1994 has been the reform of local government. My background is in local government. I believe in local government and I know its potential. I see it as an important focus of local inspiration and development. I believe that local authorities are best positioned to identify and respond to local needs and priorities and to deliver local services to the community.
This Government also recognises the fundamental role which the local government sector has to play in aiding economic growth and in promoting social well-being and cohesion in society. As public representatives, we are all aware of the extent to which local government touches the day-to-day life of so many people. It is a fact that the local government sector has expanded significantly in recent years. It is now big business, having annual expenditure of £2 billion pounds and a staff of 30,000. But is it operating as efficiently and effectively as possible? Is it meeting the demands of its consumers?
While I believe in the strength and potential of the local government sector, I am equally aware of the problems and challenges which that sector has faced over the years. If effective action is not taken immediately to tackle the difficulties facing local authorities, the problems will continue and, in fact, multiply, resulting in serious consequences for the future of the local government system.
Before dealing with the specifics of the Bill, I take this opportunity to acknowledge the significant strides which the local government sector has already taken to make itself more efficient and customer oriented. Local government councillors, management and staff are working extremely hard to provide the public with the services they expect. However, we now need to build upon this hard work if local government is to meet the challenges of the next millennium. As I see it, local government has not been empowered in the past to develop to its full potential. However, this is now being tackled once and for all.
Last December, the Government launched a major new programme entitled Better Local Government — A Programme for Change. This document sets down a series of policy decisions for the reform of local government. It is the single most important local government reform measure in a long time. Its objective is to build a new local government which is stronger, sharper, more powerful and independent.
Central to this strategy is the provision of a proper system of funding for local authorities. If local authorities do not have the financial resources to meet the needs of their consumers, then all other reform initiatives, such as the enhancement of local democracy and the widening of participation, would be no more than a meaningless with list. Local government will not have any real meaning unless there is a direct financial relationship between a local authority and its electorate. An effective local government, capable of meeting the needs of its customers into the next century, must be provided with the financial wherewithal to do the job we set it. This is exactly what the Local Government (Financial Provisions) Bill, 1997 will achieve and I am proud to present it to the House.
The financial difficulties which local authorities have been facing in recent years are clearly evident.The level and quality of services provided by the authorities have been pared back to the bone and, in some cases, services have had to be discontinued. The decline in the authorities' fortunes is the result of a number of factors. First, their funding base has become too narrow, particularly since the abolition of domestic rates in 1978. As a result, there is a little buoyancy. This problem has been compounded by the fact that the authorities have been continually conferred with new functions, by successive Governments, without sufficient allowance being made for the additional pressure such functions place on their financial resources. Local authorities were also overly dependent on decisions of central Government for financial resources, never being sure exactly how much rate support grant they would receive from year to year. This could not be allowed to continue.
The Government recognised that immediate and direct action was required. In the programme, A Government of Renewal, we gave a commitment to commission a professional study on local government funding to see how we could introduce "a fair, equitable and reasonable system of funding". I engaged KPMG Management Consulting in 1995 to carry out this work, the focus of which was to set the agenda for change. The study involved extensive consultation with officials of my Department, the Department of Finance and representatives of local authorities. The consultants carried out an in-depth analysis of local authorities' existing and future funding requirements. They evaluated the capacity of the existing system to meet these requirements. A wide range of funding options was examined by the consultants, including a local property tax, a local income tax, a local sales tax, a poll tax, a system based on government grants, a system based on charges for services and a system based on assigning some existing taxation to local authorities.
All of the options examined contained certain advantages and disadvantages. The conclusion was drawn that there is no obviously correct way to fund local government. As Minister for the Environment, I was responsible for weighing up the pros and cons of the various options presented and, having regard to existing and future requirements, recommending the most suitable one to Government.
I am satisfied that the new arrangements announced in Better Local Government and spelt out in the legislation before the House will provide local authorities with their own viable source of finance to enable them to effectively carry out the range of functions demanded by consumers in a 21st century society. The Local Government (Financial Provisions) Bill, 1997, provides for a new system of funding for local authorities under which the power to levy domestic water and sewerage charges is being abolished, the rate support grant is being terminated and the income from these two sources is being replaced by assigning the proceeds of motor tax to local authorities, which will yield a more buoyant and larger amount of finance than the two abolished incomes.
In addition, the Bill provides for the introduction of important initiatives to ensure that the best possible use is made of the resources provided to local authorities and that a greater priority will be assigned to efficiency, effectiveness and economy.
Only a visitor from another planet could escape knowing how contentious the issue of service charges has been during the past decade. It has bedevilled all efforts to reform local government. With this Bill I am tackling this problem, once and for all. Section 12 will remove the power of local authorities to levy charges for the supply of water for domestic purposes and for the disposal of domestic sewage, with retrospective effect from 1 January 1997. In this context, a domestic supply of water means a supply for ordinary household purposes to a dwelling house or to a group water scheme. It does not mean a supply for commercial, agricultural, industrial or other purposes. However, lodgings or "digs" will continue to be regarded as domestic.
I wish to place on record my belief that the concept of charging for services is essentially a good thing. Charges can encourage efficient use of resources, promote conservation and be linked to environmental policy. However, a problem arises where the charge has no relation whatsoever to the amount of the service used. This has been the case in respect of charges for domestic water and sewerage services. The amount paid for a service should depend on the amount of the service actually used. This happens with other public utilities such as gas, telephones, etc. Charges for domestic water and sewerage facilities, on the other hand, were predominantly flat rate charges unrelated to usage. This flat charge practice created serious inequities in the system. For example, it is simply not fair that an individual living in a small one, or two-bedroomed house should have to pay the same amount as a family or a number of people living in a large five or six-bedroomed house. As charges for domestic water and sewerage services are therefore, in effect, taxes, it was the Government's view that they should be consolidated into general taxation. Under the new arrangements, no household, urban or rural, connected to a public water supply may be levied with a charge for a domestic water supply, with effect from 1 January last. Any charges levied before that date remain valid and, in fairness to all those who have already paid, I expect local authorities to pursue outstanding amounts with vigour and deal with all outstanding accounts due. This represents income that is legally collectable.
Charges will remain for commercial water and sewerage services as users can be charged according to the amount of the service which they actually use. Refuse charges will also remain as they can be readily related to usage. A number of local authorities operate a tag system under which a charge per bag is levied. Refuse charges are also an important tool in upholding the "polluter pays" principle which is an integral part of our waste management policy.
The rate support grant which my Department pays to local authorities is also being terminated with effect from 1 January this year. However, as an interim arrangement, this grant will continue to be paid until the Bill is enacted. The income from the rate support grant and domestic water and sewerage charges is being replaced by the assignment, under section 3, of the full proceeds of motor tax revenue to local authorities. This will give the authorities full and sole ownership of the entire proceeds of a single tax. It is a unique development which will ring fence a buoyant source of income for the benefit of local government.As a result, a direct financial relationship is being established between the authorities and their electorate. I wish to make one point perfectly clear. These proposals do not involve any new taxation but a change of arrangements in relation to an existing tax which, instead of being transferred to the Department of Finance, will be collected by local authorities.
There are a number of basic reasons for using motor tax to fund local government. Motor tax is an extremely buoyant source of income. KPMG identified a lack of buoyancy as one of the main weaknesses of the existing system. However, the proof is that between 1991 and 1995 the vehicle fleet increased by 14 per cent. In addition, 1996 was a bumper year for car sales and early indications are that 1997 will be just as good. This is simply an effect of Ireland's buoyant economy.