I move: "That the Bill be now read a Second Time."
This is the second occasion in 12 months that a Bill on local government funding has come before the House. During the debate on the previous Government's Bill last year, there was broad agreement across all parties about the problems facing local government. There was also a high degree of consensus that the lack of resources was a major factor holding back the local government system from developing and realising its full potential. When it came to discussing how to address the situation, there was no such consensus.
The funding system which the previous Government's Bill put in place failed to address the fundamental problem of under-resourcing. That problem has worsened over time as new and expanded functions have been conferred on local authorities without the necessary supporting resources being put in place.
This Government recognised that the funding issue had not been adequately addressed by our predecessors and assigned the highest priority to remedying this. We accepted that if local empowerment and local decision making, the central tenets of local government, were to have any meaning, they must be backed up by sufficient financial resources. Only then could our local government system play its full role in serving the community. With a strong financial base, there is no doubt that local government can meet the challenges of these changing times in a positive and constructive way.
Since coming into office, it has been a key priority for this Government to deliver on its commitments in An Action Programme for the Millennium in relation to the resourcing of local authorities. This Bill will give statutory support to delivering what is a new deal in terms of local authority funding. I will outline the trump cards in this new deal.
The principal feature of this Bill is that it will establish a local government fund which will come into operation at the start of next year. This fund will have a number of significant features, three of which are as follows. The fund will be substantial. It will combine the proceeds of motor tax which will be used primarily to fund the non-national roads programme and an Exchequer contribution to fund the general purposes needs of local authorities. In 1999, the Exchequer contribution will be £270 million which, when taken with an estimated £320 million in motor tax revenue, will see a fund of some £590 million being made available to local authorities. That is £125 million more than the corresponding funding which local authorities received in 1997.
Another important feature of the fund is that it will be ring fenced in this Bill. It will be devoted solely to the purposes of funding the local authority system.
Buoyancy is a third crucial feature of the fund. The Bill provides an in-built mechanism for the Exchequer contribution to the fund to be increased in line with inflation. Adjustments can also be made in any year to take account of — changes in the powers, functions and duties of local authorities, and variations in costs incurred by local authorities arising from their existing power, functions and duties.
It was recognised in the KPMG 1996 report, the Financing of Local Government in Ireland, that significant additional annual funding would be required to enable local authorities to continue to operate at an acceptable level — the so-called funding gap of more than £30 million. It was in this context that the previous Government introduced its funding proposals. However, further analysis undertaken on how the projections proposed in that report are unfolding indicate that, even with the benefit of the buoyancy in motor tax, this source would prove inadequate to meet the long-term requirements of local authorities. This would have seen a reinforcing of the trend which had emerged under which commercial rate payers were being expected to pay more than their fair share.
The £590 million funding to be provided through the Local Government Fund next year will address these issues by establishing a new baseline for local authorities. The new fund takes account of new functions and responsibilities which have been placed on local authorities over the years without matching funding and which local authorities have not been able to discharge fully. These include functions in the environmental protection area, litter control, building regulations, community-based efforts and so on.
While the new fund takes account of the needs of local authorities as they are now emerging, it has had to be framed within overall Government constraints on spending. Local government could legitimately spend a great deal more money than the Local Government Fund will provide — however, the Government has a responsibility to other sectors of the public service, as well as the necessary constraints on the overall budget.
I turn to the element of the fund which will see non-national roads being financed from national motor tax receipts. This Government believes it is wrong in principle to ask any sector of the public to finance the provision of general local government services for the entire community. I refer to the motorist who would have been placed in that position under the previous Government's funding arrangements. This Bill will now right that wrong. The proceeds of motor tax will be used primarily for the funding of the non-national road network. Motorists will see where their motor tax money is being spent. It is important for accountability and transparency reasons that motor tax income collected should be ploughed back into the roads network thus establishing a clear link between the services received and the payment made by the customer.
While on the subject of non-national roads, I acknowledge the previous Government's recognition of the importance of those roads and its commitment to restoring them through the Roads Restoration Programme. This Government has already accelerated the investment under this programme, ensuring that it will be completed on target by the year 2005.
This Bill will also provide for an increase in national motor tax rates as part of the package of measures to address local government funding. It will serve to increase the motor tax base of the fund, which will increase further from the buoyancy brought about by the growth in motor vehicles generally. Some will say that the motorist is being hit again. However, a number of factors should be borne in mind: The rates of motor tax have not been increased since 1992; the total increase of 6 per cent over this year and next year compares with inflation of almost 15 per cent since the last increase; and external expenditure associated with motoring such as air pollution and traffic management cost more each year.
The combined increases of 3 per cent in 1998 and 3 per cent in 1999 means that the yearly motor tax on a 1200 cc engine car will increase by a total of £10. The increase will have a minimal effect on a motorist's overall costs.
This is more than a series of rate changes to fund local roads or local government. It is also a reform measure and a major shift in the underlying motor tax philosophy. I invite the House to carefully consider the rationale behind these reforms. Two factors stand out — vehicle ownership is increasing very quickly and roads are clogged up, particularly in urban areas. It is time to reward the more environmentally friendly user of roads.
This Bill recognises the fundamental importance of adequate public transport facilities to our society and economy. Under the Bill, motor tax rates for buses are being drastically reduced. The rates for smaller buses are being reduced proportionally more than for larger buses which tend to emit more pollutants. Taxis will also benefit with their tax rate being reduced from £60 to £47. This process of greening taxes is evolving and the cost of these first measures for buses and taxis is estimated at £700,000.
The requirement to identify the various needs and resources of individual local authorities so that available funds will be disbursed equitably is of the utmost importance. Indeed, the previous Minister for the Environment also recognised the need to effect equalisation measures. There has long been dissatisfaction in local government about the way in which the old rate support grant system was not fine tuned to respond to changing needs and circumstances. With the magnitude of the extra funding which will be available — £125 million more will be in the local government system compared with the funding available when this Government came into office — this need becomes even greater.
In this context, Galway County Council is being funded to carry out a pilot study on its needs and resources and those of the other local authorities in Galway, with a view to developing a model that can be applied to any local authority. However the model develops, it is important that it does not foster a begging bowl mentality among local authorities, where the Minister of the day is petitioned for funding to resolve a particular problem and thus decides allocations. We must achieve a model where various criteria are identified which contribute to higher or lower costs and where the capacity of a local authority to raise funds locally is factored in. In a sense, we move to a new playing field where the rules have been revised. The intention is to achieve maximum independence for local government, where local authorities resolve their own problems and make their own decisions, allied to an ingrained culture of delivering value for money services.
During the debates in the House last year, there was total support from all sides on the need for better value for money in all local government activities. These additional funds, which will be made available through this legislation, will have to be used wisely. Value for money is a key requirement of all publicly funded organisations, big or small. Our local government system must operate on a basis which gives value for money and is efficient, but not at the expense of its commitment to quality to the public. This message has been unambiguously stated by the Minister at his many meetings with local authorities throughout the country. Local authorities are aware of the Government's commitment to this philosophy and the intention to give greater discretion over their spending to those authorities which can demonstrate value for money in their various activities.
There are a number of positive and practical actions under way to develop the value for money agenda. The Department is working on the development of some initial performance indicators so that the efficiency of local authorities can be measured and compared with other local authorities. Naturally the proposals emerging here will have to be discussed with local authorities to review their practicality. It is important that performance indicators will focus on areas where local authorities have control over the achievement of objectives.
It will not be possible to introduce performance indicators which compare the costs of delivering services until further work has been done on the financial systems in place in local authorities. With this in mind, a study is being carried out by consultants to examine and appraise the existing system of costing in local authorities and to present a model suitable for present day financial management and performance measurement in local authorities. The existing costing system is not conducive to determining the true cost of providing individual services as there is a lack of consistency in how both direct and indirect costs are apportioned.
The existing form of accounts is in need of updating to make it clearer, more user-friendly and transparent. A fundamental change will be the move to a full accrual based accounting system, thus reflecting modern needs and practices. The Department is working with local authorities with a view to introducing these changes over the coming months and years. Next month will see the publication of an accounting code of practice. This will be the cornerstone of the new financial management systems, setting out the requirements local authorities must meet in conforming to accepted accountancy practices.
These issues are at an early stage and it will be some time before the extensive changes they will generate will be in place. However, I am anxious that the changes take place during the lifetime of this Government. The end result will be a buoyant funding system for local authorities and a modern and meaningful accounting and financial management system.
There are two other aspects of the Bill which are not related to funding. The first is the provision which provides for the postponement of local elections from June this year to June 1999.