Mr Gummer said: 'This year we have undertaken a thorough review of how SSAs are calculated, in consultation with the local authority associations.
'The review had two essential purposes: first, to bring the system up to date by incorporating detailed information on social characteristics now available from the 1991 Census; and second, to review the elements which make up the SSA calculation by reappraising the factors which determine necessary local authority expenditure.
'Having considered the evidence, I am proposing to reduce the present weight assigned to the allowance for Additional Needs within the Education element. This is in the light of an updated statistical analysis of the proportion of local education authority spending which is attributable to additional needs.
'In the Personal Social Services element, I am proposing a number of changes to the underlying indicators. In particular, for the assessments associated with elderly persons in need of domiciliary and residential care, I propose to introduce an indicator of long-term illness.
'For residential care I also propose to adjust the calculation to reflect authorities' responsibilities under the Community Care arrangements.
One of the most controversial features of the method of calculating SSAs since they were introduced in 1990-91 has been the measurement of social conditions by means of the All Ages Social Index.
'This index aims to provide a broad measure of social conditions which are likely to affect the cost to local authorities of providing services. A large number of authorities have suggested that a wider range of social and economic indicators should be incorporated in SSAs.
'I have looked very carefully at the evidence and I am proposing to introduce a revised social index and an economic index, which will include indicators of unemployment, ill health and homelessness.
'I am also proposing to make allowance for the numbers of day visitors within the assessment of services for districts.
'Previously we did not have reliable data on a consistent basis for all authorities, but as a result of research commissioned for the purpose we now have the necessary estimates of numbers of day visitors by authority.
'I have thought most carefully about the issue of the adjustment to take account of additional employment costs in London and the South East. This is an issue where opinions are sharply divided, reflecting the experiences of authorities in different parts of the country.
'I have concluded that there is firm evidence to support the present level of allowance for employment costs and that there is justification for a further small addition for the cost of business rates. This is what I am proposing.
'I recognise that the outcome of the review as a whole will not please everyone. However, my proposals for 1994-95 are firmly based on the available statistical evidence and I am confident that they will stand up to scrutiny.
'The system is fair, rational, up to date and comprehensive. Each of the proposed changes has been subject to the most rigorous analysis and has been incorporated only if it was resilient to that analysis.
'At the level of the individual authority, the effect of my proposals will vary. Changing a means of distribution to make it fairer produces losers as well as gainers.
'I recognise that authorities facing a reduction in SSA will need time to adjust their spending. I therefore propose to set aside some £280 million for a special grant for authorities whose SSAs are reduced by more than 2% as a result of the incorporation of the more detailed information from the 1991 Census and of the review.
The grant will be paid in support of expenditure by those authorities, cushioning the impact on council tax payers. I will review the situation next year before deciding whether to extend this transitional measure'.