SCOTLAND (EXCHEQUER EQUALISATION GRANT) (Hansard, 21 February 1967)

§ The Minister of State, Scottish Office (Dr. J. Dickson Mabon)
I beg to move, That the Exchequer Equalisation Grant (Notional Rent Income) (Scotland) Order 1967, dated 4th January 1967, a copy of which was laid before this House on 18th January, be approved. I will explain why the Order has come to be made, and what it does. Under Section 3 of the Local Government (Financial Provisions) (Scotland) Act, 1963, the Exchequer equalisation grants payable to authorities with council house rents below a certain standard are reduced. The standard for this purpose is 95 per cent. of the aggregate gross annual values of the houses—described in Section 3 as "notional rent income"—but the Secretary of State is empowered to alter this percentage in a year when a general revaluation takes place, as in 1966–67.
Before I go on to justify this procedure, I should, perhaps, mention that there seems to be a misunderstanding about this, arising from our previous discussion. The 1963 Act was quite relentless in its application, for it was designed to protect the Exchequer rather than influence rents in Scotland. I understand that birth was given to that Act as a result of criticisms expressed by the Public Accounts Committee. The trouble with the Measure was that it did not take account of the circumstances, for if rents were raised, then deductions were made—a sensible arrangement—but if rents were not raised, the deductions were still made.
There has been a misunderstanding about this on the part of some hon. Gentlemen opposite, and I trust that the hon. Member for Moray and Nairn (Mr. G. Campbell) will not fall into the error of believing that some deductions would not have been made. What I am saying in moving this Order should be considered against this background, and if hon. Members ask me specific questions about areas in Scotland I should be able to answer them, since I have come armed with the necessary figures to demonstrate the effect of these provisions on the various areas.
1580 The three figures mentioned in the original Act are 85 per cent., 90 per cent. and 95 per cent., but the 95 per cent. related to the last financial year of the old valuation; that is, the 1961 valuation. This year, 1966–67, being the year of the new valuation, is the first occasion on which we could introduce this Order.
Revaluation in Scotland has increased gross annual values and, therefore, the notional rent which 95 per cent. represents. As part of the prices and incomes standstill last July, however, local authorities were asked to freeze rents; and more recently, in the present period of severe restraint, they have been advised to increase rents only where this is unavoidable. Recognising that local authorities were thus inhibited from taking action after July to avoid the statutory reduction of grant, the Secretary of State proposes in this Order that the standard for the current financial year should be reduced to 90 per cent. of the new gross annual values.
As an alternative to the 95 per cent. standard, the 1963 Act permits local authorities to have their grant calculated on 100 per cent. of the gross annual values of council houses, less rent rebates awarded under a scheme approved by the Secretary of State, which could be beneficial if rebates total more than 5 per cent. of gross annual values. The Order reduces the 100 per cent. to 95 per cent., as a corollary of the main proposal, and this is paralleled by columns one and two of Schedule 4 of the previous Order, which we were discussing along similar lines. To that extent, and only to that extent, can we say that we have borrowed this pattern from the 1963 Act. But it is essential to look at it against the background of the wider issue. No authorities have as yet applied to have their grant so calculated for the current year.
The Order will help all authorities with rents under 95 per cent. of the new gross annual values, and aggregate deductions from equalisation grant for the current year will be reduced from £1,250,000 to £970,000. In other words, it was the intention of the previous Government in this revaluation year that £1,250,000 should be taken away in respect of equalisation grants of local authorities on the assumption that the local authorities 1581 would have reached 95 per cent. of gross annual values or, with the adjustment I mentioned earlier, 100 per cent. in respect of approved rent rebates. This was the assumption of the previous Government. I shall not debate it, but it was the assumption which we now seek to amend.
The Secretary of State, therefore, is here, so to speak, not witnessing £1,250,000 being taken away from local authorities but is reducing that deduction, which is automatic, to £970,000, a saving of £280,000 to the local authorities. When a revised grant calculation is made in the next few months, on more up-to-date information—which is still being processed—it is likely that the reductions under Section 3 will be smaller still. I can say at the moment, without the processing having been done, that the number of authorities whose grants are provisionally being reduced this year will fall from 170 to 154. I hope that, with the processing and the more up-to-date information which we shall have, the number may be reduced to a little over 100. The number of authorities which have postponed rent increases previously planned as a result of the prices and incomes policy—I am bound to be asked this—is 110.
This is the only mechanism we have to hand to make this adjustment. There is no other way of helping local authorities to meet their difficulties occasioned by the prices and incomes standstill. I must say here, on behalf of my right hon. Friend, that we are remarkably impressed by the immense good sense and loyalty shown by local authorities in response to the Government's appeal not to raise rents in the first period of the standstill and to be very circumspect in their consideration during the second period of severe restraint, in which we now are.
I must be frank with the House. In our discussions with the local authorities, a difference of view has arisen, though I say at once that the difference of view is occasioned not so much by the position regarding rents as by an earlier meeting I had with the associations in June. In June, before the standstill came in, the associations asked to meet the Minister responsible to the Secretary of State for this matter, and at that meeting they 1582 argued that we should make such an Order. This was long before the rent standstill came in, with its consequences for the local authorities.
I responded to the authorities' case by using what I regard as two quite reasonable arguments. The first was that, in as early as March—indeed, for that matter, in February—since they were privy to their own figures earlier than we were enlightened about the figures for Scotland as a whole, as we had to collect them from everyone, the local authorities could have made a case for this sort of Order—on grounds other than the prices standstill, of course—but they did not do so. Hon. Members who take an interest in local government affairs in Scotland will recall that, at the conference of the Institute of Municipal Treasurers and Accountants in Arbroath in March, 1966, I had occasion to point out—I did it quite deliberately, and the Institute knew that I was doing it deliberately—that we did not, in a revaluation year, want an increase in rate burdens of the order of those experienced in 1961–62, namely 19 per cent.
One point I made was that they were entitled to discuss this at some appropriate time between then and the time when we would bring in this Order. The second point I made was that, whatever the level was, it was bound to affect the figures chosen for the rate support grant Order, which we have just discussed, which would be coming forward consequent on the passing of the Local Government (Scotland) Act, 1966. So they accepted this for the moment. I do not say they accepted it completely, but they accepted that they would press no more for that and, as we all know, in Parliament the matter was not raised.
But it was raised, quite rightly, later on when the standstill began to have its effect. The Association of County Councils, the Counties of Cities Association and the Convention of Royal Burghs were informed of the proposed terms of the Order before it was made. Supported by the Cities and the Convention, the County Councils' Association expressed disappointment with the limited concession on notional rent, that is the reduction only to 90 per cent. of gross annual values, and pointed out that it would not prevent some local authorities 1583 suffering a loss of grant as a result of the standstill. They argued that the standard under the Order should have been such that local authorities which had fixed rents at 95 per cent. of the old gross annual values before revaluation should not suffer any loss.
The Association was very good about this, and I pay due credit to them for the immense pains they took in preparing their case. I have the whole submission they made to Ministers here with me. We examined this very closely, but as I said to them on behalf of the Secretary of State, we could not accept their argument because the three authorities in the memorandum who had intended to reach 95 per cent. but were prevented by the standstill from doing so, in fact by their own table, did not suffer deduction of Exchequer equalisation grant.
I may say for the interests of the hon. Member for Dumfries (Mr. Hector Monro) that his own county was taken as an example, and so were Arbroath and Dunfermline. But these three examples which the Association sought to argue their case upon were three examples where no deduction of E.E.G. had occurred.
The remaining authorities did not intend to go up to 95 per cent. in 1966–67, and consequently they cannot blame the deductions on the standstill. My own authority, Greenock, would not have been able to avoid a deduction because they had not raised their rents, whether or not the standstill had intervened. They had intended to do so, but they had not planned this in time. I may say we have been a victim of the 1963 Act on four occasions now. I am very glad that this is the last matter we shall have to raise on the 1963 Act, and we can now go on to a better relationship with the local authorities in regard to these Orders.
The effect of the Order we are discussing tonight is to prevent the deduction rising as it would otherwise have done. I may say, though, that Clydebank, Hamilton and Kilmarnock, which had not proposed to raise rents in any case, do benefit by this Order. But the losses of grant by some authorities were not due to them observing the rents standstill but to their reluctance to raise rents to 95 per cent. In fact what we will be 1584 doing now will be keeping the figure for the current year at 90 per cent., taking it up to 95 per cent. in the next year and 100 per cent in the year thereafter.
I commend the Order to the House.

§ Mr. Gordon Campbell (Moray and Nairn)
I will not reopen the whole question of the 1963 debate, but the hon. Gentleman mentioned the Public Accounts Committee in passing, and I would merely say that my recollection is that it was the present Prime Minister who was Chairman of it at the time.
This Order attempts to compensate local authorities, as I understand it, for two things. Firstly, the recent revaluation, and secondly, the fact that 110 of them so far have acceded to the Government's request not to raise rents during the standstill, commonly known as the freeze. The effect of the Order appears simply to be to reduce by 5 per cent. the notional rent in terms of gross annual value for 1967. Our doubt is whether this will compensate all local authorities which intended to increase rents. Looking at some of the revaluations, it appears that the average increase is about 20 per cent. Some local authority gross annual values seem also to have gone up into percentages in the thirties.
I am sure that hon. Members on both sides wonder whether a mere 5 per cent. will compensate for this considerable percentage increase in gross annual value as a result of revaluation. In addition to that, there are the local authorities which intended to put up their rents—the result of which would have been that they probably would not suffer Exchequer equalisation grant deduction or that their vulnerability to deduction would be lessened—and which were then asked not to do so, and they acceded to the Government's request.
I put Questions to the Secretary of State about this on 18th January but his Answers made the position little clearer. I recognise that within the scope of Parliamentary Answers, which in that case had to be written, it may not have been possible to explain it. I will not, however, take up further time with it tonight. If the Minister of State cannot answer the point tonight, we will pursue it and hope that he will be able to provide us with further information later. 1585 Can the hon. Gentleman state whether any local authority which acceded to the Government's request not to increase rents as it proposed to do will suffer by losing some of the Exchequer equalisation grant which otherwise it would have received? If the hon. Gentleman cannot give the answer tonight, the effect may be that the Order does not compensate entirely all the local authorities which have, as the hon. Gentleman said, cooperated with the Government over the standstill on rents.

§ Sir John Gilmour (Fife, East)
rose——

§ Mr. James Davidson (Aberdeenshire, West)
The point of the Order is to compensate for revaluation and for the freeze, but at first glance it appears that it might raise the proportion of rent which is subsidised by the Treasury. I understand, however, that it will not have this effect.
I would like to take this opportunity to make a few remarks about the relation of subsidy and council house rents. This is a very sore subject. The owner-occupier is inclined to regard the council house tenant as being unfairly subsidised, whereas the council house tenant regards the owner-occupier as a man of means who can easily afford to buy his own house. The term "rent" is very loosely used.
I understand that the local standard rent, which is a fixed proportion of gross annual value, varies widely from 75 to 100 per cent., although the percentages mentioned in the Order are on a much narrower basis. The Order appears to raise the Exchequer equalisation grant and, therefore, raises the proportion of rent that will be subsidised from central sources.
We should turn our faces towards a much more realistic rent attitude. Local authorities should possibly take this opportunity to consider charging rents based on 100 per cent. of gross annual value with rebates for those who cannot afford them. In other words, the subsidy should he for the needy family and not for the dwelling. There is a great injustice when the ratepayer has to subsidise the council tenant, who may well be better off than himself.
1586 That is a frequent occurrence in a rural area, where a high proportion of the population live in small, often rather mean dwellings with a relatively high rating valuation and indirectly are subsidising people better off than themselves living in council houses. That may not be true in urban areas, but it is true in many rural areas. A realistic rent does not mean a true economic rent, which I believe would be nearly 10 per cent. of the cost price of a dwelling, but a major item in it is the interest paid to the Government. Will the Minister clarify whether that means that the intention is that a higher proportion of the rent paid will now be subsidised from central sources?

§ Dr. Dickson Mabon
I hesitated to rise because I thought that the hon. Member for Fife, East (Sir J. Gilmour) was going to make a comment.
I cannot answer the hon. Member for Aberdeenshire, West (Mr. James Davidson) off the cuff. The intention of the Order is not to do any more than to strike a balance between the taxpayers' interests and fairness to local authorities which have responded to the Government's pleas that during the period of standstill and severe restraint there should be restraint on rents and that they should not raise them unnecessarily. Almost all froze rents between the appeal of 20th July and 31st December. I shall examine the matter and perhaps discuss it with the hon. Gentleman.
The consequences of the previous Order are perhaps more interesting, since they will affect the next two financial years. There is an entirely different climate of opinion, but I cannot give the exact ratio of balance.
I am afraid that the hon. Member for Moray and Nairn (Mr. G. Campbell) will have to pursue me on his request for an assurance that all the 110 authorities who responded so nobly to the Government's plea will be helped by the Order and that none will suffer. I hope that all will be covered when we refine the calculations which we are now doing. I hinted that the 170 affected would be reduced to something over 100.
Some of the authorities doing nothing, like Clydebank and Kilmarnock, are helped by the Order. Not everyone who 1587 has been helping the Government is helped by the Order at present, and not everyone who did nothing about it is without aid. Even if they have not been helpful, authorities are getting aid. I am sorry, but this is the only instrument we have.
The essential point is to strike a balance between the taxpayers, who are to be protected, and the local authorities which played fair by us. The hon. Gentleman should pursue us on this, because until we know the final calculation on Exchequer equalisation grant for this year—he knows from his experience that that will take us several months in the first instance, and probably some time into next year—we shall not know whether we have been fair to all those who have been loyal to us, which I would like to happen. We are trying to achieve that in the Order, and are doing the best we can in the circumstances.

§ Mr. G. Campbell
The question is whether 5 per cent. is enough in a revaluation year to cover the rent. We shall certainly pursue it.