RATE SUPPORT GRANT

HC Deb 27 January 1970 vol 794 cc1468-78

4.50 a.m.

Mr. Julian Ridsdale (Harwich)

Even at this early hour of the morning I welcome the opportunity of speaking about the interests of the ratepayer, particularly after the interests of the teachers and others have been advocated. I welcome this opportunity to speak on the rate support grant to local revenue, totalling some £1,536,837,000 for 1969–70, and some £693 million for the Vote on Account for 1970–71 and the £70,920,000 Supplementary Estimate needed. When I first heard that the Supplementary Estimate for 1969–70 was £70,920,000 I thought and hoped that at least some part of that sum would go towards helping close the gap in primary school building.

It might in some way have helped towards building some necessary highways or on some desirable expenditure on the elderly, particularly those in need. What a shock it was to find that all of this sum, and more, is pre-empted because of the salary increases or loan interest charges. What have been the total sums involved? I estimate that for 1969–70 the principal increases include an additional £49.7 million for teachers' salaries, not including the probable £25 million to £30 million cost of the present settlement; £16.1 million for the pay award to manual workers; £19.9 million for other pay awards; £321 million for higher interest charges and £4.7 million for increased national insurance contributions.

This is a total of £122.4 million, or, if we include the probable settlement on the new teachers' claim, £150 million. Let us be clear that this Supplementary Estimate of 1970 in itself does not even cover the increased costs that wage inflation has imposed on local government revenue. It has been millions for nothing so far as improving amenities in local government is concerned.

On 16th January, 1968, following devaluation, the Prime Minister told us that the rate support grant would not be increased to take account of increased costs. He said that the Government would expect local authorities to absorb increases in costs which they could not absorb by making savings elsewhere. This meant that, although local authority expenditure for grant purposes over the last 10 years had been allowed to increase at an average rate of 6 per cent. in real terms, for 1969–70 the rate of increase was to be halved, and for 1970–71 it will be equivalent to a cut of one-sixth.

What a dilemma this has been for local authorities. Not only are they having to face severe cuts in the rates when there had usually been increases, but they have to face additional wage increases, not fully covered by the Supplementary Estimates. They have therefore, by a deliberate act of Government policy, been faced either with cutting the standard services or increasing the rates. In reality, it has meant that they have been faced with both.

In my constituency I know how this has slowed down the primary school building programme in North-East Essex, and how, in Brightlingsea, where there is severe overcrowding, the new junior school planned there has had to be delayed. The 1968–69 capital programme for school building in North-East Essex totalled just over £2 milion and the Ministry eventually slashed that to under £300,000—a cut of 77 per cent.

This is what the cutting down of the rate support grant and cuts in spending has meant. It has hit education particularly hard, especially the school building programme. Highways have also been affected. For example, in my constituency the bypass so badly needed at Dovercourt has had to be postponed. Yet this is a vital road to the port of Harwich. To their credit the local authorities, as far as they have been able, have tried to prevent some severe cuts in welfare services which fall on the elderly. In the end financial realities have to be faced. Further cuts are very difficult to make and a severe rate rise seems inevitable.

May I ask the Minister two questions, one in detail about the domestic element of the rate support grant and the second in general about the financing of local government expenditure. What is to be Government policy towards the domestic element of the rate support grant, in view of the severe increases in rates threatened and the burden that this will place on the property owner, particularly the small bungalow or house owner and lower wage earner of which there are so many in North-East Essex.

Is it the Government's intention to revise the figure of £100 million, which was the sum fixed some time ago, to help such people, particularly the retired. When fixed, it surely did not envisage the kind of burdens the Government have placed on the country. Did the domestic element take into account devaluation or its results? Surely the Minister realises that something must be done to help the domestic ratepayer, faced as he is with increases in the cost of living on all sides. Does he realise how worried many elderly people are by the forms which are at present being circulated asking what central heating units have been put into houses since the last valuation? Why could not the Government have waited at least until they had a clearer idea about the reform of the financing of local government.

This is a section of the community that is without any trade union spokesman to fight its battles. It is because I know of the severe increases in rates they may have to face that I ask the Government to look again to see whether it is possible to increase this domestic element of the rate support grant. I should like to see a fair policy for rates as well as a fair policy for rents.

Why have the Government been so slow in formulating plans for the financing of local government? Need I remind the Minister that the Labour manifesto in the 1964 election, somewhat ironically entitled "The New Britain"—we certainly have a new Britain, but not that we were led to expect in 1964— made a categorical pledge, on page 14, to transfer the larger part of the cost of teachers' salaries from the rates to the Exchequer. Alas, the new grants we have been discussing take no account of further salary awards that may be made to teachers, which could cost local authorities between £25 and £30 million.

What are the Government's intentions towards the reform of local government finance? We have had the Maud Committee's report but nothing yet about reform of local government finance, about which I have spoken so many times in the House in the past, in order to avoid the very problems which at present face the ratepayers, particularly the small property owner, the retired and the lower-wage earners.

When will the Government publish their proposals for the reform of local government finance? Let me make a plea once again for reality. The fact is that any proposals the Government might make for local government finance will take a considerable time to implement. This is why I press the Government to look again at the domestic needs element in the rate support grant. Surely this is the only way at present to help the domestic ratepayer now that the Government have failed to honour their pledge to transfer the larger part of teachers' salaries from the rates to the Exchequer, for it is the increase in educational costs which present the main burden to ratepayers.

Why should the ratepayer be shouldered with this enormous burden which is equivalent to the same kind of burden which the Exchequer has to face in defence at present? I am convinced that, until other means are found to finance local government, domestic ratepayers should at least be protected from the present education burdens which are placed on their shoulders. Surely the only way that this can be done, since the Government have been so slow to formulate any ideas about the reform of the finances of local government, is to increase the domestic element of the rate support grant.

Finally, in case the Minister accuses me of advocating economy in general but expenditure in particular, I should like to say that last week I endeavoured to catch Mr. Speaker's eye, but without avail, in the debate on public expenditure. I fully realise that the only way to solve so many of these problems is to see that we expand our gross national product and that we make more wealth. This can be done only with the utmost of restraint. We must see to it that savings are taken up for investment in industry. This is the long-term solution to our problems. Alas, it is not yet being achieved. But in order to carry out such a policy, economies must not fall on those least able to bear them.

That is why I wish to see a fair rates policy and, above all, the reform of local government finance. It is only in the latter that an adequate structure can be made which will protect the ratepayer and, in the long term, be in the interests of the country as a whole.

5.0 a.m.

The Minister of State, Ministry of Housing and Local Government (Mr. Denis Howell)

Even at this late hour, I hope that I shall be forgiven if I go over some of the points raised by the hon. Member for Harwich (Mr. Rids-dale) with a view to convincing him that he is wide of the mark in respect of his general case.

The first point that he discussed was in respect of the supplementary rate grant, which was debated fully in the House on 15th December. I explained then that that grant was in respect of the increase in salaries which had occurred during the year over and above the negotiated settlement which the Government always have with local authorities. It was the subject of complete agreement with the local authority associations, and, therefore, had little to do with the rate of growth of local government services. Instead, it had to do with the increased salaries paid in respect of the rate of growth which had been the subject of the original main order.

I will return to the growth of local government services in a moment, because it is important. It is also important not to confuse the main grant order, which deals year by year with the rate of growth, with the supplementary order, which is not concerned with the main question but with the increased rates of pay necessary to implement the main Order.

Teachers' salaries are now becoming rather "old hat", although it was pertinent for the hon. Gentleman to remind us that the Government said originally in 1966 that they might transfer teachers' salaries to the Exchequer. This was before the implementation of the special arrangements for assisting the domestic ratepayer which were introduced in 1967–68, which have increased by 5d. a year since, and will reach next year an amount equivalent to is. 8d. in the £ of special rate to every domestic ratepayer in the country.

The hon. Gentleman seemed to argue like Oliver Twist. He wanted an increase in the help given to domestic ratepayers, and the burden of the teachers' salaries transferred as well. He asked not for more, but for more and more. His right hon. and hon. Friends always advocate more autonomy for local government. Such a wholesale transfer from the ratepayer to the taxpayer, as well as the domestic rate element, is hardly a proper arrangement if local government is to be kept in a healthy form.

Mr. Ridsdale

When the hon. Gentleman has an opportunity to see my speech in print, he will see that I was not advocating that kind of expenditure. I was asking the Government to honour some of their election pledges.

Mr. Howell

Certainly, and I am saying that it is exactly what they have done. By the introduction of special help to the domestic ratepayer where it is needed most, not only have they honoured an election pledge, they have had an outstanding success. I was sorry that the hon. Gentleman said nothing about the success of the Government in keeping down rates without restricting local government services unduly.

In so far as the hon. Gentleman said, first, that the domestic rate element ought to be increased even above that which it will be next year, namely, 1s. 8d. in the pound, and, secondly, that teachers' salaries ought to be transferred, I was saying that he was asking for more and more and more, a position which any hon. Member given responsibility for public expenditure could not take up.

I come now to what the Government have achieved. This is a success story. Even at this time in the morning, I am delighted to take the opportunity to spell it out, because not enough is known about the matter. The bald fact is that since 1966–67 the average amount paid by the domestic ratepayer in this country has increased in each year by just over 7 per cent. compared with 26 per cent. per year in the last three years of the previous course Administration. That was the position before the domestic rate support grant was introduced. Comparing those figures we see the magnitude of the Government's achievement in this respect.

Rates had been going up steadily by an average of about 10d. per year. The Government's achievement in the last three years has been to reduce that to exactly half. So there has been only an increase of 5d. because of the domestic rate element.

I should like to explain the actual figures and, at the same time, give the figures for the growth of local government services as a whole. In that way the hon. Gentleman will see that the Government's achievements are twofold. First, to peg what the domestic ratepayer has been asked to pay in a way which all of us wish that we could have achieved with the prices of many other commodities, and, secondly, to show the growth of local government services which has occurred, notwithstanding our achievement for the domestic ratepayer.

In 1967–68, the first year that the new domestic help of 5d. came in, there was no increase in the average rate poundage for the country as a whole for the domestic ratepayer, but there was a 6 per cent. growth in local government services. In 1968–69, the second year, when the help to the domestic ratepayer went up to 10d., there was an average increase of 1d. in the rate poundage and a 3 per cent. growth in local government services.

In the third year, which is just coming to an end, when the help to the domestic ratepayer went up to 1 s. 3d. in the pound, the average increase for the domestic ratepayer has been 5d. and the growth in local government services as a whole has been 4.2 per cent.

Next year, which starts on 1st April, when the help to every domestic ratepayer will be 1s. 8d., although we do not yet know what the average increase will be, the growth in local government services is estimated to be 5 per cent. That 1s. 8d. to the domestic ratepayer will cost the country £100 million. The Government feel that this will be money well spent. In the terms which the hon. Gentleman put his strictures on the Government, this is £100 million in honour of our election promise to keep the domestic rate burden down.

I am sorry that this fact does not figure in the propaganda speeches of hon. Gentlemen opposite. We do not begrudge this money. In fact, we designed that it would be there during a period of prices and incomes control for the express purpose of maintaining stability for the average ratepayer, whilst at the same time providing some reasonable degree of growth in local authority services.

The hon. Gentleman said a great deal about things that were not going to happen in his constituency and elsewhere. The fact is that the 5 per cent. growth in local government services which we estimate for the coming financial year compares with a 3 per cent. growth rate for the economy as a whole, as forecast by the White Paper, so that even on this count the Government have done reasonably well by local government.

I think that the hon. Gentleman was confused about these matters. I have been looking at the situation in his constituency of Harwich, and I find that ratepayers there get more help than the average for the country because the hon. Gentleman's constituency has below the average amount of industry. Over England and Wales as a whole, 44 per cent. of the rate borne expenditure is provided by the ordinary domestic ratepayer. At Harwich, the figure is 63 per cent. and at Frinton and Walton it is 75 per cent. Thus, as the Government give special help to the domestic ratepayer, it must follow that those areas which have an above average amount of domestic ratepayers compared with industrial ratepayers get more help from the Government than is provided in my constituency in Birmingham and elsewhere.

Mr. Ridsdale

In the last five or six years the population of this area has risen by more than 20,000, and the amount of money obtained from the Government in no way helps to overcome the difficulties which face those people in the form of providing increased services.

Mr. Howell

I do not want to minimise the difficulties of expanding towns. This happens in many parts of the country, but when the expansion is almost exclusively in housebuilding, as distinct from factory building, that local authority is comparatively better off under our arrangements for helping the domestic ratepayer than are local authorities in other parts of the country.

The hon. Gentleman referred to the school building programme, and to the new form which has been sent to householders in connection with central heating. I think that the hon. Gentleman was wrong in his analysis of school building. There has been no cut in this programme, and even though this debate is not about the school building programme I should like to make the position clear. Having spent five years in this Department, the facts are clearly in my mind. The programme this year will be £125 million, which is twice what it was in 1965–66 when the hon. Gentleman and his colleagues left office. That is no mean achievement when seen against the background of five difficult years for the economy as a whole.

It may be that this £125 million programme is inadequate, and that the hon. Gentleman's constituency has not received all that it wanted, but that does not represent a cut in school building. One of the difficult tasks which the Secretary of State for Education and Science has to perform is to decide where that £125 million should be spent. Nobody knows better than my right hon. Friend does that he would like to have more than that sum to spend. The question is how much the economy can stand, and the Government's judgment is that £125 million is right. I note what the hon. Gentleman says about disappointment on this score, even though the overall figure is twice what it was five years ago. No doubt, the Department of Education and Science will take his local requirements into account.

Now, the question of the circular going to all households in the country under the new rating procedure. I cannot understand why it should surprise anyone that there is a question about central heating. A general review of rateable values has to go on. Rightly or wrongly—I have some sympathy with the view that it is illogical, but no one has been able to devise a better system —the rateable value of a house is determined by the rent at which it can be let. Obviously, therefore, improvements in a house affect the rateable value. If central heating is put in, the rental value, and thus the rateable value, of the house must be increased.

Mr. Ridsdale

Shame.

Mr. Howell

The hon. Gentleman says, "Shame", but that is the valuation system with which his party and mine have had to grapple over the years. So long as it remains the law—it was a Tory Government who introduced it, I believe—that will be the basis of our rating system. I happen to regard it as an illogical system. I have thought about it long and hard, trying to devise an alternative. To his credit, the hon. Gentleman has tried to do the same, producing on one occasion the idea of a local sites tax. When I sat on his side of the House, I tried to develop the idea of a local income tax. Unfortunately, all these other ideas, when subjected to detailed analysis, reveal themselves as defective or likely to put up the cost of living. Having looked at the question from this side of the fence, I am sure that they would be subject to even more hostility than the present system.

Mr. G. B. H. Currie (Down, North)

Does rot the hon. Gentleman agree that those who earn money should help to pay the, rates? Children often bring in £20 or £30 a week, but they do not pay a halfpenny of local rates. That seems quite wrong.

Mr. Howell

That was exactly the point of the speech which I made from the Opposition side of the House six or seven years ago. I have a good deal of sympathy with what the hon. Gentleman says, but he will, I am sure, recognise that the one thing which gives great offence to either ratepayer or taxpayer is taxation determined by income, and the whole movement of opinion seems to be the other way at the moment. Regrettable as that may seem to the hon. Gentleman and myself and others who favour direct taxation, that is the climate of opinion, apparently, and no Government—

Mr. Currie

We should form our own party, I suggest.

Mr. Howell

I did my part some years ago. I have regretfully put it down as one of the great lost causes of history.

Now, the question of the future of local government finance after Redcliffe-Maud. The Government are soon to publish in a White Paper their thinking on the Redcliffe-Maud proposals as a whole. I am glad to tell the House that a fundamental review of local government finance and the principles behind it has now been started in my Ministry. All the local authority associations and others have to be consulted and this is bound to take time. Our conclusions about the future financing of local government—as distinct from the shape of local government, on which the White Paper will concentrate— will be published as White Paper No. 2 on local government reform, or some other means will be found of introducing the Government's thinking and collecting the opinion of local authority associations.

This is not being neglected. It is detailed and involved and fundamental but it must follow the thinking on the future shape of local government and should not precede that thinking. The Royal Commission itself recognised these facts.