RATE SUPPORT GRANT

HC Deb 12 December 1974 vol 883 cc784-836

Mr. Speaker

Before calling upon the Secretary of State for the Environment to move his motion relating to rate support grant, I will tell the House that I have not selected the amendment in the name of the hon. Member for Carmarthen (Mr. Evans); and that it is the custom and practice that we should take the first two items on the Order Paper together—that is, the Rate Support Grant (No. 2) Order 1974 and the Rate Support Grant (Increase) Order 1974, unless there is objection.

4.10 p.m.

The Secretary of State for the Environment (Mr. Anthony Crosland)

I beg to move, That the Rate Support Grant (No. 2) Order 1974, a copy of which was laid before this House on 5th December, be approved. When we last debated rates on 20th November I was in the final stages of the negotiations on rate support grant and therefore not in a position to give any hint of relief for hard-pressed ratepayers. Since I could say nothing. I chose to say it in a lighthearted rather than solemn manner but the effect was that I was soundly rebuked by the Savonarola of the Tory benches, the hon. Member for Hornsey (Mr. Rossi). I promise that my speech this afternoon will not contain a single joke.

Only now, therefore, can I commend to the House a settlement which greatly reduces the threat of massive rate increases next year. The threat was only too real. Our estimates showed that if we did not take exceptional action this year, domestic rates next year would have gone up on an average by 70 to 75 per cent., and in many cases by 80, 90, or 100 per cent, or even more.

The hon. Member for Southend, West (Mr. Channon) in the last debate spelled out to the House just how severe were the increases looming over particular local authorities, and the forecasts of treasurers up and down the country bore him out. Why were the prospects so grim? First, of course, because of the general level of inflation. Local authority costs, as we all know, are peculiarly vulnerable to inflation. Their services are labour-intensive, yet there is much less scope than in other parts of the economy for obtaining offsetting gains in productivity. So inflation hits local authorities hard, whatever is happening to the real standards of their services.

Secondly, we face the problem caused by past under-rating for inflation. Local authorities have been increasingly forced into massive and expensive short-term borrowings which have meant that this year they were half lost before they started. I do not wish to be party political today, so I forbear from mentioning my predecessor's advice, only too readily followed, to assume only a 9 per cent, rate of inflation.

Thirdly, we face the continuing impact of a reorganisation of local government which in our view has proved, as we forecast it would, expensive and uneconomic. Lastly, central government had lost all control over actual local authority expenditure. I strongly support, as all of those on this side of the House support, a steady increase in desirable public expenditure. But the increase must bear some reasonable relationship to the general rate of economic growth.

In the last three years, local authority spending has gone up much faster than Britain in our present economic plight can possibly afford—in 1972–73 up 8 per cent.; in 1973–74 up 8 per cent. ; and in 1974–75 up possibly into double figures. All this, of course, is in real terms and has nothing to do with inflation. Growth at this rate cannot go on for ever, and it is the job of the Government—I hope supported by hon. Members in all parts of the House—to convince local authorities of this essential fact of life.

That, then, was the situation, the legacy, which we faced when we began the grant negotiations this year. The first thing was to deal with the problem of past under-estimates of inflation. I have done this through the mechanism of the 1974–75 increase order. That order is, of course, designed mainly to help authorities with the effects of inflation in the current year, in this case 1974–75. The latest estimate that we have for the increase in pay and prices relevant to this order is £1,200 million. I propose to pay grant on this at the same percentage rate as in the main 1974-75 Rate Support Grant Order—that is, 60.5 per cent. But on top of this, which, as hon. Members will be aware, is the usual increase order payment, I propose to give local authorities a further £350 million. This is a once-for-all payment. Its aim is broadly to compensate authorities for their past underestimation of inflation when they followed the advice of the last administration.

I stress that this £350 million represents a quite exceptional extra payment to cover the problems which local authorities have experienced in 1974–75. Looked at nationally, it should enable authorities to start next year, 1975–76, without a massive carry-over of deficits, though I cannot guarantee that it will clear the deficit of every individual authority.

We cannot repeat this exceptional payment and in any second increase order which may be made the grant percentage will revert to 60.5 per cent., but, I hope, looked at nationally, we shall have wiped the slate clean and put authorities in a position to tackle next year's problems from a sounder base. For future years if, post-Layfield, the system continues, we shall want to talk with local authorities on what improvements we can make to the whole mechanism of increase orders.

Turning to next year, I discuss, first, how we set the total amount of expenditure on which the Government are willing to pay grant; then the percentage of that expenditure which the Government will finance ; and then the distribution of the Government grant between different local authorities.

Under the terms of the Local Government Act 1974, from which this order derives, my Department and the local authority associations forecast each year the total of local authority relevant expenditure—a term which covers virtually all net local authority expenditure met out of the revenue.

This year, for the first time, specific grants for most highways and transportation expenditure are replaced by the new transport supplementary grant, so all estimated local authority expenditure on transport, apart from that estimated to be met from borrowing, is now considered as relevant expenditure. This year we have had to look far more stringently than in the past at the expenditure which we can accept. We face, as the House well knows, a quite exceptionally grave economic situation and local authority spending can no more escape the consequences of this situation than can any other form of desirable spending.

We began by examining various alternative levels of spending, but as the bleakness of the economic outlook became clearer it was obvious that we should have to go for an exceedingly tough option. We discussed this in very great detail with the local authority associations. We finally decided that we should allow for no real growth in spending next year over the best estimate of this year's spending except for an allowance for inescapable commitments. The inescapable commitments that we have in mind are such as the revenue consequences of capital commitments, the cost in a full year of staff recruited for less than a full year during 1974–75 and extra spending made necessary by demographic changes and so on.

We calculate that these inescapable commitments mean a real growth on average of some 4 per cent, next year. But I must emphasise that not every authority will have a growth rate of 4 per cent. Some must have a great deal less if the overall 4 per cent, is to be achieved, since in other areas the inescapable commitments will amount to more than 4 per cent. The broad and often harsh implications for different services are set out in the report on the order which has been laid before the House.

The total for relevant expenditure which we arrive at is £8,171 million—that is, at current November 1974 prices. This sounds like a large sum, and indeed it is a large sum. But at the same time it represents a severe reduction—of over one half—in the rate growth in the real spending which has occurred in the last three years. I shall discuss later how we are to ensure that this lower rate of growth is achieved in practice.

When the level of relevant expenditure is agreed, the Exchequer grant is fixed as a percentage of it. Last year this was set at 60.5 per cent. If we had stuck to that figure this year we should have suffered the massive rate increases which were hanging over us before this settlement was made, and which treasurers up and down the country were so vividly forecasting. We therefore decided on a large increase, and settled on a grant percentage of 66.5 per cent, of relevant expenditure. That is an increase—an unprecedented increase—of six full percentage points over the last year.

The total of relevant expenditure agreed with the local authority associations is £8,171 million ; the rate of grant is 665 per cent, and, according to the slide rule, that means total Exchequer help of £5,434 million—a massive increase in Government help. It means about £2,000 million more in grant for local authorities next year than in the corresponding settlement this year. Provided that local authorities stick to what is suggested for their expenditure, it banishes the spectre of 70 per cent, average rate increases.

I am afraid that rates will nevertheless go up. However, if, and only if, local authorities stick to their side of the bargain, I reckon that the average increase—I stress the word "average"— will be about 25 per cent, for domestic rates and 20 per cent, for non-domestic rates, though with inevitable variations around the average.

Mr. Geoffrey Finsberg (Hampstead)

Will the average in London be anywhere near 25 per cent., or will it be nearer 50 per cent?

Mr. Crosland

As the hon. Gentleman knows from his own experience, the average in London will certainly be substantially higher than 25 per cent. We cannot give an exact calculation, but I would not dissent from some of the calculations that the LBA and others have been making about London.

That is the total grant. The next stage is to divide that total amongst the various local authorities. From the total of £5,434 million of Exchequer grant, we subtract a total of £729 million for the various specific and supplementary grants. That leaves £4,705 million to be distributed in the needs, resources and domestic elements of the rate support grant. I should like to deal with these three elements in turn.

The domestic element, about £619 million, meets the full cost to rating authorities of levying lower rates on domestic than on non-domestic properties. The amounts in the pound of domestic rate relief which authorities are required to give are prescribed by the Secretary of State each year. This order prescribes 18.5p for all English authorities, and 36p for the Welsh authorities. These are big increases over this year—5.5p and 2.5p for England and Wales respectively—and, without them the domestic ratepayer would face very much larger rate increases next year.

The resources element, about £1,328 million is designed to help less-well-endowed authorities whose rateable value per head is below the "national standard" set for the year of the order. In effect the Government step in as if they were a ratepayer and pay rates on the deficiency in rateable value. For the coming year I propose to increase the national standard rateable value by £16 to £170. This will ensure a greater equalisation of rateable resources and 93 per cent, of the rating authorities will receive resources element in the coming year.

Mr. John Nott (St. Ives)

I asked last year the same question that I want to ask this year. Could the Secretary of State explain, going back to an earlier paragraph in his speech, the large discrepancy between Wales and English counties? I have never had a satisfactory answer to that question, which is a matter of grave concern and distress in Cornwall, as he knows. Could he give us the reason for this wide margin?

Mr. Crosland

The basic reason for the wide margin is that the cost both of local government reorganisation and of water reorganisation was much greater in Wales than it was in England—

Mr. Nott

But not greater than it was in Cornwall.

Mr. Crosland

In general, it was much greater in Wales than in England. The Secretary of State for Wales will no doubt have something to say on this matter when he winds up the debate—

Mr. John Pardoe (Cornwall, North)

I should like to be Secretary of State for Cornwall.

Mr. Crosland

If the hon. Member would take that job, that would be very interesting and our troubles would be over. But I would reassure hon. Members from the West Country and elsewhere by saying that the margin between England and Wales has, as the figures I gave showed, been narrowed this year as compared with last. So we have gone some way to meet the hon. Gentleman, although whether the Secretary of State for Wales entirely approves of this narrowing of the gap remains to be seen.

I turn now to the needs element of £2,758 million, the largest element in the rate support grant and much the most complicated. It is intended to compensate local authorities for variations in their spending needs, so that the net cost per head of providing a similar level of services should be broadly the same in different sorts of area.

I have had some hard things to say about the record of the previous administration on local government finance. But here at least I can pay a tribute to the right hon. and learned Member for Hexham (Mr. Rippon) and the right hon. Member for Crosby (Mr. Page). Last year, for the first time, they based the needs formula on a thorough-going and objective statistical analysis of local authority spending. Unhappily for them, this turned out to be at the expense of a number of traditionally Conservative areas, and so they tried to cancel out its effects by the so-called "high cost weightings" in favour of some better-off areas and the proposal, which we scrapped, for variable domestic relief. However, at long last, the appalling problems of the inter city areas received at least a measure of proper recognition in this year's needs element formula.

For next year, we have retained the essential features of this formula but have tried to improve and refine it in the light of representations from local authorities and from all parts of the House. We have received many of these, and we have studied them with care.

But local authorities have asked me to do two irreconcilable things for next year. They urged that I correct the anomalies of this year's arrangements, but they also asked me to avoid at all costs a second year of massive distributional changes. This was perhaps not very logical, but it was very understandable. So I have done what I can to meet them. Half of next year's needs element will be distributed on a new, improved formula. But the other half will be allocated in proportion to the sums which local authorities are receiving for the current year. This will permit a measure of change but will keep it within reasonable bounds.

I should like to deal with a few of the improvements in the needs formula. I will not go through them all, as they are adequately explained in the report on the order. We shall be helping local authorities in growth areas by using more up-to-date population figures and education units in the grant calculations. I shall also be helping London by increasing the special London weighting in the formula. I have grave doubts whether I shall completely satisfy either the hon. Member for Northampton, South (Mr. Morris) or my hon. Friend the Member of Hackney, South and Shoreditch (Mr. Brown), but the trouble is that more for one authority means less for another.

We have found that authorities in low-income areas tend to spend less in relation to their needs than other authorities. So, as I said in previous debates I would seek to do, I have made a special allowance in our calculations, which should prevent their being penalised for this. I am sure that that will not satisfy them either. They would like still more help. But they will do better than some prosperous areas in the South-East, which are also not altogether pleased with me.

The metropolitan districts of Tame-side and Trafford will receive some of the biggest needs element increases in the country, thanks largely to a major improvement which we are making by using data for our calculations which, unlike last year's data, accurately reflect the position in the new local authority areas.

However, I am sure that my hon. Friend the Member for Manchester, Gorton (Mr. Marks) and the hon. Member for Stretford (Mr. Churchill), were he here, in their contrasting styles, will take me to task, none the less, for having done nothing in the formula to compensate for the severe incidence of reorganisation costs in these and other areas. I can assure them that it was only most reluctantly that I decided not to earmark a part of the grant to cover the costs of local government reorganisation. The trouble is that there is simply no answer to the question, how much less would this authority be spending if its boundaries and responsibilities had always been as they are now? Without an answer, there could be no fair basis for sharing out the money.

Dr. Keith Hampson (Ripon)

May I ask the right hon. Gentleman a couple of brief questions on the educational aspects of the formula? Will he consider earmarking a sum for teachers' salaries? For example, the Leeds local authority and many other local authorities are prepared not to fill posts. If in the formula there is a weighting for such matters, there is no guarantee that the authorities will spend it on supplying teachers.

Second, has the formula been readjusted for the unusual demands which the authorities face as a result of the recommendations of the Houghton Committee? Will the increase order cover the backdated lump sum payment in those recommendations? Does the right hon. Gentleman realise that the cities such as Leeds and Bradford, that he is trying to help most, will have to borrow to cover that and carry over the deficit, putting the interest charges on to next year's rates?

Mr. Crosland

I hope that on detail the hon. Member for Ripon (Dr. Hampson) will be kind enough to table Questions to my right hon. Friend the Secretary of State for Education and Science. I shall try to answer the two basic points that he raised. We calculate that the teachers coming out of the colleges this coming summer will be employed as a result of the total grant settlement. Second, the Houghton Report has been taken into account in the main order. We have considered the Houghton Report in all our calculations. We do not yet have the final report but it will figure in the increase order No. 2 for 1974–75 which will no doubt come into effect later in the year.

Dr. Hampson rose—

Mr. Crosland

I think that on matters affecting particular spending Departments it would be helpful if the hon. Gentleman tabled specific Questions which my right hon. Friends will be able to answer more authoritatively. No decision has been taken about the timing of the second order.

I was speaking about the costs of local government reorganisation and I return to a crucial point in the settlement— namely, how do we contain local expenditure to the level which we have estimated? The first obvious point is that few authorities will be keen to increase their spending over the estimated level. Domestic rates will go up by 25 per cent, on average anyway. Given this, the pressure to keep the increase down to the minimum, by holding back on expenditure, will be very strong this year.

Secondly, the Government are determined to give a lead to authorities in indicating where they consider the cuts in the rate of growth of services might fall. When the Government impose restrictions, it is only right that the Government should take the blame. Already the report on this order indicates broadly what areas we have in mind, and we shall be issuing a circular which will specify them in more detail. I would add that we recognise that one thing irritates local authorities more than anything else. If in the annual settlement the Government say "Hold back", while individual Ministers go round making speeches calling on local authorities to spend more, the Government lose all credibility. I intend to do everything within my power to ensure that the Government do not urge expenditure on services with one hand while restricting expenditure with the other.

Thirdly, to help local authorities restrain their expenditure, I have proposed that they and central Government should institute a joint watch on local authority staff numbers. It is not our intention to evolve a rigid system, with hard-and-fast staff quotas for each local authority service. Our aim is to keep down the total, which has been rising rapidly in recent years. We believe that the total number of local authority staff should remain roughly constant in the coming year, with only very small increases to allow them to meet inescapable commitments. But it will be for each individual authority to decide how to implement this guidance, and how to allocate staff between services.

These three factors will, I hope, ensure that we do not see the out-turn for expenditure in 1975–76 exceeding the estimate in the way that it has done this year. It has enormously exceeded the estimate this year. I am grateful to the authorities for their co-operation, and I look forward to an era in which we can make far better estimates of spending than we have been able to make in the past.

But for next year local authorities must keep a very tight grip on their expenditure. Equally, it is essential that they make a realistic allowance for inflation in setting their rates. We simply cannot afford a continuation of the massive short-term borrowing which local authorities were forced into this year. We must re-establish the principle that current expenditure is met from the general rate fund and not from borrowing.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Will the right hon. Gentleman say what he thinks is a realistic estimate for inflation for the year ahead? It seems impossible for the Government to make such a condition—I entirely agree with it in principle—unless they are prepared to help the authorities as to what a realistic estimate would be.

Mr. Crosland

I take the point that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) is making. I do not believe that anyone in central Government or local government is in a position to put forward a precise figure for the likely rate of inflation next year. The uncertainty of world commodity markets and many other factors make that impossible. I should more accurately and sensibly have said a bracket of likely rates.

Mr. Ridley

What is to be the bracket?

Mr. Crosland

We have a lot of choice these days.

Mr. Ridley rose—

Mr. Crosland

No, I shall not give way. This matter has been discussed in the House again and again. It was discussed at considerable length when my right hon. Friend the Chancellor of the Exchequer introduced his autumn Budget. It was discussed during the debate on the previous Budget. The Government were not then prepared to publish their forecast of the rate of inflation next year.

Mr. Ridley

My local authority, which I met last week, raised this matter with me. Its representatives said that they had been asked to calculate a realistic rate of inflation and that they had no idea what bracket that should cover. Does the Minister not think it ridiculous for the Government to urge local authorities to hold down expenditure if at the same time the Government, who are responsible, are unable to forecast even a wide bracket? It is becoming essential in these times of high inflation that the Government prepare estimates for all sorts of bodies, including local authorities, which will enable them to make reasonable estimates.

Mr. Crosland

No doubt these matters will be discussed in the general economic debate next week when the Chancellor will be speaking. The point that I am making is that we do not want to repeat a situation in which my predecessor in office urged the local authorities to budget for a 9 per cent, rate of inflation when in fact it was already double that rate. That is the kind of disparity and discrepancy that we wish to avoid next year. That does not require a precise figure to be put on the likely rate of inflation.

Mr. Paul Channon (Southend, West)

As the Minister has criticised my right hon. and learned Friend the Member for Hexham (Mr. Rippon), will he tell us what the local authorities should budget for next year?

Mr. Crosland

The Chancellor explained at great length in his November Budget speech that the Government were not prepared to make a precise forecast of the likely rate of inflation for the next 12 months. I believe that that was a sensible attitude to take. Probably most right hon. and hon. Members and most people in the local authority world can make some sort of realistic assessment of the brackets.

In conclusion, it is not easy to strike the right balance between a low grant setttlement, which imposes unfair burdens on local authorities and the ratepayers, and a high grant settlement, which imposes unfair burdens on the Exchequer and the taxpayers. I have tried to steer a middle course between these two extremes and if Press comment is a reliable, guide I think I have succeeded. The Economist of 30th November regarded the settlement as so generous that the National Association of Ratepayers Action Group had almost been done out of a job while the Morning Star of three days earlier thought it "completely in- adequate.". I prefer the judgment of the Municipal Jouranl that my proposals are "generous under the circumstances" or the judgment of the Financial Times that they are a reasonable compromise and a fair one None of this means that the ratepayer will have an easy time next year. The problems we faced went too deep, and the economic problems of the country are too difficult to allow that. We look forward to the Layfield Report, but in the circumstances which we inherited it is a major achievement to keep rate increases next year within bounds.

Many of my hon. Friends have been kind enough to table an Early-Day Motion which reads as follows : That this House welcomes the record increase in both size and proportion of the rate support grant for 1975-76 which will help to alleviate substantially the domestic rate burden; recognises that this increased support comes at a time of unprecedented economic difficulties; and notes with pleasure the satisfied response of the local authority associations. They strike me as exceptionally shrewd and wise words. I hope that Conservative hon. Members will give us the support which we shall surely earn.

4.40 p.m.

Mr. Paul Channon (Southend, West)

The right hon. Gentleman said that he was not going to make jokes, but he concluded with one nevertheless when he read out that early-day motion. It will be interesting to see in a few months' time how many hon. Members will be prepared to sign such a motion, and how many of them come from the London area.

This debate is frequently technical, as the right hon. Gentleman himself pointed out the last time we discussed the subject. Over the years the problem of rates has become so important that it has been reflected in the attendance in the Chamber, and a wholly new situation has arisen in regard to the domestic rating system. My right hon. Friend the Member for Finchley (Mrs. Thatcher) earlier this summer, and I in our Supply Day debate recently, set out our view that the problem of rates has been altered fundamentally, largely because of inflation, and that we believe that urgent action is required on the domestic rating front.

There are certain points of agreement between the Government and the Opposition about the rate support grant. We think it right that the Exchequer should meet 66½ per cent, of the approved local government expenditure next year as opposed to 60½ per cent. We believe that it is essential that action should be taken along these lines; otherwise the burden on the ratepayer, as the right hon. Gentleman has said, would be intolerable. I note that the domestic element is to go up from 13p to 18.5p.

We have heard the explanation—not wholly convincing—of the differential between England and Wales. No doubt the Secretary of State for Wales will deal with that aspect in more detail when he replies. It is increasingly being questioned by hon. Members on both sides of the House who represent English constituencies, and the Secretary of State for Wales has been accused of not answering. I hope that he will give us the answer tonight.

Early in the summer the Secretary of State for the Environment talked about his original proposals for rate support distribution as having an element of rough justice, if not capriciousness. Many factors must be taken into account. Local government spending is to rise in real terms by 4 per cent, next year, while public spending in general will rise by 2.75 per cent. The right hon. Gentleman estimates that the result of the rate support grant, even after the extra increase on this occasion, means that the average householder will pay next year £1.25 for every £1 he has paid this year. That is not a matter for complacency.

I believe that next year will see the largest rise in the rates in our history, except possibly for this year. The right hon. Gentleman's own White Paper says that the average of 25 per cent, increase disguises many wide variations, and many people will be paying far more than 25 per cent, extra in their rates next year.

I have an example, given to me in the last few days, of a small business man in one of the new towns. He paid about £570 in rates on his small premises in 1973–74. He has been told that it is likely that the rates for 1975–76 will be £1,345—which means that his rates will have nearly trebled in three years. The total increase in his rates bill will be £770.

Mr. John Tomlinson (Meriden)

What was the date of the letter?

Mr. Channon

Within the last few days.

Mr. Kenneth Marks (Manchester, Gorton)

What is the rate poundage?

Mr. Channon

I can go into all the details, if hon. Members like. I cannot give details of the rate poundage at the moment but it can easily be found out. Such are the increases that people have to face, and I am surprised that hon. Members opposite should dispute them. They are clear evidence of the problems faced by domestic ratepayers, small shop-keepers and traders.

Mr. James Wellbeloved (Erith and Crayford)

Does not the hon. Gentleman realise that in London and the rest of the country the greater burden that is falling upon the domestic ratepayer is caused not so much by inflation as by the direct results of the reorganisation of London government in 1962 and of local government elsewhere in 1972? Does not the hon. Gentleman realise that, in London in particular, the escalation over the last 10 years has been the direct result of the policies imposed upon unwilling local ratepayers and councillors by the Conservative Party? Will the hon. Gentleman now stop trying to make cheap political capital out of the current economic difficulties, and recognise—

Mr. Deputy Speaker (Mr. Oscar Murton)

Order. If the hon. Member for Erith and Crayford (Mr. Wellbeloved) catches my eye, he can make his speech then. I would prefer him not to make it now.

Mr. Channon

If ratepayers in London believe that their increase in rates next year was caused by the local government reorganisation of 1962, they will believe anything. Even the constituents of the hon. Member for Erith and Crayford (Mr. Wellbeloved) will not believe that one. Eleven years later, with the Labour Party having been in office more than half that time, the hon. Gentleman still blames local government reform in 1962 for the rise in rates.

Mr. Wellbeloved

And the reorganisation in 1972.

Mr. Channon

I return to the point about the 25 per cent. increase and whether it is an average figure. We have been told that there are no plans to continue in 1975–76 the special relief for domestic ratepayers which the Government introduced in July. There will be no special domestic relief for 1975–76 similar to the relief given in 1974–75. Did the Government estimate of an increase of 25 per cent. take account of the fact that they are doing away with the special rate relief which was given this year? If not, I suspect that the average itself must be misleading.

Mr. Crosland

I should clear this point up now. The 25 per cent. increase which we estimate is an increase on the level of rates after the July relief.

Mr. Channon

The right hon. Gentleman is saying that people who had a large rate increase this year, which was abated to some extent, will have to pay only 25 per cent. more on top of the abated increase they had this year.

Mr. Crosland

Yes—the abated increase.

Mr. Channon

I am grateful to the right hon. Gentleman. This is an important matter to get straight. There has been some confusion about it.

I think that the most difficult situation to arise will be in the Greater London area, but not because of local government reform in 1963. It will be because, according to the Evening Standard, next April the rates in London will go up by £1 a week on average. There have been forecasts that the GLC precept will go up by 100 per cent.—indeed, one forecast put the increase at 110 per cent. Perhaps Labour Members, who are more closely in touch with the leadership of the GLC, can tell us how true these forecasts are and what effect such increases would have on millions of ratepayers in London.

Mr. Michael Ward (Peterborough)

Will the hon. Gentleman acknowledge that if the precept of the GLC should rise by a very large amount—and contained in it is the precept for the Inner London Education Authority—the ratepayers should be aware that no rate support grant element is involved and that it is, therefore, a crude increase? One should bear that factor in mind in using these crude percentages.

Mr. Channon

Yes. What I am saying is that the precept will rise a great deal, which will have an effect on the rates levied in the boroughs, and the effects on the rates levied in the boroughs are very serious indeed. I hope that some of my hon. Friends will be able to catch your eye, Mr. Deputy Speaker, to explain what is likely to happen in London next spring, because I think that the rises will be very serious. No one can be sure in detail, but I have yet to meet anyone who forecasts less than a 40 per cent. increase in London in the coming year, and I think that in many boroughs the increase will be considerably more than that. I hope that my hon. Friend the Member for Hampstead (Mr. Finsberg) will be able to catch your eye, Mr. Deputy Speaker, in order to tell the House what he thinks will happen in London next year.

The right hon. Gentleman ducked the question of what estimate for inflation local authorities ought to be prepared to make. I believe that the Government have some duty to tell local authorities just what to expect—not exactly, but within a bracket. Within what bracket do the Government believe that the rate of inflation will be? We all recall the estimates given during the General Election campaign. It is futile for Ministers to pretend that during the election campaign Ministers did not give highly optimistic estimates when it happened to suit them at the particular moment. We all remember the famous 8.4 per cent. The Chancellor of the Exchequer will never live that down. That was what he said the actual rate of inflation was—8.4 per cent. We shall see whether he was right.

We were told yesterday that the Secretary of State—[An HON. MEMBER: "What about 9½ per cent. mortgages?"] We are not in power. We have not had the chance of carrying that out, as we would have done by Christmas.

The Secretary of State for the Environment was rather coy about telling us the rate of inflation. His right hon. Friend the Secretary of State for Prices and Consumer Protection was reported yesterday in The Times as having said that the rate of inflation will be 17 per cent. next year, yet during the General Election campaign she was saying that inflation would go down. Now we are told that it will be 17 per cent. next year. The right hon. Lady said that when she was in America a few days ago.

The right hon. Gentleman estimates that domestic rates will rise on average by 25 per cent. a year. Surely we are entitled to know what this means. If inflation is running at 9 per cent. or 10 per cent., or some figure like that, why do rates have to rise by 25 per cent.? Is not the truth of the matter that the rate of inflation next year is likely to be about 25 per cent., and that this is why the Government are so coy? They said one thing during the election campaign, and misled the public, and they naturally want to wriggle out of it now.

Mr. Ridley

Is there not a further point —that the rate of inflation of local authority expenditure, which is largely wages and interest on capital, is likely to rise by more than the national average because there are no brakes in the public sector upon wage demands and the rate of interest is escalating even faster than the rate of inflation? Is is not likely, therefore, that local authority inflation will be higher than the national average?

Mr. Channon

That is possible. Indeed, it is probable. As has been pointed out, we are entitled to have at least some bracket of what the Government believe is the likely rate of inflation. We are not asking for exactitude. It is impossible to make an accurate estimate. Perhaps the Secretary of State for Wales will address himself to that bracket. If he will not tell us, perhaps he will tell us why he will not tell us. Perhaps he will also say why one of his right hon. Friends is prepared to make an estimate in America when he is not prepared to tell the House. The House of Commons will be prepared to draw its own conclusions about the fact that Ministers are prepared to make estimates outside the House but not inside it.

The Secretary of State for Wales (Mr. John Morris)

Would the hon. Gentleman care to say now what was the forecast made by the Government of which he was a member and will he tell us of the invitation then given to local authorities? Will he remind the House about that?

Mr. Channon

The right hon. and learned Gentleman knows very well that ever since then Ministers have been attacking my right hon. and hon. Friends because that forecast was inaccurate. We are entitled, in our turn, to have some estimate from Ministers, in order that local authorities can make their preparations. We shall be very interested to learn from the right hon. and learned Gentleman tonight whether he is prepared to tell the House what his Cabinet colleague is prepared to say outside it but which he is not apparently prepared to tell the House.—[Interruption.]

Mr. Wellbeloved

The hon. Gentleman is up the creek.

Mr. Channon

The hon. Gentleman has such a very weak case that he has to go back 12 years in order to find excuses for the shocking rate increases which will be imposed by his party next year.

Mr. Wellbeloved

January 1974. Cough up.

Mr. Channon

If the hon. Gentleman will keep quiet for the remainder of my speech, I promise to read the London Government Act tonight—

Mr. Wellbeloved

Cough up.

Mr. Channon

—because it is too much.

Mr. Wellbeloved

The hon. Gentleman should get away from that point as soon as he can.

Mr. Channon

No, I shall develop it further, because I intend to deal further with the question of inflation.

We are told that the social contract means that wages should rise by no more than prices. Surely, as a minimum, the Government should ensure that where-ever any family lives in this country, next April that family should not be faced with an excessive increase in rates. The 25 per cent. average should be a 25 per cent. maximum for the increase next year.

Why was it right last year to give special domestic rate relief—the Secretary of State said in July that people would have their rates and water charges abated by a certain amount—when for next year the Government have set their faces against any form of relief for those faced with excessive rate increases, either in general rates or water charges. If it were right in principle to give relief this year, surely it is right in principle to give similar relief next year, in order to make sure that no one has to face more than, say, a 25 per cent. increase in rates, about which the right hon. Gentleman has been talking.

I come to the £350 million in the Rate Support Grant (Increase) Order. Why cannot that be used, at least in some measure, to relieve many people, particularly those in London and in the South-East, from the extra burden of the rate increases this year? That is a very important matter which the Government ought to make clear. They must say why they are not prepared to give that particular relief next year.

I welcome the fact that the right hon. Gentleman has said that effective means need to be employed to ensure that local councils do not spend beyond the limits approved for the purposes of the rate support grant. I recognise that the Chancellor of the Exchequer has said that local government spending now amounts to 30 per cent. of public spending as a whole. It is very important to do what the Secretary of State has done. I welcome his decision regarding staff levels and the monitoring arrangements which he has announced with the rate support grant. It is impossible for the House to allow that sort of thing to continue in our present economic circumstances.

I welcome also the fact that the right hon. Gentleman has said that he will try to persuade his colleagues not to go around asking local authorities to increase expenditure at a time when they are being asked to hold expenditure steady. I draw the right hon. Gentleman's attention to a letter sent by the Secretary of State for Prices and Consumer Protection to the Consumers Association on 23rd November encouraging the association to expand consumer advice services. I notice however, from the White Paper, that there is to be no money spent on consumer advice services during the coming year.

These are very serious problems. It is intolerable that one lot of Ministers should be telling people to spend more and another lot of Ministers should be telling local authorities to keep their spending under control.

I am also told that the Secretary of State for Education and Science has said that education in England and Wales is likely to expand by 10 per cent. over the next two years. Is that compatible with the rate support grant which we are debating?

In the rate support grant we see serious implications for local services, which local authorities will have to face during the coming year. They are told that there are to be no improvements in the standard of services, in personal social services and in libraries. They are told that there are to be no improvements in existing concessionary fare schemes and no new concessionary fare schemes. They are told that direct labour organisations are to be cut, and that bus fares are to rise by at least the amount necessary to keep pace with the increasing costs affecting bus services. Those authorities which have not increased fares of late are told that they should consider what additional increases are necessary to recover some of the lost ground.

The Secretary of State is not to implement the Control of Pollution Act and local authorities are to put up charges for recreational facilities by about 30 per cent. There is to be no further work even on the improvement of public conveniences, including conversion work for the handicapped. There will be no further growth in the prevention of air pollution and there will be a halt to the recruitment of planning staff and other such matters. That is scarcely what we were told during the General Election.

The Government were elected on a basis of false facts about inflation and by trying to imply that everything was reasonably well in the economy. Now, a few weeks later, they have produced proposals of this kind. We agree with the proposals in the White Paper, but when we were trying to tell the country how serious the situation was the Government did not give us much help. At a time when the Secretary of State is quite rightly calling for frugality in the rate support grant, other expensive schemes appear to be untouched by Government economies.

What is meant by deferment of land acquisition for planning purposes"? Does that mean that the Government will go ahead with the land nationalisation Bill, or not? How can they defer land acquisition for planning purposes in one breath and in another tell the local authorities to spend hundreds of millions in buying up development land? We are told that there is to be a halt to the recruitment of planning staff. How can that be reconciled with the plans for land nationalisation when the Minister for Local Government told a professional association only a month or so ago that is was essential that professional staff of the necessary calibre should be found in adequate numbers to implement the scheme? How can that be reconciled with the rate suport grant when local authorities are told that they must halt recruitment of planning staff?

At the same time we can all look at examples of extravagant local authority expenditure. Many hon. Members will have seen the articles in the Observer in the last three weeks about expenditure in some of the London boroughs which detailed indiscriminate redevelopment, the buying up of properties wholesale and vast expenditure being incurred. Why is there no reference to this in connection with the rate support grant? Why have local authorities not been told to curtail that expenditure? In a Written Answer on 20th November we learned of the amount of money being spent on acquiring dwellings in Greater London. The most expensive example was Camden which in the last six months has spent no less than £14 million on acquiring houses. [Interruption.]

Mrs. Elaine Kellett-Bowman (Lancaster)

Look at its rate arrears.

Mr. Channon

If the right hon. Gentleman is to call a halt, as he is right to do in the national interest, to some desirable projects, why not call a halt to some of the other extravagances in local government?

Mr. Crosland

I am sure that the hon. Gentleman is aware that what he is saying has nothing to do with the rate support grant. The cost of municipal acquisitions in Camden, for example, does not come within the rate support grant.

Mr. Channon

I am well aware of that, but when local authorities are asked to economise, and when in the national interest there must be economies in all facets of our national life, it is only right to extend the cuts to include some of the dogma of the Labour Party.

As I tried to point out in the earlier debate on the rates, some experts have put the cost of land nationalisation in the initial years at £500 million a year. I accept that that estimate may be far too high, but the Secretary of State should tell us how much local authorities will be expected to spend under this heading in the next few years, and why economies are not proposed there, too.

We are here concerned with the immediate year ahead, but the rate support grant must be looked at within the context of the whole rating system. The right hon. Gentleman referred to that and to the Layfield Committee. Certainly my right hon. and hon. Friends believe that the rating system has now become so unfair that our ultimate aim must be to abolish household rates within the lifetime of this Parliament. I hope that that ambition is shared on both sides of the House. Meantime it is the Government's duty to start working towards it, and that is what I would have hoped to see in this rate support grant.

For that reason the Secretary of State should have done certain things, I welcome the increased help he has given to local authorities, but I would have urged the Government—I still do—to take immediate action from next April to ensure that no families are faced with massive rate increases. That should be the first step towards total abolition of household rates. It is unfair, with an average increase of 25 per cent., that so many people will have to pay double, if not more than double, that average, especially since some of them paid a very heavy rate increase this year as well. There should be immediate relief next year for small shopkeepers and traders who face so much extra expense not only in rates but in the additional burden imposed on the self-employed.

Local councils should not exceed approved spending limits for grant purposes because to do so will only mean heavier burdens for ratepayers. The nation as a whole must get its priorities right by dropping costly and harmful schemes like those I have mentioned. This is no time for extravagance. The Government should have made a start by making sure that ratepayers next year, including small traders, get a fair deal. If the Layfield Committee were to report at the end of next year and recommend abolition of the rating system, assuming that the Government could be persuaded to accept those recommendations, no start could be made on winding up the rating system even within a year. That is far too long a time scale for a problem which has now become so urgent. The urgency arises because of the rate of inflation and the far too heavy burden of rates which rests on domestic ratepayers and small shopkeepers.

The right hon. Gentleman has given some help to them in his assistance to local authorities, and that is very welcome. But it is welcome only up to a point because I believe that the opportunity has been missed of making sure that no one has to pay more than a 25 per cent. increase next April. The opportunity has been missed, too, of taking steps towards winding up the domestic rating system. The people now believe, and rightly, that the days of that system are numbered and should come to an end soon.

5.8 p.m.

Mr. Arthur Blenkinsop (South Shields)

I am amazed at the temerity of the speech of the hon. Member for Southend, West (Mr. Channon). It is not surprising that all those who bore a direct responsibility for the totally incoherent situation that was left to this administration by the Conservative Government have been swept away. We are left with those who had only an indirect responsibility for that mess. From the outset we should realise that those were the people who tried to shackle us— and in some cases were successful—to enormous public expenditure on projects such as Concorde and Maplin. All these were imposed upon us, and only with the greatest difficulty are we extricating ourselves from some of them.

That is not to mention the whole range of the effects of local government reorganisation. It may well be true that London is still suffering after some years from the effects of the reorganisation there. The effects of the recent reorganisation in the rest of the country are marked. In planning we have nearly three times the staffing requirement for the same amount of work, imposed not as a result of a sane determination of what should be done but because of a cheap and unsatisfactory political compromise secured by the Opposition when in power. It is not cheap in money terms, but it is a nasty, unpleasant compromise that brought neither value nor profit to anyone. It amazes me that any Conservative right hon. or hon. Member dares to speak on the issue.

I welcome the realistic appraisal of the situation by my right hon. Friend the Secretary of State. Local authorities and domestic consumers throughout the country must be brought face to face with a grim situation. But I regret my right hon. Friend's determination to exclude any hint of humour. I hope that he will not exclude it from future speeches, for we should all be the losers if he did.

The situation today is in marked contrast to the situation that the House and local government were in a year ago, when local authorities did not know where they were. They were still struggling to find out right up until February. We were in the middle of the first of our two elections this year before a final answer came. That was based on a complete misreading of the circumstances, to put it at its mildest—a miscalculation, if not worse. It was a situation of the greatest difficulty. I am glad that we now have at least a relatively clear picture of where we are, so that the local authorities have a reasonable base on which to work, in spite of all the changing circumstances that they, like all the rest of us, have to face.

I hope that my right hon. Friend recognises, as most Labour Members do, that local government spending is perhaps the best way to deal with the serious problem of the low-income earner. All our efforts to that end by way of concentration on the wage problems of the lower paid are doomed to little success. Attempting to maintain and gradually to improve the level of the public services is the way to make the biggest contribution to the lowest-paid, those in our community who are in greatest difficulty. Therefore, I welcome even the modest concession that my right hon. Friend has made to seek to ensure a slightly bigger rate of increase for local government than is prophesied for the community as a whole. That is a correct principle.

I also welcome the fact that we have faced up to the need to make a greater percentage rate grant this time than ever before. But let us not doubt the difficulties that many authorities will have to face all the same. They include, in spite of all the efforts already made, the problems of many of our urban areas, which still face a difficult situation. I hope that within the very constrained limits of the order there will be whatever flexibilities are possible in, for example, staffing. It is all very well to say that we cannot afford further general increases in staffing. We must remember that some authorities start from an inadequate position, that some are worse affected by local government reorganisation than others.

I welcome what I understood my right hon. Friend to say in answer to an intervention, that, as has happened in the past, awards in course of preparation, such as those to the teachers and some local government manual staff, will be met, although we all hope that they will be moderated to every possible extent and that they will not damage the financial position of our local authorities. That is a matter of deep concern to many of us, particularly in the urban areas that are impelled to employ a high proportion of staff, having little control over the numbers they must employ.

My right hon. Friend has given a figure of an average 25 per cent. increase in rates. To give any average is a little dangerous, because none of us can be sure about the situation ahead, and averages cover a multitude of varied circumstances. Many of us represent areas that, although already among the most heavily rated, will have to face further sharp increases. When Conservative Members talk of the exceptionally high increases that may still occur in some areas, we must consider what base they are talking about. A relatively big increase imposed upon a fairly low base is by no means as heavy a burden on the people in the area concerned as a smaller increase upon a high base.

I agree with those who have referred to the difficulties of some small commercial firms and shops. The matter must be examined in the wider review by the Layfield Committee. Especially in development areas and other areas under heavy pressure, many firms are near the margin, and need any help that can be offered.

Wider matters have been raised, but I do not propose to deal with questions that are essentially for the Layfield Committee. I was amused by the new enthusiasm of some Conservative Members for the abolition of the domestic rate. At one time my party was committed to some extent to the concept of moving education expenditure on to the Exchequer. I would still welcome consideration of that possibility. But that is more a matter for the Layfield Committee than for us today.

In a narrower context, we must be prepared to consider possibly pegging the domestic element in the rates as well as conceivably thinking of the resources element being made self-financing, and concentrate more on the rationalisation of the needs element as a main basis for assistance in the future. It is in considering such matters that we can make the biggest contribution. There is wide recognition of the importance of this in the AMA and other organisations.

I cannot believe that anyone is likely to divide the House on these proposals. They have received a broad welcome, within the established limits imposed on all of us. I congratulate my right hon. Friend and all who have been concerned in working out the arrangements on the fact that they have been able to bring them to the House at a reasonable time of the year and so help local authorities to face the severe challenge that lies ahead for them.

5.21 p.m.

Mr. David Price (Eastleigh)

I will not comment on the earlier part of the speech by the hon. Member for South Shields (Mr. Blenkinsop) in which his remarks were more of the nature of a political speech, but the latter part of his speech was most interesting. I would be happy to discuss with him his points on education because I believe that we are in total agreement in this respect.

I intend to address my remarks as strictly as I can to the two general rate support grant orders. These orders may seem to some people, particularly those outside the House, to be dull and technical. I am sure that the House would agree that Schedule 1 of the No. 2 order reads like a Christmas quiz for senior wranglers. However, the two orders are very important and have a direct bearing upon the conditions which people will experience in the next 18 months. They are also important because large sums of money are involved—over £8,000 million of anticipated expenditure in the coming year.

I need hardly remind the House that we have a traditional duty to examine public expenditure, and that duty is not removed because we are in this case concerned with local authority public expenditure. I do not believe that one debate across the Floor of the House is the best way to consider many of the complicated figures involved in this subject. I say this in no hostile sense either to the Government or to the local authorities involved. But we must try to devise a different parliamentary technique for examining these problems.

I would hesitate to detain the House in discussing some of the formulae in the orders. We have, frankly, to accept them in this sort of debate; but if we had, say, a Select Committee, or an Estimates Committee, for this purpose, the various factors of expenditure could be gone into in greater detail. I say this in an entirely constructive, not negative, spirit.

The trend in local government expenditure represents an alarming situation. Let us remind ourselves of the figures in the orders. In November 1973 the relevant expenditure of local authorities was deemed to be £5,670 million, at November 1973 prices. Now, a year later, we are talking about relevant anticipated expenditure for the ensuing year to the tune of £8,170 million. That is an increase of £2,499 million in one year, which I calculate to be a 44 per cent. increase. The Secretary of State has said, and it is in writing, that there is to be an increase in real resources of only 4 per cent. The hon. Member for South Shields was worried that in particular services the increase in resources would not be sufficient for the needs of his constituents.

The paper figure here is an increase of 44 per cent. I find it difficult to work this out and I would be grateful for assistance on this from the Government Front Bench. The cost of living index has gone up by about 17 per cent., and it is possible to devise cost indices which may give slightly higher figures. Let us say therefore that the rise was 20 per cent. If we calculate inflation at 20 per cent. on the 1974–75 figures, we reach a total of £6,804 million. If we add a 4 per cent. increase in real resources on to the adjusted figure, which is the Secretary of State's figure, we arrive at a total of £7,076 million, as against £8,170 million.

I ask the Secretary of State to say how one accounts for the missing figure which, in round terms, is £1,000 million. Is it the case that particular factors of input into local government expenditure have undergone a far greater rate of increase than has been the generality that appears in the cost of living index? This is very important when we are considering next year which, we must all admit, shows every sign of being as inflationary as last year. I would be grateful for the Secretary of State's advice on this point—

Mr. Tomlinsos rose—

Mr. Price

I am afraid that I cannot give way to the hon. Gentleman. This is a complicated argument. I do not want to lose the trend nor do I want to detain the House too long.

If we look at the breakdown of the relevant expenditures as it appears in both this year's and last year's White Papers, we find, for instance, that education expenditure, including school meals and milk, goes up by 32 per cent. Does this figure entirely include the estimated increase involved in implementing the Houghton Report recommendations? I gathered from the Secretary of State that it does, but I would like the point confirmed. On personal services we find that the increase is 55 per cent., on local transport finance it is 107 per cent.—I appreciate that in this case there is a lack of comparability, due to the new method of grant treatment. On recreation, parks and baths the increase is 67 per cent., on town and country planning 47 per cent., on administration 42 per cent., on housing 90 per cent. and on miscellaneous services 36 per cent.

I do not want to discuss the policy decisions that lie behind the make-up of these different increases, but simply to compare the expenditure for the two years. I suggest that there is much here that needs explaining, but I fear that the normal sort of debate across the Floor of the House is not the best parliamentary manner in which to examine these matters.

I am left with the point made by some of my hon. Friends and by the hon. Member for Cornwall, North (Mr. Pardoe) regarding the range of likely rates of inflation. I do not believe that it is excessively partisan or prejudiced to say that this is an essential input into any local authority's calculations for the ensuing year. It is also essential that we should have information on this so as to examine the relevance of both the anticipated expenditure and the anticipated aggregate grants proposed by the Government.

I do not approach any of these increases in a vindictive sense. I draw these matters to the attention of the House because they illustrate the dilemma facing us all in this highly inflationary age. I put a simple question to the Government. How do we as a House of Commons, how do the Government, so control public expenditure—one might add that the same thing applies to our private lives but that is outwith our debate—in an inflationary age as to ensure a fair deal for the taxpayer without causing serious harm to important public services and injustice to the staffs concerned? That seems to be the dilemma facing us all.

The situation is far too serious to use this limited occasion to make minor points of a party nature. The General Election is behind us for the moment. [HON. MEMBERS: "Oh."] There are, however, obviously some hon. Members who prefer living that way. I do not. The effect upon ratepayers, domestic and commercial, will be severe. It would be churlish of us not to acknowledge the big increase in the aggregate Exchequer grant which the Secretary of State has presented—an increase from 60.5 per cent. to 66.5 per cent. Nevertheless the ratepayer will still have to face a hefty increase. Paragraph 15 of the supporting White Paper says: the average increase in domestic rates next April could be kept to some 25 per cent. though there will be wide variations around this average. We know that averages can be dangerous. In this sort of situation they ignore the big increases.

In my county of Hampshire the county rate rose last year by 54 per cent. A further 25 per cent. increase would be truly punishing. It would mean that in five years the county rate had increased by 92.5 per cent. We know from the Department that the national average domestic rate increase last year was one-third. It will be a quarter this year. A simple calculation shows that over two years the average increase in the domestic rate will be 60 per cent. If in two years we had a 60 per cent. increase in the basic rate of income tax we would be having riots. This is the scale of the rate increase.

It proves beyond any lingering shadow of doubt that the rates are a totally inadequate tax for financing modern local government. They are grossly unfair. I can say this because earlier this year I produced a scheme showing how we could get rid of the rating system completely. I presented it to my constituents. Clearly this is not a matter to go into now. We have the Layfield Committee at work. So serious is the situation for the ratepayer that I had hoped that the Secretary of State would have gone the whole way and put the entire increase on the tax payer.

I have been advocating an increase in national taxation to prevent any further rates increases since before the General Election. No one can say that I was afraid to make the suggestion before the General Election. I would point out that the rates, particularly the domestic rates, are imposed in a way which takes little account of the ability to pay. Further, the rates are not buoyant, to use the fiscal jargon. They do not keep pace with the growth of local authority services nor have they the inherent growth of revenue which we get with income tax. We are seeing that clearly in these orders.

Further, ratepayers and non-ratepayers alike are entitled to make use of the services offered by a local authority but only the ratepayers pay any local tax. With national taxation everyone pays. This is an important difference. It is difficult not to reach the conclusion that the rate position is punishing for all ratepayers, whether they are domestic ratepayers or people such as small shopkeepers or independent professional persons—anyone from a doctor to a chiropodist to a hairdresser. The Secretary of State has made a mistake in not going the whole way and holding the line until the Layfield Committee reports. I conclude with a thought from that great French statesman of the 17th century, Jean Baptiste Colbert, who once remarked that: The art of taxation consists of so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing. By that standard the rates are a very bad tax and the hissing this coming year will, I suggest, be right terrible to experience. I warn the House of that now.

5.37 p.m.

Mr. Frank Hatton (Manchester, Moss Side)

I have listened with interest to the speech by the hon. Member for East-leigh (Mr. Price), in particular his references to the gross unfairnesses in the rating system. That is a point to which I shall return later.

I congratulate my right hon. Friend on what he has done to help local authorities. These orders will be widely welcomed. Many chairmen of finance committees, as they prepare to levy their rates in the next few months, will be grateful to him for the action he has taken. The leaders of local authority opinion at national level who have been involved in these rate support grant negotiations have warmly welcomed the decisions arrived at.

My authority of Manchester has a population which has steadily declined since the last war. It is an area of extreme social deprivation. As a result of the social needs of the city, we have been big spenders, particularly on our education and social budgets. I believe that that is right. I must express concern about the limitation on certain spending that will have to take place in the next few years. It is the poorest members of the community who benefit most from education and social service expenditure. I would always defend such expenditure.

The total rateable value of the city of Manchester has lacked buoyancy because new development has been largely offset by demolition. That has been one of the major problems of many of our large urban areas. The burden on the ratepayer has mounted steadily until in 1973–74 the city had the highest rate levy of any authority in England and Wales.

Many of us came to the conclusion long ago that the rating system was a totally unsatisfactory way of meeting the demands of local government, but we were a lone voice at that time. There was no support from the other political parties. Many desirable residential areas surrounding the city lived on the back of the city. That is not unique. Examples can be found in other parts of the country. Local government reorganisation changed all that. It made a vast difference, and I welcome the new-found unanimity in the wish to reconsider the rating system.

It was a major disaster when the great pacemakers of local government, the big cities, were destroyed almost overnight. Chief officers of local authorities such as Birmingham, Liverpool and Manchester who had been able to solve major problems by crossing the corridors of the town hall could do so no longer when the new water and health authorities took over. These matters will have to be seriously reconsidered if local government is again to be as local and progressive as it was.

Many of the great achievements of which the nation can be proud are to be found in local government. I am proud that Manchester has built and maintained the finest municipal airport in the country. That is a great credit to the local authority, and one can find examples of that nature throughout the land.

The country's difficult economic circumstances will have grave implications for local authority services. During my 20 years' membership of the Manchester City Council my major interest was education, but today I want to refer to housing. According to the order, local authorities will be unable to increase the standards of management and maintenance of their housing stock in 1975–76. My hon. Friend the Member for South Shields said that he hoped there would be some degree of flexibility here, and I agree with him.

Manchester has had to demolish about 80,000 unfit houses. One reason for that was the lack of adequate maintenance over many years. Today the local authority housing stock is about 100,000 units of housing accommodation. One of the greatest tragedies that could befall any city would be to allow its housing stock to become unfit because of lack of money for management and maintenance. Much of our new development in housing has created major management problems. To solve those problems we have to move forward much more quickly in terms of expenditure.

Although we regret that the order contains serious implications for some of our services, at the end of the day those who work in local government will warmly welcome what my right hon. Friend has done to assist them in the many tasks they face in the years ahead.

5.45 p.m.

Mr. John Pardoe (Cornwall, North)

We are, as I think all hon. and right hon. Members recognise, debating one of the saddest subjects that comes our way— the rates. The Secretary of State was fully entitled to say that this was the largest rate support grant ever when he spoke of the 66½ per cent. of relevant expenditure which the Government will meet and the £5,434 million. But ratepayers are also entitled to ask why, in spite of the grant, they are paying the highest rates ever. That is what the debate is about, and it is that question that we must try to answer.

If the answer is thoroughly unsatisfactory, both to Government and Opposition, as it may well be, we should go on to decide what to do about it. It would be easy for the debate to degenerate into a series of personal memoranda to the Layfield Committee. It is great fun to indulge in discovering new ways of paying the bill, but I do not share the enthusiasm of some right hon. and hon. Members, notably the Conservative Front Bench, who seem to believe that if we take the burden off the rates it will all be absolutely splendid. I suggest that, wherever we place it, the additional burden will simply destroy respect for some other form of taxation.

The rating system is out of date and unfair. It was not quite true for the hon. Member for Manchester, Moss Side (Mr. Hatton) to say that other political parties had not said that in the past. It was the Labour Government which set up the Redcliffe-Maud Commission, specifically leaving out of its terms of reference the question of local government finance. It would still have been possible for the commission to consider aspects of local government finance had it been given evidence on the subject, but, of the three political parties, only the Liberals gave evidence, a considerable part of which was concerned with the necessity for the reorganisation of local government finance.

The rating system is out of date and unfair. Any tax becomes out of date and unfair if too great a burden is placed upon it. We had best leave the Layfield Committee to consider how best to pay the bill, but we should do well in this debate to consider whether parts of the bill should be paid at all.

Local government expenditure has risen rapidly. Thirty years ago it was one-twentieth of the GNP, now it is one-tenth. For twenty years it has been growing at least twice as fast as the national income. In a brief to hon. and right hon. Members for this debate, the Association of Metropolitan Authorities said: Reference is also frequently made to the growth rate of local authority expenditure being excessive. Again, the facts do not support this suggestion, for in the last 10 years the average rate of growth at constant prices has been 4½7 per cent.—not excessive when the development of services is taken into account. Perhaps not, but excessive when the growth of Britain's economy is taken into account. We have not been producing the resources to pay for the increase.

New services are no doubt delightful-delightful to our constituents and sometimes even to us. Local authorities arc not entirely to blame for this plethora of new services and great increase in expenditure. The Association of Metropolitan Authorities is entitled to refer in its memorandum to … commitments which local authorities have incurred in the development of public services in accordance with decisions taken by government. I do not blame any one Government or any party. We are all guilty. The public is guilty. Never a day passes without one of my constituents calling on me to urge some public authority to spend more money on something. Even this year when economic realities must be obvious to everybody the nonsense goes on.

I welcome the Secretary of State's action in calling on local authorities to cut expenditure plans. Yet even in terms of rate support grant the right hon. Gentleman is underwriting an increase in local authority expenditure of 4 per cent. in real terms in 1975–76. His stated target in 1974–75 was a limit of 2½ per cent. That figure will turn out to be at least 8 per cent. therefore, what will the new 4 per cent. target amount to in the reality of 1975–76? We must remind ourselves that the Chancellor of the Exchequer has set a limit on the growth of public expenditure of 2.75 per cent. Why should local authorities be allowed a limit of 4 per cent.?

If we ask whether this level of expenditure can be afforded in our present economic circumstances, the answer surely must be "No". But if we are to cut we shall have to change the law. There are not enough non-statutory items of expenditure to enable local authorities to cut back sufficiently to hold the rate at anything like a reasonable level. We should cut these statutory commitments rather than tell local authorities to spread the butter more thinly. Nowhere is the error of spreading resources over too wide an area of commitments demonstrated more than in education terms. Part of our so-called State education system has now reached a situation where the very word "education" is a hollow farce. This is especially true of our cities, but is also true of many rural counties.

In Cornwall this "spread thin" policy has caused past school building allocations to fall far short of the level needed to keep up with basic needs. We have not even provided roofs over heads or benches for bottoms. If the Government's allocations are anything to go by, we shall not keep up with the simple growth in the school roll in the years to come. I want more money for Cornish education. Our case is good and indeed better than most countries. If the Government cannot find the money, let them say so. Let them come to the House with a proposal to allow Cornwall to shed some of its educational commitments. It is no good our going on trying to pretend that we can afford what we cannot possibly pay for. But if we are to cut commitments, let us not do so with an axe, but with a pruning knife. And let us be careful how these cuts affect the levels of unemployment, not only in development areas but throughout the country generally.

The Secretary of State for the Environment has promised by the end of the year to issue a circular to local authorities telling them where cuts are to be made. It would be helpful if we could hear from the Secretary of State for Wales where he thinks cuts can be made.

So far in the debate we have not had a satisfactory answer on what rate of inflation is expected. May we be told what rates of inflation the Government are planning for in their estimates of local government expenditure? What advice has the Secretary of State for the Environment given?

We know that the Conservative Government got their sums wrong and we should like some advice from the present Government, if only to say that they too have got it wrong. The Secretary of State for the Environment takes us for a bunch of mugs if he thinks we do not know what his Department has estimated. We know perfectly well. It is a leaky sieve anyway and it is not difficult to find out the answer. It is even less difficult to calculate.

The Secretary of State has given local authorities £2,000 million, £1,000 million more than they thought they would get. Local authorities are delighted, but I know the reason why the Secretary of State has given them £1,000 million more. The answer is that his Department has estimated that next year inflation will be around 30 per cent. in the provision of local authority services.

The question we then have to ask is why this riotous increase in local authority expenditure from rates has taken place. There are three main causes: greater expenditure on services, inflation, and increased administrative costs. I have already dealt briefly with the expansion of services. That is not responsible for the whole story, and at least we get some value, if not the best value, out of such an expansion. Ratepayers know that inflation is not the reason for this enormous increase either. Ratepayers in rural areas, such as the area around Launces-ton in my constituency, may be as bewildered as the Government over the real rate of inflation, but my constituents certainly know that an increase in rates of 156 per cent. in two years has not been occasioned by inflation.

Undoubtedly one of the factors has been the appalling escalation in costs brought about by the reorganisation of local government. We are dealing with one of the scandals of the age. It is a tale of two parties. One political party while in government set up an inquiry into local government reorganisation. The other political party, at that time in opposition, had to manufacture fundamental points of disagreement, because that is the idiotic game we play. It is a story of how, with no more expertise that a man and a dog in a back room off Smith Square, a few half-baked ideas were concocted. There was then an election which resulted in a Conservative Government, and those same ill-conceived ideas were forced on local government in the name of efficiency and other assorted claptrap. It is a story of how the Department of the Environment was kept by its political masters from conducting any adequate studies into the effect of those idiotic plans on staffing and costs—for fear that such studies would have shown sound economic reasons why those proposals should not have been proceeded with at all.

We were then told that the new system of local government would be much more efficient than the old system. But it has not meant a better standard of service, lower costs, the employment of fewer people or providing better value for money. All the things that were promised have come to nothing but a riot of waste and profligacy on a scale unequalled in modern times. If we look at salaries, it is surely impossible in mathematical and logical terms to say that every administrator in local government should have increased his responsibilities. Yet I have not found one local government official who has not been able to claim an increase as a result of increased responsibility.

The only full study of the situation which has taken place has been that conducted by an interested party, namely, the Local Authority Conditions of Service Advisory Board, a body which represents staff and local authority associations. That body was set up expressly to counter criticisms that the new authorities had been prodigal in terms of staff and salaries. That body has called criticisms "ill-informed".

The biased nature of that study may be gauged by the board's own words: A case must be prepared which will demonstrate that the allegation of recklessness on the part of local authorities is either not justified or that if, on a like for like basis, the salary bill overall for the new authorities is demonstrably higher than that of the old authorities, then there is no good reason for it to be so. We should mark that final sentence. The report is ingenious, not to say fanciful, in creating and inventing good reasons why salaries should have increased.

That survey showed that reorganisation had increased total salaries in local government by £54 million or 9.4 per cent. and that the number of posts had increased by 14,000 or 4.7 per cent.

The board then invented, in the way that vested interests do the world over, a marvellous excuse called "additional explainable costs"—work not previously undertaken, work previously undertaken by consultants, improved local services, work transferred from other local authorities, and other assorted smokescreens. By the time that it had done these creative statistics, it showed that there had not been any increase in posts or salaries. Far from it. Apparently we had got it wrong. The board showed that posts had decreased by 4.6 per cent. and that salaries had gone down by 2.6 per cent. However, I do not think that the public are fooled. I hope that the Government are not fooled. Certainly the House is not fooled. The figures are totally "phoney".

Mr. Nott

The hon. Gentleman was making an extremely good speech until he got to this point. Now he is on his party political platform. We must not exaggerate the costs of reorganisation in this area. The hon. Gentleman is right to criticise the salary increases. Reorganisation costs a lot of money, and much of it was a mistake. However, the hon. Gentleman's figure of £54 million for the increase in salaries must be looked at in terms of total local authority expenditure in the region of £8,000 million to £10,000 million. We should not exaggerate the situation. The hon. Gentleman is now giving an unbalanced picture in what was a very good speech.

Mr. Pardoe

I am grateful to the hon. Gentleman for saying that any part of my speech was good. That at least is something.

The trouble is that these figures are largely "phoney", because the wrong question was asked. The board was concerned to compare posts and salaries on 1st April 1973 with posts and salaries on 1st April 1974. Yet it asked the new local authorities to list only those posts which had been filled on 1st April 1974. We all know that a large number of posts had not then been filled. Thus the situation is even worse than the figures show.

The situation in Cornwall is not entirely untypical. Before reorganisation there were 2,804 posts in local government. After reorganisation there were 3,158, an increase of 354.

I appreciate that new councils have taken on new tasks and that district councils have taken on planning. But if reorganisation had been done with real efficiency and the Government had got their plans right, the numbers taken on by the district councils for their planning departments would have been cancelled out by the numbers of people shed by the county councils in their planning departments. That has not happened.

I point out to the hon. Member for St. Ives (Mr. Nott) that Professor James, former chief planner at the Ministry of Housing and Local Government, said at a conference last week that since reorganisation local authorities' planning staff had increased by 70 per cent., not because of any new work to be done but because of overlapping and duplication in planning. That is not a party political point.

It is a fact that reorganisation has been a flop. No proper studies were made in advance in Whitehall into these costs and the effect on staffing, and control by local councillors has, alas, been inadequate.

I am delighted that the Secretary of State for Wales is to wind up the debate. I hope that, for the first time this year, he will defend the great disparity between the treatment of Wales and that of Cornwall in the domestic rate support grant. We have not had any justification yet. We have not had it because it does not exist.

The Secretary of State for the Environment was good enough to say that if only I were made Secretary of State for Cornwall all our problems would be over. I could not agree more with him. But part of our problems would be solved if the Secretary of State for Wales would take over the Cornish peninsula and include us in the Celtic rating system That would be a start.

The reasons given for the different treatment are that Wales suffered a greater impact as a result of the reorganisation of local government and water services. The domestic rate poundage in the six new districts of Cornwall in 1974–75 ranges from 41.50p to 48.30p. In Wales the range is far lower. Only six of the 27 Welsh districts fall within that range. In Restormel the rate poundage is 48.30p. In Cardiff it is 28.l7p. In North Cornwall the rate poundage is 43.72p. In Swansea it is 35.90p.

Taking average rates per household, with which the Secretary of State for the Environment played havoc in earlier debates this year, Cornwall's range from £59.11 to £73.65. Out of 27 Welsh districts, only one comes within that range. In Restormel the rates per household are £73.65. In Radnor the figure is £33.66. In North Cornwall the rates per household are £66.35 and in Llanelli they are £33.97. I hope we shall get an answer to these figures and that the right hon. and learned Gentleman will produce the water rates as well, because they do not add to his argument either.

In England and Wales, rates and sewerage charges per household rose by 28 per cent. between 1973–74 and 1974–75. In Cornwall they rose by 65 per cent.

The effect of the withdrawal of the special domestic rate relief on Cornwall will be truly catastrophic this year. We can forget a rate increase of 25 per cent., about which the Secretary of State for the Environment told us. It will be nothing like that. People living in the rural areas around Launceston, for instance, in 1974– 75 had rates of 53.15p in the pound. There was a special relief of 13.16p. so the final rate was 39.99p. The withdrawal of the special rate relief alone means that, if there is no increase in expenditure in 1975–76, the rates will rise by 33 per cent. for those people. If for other reasons the rates rise by only the amount that the Secretary of State stated—25 per cent.—those ratepayers will pay an additional 58 per cent. increase. That is the reality of the situation. Therefore, I ask the Secretary of State for Wales to consider Cornwall's position.

Cornwall must be treated in rating terms in the same way as Wales. People in Cornwall have suffered an identical impact as a result of the reorganisation of local government and water services. I beg the right hon. and learned Gentleman and his right hon. Friend to reconsider our case.

6.8 p.m.

Mr. Dafydd Wigley (Caernarvon)

Tempting though it may be to follow the hon. Member for Cornwall, North (Mr. Pardoe) on the path on which he started, I shall not do so, but there are some territorial ambitions that I could follow in that direction. The hon. Gentleman, no doubt, has severe problems in his area, because of the nature of the terrain, in the same way as many parts of Wales have problems. It is not entirely fair to compare parts of Cornwall with cities such as Cardiff and Swansea. Most of Cornwall is more comparable with areas in Wales like Dyfed, Powys and Gwynedd. I want to concentrate on many of the problems in those areas.

I should make clear that in putting down the amendment on the Order Paper, which we regret is not to be called, we are in no sense attacking the total funds made available for rate support next year in England and Wales. We welcome the funds that have been made available. If we introduce a certain amount of acrimony, it is on the allocation of those funds within Wales, particularly in the rural counties.

I am pleased that the Secretary of State for Wales is to wind up, because I should like to raise certain specific points with him. I should be grateful if he would answer those points and clear up what has become a topic for dispute in Wales, both publicly and privately. This subject is very serious for my constituency, so serious that we tried to raise these points at an earlier stage in the development of the grants fund. I tried to speak in the last debate but was unsuccessful. I was unsuccessful also when I tried to raise the matter on the Adjournment. I know that representatives of the Gwynedd County Council have visited London to raise these points. They will be amazed to see that the amendment has not been called.

This is not a party-political point. Much of what I have to say is supported by members of the Conservative and Liberal parties, by the Gwynedd County Council, and, I believe, now by members of the Association of County Councils.

We all look forward to the Layfield inquiry taking place, when we shall have an opportunity to bring about once and for all the total abolition of the system of local rates and give the local authorities the maximum possible freedom to raise revenue on an equitable and progressive basis to suit their own individual localities.

Gwynedd, Dyfed and Powys are counties of large area and small population, having low income. The degree of low income is such that in the former county of Caernarvonshire the personal income before taxation was only 55 per cent. of the level in England. An Inland Revenue survey showed that 34 per cent. of the population fell into the category defined as having low incomes for tax purposes. That figure compares with 27.3 per cent. for England and Wales. Only the figure for Cornwall exceeds that. The figure for Cornwall is 34.5 per cent. There is a preponderance of low income population in rural Wales.

This is a point which the Government should always bear in mind. There is chronic rural poverty as well as urban poverty. There is chronic rural poverty in my constituency and in many parts of Wales. There are cases of real social deprivation occurring as a result of the rural poverty of these areas, and this deprivation is as great as the deprivation in many urban areas.

The effect of rate increases over the past two or three years has been staggering in my constituency, where some small businesses have had their rates increased from £180 in 1972 to £500 in 1974. The local economy does not have the capacity to absorb that sort of increase. These are the marginal businesses which will be squeezed out of existence if this trend is continued.

While income levels are so much lower, the cost of living in many respects is higher. I can give two examples. The level of water rates in my constituency has been referred to already, as has the effect of the VAT increases on petrol in rural constituencies. These are substantial elements in the cost of living, and between these increases and the trend in rates the population is being squeezed very tightly.

The burden on the local community is added to by the effects of the cost of tourism. I raised this matter in a debate in July 1974. The tourist trade brings many benefits, but it substantially increases local authority costs. Tourism brings an additional population which has to be served but which does not qualify for the grant support from the central Government.

There is the overriding factor of the sparsity of population, and I must go into that in a little more detail. The rateborne cost per head of population in Gwynedd is among the seven highest in England and Wales. In fact, four of the seven counties are in Wales. The sparsity formula in the needs element has caused much dispute recently. During the current year 1974–75, the sparsity formula was based on a figure of £3.12 per acre. In Gwynedd, which has an area of 950,000 acres, the total figure is therefore £2.98 million. That figure has been increased effectively because of the recent announcement made by the Government to raise the figure to £4.33 per acre for the current year, giving Gwynedd a total of £4.14 million. What will happen in 1975–76? The original basis of the proposed basic rate was £0.63 per acre for acreages in excess of 1.5 per head. This means that the total in respect of Gwynedd will amount to only £400,000.

I welcome the super-sparsity element which the Secretary of State has successfully introduced. That element will bring in £1.81 per acre for acreages in excess of 3 per head. That gives Gwynedd £535,000, or a total of £930,000, that is, a figure of under £1 million compared with the original £3 million forecast for 1974–75, and the revised figure of over £4 million for 1974–75. Even allowing for the damping concession, in 1975–76 we shall be more than £2 million worse off as regards this element compared with last year. The question then arises whether the damping concession will continue next year.

Ministers may say that it is unfair to take one element, and that we need to look at the complete picture. Let us do that. The original total needs element grant for Gwynedd for 1974–75 was originally put at £10.37 million. The revised figure is £14.48 million. The estimate for 1975–76, on the basis of what we are discussing today, will be £14.59 million, which is an increase of £100,000 on the augmented figure for 1974–75.

It may be said that the resources element will help us. But the increase of the resources element from 45 per cent. to 50 per cent. will yield only £750,000.

The net effect on the people of Gwynedd will be an increase of the order of £2 million in rateborne expenditure. The effect will be an increase of 6p in the rates on the sparsity change alone. The overall increase in the rates is likely to be of the order of 40 per cent., compared with the 25 per cent. average. I realise the dangers involved in talking about averages, but I think that the formula fails because of the attempt by people who like playing the statistical game to obtain a regression formula to suit areas where the characteristics are different. We can try, with as many parameters as we wish, to obtain a line of best fit, but we shall still find points on that line which deviate substantially from the others, and that is happening, I am convinced, in the cases of Gwynedd, Dyfed and Powys in rural Wales.

Mr. Wyn Roberts (Conway)

Is the hon. Gentleman aware that the Association of County Councils has declared its view that this change, in conjunction with the operation of the formula, is too great as regards Gwynedd and that it is prepared to reopen negotiations with the Government? Is he not much impressed by the view taken by the association?

Mr. Wigley

Yes. I am grateful to the hon. Member for Conway (Mr. Roberts) for bringing up that point. I was about to touch on that subject to substantiate the argument which I put forward. This argument, which was put forward neither on a party-political basis nor only in connection with Gwynedd County Council, has now been accepted.

Let me look at the overall effect that the grant changes will have in respect of Gwynedd. The increase in total grants for Gwynedd for next year will be 43.6 per cent., compared with an average of 52 per cent. for England and Wales. Assuming a 4 per cent. increase in average service, that implies either a substantial decrease in the level of services in Gwynedd or a substantial cost to the ratepayer in Gwynedd. Compared with the figure of 43.6 per cent. in respect of Gwynedd, the figure for Dyfed is 43.4 per cent., and that for Powys is 39 per cent.

Rural counties, whose populations have low incomes, will suffer because of the treatment of grants for the next year. This is not a matter merely for my concern. It is a matter of concern to the Association of County Councils which has prepared a document as a background for today's debate entitled "View of the Association".

In stating that it recognises that the total amount of money provided by the Government is reasonable, the Association's document continues: The Association have, nevertheless, made representations to the Secretary of State that the formula proposed for the distribution of the grant will again divert funds from the non-metropolitan areas to London and the other metropolitan areas … Whilst realising that if this is Government policy they have no alternative but to accept it, they consider that the formula acts too sharply upon some of the non-metropolitan counties. They have there fore pleaded for some form of safety net, which will ensure that no county suffers too harshly, and they have instanced the Welsh counties as some of the most disadvantaged counties in this respect. On the basis of the best information available, the Association believe that even though only half the needs element total is to be distributed by way of the new formula, at least six member counties, including two Welsh counties, will have an alteration of minus more than 5 per cent. in their share of the total Rate Support Grant in 1975–76 when compared with the current year. The Association consider this to be too great a rate of change, and they would be most willing to reopen discussions with the Government to ensure that this reasonable grant settlement is not marred by the lack of appreciation of the dangers of a too rigid and theoretical approach to the new distribution formula. I ask the Government to look at this matter again. Will the Minister say categorically that it is his policy, as the ACC memorandum suggests, to shift resources relatively from non-metropolitan areas to London and other city areas? Will he acknowledge the understandable and justified fears which have been expressed in rural counties in Wales, rather than brush them aside saying that they are without foundation? Even at this late stage, will he consider the introduction of a safety net to ensure that no county has an increase of less than 48 per cent. in grant allocation? Finally, will he accept the invitation of the Association of County Councils to reopen discussions with the Government as a matter of urgency?

These are not trifling worries. They are of the gravest concern to areas where the economy is depressed and where there is little room for adding yet further burdens on a population whose incomes are excessively low on a United Kingdom and a European basis. It is the public services in my area and in rural Wales generally which will suffer if there is no modification in the Government's proposals. If that happens, it will be the weakest and poorest members of the community who will suffer. That is why we tabled our amendment and why we hope that this Government, of all people, will respond to the case that has been made and modify their proposals for next year to safeguard the interests of rural areas.

6.23 p.m.

Mr. John Cartwright (Woolwich, East)

I hope that hon. Members who have spoken already will forgive me if I do not follow them through the intricacies of Celtic rating.

I congratulate the Government and my right hon. Friend the Secretary of State for the timing of the rate support grant settlement. This time last year, I was leading a London borough council, and I well remember the frustration and agony of trying to go through the rate fixing operation without knowing the level of rate support grant. It was rather like trying to make an omelette without eggs.

I congratulate my right hon. Friend also on the degree of realism and understanding of the problems of local government that he has shown in this settlement, a much greater sense of realism than we had shown by the previous Government in their settlement earlier this year. I can remember the degree of incredulity which swept through local government when we were told by the Conservative administration that we should rate on the basis of a 9 per cent. rate of inflation.

That same incredulity went through all the local authority associations. I shall, if I may, quote the reaction of the then County Councils Association, which is not known for its revolutionary fervour, especially with a Conservative Government in office. The final account of the negotiations produced by the association said: The County Councils Association queried the Government's estimates of the rate of inflation which appeared to assume that the effect of pay and price increases would be less than in the previous year. This seemed unduly optimistic … If local authorities were to rate on the basis of the Government's assumptions they would be in trouble. That is exactly what happened. There was a considerable amount of trouble, and the increase order now before us will rescue a great many local authorities from that trouble. We should pay tribute on that account.

Like the hon. Member for Cornwall, North (Mr. Pardoe), I am interested in the circular which the Secretary of State has promised offering advice to local authorities on ways in which their spending programmes for the coming year may be reduced. I hope that it will be more realistic than Circular 19/74 produced by the previous administration, which urged us to cut the growth in expenditure on social work staff, home helps, day centres, meals and holidays. That seemed to indicate a totally false sense of priorities when making cuts. It went on to call for less frequent collections of refuse and a reduction in the hours of opening of recreational facilities. I hope that my right hon. Friend's circular will be more realistic and more understanding of what goes on in local government.

I turn to the position in London, which much exercised the mind of the hon. Member for Southend, West (Mr. Channon). We have heard a great deal of concern expressed about the problems of rural Wales. It is reasonable, therefore, to comment on the problems of London.

My right hon. Friend recognised that although he had gone some way to meeting London's case, London might not be totally satisfied, and that is the situation. When we talk of the rate support grant for 1974–75 meeting 60.5 per cent. of relevant spending, we raise a hollow laugh in London, where the figure of just over 35 per cent. of relevant expenditure is met by rate support grant. Although the increase in the coming year will be up to 66.5 per cent. in the country as a whole, it will still not rise very much beyond 35 per cent. in London. This is despite the fact that it is generally agreed that the costs of local authority services in London are much higher than the average in the country.

These additional costs have been identified and are now widely accepted. They include the additional costs of the police. In London we have more than twice as many policemen per 1,000 of population than the national average, and we need them. There are additional problems of debt charges arising from higher land and building costs in Greater London. There are higher pay levels and the problem of London weighting. At 1974 prices, these additional costs are estimated to be running at £300 million a year in Greater London.

There is an attitude which says that, although London has all these additional costs, it is wealthy enough to absorb them. However, not all London streets are paved with gold. Not all London ratepayers live in penthouse suites in the West End and drive shiny limousines. There is ample evidence of as much real poverty in parts of Greater London as there is to be found in any other part of the country. This is to be seen in the higher social service case loads in Greater London,

Looking at the various aspects of the social service case load, we see that there are more than half as many more children in care in Greater London than the average in England and Wales. The incidence of physical handicap in the elderly is twice as high in Greater London. Illegitimate births are a third higher in London than the national average. The incidence of homeless families is more than three time as high than in the rest of the country. That is why the problems of boroughs such as Camden result in their having to undertake expensive housing acquisitions. As for education, 12 per cent. of all the pupils in London schools are immigrant children, compared with a national average of less than 2 per cent. This shows that London's needs are singularly high.

Turning to the needs element of rate support grant, we all understand the attempt to measure needs objectively and to try to equalise spending per head on rate fund services as between different authorities. But London's spending is excluded from the formula on which the needs element is calculated. We in London suspect that this is because, if London were included, a further £150 million of support would come to London —purely as a result of including London's higher spending in the calculation.

The excuse given for not including London's higher costs is that London has very much higher rateable resources. This point was made in the report of the grants working party, which said: Most members consider that London's exceptional rateable resources outweigh London's exceptional spending needs. In other words, it is argued that because we have high rateable values in London these additional costs can be painlessly absorbed.

It is fairly clear that the much higher rateable values we have in London reflect scarcity in housing rather than ability to pay. For example, the rateable value of a three-bedroom Parker Morris house in London will be substantially higher than that of an identical property in any other part of England or Wales. It will be half as much again as an identical house in Merseyside or Kent, and two-and-a-half times as high as an identical property in some parts of rural Wales.

The impact of a much higher level of rateable values on the London ratepayer is very marked. Londoners pay, on average, 50 per cent. more in rates than the average for the rest of the country despite the fact that household incomes in London are nothing like that much higher than the average in the rest of the country. Recent evidence suggests that household incomes in London are not much more than 20 per cent. higher than the average for the rest of the country.

The argument which is so readily trotted out is that rateable value is an acceptable test of resources. Tonight we are all quoting memoranda from the local authority associations, and a memorandum from the Association of Metropolitan Authorities challenges this clearly. It says: High rateable values are no measure of ability to pay or of resources. I agree with my hon. Friend the Member for South Shields (Mr. Blenkinsop) that what really matters is the actual sums paid in rates, and here we find that London does not come out very happily. The Times of 6th December had a headline which was very chilling to London ratepayers: London householders head the ratepayers league". That is one league table which London would be happy to be down in. It shows that in the current financial year the average rate paid in London is £95 a year, compared with £72 in metropolitan districts, £75 in non-metropolitan districts, and £37 in Wales, which indicates that sparsity has some compensations. This does not include additional relief given by the Government last summer, which widens the gap still further, and it seems obvious that the rate support grant order for 1975–76 now before the House will again widen the gap between London and the rest of the country.

The actual figures of average rates paid in certain London boroughs make the situation even more clear. In Camden, for example, in the current year the average rate paid is £140. In Haringey the average is £131. Even in Tower Hamlets, deep in the East End of London, the rate of the average property is £103 per year. Equating that with average household income, we find that the. average household in Camden will pay something like 9 per cent. of income in rates. For Haringey the figure is 8 per cent., and in Tower Hamlets almost 7 per cent. of the average household income is going in rate payments.

We recognise that the Government have moved some way to meet the problem of London. The weighting factor for 1974–75 is increased from 3 per cent. to 12 per cent., which is very much welcomed, giving an extra £36 million against the problem of the London weighting settlement. It is a fairly small figure compared with the additional extra costs in London already identified, but all contributions are gratefully received in London at the present time. But our joy was less than unconfined when we found that the weighting figure for 1975– 76 is to be dropped back to 8 per cent., which means less help on that score than in the current year.

Again, to quote the Association of Metropolitan Authorities: London's needs entitlement is to be enhanced by a higher weighting but this is still. not large enough to compensate for London's exceptional spending needs, which are not adequately recognised in the distribution of the needs element grant. I suggest that when the great metropolitan authorities such as Manchester, Merseyside, the West Midlands and Tyneside, are prepared to do battle for London's case, it must be a very good case indeed.

My right hon. Friend the Secretary of State recognised in his opening speech that London's rate increases will be well above the kind of guide level of 25 per cent. for which he was aiming. The suggestion I have heard—not from borough leaders who may be thought to be a little unsatisfactory as a source of information in this respect but from borough treasurers who are sober, sensible people not given to exaggeration—as their assessment of average rate increase in London in the coming year is of the order of 50 per cent., and some will be substantially above that.

This is not the result of extravagance. A great many London authorities are already making proposals for cutting services, reducing standards and raising charges to prevent still more frightening increases. A great many are already deciding to carry out staff reductions in the sense that vacancies are not to be filled. That is a worrying factor when we are talking of skilled professional officers such as public health inspectors, weights and measures staff and, most important of all, social workers.

In talking of a 50 per cent. increase for many London ratepayers, we are talking about £1 a week, and probably more than that in some London boroughs. Bearing in mind that a substantial proportion of London ratepayers are also council tenants who will face rent increases later in the year, we see the size of the problem facing London.

What is said by London local government is that there has to be a more equitable distribution of resources for London. It can be done in one of three ways: by bringing London's additional expenditure into the RSG formula; by increasing substantially the percentage addition for London's higher costs; or, more attractively, by accepting that London is a special area with particular problems which do not fit into the rest of the formula and dealing with it separately from the rest of the country, with a separate allocation of national resources.

We shall be arguing this case before the Layfield Committee. I accept that it may be late in the day to make additional help available for London, although it was done last summer in other parts of the country, which were, in our opinion, rather less deserving, but it is fair to make clear to my right hon. Friend that both sides of London local government are united in their determination to try to secure a greater measure of justice for London ratepayers, and that determination will be substantially strengthened by the kind of rate increases we are now facing in Greater London.