VARIATION OF RATE SUPPORT GRANT ORDERS (Hansard, 23 January 1974)

§ Mr. Graham Page
I beg to move Amendment No. 4, in page 6, line 46, at end insert: '(4A) If, in a case where the Secretary of State proposes to make an order under subsection (1) above in respect of any year, it appears to him that, apart from any provision made by virtue of this subsection, the effect of the order and of any other order under subsection (1) above which he considers likely to be made in respect of that year would be that the ratio between the actual aggregrate amount of the resources element for that year and the aggregate amount of the needs element for that year would be significantly different from the ratio (in this subsection referred to as "the expected ratio") between the estimated aggregate amount of the resources element for that year, as fixed by the relevant rate support grant order, and the aggregate amount of the needs element, as so fixed, he may in the order under subsection (1) above—

(a) specify as the aggregate amount of the resources element for that year such amount as, in his estimation, will secure that (taking account of the effect of any further orders likely to be made under subsection (1) above in respect of that year) the ratio which the amount so specified will bear to the aggregate amount of the needs element for that year will be the expected ratio ; and

(b) in order to secure that the total amount paid in respect of the resources element to local authorities entitled to payments in respect of that element does not exceed the amount specified as mentioned in paragraph (a) above, make provision for a corresponding variation in the amount payable to each such authority in respect of that element'.

Mr. Deputy Speaker
With this amendment, it will also be convenient to take Government Amendments Nos. 5 and 28.

§ Mr. Page
The purpose of the amendment is to enable the Secretary of State, in the course of redetermining the grant amounts for any particular year, to adjust what would otherwise have been the actual aggregate amount of the resources element, and the part of it payable to each authority, to secure that, ultimately, the ratio between the aggregate amounts of the needs and the resources elements will be the same as the ratio between the amounts of those elements originally prescribed in the rate support grant order for that year.
This, perhaps, is not an easy matter to explain in short sentences in words of one syllable, but the position is that the resources 1686 element is calculated on the deficit in rateable value in any particular area below a standard line. To a great extent the authority itself can decide the amount of the resources element by its rate poundage. What happens is that the taxpayer comes in as ratepayer upon the deficit in rateable value in that particular area and the taxpayer comes in at the rate poundage decided by the authorities.
It was pointed out in Committee that the provisions of the Bill relating to the resources element as they stood threatened to work to the unfair disadvantage of authorities entitled to little or no resources element. The amount of the resources element payable to an authority was to be determined simply and solely by reference to its local deficiency in rateable value and its rate poundage for the year. The latter will not be known at the time of the original rate support grant order. Therefore, in distributing it we have to assume an average rate poundage.
For any authority which is not entitled to resources element because its total rateable value is above the standard line such authority may well suffer if there is a very high rate poundage so that it collects a considerable amount of resources element and unbalances the distribution of the rate support grant.
Let us suppose that a number of authorities were to set their rates unexpectedly high, whether because of over-allowance for the effects of inflation in the coming year or in the hope of accommodating a spending programme higher than could be tolerated by Government policy. The result would be to inflate the aggregate amount of the resources element. When the Secretary of State came to increase the grant total to take account of pay and price variations during the year, most of that increase would already have been pre-empted by the unexpected size of authorities' resources element entitlements, leaving little or nothing to be added to the aggregate of the needs element. In this situation the extravagant authorities which have overbid would gain at the expense of the others, and in particular of those which qualified barely if at all for resources element.
By the provisions of these amendments the Secretary of State would first consider whether the ratio of the aggregate of the needs and resources elements was, 1687 at the end of the day, going to be significantly different from the "expected" ratio that was assumed when making the distribution of the rate support grant—that is to say, the ratio between the amounts as originally prescribed in the rate support grant order. If so, he would be able to specify in the increase order an aggregate amount of the resources element which he judged would bear the "expected" ratio to the ultimate aggregate amount of the needs element.
5.30 p.m.
If there were likely to be a further increase order for the year, which we frequently have, the Secretary of State could allow in this calculation for the effect of that further order. Obviously, it would be needlessly disruptive to local authorities' financial planning if, in a first increase order, usually laid in November or December, the Secretary of State were to restore the "expected ratio" at the current level of prices by sharply reducing the resources aggregate, only to have to increase the resources aggregate again in a second increase order related to price increases that had taken place in the last three months of the year.
Finally, to round off the job, the amendment would require the Secretary of State to translate any change he had made in the aggregate amount of the resources element into a corresponding change in each authority's entitlement.
Inevitably, the consequence will be to remove the absolute certainty which the calculation method for the resources element would otherwise have given authorities as to their entitlement for the year. As any reduction in the aggregate amount must be followed by pro rata reductions in each authority's entitlement, it may be that authorities which have shown commendable restraint in setting their rates will suffer equally with those whose rating decisions have been responsible for the threatened upsetting of the "expected ratio". But, setting that disadvantage against the advantages of being able to restrain the authority or authorities which is or are getting an unfair advantage against the others, we must put 1688 up with that possible disadvantage of uncertainty to some authorities. The Government consider that any inequities on that score would be less serious than those which would follow from any serious distortion of the "expected ratio".
I apologise to the House if I appear to have stuck rather closely to my notes, but I think that local authorities will wish to consider what is said in support of the amendment. I hope that I have given an intelligible explanation.

§ Mr. Oakes
I have listened carefully to the right hon. Gentleman and I think I follow what he said. I am delighted that his hon. Friend the Member for Maidstone (Mr. John Wells) is not present in the Chamber, because he thought that it was boring when we had what in these debates is the high drama of a discussion on resources to newly created counties. What he would have thought, having listened to this debate, I shudder to think.
The one difficulty that I foresee is that of uncertainty. I realise that the right hon. Gentleman has had to weigh the balance between an unfair distortion, on the one hand, and creating uncertainty, on the other.
At present, local authorities are uncertain not only about this Bill but about many other things. To add another uncertainty in future may not be regarded too happily by treasurers and local authority associations. However, we must see how it works out in future. The right hon. Gentleman has rightly given a very full statement which can be considered in detail by local authorities and their associations, but, as I say, we must see how it works out. My only regret is that some element of uncertainty, albeit small, is created to get rid of what might be an unfair distortion to a particular authority. That uncertainty may be inevitable. We abide by the amendment and will wait to see how it works out.