RATES

HC Deb 27 June 1974 vol 875 cc1750-90

Mr. Speaker

Almost 50 right hon. and hon. Members have told me that they want to speak in the debate which is to follow. We are starting rather late, which is not altogether my fault, but with a self-denying ordinance all round, including both back bench and Front Bench speakers, perhaps we shall be able to manage fairly well as we have done on previous occasions, including in particular one or two occasions in the last Parliament.

I understand the anxiety of hon. Members who have a strong constituency interest in the subject of the debate. I shall do my best, but there is no point in hon. Members coming to the Chair to ask about their chances of being called. However, if they indicate that they can say what they have to say in five minutes, it might improve their chances.

4.25 p.m.

Mrs. Margaret Thatcher (Finchley)

I beg to move, That this House, in view of the massive increases in rates in many areas greatly in excess of the growth of incomes, stresses the need for a fundamental reform of the rating system; and urges Her Majesty's Government to introduce a measure of interim relief this year for the benefit of those worst affected and to provide that water and sewerage charges should rank for rate rebate. The motion is deliberately phrased in moderate terms. The purpose is clearly stated—it is to help the ratepayer now. The motion contains three parts—we try to deal first with the immediate situation, then the longer-term situation and finally the question of water and sewerage rates.

With regard to the immediate situation, people have for years complained about rates, but they have paid them, usually on time. The losses to the local authorities through failure to pay have been minimal. This year not only have there been the most vociferous complaints ever but people have been threatening to withhold payment of rates, or that part of the rates which exceeds money growth in incomes, which, taking the personal disposable income as a yardstick, was 12½ per cent. between the end of 1972 and the end of 1973.

Over the years local authority expenditure has risen faster than the growth of the economy. In spite of attempts to relieve the burden on ratepayers, the weight of tax on the ratepayer has risen. While over the years there have been anomalies in the rating system, so long as the amount raised by rates was comparatively small people would bear the anomalies. But when the amount to be raised became larger than ever before people naturally objected strenuously.

The right hon. Gentleman the Secretary of State and his right hon. Friends will have seen innumerable deputations from the counties. After they had seen him, or one of his Ministers, they came to see me. There have been deputations from many parts of the country, including Cornwall, Northampton, Norfolk, Somerset, Lincolnshire, Dorset, North-East Derbyshire and Cheshire, and also from the newly-formed ratepayers' action groups.

All those people have been to see us about increases in rates, the reasons for which I shall try to analyse in a moment. Their rate demands show increases of up to, and occasionally in excess of, 100 per cent. Many of them have increases of between 70 and 80 per cent. These increases go far beyond anything for which they have budgeted, and many of them are in no position to pay.

That is the position in many parts of the country, particularly, but not exclusively, in those areas adversely affected by the abolition of the variable domestic relief.

The right hon. Gentleman, much as I regret it, is in the seat of power, and he is the only person who can now introduce a major relief. He and his Ministers justified rent freezes on the ground that if people's incomes were restrained it would be wrong if their rents were to be increased. Similar reasoning could also be applied to rates.

I make it clear that, although people are threatening to withhold their rates, I would never advise anyone to withhold rates contrary to the law. Any member of any Oppositon who urged people to disobey the law would morally have forfeited the right to expect others to obey his Government's laws. Unless the rule of law is upheld, society will have lost its most valuable asset. But if that is our advice to our constituents, when we are presented with genuine and serious grievances by the most law-abiding citizens it is our duty to try to redress those grievances.

The Secretary of State has a choice—he can do something or he can do nothing. I can assure him that if he had my hon. Friends behind him he would not be allowed to do nothing.

Mr. Max Madden (Sowerby)

Can the right hon. Lady tell us what obstacles to reform of the rating system the Conservative Government were confronted with?

Mrs. Thatcher

I think that the hon. Gentleman will know that neither party has managed to reform fundamentally the rating system. That is not the only question at issue, and I will come to it later. At the moment, I am concerned with the short-term problem in which people are faced with massive increases which, try as they will, they cannot meet. This is causing many human problems which must be as well known to hon. Members opposite as they are to us. The Secretary of State will doubtless try to blame it all on us. I shall, therefore, trace the events which led to the rate support grant order which was issued by the right hon. Gentleman in March.

First, a thorough reorganisation of local government was required, which, presumably, was why the last Labour Government set up the Radcliffe-Maud Commission. In spite of criticism, the terms of reference of the commission failed to include the financing of local government. Yet it would have made sense to consider the powers of local government and one's belief in devolution and dispersion of power along with the method of financing local government. That was the only sane and proper way to do it.

Secondly, my right hon. Friend the Member for Worcester (Mr. Walker) introduced reorganisation. It was a measure different from that proposed by the then Opposition, but I believe that any measure involving larger authorities would have had substantially the same effect. The economies of scale are often elusive, and "bigger" tends to mean "dearer". When it came to deciding to which tier education should go in the metropolitan areas, the then Opposition urged me to put it to the top tier. I refused to do so and kept it with the smaller authorities. "Bigger" again would have meant "dearer", and I believe that keeping education to the lower tier means a more personal service.

Thirdly, the Conservative Government moved some small blocks of expenditure away from local authorities to central Government. In particular, the local health services and 90 per cent. of the cost of students awards were moved to the central Exchequer to protect the ratepayer. The saving to local authorities at November 1973 prices was some £348 million, and if we had not done it that burden now would go on the ratepayers.

Fourthly, unlike the right hon. Gentleman, we believe in containing local public expenditure. To substantiate my accusation, I will quote from a speech made by the right hon. Gentleman to the Labour Party's local government conference last year. The report was published in The Guardian on 12th February 1973. The report quoted him as saying: At a time of high taxation—and taxation should be high under a Labour government if we are to carry out our social programmes—we shall never find another source of as much money as accrues through the rating system. It is quite clear that the right hon. Gentleman believes in high taxation. We, on the contrary, usually succeed in having lower taxation, and this cannot be achieved without rigorous scrutiny of local expenditure for the purpose of determining the amount of relevant expenditure. Last year, when we were doing the relevant expenditure estimates, my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) announced in December a reduction in expenditure of which £111 million was to be saved by the local authorities. The present Government have adhered to those cuts, although they had denounced them in Opposition. If those cuts had not been made, the rates would be still higher now.

A level of inflation of 9 per cent. was the position at which the expenditure level for local authorities was finalised. It is, of course, customary to take care of any further increases by rate support grant increase orders. The final result of the relevant expenditure negotiations permitted a growth of only 2½ per cent. in local authority expenditure in real terms over the previous year.

Some of the authorities which have suffered the biggest rate increases—and I have been over the accounts of Somerset and Norfolk in particular—are those which have adhered in every respect to the last Government's request for economy. They have implemented the cuts; they have allowed for only 9 per cent. inflation; some have even had to lower the standards of their services to protect the ratepayers. But, even having done all these things, they are faced with rate increases on declining services in excess of 50, 60, 70 or 80 per cent. My own local authority managed to keep to an increase of only 9 per cent. for inflation—and I remind the House that I represent a London constituency. The Chairman of the Barnet Finance Committee said: The Conservative Government in making every determined effort to control inflation requested local authorities to reduce capital expenditure by 20 per cent. and revenue expenditure (excluding salaries, wages and loan charges) by 10 per cent., so as to limit the increase in the domestic rate to 9 per cent. This has been done so far as Barnet's own expenditure is concerned, and the increase for domestic ratepayers would have been no more than 9 per cent. had the Greater London Council played its part in a spirit of co-operation in the true interests of the ratepayers and the country as a whole. Next, a rate support grant representing the highest percentage grant of all time, was made to local authorities to help them to keep the rates down. It meant 60.5 per cent. of their relevant expenditure being met by the taxpayers—a further effort on the part of the Conservative Government to reduce the rates payable.

Mr. David Ginsburg (Dewsbury)

The right hon. Lady has omitted from her historical catalogue the order for mandatory differential rating, laid by the Secretary of State for the Environment in the Conservative Government on 7th February, not long before the General Election. It led to substantial increases in rates, including my constituency.

Mrs. Thatcher

It is true that we laid an order for mandatory differential rating. I agree also that the Local Government (Finance) Act was hurried through the other place in one day, otherwise some other amendments might have been made. But it was vital, when we had the election, to get the Act through in one day. The new formula for the distribution of that grant was slanted to the benefit of the cities—sufficiently, we thought, bearing in mind the needs of the rural areas.

The right hon. Gentleman knows that a sum of £448 million was allocated to domestic rate relief, and in principle this was to be distributed on the basis of the largest increase in rates to warrant the largest relief. Those increases in rates which ranked for relief included water and sewerage rates. At the time when those allocations were made by us on that equitable principle local budgets had not been made up.

Mr. Joseph Dean (Leeds, West)

When the right hon. Lady speaks of "fair and equitable" does she consider the fact that some people in Cornwall were receiving as much as 40p personal assistance on their rates as against 7p in the Trafford area? Is that her idea of "fair and equitable"?

Mrs. Thatcher

But the reason they were to receive 40p was that otherwise they would have suffered the largest rate increases. It seems to me to be an equitable principle that those who suffered the largest percentage increase should have received the largest amount of relief.

Mr. Joseph Dean rose—

Mrs. Thatcher

I am sorry, I cannot give way again. As the hon. Gentleman's right hon. Friend gave 33p to Wales he must have recognised the need for some differential between the needs of Wales and England. When we allocated the domestic relief on the basis I have indicated the local budgets had not been drawn up and we were working on the basis of calculations. There were a few exceptional areas, and Trafford is one, where I believe the calculations were wrong, and corrections would have had to have been made when the facts became known; but before the facts became known a General Election intervened, and when the right hon. Gentleman came to do his computer runs the budgets were known and he had all the necessary facts in order to distribute the £448 million on a different equitable basis if he wished. I will give way for the last time.

Mr. Kenneth Marks (Manchester, Gorton)

The last communication which the Conservative Government sent to local authorities informing them of the domestic rate relief was on 20th February. Is the right hon. Lady suggesting there would have been some changes in local government estimates then, and is she suggesting that any more money would have been forthcoming from a Conservative Government seven or eight days later had the election gone the other way?

Mrs. Thatcher

I do not think the hon. Gentleman can have been with us when we debated the rate support grant order or he would have heard me refer to the similar situation we got immediately after rating revaluation when, after the facts were known, more money was made available because my hon. Friends insisted that it should be. In fact, the right hon. Gentleman altered the whole distribution of the £448 million domestic relief. That aggravated the situation in a number of rural areas already facing serious problems, and they are rightly resentful of that.

When the right hon. Gentleman came to allocate the relief the facts were known, and he could have had a different system of distribution so as to have alleviated some of the 70, 80 or 90 per cent. increases had he chosen to do so. He did not choose. He himself called it rough justice and used the word "capricious". We say it was not justice but was very rough and capricious. Reports of increased staffs for the new authorities were rife and among the offenders were some of the new Socialist authorities; and some of the bitterest attacks in council were those made by Conservatives on the Metropolitan counties for putting the staff up beyond any reasonable assessment of need. I have with me copies of a speech by Alderman Bellow, of Leeds, and attacks made on the West Yorkshire Authority for the very extravagant policy it was following. My right hon. Friend the Member for Crosby (Mr. Page) in January ordered an urgent inquiry into complaints about extravagant overstaffing and excessive salaries of chief officers in reorganised local councils. We are still awaiting the result.

All these steps were taken by the Conservative Government to try to protect the ratepayer from severe increases. We could not protect him from local authority expenditure above the limit of relevant expenditure. All the extra fell heavily on the ratepayer because it would not attract grant, but that is a matter for the local authorities themselves. The domestic relief which has now been given by the right hon. Gentleman on the basis of an equal 13p and 33p in Wales would not be altered or taken back, so this year we have to accept the right hon. Gentleman's distribution and its consequences. But unless some extra interim relief is found to help those worst affected in time for the autumn rates demand we can see a bitter and desperate situation developing.

There is a precedent. My right hon. Friend the Member for Altrincham and Sale after revaluation was faced with rating anomalies. I told the right hon. Gentleman the last time we debated the rate support grant that my right hon. Friend made available a sum of money—I agree a much smaller sum than would now be required—for relief that year. The right hon. Gentleman will by now have a full list of rate demands and knows the percentage increases over last year. I have only the limited list published by the Rating and Valuation Association. The kind of order needed and the distribution would have to be left to his Department in consultation with the local authorities, as was the case when we had the other relief after rating revaluation.

I quote what my right hon. Friend then said in his Budget speech on 6th March 1973: After discussion with the local authority representatives, the Government therefore propose to phase the effects for those hardest hit by meeting half the cost above 10 per cent. of any increases in domestic rate bills in 1973–74 which are attributable solely to the effects of revaluation."—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 268.] In this case, when the facts were known we took action. We did not limit ourselves to expressions of sympathy. I must tell the right hon. Gentleman that deputations have been received most courteously by his Department. His Ministers have been very sympathetic. It is simply that they have failed to take any kind of action afterwards.

There is one point I should mention before leaving the question of interim relief, arising from a deputation from North-East Derbyshire including the area formerly administered by the urban district of Clay Cross. At its meeting on Saturday last, the North-East Derbyshire District Council passed a resolution calling on the Minister to allow the council to levy a special rate on Clay Cross sufficient to cover the amount of any deficit inherited from that council. It is impossible to be precise about the amount of the deficit. It could be as little as £75,000 or as much as £500,000.

There is strong feeling among the ordinary people in North-East Derbyshire, regardless of their usual party affiliation, that no part of that deficit should be paid by the people of North-East Derbyshire other than those who live in Clay Cross. Ten of the parish councils in North-East Derbyshire have already indicated to the district council that they are not prepared to meet any part of the deficit. There exists in North-East Derbyshire a situation in which a great many ordinary people may find themselves disobeying the law by refusing to pay any rate which relates directly to the Clay Cross deficit. In our view the Government must give favourable consideration to relieving North-East Derbyshire from the burden arising from Clay Cross and I hope they will do so.

I shall now say a few things about the longer-term position on rates. As a result of Question Time today I understand from what was said by the Prime Minister and from the amendment that the right hon. Gentleman has put down that he is going to announce—to quote the words I expect to hear from him later—"a fundamental review of local government finance". Most of us would welcome this but I am not quite sure what kind of review he will announce.

May I urge what we on this side have come to know as a James-type inquiry? We feel that a Royal Commission takes a very long time. When we had an inquiry on teacher training it was of a different kind. We took a comparatively small number of people, about seven or eight, and asked them to sit fulltime and report within a year. The James inquiry did that. I think that the situation now is such that people would wish any fundamental review to be undertaken quickly and not at the rather leisurely speed which is customary with reviews meeting only once a week or once a month and embarking on a great deal of research.

I should like to make some further points about the longer term. First, any fundamental changes must be considered in conjunction with the powers of local authorities, their degree of independence and the nation's philosophy on the distribuion of power. Local authorities carry out their tasks better than Whitehall could, although many of us may have criticisms of the way that some of them discharge their duties from time to time.

Second, before adopting major changes local authorities would have to be consulted. That is obvious. To do otherwise would be high-handed and arrogant.

Third, I accept the thesis not wholly accepted by some of the many local authorities that I have seen that the Chancellor should have control over the level of public expenditure. As local authority expenditure is arranged now, he has not got that control, particularly on the revenue side. For example, in 1973–74 the difference on the estimate and the provisional outturn of local authority expenditure was over £200 million in real terms. That can make a serious difference to the Chancellor's Budget.

I accept that the central Exchequer must be able to determine the top level of local authority expenditure, but to do this the Chancellor must give himself the requisite powers.

This becomes even more important when considering the possible transfer of further items of expenditure from the local to the national budget. We transferred nearly £350 million worth. I believe that we should get the worst of all possible worlds if the Chancellor had to raise more tax to meet the transferred expenditure and local authorities then added further items to their budgets instead of reducing the rates proportionately.

Fourth, I hope that the review will involve an investigation into the consequences of financing local authorities in block grant money terms rather than the present method. This would give strict control over the upper limit of expenditure. It may be objected that such a scheme would mean the end of local authority independence. I do not think so. A similar method is used for financing the universities, and no one suggests that that is an example of central control. Rather it is quoted to illustrate university autonomy.

Fifth, a review body would obviously look at the effect of a local income tax on various income groups in different areas where wages and salaries varied greatly and at the varying income from a sales or turnover tax.

I should be grateful if at some stage today—perhaps in the reply—I can be given the answer to one particular question. I have the impression—perhaps past experience comes in—that the Inland Revenue could not at the moment contemplate the administration of another tax because it is still very much occupied with the work involved in moving to a tax credit scheme. If so, the option of a local income tax would be closed for some time.

Sixth, any change in the system of local government finance should not involve the creation of a new bureaucracy to operate it. People do not like it and it would be expensive compared with the tax collected.

Seventh, there will be cities with special problems which need special subventions of a kind for which the rate support grant, I admit, is not at present fitted. London will be in difficulties later because of the awards recommended in the Pay Board's report on the London allowance. I understand that that will rank for relevant expenditure, but there is no way of ensuring that the grant attracted by that expenditure will find its way into London where the expenditure is incurred. We must find a way of getting special grants to cities with special problems.

I turn now to the third part of the motion relating to water and sewerage charges. To put it mildly, the demands of the new authorities have in many areas been unexpectedly high. The right hon. Gentleman's answer no doubt would have been nationalisation. But bigger still would probably have meant dearer still. I hope that someone in his Department will go through the demands of the water authorities to see whether they are justified. At a time when their capital expenditure has been cut, it is difficult to understand why they should be making such heavy demands. I suspect that they may be attempting to build up a reserve out of the rates for the first year or two years. I trust that the right hon. Gentleman is carrying out the same kind of monitoring as did my right hon. Friend the Member for Crosby on rates during the early period of counter-inflation. I believe that due to his action the rate increase that year was prevented from rising still further.

Mr. Cledwyn Hughes (Anglesey)

Will the right hon. Lady give way?

Mrs. Thatcher

No. I have given way many times already. I am concerned to continue, because many of my right hon. and hon. Friends wish to speak in the debate.

Many deputations have reported the difficulty of getting adequate information from the new water authorities. The authorities must be told to give the information that is required. I hope that the right hon. Gentleman has made that perfectly clear.

The problem of a charge for a sewerage or water service which is absent has arisen many times. The final insult was having to pay to have a septic tank emptied in addition to paying the main drainage rate. [Interruption.] We discussed this matter on the Control of Pollution Bill. I pointed out that in the Bill the Government had retained the power of local authorities to make a charge. I suggested that that power should be deleted from the Bill. The right hon. Gentleman has power in Section 30(1) and (6) of the Water Act 1973 to give directions to the water authorities regarding charges. My hon. Friend the Member for Hornsey (Mr. Rossi) and others of my hon. Friends also took up that point in Committee on the Control of Pollution Bill. The right hon. Gentleman is creating many difficulties which do not really exist.

On the allowance for rate rebate, the right hon. Gentleman will no doubt point to the previous Government's decision at the earlier stage of the Bill dealing with local government finance not to let it be rebated. We took account of the increases in water and sewerage rates in distributing domestic relief on a variable basis. The present system has reduced that because it was an even distribution.

The only further relief I can find that was provided by the previous Government is in a letter of 29th January, 1974 from the Department to local authorities and water authorities which stated: The charge is also not subject, in principle, to remission on grounds of poverty, but the Department accepts that it would be unreasonable to expect a rating authority who allowed remission of rates on these grounds in any case to proceed to recover the charge in that case. They will be authorised therefore to treat as irrecoverable the sewerage charge payable by any person to whom they or the magi-states have remitted the rate and should take this into account in estimating losses on collection. The right hon. Gentleman will have noted that some of my right hon. and hon. Friends have tabled an amendment to the Finance Bill to secure full rebate for water and sewerage charges. We fully support that. I hope that the Government will now take steps to deal with these matters, because there is very strong feeling about them.

The Government amendment refers to the effects of inflation. The rate of inflation over the last 12 months was published on Friday. On Saturday 22nd June The Times said: The recorded rise in retail prices over the last 12 months has now edged up to 16 per cent. The annual rates of change have been 22.1 per cent. over the last half year and 25.3 over the last three months. So the rate of inflation is now accelerating. What hope, therefore, for the ratepayer next year? [Interruption.] I shall not make a point about the accelerating rate of inflation. My point is that even an increase of 16 per cent. through inflation does not and cannot account for increases in rates of anything up to 100 per cent. It is absurd to try to use that defence to suggest that it does. The right hon. Gentleman knows that, but that is his chosen defence in his amendment.

The situation has been made infinitely worse by the right hon. Gentleman's own decisions in respect of some of the towns and the rural areas and his attitude to expenditure to be borne by the ratepayer. If he refuses to redress this grievance, if he and every one of his hon. Friends on the back benches refuse to grant a measure of relief, he will deserve and receive the censure of the nation.

Mr. Deputy Speaker (Mr. George Thomas)

Before I call the Secretary of State, I should inform the House that Mr. Speaker has selected for debate the amendment standing in the name of the Prime Minister and the names of his right hon. Friends.

5.2 p.m.

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

I beg to move to leave out from "greatly" to the end of the Question and to add instead thereof: caused by the inflationary policies of the previous administration, endorses the decision of Her Majesty's Government to undertake a fundamental review of Local Government finance. We have naturally assumed for some time past that the Opposition would want a debate on "the rates". But we have waited with mounting curiosity to see the exact terms of the motion which they would put down and the names of the signatories to it. I can well understand their difficulties, given their own record in government, and fully appreciate why certain names are conspicuously absent from the list of signatories, and, I may say, absent from the House today as well.

I start by saying how strongly I agree with the first clause in the motion, which refers to the massive increases of rates in many areas greatly in excess of the growth of incomes. To understand why this massive increase has occurred, I fear I must delve a little into recent history, for the speech of the right hon. Lady the Member for Finchley (Mrs. Thatcher) showed marked signs of selective amnesia.

On 22nd January this year, only a few days before the General Election was announced, the right hon. and learned Member for Hexham (Mr. Rippon), introducing the then Government's White Paper on the Rate Support Grant for 1974–75, used these words: I believe that the percentage rise in domestic rate burdens can be kept to a maximum of about 9 per cent. subject to any exceptional local circumstances. In a number of cases, particularly in the cities, there should actually be a decrease in the domestic rate burden. The average national increase should accordingly be about 3 per cent."—[OFFICIAL REPORT, 22nd January 1974; Vol. 867, c. 1469.] This statement was greeted with astonished incredulity by all the leaders of the local government world, Conservative as well as Labour, and by my hon. Friend the Member for Birmingham, Small Heath (Mr. Howell) and others in this House. I do not know whether the right hon. and learned Gentleman—who is not present—himself believed it, or whether he had simply looked into the entrails of a chicken, or whether he was under instructions to keep his doubts to himself—at any rate until after 28th February. Unfortunately, the public believed it, which is no doubt why the Opposition joined the bandwagon as soon as it started to roll.

What actually happened—in contrast to that statement—can be quickly described. We have now received details of their rates from 255 local authorities. First, I take the right hon. and learned Gentleman's predicted maximum increase of 9 per cent. In the event, the average domestic rate increase would have been within the maximum of 9 per cent. under the right hon. and learned Gentleman's variable domestic relief proposal in precisely 10 of these 255 cases. That leaves us with no fewer than 245 sets of "exceptional local circumstances". These include examples such as South Tyneside, where the increase would have been 75 per cent. and many other places I could mention.

Next, I take the national average increase in domestic rates—prophesied to be about 3 per cent. It has not been 3 per cent. It has been 30 per cent. The right hon. and learned Member for Hexham distinguished himself by making a forecasting error of almost 1,000 per cent. No wonder he is not a signatory to this motion, though his talents clearly call for recognition in other fields, and I will gladly sponsor any application he may think of making for employment as a television weather forecaster. Ratepayers are naturally infuriated by the huge discrepancy between what they were told they would pay and what they are actually paying. Equally naturally, they are accusing local government of extravagance, and central Government of duplicity.

Let me set the record straight. When I came into office I altered neither the total of local authority relevant expenditure, nor the total of rate support grant, which I inherited from my predecessor. Nationally, therefore—I am speaking nationally; I shall come to the domestic element—neither the domestic nor the non-domestic rate increase is one penny more as a result of any change in the total support going from central Government to local government.

Why, then, did my predecessor's statements turn out so grotesquely wrong? The unsurprising answer is that the greater part of the increase is due to inflation—last year's as well as this year's. Misled by the Tory Government's bland assurances, local authorities made quite inadequate provision for inflation in their 1973–74 budgets. In consequence, many ran their balances right down, and many had to resort to extremely costly short-term borrowing. All of this had to be made good by the new authorities in their rate for 1974–75 and they had also, of course, to provide for the further pay and price increases which were already in the pipeline for this year. It restored my faith in human nature to hear that even after their disagreeable experiences in 1973–74 some local authority treasurers actually accepted the previous Government's forecast of a 9 per cent, inflation rate. They must be kicking themselves now. Fortunately, many of their colleagues were quicker to draw the moral.

Past and present inflation and the building up of balances appear to account for about three-quarters of the national rate increase this year on the figures that we have.

A further factor is, of course, the growth in real terms of local authority expenditure. The previous administration tried to curb this growth by the December expenditure cuts. But these came extremely late in the authorities' budgeting process. So it was hardly surprising that local government was less successful than in the past in cutting back its expenditure in response to Government appeals.

That leaves us with the extra cost of local government reorganisation, and the bizarre consequences of the reorganisation of water and sewerage. We on the Government side of the House prophesied these again and again during the long debates on the Local Government Act 1972 and the Water Act 1973. There is not even a melancholy satisfaction in seeing our prophecies proved right. I feel only regret that hon. Members of the Opposition did not devote their energies at an earlier stage, before, for example, the Water Act became law, to rooting out the myriad anomalies which they are now parading before us with such avid zeal.

So the broad picture is clear. This years' unprecedented rate increases are due to two major factors—past and present inflation and the growth in services with inflation by far the greater influence—and two lesser factors—local government reorganisation and water reorganisation. None of these was the work of the present Government, nor have we altered the total scale of central Government support. So the national average increases of 30 per cent. for the domestic ratepayer and 40 per cent. for the non-domestic are wholly the result of decisions and policies that were inherited.

Mr. Teddy Taylor (Glasgow, Cathcart)

How does the right hon. Gentleman's figure of 30 per cent. square with the answer he gave me yesterday about the increase in the total domestic rate call which works out at less than 25 per cent.? Has he taken a series of percentage increases and made an average of those without splitting the real increase in the rate demand?

Mr. Crosland

The hon. Member will know that the rate call and the domestic rate burden are not the same thing. The figures I am quoting now are for the actual domestic rate burden, which is what the ratepayer pays.

In this situation, some people argue that it was our duty, on taking office, to increase the amount of Government grant to local authorities above the figure already announced by the right hon. and learned Member for Hexham. There is a very short answer to that. Leaving aside altogether the economic situation which we inherited, it was simply far too late to do anything about the total grant.

Honourable Members with experience of local government know only too well what utter chaos would have resulted had we sought in the early weeks of March to reopen the whole question of the total of rate support grant, and so left local government to stagger into reorganisation without knowing what rate it was supposed to be levying, or when it could hope to levy it. So, for the simplest prac tical reasons, there was no question of reopening the entire rate support grant settlement.

The one change I made was to redistribute not the £446 million, as the right hon. Member for Finchley implied, but some £200 million of the domestic element—about 7 per cent. of the total grant of over £3,000 million. We discussed this in detail during the debate on the Rate Support Grant Order. I need no reminding that the decision has aroused strong opposition in many parts of the country. But I remain unrepentant. The situation which I inherited was quite illogical. The last Government had tried desperately to be all things to all men. They had to present themselves as the friends of the inner cities. They could not possibly ignore the overwhelming evidence that the conurbations had been shabbily treated in the past. So their first decision was, and rightly, to redistribute the grant towards the cities. But then they remembered, and were no doubt vociferously reminded, that they had more long-standing loyalties elsewhere, and hence the last-minute decision to introduce variable domestic relief—a hastily erected camouflage net designed to reassure their supporters that nothing had changed after all.

Politically much the easiest course for me would have been to accept our entire inheritance from the previous Government and blame everything on them. It would have made my life a good deal easier in my constituency had I done so. But I was not prepared to put my name to such a shoddy piece of work and perpetuate the injustices under which the inner cities had suffered for so many years. There was no reason—and I take a highly controversial case—why householders in Cornwall should have gone on paying an average of £40 a year and householders in Manchester £93 a year, even making full allowance for the different levels of income and local authority services, and ignoring altogether the discrepancy in the quality of life between the two areas—

Hon. Members

Wales.

Mr. Tom King (Bridgwater)

Whatever the arguments about the relative position of ratepayers, is not the crucial point that if there is to be an adjustment there is a limit to the amount of adjustment in one year. The essence of the problem, which the right hon. Gentleman knows from his discussions when he has courteously received hon. Members on this point, is that my constituents and many others just cannot manage the scale of increase in one year?

Mr. Crosland

I take the point which the hon. Member makes and which he and his hon. Friends put to me strongly when they saw me on behalf of the West Country in particular. However, had I not altered the domestic element, and had I left the variable domestic element, which would probably have proved unworkable in practice, there would have been rate increases in different parts of the country and some of the conurbations equivalent to those which have occurred this year.

Mr. Robert Adley (Christchurch and Lymington) rose—

Mr. Crosland

I will not give way. The right hon. Member for Finchley took over 35 minutes—I do not criticise her for that—and I should like to finish in less time if I can.

No one disputed that this year has seen a quite unprecedented upsurge of public anger over rates. Rates have never been, to put it mildly, a popular tax. There have always been a few cases, here and there, of people refusing to pay. But the householders' reaction to this year's increases for once almost justifies the journalists' favourite term "a ratepayers' revolt". I hope that householders will pay up, and I was glad that the right hon. Member for Finchley made her position clear that she would not support any refusal to pay. Any widespread failure to pay up, leading to a shortfall of rate income this year, will simply lead to massive deficits which will have to be made up, at high rates of interest, in future years.

But we are all agreed that we cannot leave it at that. Ratepayers have a right to expect a more positive response. They are not simply saying that this year's rate burden is unreasonable. They want a radical re-examination of the whole system.

To begin with, we must do what we can to improve matters within the present legal framework. We are already reviewing the rate support grant distribution for next year to see how it can be made more equitable. A whole range of possible changes is under discussion with the local authority associations, including two, in particular, that have been pressed on me by many hon. Members in all parts of the House. The first is that we should take full account of the level of wages and other incomes in an area, which I am determined to do for next year's grant. The other is that we should do something to help those authorities most affected by reorganisation—whether completely new authorities starting from scratch, or counties which have lost much of their former area and population.

Mr. Arthur Jones (Daventry)

Is the right hon. Gentleman prepared to do anything about those counties which are particularly affected by town expansion schemes? I was grateful to one of the right hon. Gentleman's colleagues for seeing a deputation from Northamptonshire, which has four expanding towns and which are a burden to existing ratepayers.

Mr. Crosland

This point has been made to us by the hon. Member for Daventry (Mr. Jones) and a number of other hon. Members whose authorities face similar problems. We shall bear the matter in mind in our discussions.

I now turn to the long-term future and the phrase in the Opposition motion which stresses the need for a fundamental reform of the rating system". There must be joy in Heaven today—not just one sinner that repenteth, but the whole massed ranks of the Tory Party. We have seen nothing like it since the Emperor Constantine changed the religion of his subjects in a single afternoon—at a stroke, to put it boringly—and I must, therefore, bear in mind the attitude of the Tories during their four years of office.

First, we had the 1971 Green Paper on the future of local government finance. This was an elegant and ingenious essay on the impossibility of any major change. The traditional list of proposals, from local income tax to lotteries, was described in tones of ill-concealed disdain, and every imaginable, and unimaginable, objection was meticulously recorded. But at least the Green Paper did not finally dismiss each and every one of the sug- gestions for a radical restructuring. That was left to a still more bland and obscurantist document, curiously described as a "consultation paper", which appeared in June 1973, "in order", as it said, "to finalise this matter". "Finalisation", in fact, meant the postponement for the foreseeable future of any further consideration of alternative sources of local revenue.

In case any doubts were left as to the Tory Government's adamant resistance to fundamental reform, they were laid at rest by the right hon. and learned Member for Hexham—[HON. MEMBERS: "Where is he?"]—on 12th November during the Second Reading of the Local Government Bill, when he said: I should like to comment on the reasoned amendment in the name of the right hon. Gentleman the Leader of the Opposition, which criticises the Government for not providing additional sources of local finance. I reject that criticism completely, in so far as the Government do not think that this is the right time to introduce new local taxes. The system of rates, the local authorities' own tax, is well tried, well known and easy and cheap to administer."—[OFFICIAL REPORT, 12th November 1973; Vol. 864, c. 36.] Just in case any doubt was left even after that, the right hon. Member for Crosby (Mr. Page)—[HON. MEMBERS: "Where is he?"]—said in winding-up the debate: Many hon. Members have indicated that we cannot leave the rating system where it is, and it has been suggested, particularly from the Opposition Front Bench, that we should have a Royal Commission. I do not think we should get any further by means of a Royal Commission than we did by the Green Paper of two years ago … it would be both disastrous and defeatist to put the whole matter back into the melting pot."—[OFFICIAL REPORT, 12th November 1973; Vol. 864, c. 148.] Is that really the same right hon. Member who, newly relieved of the burden of office, told the House on 25th March how wonderfully simple everything would be if expenditure on education, law enforcement, fire-fighting, and so on were transferred wholly to the Exchequer, and whose youthful ardour on lotteries carried the day against all our attempts to curb his impetuosity?

To round off the story of the Conservative Party's attitude when in Government, I may add that there was not a word in its election manifesto on reform of the rating system, or new initiatives on local government finance. There was, however, one document which said that we have to look afresh at the whole system of rating and of Exchequer grants to local authorities". That document was "Labour's Programme 1973". At a time when Conservative leaders rejected it utterly, the idea of a far-reaching inquiry was firmly in our minds.

At that time we were inclined to favour a Royal Commission, but after giving further thought to the matter—here I agree with the right hon. Lady—we now think that something less formal is required. But the question of the title is relatively unimportant. What is crucial is that it should be a wholly independent inquiry. It is absolutely clear that the public will not be fobbed off for a second time with a half-hearted, hole-in-corner internal review of the sort that produced the 1971 Green Paper.

Accordingly, in fulfilment of the commitment in "Labour's Programme", I can now announce that the Government have decided to set up a full-scale inquiry into local government finance. I propose to give the inquiry wide terms of reference—much wider than what is proposed in the Opposition motion. It will be asked simply to review the whole system of local government finance and to make recommendations. That means that no suggestions for improving any aspect of local government finance will be excluded from consideration—not even site-value rating, though I scarcely know whether that proposal has survived the recent heady and cynical talk of a Liberal-Tory coalition.

There is, of course, no painless way of finding the enormous sums of money that local government needs. Nevertheless, dissatisfaction with the present rating system is now both more violent and more universal than any of us have probably known it to be in our lifetimes. The time has come when we must take a long hard look at the whole system, with no reform, no alternative, no solution ruled off the agenda in advance.

I shall ask the committee to make its recommendations as soon as possible, and in any event before the end of 1975. Obviously, I should like, if I could, to set a still tighter deadline, but these are immensely complex matters, and if we are to get the right answers we must not rush the inquiry into producing a hasty and ill-considered report.

Mr. Paul Tyler (Bodmin) rose—

Mr. Crosland

I am reluctant to give way, because we have been told that 50 hon. Members want to speak.

I and my right hon. Friends the Secretaries of State for Scotland and for Wales are now considering the membership of the inquiry. I shall make a further announcement. To give the House a brief idea of the kind of categories of member I have in mind, I can say that I should like a chairman of unimpeachable standing, but not himself drawn from local government. For the members, we want elected local authority members, local authority officials, independent financial experts and economists, and representatives of business and of the trade unions.

The third part of the motion urges Her Majesty's Government to introduce a measure of interim relief". There is nothing I should like to do more, although the urging comes oddly from the party that imposed the violent expenditure cuts of last December. The money it refused to spend in December it asks us to spend in June. Unfortunately, things are not as simple as that.

I have made it clear that the committee of inquiry will be concerned not with the interim problems raised by this part of the motion but with the long-term issues and the whole nature of the system. But I hope I have also made it quite clear—and, if not, I underline it again—that I am extremely conscious of the shorter-term problem and of the real hardship which many ratepayers are facing this year. I shall certainly consider with great care any points and ideas put forward in this debate which bear on the immediate situation. But there are, as the House well knows, acutely difficult questions of priorities in the field of public expenditure. I am willing to look at all the possibilities, but I cannot give any commitment today.

I must say a word about the precedent the right hon. Lady quoted—the previous Government's 1973 revaluation relief. It is not a precedent that helps a great deal. The right hon. and learned Member for Hexham certainly received a great deal of undeserved publicity very cheaply. He offered only £9 million to a small and select group of ratepayers whose properties had for many years been undervalued. But the scale as well as the nature of the problem are very different this year. If we adopted the same principle, meeting half of any domestic rate increase in excess of 10 per cent., the cost would be not £9 million this year but a good £100 million. If we were to carry out the previous Government's promise to ratepayers and held the average domestic rate increase down to 3 per cent., we should have to pay out an additional £300 million—hardly the kind of sum one could disburse without the most intense parliamentary scrutiny.

The last clause in the motion urges us to provide that water and sewerage charges should rank for rate rebate". This is a very ironical suggestion indeed. It would have been wholly unnecessary if the Tory Government had heeded our warnings and had not introduced the 1973 Water Act. Instead, they took water and sewerage off the rates and out of local democratic control, and substituted a system of direct charges. Not content with that, they brought a further confusion to the minds of the public by requiring the local authorities to act as collecting agents for the new water authorities. Therefore, we have the extraordinary position that sewerage charges are collected together with the rate but no longer form part of the rate. Not being part of the rate, they do not, and cannot any longer, attract rate rebates. That was the legacy that the Opposition left us. It has at last dawned on the Opposition that this is a somewhat unsatisfactory state of affairs.

We shall do our best to unravel the tangle which they have left us all in, though it is clearly too late to go back on the entire reorganisation. Once the water authorities have had a chance to sort out the various financial problems that confront them this year, we shall get down to reviewing with them various aspects of water service charges for the coming years. This includes, of course, the question of rebates. Picking our way through the obstacles placed in our path by the Water Act, we shall consider—without commitment at this stage—what the possibilities are. But the House must recognise that any new rebate scheme would require either a Government sub- sidy, which I understand to be contrary to the philosophy of the Water Act, or a further general increase in the level of all water service charges. In any event, new legislation would be required.

But I am quite convinced, from discussions I have already had with the chairmen of the water authorities, that we must, as soon as possible, enable water authorities to collect water and sewerage charges direct. I want the use of local authorities as collecting agents to be confined to a short transitional period.

A word now about the associated problem of sewerage charges levied on premises not connected to main drainage, something which has caused enormous trouble. The previous administration apparently felt obliged to provide for the levying of sewerage charges this year on all ratepayers regardless of whether they received the service. Here again we are left to deal with the consequences of their actions.

As my hon. Friend the Minister of State told the House recently, we shall do our best to speed up the administrative arrangements needed to identify those properties which cannot be connected to public sewers in the hope that it will be possible to give them some relief from those charges next year.

Mrs. Elaine Kellett-Bowman (Lancaster) rose—

Mr. Crosland

With great respect, I cannot give way. I am dealing with anomalies left behind by the Water Act and telling the House how we propose to sort them out.

I have spoken of the two major anomalies. There is also widespread anger at the scale of the increases that have taken place in water and sewerage charges, particularly in areas such as the West Country. No doubt some increased spending on water services would have been necessary, with or without reorganisation. I fear that the warnings we gave in Opposition about the additional cost caused by reorganisation, higher salaries, increased administrative costs and so on have proved to be only too well-founded.

The water industry is now a peculiar animal—half a nationalised industry, half a local government service. The new direct water charge is no longer a part of the local rate. My present view, therefore, is not to include it in the terms of reference of the committee of inquiry into local government finance, although I still have an open mind. A general study of the economic and financial objectives of the water authorities is already being undertaken by a steering group comprising officials in the relevant Departments and officers of the regional water authorities.

I have told the chairmen of the National Water Council and the regional water authorities that, while I propose to let the new system run for two years or so, I then propose to review its progress with an entirely open mind.

This debate is basically a motion of censure on the Opposition for their appalling performance when in Government, for introducing costly and extravagant reorganisation of local government and the water industry, for failing during their four years of office to undertake the fundamental review of the rating system for which they now ask, for grossly deceiving the country last January about massive increases in rates which were in prospect, and generally for their calamitous record over the entire sphere of local government affairs. The guilty men are on the Opposition Front Bench, and when the election comes the voters will show that they know it.

5.35 p.m.

Sir John Eden (Bournemouth, West)

The Secretary of State was absolutely right when he said that never before has dissatisfaction with the present rating system met with such violent and universal hostility, so violently and universally expressed. I am told that at a recent meeting in my constituency more than 500 people turned up to express their anger and resentment at the substantial increases which they are being called upon to pay.

The anger and resentment was not just against the size of the increase. I am told that there was also expressed a general disquiet about what these people felt was a lack of understanding as to the cause of their anger and the reason why they felt so strongly. People are no longer prepared to accept that rate increases are inevitable. They want action now so that the burden they are being called upon to meet can be reduced. This applies especially to the most hard-pressed, where the increases are greatest.

This is a case where the hitherto silent majority is now demanding to be heard and will become increasingly militant if it feels that it is being given the brushoff. When we were in Government we undertook various examinations of local government finance. I recognise that the 1971 Green Paper on local government finance came as something of an anticlimax, particularly since people were then looking for early action to ensure that the existing system was to be changed.

I know that some steps were taken to ease the burden in various directions, but the fact is that no fundamental changes followed, and it was for the fundamental change that people had been calling. I recognise that the basic reason for this decision not to have a fundamental change was that we were then engaged in the whole exercise of local government reorganisation.

However great the long-term benefits to the ratepayer of local government reorganisation, their worry now appears to be that reorganisation has brought about, and is bringing about, heavier and more costly administration. Ratepayers are very worried, and this has been recognised by the right hon. Gentleman and by my right hon. Friend the Member for Finchley (Mrs. Thatcher), about the heavy additional costs derived from the water and sewerage charges. They also feel that reorganisation itself, because of the large-scale operations involved, may lead to an increase in unnecessary expenditure.

We have to accept that the rates would have gone up anyway, largely due to the fact that the cost of services has increased. In salaries alone, the cost of these services has risen considerably. Many essential improvements, rightly demanded by local residents, have been carried out. In my own area the Government have certainly made matters much worse by their arbitrary abolition of the variable domestic relief. The result of all this is that many people, especially those with comparatively limited means and those living on their own, are deeply and genuinely worried about their ability to pay.

I endorse the remarks of my right hon. Friend. Obviously, people should pay their rates. I hope that I leave the right hon. Gentleman in no doubt at all, however, that the anxiety of individuals is absolutely genuine. They are very worried about their ability to pay this extra burden, greater by far than anything that had ever been contemplated. The increases are far outside anything any of them had ever planned or budgeted for.

It is no answer, as has been suggested, for people to move away to other, smaller homes. They cannot do so. The cost of moving would be too great for many of them, and the physical disturbance and suffering in human terms would be much too high. There is no doubt that this is a major and exceptional crisis for the ratepayer and that the Government should take immediate remedial action, especially to ease the burden where the increase is greatest.

In the longer term I was encouraged by what the right hon. Gentleman said about his inquiry. I hope that he might be able to find the opportunity still further to shorten the time scale of the investigations. A major change in our rating system is urgently needed.

We must get away from the system—which has been shown to be unacceptable and indefensible—in which the cost of locally administered services is met by a tax on the occupation of land and buildings related to their notional rental value on the open market. That system can no longer be supported or defended by any hon. or right hon. Member, and it must be changed. Instead, we must turn to some form of local tax or charge to apply to all those who use and benefit from locally administered services, including earning non-householders. I hope that the review will come to an early conclusion that a change of this kind should happen.

5.40 p.m.

Mr. Richard Wainwright (Colne Valley)

The House is faced with a situation that is causing present hardship to a large number of ratepayers. This is not simply an emergency matter; it is the beginning of a chapter of hardship. All the inquiries that my hon. Friends and I have been able to make of councillor colleagues in various parts of the country from the far north to the south-west show that next year there will be a double dose of rate increases. The best estimate we have been able to reach is a further average increase of between 27 per cent. and 28 per cent. We must address ourselves to a continuing and worsening situation.

The worsening situation is the result of the House having dodged for many years the essential problems of local government finance, failure to give the Redcliffe-Maud Commission a mandate to examine and report on local government finance, the even more astonishing failure of the Local Government Act 1972 to contain financial provisions and, perhaps most reprehensible of all, the failure in Departments, in Cabinet and in the House to give proper consideration to the structure and size of the rate support grant.

I do not hold the present Minister to be responsible for the major faults in what was proudly proclaimed to be the restructured rate support system debated briefly in the House at the beginning of the year before the election. The forecasts which have since been so dismally confounded show how inadequately considered that structure was. Unfortunately, it was inadequately debated in the House on the eve of the election.

The Chairman of the Association of Metropolitan Authorities, a new organisation which has been set up since the reorganisation of local government, stated in The Times on 19th June: The inequity of the rate support grant formula had become an intolerable injustice long before this year's events. I am disappointed at the limited content of the review which the Minister has promised to make of the rate support grant for next year. I welcome the review of the two elements which he has singled out, but I hope that we may have in the winding-up speech some comments on the extent to which the Government are prepared to enlarge the rate support grant as a percentage of total local authority expenditure, pending the results of the investigation into local authority finance which has just been announced.

In the view of the Liberal Party, next year at least there is every reason for central Government to come to the rescue of local authority expenditure with substantially increased support. We believe that the formula for the rate support grant should pay far more attention to the problems which climate inflicts upon many local authorities. There is practically no acknowledgment in the rate support grant that heating costs in less favoured parts of the country are, with the new fuel costs, double those in more favoured parts of the country.

The effect of local government reorganisation was inadequately reflected in the rate support grant structure which the previous Government introduced, and many authorities which are not blessed with a natural centre for their new area are still struggling with enormous costs caused by scarcity of accommodation and other difficulties. Then there is the problem of dereliction which, in spite of clean-up campaigns and other special efforts, still haunts many local authorities. Again, that is not reflected seriously in the calculation of the rate support grant. There are also what are described in the rate support grant documents as "education units". It is primitive that the cost of educating a child with a fully supportive home, with all the advantages of living in a first-class residential area, should be equal for rate support grant calculations to the cost of educating a child who has great emotional difficulties or great language learning difficulties which create problems for the teacher and the school administration. Unless the child is positively subnormal, the present formula takes no account of the great variations in the cost of educating a child.

When this matter was before the House on the eve of the rate demands being issued, the excuse was offered by the outgoing Government that many of the discrepancies would be cushioned by the domestic element. The incoming Government have been sharply rebuked, rightly, for the way in which they altered the distribution of the domestic element, but the whole idea that inequities in the rate support grant could be substantially cushioned by the domestic element, no matter how it was distributed, was misconceived.

I cite the example of the local authority of Trafford in the Greater Manchester metropolitan county which, in spite of losing, by comparison with the same area under the old local government system, £8 million of rate support grant, was to receive 14½p in domestic element relief. In other words, it was to receive only 1½p more than the flat rate which the incoming Government imposed. There was never a chance that the domestic element could correct the gross anomalies of the rate support grant formula. With some reluctance, my hon. Friends and I are forced to the view—

Mr. Churchill (Stretford)

The hon. Gentleman referred to the Trafford district of Manchester, which comprises my constituency. Perhaps he is not aware that on 13th February I received a letter from the Private Office of the then Secretary of State in these terms: You may find it helpful to know that our provisional estimate of the domestic relief for Trafford is of the order of 16p on our estimates". That is to say, the best available estimates within the Department. The letter went on to say: This should lead to an increase of the domestic rate burden of about 9 per cent. That was the firm intention of the previous Government, and I took that as a commitment which would be upheld.

Mr. Wainwright

I have been informed of these matters by Trafford, otherwise I would not have ventured into that territory. The day following the dispatch of the letter to the hon. Member for Stretford (Mr. Churchill), the Trafford authority was told by the Department that the domestic rate relief in that area was to be 14½p, which was the figure I quoted.

The whole idea that domestic rate relief was to cushion anomalies was misconceived from the start—in no case more so than in the Trafford District Council. My right hon. Friends and I are convinced, with some reluctance, that until the review body announced by the Minister today produces its findings the only alternative is for the Government to come in with massive new support for all those local authority functions the standards for which are nationally determined.

We respect the case for the independence of local government, but it is inescapable in present circumstances that the national Exchequer has the responsibility for controlling demand and other aspects of the national economy. It is equally evident that the overwhelming proportion of citizens want a reasonably uniform degree of standards enforced throughout the country.

With those two factors in mind, the obligation surely is on central Government, at any rate for the next few years, to shoulder a very much greater part of the burden of maintaining these services, even though they should continue to be locally managed with as much freedom as possible.

Turning to the longer term, I must express some disappointment at the form of the review body which we understand the Minister to have in mind. In our view, two courses were open to him. After all the years of national discussion about local government finance, the Government could have taken responsibility for bringing forward their own proposals to this House. Personally I believe that that is the course which should have been adopted. The subject has been discussed and debated by all manner of authorities, academic, practical and political. The time has come for the Government to face this House with their proposals. Failing that, there should, in our view, have been a Royal Commission mainly on the ground of the very much greater authority which the findings of a Royal Commission would command. The history of local government finance is littered with the results of inquiries of all sorts over the years—all of which, without exception, have been swept aside on the ground that they did not command sufficient authority or that their findings were not attractive and convenient to government.

The Secretary of State said that he had an open mind. Therefore, I hope that he will reconsider this matter and decide that on balance a Royal Commission would be more satisfactory. If a Royal Commission is appointed, we in the Liberal Party hope that its investigations will not be confined to this country but that the shining example set in some parts of the developed world in raising municipal finance will be carefully investigated. The rest of the world has a good deal to teach us on this subject.

I thought Labour Members would have been sympathetic to the need for a Royal Commission. When the Local Government Bill was before the House on 12th November 1973 the then Opposition spokesman, the hon. Member for Birmingham, Small Heath (Mr. Howell), who is now a Minister in the present Government, proposed in eloquent terms the setting up of a Royal Commission on local government finance.

Mr. Peter Temple-Morris (Leominster)rose—

Mr. Wainwright

This must be the last time I give way.

Mr. Deputy Speaker

Order. I hope that there will be as few interventions as possible because they cut into the time of other hon. Members who wish to take part in this debate.

Mr. Temple-Morris

Then, Mr. Deputy Speaker, I shall refrain from making my intervention.

Hon. Members

Hear, hear.

Mr. Wainwright

I am about to conclude my remarks.

We were disappointed to hear the Secretary of State refer in his speech to consultations solely with the local authority associations. Those cannot be ruled out, and it is admirable that local authorities of various grades combine in associations. We wish that they had been persuaded to form one association to speak with a united voice, but they have decided to have a variety of associations for different types of local authority. A great deal of damage has been done in the past because of the lazy course of relying on consultations with a handful of local authority associations rather than on painstaking consultations with the local authorities themselves. One of the main advantages of local authority reorganisation is that the Government now face a far smaller number of local authorities than we have ever had before. It should not now be beyond the Government's power to consult specific local authorities about their own problems rather than relying as exclusively as Governments have done in the past on local authority associations. I believe that the Minister is sympathetic to this point of view, but I hope that it will be confirmed in the Government reply to the debate.

The Under-Secretary of State for the Environment (Mr. Gordon Oakes) rose—

Mr. Wainwright

I must point out to the Government that this is not a vote of censure. If tonight we were voting on a matter of censure, our inclination would be to pass censure on the outgoing Government now in Opposition. In fact, as the House well knows, the motion consists of a series of requests on behalf of extremely hard-pressed citizens. Those requests can be put only to the Government of the day who have the power to deal with them. In view of the unsatisfactory response to those requests given by the Secretary of State this afternoon, we intend to divide against the Government.

Mr. Deputy Speaker

Before I call the next speaker I must appeal to hon. Members to respond to Mr. Speaker's suggestion for short speeches.

5.58 p.m.

Mr. Jack Ashley (Stoke-on-Trent, South)

Nearly alt of us have a constituency interest as well as a general interest in this subject. Therefore, I shall obey Mr. Speaker's request to be very brief indeed, because I realise that many hon. Members want to take part in the debate. It is a subject on which I should like to see a non-party-political approach. But that is absolutely impossibel by virtue of the highly partisan way in which the Conservative Party has approached the subject of rating.

The Conservatives have conducted a superficially brilliant propaganda exercise. I have been appalled at the allegation made against this "wicked" Government. I am sorry that the right hon. Member for Finchley (Mrs. Thatcher) has left the debate, because I want to make some comments about her speech. The Government have been accused of abandoning the justice of their rating policy; they have been accused of abandoning equity. When that allegation was made, I thought it meant that my right hon. Friend the Secretary of State for the Environment was abandoning his trade union, but I know that he belongs not to Equity but to the General and Municipal Workers' Union, to which I too belong.

My right hon. Friend was also accused of callous indifference to the ratepayer. Therefore, in the light of all these allegations, I dashed out to check the facts. It is always advisable to check the facts before one makes allegations. It is a pity that the Conservatives did not do so. The fact is that the rate support grant brought forward by my right hon. Friend the Secretary of State for the Environment is exactly the same as the rate support grant introduced by the Conservative Government. Why all this propaganda? Why this sense of outrage?

Let us come to the question of the distribution of the grant, but let us not create the illusion that the amount was reduced by this Government. The money involved was exactly the same. What proportion was redistributed? A miserable 7 per cent. of the total rate support grant was redistributed, yet the illusion was created that the whole system was being turned upside-down by the Government. I believe that the Opposition's propaganda campaign is now failing because the country recognises that the Government have been saddled with the previous administration's legacy.

I regret that rating has become such a highly partisan matter. It is now impossible to discuss rating because of the highly emotive campaign that is being conducted throughout the country. Redistribution of the domestic element has adversely affected Stoke-on-Trent and North Staffordshire. I was one of the first to complain. In Stoke-on-Trent the 13p flat rate was a poor substitute for what it was receiving. Stoke-on-Trent was receiving 19p and North Staffordshire as a whole was receiving between 17p and 19p. I complained to the Under-Secretary of State for the Environment, my hon. Friend the Member for Widnes (Mr. Oakes). He listened to the representations from Stoke-on-Trent with courtesy and promised to do what he could on the specific issue and on the general issue.

Not only redistribution but inflation has affected Stoke-on-Trent, North Staffordshire and the rest of the country. Inflation is an appalling problem and it is ridiculous to blame this administration for inflation after it has been in office for only a couple of months. The previous administration advised local authorities to budget for 9 per cent. inflation. Some local authorities, including those in North Staffordshire, took that advice and budgeted for 9 per cent. They now find themselves totally discomfited. They accepted the previous administration's calculations, which were misleading, and they were sold short by the Conservative rate support grant. They now find themselves blamed for their rating policy.

The third problem, which has not been adequately dealt with in the House, is the terrible problem of threshold agreements. North Staffordshire is gravely affected by such agreements. I have received a telegram from Mr. Jim Westwood, the chairman of the Stoke-on-Trent council. The telegram reads: Assurance of increase in rate support grant for 1974–75 urgent. Staffs County Council now overspent by £4 million. Threshold agreement to date will cost £2,400,000. Inflation 9 per cent. in January now 16 per cent. will cost £1,300,00. Further increases in costs will accrue. Before Staffs County Council decide whether to issue a supplement precept which it wishes to avoid must know decision on grant by end of July. All local authorities in difficulty. My right hon. and hon. Friends must take account of the fact that threshold agreements are hitting local authorities very hard. It is a grave situation, and we must have Government action both in the short term and in the long term.

If my right hon. and hon. Friends say that they cannot take short-term action, I would refer them to the proposal put forward by my hon. Friend the Minister for Housing and Construction when in Opposition, on 12th February 1973. He said: What can be done? The rate support grant is not just a support grant which must be treated once every year. It does not mean that, once it has been discussed and passed, no further action is open to the Government. Powers are available to the Government under Sections 1 and 2 of the Local Government Act 1966. Under Section 3, if the Government find that 'an unforeseen increase has taken place in the level of prices, costs and remunerations' the Minister may by order approved by the resolution of this House increase the amount of the grant and its elements—the needs element, the resources clement and the domestic element. Therefore, it does not require any special legislation or any great intellectual exercise."—[OFFICIAL REPORT, 12th February 1973; Vol. 850, c. 1041.] My hon. Friend was right. I believe that this administration should now take urgent action to compensate those local authorities which are being penalised by the redistribution of the domestic element. I speak for my own authority but I know that I speak for many others when I say that we need urgent Government action. We also need urgent action to help combat the effects of inflation and threshold agreements. I hope that my right hon. Friend the Secretary of State for the Environment will discuss the situation urgently with my right hon. Friend the Chancellor of the Exchequer and that he will act accordingly.

The present rating system is outmoded and outrageous in that it is regressive and unfair. For example, it is preposterous that four people living in one household who are all wage earners and four people living in a neighbouring household only one of whom is a wage earner should pay the same rates. That is a well-known example, but it is wrong that the system should be allowed to continue. The present system disregards the basic Socialist principle that the broadest backs should bear the heaviest burdens. I believe that we must raise revenue in accordance with the ability to pay. We should have income-related rates.

Why have successive Governments played pat-a-ball with the rates? I believe that they have done so because they have been afraid of losing their influence. At the same time, local authorities have been afraid of losing their autonomy. We have the spectacle of central Government and local government facing and glaring at each other like Muhammad Ali and Joe Frazier at the weigh-in. They are not fighting but they are eyeing each other warily because each is jealous of the other's influence and autonomy. I believe that reform is urgent.

I should like to see education taken out of local authority finance. I should like to see a local income tax based on the ability to pay. That would not need bureaucracy but it would include the 9 million non-ratepayers who are now receiving the benefits of the rating system but are not paying. They would be added to the 16 million ratepayers. I believe that the step announced by my right hon. Friend of initiating an inquiry is of value, and I warmly welcome it. It is the first major step forward in reassessing the rating system that we have seen for a long time.

But I make this criticism. By asking it to report in 1975, I do not think that the Secretary of State is showing the sense of urgency required. I believe that it should be asked to report within six months. All the facts are known. They are known ad infinitum and ad nauseam. Every fact about the rating system has been exposed. Therefore, I suggest to my right hon. Friend that he should ask the members of his inquiry team to report within six months.

Our local authorities do a very valuable job but we must give them proper finance with which to do the job.

6.10 p.m.

Mr. Mark Carlisle (Runcorn)

I am very glad to be called immediately after the hon. Member for Stoke-on-Trent, South (Mr. Ashley) and to add what weight I can to his plea to the Government for some urgent help to the hard-pressed areas during the current year.

In common with many hon. Members on both sides of the House, I have had more letters on the subject of rates than on any other since becoming a Member of this House in 1964. I have received letters from individuals, from local authorities, and from parish councils. I have received petitions from groups of people living in my constituency. They all make the same point. They are from people who are concerned, worried and alarmed that, at a time when they are asked to restrain their own incomes to increases of between 7 and 9 per cent., they face increases in one year, in the majority of cases, well in excess of 70 per cent. in their rates, and in many cases of 80, 90 or 100 per cent.

To an extent, we can forget the past when we consider the position that these people face. Increases of that kind to be imposed in one year are both intolerable and unacceptable. What is more, they are causing considerable personal hardship to many people in many constituencies. I believe that I speak for all the other Cheshire Members of Parliament, since Cheshire is one of the counties worst hit by the increases, when I say that we have all received this type of letter from our constituents.

In answer to a Parliamentary Question which I put to the Minister recently, I was told by the right hon. Gentleman—and he repeated it today—that the average increase throughout the country for the domestic ratepayer was 30 per cent. I was told by the Under-Secretary of State, who is a neighbour of mine and who knows the position, that the increase for domestic ratepayers in Cheshire was between 41 and 65 per cent. If that was true, it would be bad enough, but it is not true. The average increases to be borne by my constituents are well in excess of the figures which his answer gives. I cannot understand how the hon. Gentleman can give an answer to me in May of this year saying that domestic rate increases in Cheshire vary between 41 and 65 per cent. when as long ago as 11th April of last year I received a letter from the clerk of the county council showing that in more than 50 per cent. of my constituency the increase in domestic rates was well in excess of 70 per cent. The Under-Secretary knows the area. I can assure him that all those parts of my constituency which go into the Warrington district and the Vale Royal district have increases in excess of 70 per cent.

Facing that prospect, Cheshire Members of Parliament decided to see the clerk to the county council. Having done so, I believe that, despite the increase in the rate, the county council has done what it can to curb its expenditure. However, when more than 50 per cent. of a county rate today is caused purely by education, it is very difficult to make meaningful cuts in the rate.

Although inflation is one cause, we must realise that a major cause of the increase in the county rate is the changes which have been made in the rate support grant. It was in view of that that I wrote to the Secretary of State asking him whether Cheshire Members of Parliament could see him as a deputation and put to him the hardship that our constituents faced as a result of increases of this nature. I was appalled to receive a letter from the Secretary of State refusing even to see us. Until I received that letter, I had not believed that any Minister would refuse to see a deputation of Members of Parliament about a matter which so clearly affected their constituents.

Mr. R. J. Maxwell-Hyslop (Tiverton)

The same happened to me.

Mr. Carlisle

The Secretary of State said today that he would still listen to pleas about what should be done. That makes it even more extraordinary that he should have been unwilling to see us so that we might make these pleas to him. It throws into question how sincere he is in saying that he is willing to listen to us.

In the course of this debate, I hope that we shall hear from the Government what is the precedent for a Minister of the Crown to refuse to see a deputation of Members of Parliament on a matter concerning their constituents, especially when the deputation of which I speak was to be led by my right hon. Friend the Member for Knutsford (Mr. Davies), an ex-Cabinet Minister, as I made clear in my letter.

I had the honour to be a member of the previous administration for three and a half years in the Home Office. I can say with complete honesty that during that time I never once refused to see any Member who wrote asking to see me. What is more, I do not believe that the Home Secretary of the day ever refused to see any deputation of Members asking to see him. I should like to know whether the principle has been changed. I have always understood that hon. Members had freedom of access to Ministers on matters concerning their constituents.

I do not want to over-weigh the point, but it is not enough to say that the Secretary of State has seen a lot of other deputations. I have been to an all-party meeting of ratepayers in my constituency. I have listened to the pressure coming from that hall asking Members of Parliament to support them in their refusal to pay their rates. I have made it clear that I could never give my support to any such suggestion, and I have asked them to rely on the democratic processes of this House and to let us as their representatives put their case to the Minister.

It is difficult to know how to carry out that fundamental task as a Member of Parliament if a request to see a Minister on a matter of this gravity concerning so many constituents is met by a blank refusal. In my view, it is arrogant and scandalous that the Secretary of State should adopt this attitude.

I realise that inflation is one of the causes of the increase in the rates, and I realise that the proposals of the previous Government in changing the rate support grant were in themselves equally adverse to Cheshire. But when it was realised what effect the increase would mean in one year for domestic ratepayers in the area the previous administration proposed to alleviate it with a differential domestic rate relief. The abolition of that by the present Government has resulted, in my constituency, in a reduction of the relief to domestic ratepayers from 19p to 13p in the pound. That decision alone is costing every domestic ratepayer in my constituency about 5p in the pound more.

I believe that the reasons for it were purely political. They were aimed at reducing the rates in municipal areas at the expense of rates in other areas. The Secretary of State believed that the Labour Party would gain more success and support from the municipal areas at the expense of areas from which his party does not traditionally get its support. It shows no interest in the effect on local ratepayers. Removing the differential shows that he has ignored the relationship that should exist between rates and the services provided. In many rural areas people receive fewer services for their rates than are received by people living in the urban areas. There was perfect justification for alleviating the burden on domestic ratepayers for that reason.

I echo what the hon. Gentleman the Member for Stoke on Trent, South said. In the short term there must be some supplementary relief given to those areas in the country where the increases are in excess of 70 per cent. At the least I would ask the Government—the right hon. Gentleman said he would listen—to make an order so that the percentage increase can be phased over a period of years even if in the end that percentage rate is reached. It is intolerable to expect those people to undertake, accept and absorb that degree of increase in 12 months.

Regarding the long term, I welcome the right hon. Gentleman's statement concerning the review. It will be very difficult to find any attractive alternative to the rating system. All the other alternatives are unattractive. A greater proportion of education expense should be removed from the rates. Something should be done about wage earners who do not now pay rates. That may be in the long term.

Something must be done now. It is no good the right hon. Gentleman saying he will listen; he must act. It is essential that he does so. He has shown, in his refusal to meet many of us, an unwillingness to recognise the serious human problems being created for people facing increases of that kind.

If we do not hear from the right hon. Gentleman at the end of this debate a promise of definite action I hope we shall defeat the Government on this matter.