RATE SUPPORT GRANT (SCOTLAND)

HC Deb 15 December 1975 vol 902 cc1099-128

10.5 p.m.

The Secretary of State for Scotland (Mr. William Ross)

I beg to move, That the Rate Support Grant (Scotland) (No. 2) Order 1975, a copy of which was laid before this House on 4th December, be approved. The Order which is before the House for approval is of considerable significance for Scottish local authorities and ratepayers. It makes unprecedented amounts of Exchequer grant available to the authorities and, at the same time, raises serious questions about local authority spending which I shall develop in my speech. A new feature of the Order is that it combines an increase Order for the current year's grant, that is, 1975–76, with a main Order for 1976–77. This becomes possible because of changes brought in by the Local Government (Scotland) Act 1975.

The main features of the Order are described in the Report—House of Commons Paper 17—which accompanies the Order. The tables at the end of the Report show clearly how the revised amount of grant for 1975–76 and the proposed grant for 1976–77 have been arrived at.

Perhaps I may start my commentary by recalling last year's rate support grant settlement. Notwithstanding reservations expressed by the local authorities about some aspects of the settlement, it was universally agreed to be generous in the circumstances. It was an agreed settlement. The object was to get the new local government system off the ground, and a liberal view was taken of the grants necessary to meet the extra demands which reorganisation was placing upon the new regional, district and islands councils. This year "generous" is not the keynote of the settlement. The right term to describe it may well be "tough".

The background is, of course, the present severe economic climate which affects every sector of our national life. The implications for the public sector and local authorities are summarised in paragraph 5 of the Report. The demands made upon the national resources by public authorities must be reduced drastically over the next few years if we are to achieve the required shift into exports and investment.

Let us not underestimate the amount of the claim upon our resources. Relevant expenditure amounts to about £1,200 million for Scotland—a considerable sum. So restraint on spending by local authorities in the years ahead has to be of a stringency hitherto unheard of, certainly in recent times. That is necessary in the interests both of Government and of ratepayers. We have to try to keep down the level of expenditure and the level of the rates.

The 1976–77 settlement involves setting a level of relevant expenditure lower than authorities would have wished, recognising that keeping to this level will lead to keeping rates increases within bounds. It is the only way.

May I take first the target of expenditure? As is explained in paragraph 7 of the Report, the estimate of reckonable expenditure—excluding loan charges—made for the purposes of last year's settlement, and therefore at November 1974 prices was £654 million for the financial year 1975–76 lasting only 104 months because of the changes in the financial year brought about by the Local Government (Scotland) Act. That is equivalent to £746 million for 12 months.

This £746 million was not considered at the time to be a low figure, and it allowed for measurable growth in local authority services. But what happened in the event? The target level was left completely behind, with budgeted income for 1975–76 equivalent to an annual expenditure of £810 million. That is about 8½ per cent. in excess of the target.

There are several factors which could have contributed to this situation. The new local authorities faced difficulties in drawing up their budgets, through uncertainty about the balances they were taking over, and having to determine their rates at short notice, and at a time of high inflation. These factors were referred to by my right hon. Friend the Minister of State in the Scottish Grand Committee debate on 1st July, when he pointed out that by severe restraint it would be possible to ensure that not all the £810 million which had been budgeted for would actually be spent.

He referred then to the message ht ilad already given to local authorities that, if expenditure in the current year was excessive, it would make the task of the authorities in 1976–77 even more' difficult.

In the event, I have allowed a higher figure of relevant expenditure for 1976–77 than was planned following the April Budget. The figure, as explained in paragraph 9 of the report, is £780 million at November 1974 prices. Of course, there is a very substantial addition to this to bring the figure up to November 1975 prices and to take account of loan charges, so that the actual reckonablt expenditure on which grant is to be computed will be £1,200 million.

Even so, it allows for no increase in spending in real terms. The Convention of Scottish Local Authorities agrees with us on the principle that, having regard to the huge growth in 1975–76, the rate of expenditure should not be allowed to grow further in 1976–77. There is only a small difference between us—just about 1 per cent.—as to the figure that should be taken as the amount of relevant expenditure. No one must be in any doubt that the situation is now so tight that any authority which exceeds its share of the relevant expenditure will be doing so at the peril of the ratepayers.

As regards what is each authority's share, the Government will be issuing guidance in the course of this week. Of course, the guidelines are not sacrosanct, and the authorities concerned can discuss them with the Scottish Office. But they do provide a basis against which the spending plans of individual authorities for 1976–77 can be judged, and if necessary trimmed back, and it is important for authorities to use them in this way instead of settling their budgets without reference to the overall limitation of expenditure which is so essential at present.

I accept that the effect of the settlement will be severe so far as local authority expenditure is concerned. It may be asked why, in those circumstances, the Scottish Office has not given specific guidance about the policies that should be followed in each of the local government services, in order to achieve economies. In a sense, we have given such advice and paragraphs 13 to 18 of the Report indicate the kinds of measures which we think will have to be taken. But we have refrained from going into detail, because the Convention has asked us to leave the means of achieving the savings to individual local authorities. I agree with this approach.

In some services there will have to be painful cut-backs, but priorities vary from one area to another and the final pattern can only be decided locally. Moreover, there may well be savings that are achieved not by restraint but by greater efficiency. It is to be hoped that the situation will act as a spur to authorities to seek better value for the same money or even for less money. The Convention's plea to me—and it could have been made to hon. Members as well—was that the Government should take care not to exert pressure upon local authorities to expand services at this time, in any field. Of course I accept this unreservedly. My officials understand this, but I am taking steps to reinforce the message.

Let me turn now to the effect of the settlement on the rates. Rate increases in 1975–76 have been shattering. They were fully discussed in the debate in Scottish Grand Committee on 1st July, when my right hon. Friend announced that the increases looked like averaging 30 per cent. for the 10½ months year, equivalent to 50 per cent. for a full year. This remains the best estimate that can be made. There are, of course, various factors at work affecting rates rises in particular areas. There have been very high increases where balances had been used to keep the previous year's rates to a particularly low level.

There is, however, no evidence that the Government got their sums wrong in working out the rate support grant settlement last year. The principal cause of the general rise in rates was overbudgeting, and this was a feature in almost every authority.

The same thing must not happen again in 1976–77. The new authorities are now in a more secure position than they were last May. They know how much their services cost to run. They may, because of overbudgeting, have some balances to cushion them. They have an assurance that the grant rate, as provided for in this Order, will be maintained. But if spending goes over the top—and the only people responsible for this and who can fully control it are the local authorities themselves—it will reflect directly and savagely on the rates.

Over the next few years we must all of us accustom ourselves to a regime of strict discipline. With local authorities the discipline has to apply not just to budgeting and rate-fixing time but throughout the year. Cash limits, which we have introduced for the first time, reinforce this lesson. In a time of inflation, authorities need to maintain a watch not simply over the initial volume of resources committed for the year but over movements of prices during the year, just as any business undertaking must unless it is to have a deficit at the year's end.

In the past, increase Orders on the rate support grant have tended to insulate local authorities from the effects of price movements, especially with grant at the high percentage which it has now reached. There is the feeling that the Government will make up inflationary costs as we go along. But the cash limit changes that. It means that the Government make a realistic assumption about pay and price rises in the course of the coming year and fix a limit to the grant accordingly.

Mr. Teddy Taylor (Glasgow, Cathcart)

I have carefully read the reference to cash limits on page 9 of the White Paper. It mentions inflation after the Government's policy for pay and prices. Will the right hon. Gentleman tell us what is not stated in the White Paper—what rate of inflation has the Secretary of State taken into account in calculating the figure of £55 million for cash limits?

Mr. Ross

Roughly speaking, we start on the basis of the £6-a-week pay awards up to July. On prices we have taken the average price increases during 1976–77 as likely to be about 7.5 per cent. to 9 per cent. above those for November 1975.

As is explained in paragraph 30 of the Report, the limit for 1976–77 is determined at £55 million of a total rate support grant of £823 million. I hope that the hon. Member will not give indications to local authorities that they should budget for even more. If he does he cannot complain if rates go up, because rates are based on the budget. This follows very careful calculations of the effects of pay and price rises already in the pipeline and likely to come into effect during 1976–77.

That is not the whole story. Cash limits on grant will have the desired effect only if local authorities do two things. First, they must adopt similar assumptions about inflation when drawing up their own budgets and beware of the danger of the approach of the hon. Member for Glasgow, Cathcart (Mr. Taylor). We have been encouraged by the extent to which this seems to be happening. Secondly, they must monitor expenditure constantly so that, whatever happens, they do not overspend.

The effect of the grant settlement is summarised in paragraphs 20 and 21 and Appendices E and F to the Report. Provided that local authorities do what is asked of them, the proposed settlement, which provides grant totalling £884 million, should enable rate rises next year to be kept within modest dimensions.

For the distribution of grant in 1976–77, our proposals follow last year's very closely. Appendix E shows that £43 million has been reserved for the domestic element, enabling relief of 27p in the pound to be given to domestic rate poundages.

In the distribution of the needs element, which is provided for in the schedule to the Order, we have, in accordance with local authority advice, proposed only cautious changes from the current year's distribution to avoid further uncertainty and upset for local authorities' budgets. We made provision for £6 million last year for those local authorities who would be detrimentally affected by the reorganisation of local government. This year we have tapered it and £3 million is being allocated for that purpose.

I am aware that there is unrest in some quarters over the absence from the formula of objective factors determining the distribution of grant to the districts. Any radical changes in this respect must, however, be deferred to 1977–78. Meantime, there will be a thorough examination to determine what the problems are and how they can best be overcome. I repeat the warning that I gave last Scottish Question Time, that it is not easy to find a solution to this problem and isolate the objective factors that cover all districts. No doubt hon. Members will have constituency points to raise on the distribution and my right hon. Friend the Minister of State will deal with these when replying to the debate.

I commend the Order to the House as a measure which is in tune with the needs both of the national economy and of the ratepayers for 1976–77. It has not proved to be one of the easier settlements with which I have been concerned, but it has been developed in very thorough consultation with the Convention and there has been substantial agreement on the main principles involved. In fact, over the past year, one of the most satisfying developments that I have witnessed has been the regular, frank and productive contact I have enjoyed with the Convention of Scottish Local Authorities. This is something that we must build on in the difficult times ahead.

10.22 p.m.

Mr. Alick Buchanan-Smith (North Angus and Mearns)

Normally when we debate the rate support grant the Secretary of State for Scotland tells us how generous the Government are being towards Scottish local authorities and how much money he has got from the Treasury for Scotland. In contrast with earlier debates, this is a very much more sombre and serious occasion. His speech was marked with calls for discipline and for strict control of expenditure, and calls for the ratepayers of Scotland to be prepared to accept cut-backs in the services that they enjoy.

I think the right hon. Gentleman is right to be realistic and I do not criticise him for that. The first and foremost task of any Government at the present time is to get the economy straight. But we cannot do that or get back on the road to prosperity unless we have discipline in public expenditure. To that extent I commend the Secretary of State for what he said. I also commend him for his realism, for once, in moving this Order. Tonight he has accepted more than during any Question Time, or in any other debates, the true effects of increased local government costs and the hammering which ratepayers have received over the last year.

The right hon. Gentleman referred to the rate increases as "shattering", and we agree with that word. On 10th December he told my hon. Friend the Member for Glasgow, Cathcart (Mr. Taylor) that the average rate burden per household per month had increased to £10 a month in 1975–76 compared with £6.90 in 1974–75, with £5.90 in 1973–74, and with £5.50 in 1972–73. He was right to use the word "shattering".

What may of us also find shattering is the relative complacency of the Labour Party in face of these dramatic increases. A Labour Party political broadcast on 29th April said: Average Scottish householders pay about £150 a year in rates. It is not very much, is it? I think it is very much. The right hon. Gentleman has now admitted as much. It is cynical to say such things in a party political broadcast when the ratepayers have been hammered so much.

A great deal of the increases is not due to increased services but is a direct consequence of the inflation this country is suffering in common with others. The Government must take some responsibility for the degree of inflation. In the last General Election campaign the Chancellor of the Exchequer spoke of a rate of inflation of about 8 per cent. but subsequent figures showed that it was very much higher. The failure of the Government to control inflation perhaps more than any other single factor is responsible for the higher rates, and the blame lies fairly and squarely on the Government for failing to manage the economy properly.

In the assumptions on which the order is based, is the right hon. Gentleman allowing sufficiently for the normal tasks of local government even giving the stringency he suggests? I believe that economies have to be made, but they must be sensible economies, fairly applied and in the right areas. One must be straightforward with the public about them. Economies must be based on realistic assumptions of what the local authorities and the ratepayers have to face. Are the assumptions on which the Order is based realistic and correct?

Subject to certain conditions, I believe that if we are to control public expenditure, cash limits is one way of doing it. But the cash limit of £55 million in the Order seems to assume an inflation rate of about 61 per cent., assuming that the £55 million extra has some relation to the expected rate of inflation. The right hon. Gentleman has suggested that the price inflation the Government have in mind is 7½ to 9 per cent. He therefore has in mind a rate of price inflation which seems to be in excess of that which underlies the £55 million cash limit.

Even if those two figures do not bear a strict relationship, it is even more disturbing to look at the actual rate of inflation during the six months to November of this year, because it was running at 14.9 per cent. That is why I ask again whether the cash limit of £55 million, indicating an underlying assumption of an inflation rate of only 6.5 per cent., is realistic, given the present rate of inflation.

Another factor giving me cause for concern is that the £6 pay limit runs out in July 1976, and we do not know what will happen afterwards. I hope that the country shares the optimism of the Secretary of State about a future pay policy and that, when the present £6 pay limit runs out, wage increases will be contained within the 6.5 per cent. inflation rate underlying the Government's estimates.

Then I remind the House that cost increases for 1975–76 seem to be about 23 per cent. In addition to price increases, that figure takes account of some increases in services. Therefore, given first the rate of price and wage inflation and, second, increases in services, I question whether the assumptions underlying this grant are realistic and will turn out to be correct.

I hope that the right hon. Gentleman does not think that I am toying with statistics, because I assure him that I am not. I said just now that I supported cash limits. If we are to be serious about public expenditure, they are one way of helping to bring it under control. But if the right hon. Gentleman is serious about cash limits, presumably he will hold to them. The problem is that, if inflation goes ahead at a higher rate than appears to be assumed in the Government's calculations and the right hon. Gentleman is not prepared to increase the cash limits, the burden of the increased inflation will fall entirely on the ratepayers. If the Government fail in this direction, for reasons totally without the control of the local authorities and much more related to how successful the Government are in managing our economic affairs, it is the ratepayers who will suffer.

In the circumstances that I have described, any increase above the cash limits will fall on the rates. But, bearing in mind that under the rate support grant formula ratepayers are responsible for only about 25 per cent. of the total revenue expenditure of local authorities, if there is expenditure in excess of the cash limits, the ratepayers will be responsible for it 100 per cent. Therefore, for every 1 per cent. increase in inflation, an additional 4 per cent. increase will fall on the rates.

I believe that some of the Government's assumptions could easily be wrong. They are based on far too optimistic an outlook of the way in which the economy is likely to run in the period ahead. The ratepayers of Scotland could be in for a very hard time—possibly as hard a time as they experienced over the past year.

I re-emphasise that there has to be economy. We must see economy in public expenditure and public administration at all levels.

Let us examine the administrative costs of local authorities in Scotland. I am not at present especially concerned with what happened after local authority reorganisation, but I shall come to that later. I should like to refer to the Annual Rating Review of the Chartered Institute of Public Finance and Accountancy. From that publication it appears that the average administrative cost per head of population across all the Scottish local authorities is about £4.58 per head. If that is the average, it is interesting to see how much better other authorities are doing, and to express the hope that through economy of administration the local authorities which are not performing administratively so well will mark up towards the standard of the best.

I take pride in the fact that the two regional authorities in my constituency, Tayside and Grampian, come top of the list. Compared with a national average of £4.58 per head of population, Tayside turns in an administrative cost of £2.66 and Grampian £2.67. That demonstrates how in some regions of Scotland the costs per head are much higher than in others. Of course, in some areas, such as the Highland Region, the cost is as high as £10, but one accepts that there will be higher relative costs in some areas. However, I hope that in some areas in central Scotland economies can still be made so that other local authorities can try to mark up to the standard set by the Tayside and Grampian Regions.

I hesitate to make party political points in a debate of this nature, but I draw to hon. Members' attention that the controlling party in the Tayside and Grampian Regions is the Conservative Party. That shows that to have Conservative local government is to have good housekeeping. The two go together. I hope that other Scottish authorities will mark up to the standard set by the Tayside and Grampian Regions and have good control over the management and economy of their authorities.

When the Minister of State wound up the debate on 28th January, as reported at column 346 he seemed to shrug off the fear which many of us had regarding extravagancies which were claimed for the new authorities. There are tremendous differences between areas of Scotland. Some can be quite well explained and others not so well.

I hope that when the Minister winds up the debate he will not talk in terms of generalities. I appreciate that 11 months ago it was difficult to do otherwise. I hope that the Minister will say whether he is still as optimistic this year as he was last year that certain extravagances were not taking place and that the process was carried out efficiently.

I should like to refer to the guidance given to local authorities about the kinds of economy which they can make. The right hon. Gentleman told us that the Convention did not want specific guidance. I appreciate his desire to give a certain amount of discretion to local authorities to decide how their policies are applied. At the same time he has talked in terms of strict discipline. I feel that his guidance, despite the circulars which have been issued, might be more specific than appears in paras. 14 to 18. Paragraph 15 talks about compensating savings. Paragraph 17 talks about continuing passenger transport services at about the present level. Is that in real terms or money terms? If it is in money terms, it means a falling off of transport services.

In paragraph 18 there is reference to the slowing down of expansion arising from the reorganisation of local government. I should like to know more specifically what is meant by the general phrases outlined in this paper.

Finally, I turn to rural areas. There is probably almost more concern in rural than in other areas. I can illustrate this point in two ways. First, there is concern about the formula for distribution. Underlying the whole of local government reorganisation was the hope of evening out the differences between urban and rural areas, and allowance for moving towards that hope was made in last year's Rate Support Grant Order and is made in this Order. But I wonder whether we are trying to move too fast. One need look only at the questions asked by my hon. Friend the Member for Bute and North Ayrshire (Mr. Conic) on 1st August as reported in column 673 onwards, and the answers he was given to see that high rate increases would be faced by people in rural areas. I understand the objective to which the Secretary of State is moving, but I must ask whether we are moving towards it too fast.

Secondly, I am worried about the transport situation in rural areas. I believe that local authorities are paying subsidies of about £6 million on 300 bus routes in Scotland. If the Scottish Transport Group and other bus companies are to maintain proper transport services in rural areas, more rather than less money will have to be devoted to them. Fares have gone up by 30 per cent. Add to that other costs which bear heavily on country areas—postage, telephones, fuel, and so on—and we can begin to appreciate the problems facing people in those areas. The kind of comment that I hear in rural areas with transport problems, and so on, is that people are seeing a levelling down of services but a levelling up of rates. This is a matter of considerable concern to the people in rural areas.

I believe that the Secretary of State is trying to be brave in controlling Government expenditure by urging economies—

Mr. George Thompson (Galloway)

Will the hon. Gentleman give way?

Mr. Buchanan-Smith

No. This is a short debate. There will be an opportunity for other hon. Members to speak. I am just about to finish.

I believe that the right hon. Gentleman is trying to be realistic in urging local authorities to be more careful about their expenditure. At the same time, the Order must be criticised because the assumptions on which it is based are unrealistic. To that extent I believe that local authorities, and eventually ratepayers, may be misled into thinking that things are not as bad as in fact they are, only to find that they turn out to be worse. This situation is the result of the Government's failure to manage our economy properly. Therefore, the responsibility for the problems facing ratepayers rests firmly with the Government.

10.44 p.m.

Mr. Iain MacCormick (Argyll)

I am sure that the Secretary of State would be insulted if I said that I did not propose to criticise him.

The hon. Member for North Angus and Mearns (Mr. Buchanan-Smith) talked at some length about statistics. The one statistic of the debate that impinges on my mind is that he spoke for 20 minutes and said almost nothing. He said almost nothing because he was trying to defend the indefensible. The hon. Gentleman was trying to defend a framework which he and his colleagues set up and within which the unfortunate Secretary of State for Scotland is now having to work.

All of us must be aware that these days there is an almost national feeling of uproar about the increases in rates that people all over the country are being forced to pay. Indeed, it was not so long ago that we had representatives from ratepayers' associations in Scotland down here spelling out their message and telling us that is was impossible for them to meet the new burdens being placed upon them. I am sure that there cannot be a Member present who does not agree that the increases have been shattering. I spent most of my Summer Recess going round every village in Argyll. People cited instances to show what they thought of the local government set-up and how they viewed the rate increases that were to come mainly as a result of the machinations of members of the Conservative Party over the years prior to their fortunate demise from power.

Mr. Hamish Gray (Ross and Cromarty)

I hope that the hon. Gentleman was fair enough to point out to his constituents in the villages that he visited that the leader of his party did not vote against the Bill when it went through Parliament.

Mr. MacCormick

I hope that the hon. Gentleman is careful to point out that at least one reason why my hon. Friend the Member for the Western Isles (Mr. Stewart) was not as adamant as I was in his opposition to the Bill was that he was able to wrest from the grasping Conservatives the privilege in the Western Isles of an all-purpose authority which we in Argyll regrettably failed to get. However, enough of that.

If we are thinking in terms of the Order, we ought to be thinking of the role of the Government in two ways. First, we have to turn our attention to the whole framework of local government. I am sure that no one in the House would seriously claim that the reorganisation of local government has not played a most important part in what is happening in Scotland now and, indeed, in the dissatisfaction of the people there, whether they live in a council house, on a farm, or in an ordinary private house. Clearly, the Government have a role to play, and they cannot escape from their complicity in the creation of a system of local government that does not fit in with how our people feel, or into the framework in which they have to live.

Secondly, I do not think that the Government—and here my criticism is perhaps rather muted—can escape responsibility for the way in which the rate suppport grant is allocated between district and regional councils. I do not think that one can talk seriously about disputes between district and regional councils unless one considers the basic mistake, which was the original division of responsibility between district and regional councils.

The other day I was reading the debates on the subject of local government that took place before I became a Member, and I was impressed by the fact that certain hon. Members saw Argyll, or the islands of Argyll, as closely connected in terms of problems and geography with other areas of Scotland that had become all-purpose authorities. I have always thought that Argyll, where many parts of the mainland are virtually islands, ought to have been an all-purpose authority on its own. I shall return to that theme later in a sense that will scarcely please the principal Opposition party.

The districts are the areas that impinge most upon the lives of ordinary people. The most important aspects are the anomalies that arise in these areas. Before the reorganisation of local government, the people of Argyll paid a variety of different rates because they had a variety of different amenities and services provided in the different communities. I have received letters from all over Argyll about the effects of the present rates.

I have here a letter from the Seil and Easdale Islands Residents Association, which says: We do not receive sewerage or lighting and the standard of roads is totally inadequate for the volume of traffic they carry. I have also a letter from a gentleman who farms in the Isle of Shuna. He has to pay not only for sewerage and lighting that he does not have but for roads that he makes himself—and he does not even have a ferry service on which he can rely. But he is being forced to pay the same rates as anyone else in the district and the region.

Mr. Harry Gourlay (Kirkcaldy)

Surely the hon. Gentleman is not saying that people should pay only for the services of which they get the benefit. I have no family yet I pay for education, which is probably the main burden on the rates in Kirkcaldy. I do not use the library and I probably use less water than other people, yet the same applies. I hope that the SNP is not advocating the reverse.

Mr. MacCormick

Far be it from me to suggest that the hon. Member washes less often than other people. Far be it from me also not to thank him for helping to support my large family. But the point is that democracy should mean small individual authorities deciding on what they want through elected representatives and then deciding what the price for those services should be. If some authorities want to be lavish, let them go ahead, but that does not alter the argument.

Mr. Thompson

I have no desire to hold up the spate of Argyll rhetoric—in fact, I would urge it on—but would not my hon. Friend accept that in areas like Dumfries and Galloway exactly the same feelings are being manifested? Would he not further agree—

Mr. Deputy Speaker (Mr. George Thomas)

Long interventions in a debate which can go on for only about another 40 minutes are not too helpful when several hon. Members still wish to speak.

Mr. Thompson

In that case I shall not continue.

Mr. MacCormick

I sympathise with my hon. Friend, who has made his point so clearly.

The picture has been clearly painted by the Secretary of State and quite unclearly by the hon. Member for North Angus and Mearns—a picture the local government set-up accepted unwillingly by the Labour Party and put forward by the Conservative Party with such enthusiasm only two years ago. I have here a letter on the official paper of the Scottish Conservative and Unionist Party, in which my prospective opponent in Argyll asks me to bring in a Private Member's Bill to stamp out the disgraceful legislation introduced in 1973 by the Conservative Party.

Anyone with any sense knows that that is not possible. But is it not disgraceful that a member of that party should be begging me to undo what his party did, and what, indeed, the previous Member for Argyll was chiefly responsible for—taking Argyll out of the Highland Region, where the Wheatley Commission recommended that it should go, and putting it in Strathclyde?

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

Since the hon. Member has gained a high place in the Ballot for Private Members' Bills, why does he not bring in a Bill to give Argyll the local government system he believes it should have?

Mr. MacCormick

I am surprised to be asked a question such as that by the hon. Member for Edinburgh, Pentlands (Mr. Rifkind), because it is scarcely appropriate for an hon. Member to introduce a Bill that would have such huge financial implications. It is quite incredible that a Conservative Member should rise and ask me, a humble Back Bencher to undo what the great might and power of his own party perpetrated two and a half years ago.

10.55 p.m.

Mr. Robin F. Cook (Edinburgh, Central)

I have this at least in common with the hon. Members for Glasgow, Cathcart (Mr. Taylor) and North Angus and Mearns (Mr. Buchanan-Smith)—I share their woeful confusion as to how the cash limit has been derived for these purposes. My right hon. Friend the Secretary of State said that the Government were taking an estimate of 7.5 per cent. to 9 per cent. inflation from 1976 to 1977. According to the White Paper "Attack on Inflation", we are anticipating reducing the rate of inflation to a single figure by the end of 1976. We shall have to reduce it far into single figures early in 1977 if we are to have an average rate of 7.5 per cent. over that year as a whole.

Moreover, my confusion has deepened because I heard the previous debate on the English rate support grant and if I understood my right hon. Friend the Secretary of State for the Environment correctly—and I may have misunderstood him, or he may have got it wrong—he claimed that the figure of 7.5 per cent. referred to inflation from November 1975, when the figure was struck, until March 1976, when the period begins.

Mr. William Ross

Yes.

Mr. Cook

I am grateful to my right hon. Friend for clarifying that point.

If that is the basis on which the cash limits were derived, I should be grateful if the Minister would indicate whether there is any room for increasing that cash limit in the light of inflation after March 1976. If it is the case that the cash limit will be permanent, irrespective of what happens to inflation after March 1976, we shall be in grave difficulties. There is little likelihood that local authorities will be able to cope within that cash limit if there is a greater rate of inflation than we now anticipate.

I dislike the idea of cash limits and I suspect that within the next 12 months they will be greatly discredited. The very first time a local authority is unable to open a new retirement home which it has built because of a cash limit, or the very first time a local authority closes down a community centre because it cannot staff it because of a cash limit, the whole idea will be widely discredited and unpopular. The gravamen of my remarks is directed to the fact that the figures before us will involve not simply nil growth, but in certain areas a cut in services.

It is a fact that the Scottish Convention of Local Authorities considers that the figures put forward in this Order will involve it on average in a reduction of services. However, even if it is wrong and the Government are correct, we shall have a nil growth in services on average. It is inescapable that in some services there will have to be an increase in expenditure. Some services already have inescapable commitments to expenditure. Therefore, there will have to be cuts in other services to make room for the increases.

I want to deal in particular with the consequences of such a cut in services in the Lothian Region. I have been supplied by the Lothian Regional Council with the documentation of the exercise it has gone through in the past month on what the level of the rate support grant will mean for the level of services within that region. I may sound critical of some of the proposals the region makes in these documents, but I wish to make it clear pathy with the Lothian Region in the position in which it is placed by the from the outset that I have great symgrant levels that have been set. It is making the best of bad job.

The hon. Member for North Angus and Mearns said that he would not seek to make party political points in the debate. Equally, neither shall I, but the thoughtful and considered response of the Labour administration of the Lothian Region contrasts sharply with the more brutal and atavistic response of the Conservative-controlled district council in Edinburgh, which has arbitrarily imposed a 33 per cent. cut on all capital projects, including housing projects, which are almost entirely financed out of Government funds.

The proposals by the Lothian Region involve a cut of about £4 million in expenditure over the coming year. Much of that cut will have a serious effect on the services that the region can supply. For instance, there is a cut of £75,000 in expenditure on cleansing, to be achieved entirely by a reduction in services. It is a cut of over 20 per cent. in the total level of expenditure on the service. I cannot but fear that the cut in standards will be disproportionately greater than the cut in expenditure. Those hon. Members who criticise local authorities for excessive and extravagent over-spending should remember that when we finally get down to cutting expenditure, one of the first consequences is that streets remain unswept for longer periods.

There is a proposed cut in the purchase of school books of 5 per cent. on money levels calculated in real terms. Allowing for the effect of inflation, that means a cut in real terms of 30 per cent. to 40 per cent. next year. In the coming year 30 per cent. to 40 per cent. fewer school books will be bought in the region. That will have inescapable, sharp consequences for the quality of the education service in the area.

What I find striking is not simply the serious effect of such cuts, but the fact that the savings effected at local level go against the very policies we are trying to follow at national level. My first example is community care. I was present for the debate on the rate support grant last year, when I heard a stirring speech on community care by my hon. Friend the Member for Glasgow, Queen's Park (Mr. McElhone), who has since moved to a more prominent position. In view of his elevation, it is perhaps timely to repeat what he said a year ago: It seems all too easy, when a person lives alone and becomes disabled, to place him in a geriatric unit. I prefer the provision of more community services, an extension of the home nursing service and the home help service."—[Official Report, 28th January 1975; Vol. 885, c. 300.] In that he is very much in tune with current thinking on community care. I hope that that is the policy he will be pursuing in his Department.

When we come to the effect of a cutback in expenditure at local authority level, and particularly Circular 64, which suggests that local authorities should review the charges they make, we are at once faced with a potential increase in charges for community care services. For instance, in the Lothian Region there will be increased charges for meals on wheels of 66 per cent. and for home help of 33 per cent., in addition to a cut of £100,000 in the money available for the home help service. The cuts can result only in less demand on the community care service, and in the fullness of time even greater demand on the institutional services, which can be provided only at even greater cost than if we were to meet the need within the community through community care.

The other area of contradiction between what we are trying to achieve nationally and what we can do locally is the fight against unemployment. Here contradictions abound. We are advising local education authorities to provide courses for unemployed youths, and yet the Lothian Region finds, because of the money made available to it, that it has to impose a policy of not filling staff vacancies in the further education service, and that severely limits its ability to provide further courses for unemployed youths. We have made available no less than £30 million through the job creation programme to encourage youths to work on environmental programmes to improve local areas. On the other hand, the cut-back in local authority funds will mean that the Lothian Region will be unable to maintain its cleansing standards. In addition, it will have to cut £50,000 from its budget for rehabilitating derelict land.

Perhaps worst of all, it is proposing to cancel the £500,000 which it would normally spend on contracts for road maintenance. I am very much inclined to query whether that is a prudent saving. The documents that have been prepared suggest that the present level of road maintenance in the region is the minimum necessary and that it is only just containing the situation. To cut back on the money spent on road maintenance will mean that in the medium term we shall be faced with considerable expenditure on repairs to make up the backlog on maintenance that should have been done on an on-going basis.

Whatever may be the long-term effect of this saving, the short-term result will be immediate and obvious—namely, greater unemployment. That will apply particularly in the construction industry. It already has one of the highest levels of unemployment within the region and, indeed, throughout the United Kingdom.

We now come to the nub of the problem. My right hon. Friend the Secretary of State said that it was necessary to have restraint so as to encourage resources to go into the export industries and investment. I accept those priorities. I accept the need to divert resources to both those areas of the economy. If it were the case that we were freeing urgently required resources and diverting them to other areas of the economy, I could see some sense in the restraints that we are seeking to impose on local authorities. If we had a dynamic, thrusting private industry which wanted construction plant to provide factories and wanted men currently employed sweeping roads to work in those factories, if it wanted more printing capacity so as to turn out school books, for example, I could see some sense in the cuts that will inevitably flow from the Order, but that is not the case.

When I look around the region, I see record unemployment. I see a record number of plants working at two-thirds, or three-quarters' capacity. If the resources currently employed by the Lothian Regional Council are freed, they will not be used by dynamic private industry. The result will be more unemployed men, more idle construction machinery.

When I see the many unemployed men in my area I find it hard to understand why we cannot find men to sweep the streets, or why, when many a printing press is running at half capacity, we cannot find the capacity to print the school books that are required. I am struck by the happy thought that the surplus capacity indicates that we have the resources to maintain the public services, and in so doing to carry through a modest reflation of the economy.

It may be that I am being far too simplistic. It may be that I have made some obvious and foolish error in my deductions. I do not know whether that is so, but I know that as the consequences of the cut-back in local authority services become more obvious to the ratepayers, more and more ordinary citizens and more and more of our supporters in the constituencies will ask the questions that I have been posing. I very much hope that my right hon. Friend will answer them tonight.

11.9 p.m.

Mr. Hector Monro (Dumfries)

First, we should place on record that it is most unfortunate that every year the most important measure affecting Scotland has to be truncated into a one and a half hour debate. Few of us can develop the arguments that we should like to put forward. That criticism applies to all Governments over generations.

The debate on 4th December was a prelude to tonight's discussion. It was helpfully answered at short notice by the Under-Secretary of State for Scotland, the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing). On that occasion there was the conspicuous absence of the SNP. At least tonight it has decided to grace this important debate by its presence.

I am the first to agree with the right hon. Gentleman's stricutres on the importance of controlling local authority expenditure. Such expenditure must be kept to a minimum in the coming year. I feel that the right hon. Gentleman did not place sufficient emphasis on inflation. There is no doubt that inflation has been the principal cause of the staggering rise in rates in this financial year and will be the reason for further rises next year. It far exceeds in importance the problem of over-budgeting.

Does the Minister of State expect that from March 1976 onwards we shall have an inflationary rate of little more than 7 per cent. for the succeeding 12 months? I do not accept that. If these figures have been drawn up on that sort of budget, we shall inevitably be a long way out in 12 months' time, particularly bearing in mind the complete absence of information about what may happen to salaries and wages after next summer.

I accept that local authorities had a perfect right to run down their reserves to cushion rate increases in the past two years. This has, however, magnified the increase this year. I am critical of the distribution formula of the transitional grant award this year and that which is likely to be awarded under the order next year. The Government are open to severe criticism here.

My local authority of Dumfries and Galloway lost £2.75 million in the current year. Even allowing for the £750,000 transitional grant, the local authority is out of pocket by £2 million. This has had a significant effect on the rates levied in the area this year and on those to be levied next year. I argue the case not for more Government aid, but for a redistribution of what is available from the Government. If the Government will not think again about Dumfries and Galloway and other rural areas which have been placed in such an unfavourable position compared with the urban areas of central Scotland, they will lay themselves open to severe criticism. Unless the Government have second thoughts, rates will rise dramatically next year.

Even if there is a complete standstill on expenditure the regional rate in Dumfries and Galloway will rise by 40 per cent. Some ratepayers will be paying 450 per cent. more than they paid in 1974–75. I find it difficult to accept the proposition that there will be a complete standstill in developing services such as social work and in the emphasis which we all want to see in bringing employment to their areas by the regional authorities.

Why should residents in rural areas of Scotland be so harshly treated jus because they live in the countryside? I can only conclude that it is done for political reasons, so that those in urban areas do not pay so much. This is the second year in succession that this has happened. My hon. Friend the Member for North Angus and Mearns (Mr. Buchanan-Smith) rightly said that in the countryside we had fewer services, additional costs, poorer road transport and the heavy burden of bus subsidies. There is also the prospect of rail services being cut yet again. In terms of amenity, we have much poorer television reception. All of these add up to general grievances to be set against rate increases. I hop-: that the Secretary of State will heed this warning from the rural areas tonight.

I accept that there must be restrictions on local authority expenditure, and it is right that restraint should be the order of the day. The rating review of 1975–76 highlights what various areas can achieve if they make an effort. The rate-borne expenditure per head in Scotland averages £56. In Dumfries and Galloway it is £3898. That shows that we are well down the expenditure league, in fact, eight out of 12 compared with other regional authorities. As my hon. Friend the Member for North Angus and Mearns said, it is the independent and Conservative-controlled authorities that have maintained their rate expenditure much better than those in the central belt of Scotland.

I should have liked to speak about expenditure on roads, but there are only a few minutes left and two Front Bench speeches to come. In the outlying areas of Scotland the rate support grant formula leaves a great deal to be desired, and it costs the ratepayers dearly in Dumfries and Galloway.

11.16 p.m.

Mr. Teddy Taylor (Glasgow, Cathcart)

My hon. Friends the Members for Dumfries (Mr. Monro) and North Angus and Mearns (Mr. Buchanan-Smith) did the House a service by telling the Secretary of State that the best way to achieve prudence and economy in local government would be to have many more. Conservative-controlled councils. We cannot achieve that overnight and, therefore, we have to look for other remedies

Mr. MacCormick

Has the hon. Gentleman seen the headline in the Glasgow Herald which suggested that the majority of Labour-controlled district councils wanted to see the scrapping of the regions?

Mr. Taylor

For the fifth time in recent months the hon. Member for Argyll (Mr. MacCormick) has said that the new regions and districts are a disaster, that they have put up the rates of his poor constituents in Argyll, and that something should be done. That is why, when the hon. Gentleman was successful in the Private Members' Ballot I was staggered that, instead of doing something to help his constituents who have no roads and no sewerage, he wanted to introduce a Bill to make divorce easier. If he thinks that making divorce easier is more important to his constituents than reforming local government, we must look at his priorities as closely as we look at the Government's priorities.

The most interesting speech came from the hon. Member for Edinburgh, Central (Mr. Cook) who made the kind of speech the hon. Member for Glasgow, Queen's Park (Mr. McElhone) would have made if he had not been unfortunate enough to become a Minister. As a Minister he is carrying out policies he would have deplored when he was on the Back Benches.

Scottish ratepayers are facing a critical position. Their rates went up in real terms by half in the last 12 months. In considering the Order we must determine whether it will help to alleviate the burdens which face Scottish ratepayers. There is ample evidence that, instead of helping to reduce the rise in rates, the Order will do exactly the opposite and that we shall have another disastrous rating year in 1976 as a direct consequence of the Order and other Government policies.

First, we are changing from the 10½-month year to the 12-month year, which immediately involves an increase. Secondly, there is a substantial reduction in the amount of Government assistance to local authorities in percentage terms. This has been expressed as a simple reduction from 75 to 74 per cent., but the Secretary of State must be aware that the cut may be substantially more if the rate of inflation is greater than he anticipated in putting a cash limit of £55 million on increase orders in 1976–77. It would have been more honest if a much lower figure than 74 per cent. had been fixed and if increase orders had been allowed to follow their normal course.

For the first time in my memory, it has not been possible for local authorities to agree with the Secretary of State on relevant expenditure. Obviously, this will have have severe implications for ratepayers. But the major factor which could hit them hard is the cash limit on increase orders.

The Government are not limiting the amount of money to be spent by local authorities; they are limiting the amount of money they will provide. They are doing it by fixing their own figure of relevant expenditure and they saying that if inflation goes over 7½ to 9 per cent. this can only have the consequence either that the nil rate of growth must be ended—meaning fewer dustmen in Edinburgh, Central, for example—or the rates must go up savagely. There is no alternative.

I fear that the Government know that the figure of 7½ per cent. is bogus and will not be reached as an average figure for the forthcoming year, and are simply ensuring a transfer of the burden of local government spending from the Government to the hard-pressed ratepayers, some of whom have had a disastrous year.

If the Government believe the figure of 7½ per cent., has the Minister of State obtained assurances from the National Coal Board, the Post Office, the Gas Corporation and other Government organisations and nationalised bodies that their increase in prices in the year will be kept to 7½ to 9 per cent.? If he has not, the only consequence must be a substantial cut in local government services, or a substantial increase in local rates. It is wrong to fix this arbitrary figure and say that if increases occur beyond it, the Government will not pay a penny.

If there is a change of Government policy, the local authorities can be safeguarded against general increases in prices over which they have no control. But I fear that instead there will be a further savage rise in rates. In terms of priorities, it is strange that the Government say that we have to impose these limits on local authorities while spending hundreds, perhaps thousands, of millions of pounds on expensive nationalisation schemes, which will further put up the cost of living.

What representations has the Minister of State had from the Strathclyde Region district councils, which feel that they have been shamefully let down? The district councils, although bearing 16 per cent. of the relevant expenditure, are only getting 6 per cent. of the needs element. They accepted last year's arrangement under protest on the strict assurance that a different system would be introduced for 1976–77.

What is the Government's attitude towards the calculation of local authority rents? While calling for restraint, the Government will be giving new guidance about increases in the rents which should be charged. Increases this year have been even greater than those under the housing finance legislation to which the Labour Party so objected.

What about the effect of Government policy on council spending? Are they prepared to give guidance to local authorities about the use of direct labour and works departments? There has been a surprising and revealing report by the Accountants' Association which suggests that a great deal of money is being wasted by local authorities in this regard.

Secondly, will they reconsider their education policy, particularly in Edinburgh, as it affects the grant-aided schools? It is clear that substantial additional spending by local authorities will accrue, because a large number of additional pupils will be landed on the State sector. Their education will have to be paid for by the ratepayers and the cost added to the total of local authority spending.

Are the Government prepared to reconsider their policies on the sale of council houses to sitting tenants? The extra capital that that would produce would reduce the incidence of interest payments upon local authority loans.

We do not see the Order as helping ratepayers in Scotland. The Government are simply cutting the amount of Government grant and are hoping that their calculation of inflation will prove correct. If, unfortunately, as we believe, their calculations prove wrong, it will simply mean another difficult and disastrous year for Scottish ratepayers—a situation to which we are accustomed whenever a Socialist Government are in control.

11.27 p.m.

The Minister of State, Scottish Office (Mr. Bruce Milian)

I was interested to note that during the debate there was virtually no mention of the rate of grant in the rate support grant Order for 197677 until the speech by the hon. Member for Glasgow, Cathcart (Mr. Taylor). In all the circumstances the figure of 74 per cent. is extremely fair, given last year's figure of 75 per cent. or the increase over the previous year of no less than 7 per cent., and that took account of special circumstances.

We warned local authorities at the time that they should not expect a similar level of grant for 1976–77. The figure maintains the 8.5 per cent. differential between Scotland and England which the last Conservative Government had whittled down, first, to 8 per cent. and then to 7½ per cent. From that point of view, theretore, this Government's record compares favourably with that of the last.

If I understood the hon. Member for Cathcart correctly, he wanted a lower percentage of rate support grant for the current year. I do not know whether that is official Conservative policy. We tend to have difficulty about knowing to what extent the hon. Gentleman is speaking on behalf of Conservative Party policy. Since he believes that the rate should be lower, I hope that he will tell local authorities in Glasgow and Strathclyde.

He also said that he was not in favour of cash limits, yet the hon. Member for North Angus and Mearns (Mr. Buchanan-Smith) seemed enthusiastic about cash limits. He almost suggested that his Government had thought about them, but had somehow mislaid that particular proposal in their rush to do certain things before the last General Election.

Mr. Teddy Taylor

rose—

Mr. Millan

If the hon. Gentleman wishes to intervene, perhaps he will say whether he is in favour of cash limits.

Mr. Teddy Taylor

1 was merely pointing out that the figure of 74 per cent., as described by the Minister, will not amount to 74 per cent. if the implications of paragraph 30 are followed through. It would have been more honest for the Government to make that plain, instead of pretending otherwise.

Mr. Millan

The hon. Gentleman has not answered the question. He is apparently not in favour of cash limits, but he is in favour of reducing the amount of grant. It is useful to have those facts on the record.

The basis of the cash limits was explained by my right hon. Friend and will be further explained in a circular which will go out to local authorities tomorrow. The basis is, on the wages front, a continuation of the present £6 limit to the end of July 1976, with the expectation that pay increases for the following 12 months will be of the order of 5 to 10 per cent. The basis also assumes that other costs will rise by between 7 per cent. and 10 per cent. This kind of calculation, based as it is not on average costs for 1975–76, but on the costs at November 1975, gives an average of 7 per cent. This has been explained to the Convention of Local Authorities and it has not disputed that, with the qualifications in the covering memorandum, 7 per cent. is the correct figure.

It is true that the level of local government expenditure on which the grant is calculated has not been agreed with local authorities. The figure on which the grant is calculated is £780 million and they were arguing for £793 million. However, £780 million is considerably greater than the figure in the previous year's public expenditure White Paper for 1976–77. In real terms, that was £754 million.

For 1976–77 we are providing a realistic figure, given what amounts to a standstill in local government expenditure. In the current year, local authorities have over-budgeted, and if strict economy is observed by authorities between now and the end of the year, actual expenditure could be considerably less than the figures for which local authorities budgeted. I can tell the hon. Member for North Angus and Mearns that, given extreme care and economy, the £780 million will be adequate for local authorities' services, but that does not mean that there will not be some very difficult decisions for local authorities to make.

My hon. Friend the Member for Edinburgh, Central (Mr. Cook) mentioned that we wanted authorities to exercise the strictest economy and added that if there were certain services on which expenditure must increase, it followed that there were others on which expenditure, in real terms, must decrease. We have made no attempt to disguise that fact. We have mentioned it in the White Paper and on other occasions in the past. I do not have time to go into the economic arguments, but I have to tell my hon. Friend that there are not many people in the country—and certainly not in local government—who believe that the way out of our current difficulties is by reflation through increasing public expenditure.

We have to ask local authorities, disagreeable though it is because of the services they would like to carry out for the community, to exercise the utmost stringency over their expenditure for 1976–77. If they do that, any increase in the rates over the next year should be very modest indeed.

I have been asked about the distribution of the grant between rural and urban areas. I think that the previous formula was weighted too favourably towards rural areas. The present formula, confirmed for 1976–77 by the working party, is much fairer, yet it still means that the net expenditure of an individual ratepayer in places like Dumfries and Galloway is very much lower than the average expenditure in Scotland as a whole.

Hon. Members have also asked how much of the grant is going to districts and regions. There is a difficulty here. The distribution formula provides for the total distribution of the grant to the districts, if at a lower percentage of the total grant than their expenditure bears to total expenditure by local authorities in Scotland.

We have not yet been able to find a satisfactory formula that would bring grants to the district authorities nearer to their percentage of the total expenditure. I note that, although we have seen documentation by the Strathclyde district councils—and, as a Strathclyde Member, I have much sympathy with them—so far there has been no suggestion of the way in which some of these difficulties might be overcome. We have said—and the local authorities agree with this—that in the working party discussions for the subsequent year 1977–78, we shall try to find a solution to this difficult problem.

Taking the Order as a whole, I think that we have produced—

It being one and a half hours after the commencement of Proceedings on the Motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business).

Question agreed to.

Resolved, That the Rate Support Grant (Scotland) (No. 2) Order 1975, a copy of which was laid before this House on 4th December, be approved.