RATE SUPPORT GRANT

HC Deb 22 December 1976 vol 923 cc738-55

6.20 p.m.

The Secretary of State for the Environment (Mr. Peter Shore)

I beg to move. That the Rate Support Grant Order 1976, a copy of which was laid before this House on 6th December, be approved.

Mr. Deputy Speaker (Sir Myer Galpern)

With this we may take the other support grant orders for England and Wales.

Mr. Shore

I understand that the separate order relating to Scotland will be debated when we conclude this debate.

The main order relates to the rate support grant settlement for 1977–78. This will inevitably be my main theme today. I shall begin with a few words about the two increase orders. The first increase order relates to the financial year 1975–76. The Exchequer grants for that year were originally determined at November 1974 prices. We have already made some adjustment, last year, to these grants to take account of changes in costs up to November 1975. We have now decided to accept for grant further increases in costs during the remainder of 1975–76, totalling £77 million.

The grant for 1975–76 was 66½ per cent. That percentage also applies to the increase order. After deducting specific grants, the amount of further rate support grant and supplementary grants to be paid out through this increase order will be £49 million. The additional needs element will be distributed by the same formula as was used to distribute the original 1975–76 grant.

I turn now to the current year, 1976–77, for which the Government propose that an increase order be made for additional rate support and supplementary grants to authorities of £388 million in respect of increased costs since the main order was made last December.

The House will no doubt already be aware that this sum has been affected by two decisions which the Government have taken in the course of the past year. The first, announced at the time the last rate support grant settlement was made by my predecessor, was that the grant total should be subject to a cash limit. This cash limit, which was based on the latest estimate of inflation at the time, would have been exceeded if the Government had paid grant on all the claims for additional expenditure made by authorities. The Government have carefully reviewed the position, as they promised they would do, but have come to the conclusion that, in view of the economic circumstances now prevailing and their general policy on cash limits the cash limit must stand.

The second decision that the Government took during the year was to limit the total amount of the increase in grant to a figure of £50 million less than the amount calculated as a percentage of increased expenditure which the Government were prepared to take into account. We took this decision in the light of the knowledge that local authorities had raised revenue from rates which was, together with their balances, sufficient to finance expenditure proposed by them of £400 million above the level accepted by the Government and authorities in the rate support grant settlement for 1976–77. We have looked carefully at the position again when considering whether the decision must stand.

Sir John Hall (Wycombe)

Is it not true that this way of dealing with the problems means that those authorities that have tried their best to follow the guidelines laid down by the right hon. Gentleman have been penalised in the same way as those who have made no attempt to follow the guidelines?

Mr. Shore

The hon. Gentleman has made that point on other occasions. I shall deal with this general question a little later. Of course, the hon. Gentleman is right. I accept all the premises that led him to that conclusion. It does mean that we are dealing collectively, rather than individually, with local authorities in seeking to reduce the amount of grant paid under the increase order for 1976–77.

The rate support grant settlement for 1977–78 has been a particularly difficult one to propose. The settlement involves a fresh judgment each year on a number of different points. These include the level of current expenditure for which local government should plan, the extent to which this expenditure should be financed by the taxpayer or the ratepayer, and whether some of it can be financed from authorities' own balances. We also have to be sure that the grant is distributed with proper regard to the expenditure needs of areas and the ways these needs may be changing. On many of these issues there is no simple arithmetical answer; it is a question of judgment and priorities. But in 1977–78 our room for manoeuvre, because of our severe economic difficulties, is so limited that the judgments have been more difficult than ever. I do not expect everyone to agree with my judgments but they have been made in the belief that they provide for a settlement fair both to local authorities and ratepayers and right for our economic situation.

I turn first to expenditure. The level of relevant expenditure I propose for the settlement, £11,717 million, will require local authorities to reduce their current expenditure in real terms in 1977–78 by around 1.6 per cent. compared with what they are now estimated to be spending in 1976–77. This level of expenditure is in line with the Government's original plans for 1977–78 set out in the last White Paper on Public Expenditure, Cmnd. 6393, published in February of this year. The only significant modification of the plans incorporated in that White Paper has been the switch of about £125 million from capital to current expenditure. This was a change endorsed by the Consultative Council on Local Government Finance.

Mr. Timothy Raison (Aylesbury)

Will the Secretary of State clear up one point arising from the Chancellor's statement of a few days ago and a subsequent statement by the Secretary of State for Education, when it was said that the Government believe that the amount of money spent on the administration of school meals should be reduced? Can the Secretary of State explain whether this has any bearing on either the rate support grant or the Public expenditure figures and if not how is it meant to be implemented?

Mr. Shore

It will have an effect on the rate support grant settlement. As I recall it, my right hon. Friend spoke of a figure—I think a saving of £20 million—in education current expenditure. Given the settlement that I am proposing, that would affect the rate support grant expenditure by something in the order of £12 million. We shall have to make adjustments for that sum. I propose to make those at a later stage in the increase orders.

I was explaining the only change in the original figures in the White Paper. That has been brought about by the shift from capital to current expenditure. By adhering in this way to their published plans, the Government are not, therefore, presenting local authorities with an unexpected level of expenditure in 1977–78. All authorities will have seen the White Paper. They will also all have had, in May of this year, a joint departmental circular—Circular 45/76—setting out current expenditure figures for local authorities up to 1979–80.

There have been many demands for slashing reductions in local government current expenditure. This settlement does not provide for slashing cuts and would be wrong, in my view, if it did. Such reductions could be achieved only at the expense of severe reductions in social and other services and extensive redundancies.

We should consider, too, the fall in the rate of growth in local authority current expenditure. Local authority expenditure was rising dramatically in the years up to 1974–75—8 per cent. in 1972–73, 9 per cent. in 1973–74 and nearly 10 per cent. in 1974–75. Since then we have seen the rate of increase progressively reduced. The growth, at nearly 10 per cent. in 1974–75, was halved in 1975–76 to around 5 per cent. and to under 2 per cent. in 1976–77. For 1977–78 we are now looking, not for an increase, but for a reduction of about 1½ per cent. I cannot see, at present, that it would help the economic wellbeing of this country to pursue a faster rate of change.

We are therefore proceeding in a firm but orderly way which allows local authorities to adjust with minimum cost and dislocation to their new financial position. Indeed, I have been impressed—I speak with only eight months' experience behind me—in my contacts with local authority leaders by the helpful and responsible attitude they have brought to all our discussions. They did not welcome the settlement. But I know they are determined to play their part in keeping public expenditure in line with the Government plans.

I have, of course—here I take up the point made by the hon. Member for Wycombe (Sir J. Hall) a moment ago—thought carefully about whether I should discriminate between authorities in 1977–78 on the basis of their expenditure in 1976–77. I think that it would be wrong to do so, for two reasons. First, it would be entirely to misconceive the basis of the proposed settlement. It is not based on retribution for past alleged misdeeds. It reflects a judgment on how best the Government's expenditure objective for 1977–78 can be achieved. This inevitably takes account of the resources which local authorities as a whole should already have at their disposal.

Second, to attempt to relate the settlement to the action of individual authorities would raise serious practical difficulties. The needs of authorities, and therefore their need to spend, will vary. We do not have sufficient information at national level to estimate the needs of individual authorities sufficiently precisely for use as a basis for discrimination, and even if we did there would be a radical break in the relationship between local and central government and an end to effective local democracy. We should perforce have to use some more or less arbitrary formula, and this might well cause more injustice than it would resolve.

Any attempt to discriminate would involve the Government closely in the day-to-day affairs of local authorities. This was not contemplated when the Local Government Act 1974 was passed by our Conservative predecessors, and as a consequence—I must tell the House this frankly—new legislation would be required. Even if we thought that it was the right thing to do and if we thought that we could achieve greater justice, it would require new legislation.

Mr. Tim Sainsbury (Hove)

The right hon. Gentleman referred to a more or less arbitrary formula. Does he not regard the multiple regression analysis by which the needs element is allocated as a more or less arbitrary formula?

Mr. Shore

I know that it has been criticised, but I do not think that it is an arbitrary formula. Indeed, it is in many ways, I suppose, a more refined way of trying to define needs than we have had in the past. I claim no particular authorship for it; it is something else which we picked up from the wisdom and inheritance left by right hon. and hon. Members opposite. All I can say is that I shall have a further word about it, if I may, as I go along and deal with the question of the distribution as between different authorities and, above all, the needs element.

As the House knows, the Government were deeply concerned that their early call for a standstill in current expenditure in 1976–77 was not reflected in the first returns of expenditure made by local authorities in April this year. The House will recall that these first returns indicated an intention to spend over £400 million in excess of the Government's expenditure plans in the White Paper, Cmnd. 6393. However, following discussions with the consultative council, and with the support of the local authority associations, authorities responded well to later joint departmental circulars issued in May and August of this year, which reiterated the Government's continued commitment to the figures set out in the February White Paper.

The result has been successive downward revisions of the amount of excess expenditure. A second return of expenditure in July 1976 indicated an excess, at November 1975 prices, of about £250 million, and later evidence in the course of the rate support grant negotiations indicated a figure of about £170 million. I should add that a modest saving on capital expenditure also is expected during this year.

The gap between local authority intentions and Government expectations may not yet have been finally closed, but overall the change of spending intentions revealed so far represents an impressive achievement for local government. The spirit of realism and co-operation now being shown by the local authorities will, I am sure, enable them to achieve their task—difficult task that it is—next year.

I recognise, however, that it is not always possible for individual authorities to relate their own actions to national targets, and for this reason I have given authorities a clear guideline on expenditure. They should aim to restrict their current expenditure in 1977–78 in cash terms to no more than 8½ per cent. over what they are spending in 1976–77. We believe that this figure should not be exceeded, save in exceptional circumstances.

I carefully consider also whether I should give an average figure of rate increases. There are dangers in giving such a figure, and one of these is that it may appear that the Secretary of State is trying to take a decision for individual local authorities which only they, in the light of their own knowledge of their own circumstances, can take. Nevertheless, I have decided to do so. I have said that the national average domestic rate increase should be about 15 per cent. It is an average, not a target, in this case. It is a calculation based on assumptions about expenditure, balances and inflation, and I shall explain it in a moment.

Some authorities will need to raise more than others in rates if local authority spending is to be kept in line with the limits set by the Government. The Government are concerned that local authorities should not overspend next year, but they are concerned also that spending on important community services should not be cut back too drastically. We need a period of careful national retrenchment, not a sharp and violent drop in the standards of our services. A wide variation between increases has to be accepted as the price of keeping rate increases at local level within proper bounds. Nevertheless, I believe that to give the average figure which underlies the settlement will help the public and authorities to understand our calculations.

The House may welcome some further explanation now of the assumptions which underlie the two figures—the 8½ per cent. and the 15 per cent. I refer, first, to the ceiling of 8½ per cent. on the growth in cash terms of each authority's expenditure. In 1977–78, as was the case this year, there will be a cash limit on the grant towards the estimated increase in costs affecting the accepted level of expenditure. This is based on the expected rise in local authorities' costs in 1977–78, which in total should not exceed 10 per cent. This is lower than the expected rate of general inflation for the same period because of the relative importance of employee costs in local authority expenditure. For example, pay costs up to July 1977 can be calculated by reference to the present pay policy and thereafter, up to 31st March 1978, it has been assumed that pay awards will be between 5 per cent. and 6 per cent.

On non-pay items, the assumption is that over the period covered by the cash limit costs will rise by no more than 15 per cent. between the average level during 1976–77 and the average level during 1977–78, which is the normal basis of comparison.

The net result of these different assumptions is a cash limit which assumes that total local authority costs will rise by just under 10 per cent. between 1976–77 and 1977–78. For current expenditure in 1977–78 the increase should be less, so that, allowing for the reduction in real terms of 1.6 per cent., local authorities' current expenditure should need to rise in cash terms by no more than 8½ per cent. The assumptions about inflation which underlie the 8½ per cent. have, I hope, been stated, and I am sure that by stating now what our assumptions are we can only help local authorities in their forward planning.

I turn now to the estimated average 15 per cent. increase in domestic rates. Rate increases in any individual authority are the product of its expenditure proposals, its assumptions about inflation, the amount it draws from balances and the amount of grant. The situation in every authority will be different, and I have to work in aggregate figures. Hence, any figure which I produce can be no more than a national average, but I have assumed, in giving the figure of 15 per cent., that authorities will stick to the Government's expenditure plans, will provide for the same degree of inflation for which we have provided in the cash limit and will draw about £175 million from balances.

I entirely accept, however, that there may be cases of individual authorities where, for example, there are no balances or where, as a result of the distribution proposals, the share of grant is reduced. In such cases increases in rates are likely to be higher. [Interruption.] I am not trying to disguise anything. I am being quite frank with the House. In other cases, authorities may have large balances or may be able to keep their expenditure significantly within the 8½ per cent. maximum. In these cases rate rises will be lower.

Some hon. Members have made the point that the settlement involves a shift in the burden from taxpayer to ratepayer. This is marginally so compared with last year, but I want to make two points. First, there is no particular reason why the distribution of burden between ratepayer and taxpayer should remain the same from one year to the next. Secondly, the grant percentage that we now proposed is far from being, an historically low one. Indeed it is marginally higher than the grant percentage initially set in 1974–75. I am referring of course, to the figure of 60½ per cent.

The distribution of the grant has caused considerable interest. It has resulted in many letters to me and provoked comment from many hon. Members on both sides of the House. The general financial situation and the need to restrain public expenditure form the background to the proposals for the level of the rate support grant. With the level being reduced to 61 per cent. of relevant expenditure, the distribution of the total grant takes on a greater significance for individual authorities. It is only right, at a time when the grant is restricted, that it should be concentrated in those areas with the most acute social and economic need. Against this background, I have had to recognise that loss of grant could have a considerable effect on local authorities and their rate levels. My proposals seek to achieve a fair balance between conflicting pressures.

Distribution arrangements for the allocation of the needs grant have been discussed in great detail with local authorities and their associations. There has been pressure from the ACC and the ADC for the pattern of distribution of the 1977–78 grant to be kept as closely as possible to that of 1967. However, this easy solution would have been unfair, and would have left certain authorities without adequate support to meet the growing problems of the under-privileged and disadvantaged in their areas at a time when rate increases must be kept to reasonable limits. The regression analysis method for the assessment of needs, introduced for 1974 to 1975 by our Tory predecessors, has provided, until this year, the only generally acceptable means of measuring the varying expenditure needs of authorities. We have been right to continue with it.

The major contribution that we have made to this system of assessment has been to extend the range of social and economic factors that are included in the needs formula. In 1977 to 1978, for the first time, a factor for unemployment has been included in the need distribution formula for authorities outside London. I shall come back to the internal London distribution later.

Having established a measure of the varying needs of authorities, I have had to consider how far we should protect authorities whose relative needs have been shown to be declining and who, therefore, will lose grant. Protection for losing authorities can be achieved by phasing—a process which, in this world of local authorities, is known as damping. It allows some recognition of the grant distribution of previous years to be carried forward into the distribution of the new grant. In 1977–78 this will be achieved by combining the needs grant formula for 1975–76 and 1976–77 with that developed for 1977–78. All the needs indicators in this combined formula are listed. It makes for a longer, but at least a more informative, order.

Compared with this year the non-metropolitan counties will get a smaller share of the needs grant. The most pressing social and economic problems are concentrated in urban areas and particularly in the inner cities.

Sir David Renton (Huntingdonshire)

Has the Minister borne in mind the fact that the problems of urban areas are being relieved by the building of new towns under the New Towns Act? People are moving out of urban areas and transferring their social and financial problems to the receiving areas which are in counties. Is it not most unfair to penalise those receiving areas and to benefit urban areas?

Mr. Shore

The fact that new towns and extended new town arrangements existed during most of the post-war period did not lead the right hon. and learned Member for Hexham (Mr. Rippon), when he was Secretary of State for the Environment, to decide not to propose that which he did propose. That was a new formula aimed precisely at giving extra resources to inner cities. This is not a Labour Government policy. It is now, and will continue to be, a bipartisan policy shared by all sides of the House.

Mr. Joseph Dean (Leeds, West)

When the right hon. and learned Member for Hexham (Mr. Rippon) was the Minister involved, the formula that the Government now proposes was discussed and its introduction was considered. It was seen that it would have an adverse effect on Tory areas of the country and the whole scheme was scrapped.

Mr. Shore

The recollection of my hon. Friend the Member for Leeds, West (Mr. Dean) is probably closer and more accurate than my own. I do not recall the matter in detail. What I do recall, and what I have with me, are the actual words of the right hon. and learned Member for Hexham that he spoke as recently as 12th November 1973, just a few months before the General Election. During the debate on local government he had this to say: I can tell the House that our proposals include a new needs element formula, based on an analysis of recent local government spending and a new level of resources element. The result will be to divert more of these two elements than before to the problem areas of cities."—[Official Report, 12th November 1973; Vol. 864, c. 41.]

Sir John Hall

Does the Secretary of State agree that the areas in which need arises change over the years? My right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton) has drawn attention to the fact that need is beginning to move from the inner city areas to outer areas. In my own county of Buckinghamshire, to which many families are coming from London to settle at Milton Keynes, many people are bringing all their social problems, adding a considerable strain to the social services of the county, and, therefore, adding to the costs of the individual ratepayer.

Mr. Shore

Surely, provided that the needs formula is reasonably sensitive—and I do not think any hon. Members seriously disagree with the formula—it will take up the needs as they emerge. I do not need to rely on what the hon. Member for Henley (Mr. Heseltine) said three years ago. On 26th November 1976, speaking from the Opposition Front Bench, he said: No one questions the grave urban crisis … There is no question that resources will have to be found to cope with that crisis."—[Official Report, 26th November 1976; Vol. 921, c. 361.] There is a general agreement that if we are going to be fair we must reflect the shift in the distribution of the needs element.

Mr. Nicholas Winterton (Macclesfield)

Does the Secretary of State accept that this year Cheshire has to find an additional 3,000 secondary school places? This is an area which is undertaking an increasing burden. Yet, for the second or third year running, the percentage of the rate support grant that Cheshire will receive, in relation to urban areas, is to be reduced. The shire counties have suffered under this Government.

Mr. Shore

The needs and resources of Cheshire—as is the case with the needs and resources of all other local authority areas—are taken account of in the formula which has been generally accepted. If hon. Members, apart from voicing feelings that their own areas have been adversely affected, can put forward a method by which we can operate the system more sensitively, I am always prepared to listen to them.

In addition to the economic and social problems, it is in these areas that in general one finds the heaviest rate burdens. I know that there are forecasts of the potential percentage increases in the rate poundages, particularly in the shire counties, which seem high. Of course I am concerned about the bills that face householders in the rural counties, but I must also consider those facing ratepayers in the inner urban areas. The differences in the amount of rates paid cannot be explained by the differences in incomes between the rural and inner city areas.

Mr. Nicholas Winterton

What about Westminster?

Mr. Shore

I shall come to that in a moment. In the environment debate on 26th November the hon. Member for Henley implied that the changes in the needs grants distribution were in someway politically motivated. That is not so. As I have already pointed out, the present system of needs assessment was introduced by our predecessors. We have made no change in the basic principles of their methods of needs assessment, other than to increase the range of needs indicators used in the formula. I am sure that hon. Gentlemen would be anxious to make the system more sensitive than was the first model.

The machinery of regression analysis, which has been used ever since the passing of the Conservative Government's Act, has been used again for very good reasons. For all its faults, it produces a pattern of distribution linked to expenditure needs. To what extent authorities of a particular political persuasion benefit is irrelevant. [Interruption.] If Opposition Members were to talk to their colleagues who control local authorities in some of our major conurbations they would find that their colleagues would have difficulty in understanding their remarks.

There are two main points about London. London has a considerable advantage—although it is debated among London Members—in its high rateable resources. A downward adjustment has, therefore, been made—as it was for this year—to take account of that advantage. Nevertheless, London will get a greater share of the smaller grant cake in 1977–78. Its share of the England and Wales total of needs element will increase, thus consolidating the big improvement made in London's relative position last year.

Secondly, we have made a number of improvements to the arrangements for the distribution of the grant within London. Notably, the bulk of the arrangements for spreading across London the benefits of the high rateable values of certain authorities are now in the Rate Support Grant Order. This, I believe, will be welcomed by my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) in particular. Also, the transfers have been made, I think, fairer and certainly more explicit. This year's scheme for making the transfers caused serious differences of opinion among the London authorities. I am glad to say that the arrangements for 1977–78 were strongly recommended to me by the London Boroughs Association. I have letters from hon. Members on both sides of the House urging me to proceed on the lines set out in the order.

This leaves us with a fiendishly complicated looking order; but I think that this is a price we should be ready to pay for the improvements being made. I should add that a small separate equalisation scheme will be necessary to transfer ratable resources from the City to other boroughs. This scheme will meet the requirements of existing legislation and complete the rate equalisation provisions proposed for London.

Hon. Members may have noticed in the order that it is proposed to give extra domestic relief to ratepayers in the City, Camden and Westminster. This extra help is being financed by inner London authorities only. It was asked for by the London Boroughs Association, which felt that domestic ratepayers in these three areas would otherwise be asked to bear an excessive burden. For the rest of England and Wales, the level of domestic relief will remain unchanged at 18½p in England and 36p in Wales.

Turning to the resources element, its relationship to the needs element will be unchanged in 1977–78 and remain at the 1976–77 ratio of 32½ per cent. to 67½ per cent.

Mr. Stephen Ross (Isle of Wight)

The right hon. Gentleman referred to the domestic relief of 18p for England and 36p for Wales. There is a Bill coming before the House which is designed to help Wales by equalising water charges. Will there be any change as a result of that Bill?

Mr. Shore

There will be no change in terms of the order. I agree with the hon. Gentleman that in future we may want to take account of changes which have the effect of helping Wales in areas not covered by the rate support grant. I cannot say more than that. It is obviously something we should look at.

I have dealt with the levels of expenditure and grant in 1977–78 and the way we propose to distribute grant. There remain two interrelated questions—the effect of the Government's proposals on local authority services and the effect on employment.

On services, a reduction in the total level of expenditure must mean that all standards will cease to rise unless authorities so re-order their priorities that some activities benefit at the expense of others. The Government believe it is right that local authorities should continue to exercise their considerable discretion, in the light of their own unique knowledge of local needs. We have however, in the report on the main order for 1977–78, set out the likely main consequences as the Government see them. I intend to include the same message in the circular I hope to send to local authorities shortly.

That circular will also set out the Government's view on the implications of the settlement for manpower. We have seen in the last two or three weeks a lot of comment about local authority employment; from calls for massive redundancies, without regard to the capacity of other sectors to absorb the manpower released, to gross overestimates of the job losses implied by the Government's proposals for 1977–78.

As some hon. Members will have seen in the Press, some of the local authority associations' own estimates have put the job loss at around 50,000. But in negotiations with the associations I, and officials on my behalf, have consistently told the associations that we regard their estimates as far too high, for the reasons which I have given, and we have explained to them in great detail the reasoning behind our forecast of 20,000–30,000 job losses in 1977–78.

The planned fall in current expenditure in 1977–78 is 1.6 per cent. If authorities follow past practice, they will make proportionately heavier cuts in their non-pay costs. In broad terms, the settlement may be expected to entail a reduction of about 1 per cent. of jobs in 1977–78. In practice such a reduction will not be achieved unless local authorities start straight away to review and adjust their manpower requirements, taking full advantage of the vacancies that occur from now on.

On this basis, I do not think that the reduction in 1977–78 need be greater than the 20,000 to 30,000 jobs I have mentioned. Local authorities plan ahead. They do not wait until each financial year arrives with its set of fresh problems. Authorities have known for some time the broad task they were likely to face in 1977–78. The settlement confirms that expected trend of expenditure and the need to continue with economies in staffing.

In national terms, I am confident that the job losses being sought can be achieved by natural wastage, which has been running at the rate of 5 per cent. a year.

Mr. Raison

The right hon. Gentleman persists in looking at this problem in terms of national averages. The trouble is that some counties will have to make very much bigger reductions than others. While the average picture may be as the Secretary of State describes it, it will be impossible for many counties to keep to the targets he mentions.

Mr. Shore

I admit that I have been speaking in averages. That is the problem when addressing oneself to the rate support grant. While it is true that some counties will be faced with greater expenditure problems than others, we must not hide the fact that they can meet those expenditures and maintain the level of services we wish them to maintain by raising their rates. If hon. Gentlemen on the Opposition Benches are saying that they do not value sufficiently the services in their areas, and are prepared to see not a careful slimming down but a drastic cut, that is their local judgment. But hon. Gentlemen should not expect me to agree with it and should not expect me to support it.

Mr. Michael Heseltine (Henley)

Will the Secretary of State explain whether he agrees with the Chancellor of the Exchequer that taxes are now too high? How does the right hon. Gentleman equate that conviction with the view now that local taxes should be increased as dramatically as he has suggested?

Mr. Shore

I do not think my right hon. Gentleman made such a sweeping statement as the hon. Member for Henley implies. My right hon. Friend has frequently said that in his view income tax is high, but my right hon. Friend has not made what I would consider to be an uncharacteristically rash statement about taxation in general. The Chancellor has specifically set the effects of income tax and their rates against a background of inflation. I think that we should leave it at that.

Sir John Hall

Does the Secretary of State not agree that one of the problems which faces the county authorities is that the statement about the average rise of 15 per cent. has been publicised fairly widely? Most ratepayers were expecting to pay no more than an additional 15 per cent. Those counties will now be in the position of having to raise far more if they are to maintain their services. They will meet considerable criticism from the ratepayers who will expect the county to remain within the average set by the Secretary of State himself.

Mr. Shore

That is one of the problems, and that was why I hesitated before producing any average figure at all. I do not wish to be misunderstood. The figure was meant as an average. Quoting 15 per cent. as an average means that some are bound to pay above the average and others below it. I willingly repeat that and make it plain to the House tonight.

We all know that rates of wastage will vary from area to area and from service to service. I am getting a little closer to a local and away from the national picture. I have always acknowledged that in a particular area today, as indeed in the past, there may have to be some redundancies, but they should be the exception rather than the rule, and should be minimised if employers take up the opportunities to reduce staffing levels by natural wastage as I have described.

When we last debated local government matters on 26th November the hon. Member for Henley indicated his opposition to the rate support grant settlement, claiming that the public would not be satisfied that the Government had acted with the firmness required. I am not clear what the hon. Member does want. He wants more resources to the inner cities, but will not say where these should come from. He objects to the relative reduction in grant to some of the shire areas because of the adverse effects this may have on ratepayers in these areas, but goes on to suggest that our overall settlement was not firm enough—by which I presume he means not harsh enough. Yet if we acted on the hon. Member's advice we should have a situation where the big cities were not helped through the needs element to keep down their rates, and where the rates in shire areas rose even more.

If we reduced the rate support grant, what else could happen but that people in all areas would have to suffer wholly unjustified cuts in the basic reduction in services in order to satisfy what I increasingly suspect is the atavistic design of the Opposition.

I believe that the settlement that we have made is right. I do not wish to underestimate the task that we have set local authorities in 1977–78. In setting the task the Government are adhering to their published plans for local authority expenditure. I hope that the spirit of co-operation and support that has been evident from responsible local authorities this year will continue into 1977–78. I commend the orders to the House.