RATE SUPPORT GRANT

HC Deb 11 February 1977 vol 925 cc1930-40

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Graham.]

4.2 p.m.

Mr. Michael Grylls (Surrey, North-West)

It may be asked why we are discussing the rate support grant so soon after Parliament discussed the total settlement on 22nd December last year. I am here today to make a last ditch attempt to persuade the Government to change their mind about the savage and selective way in which the people of Surrey believe that they have been robbed this year, for the fourth year running, by an unprecedented cut in Surrey's rate support grant.

This is not the occasion—because we have not much time—to mince words. Ratepayers in Surrey are extremely angry with the Government and their anger is rightly directed at the Secretary of State for the Environment. My right hon. Friend the Member for Spelthorne (Mr. Atkins) wants to be associated with me in this. Of course we recognise that the distribution formula for the rate support grant is something that has been used over a long time, but at the end of the day the responsibility lies with the Secretary of State to make the final judgment. It is his responsibility and his decision.

We are right in saying that the block formula is the responsibility of the Secretary of State in the final allocation after all the formulae have been worked out. Let us look at the decision about which we are complaining so strongly. Our rate support grant for 1977–78 is minus 12 per cent. Other counties have had a 0.8 per cent. increase, London a 7 per cent. increase and other large cities a 9 per cent. increase.

There has therefore been a violent switch from Surrey to the great cities and I am bound to say—and the Minister will appreciate this—that the people of Surrey believe that there appears to have been a deliberately political switch of grant from the Conservative-controlled authorities to city authorities now mostly Socialist-controlled. That is not the way in which to run local government finance.

Our loss in Surrey, due to the redistribution formula of the needs element, is £8 million. On top of that we have lost £3 million from the national rate support grant settlement. There has been another switch of a further £3 million in the change of the resources element and I would have thought that the Minister would apreciate that. In the current year Surrey faces a total loss of £14 million, and that is severe.

We all recognise that there is a crying need to cut public expenditure. Both sides of the House are agreed on that. In common with all parties we have tried our best. In the difficult financial situation throughout the country we deplore the severity with which Surrey has been apparently selectively treated. That is part of the case.

The other part of the case is equally important. It is the cumulative effect of the cuts over the past four years. In the financial year 1973–74 Surrey enjoyed 1.89 per cent. of the total rate support grant. In the current financial year 1977–78 that has dropped to 1.17 per cent—that is a drop of nearly one-third and in terms of money it is a masive £26.73 million. That is something that will be with us for ever and that will continue.

We have been especially hard hit this year on top of what happened last year. An important part of our case is the violence of the change at a time of high inflation. We recognise the need to cut expenditure, but Surrey has cut its own expenditure hard over the past two years by £9.5 million and has made no mean effort. I am sure that the Minister will pay tribute to that. In the past year we cut capital spending from £14 million to £5 million and in the current year it is being cut from £18 million to £5 million. That is hard, but we have done it in the national interest, and I am sure that we were right to do so.

But this has meant some severe cuts in local services. It has meant no more old people's homes, which we badly need, no more capital expenditure in the social services department. These have been painful and difficult decisions for county councillors in Surrey. I applaud the way in which they have taken them and the loyal support that the staff have given. After all, staff numbers have been cut by 1,900 compared with 1975.

What effect has all this had on the rates levied each year? After two increases of 34 per cent. and an increase of 20 per cent. this year, by squeezing everything and raiding all the balances, the county council is managing to keep the increase down to 17.9 per cent.—but that is still an increase of nearly 20 per cent. We are entitled to say that the ratepayers of Surrey have suffered exceptionally. The Department of the Environment is not entitled to believe, as it apparently does, that Surrey is a rich county. My hon. Friend the Member for Dorking (Sir G. Sinclair) knows this from his own experience.

Sir George Sinclair (Dorking)

I am sorry to have been late for the start of this debate. Would my hon. Friend accept that what rankles with the ratepayers in Surrey is that they believe that the incidence of these cuts by central Government and the savings that they have had to make are unfairly distributed on their backs, that they have had to put up with huge increases in rates while suffering a bad cut in services, especially in such things as school transport subsidies? In the end, it is the unfairness that gets under their skins when such big sacrifices have been made to bring down the rates.

Mr. Grylls

My hon. Friend is absolutely right. Part of our case is that the average level of take-home pay in Surrey is no different from the average throughout the country. The differences in the country are much less than they used to be. Along with this trend goes a very high rate of inflation. The Minister is a member of a Government who told us a couple of years ago that inflation was down to 8.4 per cent.; we know that it is now three times that level.

At the same time as these cuts in the rate support grant there has been a virtual standstill in income. Those earning less than £8,000 have had modest increases. Those earning more than £8,000, which is not an exceptional income nowadays, have had no increase at all. Where will those people find the extra money for the rates and for the high and rising commuter fares?

People in Surrey are becoming progressively alarmed about how they will pay these rates. I have heard it said at meetings that there should be a rates strike. I deplore and am not in favour of that, but I am reporting what people are saying. It shows the real strength of their feeling on this matter.

We understand that redistribution must take place. The big cities have problems, and county areas understand them. However, we protest strongly at the violence of the shift and the fact that no safety net—no maximum loss in any one year—has been created by the Government.

Some of us from Surrey went to see the former Minister for Planning and Local Government, the present Minister of Agriculture, Fisheries and Food, on 1st April 1976—possibly a significant date. The right hon. Gentleman told us that he had not liked the violent shift effect that it ensured this year. That was last year. Therefore, he was sympathetic, and we went away thinking that there would be another shift, but that it would not be so violent.

What have we found? We have had another even more violent shift away from Surrey this year. There is a genuine case for a safety net—a maximum loss of perhaps 5 per cent. either way—for the counties most adversely affected. That would prevent a severe disruption in a few of the counties concerned and need not significantly disturb the achievement of the Government's objective. A safety net among a few counties would have, if anything, only a small disruptive effect on the Government's overall objective.

We do not necessarily quibble with the redistribution element. It is no part of my brief to do that. However, it underlines the validity of the clear promise of the Conservative Party to abolish domestic rating when it gets back into power. All the unfairnesses have been underlined.

On the resources element, Surrey has lost £3 million this year. The resources element is distributed on the slightly incredible assumption that the rateable value per head of population rather than the income of the occupants of a house is not a fair way of judging ability to pay. Many would say that the rateable value is not a fair way of jurging ability to pay. How does it affect pensioners and others living on small retirement incomes? They are finding their resources stretched to such an extent that they have an almost complete inability to pay.

Surrey has been adversely affected. I hope that this point has got home during the debate. I ask for two things today. The first is an urgent and immediate review of this year's rate support grant settlement for the county of Surrey. That is my first clear message. Secondly, a pledge from the Government to provide a safety net for the maximum loss in any one year is an important part of our case.

It is unusual to have a debate on the rate support grant on the motion for the Adjournment. If the Minister can give that message to the people of Surrey, I believe that they will be right to say to the Government that they have been fairly treated. We shall listen with great anticipation to what the Minister will say and with hope swelling in our breasts.

4.15 p.m.

The Under-Secretary of State for the Environment (Mr. Guy Barnett)

I am glad that the hon. Member for Surrey, North-West (Mr. Grylls) has given us the opportunity of discussing the rate support grant particularly, as it affects his own county. The hon. Gentleman has explained fully and forcibly why his constituents feel aggrieved about the impact of the Government's decision on rate support grant on Surrey. I cannot satisfy the hon. Gentleman on the things that he asked for. But I hope that I shall at least be able to explain why the Government have taken the decisions that they have taken, and not for some of the reasons that the hon. Gentleman suspects.

Rate support grant is a complex subject and the reasons why there are variations year on year in the share of grant which local authorities receive are not always clearly understood. They are certainly not straightforward.

The House debated and approved the 1977–78 Rate Support Grant Order on 22nd December. Perhaps I can answer the hon. Gentleman straightaway when he asks for concessions. Now that the order has been approved by the House this is quite impossible.

I think it would be helpful if I briefly review the main points about the grant. The rate support grant is a block grant paid as revenue support to local authorities. This year the grant, including specific and supplementary grant, represents 61 per cent. of total local authority relevant expenditure in England and Wales. Last year it was 65½ per cent., but a rate of grant at 61 per cent. is not out of line with the recent levels of grant—57½ per cent. in 1971–72, 58 per cent. in 1972–73, 60 per cent. in 1973–74. In the next three years the figures were higher—65 per cent., 66½ per cent., 65½ per cent.—but that was necessary to deal with problems arising from reorganisation, and high rates of inflation which have now been markedly reduced. Relevant expenditure is broadly current expenditure by local authorites together with the cost of financing capital expenditure.

The rate support grant consists of three elements—the needs element, the resources element and the domestic element. In this debate I think we are very largely concerned with the needs element. The main Rate Support Grant Order provides for some £3,700 million to be paid as needs element out of a total rate support grant of just over £6,000 million. The variations in grant received by local authorities are obviously affected to a large extent by the criteria used to distribute the needs element. It is paid to the shire counties and the Metropolitan districts.

There is no doubt that the 1977–78 rate support grant settlement is a tough one for local authorities. The Government are determined to keep to their public expenditure plans and local authority expenditure is an important component of public expenditure.

We are asking local authorities to reduce their expenditure by 1.6 per cent. in aggregate in real terms from the estimate made in the autumn of 1976 of what they were to be spending in 1976–77. Such a level of expenditure in 1977–78, taking account of the rate of grant, the expected impact of inflation on local authorities, and the level of balances available implies a national average increase in domestic rates of no more than 15 per cent. The Government have made it clear that there would be variations around that average, depending amongst other things, on the distribution pattern of grant.

It is widely accepted on both sides of the House that the distribution of grant should take account of the spending needs of the harder pressed authorities. The hon. Gentleman suggested that might have been done on the basis of political considerations. I deny that. There are examples of authorities which do not have Members of Parliament who support the Government which have done reasonably well out of this settlement. It is a simple fact that there is a wide variation in the social problems faced by local authorities and it is surely right that any Government must recognise this. Therefore what the Government attempt to do is to measure individual local authorities' need to spend and to distribute the needs element of grant accordingly. The regression analysis formula, which is used as the basis for distributing the needs element of RSG, attempts to relate the spending needs of local authorities with measurable economic, social and demographic factors.

Many factors are tested to determine whether they are significant determinants of expenditure need, that is whether there is a correlation between variations in expenditure per head by authorities and the factors tested. The factors finally selected are set out in the rate support grant order. The formula indicates that the greater the incidence of school children, and of elderly people living alone, the more bad housing, and so on, the greater will be the assessed local authority spending need.

Other approaches to the assessment of needs have, of course, been suggested. The Layfield Committee recommended a unit cost method but this is not without its own problems. In our discussions with the local authority associations on the 1978–79 RSG settlement we are considering alternative methods of needs assessment, but at this stage I cannot give an indication of what method may be chosen. I should emphasise however that we do have extensive discussions with the associations on rate support grant and its distribution and we greatly value the associations' contribution.

On the distribution of grant this year there was a sharp difference of view between the associations. In essence the choice was straightforward. Should the needs element continue to be distributed on a basis which, in general aids those harder pressed authorities where social problems are more prevalent—predominently but not exclusively in the urban areas? Or should the distribution in the 1977–78 settlement be carried out with minimal change on the 1976–77 pattern? The Association of County Councils was strongly in favour of minimal change. But the Government decided that such a course implied the abandonment of the objective to aid the needs, often increasing needs, of those authorities having to tackle very difficult social problems.

Mr. Grylls

Will the Minister concentrate on the question of the safety net for the few counties most adversely affected? This would not affect the redistribution in the cities that he is rightly talking about.

Mr. Barnett

I should like to cover that point in a moment.

To conclude what I was saying, the Government decided that they could not agree with the ACC's proposals.

I realise that the hon. Gentleman was, rightly, primarily concerned with his own county. It is to that subject that I now turn. There is no disguising the fact that, as the hon. Gentleman has naturally stressed, Surrey has not come out well in the 1977–78 distribution arrangements. Indeed, as he has said, the county has consistently been a relative grant loser since the 1974–75 settlement. The basic reason for this is simple enough. The incidence of social and economic problems in Surrey is lower than practically anywhere else in the country. Since the needs element compensates for differences in expenditure needs, and since Surrey has a relatively low expenditure need, Surrey's share of grant will fall in 1977–78.

But I want also to put this in a historical perspective. The formula for distributing rate support grant was radically changed by the Conservative proposals introduced in the House in 1973. This was done because there was recognition that the distribution of rate support grant in previous years had simply not recognised the variation in the distribution of social problems and spending needs which local authorities had to meet. Our distribution proposals are built directly on those 1973 proposals, which were first used in the distribution of the 1974–75 rate support grant.

But I want to mention two points which to some degree help counties such as Surrey. First, the changes in distribution in 1977–78 will, as in 1976–77, be combined with the changes in the two previous years. This is the method some have described as "damping". It is not the safety net for which the hon. Gentleman asks, but it lessens the impact of the change based merely on the assessment of the needs element on the basis of factors as they are measured in a particular year. To lessen the impact of the change in grant, we take account not only of the changes which fall out from this year's regression analysis, but also of the changes in the two previous years. This has a marked effect in lessening the impact of the change in grant on grant-losing authorities such as Surrey.

Second, the hon. Member will know that for the first time we have introduced a labour cost differential factor into the regression analysis formula, after discussion with the local authority associations. The purpose of this factor is to compensate authorities such as Surrey which have higher than average labour costs.

Let me now give some figures which put the points I have made in perspective. In my answer to the hon. Member of 17th January I said that Surrey's percentage reduction in receipt of the needs element would be 12 per cent. in 1977–78 as against this financial year. This is a provisional figure because, with the agreement of the associations, the data on which the expenditure need analysis is based are up-dated during the grant year. There will therefore tend to be some minor changes in the final amount of needs element received by authorities.

In 1976–77, in terms of the change in share of needs element in 1975–76, Surrey was the heaviest loser of needs element. For this coming financial year, on the provisional figures, it looks as if Surrey will be by no means the largest loser in these terms. I admit, of course, that this will be small comfort to the hon. Member and the hon. Member for Dorking (Sir G. Sinclair). But it would be wrong to suggest that Surrey is the unique sufferer.

The average domestic rate payment in Surrey in 1976–77 is £155. This is above the national average of £101. But this figure should also be compared in the light of some of the things the hon. Gentleman said, with Surrey's London borough neighbours. For example, the average payment in Bromley is £166, Croydon £152, Hillingdon £156, Kingston £154, and Richmond £158.

We should also remember that what ratepayers pay is a reflection of the standards of service provided by the local authority. It is one of the aims of the RSG system to equalise rate poundages for a common level of service. In fact, Surrey enjoys a fairly high level of services, and its staff-pupil ratio is the highest in England and Wales, so one would expect its precept and rate pound- ages to be significantly above the national average.

I am conscious that as we begin negotiations for the 1978–79 distribution, one matter that will command our close attention again this year is the best means of limiting the effect of changes in an individual authority's share of grant. We shall be discussing with the local authority associations the various methods available for achieving this aim.

I hope that the hon. Member has found these remarks of some help. I am fully aware of the feeling that some authorities, not only shire counties, are being treated harshly over rate support grant. I have agreed to receive a number of deputations from authorites, who feel particularly hard hit, and who are asking for more favourable treatment in the 1978–79 settlement.

In view of what the hon. Gentleman said about the deputation to my right hon. Friend, I am not sure that he will be pleased with the offer, but if after this debate he would like to lead a deputation from Surrey, I shall be happy to receive it and, with my officials, to go in more detail into what I have been saying. I shall not be able to make any promises, but I am merely saying that the points that he and his delegation may raise could be brought into our discussions with the local authority associations. Therefore, if he would like further discussion of these issues, I shall be happy indeed to meet him.

Mr. Grylls

We shall want to take advantage of that offer. Will the hon. Gentlemen also examine the safety net factors, which is a worrying aspect? I shall be grateful if he could look into that matter before we see him.

Mr. Barnett

I am grateful for the notice given me on that subject, and we shall examine that suggestion. When the hon. Gentleman brings his deputation to see me and my officials, perhaps we can discuss that matter also.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Four o'clock.