HC Deb 22 November 1977 vol 939 cc1484-94

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

11.1 p.m.

Mr. Geoffrey Johnson Smith (East Grinstead)

I speak tonight on behalf of my colleagues in West Sussex who are profoundly dissatisfied with the manner in which the rate support grant works and is applied to that area. One has only to look around the Chamber to see that that dissatisfaction is not confined to West Sussex. I am grateful for the opportunity of raising this matter on the Adjournment, and to the Minister for being here. I look forward to his remarks.

Our dissatisfaction is not related merely to the reduction of the percentage of the rate support grant—we understand the problems of the Government in this respect—nor is it entirely related to the switch of grant to the inner cities.

West Sussex is not, as some Labour Members believe, as lush a pasture as many claim. There is little industry to help share the burden of domestic ratepayers compared with many big cities and inner conurbations. The gross average earnings in West Sussex in 1976 were below the national average for England and Wales, well below those of Merseyside, and far, far below those of Greater London. I have the statistics here from the New Earnings Survey, but I will not read them out now.

We suffer from the disadvantage of not having people with the wherewithal to pay high rates, and in addition we have a much higher percentage of elderly people than most other areas, many of whom live to a great age. Also, housing costs are much higher in our part of the world. On top of that, those at the top end of the scale pay heavy charges in commuting, and our cost of living is higher.

The Minister has tried to limit the loss of the needs grant to any one authority in any one year to no more than a 2p rate. As far as I can see, it is not working out in the way intended. In West Sussex we have lost a needs grant of more than 2p in the pound—we reckon it is more like 3p.

In the financial year 1977–78 West Sussex received £33 million. Next year it will be £32 million. That is a loss of £1 million and it does not seem much in our straitened circumstances. But the Secretary of State has increased the needs grant overall by 7 per cent. to cover the increase in pay and prices beyond the control of local authorities. If we apply this 7 per cent. to West Sussex on the basis of what we got this financial year and compare it with what the Secretary of State told us we shall get next year, we find it represents a loss of £3 million in real terms. That is equivalent to a loss of over 3p in the pound.

We are not the only local authority affected. I was surprised to find that many big towns in England and Wales also would be grievously affected. The approximate loss in real terms of the needs grant in Wigan and Sheffield will be 6.5 per cent., in Sunderland, 6 per cent., in South Tyneside, 4 per cent., and in Liverpool—which certainly has its problems—2 per cent. Birmingham, which has massive social and housing problems, is at a standstill.

Therefore, other hon. Members will be coming to the House late at night to plague Ministers with pleas similar to those that I am making tonight. They will be asking the Government to reexamine the situation.

In West Sussex the loss in real terms will be about 10 per cent., and since a part of my constituency is in East Sussex, I should say that the loss to East Sussex, in 1978–79 will be about 5 per cent. Therefore, that area has its problems, too.

Why is this happening? I think that the system is going wrong for two main reasons. First, London is getting too much in the way of grant. Compared with last year, London will get 20 per cent. more needs grant in real terms.

Mr. Victor Goodhew (St. Albans)


Mr. Johnson Smith

It is ridiculous, as my hon. Friend rightly says. The London pudding has been over-egged. A political deal has been done somewhere.

The second reason why the formula is not working, and the reason why we in West Sussex are so dissatisfied, stems from the formula on which grant is based. I recently went with a deputation from West Sussex to see the Minister, and the view was strongly expressed to the Department that the formula is incomprehensible to the layman. It seems to me to be illogical, and I have no doubt that it is considered unreasonable by most experts in local finance. It is totally discredited by the Association of County Councils. The formula reputedly assesses the needs of councils. It uses past expenditure as a basis for the present approximation of needs. Up to the present this has meant that authorities which have spent more have received more. That surely is a prescription which penalises those local authorities which have responded to the needs of the Government to restrain the growth of expenditure, and it provides little incentive to future efficiency.

The formula appears to be arbitrary, theoretical, and lacking in objectivity. This year, operating on Formula 33—which sounds more like a hair lotion than anything else—the system does not take account of extra cost in areas where there is a growing population.

Mr. Peter Hordern (Horsham and Crawley)

Does my hon. Friend appreciate that our part of West Sussex is increasing in population very rapidly indeed, but that the Government have made a special provision to allow 800 houses to be built in Crawley, in my constituency, and that people are coming down from London to live in those houses? Does he not feel that the rate support grant has therefore been twisted, since London is now receiving more in rate support grant whereas we in West Sussex are having to cope with special problems but are suffering the lowest rate support grant in the country?

Mr. John Smith

I agree with my hon. Friend. It only serves to emphasise what I said earlier. Formula 33 does not take into account the education of those over the age of 16, nor the special needs of large elderly populations, as is the case in West Sussex. Formula 33 is superseded by Formula 9, whatever that means, but what we find is that it distributes more for single-parent families and people living in houses lacking basic amenities than it does for the whole of the education budget in West Sussex. And this applies not only to West Sussex. Over half the local authority expenditure goes on education. Next in priority of expenditure is the matter of law and order, involving the police; and then there are the firemen. It is little wonder we have problems over the police and firemen. Goodness knows how our authorities will meet some of the bills that are bound to be presented in the future. If something is not done about the situation there will be total chaos.

Mr. Michael Marshall (Arundel)

Does my hon. Friend agree that the current formula means that we are virtually encouraged to go out from West Sussex and recruit single-parent families and put them on top of our local authority housing lists? Is not that the way in which we are encouraged to tackle the present RSG formula?

Mr. Johnson Smith

One has great sympathy for one-parent families and those with social problems, but just as the Government have over-egged the pudding on the grant for London so they have over-weighted the needs element in the formula for those particular groups. That puts such councils as West Sussex in a serious position and jeopardises the structure of many of its important services.

In short, the formula bears little relation to what is regarded by the local authorities themselves as their most pressing needs and the things that they have to spend most of their money on if they are to discharge the statutory obligations laid down on them by the Government.

The Secretary of State told the consultative council last week: Of course, some authorities will receive more grant than others, but they should recognise this additional grant is paid because of greater needs, not simply to hold the rates down". The Secretary of State had earlier said that the 1978–79 supplement provides sufficient resources to ensure that overall authorities need not make further cuts in spending programmes The Treasurer of West Sussex County Council wrote to me saying: If authorities gaining grant are expected to increase their expenditure it follows that authorities losing grant must cut their services if public expenditure is to be contained within the Government's target of nil growth". When we came to see the Minister in the summer we said that we were at a loss to see how needs in West Sussex had fallen during the past financial year. It must be even more of a mystery for next year, because even if we applied the 7 per cent. grant we should be seriously out of pocket.

We know that the Minister has taken a great deal of care over this problem and has received our representations most courteously. We hope that in the short time remaining for this debate he will clarify this mystery, or, if he cannot do that, promise to ask the Secretary of State to look at the problem again.

11.13 p.m.

Mr. Richard Luce (Shoreham)

I should like, briefly, to reinforce the powerful case that has been put by my hon. Friend the Member for East Grinstead (Mr. Johnson Smith) on behalf of West Sussex and, indeed, Hertfordshire.

There are several points that I should like to stress. The assumption that the Government seem to have made with regard to the rate support grant, that counties such as West Sussex are ones in which all the inhabitants are rich, is wrong. It is based on a complete illusion. There are many elderly people living in Sussex who are on supplementary benefit and who are extremely badly off. Industrial average earnings there are lower than the national average, and that is an important point.

I want also to reinforce a point that was made by my hon. Friend about the formula. It is extraordinary, when in certain parts of the country elderly people constitute twice the national average, that this formula cannot take into account the great burdens that that imposes on such counties.

I hope that the Minister will correct me if I am wrong, but I understand that taking into account income given by the Government in the form of rate support grant to West Sussex, we receive 21 per cent. less than the average county in income from the Government. The domestic ratepayer pays 7 per cent. more than the average domestic ratepayer in other counties. That seems to be a gross injustice to West Sussex and I hope that the Minister will respond to the powerful case that has been made on behalf of ratepayers there.

11.15 p.m.

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

I am grateful to the hon. Member for East Grinstead (Mr. Johnson Smith) for the appraisal that he has given of the effects of the 1978–79 rate support grant settlement on West Sussex. I also listened with interest to what the hon. Member for Shoreham (Mr. Luce) had to say. I shall also want to refer later to the intervention made by the hon. Member for Horsham and Crawley (Mr. Hordern).

In the relatively short time available to me, I can deal only with the major points that the hon. Gentleman raised, but this will not be the only opportunity to discuss the effect of the 1978–79 settlement on West Sussex. We shall have a full debate on the whole settlement before Christmas, when the Statutory Instruments that bring it into force are put to the House for approval.

The hon. Gentleman made some kind remarks about the reception that I gave the well-attended deputation from West Sussex. I should be ready to meet hon. Members and local authority representatives early in the new year if they wish. The hon. Gentleman illustrated in his speech that the RSG arrangements are extremely complex, and we should be able to deal more fully with the many technical issues at such a meeting.

Mr. Goodhew

Is the hon. Gentleman aware that Hertfordshire Members asked to see him, the Secretary of State, or anyone else who was prepared to talk to us, about the effect of the RSG changes on our county and that we were denied a meeting before the settlement was announced last week? What opportunity is there for us to influence the Government if decisions are made before we have talked to Ministers?

Mr. Barnett

I am not sure when that meeting was requested, but it is probable that the advanced date was impossible for us, if the hon. Gentlemen wanted to discuss the 1978–79 settlement, because the details had to be confidential then. It obviously makes sense to discuss a settlement when the figures have been made public and not immediately before they are announced.

We saw deputations from West Sussex and other authorities, so that the points raised by councils that were badly hit by the 1977–78 settlement could be taken into account when we discuss next year's. settlement. The safety-net was one of the improvements that we made after listening to deputations.

It is not an idle compliment for me to say that, in presenting its case, West Sussex dealt very well with the complexities of the RSG—probably as well as any county in the country. The hon. Gentleman's speech reflected that fact, and these meetings and debates are valuable in the continuing operation.

It has been made clear to us by the county that it was one of several authorities on whom the 1977–78 settlement bore heavily. The hon. Gentleman's-speech also reflected this. I have no doubt that the combination of a reduction and a redistribution of the RSG in 1977–78 put pressures on both rates and the provision of services in the county. I wish to underline that there is no question of our picking on West Sussex. A number of other authorities were faced with the same sorts of problems, as I have good reason to know, since many of them came to see me.

In reaching decisions for 1978–79, we were conscious of the need for stability in authorities' grant entitlements in the coming year. That was put to us repeatedly. This is what we have set out to achieve. The hon. Gentleman might have mentioned that we have maintained the level of the grant at 61 per cent, and introduced two arrangements for limiting year-on-year changes in grant entitlements.

The first arrangement, which the hon. Gentleman has mentioned and to which I have just referred, is the 2p "safety-net". That is an innovation in the 1978–79 settlement. West Sussex, as the hon. Gentleman acknowledged, is one of the 12 authorities to benefit from that provision.

The second arrangement is four year damping. That is secured by combining the 1978–79 needs assessment formula with those for 1977–78, 1976–77, 1976–75. The longer the period of damping, the greater the year-on-year stability in grant entitlements. For 1977–78, damping was spread over three years only.

The effect of these provisions will be to limit grant losses as a result of the replacement of the 1977–78 RSG distribution arrangements by the 1978–79 RSG distribution arrangements to the equivalent of a 2p rate. In 1977–78 some authorities were losing up to the equivalent of a 6p rate as a result of the change in the distribution arrangements.

The effect of the combination of the 61 per cent. grant and the limitations of the redistribution will be to protect all authorities from the sort of dilemma they had to face in 1977–78 between sharp rate increases or cut-backs in their services.

I do not pretend that West Sussex will not lose out at all in 1978–79.

But the county has relatively low rate poundages—4p. lower than the national average—and no doubt careful consideration will be given by the county to whether this gap can be narrowed further before any cuts in the level of service provision are put in hand. West Sussex, and other similar counties, will be less favourably placed as a result of the recent settlement than many other authorities, particularly urban authorities.

The Government remain convinced of the continued need to concentrate resources in those areas of this country with the most pressing social and economic needs.

On the evidence used in our needs assessment, West Sussex is far more fortunately placed than most other authorities, and in particular those with inner city problems. I compare West Sussex with its neighbour Hampshire. West Sussex has a lower incidence of poor quality housing, overcrowded housing, unemployment, lone parent families, primary school pupils, shared households, and so forth.

Given that we are keeping the level of RSG, in real terms, fixed in 1978–79, any redistribution of the grant to harder pressed authorities necessarily means a smaller share of the cake for the more fortunately placed authorities. This is inevitable.

I am sure that the hon. Gentleman would agree with our efforts to control the total of RSG going to authorities.

What we are doing at the same time, as I mentioned earlier, is limiting year-on-year changes in grant to individual authorities as a result of the redistribution.

When the final figures for 1977–78 are known, the needs element entitlement for West Sussex will probably have declined by about £4 million in cash terms, or 11 per cent., by comparison with the previous year. In 1978–79, the equivalent decline is likely to be under £1 million in cash terms, or 3 per cent. That is a considerably different figure from the £10 million losses the county was fearing earlier in the year.

It might be useful if I explain how West Sussex will fare in 1978–79 in more detail. It loses about £2 million as a result of the use of the new 1978–79 needs assessment formula. It loses a further £250,000 as a result of the decision on the London resources adjustment, and a further £250,000 as a result of data changes. Because in total these losses add up to slightly more than the equivalent of a 2p rate, West Sussex qualifies for a safety-net payment of about £300,000. This would leave the county with about £2¼ million less in constant-price terms than it would have got if the same grant arrangements had been used as in 1977–78. But because of inflation, the 1978–79 needs element is bigger than for 1977–78 in cash terms. As a result, West Sussex's cash loss is less, at about £900,000.

I am afraid that this may seem a complicated description, and I hope that when the hon. Member studies theOfficial Report tomorrow it will be a little clearer to him. Perhaps if we could meet later we could discuss the matter in more detail.

The hon. Member made a number of criticisms about the present system of needs assessment—regression analysis. This has been criticised by the counties and does not receive the wholehearted support of the Association of County Councils.

These criticisms have been put to my officials by West Sussex in the course of written exchanges between us. I admit that the regression analysis technique is not perfect. We are looking at alternative methods of needs assessment and if we find a better method we shall use it. I have made this point to each deputation that I have met.

There are two points that I should make. First, we feel that an assessment of authorities' spending needs is essential. Without it, there would be no basis at all for reflecting changing expenditure requirements and pressures on authorities.

Secondly, of all the methods currently available, regression analysis appears to be the most solidly based. It is founded on an objective analysis of authorities' spending problems; it is of general application; and it limits the areas on which judgments are required.

The hon. Member for Horsham and Crawley mentioned the more favourable treatment being given to London in the 1978–79 settlement. As my right hon. Friend said when he announced the Government's 1978–79 proposals to the local authority associations, the settlement implies the same increase in average London domestic rate bills as elsewhere. It does not imply any closing of the average gap between rate bills in London and outside London—which is presently over £50—but nor does it imply any widening of this gap.

Hon. Members may note that the rate bill for a domestic ratepayer living in a three-bedroomed Parker-Morris house in East Grinstead will be under £100 per annum. His brother-in-law, living in an identical house in my constituency, will pay more than £150 a year. In the present economic circumstances, we thought it quite wrong for the gap between the rate bills of the London domestic ratepayer and his counterpart elsewhere to widen any further, and that is the reason for what we have done.

I hope that the honourable Member for East Grinstead will agree with me that this has been a useful exchange of views on a very important issue. I hope that I have been able to deal with some of the points raised by him.

The population issue was raised again, this time by the hon. Member for Crawley and Horsham, and I understand why. We have studied again and again the question whether population increase has a significant effect on the spending need per head. This point is repeatedly raised with me by the East Anglian authorities, which have probably had a far greater rise in population than West Sussex.

No doubt the hon. Gentleman will want to return to the fray in the debate that will take place before Christmas, but if, in addition, he wants to meet me when I meet his hon. Friends to discuss these points in more detail I shall be very glad to make the necessary arrangements.

Mr. Johnson-Smith

I am obliged to the Minister and I thank him for what he said. We cannot go along with all he said, but we will take him up on his kind invitation to meet him again.

Question put and agreed to.

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