RATE SUPPORT GRANT

HC Deb 16 January 1980 vol 976 cc1671-788 4.52 pm

The Secretary of State for the Environment (Mr. Michael Heseltine)

I beg to move, That the Rate Support Grant Order 1979, a copy of which was laid before this House on 28th November, be approved. I understand that with this we may discuss the two additional motions relating to rate support grant orders for England and Wales, namely, the Rate Support Grant (Increase) Order 1979 and the Rate Support Grant (Increase) (No. 2) Order 1979.

The rate support grant settlement is central to the Government's economic strategy. The House will know that these orders represent our main means of influencing local authorities' rating and spending decisions. They come at a critical time: local authorities now account for over one-quarter of all public expenditure, and this debate must be seen in the context of the reduction of public expenditure that is a central imperative of the present economic situation.

Since the war there has been a striking growth in local government's share of domestic expenditure. In 1956, local government direct spending in the United Kingdom was 7½ per cent. of all domestic expenditure. By 1978 it was 10½ per cent., although the previous Government had reduced that proportion from the high point of 13 per cent. which it reached in 1975.

In the absence of economic growth, I have no choice but to ask local authorities to continue the relative downward trend to which the previous Government subjected them. But if the relative trends have been downwards the absolute trends have not. However, within the absolute increases, that spending has been on consumption and not on capital projects. In 1956 about one-third was capital investment. In 1978, capital spending was less than one-fifth. Local government direct current spending in real terms more than doubled between 1956 and 1978, whereas its direct capital investment was only about one-third higher.

Nothing better illustrates the nature of our problem than the manpower figures. In 1956 local authorities in Great Britain employed 1.6 million people, including part-timers. By 1979 the figure was an astonishing 2.9 million, with almost continuous growth year by year except for 1974, when 90,000 employees were transferred with water and health functions.

So local government has mirrored the fundamental weakness of our economy—higher levels of public consumption of our resources with an increasing drift for those resources to go into current consumption at the expense of capital, and the whole programme rising at the expense of the wealth-creating sectors of the economy.

The growth of local government cannot be explained wholly by reference to new duties. Since 1945, local government has lost health, gas and water services. It has taken on consumer protection, and it has developed services such as education, housing, transport and personal social services. But this does not explain all the growth in expenditure and employment, which has followed consistent patterns of expansion over 30 years.

The problems of managing the public sector and controlling its internal capacity for generating its own growth are well known. The pressures of contemporary society only indirectly confront those who demand local services, with the bills that arrive as a consequence of their demands. The basis of local government finance actually encourages expenditure.

I believe that the first task is for each authority to establish exactly what each of its employees is engaged in doing. The second is to find out whether each of those tasks is necessary. The next is to control the recruitment to each authority under direct political control so that every time someone leaves or retires—and 125,000 people leave local government a year—there is no automatic assumption that his vacancy is filled.

Whilst, at large, local government is very close to the record number of people it has ever employed, it has been shown in authority after authority that profound effects can be achieved on numbers employed, and thus on rate levels, by administering tight control on recruitment.

The Government are playing their part by reducing the number of circulars they issue setting out detailed tasks for each authority and are also reviewing with local government the accumulated range of statutory duties they have imposed on it. But the downward trends cannot wait for any consequent legislation. In today's circumstances we cannot afford, and we have no choice but to reduce, local government expenditure and employment.

Some reductions could come through more efficiency. If any hon. Member on the Opposition Benches doubts the urgency of what I say, I need only remind him of the words of the former Chancellor of the Exchequer at a meeting of the Parliamentary Labour Party in February 1976, where he set out the common problem to which I have been referring. He said: The steady contraction in our manufacturing industry is the main reason for our disappointing performance since the war. The contraction must be reversed and halted. But we cannot reverse the trend if we plan to take more resources into the public sector. That was the former Chancellor of the Exchequer speaking to the PLP in February 1976, as reported in The Times the following day.

Against that background, this rate support grant settlement is crucial. It must be realistic in the level of expenditure it envisages, in the total of grant and its distribution, and in the provision that is made for inflation within the cash limit.

Last year my predecessor's proposals were manifestly unrealistic. He provided for increases in expenditure that we could not afford. Based on growth assumptions that did not materialise, he distributed grant without taking account of the needs of the rural areas, and he provided a cash limit based on assumptions of 5 per cent. increases in pay and 8½ per cent. increases in prices. I believe that the settlement I have announced provides a rational basis on which authorities can plan. It is based on a logical extension of our economic policies to date.

Immediately on taking office, I asked local authorities to freeze recruitment and to review their manpower. As a first step to getting expenditure back to the 1977–78 level, I asked them to spend 1½ per cent. less in the current year 1979–80 than they had spent in the previous year. I asked them also for a further 1 per cent. reduction in 1980–81.

The previous Government's expenditure plans—plans which the former Chief Secretary has already admitted were unachievable because the underlying growth in the economy was not there—were obviously an impossible basis on which to calculate.

In our present plans we have asked for a phased reduction of 2½ per cent. over two years. The possibility of achieving this 2½ per cent. reduction is best illustrated if the House remembers that the last Labour Government achieved this in half the time in 1976 without, to my knowledge, any redundancies arising as a consequence. With careful planning and the co-operation of local government, cuts of this level should not have any serious effect on services.

That is the background to the orders that we are debating today. I shall deal first with the increase orders, which relate to 1978–9 and 1979–80.

The first increase order, the Rate Support Grant (Increase) Order, tidies up the 1978–79 settlement, covering additional grant payable in respect of pay and price changes between November 1978 and March 1979. It provides for £31 million for rate support grant and £0.8 million for transport supplementary grant to be paid, reflecting the revised cash limits.

For 1979–80, as I have said, a cash limit was based on the 5per cent. pay policy. We were thus left with a totally unrealistic situation. Our reaction, as my right hon. and learned Friend the Chancellor of the Exchequer said in his Budget Statement, was that we were prepared to take account of wage settlements incalculating the increase orders but would make an across-the-board reduction to reflect what the country could afford.

We have taken a view on how much it is reasonable for the taxpayer to contribute and the need for improvements in efficiency and productivity identified in the Clegg report, and we have therefore made a reduction of £310 million. This means cash limits adjusted for pay settlements and the variable items standing at £493 million for rate support grant, £30 million for transport supplementary grant and £0.4 million for national parks supplementary grant. The second increase order, the Rate Support Grant (Increase) (No. 2) Order, provides for this grant to be paid.

We must contribute towards additional costs in 1979–80 which have arisen since the settlement and which may still arise. These include elements of the comparability awards for teachers, craftsmen and the administrative, professional, technical and clerical grades. In the interests of certainty for authorities, and prudent financial management, we announced in November a firm cash limit on the additional contribution which may be paid through the second 1979–80 increase order in November 1980. The figures we have set are £148 million for rate support grant and £2 million for transport supplementary grant There will be no further increase in national parks supplementary grant.

The main order is for 1980–81, the Rate Support Grant Order 1979. I am proposing a level of relevant expenditure of £15,737 million at November 1979 prices. This accords with our expenditure plans and the need for local authorities to reduce their expenditure to the 1977–78 level. The grant percentage is maintained at 61 per cent., as last year. This means that the Government are making an equitable contribution towards local authority expenditure.

The domestic element of rate support grant will be kept at 18½p in the pound for England and 36p in the pound for Wales. The division into needs and resources element will be kept at the ratio of 67½ per cent. to 32½ per cent.

The aggregate Exchequer grant will therefore be £9,600 million. After deduction of specific grants estimated at £1,250 million, transport supplementary grant at £350 million and national parks supplementary grant at £4.5 million, this leaves the sum of £7,996 million for distribution as rate support grant.

The cash limit for the 1980–81 increase orders will be an envelope figure which covers additional grant payable in respect of pay and price changes between now and March 1981. The limit on rate support grant will be £1,380 million, on transport supplementary grant £46 million and on national parks supplementary grant £0.7 million.

This cash limit is compatible with year-on-year new pay and price changes of 13 per cent. It includes in addition a carry-through of an allowance to cover the effects of outstanding com- parability awards which will be paid in 1980–81.

The House will know that, in addition to those figures, there are interest rate variable items, for which provision is made outside the cash limit.

Beyond what I have said, I have made clear to local authorities that the cash limit must hold and the Government will provide no more cash.

Local authority employers and the trade unions will need to negotiate to ensure that authorities can live within this cash limit, for excessive settlements will result in reductions in employment, in services, or in further burdens on the ratepayers. It is as simple as that. The impact on services and manpower of wage settlements will be the responsibility of those who negotiate and conclude them.

I have looked hard at the grant distribution arrangements. These have proved in recent years neither equitable nor sensible. Only a handful of people in my Department and in local government understand how they work. This is wrong, for the distribution of this massive sum—£8 billion this year—affects every local authority and ratepayer.

Grant entitlements have changed inexplicably from year to year, and rates go up in some areas but not in others. We need a better idea of what the grant system is trying to achieve and how it works. I shall outline what I think is wrong with the present machinery and how we shall improve it.

The objective of the distribution arrangements currently is simple and precise—to enable every local authority, if it so chooses, to provide a comparable standard of service for a similar rate in the pound. To achieve this, the system is designed to compensate authorities for unavoidable differences in what they need to spend on services and for differences in the rateable resources from which they have to raise the revenue.

The taxpayers' support is divided into various subdivisions, two of which seek to equalise the needs of each authority and the resources of each authority. Currently, the needs element is intended to compensate for differences in authorities' expenditure needs. The resources element is intended to compensate for differences in rateable resources.

This equalisation should leave all authorities with the same amount of expenditure per head of population—if they spend at the level of their assessed needs—to be met from the same rateable base. This objective is, in my view, correct and I have no plans to change it. It is the means which I believe to be wrong.

This year, clearly, we have not had time to legislate for changes and I have had to operate within the present arrangements. I have had two aims: first, to halt the unjustified drift of needs element from the shire counties which has taken place every year in the last six; second, to inject badly needed stability into the grant distribution after the upheavals, each and every year, under the previous Government.

We have achieved that objective. For the first time since 1974, the movement of grant from the shires has stopped and their overall share of the grant total has increased. They benefit by a real-terms increase in grant equivalent to the product of a 0.8p rate.

My settlement therefore benefits the shire counties, but the metropolitan authorities also increase their share in contrast to the decline that they saw in the last two years' settlements. The metropolitan authorities benefit by a real-terms increase in grant equivalent to a 0.7p rate, and their share of the total also will increase.

We achieved this by applying a standstill to the distribution and thus avoiding the uncertainties and inconsistencies of previous years.

One cause of many of the changes in distribution in recent years has been the use of the technique of multiple regression analysis to assess authorities' expenditure needs. This involves finding out which social and economic factors appear to match the pattern of what local authorities actually spent. It is in its essence a highly sophisticated system of probabilities in which factors are fed into a computer until it appears that the right balance of factors has been struck to reflect what was actually spent in aggregate by local authorities. In combination, the selected and weighted factors make up a general needs assessment formula, which can then be applied to each authority to produce its assessment of needs.

This exercise has been carried out afresh each year, using updated expenditure data. As the starting point is the assumption that, overall, expenditure is equal to need, it is not surprising that this has led to a steady flow of grant towards high-spending urban areas.

This year we have used exactly the same needs element formulae as last year. The creeping tendency of multiple regression analysis to reward high spenders with more, and lower spenders with less, has been halted as a consequence. We have, however, taken commonsense account of new and updated statistics on some factors where these are available—for example, population changes and numbers of schoolchildren. This has meant some minor changes.

I have provided for a safety net limiting authorities' needs element losses in real terms compared with 1979–80 to the equivalent of a 1p rate—the most generous safety net ever. However, so stable is the distribution that only four authorities outside London have needed protection.

For London, however, I was faced with a particular problem. The updating of last year's figures, especially labour costs, meant a loss of about £80 million. I decided that this was too high a burden for London ratepayers. I have reduced this effectively, by using the claw back mechanism, to £18.5 million—again, a 1p rate.

Mr. Kenneth Marks (Manchester, Gorton)

The right hon. Gentleman has referred to regression analysis. He contends that big spenders receive additional needs element grant because they have been high spenders. Will he give us an example? He knows that the AMA does not agree with him. Is it not a fact that larger authorities do better than smaller authorities?

Mr. Heseltine

I do not think that I need to give a specific example. If we base our assumptions on the fundamental principle that expenditure equals need, it must follow that the higher the expenditure, the greater the assumed need. The assumptions are guaranteed to deliver the consequences that I have been analysing, although I must refute the assumption that authorities that spend a great deal have greater needs than authorities that spend, in their judgment, less.

I shall continue with my remarks about London. I have made an adjustment to protect London from the logic of the figures that were chosen last year. However, even this loss should be seen against an increased share for London from 1974–75 to 1979–80 in the needs element of 26 per cent. London gained by 26 per cent., but over the same period the metropolitan authorities' share increased by only 6 per cent. and the shire counties' share declined by 10 per cent.

Within London, there have been only minimal changes in distribution, and my decisions have followed as closely as possible the recommendations of the Greater London Council and the London Boroughs Association. A separate safety net limits grant losses to individual boroughs within London to the equivalent of a 3p rate. The arrangements for distributing needs element to non-metropolitan districts are virtually the same as last year. This distribution is patently and outstandingly equitable by any standards, and particularly by the standards set in recent years, but where do we go from the present situation?

I intend to change the present grant machinery. It is, in my view, defective in two key respects. First, grant is distributed on an assessment methodology which assumes that actual expenditure equals need. I know that the analysis is more sophisticated than this, but in the end it rests upon that fundamental assumption. High spenders can receive more and more grant and low spenders receive less and less. There is no incentive to economy. The pressure is all the other way—namely, to increase expenditure.

The second defect is in the operation of the resources element. This operates by giving authorities grant on the basis of their deficiency in rateable value below a national standard multiplied by the rate in the pound that they actually set. In other words, the more an authority spends—and thus the higher its rates—the more grant it attracts. There are two results. First, the Government have an open-ended commitment to underwrite an authority's expenditure, no matter how extravagant its expenditure pattern might be. Secondly, within the grant available, a minority of high spending authorities, by levying high rates, can pre-empt for themselves an increasing share of the total, at the expense of the majority of more prudent authorities.

It is too little understood that the taxpayers' contribution to the finance of local government is finite. I have announced today the finite figures that will be contributed by the taxpayer in the foreseeable circumstances. I have announced this year's figures and I have limited the extra sums available to meet changes in pay and prices. Therefore, there can be no further call on the central Government. The only thing that is now at issue is which authority gets what proportion of a fixed finite pool. I cannot stand back—I do not believe hon. Members would want to stand back—and expect the majority of local councils, including Labour councils, to cut back in the climate of public expenditure retrenchment in which we now find ourselves if in so doing the only consequence of their economy is that other more profligate councils simply get more.

The majority of authorities are responsible and will respond to the Government's expenditure policies. They have done so, whatever their political complexion, by tradition. I have a responsibility to those authorities that comply with the Government's policy. I should protect them from the irresponsible minority to which they actually lose grant under the current arrangements. A grant system which rewards profligacy and penalises thrift is ludicrous.

Mr. David Alton (Liverpool, Edge Hill)

I agree with what the right hon. Gentleman is saying, but does he not accept that the nature of the rate support grant settlement that he is outlining will have precisely the same effect—namely, that authorities that have been thrifty will be penalised and those that have been profligate will have room in which to cut back because they will be fat within their expenditure within their budgets? The authorities that have been thrifty will have great difficulty in meeting their targets. They will end up sacking a great deal of staff. They will have to sack far more than the authorities that have been profligate during the past 12 months.

Mr. Heseltine

I believe that the transitional arrangements that I shall be announcing will take into account the factors to which the hon. Gentleman has drawn attention. I cannot change the system without legislation, and in the nature of the legislative process there is no time to change the process for this year's settlement. Therefore, I have no alternative but to use the present basis as best I can and to adopt the transitional arrangements, which I shall outline, as a stop-gap arrangement while we move to the new system that I have already announced.

I propose, therefore, to replace the current grant machinery. My proposals for a new block grant will be included in the Local Government Bill shortly to be laid before the House.

The basic concept of block grant is simple. It is designed, as is the present system, to enable local authorities to provide a comparable standard of service for a similar rate in the pound. However, instead of trying to achieve this through two separate elements of grant—needs and resources—it will do so directly through a single grant paid to each authority. The block grant will be sufficient to bridge the gap between expenditure and the product of a standard rate poundage on rateable resources.

However, this is not open-ended. Standard rate poundages will be determined based on the relationship between actual expenditure and an assessment of standard expenditure—that is, the expenditure which authorities with similar characteristics and circumstances would, on average, be likely to incur in providing a normal standard of services. Standard expenditure will, therefore, be a figure based on facts and not plucked out of the air. As actual expenditure increases above the level of standard expenditure, the standard rate poundage will also increase. That means that the Government will provide grant support at a constant rate for expenditure up to the level of assessed standard expenditure, as under the present system. But the more an authority spends above that level, the greater the proportion of that expenditure it must raise from its ratepayers and the smaller the contribution from grant diverted from other authorities with lower expenditure.

At the same time, I want to see developed—in full consultation with the local authority associations—a new system of assessing authorities' standard expenditure. The new method must be comprehensible, stable and equitable and it must be based on a commonsense look at the factors which affect expenditure. Analysis of actual expenditure patterns should be kept to a minimum. In practice, I envisage a significant threshold above the level of standard expenditure before grant support under the block grant system begins to taper off. No generalised method of assessing standard expenditure can take full account of each authority's circumstances. There has to be a threshold of safety above the standard level of expenditure. Those are the main principles of block grant.

Much remains to be settled in consultation with the local authority associations. In no way do I apologise for the fact that I have left much to be settled in consultation with the local authority associations. It seemed right to me that in introducing the new system, rather than laying down a central concept before consultation, I should have the most detailed consultation with the local authorities in order, as far as possible, to devise with them a system which we all agree to be reasonable and practical.

Mr. George Cunningham (Islington, South and Finsbury)

But the old formula was worked out in consultation with local authorities, too. The Secretary of State is criticising the old formula. We all know of its weaknesses, although I believe that one or two of the right hon. Gentleman's criticisms are not justified. The Secretary of State is saying that he will replace it with a new formula, of the content and nature of which he gives us no indication.

Mr. Heseltine

It is unfair to say that I have given no indication. I have given a broad indication of the sort of ways in which I wish the work to proceed. It is true that I have not tried—as a deliberate policy decision—to indicate how I believe the problems should be solved. If I had done so, the local authorities would have been entitled to turn round and say that I was imposing the system upon them rather than involving them in a genuine period of consultation. No. doubt, the House will want to come back to this subject and there is time, in the process of the legislative arrangements, to go through a detailed and genuine period of consultation, along the lines that I have outlined. We are trying to find better and more comprehensible ways of measuring the individual needs of authorities. That is a matter upon which there must be detailed and lengthy consultation.

The other principle that is equally clear and which I am introducing as a change—

Mr. George Cunningham

What is the first principle?

Mr. Heseltine

To seek other ways to move from the process that is currently settled by regression analysis.

Mr. Cunningham

Is that a change?

Mr. Heseltine

Of course it is. I have made the point to the hon. Gentleman.

The second point that I am pursuing as a matter of principle in introducing the block grant is that there has to be an ending of the automatic assumption that the more one spends, the more one gets. There has to be a system that recognises the need for an incentive to economise, a system which treats authorities fairly. Those authorities that economise—many Labour authorities have done so—know that the price of that economising is not simply that another less prudent authority pockets those economies.

Mr. Cunningham rose—

Mr. Heseltine

I have given way to the hon. Gentleman and I have made my point.

Mr. John Fraser (Norwood)

With regard to what the right hon. Gentleman calls the tapering provision, which I call a penalty clause, is it his intention that that should operate in the financial year 1980–81?

Mr. Heseltine

The new arrangements cannot be introduced in 1980–81. They can come into effect only in the year 1981–82. However, as I shall mention shortly, I believe that in the climate in which we now conduct our public expenditure programmes there is a need for transitional arrangements. Those arrangements will apply in the year to which the hon. Mem- ber for Norwood (Mr. Fraser) referred. I should have come to that matter in the course of my speech. The hon. Gentleman has anticipated what I wanted to say.

I have outlined the main priniciples of the block grant. As I say, much remains to be settled in consultation with the local authority associations. But, although the internal workings of any system which seeks to be fair to over 400 authorities is bound to be complicated, ingeneral block grant will be much easier for the wider public to understand. It is a single grant to bridge the gap between expenditure and resources. It will increase the accountability of local authorities to ratepayers. At present, the ratepayer has no means of judging whether the expenditure of his local authority is reasonable. Ratepayers will, in future, be able to make a rough comparison between the standard rate poundage and the poundage that they are asked to pay. If there is a significant difference, the ratepayer will want an explanation which an authority with soundly based expenditure plans should be happy to give. The new system will limit the extent to which a few high-spending authorities can take grant away from other authorities.

I should add—once again—that block grant will not force authorities to levy a particular rate or adopt particular expenditure plans. The amount that they decide to spend will be for them, but they will know that the further it is above the level of expenditure considered reasonable for local government as a whole, the lower the proportion of taxpayer's support they will receive and, consequently, the more they will have to account to their local ratepayers.

The legislative timetable will not permit block grant to be introduced until 1981–82. But, because of the need to tackle overspending now, my legislative proposals will contain provisions to amend the current RSG system, as a transitional step for the one year. Those provisions will allow adjustments to be made to authorities' grant entitlements at increase order stage next year, where there is evidence of serious and sustained overspending. Grant abatement will be made only to resources element entitlements, except in London, where adjustments will be made to the needs element of authorities that do not qualify for resources element.

I shall use these transitional arrangements only if high spending authorities set out to challenge the Government. In any event, I would expect only a small minority of overspending authorities to be affected.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

The words with which the Secretary of State has described his intentions, as is often the case, are unclear. It is important to get the matter absolutely clear. Today he has said that he will use the transitional arrangements only with authorities that set out to challenge the Government. Will he measure that challenge in rate poundage, or will it be his political judgment about what a challenge amounts to?

Mr. Heseltine

The right hon. Gentleman and I will have no difficulty in judging which authorities have set out to challenge the Government. However, there will be one difference between the right hon. Gentleman and myself. I shall encourage those authorities to reduce expenditure, whereas the right hon. Gentleman would have gone round the country actually encouraging authorities to stoke up their expenditure. I very much hope that no authorities took the advice of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and I hope that they will not suffer under the transitional arrangement and as a result have to go back to their ratepayers and explain that they made decisions on his wholly irresponsible advice.

Mr. Hattersley

I am grateful for the repetition of that point, which the Secretary of State has made on every occasion this year, but can he actually answer the question? Is a rate poundage to be attached to challenging the Government? Have local authorities any idea that can be quantified of what the right hon. Gentleman intends to do?

Mr. Heseltine

We have made it clear that we shall judge the position when rate levels have been set. We will judge that position in the light of the expenditure, intentions and decisions of individual local authorities. I wish to be sure that Opposition hon. Members understand what we are talking about. After all, they are responsible for advising their local councils and for the decisions of the House.

The House will be aware that the Government have asked local authorities to reduce expenditure by 1½ per cent. below that of last year, and by a further 1 per cent. next year. Labour Members go round advising authorities not to do it. Some authorities have already said that they have no intention of sticking to the targets, or of even trying to approach the targets established by the Government. There is a prima facie case for suggesting that those authorities have not made any attempt to economise or shown any interest in doing so. As a result, those authorities represented by the bulk of Labour Members will suffer. They will get less money in order to pay for the profligacies of the few.

I cannot turn to my right hon. and hon. Friends, nor to the local authorities that they represent, and genuinely expect them to economise and cut back if a handful of profligate authorities, urged on by the right Hon. Member for Spark-brook, are scooping the pool of consequences. That would be an abdication of responsibility, and I shall not do it.

I have sought to put the rate support grant settlement within the overall context of the Government's policy to pull back public expenditure and the crucial importance of local authority spending. The settlement is, therefore, of exceptional importance. We have put local authorities in a position whereby they can support the Government in the battle against inflation. Within the limits of the present system, I have made a fair settlement as regards the percentage of grant, the cash limit and distribution. I now ask local government to recognise—as many councils do—the critical challenge that we face of constraining public expenditure by scrutinising every programme and searching for every economy.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

I understand that, as the Secretary of State has said, it will be for the convenience of the House to take together the three motions in the Secretary of State's name.

5.33 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

Earlier in his speech, the Secretary of State said that one of the problems of the rate support grant was that only three or four people in his Department fully understood it. As a compliment to him, may I say that it is clear that the ranks were swollen on 3 May. The Secretary of State described the rate support grant with great clarity and in great detail. I am sure that the House found it an impressive exercise.

However, it was less impressive when the right hon. Gentleman attempted to describe the unitary grant that he proposes to introduce. Discussion of that proposal is best left until the long-awaited local government Bill is presented and until we have a clearer idea of how the Government intend to justify his prejudices. The Secretary of State persists in stating in all the speeches that he makes to parliamentary audiences that his proposals for the rate support grant, the supplementary orders for this year and the principal orders for next, will not result in anything other than marginal differences within local authorities that can be accommodated by good housekeeping and elementary prudence.

My hon. Friends will give the Secretary of State example after example of county and metropolitan area where his proposals result in real, damaging and dangerous reductions in services. He does his cause no good by pretending that the entire paraphernalia of public expenditure reduction can be accommodated by elementary prudence. Apparently he finds that prudence lacking not only in Labour-controlled local authorities but in many Conservative-controlled authorities, which find that the effect of his policies is not one of saving candle ends but of drastically reducing services.

The Secretary of State has an impressive and touching way of assuming that no one is prepared to argue with, or doubt, the validity of the basic policies upon which the Government's intentions and his intentions are based. He talks as if we have to accept the extraordinary economic condition that we find ourselves in and as if it were unavoidable. He talks as if the movement from slight growth to economic stagnation to literal decline were unavoidable. It is not unavoidable, but it is the direct result of the Government's economic policies. With the exception of the precipitate reduction in income tax, everything that the Government have done since 3 May has been done intentionally to deepen the slump and to decrease industrial activity.

There is not a sensible economic observer who does not believe that the deflation into which the Government have plunged the economy since May was a mistake. It is not even necessary within the terms of their own economic policy, nor is it sensible monetarism. If the Secretary of State has any doubts about that, I refer him to a speech made by the new economic adviser to the Government, Professor Terry Burns. He said: Secondly, monetarism does not say anything directly about public expenditure…Whilst appealing to market economists in general, the issue of Government spending is essentially a different argument and is not necessarily part of monetarism as it is now being practised. The Secretary of State should not present himself to us in the belief that we shall accept all the prejudices of Conservative policy and Conservative economics. The deflation of the economy is not to rational people a justification for imposing cuts on local authority spending that will be damaging, dangerous and in many ways unacceptable, not only to the Labour Party but to the people of Britain.

We certainly do not accept the second part of the right hon. Gentleman's argument concerning his relationship with local government. It goes deeper than that, because it fundamentally concerns the nature of local government. That is certainly the case as regards the unitary grant system. We should discuss that system when the local government Bill is presented. However, the so-called transitional arrangements that take us from rate support grant to unitary grant are fundamental to our discussions today. They apply during the life of today's order, and the Secretary of State could not have been more frank about his intention to influence local authorities to accept the pattern of rate support grant settlement that he chooses.

Therefore, even though it is not the law of the land and is not even presented to the House in a Bill but is simply in the mind and hope of the right hon. Gentlemen, we have today to discuss the transitional arrangement.

The intention of the transitional arrangement can be easily described. The Government intend to impose on local authorities a spending ceiling by use of powers that they do not at present possess. They will be included in a Bill which, although specified in the order, through the incompetence of the Government's business managers is not yet presented to the House of Commons. The Government propose a major reduction in the next financial year of the autonomous powers of democratically elected local authorities, which amounts to a constitutional change this year brought about by retrospective legislation.

The Minister for Local Government and Environmental Services (Mr. Tom King)

Rubbish.

Mr. Hattersley

I say to the Minister for Local Government and Environmental Services that, if we had the Bill of Rights that the Lord Chancellor and many other Conservative Members are pressing for, exactly the sort of measure that is being proposed would not be allowed because of the effect that it would have on local authority after local authority. If a Labour Government were to impose a penalty on local authorities, the Conservative Party, The Daily Telegraph, the Daily Express, the Daily Mail and The Sun would say that it was totalitarianism, and they would be right because of the effect on local councils.

I remind the right hon. Gentleman and his Minister of State what such a measure will do to local councils. Today, all over the country, councillors are deciding their rate poundage for next year in the light of the RSG about which they now know a good deal. They are deciding whether, in the light of funds that they receive from central Government, they want to increase their rate to supplement the reduction that they must suffer and protect the services in which they believe.

The right hon. Gentleman will not deny that many local councils have the choice between increased rates and reduced services. They have the right under law to increase rates to compensate for losses that they presently expect from the rate support grant settlement. If they exercise that right under the law, and if in March and April rates rise to compensate for those losses, although they have behaved in a wholly legal fashion they are opening themselves and their local authorities to penalties that will be passed, if the right hon. Gentleman has his way, appreciably after the decisions are taken. They make the rate now under one law, and the law is changed if the local government Bill is passed.

Mr. John Townend (Bridlington)

I speak as an ex-leader of a county council. Local authorities always have that problem. They never know exactly what the rate support grant increase order will be at the beginning of the year when they levy their rates.

Mr. Hattersley

It is forgivable for the hon. Gentleman not to follow what I have said, but I do not believe that he will be so easily forgiven for not following what the right hon. Gentleman said.

A large passage in the Secretary of State's speech was concerned with the changes that he is making for the transitional period. I assure the hon. Gentleman that the Vote Office is full of official papers describing what the transitional arrangement will be. The Secretary of State could not have been more clear in saying that, for the transitional arrangements to apply, the local government Bill has to be passed into law. If the hon. Gentleman can give me an example of when, as leader of a council, he had to measure his rates against a notional figure invented in Marsham Street, and when the rate did not conform to that notional figure, he had the grant withdrawn, we shall be able to say that nothing new has happened—because that is what will happen if the Bill passes into law.

Mr. Townend

The right hon. Gentleman misunderstood me. When councils make decisions to levy a rate, they have to make them when the full facts are not always known. Councils always have to gamble on the rate of inflation and on the question whether the rate support grant increase order will compensate the authority in full.

Mr. Hattersley

No one would disagree with that, but the fact that we are persistently trying to draw attention to is that a considerable new uncertainty has developed. If the hon. Gentleman were still leader of a council, he would find that actions that he took totally legally would be the subject of penalties if the Bill became law.

Mr. King

That is incorrect, and I shall explain it.

Mr. Hattersley

The Minister of State assures us that he will explain later this evening how that is incorrect, and we look forward to that with great anticipation.

The uncertainties are greater than those that I tried to describe to the right hon. Gentleman. It appeared initially that the Secretary of State had it in mind to penalise all authorities that went over his notional limit, but uncertainties have grown. He told us this afternoon—he has certainly said this with accelerating force in a series of documents—that there will be a margin of sin, passing through which a wide variety of authorities will be punished in various ways. He initially said that he would penalise those authorities wih a "large difference" between their notional rate and their actual rate. He went on to say that he would penalise those with a "substantial difference." His third definition was that he would penalise those with a "very substantial difference", and this afternoon he said that he would penalise those that flagrantly challenged the will of the Government.

In a letter sent out by his Department in the past week or so, the position was slightly changed again. The Department said that some authorities would have to spend more than the 119p,but because of their specific individual circumstances the Secretary of State might let them off. It also said that the Secretary of State hoped, believed, wished, that he would have to penalise only a handful of authorities.

In terms of simple constitutional justice, is it remotely right that such arbitrary powers should reside in the hands of the Secretary of State? He will say to one authority "You have broken the limit that I set down but I will let you off", to another "You have broken it, but not by enough for me to cut up rough with you" and to a third "It is not your rate poundage that I am complaining about but your attitude and decision to challenge the Government."

Challenging the Government is a matter not of public expenditure but of politics. The right hon. Gentleman should under- stand—and I hope that others will grow to understand—that this power has absolutely nothing to do with public expenditure. If, as his letter suggests, he intends to penalise only six or eight authorities, his savings are absolutely minimal. The right hon. Gentleman wants half a dozen scalps to take with him to the Conservative Party conference, and that is what the entire operation is about. It is throwing an uncertainty into the operation of local government which is wholly intolerable, and it has been done for partly political and partly personal reasons.

We shall fight the Bill and explain to ratepayers the standards with which the right hon. Gentleman discharges his stewardship. The Labour Party believes in local government autonomy and the right of elected councillors to make their own decisions for their areas: Local authorities are usually best placed to assess the needs of their localities and to know the priorities. That is why they are elected. They must enjoy the maximum freedom to use their discretion and not have to refer to civil servants for detailed approval of their policies and proposals".

Mr. J. F. Pawsey (Rugby)

How can the right hon. Gentleman reconcile his latter remark with the 1976 Education Act, where choice was directly removed from local authorities?

Mr. Hattersley

I thought that I might be asked that question. I do not reconcile it. Lord Butler does. His 1944 Education Act said that education was a national service, locally administered. His Second Reading speech made it absolutely clear that from that day onwards there would be a great deal more national description, of the secondary system in particular, than is the case with other services. I am sure that the right hon. Gentleman would like to go down in history in the manner of his illustrious predecessor, and will describe it in exactly those terms—a national service, locally administered, which is what it says in the Act.

Before I was interrupted I was reading—I hope touchingly—from the works of the Secretary of State. I was informing the House of his comments on local authority autonomy—about councillors being best placed to decide the interests of their areas and the importance of keeping civil servants out of the detailed working of local government. The right hon. Gentleman said that in a speech made in Banbury on 1 July 1978. I assure him that we still believe in that and that we would pursue the policy that he then accurately described, not least because of what the alternative does to local government.

If local authorities cease, in effect, to be housing authorities—and that is what will happen if yesterday's Housing Bill is passed—and if the unitary grant system is brought in—which is what will happen if the local government Bill is passed—one is bound to ask why men and women of talent, both Conservative and Labour, should want to spend their time administering the details of policy that is decided in Westminster. The drift away from local power and local autonomy to the centralised decisions of Marsham Street seems to be fundamentally bad for local democracy and local community.

To the Opposition these powers are wrong in principle. When they are applied, as they must be, against the financial details of the rate support grant order, it becomes clear how bad they are in practice. Before I describe the Opposition's view about the distribution of funds, I must return to one of the supplementary points in the order and in the statement made by the Secretary of State when he announced his intention to the consultative council.

He told the council—he has not mentioned this today—that his assumptions about rates and his decisions about the RSG were based on the belief, hope and intention that local authority rents would be increased by £1.50. Clearly, that has a direct effect on the rate support grant because it has an effect on contributions other than rents to the housing revenue account. The anticipated level of rents is a central issue in the rate support grant settlement, which is why the Secretary of State announced his £1.50 intention at the outset. In fact, he said that he hoped that councils that were legally entitled to do so would increase their rents by £1.50. Some are not entitled to do so because at present they are not allowed to maintain substantial and permanent balances in the housing revenue account. But if the Housing Bill, which got a Second Reading yester- day, becomes law they will be so entitled. Therefore, I take it from the right hon. Gentleman's statement that if and when that Bill becomes law he will expect an increase of £1.50 in those local authorities' rents as well.

That will result in substantial permanent balances—what in crude terms might be called profits—in housing revenue accounts. In other words, there will be surpluses. When the consultative document on housing policy was issued in November, the Secretary of State said that he would shortly tell the House and the country what would happen to those surpluses. He has not done so. I specifically asked him yesterday what would happen to the surpluses, and his Minister of State either did not or could not tell us in his winding-up speech.

It is extraordinary that we should go through two legislative processes about an issue central to the life of this country—the building un of surpluses or profits in local authorities' housing revenue accounts—when all we know is that the Secretary of State wants local authorities to make and hold this money. He persists in not telling us what he expects them to do with it. I hope that when the Minister of State replies, as well as telling us that this is not a change, he will tell us exactly what will happen to that housing money. In so doing he will make up for the defects of his colleague yesterday evening.

Mr. George Cunningham

Tell us now.

Mr. Hattersley

No. I do not ask him to tell us now. I look forward with eager anticipation to the winding-up speech at 9.30 pm.

In anticipation of that, I shall make two or three comments about the financial settlement. First, it has a superficial resemblance to last year's settlement. The proportion is 61 per cent., as was our settlement. The needs and resources elements were 67.5 per cent. and 32.5 per cent. respectively. The same ratios applied to our needs and resources elements. But there is one way in which this settlement is substantially and significantly different from ours, and that is the way in which cash limits are to be used. I make it clear that I am a supporter of cash limits. Some of my hon. Friends are not, and most of the trade unions and the public services are not. I believe that cash limits, properly applied, are a necessary element of financial prudence within local government and within national government in the nationalised sector.

There are two ways of looking at this issue of cash limits, and the way in which the right hon. Gentleman looks at it—describing the limit as "an envelope figure"—is a total misuse of that principle.

When cash limits were invented, the idea was that reasonable assessment would be made of necessary approved and unavoidable expenditure. The cash limit describing that would be set, and in order that there should be no frivolous or flippant expenditure that cash limit should not be exceeded.

The right hon. Gentleman has not made an assessment of necessary, agreed or unavoidable expenditure but has made an artificially low estimate so that an artificially low cash limit, in itself, acts as a further cut, albeit a disguised one. I refer to his intentionally Delphic statement that a 13 per cent. cash limit was "compatible" with increases in prices and wages of 13 per cent. That was not a cash limit that anticipated that wages would increase by that amount. It was one that would tell local authorities that they must not increase wages by more than that, otherwise they would have to pay a penalty.

I see the Secretary of State nods as if he approves of my definition. If he does, he is imposing a surreptitious incomes policy on the local authority sector. I am in favour of incomes policies that are not surreptitious. I actually believe that an incomes policy is an essential ingredient in the economic health of this country. But I believe in open incomes policies that apply to the economy as a whole and not in surreptitious ones that apply only to local government. The Secretary of State is not saying that he thinks local authorities will be forced into 13 per cent.—although the figures show that his cash limit is not consistent in 1980–81; he is telling local authorities that unless they hold wages down to that level they have a problem and they will have to sack people or cut services. This is an additional cut, and the Secretary of State should admit it.

Mr. King

I am very interested in the right hon. Gentleman's comments. He criticises what we have done. Perhaps he would tell us his alternatives. Is his alternative to have no cash limits on the increase order, to wait and see what happens to all the wages and then undertake to pay, regardless of whatever wage agreements are reached in local government? Or is he saying that he would take a judgment at a later date on the amounts that he would pay? Does this not leave his alternative open to the earlier criticism that he made—that local authorities would have no idea where they stood?

Mr. Hattersley

Extraordinarily enough, I expected to be asked about that. What I would do for the future is what we announced we would do this year. As part of the pay policy, the national Government must be involved in local authority negotiations. I believe that, as we take part in those negotiations, we must say that any national agreement forged between the local authorities and their unions would be underwritten by the Government. Therefore, if we were party to an agreement, we would pay 61 per cent. of the consequences of that agreement.

I am surprised that the right hon. Gentleman, of whom I genuinely expect better, should have asked me that question, because the former Chief Secretary—my right hon. Friend the Member for Heywood and Royton (Mr. Barnett)—who is becoming one of the gurus of the Opposition on public expenditure, said on 19 March last year that his cash limit intention was that as the Government involved themselves in a proper incomes policy those local authority agreements which were endorsed by them would obtain grants from them.

That seems to be the only way to run this policy. It has the second advantage of being honest. I believe that there are substantial bonuses in that, rather than trying to impose the extra squeeze in this disreputable and perverse way. Local authority associations—at least, the Association of Metropolitan Authorities—calculate that the difference between the honest figure and the surreptitiously low figure, which will result from the bogusly small cash limits, amounts to about £300 million, and that that total, 3 per cent. of the wage bill of local authorities, can result only in substantial reductions in expenditure and substantial reductions in services. It forces on local authorities the decision to choose between cutting services, sacking employees and increasing rates, or all three things. In some areas, it impinges on their rights and destroys their services more heavily than others.

This leads to my final point on the settlement itself. Anyone who has read previous rate support grant debates will know that the right hon. Gentleman has three passionate beliefs. One is that regression analysis is bad. The second is that it is not helped by what has come to be called dampening. The third is that London in general, and central London in particular, is normally helped to an over-generous degree.

In this settlement, the right hon. Gentleman has observed all of his three prejudices. When he says that the rate support grant has been distributed on a standstill basis, he means that he has used the formula for needs which was applied last year. As a result, he is right in saying that the shire counties get a little more, although not quite so much more as he led them to believe at the county councils' meeting.

That is neither here nor there. I welcome the fact that they have not got as much as promised. I do not believe that there is great advantage in paying more to those people who neither want to spend it nor intend to spend it. Equally, the metropolitan areas have a little more. But the sufferers have been London, in general and inner London in particular. Inner London has suffered because of a strange piece of sleight of hand for which the right hon. Gentleman, who knows about rate support grant, is directly responsible.

In all his statements, the right hon. Gentleman says that the London total was distributed on the standstill basis for which the London Boroughs Association and the Greater London Council had asked. But they asked for that standstill basis of distribution on the understanding that the right hon. Gentleman would update the formula and carry out a needs calculation this year. Standstill to them means something different from what it apparently meant to the right hon. Gentleman. As a result of the right hon. Gentleman's choosing part of their formula and applying it, but not applying the other part, numbers of London boroughs in desperate social environmental and financial need will be the main sufferers from this distribution. Hackney, Hammersmith, Islington, Lewisham, Southwark and Tower Hamlets are all authorities with substantial social and environmental problems, much greater than those throughout the country as a whole.

Mr. Heseltine

The right hon. Gentleman is making a serious charge. I ought to try to put the record straight. What he suggests is a fiction. The reason why London appeared likely to be losing so much this year is that relative wage levels in London, compared with the rest of the country, have narrowed substantially over the last 12 months. That factor, carried through into the calculations, brought about the changes that I then had to mitigate substantially by adjusting the clawback. That was the major contribution that I made in the discussions.

Mr. Hattersley

I do not doubt that for a moment, but the point that I made holds wholly true. The London Boroughs Association and the education authority asked for two things. One was a recalculation of the needs element and the other a distribution on a specific basis. The right hon. Gentleman chose to abide by their second suggestion and boasted about it in his statement. But he ignored their first suggestion. As a result, London loses a great deal.

I agree with the right hon. Gentleman that he has constructed a safety net through which no one suffers by more than 3p. But he is requiring local authorities to cut down their expenditure and threatening to penalise them if they fail to do so. To say to Hackney, Hammersmith, Islington, Lewisham, Southwark and Tower Hamlets that before they start on the operation they are the equivalent of 3p down on the rates is an enormous burden for those authorities to carry. It is a burden that they have to carry before facing, in common with all authorities, the additional squeeze due to the bogusly small—I almost said fraudulent; but certainly intentionally small—cash limits that the Secretary of State is imposing next year.

How should local authorities respond? The right hon. Gentleman seems to believe that he is doing my character and reputation deep damage by describing me as chief proponent of resistance to the cuts. That is not quite my role, although I have no great objection to the right hon. Gentleman continuing so to describe me. The right hon. Gentleman claims to believe that this is wrong in principle. In his statement to the consultative council of the authorities' associations, he says that all parties in local government in the past have accepted the judgment of the party in national Government about overall levels of expenditure. That was so when there was a national consensus on these matters and when all believed in preserving and protecting public services, but the Government have spent the last year bragging about how they have broken down the consensus. If they have broken the consensus, they cannot expect to recreate it from time to time on individual items that happen to be convenient to them.

Different councils will react in different ways. All, I believe, will react according to law. That is a special obligation imposed not only on all citizens but especially on men and women elected to democratic local government authorities. But, as they respond, they must make their own judgments on what is best for their areas. They must make their own judgments about the necessities of their ratepayers and about the promises they made when elected. Those judgments need not be influenced by circulars sent to them by the right hon. Gentleman. Despite the extraordinary arbitrary powers that he is taking to himself, and his right—if a Bill yet to be presented to the House becomes law—to descend on local authorities and punish them for using their discretion, Great Britain is not ruled at this moment by ministerial circular.

A ministerial circular is a statement of the right hon. Gentleman's opinion. Until he changes the law in order that these pains and punishments may be exacted, I expect that many local authorities will want to use their own judgment about what is best for their areas. Some may be penalised by the right hon. Gentleman. In the meantime, I hope that they will do two things. I hope that they will be adamant and specific in describing where the blame lies—not simply blame for reduction in services but blame for increasing rates, which are also the right hon. Gentleman's responsibility, in county after county and in borough after borough across the United Kingdom.

I was delighted to find, on visiting Wales, that two authorities, not controlled by the Labour Party—although I believe that they soon will be—were exercising their proper rights, using ratepayers' money, to explain that when services were closed down this was a direct result of Government action rather than the will of the locally elected councillors. I hope that more authorities will do the same. I hope that they will place the blame where it belongs and that when they have an opportunity they will make sure that where cuts must fall—for some will fall—they fall on the shoulders of the people most able to bear them, specifically the people who benefited most from the income tax reductions six months ago.

Finally, I hope that Labour local authorities will go on making clear that our intention is, for as long as we can, whenever we can, to protect public services during the tenure of office of the right hon. Gentleman and to restore them at the first opportunity.

6.10 pm

Mr. Hugh Fraser (Stafford and Stone)

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) made what Labour supporters will regard as a fine, rousing speech, but many of us on both sides of the House are devoted to two prime local government and taxation matters—keeping taxes down and rates down. Those are the problems that face the country. It is also important to explain how the rates are arrived at, which is becoming more and more obscure to the average ratepayer.

We in Stafford shire are grateful to my right hon. Friend the Secretary of State for the Environment, because there has been a slight reduction in what might have been the imposition under the previous system, as run by the Labour Government, of about £1.8 million this year. Nevertheless, Stafford shire faces this year an increase in rates, even after the cuts, of between 20 and 25 per cent. This is what should worry every hon. Member.

I should like to say a few words about the presentation of rates to the ordinary citizen, so that he has some idea of what they are based on and how they are arrived at. Most hon. Members will agree that the principle of multiple regression analysis is about as complicated for a layman to understand as multiple sclerosis is for those who do not suffer from the disease. I can imagine nothing more complex, nothing that has become less understandable to the general public. If we look at the various factors that are brought into the analysis, we find again and again that they are outside the comprehension of the ordinary individual, and certainly of many councillors and councils. I am glad that my right hon. Friend has said again and again that he wishes to be rid of this principle.

Unfortunately, some of my right hon. Friend's proposals, when he goes on to the question of what I think is called the universal grant system, still contain concepts similar to the various factors which I think run very unfairly against individual counties and authorities. I hope that my right hon. Friend will consider a simplification of these factors in the needs element.

The needs element can be laid down by the Minister concerned. I believe that in Stafford shire we have about 14 categories, which I think could easily be reduced in number. I hope that they will be reduced when my right hon. Friend gets to work on the categories. In my view, they could be limited to four—population, education, social services and costs. Stafford shire county council has produced a working paper which I hope my right hon. Friend will consider. The principle that I have advocated would make it much easier to comprehend the problems that are put before the average ratepayer.

Mr. George Cunningham

It is very convenient to suggest that one can reduce this complex apparatus to four variables, but is the right hon. Gentleman seriously suggesting that, for example, the area of the rating authority should not betaken into account? Is he seriously suggesting that the speed of population rise, which imposes severe burdens, and the speed of population decline, which imposes severe burdens on other areas, should not be taken into account? Does he not think that if one gets down to it one must have one factor after another, and that in the end one will return to something that is almost as complicated as the present arrangement?

Mr. Fraser

I take the hon. Gentleman's point. Population is a broad category, but at present a great deal of the needs element is worked out on data which are out of date or do not exist. Much of the data is computerised, and there is a data freeze which means that the figures are often two or three years out of date. This is one of the great problems facing the Government.

I am very nervous about what my right hon. Friend proposes as regards the unitary grant system. I am sure that he is having consultations about it. It could mean that a needs grant would have to be applied to the 430 local authorities, which would be even more complex. This is worrying. It would put an extreme burden on my right hon. Friend's Department and it could be dangerous in the hands of successor Governments, who might use this method of controlling local expenditure against the interests of an authority's citizens.

Therefore, I hope that my right hon. Friend will have long and deep consultations before the unitary grant is imposed. I hope also that in the process the needs element will be more simply assessed than it is now. I hope that my right hon. Friend will bear in mind Stafford shire county council's working paper proposing simplification, which would be of great benefit.

The burden of local government expenditure has risen, is rising and needs to be checked, but an even more serious factor is now emerging. It is that some of Labour's efforts to patch up inner urban areas, to transfer money from the slightly better-off areas to central London, Glasgow, Liverpool or wherever, are merely cosmetic and do not deal with the main problem, which is much more serious than the question of rates or even Government grants in one year. Inner city decay is far too serious to be dealt with by switching a few million pounds from one county to an inner city area. I know that my right hon. Friend is considering the problem and that one day he will take action. It is probably the biggest environmental problem that the country faces, and it cannot be met by such measures as moving a few million pounds from Stafford shire.

We in Stafford shire are grateful for what my right hon. Friend has done to help us this year. We are fearful of the rate burden that will still have to be imposed after the cuts that our county council has made. We ask my right hon. Friend to look very carefully at the question of the unitary grant before it is imposed on the country.

6.18 pm

Mr. Peter Hardy (Rother Valley)

Thousands of my constituents are currently in despair and in a state of considerable anger because of the steel strike. Therefore, I propose to speak very briefly, as I should like to have an opportunity to say a word about that matter tomorrow. However, I believe that I should also speak this afternoon, because, although thousands of my constituents are steel workers who are currently feeling anger, I have even more constituents who will feel distress and despair as a result of the arrangement that the Secretary of State has commented on relatively briefly and slightly.

I did not believe that the shabby and not entirely honest approach of the last Conservative Government in the months before the February 1974 election could be repeated, but it seems to me that there is a real parallel now. I suppose that it was understandable that in January 1974 that Government should have been rather less than frank and less than honest in their presentation of the local government financial arrangements. An election was impending, and I suppose that the temptation was great. But we are perhaps quite a long way from an election, and the right hon. Gentleman's partisanship and less than fair presentations are not at all justified.

I believe that the rate support grant statistics were demonstrably out of date as soon as the right hon. Gentleman delivered the assessments, and that he knew it. I believe that the basis of his calculation is grossly inadequate. I do not think that he has allowed for the level of interest rates which applied at the time the grant was announced, and it certainly will not counter the enormous effects of the high interest rates that have since developed.

The right hon. Gentleman has left local government to bear a heavy burden that has been compounded by his contempt for service in local government. I say that regardless of party. People of all parties devote their leisure time to serving their communities, and their capacity to serve, and meet the needs of, those communities has been greatly imperilled. Despite the obvious contempt in which the right hon. Gentleman holds local government, I hope that he will have meaningful consultations with the local authority associations in the next few weeks about two or three important matters.

First, the right hon. Gentleman should reconsider the level of increase orders which he clearly knows will be necessary during 1980. Secondly, he should consider with the local authorities a case for necessary changes in his proposal for capital expenditure arrangements. Perhaps at the same time he can consider with local government the appalling effect of his policies on the building and civil engineering industries. They are already benighted and will be crucified as a result of his policy during 1980.

I hope that the right hon. Gentleman will be more frank and less ambitious in his approach to waivers. My authority, Rotherham borough council, is precepting for the current year at 116.9p in the pound. The right hon. Gentleman says that that authority will have to levy an increase within 116.9p in the pound. There is no way in which our borough council can meet his requirement. It will be an offender entering the area of sin to which my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) referred.

The right hon. Gentleman suggests that councils—already prudent—should carefully monitor appointments as vacancies arise. The already prudent Rotherham council, which cannot meet his target, has operated that procedure for a long time. The problem is not the result of political extremism or anything of that sort. I believe—and I do not think that the right hon. Gentleman has adequately considered the point—that the smaller metropolitan authorities, such as we find in Yorkshire, whether Labour or Tory-controlled, have a particular problem.

Areas such as mine, consisting of smaller and older industrial communities, with some rural seats normally identified with the affluent shire counties, also have severe problems. The distribution and apportionment of grant does not take account of those problems. This is not the first time that I have made the point. Some hon. Members may remember that I criticised my own Government in November 1978. Some advantages ensued in 1979, but metropolitan authorities with populations under 350,000 could be at a particular disadvantage.

I notice that the Under-Secretary of State, the hon. Member for Shipley (Mr. Fox), who should be aware of the problems of smaller metropolitan areas, is moving his head. I do not know whether he agrees with me or not. Those authorities face difficulties. They are exercising prudence and seeking to meet needs, and I hope that they will continue to do so. However, it seems to me that the rules under which local government must operate in 1980 will make their task exceptionally difficult.

I hope that the right hon. Gentleman will realise sometime during the year that, though his personal ambition may be important, the maintenance of education services and the care of the growing number of elderly people—a problem causing distress and anxiety to many hon. Members—will not be ensured unless he adopts a more generous and thoughtful attitude.

I trust that I am not being unfair to the right hon. Gentleman, but it has been said that he does not like his job and that he would prefer another important Department of State. I hope that the comment of my right hon. Friend that there is a strong suspicion in the country that the Secretary of State is looking for a few scalps to dangle before the ladies at the Tory Party conference in a bid for more popularity in the party is not correct. If it is correct, and if it results in the right hon. Gentleman's being transferred or promoted to some other high office, I hope that his attitude will not have been maintained to the point at which the whole of local government—Tory or Labour-controlled—will say, as it is justified in saying now, that the Department of Industry's loss is the Department of the Environment's gain.

If that movement were the case, I suppose that the price of those half-dozen scalps would be relatively modest. Far though we may be from a general election, the right hon. Gentleman is not being fair and honest in maintaining the position which he has so far outlined.

6.25 pm

Mr. Fergus Montgomery (Altrincham and Sale)

I am glad that this year we are having a full day's debate on the rate support grant. Those of us who were here at this time last year will remember that on the day when we should have had this debate the Tribune Group mounted a campaign which meant that we, then in Opposition, lost a Supply day. That Supply day was then moved to a day when the Government said that we were to have a debate on the rate support grant. Therefore, a whole day on the rate support grant was lost. We did not begin the debate until after the 10 o'clock vote. We had four hours' debate. That is how much the then Government cared about the rate support grant. Mr. Deputy Speaker at that time said that we were to have a debate within a debate, because the Scottish Members also took part. Many hon. Members sat until the early hours of the morning and never got the chance to discuss this important issue.

My constituency is in an area adminisstered by Trafford council, which is a new authority. It was set up during local government reorganisation and it consists of seven smaller local authorities. When the Labour Government announced the rate support grant figures in 1974, we were given 50 per cent. of what could have been expected for each of those seven smaller authorities had the old system applied. The hon. Member for Manchester, Gorton (Mr. Marks) shakes his head. I ask him to check the facts. At that time Trafford had a massive rate increase, perhaps the biggest in the country. Trafford's basic problem was that prior to reorganisation no part of the new borough of Trafford had enjoyed county borough status.

None of those smaller authorities, therefore, had a social services department of its own or was itself a local education authority. The reasons for the increase put forward at the time were that it was difficult to assess the grant for a new authority such as Trafford. We therefore had to start from scratch with parts of Lancashire and Cheshire. Disparate problems—as, I am sure, hon. Members will admit—are created by the merging of such areas.

Although the council has tried over the years to be careful about spending the ratepayers' money, we have, in successive years, been clobbered by the rate support grant. My right hon. Friend was absolutely right to say that the policy of the late unlamented Government was to pour money into spendthrift councils and to deprive thrifty councils of necessary cash.

Trafford's problem results from the way in which the resources element has been worked out. In 1979–80 the resources element for our council was £2.8 million, but that accounted for only 3.7 per cent. of expenditure. That element worked out at £12 per head of the population. That figure is far and away the lowest in Greater Manchester county and is derisory compared to the £91per head that is paid to Wigan.

The resources element is the root cause of many of the problems in my area and has plagued us ever since the formation of the Trafford authority. It arises from the so-called relative wealth that Trafford enjoys due to its rateable resources. The effect appears to be that the resources grant tends to allow those authorities with low resources to spend more without undue effect on their ratepayers. Trafford ratepayers have suffered as a result of the treatment that we received from the last Government.

In 1971–80 the average domestic rate bill was higher in Trafford than anywhere else in the Greater Manchester area, and yet the rate levied by Trafford was below average. The rate support grant for Trafford was £96 per head of population, but over the whole of the Greater Manchester area it was about £166. That is one of the difficulties with which Trafford has had to contend.

It is not easy to explain the complexities of the rate support grant to constituents who complain about their rates. It is particularly difficult for a council that has tried desperately to keep down expenditure and consequently is penalised by the amount of rate support grant that it receives. We hoped that we would have a fairer deal under the new Government. The settlement was greeted with relief in Trafford. We feel that we are being treated more fairly. Had we received the same treatment when the Labour Party was in power, many of our problems would have been avoided.

The Labour Party has much to answer for. The Labour Government determined the needs element of the rate support grant on the basis of multiple regression analysis. That is difficult enough to say; it is even more difficult to understand. That method relies heavily on out-of-date statistical information.

The right hon. Member for Stepney and Poplar (Mr. Shore) moved resources from the shire counties, where the populations were increasing and the demand for services was increasing as a consequence, to the conurbations, where the populations were decreasing. Perhaps I am being cynical, but it happens that the shire counties tend to be run by Conservatives and the conurbations by Socialists. There is no doubt that the right hon. Gentleman, with an eye on the forthcoming general election, urged local authorities to spend more. That there was no economic growth did not seem to bother him, because the game was how to win the election. Fortunately, the British people were not as gullible as the right hon. Gentleman thought they were.

We must accept that the economy is not in good shape and that public expenditure must be contained. Far too high a percentage of GNP is being used for public expenditure. As a consequence, taxation is too high. In order to create new wealth, we must reduce the burden of taxation and encourage incentives. If we create new wealth, we shall be able to afford socially desirable programmes and live within our means. My right hon. Friend the Secretary of State is being completely fair with the settlement. After the general election he asked local authorities to cancel the 1½ per cent. increase in expenditure that his predecessor encouraged. He then asked for a further reduction of 1½ per cent.—a total of 3 per cent. That is much in line with the last Government's proposals, when the International Monetary Fund had to intervene and censor the rate of public expenditure. In view of that, the screams of anguish from the Opposition sound rather hollow.

The Secretary of State is asking local authorities to effect economies. Because of that, and because he is asking them to take action that is not easy, he has maintained the level of central Government assistance at 61 per cent. The fairness of the settlement is illustrated by the reactions of the local authority associations. The Association of County Councils, the Association of Metropolitan Authorities and the Association of District Councils are, of course, not delighted with everything in the rate support grant settlement. However, they have accepted it overall. They have said that they are aware of the economic problems facing the country and of the Government's determination to reduce inflation. They believe that, taking those factors into consideration, the settlement is fair.

My right hon. Friend the Member for Stafford and Stone (Mr. Fraser) is right to fear that ratepayers will be faced with substantial increases this year. I wonder how long we can continue the present domestic rating system. Before the 1974 general election, the Conservative Party promised a change in the system. The pledge has been pushed into the background.

Since then we have experienced four and a half years of Socialism, with enormous increases in taxation. I realise that the present Government's priority is to reduce direct taxation in order to get the economy moving. I hope that we shall find an alternative system of raising local government finance. The present system is grossly unfair. It takes no account of a person's ability to pay. I am sure that every hon. Member knows of elderly people living alone who pay exactly the same rates as the family next door with four wage earners. The houses are identical and, therefore, the rate bills are identical.

Rate rebates help marginally and offer some relief to hard-pressed ratepayers. However, water rates are now levied on the basis of rateable value and there are no rebates on water charges. That causes great bitterness and a sense of injustice, particularly among the elderly and the retired.

I welcome the rate support grant settlement. It attempts to be fair. I hope that we shall have a clear indication that the Government are still examining means of changing the present antiquated rating system and that they intend, before the end of this Parliament, to introduce a fairer system for raising local government finance.

6.37 pm

Mr. Kenneth Marks (Manchester, Gorton)

I agree with the hon. Member for Altrincham and Sale (Mr. Montgomery) about the difficulties experienced by some authorities created under the Conservative Government's reorganisation of local government in 1973. Trafford was formed from seven authorities. Part of Tameside is in my constituency. That was formed from nine authorities. The Knowsley authority has a similar problem. The difficulties of administration are caused partly because the municipal buildings are scattered all over the place. Whichever Government are in power should examine those problems.

The Labour Government did examine the problem. They did not make the reductions in rate support grant that the hon. Member for Altrincham and Sale claimed they made. He said that Trafford has the lowest rates in Greater Manchester, but he should consider whether that council is doing its job. He did not say whether he agrees with the cuts in education made recently by that council.

The right hon. Member for Stafford and Stone (Mr. Fraser) talked about inner cities. He said that the solution to their problems cannot be achieved simply by transferring money from shire counties to inner cities. Our inner cities policy made an effort to solve the problems. We made a joint examination, by central and local government, and we took joint action. The same policy could be adopted for the shire counties. I am not sure that increasing rate support grant to the county councils will solve the problems of the less-well-off people in those counties. The problems should be examined jointly by central and local government. The Government should find the money to attack the problems.

The right hon. Member for Stafford and Stone suggested that there should be a data freeze. That is precisely what we do not want. Multiple regression analysis comes in for much criticism. Sometimes I wonder whether it is not a little like democracy—the worst system, except for all the others. We have no idea whether the proposed system will be better.

The right hon. Gentleman may have ideas that he intends to discuss with local authorities, but we do not know what they will involve, whether they will involve civil servants from the regional offices visiting the various authorities and deciding what the needs are.

In the past I visited a number of local authorities which suffered a great many disasters—coastal erosion, flood, blizzard and pollution of the air and water. However, the impression I get now from visiting local authorities—not simply those that are Labour-controlled—is that there has been no greater disaster than the appointment of the present Secretary of State, although perhaps the Tory reorganisation of local government in 1973 would run him a close second.

Is the right hon. Gentleman aware of the effect of his solution on particular groups—young families, for instance? I am referring not to those on supplementary benefit but to those on low wages who need the incentive to work. Probably no group has suffered more from the Government's policies than families in this group—a family in which the husband is working on a fairly low wage, with children to support. I suspect that if the right hon. Gentleman knew of the effect he would not care.

I remember when the right hon. Member for Worcester (Mr. Walker), who is now Minister of Agriculture, Fisheries and Food, became Secretary of State for the Environment. I recall his visiting city centre areas and industrial towns and being profoundly shocked at the conditions. I do not believe that the current Secretary of State is capable of being shocked. He is perfectly happy as long as the Conservative Party conference is happy. However, his proposals, combined with those of Treasury Ministers and Ministers in the Departments of Education and Science, Social Services and others, attack the young family. We heard this afternoon about the increases in gas prices. Those families will cop it. There has been news about a freeze of child benefits. That, too, will hit the same group. In education there will be big increases in school meal costs—particularly with Conservative local authorities—and school transport charges. That large, valuable and important group of families is being made to bear the brunt of the cuts.

The Secretary of State ordered, demanded or asked for—whatever the term is—a freeze on local government recruitment as soon as he took office. Such a freeze can be one of the most stupid of measures. One of my local authorities imposed such a freeze when the Conservatives came into power locally. It delaved the placing of every advertisement for 10 weeks. Posts for health inspectors, highways inspectors and so on, jobs which are needed to assess requirements, were simply not filled, and the whole programme was delayed. That kind of staff shortage caused by a freeze harms the very efficiency that the Secretary of State is demanding.

The right hon. Gentleman demanded a 3 per cent. cut from the local authorities to enable them to make the adjustment to the lower levels of expenditure that were coming. The cut was to get them in the mood. Then he said that he would assist them by giving them greater discretion. At the time, I asked him what he would do if councils failed to carry out their statutory obligations as a result of making the cuts. He replied that he did not expect any local authorities to do that. However, he is removing the statutory obligations on local authorities to carry out functions that are necessary to provide decent services. The Secretary of State is not the only Minister to do that. He and his colleagues are producing a series of measures concerning public services which can be designed only to worsen them. They have done it in such a way that the local authorities—this applies certainly to Conservative-controlled Trafford and Labour Manchester and Tameside—will get the odium and blame for what is to be done.

In his speech to the local authorities, and again today, the Secretary of State spoke of the drift of grant from the shire counties and the metropolitan areas generally. I was amazed to hear that the metropolitan authorities had had an increase in the proportion of the total grant of 0.7 per cent. in five years.

Mr. King

This is a complicated subject, and I understand the hon. Member's difficulty. He is confused over the change this year. The drift over the period to which my right hon. Friend referred is not from the shire counties to the metropolitan districts, but much more from the shire counties to London.

Mr. Marks

But the attack is largely upon the metropolitan districts, some of which are being considered, though not named, as the big spenders.

One of the problems facing councils in their consideration of this year's rates stems from the announcements that have been made in respect of the rate support grant about the unitary system and the temporary measures to be taken this year to achieve it. I believe that the Government are building a new grants system on an ossified rate system, using completely out-of-date rateable values. When those rateable values were originally set, there were a great many anomalies throughout the country. In certain areas they are much higher than in others. In Wales, for example, they tend to be much lower. This is not simply a question of the amenities. It is because the district valuers who did the job were used to doing it for a particular area. That should be considered with the introduction of any new grant.

Mr. Gordon Oakes (Widnes)

Quite the reverse of that is that the Government have postponed the 1981 revaluation, which will make the position the worst it has been for years.

Mr. Marks

We do not know when it is postponed until. No date has been given for a possible new revaluation. These transitional arrangements for the new unitary grant are worrying councils at the moment.

Both authorities in my constituency ask whether they are regarded as one of the big spenders. The Secretary of State spoke this afternoon—I think that my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) missed the additional definition that the Secretary of State gave about "substantial" and "very substantial" and so on—about local authorities that indulge in serious and sustained overspending. What did he mean by "sustained" overspending? Did he mean for the next three years or for the past three years? Will the matter be judged simply on this year's rate poundage, or will the past be considered?

Let us consider Manchester, for example. Its present rate at £1.25 is 6p over the standard which the Secretary of State is suggesting. If that goes up 10 per cent.—and we have heard of some rates going up 25 per cent—will Man- chester be regarded as one of the big spenders? Manchester does not regard itself as overspending. It has had the backing throughout the years—in spite of the unpopularity of Labour Governments—of the electorate, because the councillors have retained their hold on Manchester. They have done what they have done honestly and openly and have put the facts to the people, spelling out the requirements, as have other metropolitan authorities which might be accused of being big spenders.

Where do such authorities stand on this matter? In working out the rates, they have to consider whether the Secretary of State will penalise them. They must consider whether they will need to impose an even bigger rate to pay the punishment that they will suffer for going too high. They have no idea, and they are now discussing what their rate poundage should be for the coming year. The Minister of State owes it to those local authorities to be much more explicit when he replies to the debate than the Secretary of State was.

Let me give an example of what may be regarded as overspending. The city of Manchester sends 50 per cent. of its children aged between 3 and 5 to nursery classes or nursery schools. I think that Trafford sends 10 per cent. Who is doing the job? What are the needs of the areas? I believe that it is for those local authorities to decide what they should be spending on education and whether nursery education, which Manchester regards as vital to the whole education system, should be provided. This applies to a great many other matters, such as pupil-teacher ratios and so on. What we have before us is an incentive to some authorities to increase their rates to more than they would have done. I hope that the Minister of State will consider that carefully.

I put one other specific question. Where there are county and district authorities, which authority is to be punished? The city of Manchester has two lots of rates—and so does Tameside. It has its own and it has the precept which the Greater Manchester council, which is of a different political persuasion, puts on it. If they are to be regarded as big spenders and spend substantially more, or if we use the other definitions given by the Secretary of State, who is to do the suffering—the county or the city, or both?

It was in the 1930s that we last heard the expression "guns before butter". What we have been hearing from the present Government—I say this despite recent events—is "guns before education; guns before meals for children; guns before child benefit."

I hope that we shall examine whether we seriously need the expenditure that is being made in other fields and whether, for the future of our country—and that is what we are talking about—the kind of expenditure that local government makes is not the most essential expenditure of all.

6.52 pm

Mr. Graham Bright (Luton, East)

This debate on the rate support grant for the next financial year is of great importance to the country. For many years, local authorities have been undertaking a growing range of responsibilities. An increasing proportion of total Government spending has been in their hands. The burden on the taxpayer and the ratepayer has grown accordingly. As the people of Britain recognised last May, there is a clear limit to the amount that they can be expected to pay. That is a fact that we should all recognise. I congratulate my right hon. Friend the Secretary of State not only on recognising it but on translating it into action by the Government. His proposals are realistic and will remove the anomalies that have developed in the past five years.

The biggest problem that local authorities have had to cope with recently has been the formula employed to calculate their spending needs. If there is an uglier combination of words in the English language than "multiple regression analysis", I have yet to hear it. The way in which these calculations were made and the formula was altered from year to year for the purpose of shifting resources to inner urban areas was objectionable in principle and damaging in practice. One does not solve the problems of the cities by starving the rest of the country of resources. I am sure that my right hon. and hon. Friends will welcome the fact that the drift of resources away from the counties has at long last been stopped.

My own county of Bedfordshire, which has had to cope with continuing immigration from London and Birmingham, has suffered from much more severe financial pressures than were necessary. Our rate now stands at 99p in the pound. As a result of my right hon. Friend's announcement on 16 November last year, we shall get the equivalent of an extra 2.3p. This is a small but welcome step in the right direction. But this new formula must be flexible enough to take account of special local needs, such as the high level of loan servicing and capital expenditure necessary in Bedfordshire.

I hope that this is a point on which the House can be more fully informed in the debate. It is one that I hope my right hon. Friends will follow with more pronounced effect when the new formula is worked out.

Quite how high a proportion of Government expenditure local authorities should be responsible for is a matter for the Government and the House. In the present economic situation, public spending and local authority spending have to be cut. The planned reduction of 4 per cent. in expenditure for 1980–81 that has already been announced represents relief from an illusory target. A total bill of £15,737 million is a reasonable sum.

I welcome the fact that central Government support is to be maintained at the 61 per cent, level. Local authorities need stability if they are to meet their commitments. I am particularly pleased that the level of domestic rate relief is to be kept at 18½p in England and 36p in Wales.

The pressure on domestic ratepayers has to be kept under very strict control. They are the people who will suffer if the effects of inflation on local councils get out of hand. Strict cash controls on the overall level of spending and on the allowance made in the increase orders is vital. I can assure my right hon. Friend the Secretary of State that he will have my full support in adhering to the limits that he defined two months ago.

The steps that the Government have already taken are the right ones. We are fully entitled to ask local authorities to accept national responsibilities. We are entitled to define the guidelines within which they operate. But it is for local authorities themselves to define their own priorities. Some steps have already been taken. Local authorities now have greater discretion in providing and charging for certain services and in relaxing planning controls. Over 300 controls and requirements set out in Government circulars have been eliminated.

The new system of capital expenditure envisaged in the Government's consultative paper will allow local authorities more flexibility in determining their priorities. Provided that central Government allocations are equally flexible, there will be an important extension of local control in this area. Overall control at the centre must not restrict local choice. Bedfordshire must not have to submit inordinately detailed plans for approval by each and every Ministry. Provided that it is within the national standard, it should be free to act.

There is only one thing missing from this impressive list of measures—the most important aspect of local government finance: the reform of the domestic rating system. Domestic rates are an antique, unjust and highly inappropriate form of taxation. The system makes no distinction between the resources of ratepayers of vastly different means and it is subject to considerable geographical variation. It is a form of taxation that the Conservative Party has long been pledged to reform. It is a form of local taxation that I and many of my hon. Friends are determined to see replaced before the end of this Parliament.

Mr. George Cunningham

By what?

Mr. Bright

I fully support the reforms that my right hon. Friend has made. I ask, in response, for a recognition of the urgent need to relieve the domestic rate-payer of the burden he has borne for too long a period. This will complete the programme of reforms on which so promising a start has been made.

6.59 pm

Mr. John Fraser (Norwood)

I should like to start with what I suppose is a head note but which is really a footnote. I agree with what was said by the hon. Member for Altrincham and Sale (Mr. Montgomery) about the necessity for rebates on the water rate. The extent of rate increases has been disguised by the extent to which some local government expenditure has been transferred to water authorities, not only for the supply of water but for sewerage.

I rise mainly to oppose the orders and to speak largely about the London borough of Lambeth. I make no apology for doing that. I was elected to fight penal increases in taxation, because that is what one expects in terms of rate increases.

I do not defend gross attacks upon welfare and local government services—housing in particular. According to this Government, if an authority decimates its services, it is extremist and is acting in defiance of the Government. That, of course, will happen in some London boroughs. I do not apologise for mentioning Lambeth in that respect, because it is typical of other London boroughs.

Will the Minister tell me, either in his winding-up speech or during my speech, whether Lambeth is one of the relatively few boroughs which, on present assumptions, will be subject to the transitional provisions to which the Secretary of State referred?

Lambeth has two characteristics, shared by other London boroughs, which the Government choose either to ignore or to suppress. The first is that, if the standard of services per person is to remain constant, it requires an increase in the needs element in the rate support grant which goes to a borough such as Lambeth. One visualises that the needs in inner city areas will go on increasing in terms of the number of children in care, the number of old people and the symptoms of poverty with which we have to deal. That is the first thing that the Government fail to take into account in the inner London boroughs.

The second thing that the Government fail to take into account is what still remains a desperate and urgent housing shortage in Lambeth. Recently I took a selection of housing cases on one day only for Norwood in the borough of Lambeth. I should like to quote briefly from that one day's correspondence. The first letter reads: When Mr. X was interviewed by the Homeless Families Unit he was advised that the Council could not assist him with alternative accommodation. Lambeth has a good housing record. …he had no children, his wife was not pregnant and both of them enjoyed good health.

Mr. John Major (Huntingdonshire)

Is not the fact that assistance was not available a clear indication of the need to revive rather than to destroy the privately rented sector, as the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) suggested yesterday?

Mr. Fraser

The legacy of misery in my borough and constituency has come largely from the abuses of privately rented accommodation.

I take a second letter, which reads: The period of deferment expires at the end of November 1979, but, on checking, it is apparent that there are over 1,000 more highly pointed applicants who have priority for rehousing. A further letter reads: I am informed that a notice has been served on the owner of this property for substantial disrepair, and the council will carry out works in default…However, the property is not unfit and no action in respect of closure is proposed. I refer to another example from the same day's correspondence relating to a house in multiple occupation, in gross disrepair and in need of fire escapes. There were many hundreds of families further up the waiting list and nothing could be done. My experience and that of many other inner London Members is of a despairing and tear-jerking list of housing cases which come to us every week despite everything that has been done.

The growing needs, expressed in needs element terms in the rate support grant, and the continuing urgent housing problem are not properly understood. The housing problem in inner London has got worse as a result of the Greater London Council's transfer of the outer London estates and the reduction in the amount and supply of accommodation which comes from the GLC.

Mr. King

I am asking this question not in a pejorative sense but out of genuine interest in the hon. Gentleman's comments. I have heard it said that Lambeth has more empty housing than any other authority in London in proportion to its housing stock and that it has the greatest rent arrears. I do not know whether that is correct, but, as the Member for Parliament for that area, the hon. Gentleman will be concerned about that matter. Would he care to comment on it?

Mr. Fraser

Rent arrears in Lambeth amount to about £3 million. That is too high and something should be done about it.

Lambeth has a number of empty houses, but the figure is distorted. If a local authority has a large housing and rehabilitation programme, which Lambeth has, there are bound to be empty houses. The bigger the programme of rehabilitation, the greater the number of unoccupied houses during that process of rehabilitation. I think that that to some extent explains those two matters.

I turn specifically to the effect of the orders. I shall deal first with the increase order for 1979–80. For Lambeth it involves a cut in expenditure for 1979–80 not of 3 per cent. but, because of the way that the cut of 3 per cent. across the board operates, of 4½ per cent. Put in another way, the increase order will involve a loss of £2.1 million for Lambeth borough council, or the equivalent of a 3.8p rate rise. That is a substantial incursion into the finances of a local authority which is already hard pressed both on services in general and housing in particular.

I turn now to the increase order for 1980–81. The Government require a reduction of 5 per cent. in relevant expenditure. That will involve Lambeth making a cut of one-twentieth in its services or, in cash terms, a cut of £8.6 million in rate support grant on top of the cuts which must come as a result of the increase order.

In order to maintain services at their present level—for example, the housing programme—we shall require a rate increase, discounting a rent increase, of about 56.3 per cent. Because of the extent to which the Government have failed to take account of the growing needs of the borough and because of the way that the grant has turned out in Lambeth, we are left with a cut for last year of about £2.1 million and for 1980–81 of about £8.6 million in a total budget—housing apart—of between £60 million and £70 million. That is a substantial cut. It is a cut which goes beyond decimation. In order to compensate for the cuts set out in the orders, there would have to be a rate increase of 10.5p before taking account of the effects in inflation, which would clearly lead to a substantial rate increase, and the effects of the increase in the minimum lending rate. That is without taking into account one penny of the housing revenue account, and that is where the greatest problem arises.

This Government—and to some extent their predecessors—have rightly allowed capital programmes for housing to go ahead but have not been prepared to subsidise the results of that capital expenditure. Over the past four years Lambeth has had £30 million of capital expenditure, none of which is to be allowed for subsidy purposes. There is no dispute that we need to spend this money on housing if we are to show concern for the dignity, welfare and standard of living of our constituents. Yet Lambeth had capital expenditure of £30 million over the past four years on which it is to get no subsidy at all. That is where the biggest element of the prospective rise in rates will come.

It is no use talking about rent increases. I said that I discounted rent increases in the anticipated rise of about 56 per cent. in the rate poundage. But we cannot get that much from rents. If we were to put up rents in Lambeth by 10 per cent., we would reduce the rate increase by about 2 per cent. Likewise, if we put up rents by 20 per cent. we would decrease the rate increase by about 4 percent.

If we want to put our housing revenue account into balance and if we want to compensate for the lack of subsidy on our housing programme, we shall have to increase every council tenant's rent by an average of £14, not the £1.50 standard, or charge a rent of between £55 and £60 a week for every new unit of accommodation provided. That is the rub. We cannot get over this by merely increasing the rents of council tenants.

Mr. King

The arguments that the hon. Member for Norwood (Mr. Fraser) is advancing seem to be consistent with what I believe has been the situation in Lambeth, where I believe rents have not altered since 1977. Can he confirm that that is correct and that the view is that there is no point in increasing council rents?

Mr. Fraser

It is true that, in accordance with a programme that was put forward by Labour councils at different elections, rents have not been increased over that period. But what I am trying to put into context is that the rent increases would not make a substantial diminution in the expected rate increase resulting from the Government's policies. The truth of the matter is that a borough such as Lambeth is caught in two jaws—the jaw of the decrease in rate support grant as a result of the freezing of the needs element and in the jaw of a Government who fail to provide enough subsidy to finance the capital rightly invested in council housing programmes in previous years to deal with the appalling housing conditions in which some people have to continue to live.

Mr. John Townend

If what the hon. Member for Norwood (Mr. Fraser) says is correct, Lambeth now faces the same problem as many shire counties faced under the previous Government.

Mr. Fraser

I am afraid that is not right, because in terms of housing need there can barely be any comparison between the conditions in inner city areas such as Lambeth and the shire counties. That must be beyond dispute. Perhaps the hon. Member for Bridlington (Mr. Townend) will tell me whether his authority has a housing waiting list of 15,000 families and with about 500 people not only homeless but accommodated in hotels and guest houses because no council accommodation is available. That is the measure of the housing problem that we have, and it has been made irreparably worse because of the actions of the Greater London Council in getting rid of its out-of-county estates and putting a cordon round Lambeth, turning it into a housing ghetto. That is the result of the policies that have been pursued both by the Government and by the Conservative-controlled GLC.

Mr. John Heddle (Lichfield and Tam-worth)

I am most grateful to the hon. Member for Norwood (Mr. Fraser) because he has given way so generously on a number of occasions. It seems as though he is pleading a special case for wanting to spend more and more money to accommodate people who are putting pressure on his council's housing waiting list. However, he also admitted a few moments ago that his borough probably has more vacant properties than any other London borough. I should like to ask him two questions, one of which overlaps, as my hon. Friend the Member for Huntingdonshire (Mr. Major) said a moment ago, the Housing Bill that we debated yesterday.

First, does the hon. Member agree that the short hold provisions in that Bill will reduce the pressure on his borough's housing waiting list by reaccommodating those people for whom new housing will otherwise have to be provided in existing vacant property? Secondly, does his borough pursue the excellent scheme of homesteading set up by the GLC?

Mr. Fraser

My borough does not pursue the homesteading scheme of the GLC. I know perfectly well that some of my constituents are denied the chance to be rehoused because of the policies pursued by that county authority. Furthermore, the figure for vacant accommodation is not the same as the figure for empty accommodation that is available for occupation. If one looks at the extent of the rehabilitation schemes in the borough, one understands immediately why there are empty premises. Many of those premises are actually in the course of acquisition for rehabilitation. So it is a red herring to talk about the number of empty properties that are available.

Given the present arrangements for the rate support grant, and given the failure of the Government to subsidise the capital expenditure that they have generously made available for the provision of new housing, discounting any rent increase, we are faced with an increase of about 56 per cent. in the rates. That is a horror story for one's constituents, if no other policies are pursued.

But that is not the end of the horror story. A further instalment is likely to come in November 1980. That is when the Government will have powers under the local government Bill and can operate the transitional provisions that were described by the Secretary of State in his opening speech.

I have the figures for Lambeth in rough form. The uniform rate for the country will be 119p. Lambeth's actual rate will be in the region of 150p. When we apply the Government's formula, Lambeth's notional rate will be 200p in the £ which is an excess of a little over 80p on the Government's standard rate. As I understand it, that makes Lambeth a borough that would be liable for what I call a penalty and what the Secretary of State calls the transitional provisions.

I would like an answer to this question: is Lambeth on the list? Lambeth has made it quite clear, as it is legally, democratically and politically entitled to do, that it will defy Government policies. That is what politics are all about. Lambeth is entitled to go to its electorate, as it did, to get a political programme that is in direct opposition to the Government's.

Lambeth is proudly guilty of its defiance. I suppose the Lambeth council rate poundage will be in excess of the Government's uniform rate poundage, and I believe that it is entitled to an answer before the rate decisions are made in the weeks approaching 1 April. I believe that Lambeth is entitled to know from the Secretary of State, or the Minister of State, whether, on present assumptions, it is on his list. I can assure the Minister that Lambeth has not been influenced by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and has come to its own decision. But perhaps the Minister can tell us whether Lambeth is a candidate for the powers that he proposes to exercise in November this year.

The Government have put boroughs such as Lambeth in a difficult position. Such boroughs have been presented with three choices or, perhaps, a combination of choices. They have the choice of the bankruptcy of the council, the bankruptcy of local services, in the sense that they will have to be cut back to a significant extent, or possibly the bankruptcy of some ratepayers if there is to be a rate rise of the dimensions that are under discussion and in draft form at present.

In addition to that, the Government are forcing authorities such as Lambeth not merely into a state of defiance of and disagreement with the Government but into a form of rebellion. I was not elected to Parliament to cause the bankruptcy of my ratepayers or of my local services. I was elected to rebel against a system that compels people to continue to live in rotten housing conditions, sometimes having waited for a quarter of a century on a housing list.

I warn the Government that, unless they change their mind about the amount of resources that are to go to a borough such as mine, they are not merely creating hardship in terms of a cut in services or of a rise in rates; they are placing strains on society, on councillors and on those interested in politics and local affairs which tempt people to go beyond the law.

I hope that I shall have an answer to the question whether Lambeth is on the list and that we shall have an indication that, even at this point, the Government will think again about the effect of these orders on the borough of Lambeth in the forthcoming months.

7.17 pm

Mr. John Townend (Bridlington)

We must look at this rate support grant settlement in the context of present economic circumstances. Having listened with interest to the way in which the right hon. Member for Birmingham, Spark-brook (Mr. Hattersley) prepared himself for the interventions that eventually arose, I was surprised at his audacity in blaming the economic situation purely on the present Government.

It seems incredible that the right hon. Gentleman has forgotten what happened last winter, when the previous Government's incomes policy was destroyed in a welter of industrial disputes and near anarchy in industry. The right hon. Gentleman has possibly overlooked the public expenditure plans to increase spending by £3,500 million, equal to 8p in the pound income tax, with no provision for where the money would come from. He seemed to ignore his right hon. Friend the Member for Leeds, East (Mr. Healey), who admitted that public sector borrowing was £1½ million in excess of what he had planned.

With a problem such as we have in this country, where the gross domestic product is likely to go down rather than up, it must be that it is not so much the fault of this Government as the fault of strikes, low productivity and over-manning. The right hon. Member for Sparkbrook would do more good by suggesting to his trade union friends that they should always ballot members of trade unions before there were strikes. That would do a lot to put up this country's growth.

I welcome this year's rate support grant settlement. I agree with the view ex- pressed by the Association of County Councils that the settlement is as generous as could have been expected in the circumstances in maintaining a level of 61 per cent. Against the present economic backcloth, which is, without doubt, becoming worse, it is essential that we limit public expenditure. Indeed, many people who believe that to be true would feel that perhaps the Government have, if anything, been overgenerous in the rate support grant and that a settlement of 60 per cent. would have been more in keeping with the overall need to cut spending.

On the question of the distribution of grant, I must disagree with the hon. Member for Norwood (Mr. Fraser). I welcome the change, because the Secretary of State has brought to an end a tendency which has been continuing now for a considerable number of years, taking grant away from the shire counties. Since 1973–74 they have lost about 16 per cent. of their share of rate support grant. I therefore welcome the fact that this trend has been halted and, in a very small way, reversed. This year my own shire county of Humberside receives in real terms an extra £1 million.

That is an important change which is to be welcomed, since over the past decade we have seen more and more resources poured into the inner cities, into central area redevelopment and central area renovation, especially in areas represented by Opposition Members. These areas have had an increasing share of resources, but at the same time many people have been unaware of the needs of other parts of the country.

In this connection, I speak in particular of rural deprivation. It is a myth that everyone who lives in the countryside is wealthy, living in a large detached house and running two large cars. In fact, many of our country areas have poorer services. Many of them have a large number of residents on low incomes. Let us be honest: work in agriculture has always been low-paid compared with work in manufacturing. Country people have often had to travel further to work and incur higher travel costs. The same is true of heating costs, since in many rural areas people have not had the advantage of cheap North Sea gas which those in the big cities have enjoyed.

Mr. George Cunningham

While I accept the validity of the sort of points that the hon. Gentleman is now making, apart from the weight to be attached to them, may I put to him this question? There is one extra factor to be taken into consideration. What is the average cash payment per domestic hereditament in his county of Humberside? I am referring to the actual cash payment, not the rate in the pound or the rateable value but the average cash payment on rates per domestic hereditament.

Mr. Townend

I have to say frankly that I do not have that figure in my head. I shall certainly let the hon. Gentleman know in due course.

Mr. Cunningham

I know.

Mr. Townend

If the hon. Gentleman knows, he is better informed on that matter than I am. But I do not think that it is altogether relevant to the point that I am making that, whatever be the averages, within an average there are high and low, and a lot of people are not aware of the true extent of rural deprivation.

I turn now to the question of cash limits. I believe cash limits to be essential in local government if we are ever to bring common sense and control into public expenditure. Nevertheless, we should be frank and say that a cash limit of 13 per cent. will not prevent substantial increases in rates in many areas. I am convinced of that because it clearly does not take fully into account the existence and activities of the now famous—or perhaps I may say infamous—Professor Clegg and his comparability awards.

I can illustrate the size of the problem in my own area—I do have the figures for this example—by explaining what has happened in Humberside. When the Secretary of State last year asked all local authorities to reduce their budgets by 3 per cent.—the 1½ per cent. growth which has been allowed by the Labour Government and a further 1½ per cent.—Humberside loyally endeavoured to fulfil the Government's policy, and this required a reduction from its budget of about £5 million.

It is interesting to note the way things have gone in recent years, and I speak here having had many years' experience in local government before I had the honour to be elected to the House. When the Labour Government got into financial difficulties and had to make substantial reductions in public expenditure at the time when they were under the control of the IMF, they naturally turned to local government. The significant difference between what happened then and what is happening now is that the vast majority of Conservative-controlled councils, and, indeed, the vast majority of Conservative opposition on councils with a Socialist majority, fully supported the then Government's policy to bring public expenditure under control, whereas today, sad to say, many Labour authorities do not put the national interest first in the same way.

As I have said, the amount which Humberside had to save to get within the Government's guidelines was £5 million, yet the amount which it is likely to have to find in the coming year for increased wages is 10 times that £5 million.

It has now been suggested in many quarters that the comparability award in respect of teachers is likely to be about 20 per cent. An additional cost at this level cannot be met within the 13 per cent. cash limit, and, equally, it will not be possible to meet it by a reduction in manning levels. I do not think that there is any suggestion that the number of teachers should be reduced as the increases given by the comparability study rise.

With the greatest respect to my right hon. Friend the Secretary of State and his colleagues, I believe that they made a crucial mistake on taking power last May, a mistake which has made the task of the local authorities far more difficult than it need have been. In my view, in the first Budget soon after the election, when the new Government were considering public expenditure, they should have forthwith abolished Professor Clegg and his team.

Not only have the professor and his colleagues played a not insignificant part in increasing Government spending and borrowing, but the whole basis of their comparability awards is suspect and, in the view of many, inflationary. This is particularly so, I suggest, where the comparability is set by productivity in the private sector. Furthermore, it appears clear to me that the Standing Commission does not take adequate account of the value of inflation-proof pensions and job security in the public sector.

Some of the Clegg awards have been completely incomprehensible. I think, in particular, of last year's award for ancillary workers. It is generally accepted that the wages of cleaners and catering staff in the private sector are not higher than in the public sector—in fact, in many cases they are considerably lower—so that if there had been true comparability there would have been a reduction. I am not saying that there is no case for giving an uplift to these lower-paid workers in the private sector, but to increase wage rates in the public sector by a bogus comparability scheme is, in my view, just helping to twist the spiral of inflation.

I submit that the Government made that mistake, but there is always time to put it right and I ask my right hon. Friend to consult his colleagues at once so that this issue may be dealt with as a matter of urgency. Let the Standing Commission be abolished altogether or let its terms of reference and its personnel be changed.

I assure the Secretary of State that among the vast majority of local authorities he will receive complete support for what he is trying to do. Nevertheless, it is not in practice quite so easy to do it, and I think that it may be a little misleading to speak as we do of the number of employees in the local authority sector. During my period of office as a county council leader, my authority worked hard to reduce staffing levels. However, in getting the support of local authority leaders it would be helpful if certain facts were accepted unequivocally by the Government.

It should be recognised, for instance, that a considerable proportion of increased manning has been the direct result not of local government action but of central Government action. I draw to the attention of my right hon. Friend the Secretary of State the health and safety at work legislation. Of course, we are all in favour of health and safety. However, to the best of my knowledge, there has been no recorded death of a young school child by fire in a day school within the past decade. Despite that background, hundreds of thousands, if not millions, of pounds have been spent on providing fire doors in schools that have been built to the highest level of safety. I am told that the number of children receiving injuries from fire doors has risen. Such factors should be considered.

Secondly, we are increasing expenditure on law and order. As we recruit more policemen, so expenditure increases. There has been a large increase in the number employed in the fire service. Responsibility for that increase lies to a great extent with the Labour Government, who interfered with the negotiations between local authorities and the union at the time of the firemen's strike. If ever there was an example of an issue being taken out of the hands of the local authorities by central Government, that was it. In trying to keep within their rigid pay policy, the Labour Government tried to cook the books. Instead of settling for one or two extra percentages in cash terms, they did a deal which, when costed a year later, was found to have cost local authorities an extra 30 per cent. That was an extremely expensive deal.

The raising of the school leaving age has to be taken into account. That action had the support of both sides of the House. However, in the view of many, including many in education, it has been a disaster. We now have to provide accommodation and teachers for many children who do not want to be at school and who cause disruption.

I welcome my right hon. Friend's undertaking to reduce statutory duties. I hope that he will continue the good work. There is scope for economies in manning. I ask hon. Members to remember that another factor has been the continuing reduction of working hours and a continuing increase in the length of holidays for local authority workers over the past decade. We read in the press that there is growing pressure for a further reduction in working hours. That will make it even more difficult to make staff economies.

I welcome the end of the multiple regression analysis. Despite numerous discussions with the county treasurer, I never really understood it. I always felt rather inferior, until I attended a meeting and was told that there were only about four people in the country who understood it.

Mr. John Fraser

Does the hon. Gentleman accept that the definition of multiple regression analysis is repeating in future the mistakes that have been made in the past?

Mr. Townend

I agree with the hon. Gentleman's definition, but I do not think that it enlightens my understanding of a complex subject.

It is important that we deal with profligate authorities. Although some of the changes will be welcomed by local authorities, there will be some serious reservations. I hope that my right hon. and hon. Friends will take careful note of the comments of local authority associations. They accept that there are advantages in having a standard rate of expenditure and in profligate authorities being penalised. However, they are afraid that another Government will be set on expanding public expenditure at a rate that is faster than that which a local authority wants to pursue in increasing its rates. They are afraid that local authorities that "underspend" may be penalised.

We are to have a new capital framework. There is a real fear that there will be practical difficulties because the capital allocations are to be based on expenditure rather than on loan sanctions. We all know of the delays that can arise. The new system could increase public sector borrowing. There would be less inclination for local authorities to finance by other methods—for example, out of revenue or by leasing. The need for the changes is accepted, but there are worries and doubts. It is up to Ministers to try to overcome the problems by discussing them with local authorities. I support the rate support grant settlement. All in all, it is a fair one.

7.36 pm

Mr. George Cunningham (Islington, South and Finsbury)

The hon. Member for Bridlington (Mr. Townend) made two confessions I read in "Dod's" that he is a chartered accountant. However, he never got to understand regression analysis. I accept that the regression analysis device is not the easiest thing in the world, but nor is it something that ought to baffle in the end a person who is simultaneously a chartered accountant and the chairman of a largish local auth- ority. I think there is something bad about that.

Secondly, the hon. Gentleman confessed that, despite those two positions, he is at the moment unaware of what the average rate payments in his area are, which I must say astonishes me. The average rate payments in my borough of Islington are £255 a year, just under £5 per week per domestic ratepayer. I do not think that he should be permitted to stay in his state of uncertainty for longer than is necessary.

Mr. John Townend rose—

Mr. Cunningham

Perhaps when the hon. Gentleman intervenes—in addition to saying whatever he is going to say—he will have a guess at what the average rate payments in his area of Humberside are.

Mr.Townend

Part of my professional training was never to guess. That is why I did not make the mistake that the hon. Gentleman hoped that I would make. As I did not have the figures in front of me, I did not guess. He was hoping that I would guess. He had the figures in front of him, and he would have been able to shoot me down.

Mr. Cunningham

I am just hoping to show that the hon. Gentleman does not know the answer.

Mr. Townend

Iintended to be honest to the House. I never indicated that I had the figures in my head. I admitted that I did not know them offhand. It is most unfair for the hon. Gentleman to say that I tried to imply that I had the answer in my head.

Mr. Cunningham

I did not suggest any such thing. It is perfectly clear that the last place that the answer is in is the hon. Gentleman's head. Here are the figures anyway. In Humberside the average for the rural districts is £101.65. That is for both the averages given in the normal publication on the subject. That is for all districts and the county area total. There are districts, for example, which go as low as £85 a year. The highest is £128 a year. That is, on average, just under £2 a week, and the very highest is less than £2.50 a week. That is not the be-all and end-all, the only relevant consideration, that we are discussing at the moment.

But when the hon. Gentleman says that he welcomes the shift of central Government funds from areas like Lambeth and Islington, and inner city areas throughout the country, to areas like his, my God, he must explain how it is that more funds should be shifter to areas where the average domestic ratepayer is paying less than £2 a week and taken away from areas where the average domestic ratepayer is paying about £5 a week.

I hope that the hon. Gentleman bears in mind that my hon. Friend the Member for Norwood (Mr. Fraser) and myself do not represent Mayfair. My constituents, who are paying an average of £5 a week in rates, are, very many of them, living in council flats—not in council houses with gardens, but often in tower blocks. They are paying, nevertheless, enormous rates of that size for very, very imperfect accommodation. That says something not only about the distribution of central Government finance but also about the entire rating system. The time is long overdue for a Committee of the House—an obvious body would be a Select Committee covering the Department of the Environment—to make an investigation into the rating system and highlight the inequalities of which so many hon. Members, not only the hon. Member for Bridlington, remain unaware.

Mr. Pawsey

I agree with the hon. Gentleman's last sentiments, when he calls for a Select Committee to examine rating. However, does he accept that in many rural areas there are what used to be termed rural slums? There are many low-paid farm workers in such areas. Does the hon. Gentleman accept that those workers do not necessarily earn as much as those in inner cities? Surely, that is reflected to some extent in valuations of property and in the amount of rates that people can afford to pay.

Mr. Cunningham

Absolutely. If the hon. Gentleman joins me in trying to persuade Ministers that the level of income in an area should be relevant to the determination of the distribution of rate support grant, he will find that he is up against a brick wall. There was more validity in the point made by his hon. Friend the Member for Bridlington that there are special and expensive costs lying upon the local authorities in rural areas but that the costs lying upon local authorities in city areas are even greater, costs that are different and certainly more onerous.

Rates are supposed to be an expenditure tax—a tax upon the amount of money that is expended upon housing, whether in the form of a capital sum, mortgage repayments or rent. It is normal when revising an expenditure tax to express it as a percentage of the thing on which it is a tax. Value added tax stands at the rate of 15 per cent., thus enabling people to see the original amount that they would have spent had VAT not been added. Rates in many parts of the country—my constituency is a prime illustration—are rising to a level where they are becoming a 100 per cent. tax on actual paid rent. A typical three-bedroomed flat in my constituency might have a rent of £8.64 a week. The rates on that flat would be £6.51. Subject to approval by the full council, Islington will be raising its rents next year by about 15 per cent. The rates seem inescapably bound to rise by about 40 per cent. The result is that I expect next year's rates to be about 90 per cent. of rent. As an expenditure tax, it is monstrously too onerous. Something must be done about it.

By contrast, many people living in other parts of the country pay rates which constitute only a tiny fraction of the amount that they expend on rent, mortgage repayments or the equivalent in a capital sum. As a tax on expenditure on housing, rates are a monstrosity.

As an aside, if we were looking for forms of expenditure which should be taken away from rates I believe that we should look carefully at expenditure on the police. In part of the United Kingdom there is a system whereby the cost of the police is not borne by local rates. In Northern Ireland the cost of the police force is borne by central Government. It is iniquitous that that should be the system in one part of the country and not in the rest. In my view, it is in the nature of the police force that its costs are better borne by national finance and not by local authority finance.

The Secretary of State proposes to remove to a considerable extent any real local autonomy in the rating and expenditure sector. Local authorities, including my own, are intensely concerned about the matter. My local authority is trying to make up its mind what to do about it for the year 1980–81. Local authorities are faced with the possibility of breaching an unknown offence with a penalty of an unknown nature hanging over their heads. All they know is that, if the Secretary of State's words are not to be belied entirely, he has to find somebody to shoot at the end of the day. He is really saying to all local authorities "Race around the field, and one thing that you can be sure about is that the last man in will get it in the neck." Perhaps it will be only the last authority that suffers. I suspect that that last one might well be Lambeth. Perhaps it will be the last half a dozen.

That is the full extent of the certainty that local authorities have about the matter. A hostage has to be shot pour encourager les autres. That is wrong. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, if the Labour Government had done that they would have been crucified. If we had brought forward proposals of that nature we would have been told that Ministers were lecturing local authorities, were thinking that they were gods and not bothering to pass legislation which told local authorities where they stood. We would have been accused of passing legislation that made the authorities adhere to what we wanted, under the threat that we would later pass legislation that would clobber them. Not only would the Conservative Party have been giving us hell for that in the House, but practically every newspaper in the country would have done the same.

Indeed, the newspapers in the country should be picking up this point because the essence of democracy is involved in saying to local authorities "You will face a penalty for an offence we have not defined, a penalty of an unknown nature. We do not even tell you when it will be applied and we do not tell you how you need to behave in order to avoid it." That belies all that was said in the previous Parliament by the Conservatives about setting free local authorities.

The Secretary of State made a big point of saying that the present system of rate support grant hands money over to those who spend the most. We all recognise the limited sense in which that is right. It is a fault in the present system, but he is wrong to put the matter as baldly as that. If we imagine two local authorities with identical characteristics, so far as the needs element is concerned, and one proceeds to spend a lot while the other spends less, the one that spends a lot will not thereby attract more RSG than the other. The system works in general and not with reference to individual authorities and their individual actions. Under the present arrangements, local authorities have every incentive to save money individually, even though there is a built-in arrangement whereby, if a certain group of local authorities with similar characteristics tends to spend more, the system assumes that it is spending more because the authorities have needs justifying that expenditure.

That brings me to the system that is to be put in its place. The Secretary of States does not know what he will put in its place. He says that he does not like the present system. It is always a mistake to take a feature of the present system and say that one does not like it and that at some time in the future something better will be found. The right hon. Gentleman gave no positive indication today of what he would find in the future that would be a better system. He told the House only of the bad characteristics of the present system as he saw them. Therefore, we can have no faith in his future ability to devise a better system. What we can say is that it cannot be simple. Local authorities are too complex and too different for any simple system remotely to begin to accommodate their needs.

We will get a new basic system and year after year Ministers will find a flaw with it, and they will add another characteristic and another, and so on. Ultimately, we will end up with something that is just as complicated as that which we have now. We will go through the whole weary round again. Someone will say that he does not like it and we will start again. It is always best to find a replacement before getting rid of the present system.

I wish to put one specific point on London rates to the Minister who is to reply, but neither he nor the Secretary of State is here. That is great. We have been told that the arrangements for London will provide a formula to convert the notional universal rate into something different, by pretending that London's rateable resources are the same as those in the rest of the country. I am aware that the content of the formula is more complex than that. However, at present local authority wages constitute a very large part of local authority expenditure. In London those wages are inflated by London weighting, which currently stands at about £750 per person. The average local authority wage is probably about £6,000 or £7,000 and, therefore, London weighting must constitute 10 per cent. or more of the wages bill. The present arrangements do not appear to take that into account, because that can be taken into account in the claw-back arrangement that otherwise applies.

If we are to have a formula that pretends that London has the rateable resources of the rest of Britain and not the higher rateable resources that it has, we must build into that formula a device that takes account of the fact that local authority wage bills in London are bound to be 10 per cent. higher for the same gradings and number of people. I hope that the Minister will answer my point.

The Secretary of State said that part of the explanation for the arrangements concerning London was that the Government were informed that wages in London had not gone up as much as in the rest of the country. I cannot believe that that applies to local authority wages, because local authority wages are determined upon a national basis, subject only to London weighting and a few other qualifications. Surely the cost of wages in London is just as high as those in the rest of Britain, if not higher. If the Secretary of State's statement meant anything, it meant that other wages in London had not gone up as much, and, therefore, it is not the expenditure of local authorities that has gone up less but the wages of those who are paying for that expenditure. That is a reason not for clobbering London but for doing the opposite. London bears as much expenditure as other local authorities, yet it has less income resources upon which to base it.

The House of Commons works only—when it rarely works—when Government Members, in whom parliamentary democracy lies in trust, follow their own judgment rather than do what they are told. I believe that many Conservative Members who have consulted their local authorities and local authority associations about the proposals have severe reservations about these proposals and their effect on local autonomy. I hope that Conservative Members will consult their local authorities and local authority associations and that, as a result, they will do whatever is necessary to make sure that the encroachment upon local authority by national Government does not take place.

7.55 pm

Mr. J. F. Pawsey (Rugby)

I particularly welcome the rate support grant proposals as they relate to shire counties. Under the previous Labour Government, shire counties suffered extensively. The previous Government put their money where they believed their votes to be, and they paid little attention to the specific problems of county councils. They are problems of distance, of road construction and maintenance, of rural schools and of the transport of children to those schools. Those problems are specific to shire counties, and they were not taken into account by the Labour Government when they set rate support grant settlements.

The settlements of the last five years were basically political settlements, and during that period the rate support grant was cynically used in an attempt to buy votes with money moved from shire counties to, for example, metropolitan counties.

I have welcomed the rate support grant, yet I do so with some reservations. There is very little improvement for the shire counties, and that improvement represents only 0.7 per cent. over the expected 1979–80 figure. That is not enough to remedy the problem that counties have experienced in the last five years. The shire counties' share of the needs grant fell from 62.6per cent in 1973–74 to 51.6 per cent. in 1979–80. That is a fall of 16 per cent. despite a marked growth in population within the shire counties.

I shall quote from a letter dated 17 December which I received from the chief executive of Warwickshire county council. He said: The settlement generally protects the shire counties from the further loss of needs element expected under the previous Government's distribution policy but does little to reverse the cumulative losses suffered by the non-metropolitan areas (for Warwickshire probably as much as £15 million per annum). One fairly small shire county has suffered a swingeing loss, and that loss is not made up by the current proposals. My right hon. Friend the Secretary of State has not taken enough account of the difficulties that shire counties experience.

I am concerned also about the operation of cash limits. At best those limits can be described as a somewhat blunt instrument. That instrument will particularly affect the authorities which obeyed Government demands to cut expenditure during the past five years or more. The authorities which were good little boys, which listened to what the Government said and obeyed the dictates, will now suffer because they have little or no fat to cut out. They use Government spending plans as a basis for their budgets.

Although it may not be the Government's intention, those authorities will effectively be penalised. I accept the need to reduce Government spending and borrowing, and I also accept that local government must bear its fair share of any economies that need to be made. Local government must play its part in that policy. Although I accept that there have been spendthrift local authorities—and I expect that the Minister will mention those councils which have been spending money almost as if it were going out of fashion—it is unfortunate that the responsible counties will be penalised because of that.

I am also concerned that some of the growth in local government bureaucracy has been due to legislation from this House. Not all of the growth in local government has been due to empire building in the town hall, and there I welcome the Government's proposals to reduce the controls imposed on local government.

I have had experience as a member of a parish council, of a rural district council, of a borough council and of a county council. I do not pretend that they were perfect, but, equally, there was not a great deal of waste. Economies have been made, but further economies can be made only at the expense of services. It is a paradox that as services decline rates will increase, and that is due to the economic situation that the Government have inherited. The problems that the Government are experiencing, particularly with lack of growth, are underlining the difficulties that will increasingly be faced by local government.

I believe that the first turn in the upward spiral of rates came with the reform of local government in 1973–74, and I take no pleasure in the fact that my party was responsible for introducing that reform, which turned out to be an absolute and unparalleled disaster for local government. It was expensive and we gained the worst of all possible worlds, although I accept that some reorganisation was necessary. My experience over 21 years in local government clearly underlines that, but we threw the baby out with the bath water.

Reform of local government occurred at a time when the philosophy was "biggest is best". Mergers and changes made local government much more remote from the people that it was representing. When the rural district and urban district councils were abolished, the number of councillors was reduced, which removed from local government the intimate knowledge that the majority of them had of the areas that they were administering. In the rural district of which I was a member, we had 49 members to administer about 50 parishes and parish meetings, and a councillor was able to discuss the problems of an individual council tenant, which demonstrates the degree of knowledge that local councillors were able to bring to local government. That has all been lost.

The reforms have tried to replace that intimate knowledge with a growth in bureaucracy, and more staff have been recruited. What was done by a voluntary local councillor is now done by a paid officer, which again has resulted in greater expenditure.

I should like to offer a word of advice to my right hon. Friend. Disquiet is being caused to local authorities by information being released by his Department, not by circulars but directly to the press. Authorities have been in touch with me to say that they very much resent the fact that they read in the press of changes and proposals that will affect their authority before they actually receive formal notification. I appreciate that my right hon. Friend and his Department came to office with the declared intention of reducing the number of circulars, but I ask him to consider whether we have taken such measures too literally.

Local authorities have criticised the block grant system, which they believe does not deal with the difficulties of properly assessing the spending needs of about 456 local authorities. I do not pretend that I know the answers, and the old method of assessing rate support grant was cumbersome and extremely complicated, but these problems may, perhaps, give a new impetus to trying to find a new and fairer method of financing local government. Rates and grants are clumsy and unfair.

My hon. Friend the Member for Luton, East (Mr. Bright) criticised the method of financing local government and the rating system in general, and I support him in that. I hope that we shall find time to consider in the busy timetable of this Parliament a new and fairer method of financing local government.

8.5 pm

Mr. David Alton (Liverpool, Edge Hill)

I listened with interest to the speeches of the hon. Members for Norwood (Mr. Fraser) and Islington, South and Finsbury (Mr. Cunningham) about the sorry state of affairs in their constituencies. The hon. Member for Norwood talked about potential rate increases of up to 56 per cent., and in Liverpool I suspect that they could increase by as much as 40 per cent. this year, which will come as a body blow to ratepayers who are facing many other increases. As the Secretary of State said, council tenants will face average increases in their rents of £1.50 a week as well as the rate increases.

In a sense, local government is being made to do the Government's dirty work and local authorities are being left to find a great deal of money to combat the inflation caused by the policies of this Government and the previous one. Local authorities are expected to find money solely from their own resources and many will be severely financially squeezed.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) told the Secretary of State for the Environment that many of us do not accept the economic premises on which the Government are working. I assure the Minister of State that on the Liberal Benches we are also worried about the Government's over-reaction to its predecessors' policies. They criticise the previous Government for their wet-nurse approach, for applying poultices to problems and hoping that by throwing money at them they will go away, but in their over-reaction they are stripping the patient's dressings from his wounds, the wet nurse has been sacked and the hospital closed.

The result will be that services will be far lower than in the past. Unfortunately, cuts in local government expenditure do not necessarily reflect a reduction in bureaucracy. Administrators are inclined to cut services rather than administrators, and I suspect that that scenario will be played out again this year.

I told the Secretary of State earlier that thrift has not paid off. Local authorities that have tried to be prudent and frugal have found that they will be particularly hard hit during the 12 months ahead. Those authorities with money to spare and fat to cut will be able to make savings by reducing grandiose or pie-in-the-sky schemes, but those that have applied the Government's guidelines over the past five years will be in a much more difficult position.

From speeches from the Government Benches, one would imagine that there had not been public expenditure cuts during the previous Administration. In fact, year after year local government has been asked to meet reduced standards and spending targets, ever since a former Labour Secretary of State told us that the party was over and that local government had to reduce spending. Many local authorities did so, trying to cut out waste where they could by establishing performance review and financial control sub-committees, searching out waste and making savings. I believe that that is the right way of reducing public expenditure rather than by going about it with an axe or hacksaw and cutting without minding the consequences.

It would be far better if the Secretary of State turned his attention to local authorities such as South Oxford shire, in his own constituency, where the local authority in Crow marsh has decided to spend £5 million on building new council offices. Many of us would say that that sort of expenditure at this time was a gross waste of local ratepayers' money.

In Southwark, the local authority anticipated expenditure of many millions of pounds on new council offices. Southwark is a good example of an authority that has now decided not to go ahead because of the new financial climate. Thus, it will save money and it may well be able to protect some of its basic services as a result. But what happens in cities such as Liverpool, which has been a shining example to many other authorities in the past? On one occasion it actually reduced rates without cutting services. Both of those authorities will now have to cut into the flesh of their basic services. It will mean that meals on wheels, home helps, school meals, school transport services, street sweepers, basic environmental services, housing and building programmes will have to be reduced.

Conservative Members have spoken of economy measures such as abandoning the provision of fire doors in nursery schools. The Conservative-controlled Association of County Councils has also suggested that fire doors and fire safety schemes might be eliminated from old people's homes and that the nutriment in school meals might be reduced as a means of saving money. That is way beyond the point of reason, and such excesses bring national Government into disrepute in terms of their dealings with local government.

We have heard a great deal about the shift of rate support grant from the urban areas to the shire counties. Anyone would think that suddenly, overnight, the shire counties would be that much better off, but the fact is that all ratepayers throughout the United Kingdom this year will face massive increases imposed on them by the bankrupt policies of this Government. Anyone would think that the shire counties were about to have a reduction in their rates. That is not so. All that will happen is that one group of ratepayers will be set against another. The Secretary of State has tried to disguise the basic fact that rates throughout the country will increase and that many people will suffer undue hardship as a result. The mask is beginning to slip.

As the right hon. Member for Spark-brook said, the reason for these policies is to pay for the Government's reductions in taxation. We have seen the benefits from those. They give advantage to people at the top end of the income scale and those who have inherited wealth. But the vulnerable, the weak, and the poor—those who are most at risk in our society—invariably are those who will suffer.

Inevitably, this rate support grant settlement undermines the autonomy of local government—a point that has been mentioned several times today. Like the Housing Bill, which we discussed yesterday afternoon, this Bill takes away the right of local government to decide its own fortunes in future. Local councils which have been elected on a platform of increasing services, with the implication that that inevitably has for increased rates, of selling council houses or not, of implementing comprehensive systems of education or not, will find that their right to take such decisions is being eroded by the shift towards more and more centralisation in government.

One remembers the promises that were made in the Conservative manifesto at the last election. The Tories talked about greater decentralisation and a shift of power back to local government. They talked about giving local authorities greater control over their own affairs. Indeed, the Secretary of State made great play with these points during the election campaign.

Mr. Heddle

Much has been said in the debate so far about local autonomy. Surely the unitary grant principle will retain local antonomy in principle, because it will give local authorities the opportunity to decide their own priorities.

Mr. Alton

Not for the first time, the hon. Member is proceeding in the wrong direction. The unitary grant principle is one that the local authorities themselves, when consulted, rejected. The new block grant system, which is outlined in paragraphs 38 to 41, has been criticised by the Association of Metropolitan Authorities. This quote from that body answers the question raised earlier by the Secretary of State about consulting local authorities on the new unitary system. It said: The proposal does not appear to differ substantially in theory from the former Government's proposed Unitary Grant system. The block grant system depends on the assessment by central Government of a standard expenditure figure for each local authority and the calculation of a standard rate poundage for each class of authority (e.g. metropolitan districts). The Report envisages that Government would incorporate in the schedule of rate poundage a threshold above the standard expenditure level so that if individual local authorities spent beyond that level they would receive a progressively reducing rate of Government grant. The Association opposes this proposal in principle and doubts whether in practice Government could devise a system which is both fair and efficient. The issue of principle is at the centre of the debate on central, local relationships. Local authorities have always recognised central Government's role in macro-economic policy. But while recognising central Government's role, local authorities are independently elected autonomous bodies, directly accountable to their electorates. Given the good record of local government in meeting the public expenditure policies of successive Governments, the Association considers that the block grant proposal, which would increase central control, is unnecessary and would, if implemented, seriously erode the autonomy of local government. Those are the views of the Conservative-controlled Association of Metropolitan Authorities. Not only are these interim measures unsatisfactory; the long-term proposals are equally ill founded.

I believe that there is a need for a total reform of the rating system. We surely all agree that the local tax base is suspect. The last revaluation was in 1973 and even that was highly unsatisfactory. The next would have been in 1982, but without any reference to the Association of Metropolitan Authorities or the local councils the Secretary of State decided to abandon the rating revaluation at the drop of a hat. Subsequently he had to apologise to the local authorities for his failure to consult them. That behaviour is very much a hallmark of the way in which the Secretary of State has conducted his affairs since taking up his present position.

The rating system must be based not on arbitrary notional values but on an ability to pay. It should be based on the income of the person living in the property. A classic example of the present inadequate system is the water rate. An elderly lady living alone can occupy a house alongside a family containing two or three wage earners. They pay the same water rate. Yet the family will be consuming much more water than the elderly lady living alone. The rating system, to be fair, should be reorganised on a basis of ability to pay.

I turn now to the question of punishment. The Secretary of State talked a great deal about the punitive measures that he would introduce to penalise local authorities that failed to comply with the rate support grant settlement. There is already sufficient uncertainty facing every one of the 456 local authorities in England and Wales. These bully-boy tactics, or blackmail, simply increase that uncertainty.

The Secretary of State said that local authorities should, if necessary, sack employees. I do not believe that such action will bring any savings for the public purse. It simply means that qualified people will have to be paid unemployment and social security benefits. It will add to the number of people on the scrap heap of unemployment. It will increase hardship and add to the social problems that the country already faces. That sort of approach will not solve any problems.

The way to reduce waste in local government is to look systematically at every line of expenditure, searching out abuses and waste, dealing with excesses, where and when they arise, consulting sensitively with the authorities and their representative organisations, and endeavouring to reform the rating system so that it is fair and equitable. Until the Government are prepared to bring forward radical and far-reaching proposals, I believe that we should continue to operate the present system.

8.20 pm

Mr. John Heddle (Lichfield and Tam-worth)

I speak as a Member of this House and also as a member of one of the larger county authorities. In view of the time and the fact that about six hon. Members still wish to speak, I intend to keep my remarks short.

I should like to ask the right hon. Member for Widnes (Mr. Oakes), who will wind up for the Opposition, two questions. Is it true that as far back as May 1977 the Government in which he was a Minister acknowledged the need for reform of the grant system and that a Green Paper, Cmnd. 6813, proposed that the unitary grant, suggested by the Lay-field committee, should be adopted? Although that Government remained in office for a further two years, they failed to implement the grant system.

I also invite the right hon. Gentleman to agree with me, and therefore to disagree with his right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), who said that there were only three options open to local government, that there is a fourth. The first is to reduce services, the second to increase unemployment, and the third to increase rates. The fourth, I suggest, is to cut out waste that every hon. Member knows still exists within most local authorities.

I agree wholeheartedly with those hon. Members on both sides, particularly the hon. Member for Islington, South and Finsbury (Mr. Cunningham), who proposed that there should be reform of the rating system but that such reform should not take place until a realistic alternative had been found. I agree that the search for that realistic alternative could be one of the responsibilities of the new Select Committee on the Environment.

I also agree wholeheartedly with, and would like to be associated with, the remarks of my right hon. Friend the Member for Stafford and Stone (Mr. Fraser) in thanking the Government for the consideration given to Stafford shire in its rate support grant settlement. I fear, however, as my hon. Friend the Member for Bridlington (Mr. Townend) said, that the increase in grant will be negated to a certain extent by the possible recommendations of Professor Clegg. Stafford shire, along with many shire counties, has made a concerted effort to keep within the Government's guidelines. If the Clegg settlement on teachers' salaries is, as expected, in the region of 20 per cent., Staffordshire and many other reluctant shire counties will be forced to increase rates.

I should like to welcome the stability in the settlement that the Government have provided. I am sure that my right hon. Friend will concede that any attempt to vary significantly the calculation and the distribution of the settlement would have been unfortunate, particularly at a time of considerable economic uncertainty coupled with significant and necessary reductions in local government expenditure. I am sure that this will be endorsed by all hon. Members. The retention of the overall grant level of 61 per cent. must therefore be most welcome in local government circles.

I am particularly pleased, too, that the Government have sought an early opportunity to halt the drift in the allocation of grant from the shire counties to the inner city areas. I am acutely aware of the needs of the cities, particularly in regard to population drift away from the inner areas. I have noted in Birmingham, which is but 12 miles from my own West Midlands constituency, the difficulties that arise from inner city blight problems. Whilst recognising the problem, as do many of our colleagues in local government, I feel that any central Government financial assistance to tackle the problem should be made available in addition to, and not as part of, the normal rate support grant finance.

I appreciate that my right hon. Friend has frozen the formula for the distribution of the 1980–81 grant on the previous year's basis. However, this does not mean that all recipients of grant will receive the same share of the total as they did last year, because changes have been made in the data used for the calculations. It is perhaps singularly unfortunate that some of the data are particularly volatile. I refer particularly to the labour cost index data. Perhaps my right hon. Friend who winds up the debate for the Government will touch upon this.

Whilst applauding the stability in the present grant proposals for 1980–81, all hon. Members must surely agree that at the very centre of the grant distribution proposals there is the thorny question of the assessment of needs of individual areas. Attempts to quantify these needs have in the past been related to levels of expenditure incurred in the various areas. That is a very rough guide, particularly when such expenditure levels can hide factors varying considerably between areas.

The question of the assessment of need has taxed the minds of many people over the years. I think it fair to say that the present arrangements are no more than a compromise—a compromise needed because of the many and varied, and often conflicting, demands made by various types of councils in respect of services with widely different impacts upon the population.

This problem will not go away when the House considers the proposed changes for 1981–82. The consultation papers thus far produced still indicate that the thorny question of the assessment of needs remains at the heart of the new proposals. I trust that every effort will be made by those charged with the technical tasks of the new proposals to measure this need more realistically than has been possible. I am particularly pleased to hear from my right hon. Friend the Secretary of State that full consultation will continue to take place with the local authority associations in an endeavour to improve a long discredited basis.

My final comments concern the cash limits, about which we have heard so much in today's debate, which my right hon. Friend included within the settlement for inflation in respect of both pay and prices expected in the year in question. I believe that it is absolutely right that the inclusion of those cash limits should be seen as a fundamental part of the Government's overall fight against the ravages of inflation, the symptoms of which we inherited from the last Government. No Government, however incompetent—this Government are the epitome of competence and good housekeeping—could possibly have been party and handmaiden to an increase in inflation from 10 per per cent. to 16 per cent. or 17 per cent. within six months. Inflation, like an ocean liner, takes a long time to turn round.

Mr. Alton

I am glad that the hon. Gentleman mentioned the rate of inflation. Perhaps he will explain why it is now standing at 18 per cent.

Mr. Heddle

As I have just said, inflation takes at least six months to work through the system. The right hon. Member for Leeds, East (Mr. Healey) said that it took 18 months. He has far more experience than many others of producing 14 or 15 Budgets within four or five years. It certainly takes more than six months for inflation to come through the system. Therefore, this Government cannot be held responsible in any way for the present inflation figure.

With the support of the Opposition and their friends in the trade union movement in exercising wage restraint, the nation can bring inflation down to an all-time low, which will remain static for years to come, provided that in both central and local government we practise prudent finance and good housekeeping.

Mr. A. P. Costain (Folkestone and Hythe)

Does not my hon. Friend find the remarks of the hon. Member for Liverpool, Edge Hill (Mr. Alton), who is a member of the party which kept the last Government in power through the Lib-Lab alliance, somewhat repulsive? The hon. Member tries to blame the Conservatives for the inflation caused by the party which was kept in power by the Liberals.

Mr. Heddle

I am obliged to my hon. Friend the Member for Folkestone and Hythe (Mr. Costain). I have great regard for his long experience in the House, and as an inexperienced Member I would not venture to disagree with him on that issue. The Conservative Party is committed to controlling the modern dinosaur of inflation. If our country is once more to become great, prosperous and profitable, it is vital that the proportion of the gross national product taken up by public expenditure—at central and local levels—is at worst contained and at best reduced.

It is essential, therefore, that wage and salary negotiations now in the pipeline should be pursued—while recognising our present dire circumstances—with a refreshing degree of realism. As a nation, we cannot continue to pay ourselves more than we earn. We cannot continue to pay ourselves more from profits that are not there. Those profits are not there because we are not producing the wealth that comes from greater productivity. However, given the time and the will, we can do that. Both central and local government must set an example to our people.

8.34 pm

Mr. Allan Roberts (Bootle)

In the general context of our discussion of the rate support grant, I shall speak of the background against which the settlement of the rate has been reached and relate the circumstances in the Sefton metropolitan district council area to the general factors relevant to the rate support grant.

Inner city areas are currently suffering as a result of the Government's economic policies, to an extent such that I question the future of local government itself. The present rate support grant proposals are symptomatic of the Government's approach to local government. The Government are mounting an attack on the fundamentals of local democracy.

I am surprised that members of the Tory Party, both in the House and in the country, should allow the Secretary of State for the Environment and his colleagues to get away with a major attack on local government. When local government—that is, the grass roots of the local political parties to which people belong in order to take an active part in deciding the issues affecting their lives—is attacked, the very basis of British democracy is attacked.

Great strides in social progress have been made in this country in recent times. For example, better living conditions have been provided for our people by local government. I have never known a Government, of whatever political persuasion, to give power to local government rather than take it away. Labour Governments have fallen into the trap laid by civil servants and have introduced legislation to take powers away from local government. The responsibility to care for the health of our citizens has been taken away from local government and placed in the hands of non-elected bodies. Even the gas industry, which began as part of local government, has been removed from the control of local government.

No previous Government have so obviously, purposefully and blatantly set out to destroy the basis of local democracy. The rate support grant settlement and the Secretary of State's statement on 16 November lay bare the Government's philosophy. The Government obviously believe not in democracy but in dictatorship from Whitehall.

The settlement comes on top of decisions which have already been taken by the present Government. In the Budget, the Government cut the rate support grant by £300 million for the year 1979–80. This year the Government have taken about £310 million from local government. Local authorities have had a dramatic reduction in the moneys which they expected to receive and which were promised by the Labour Government.

Liverpool lost £3½ million at a stroke, although it was expecting to receive that sum and had budgeted for it. That loss took place before the current rate support grant settlement. The Secretary of State for the Environment pretends that this is a 61 per cent. settlement and not really a cut in what was promised by the previous Government. In reality, the Secretary of State is reducing the money available to local authorities way below that figure. The Government have refused to accept as relevant expenditure many items which were previously acceptable. The Government have limited the items on which local authorities can spend money on the basis of receiving a central Government contribution.

The settlement is based on a 13 per cent. rate of inflation. It is likely to be more than 20 per cent. If Ministers continue to make statements such as that made today about gas prices, the rate of inflation is likely to soar way beyond 20 per cent. The rate of inflation on which the settlement is based in unrealistic and will result in a massive cut in the rate support grant.

The Government are mounting an attack on the cities, the metropolitan areas and the areas in the greatest stress. That attack has only just begun. We are experiencing only the beginning of the shift of resources from the areas of greatest need to the shire counties. During the Labour Party's period in office, there was a gradual shift in the distribution of rate support grant in favour of the needy inner urban areas. In the last five years London's share of needs element increased from 17½ per cent. to 22 per cent. The metropolitan districts' share increased from 25 per cent. to 26½ per cent. I accept that the reversal contained in the current settlement is not great, but the process has begun and I have no doubt that it will continue.

Rural deprivation has been mentioned. Government Members have bemoaned the fact that money goes to the areas of greatest need. They even dispute that places such as Liverpool, Bootle and Manchester have worse problems than Shropshire, Cheshire and Wiltshire. The figures demonstrate a clear need for even more redistribution in favour of the urban and inner city areas. For example, there are 121 persons per 1,000 of the population living in houses lacking basic amenities in the shire counties. The figure for Liverpool is 288, for Manchester 268, and Birmingham 194. Unemployment in the shire counties is running at 23 per 1,000 of the population. In Manchester the figure is 46 and in Liverpool 71. In the face of those figures, the Government dare to suggest that the shire counties are in greater need than the inner cities. In the shire counties there are 10 lone-parent families per 1,000 of the population. For Liverpool the figure is 16 and for Manchester 22.

We come next to the amount that is paid in rates. In spite of the Labour Government's redistribution under the rate support grant in favour of the inner city and urban areas, the citizens of those areas still pay fantastically higher rate bills than people living in shire counties. The average rate bill in 1979–80 for standard domestic properties in Wiltshire was £138. In Gates head the figure was £159 and in Hackney £358.

One of the worst aspects of the current rate support grant and the Secretary of State's statement is the threat being held over the heads of local government about what will happen if they do not do what the right hon. Gentleman wants and keep their rates lower than is necessary to provide essential services in their areas. However, at the moment no Minister has the power, through manipulating the rate support grant settlement, to penalise individual authorities which increase their rates to meet the expected needs of their areas. Since he does not have these powers, the Sec- retary of State is happy to take them in the local government Bill. That Bill is not yet law, but there is the promise or threat that if the local authorities do not do as the right hon. Gentleman tells them he will take retrospective action under that Bill to claw back rate support grant from individual authorities which will have assessed their needs and levied their rates on the basis of prevailing law. If that is not retrospective legislation, or near to it—something that is considered abhorrent in this country—I should like to know what is.

Mr. King

Has the hon. Gentleman never heard of resource clawback? Does he not know that what he has described is precisely what happens at present? I do not know whether his authority has suffered under this procedure, but during the middle of the year grant can be clawed back from authorities in the manner to which he is taking such great exception.

Mr. Roberts

That is true, but it is done under existing legislation. If the Minister is satisfied with that arrangement, why is he proposing to legislate to take further powers?

Mr. Ronald W. Brown (Hackney, South and Shoreditch)

Will my hon. Friend tell the Minister that the resource claw-back is carried out for specific reasons but that the new provision is purely political—t will be applied to Labour authorities but not to the Conservatives?

Mr. Roberts

What does the legislation proposed by the Secretary of State seek to do, and why is he proposing it? In his statement to the Consultative Council on Local Government Finance, he says: Resources element provides the same marginal rate of grant support to a local authority's expenditure regardless of how extravagant that expenditure might be.…Needs element is distributed on the basis of an analysis of past expenditure patterns. Neither of those statements is 100 per cent. accurate. At present, needs element is assessed on a variety of factors, not merely on the basis of analysis of past expenditure patterns. It is related to spending needs, total population, the number of elderly people and the number of children. Resources element is essential in terms of trying to establish justice between one local authority and another. Perhaps I may give an example—the city of Salford and the city of Manchester. The city of Salford—although some people who live in Salford might not admit it—has a city centre which is really within the city of Manchester. Most of the commercial property with high rateable values lies in the city of Manchester. If it were not for the resources element that enabled the city of Salford to get help in view of the fact that it does not have the same amount of property with a high commercial value in its area from which to attract rates, the city of Salford would have been in a fantastic mess over the last 20 years or so in terms of trying to carry out its policies of slum clearance and in dealing with serious inner city problems, lacking, as it does, unlike the city of Manchester, the commercial centre that is needed to raise the revenue necessary to carry out those policies.

The Secretary of State is getting rid of the needs element and the resources element and introducing this new block grant, which he or his civil servants will determine by an assessment, on the same basis for all local authorities, of standard expenditure and a standard rate poundage levied on an authority's rateable value. If ever there was an attack on the freedoms and independence of local government, this is the worst, because no local councillor can take decisions about his area if he cannot take decisions about the amount of money that he can raise from the rates to meet the area's needs, as he sees them in the light of the result of the democratic election that he has fought.

Only last week, the consequences of the Government's financial policies were highlighted in the local newspaper in Bootle, in my constituency—not by the Labour councillors in the area, who are in opposition, but by the Conservative chairman of housing, Councillor Keith Parkinson. He announced the probable £4 rent increase. In so doing and referring to the Government's economic policies and the cutback in Government support to local authorities, he said: Sefton has been carrying out this policy for some time and the Government is simply saying what we have been doing. I can see nothing wrong with reducing the subsidy…I see no reason why those who could afford to pay should receive half their rent from public funds. Not only are moneys to local authorities being cut in the RSG settlement. Housing subsidies are being cut, and local authorities, because of cuts in housing subsidies and in the RSG, are emptying their housing revenue accounts of rate fund contributions, pushing up rents by increases of £4 a week—at this particular time.

The hon. Member for Lichfield and Tamworth (Mr. Heddle) blames the previous Labour Government for the present rate of inflation. At a stroke, in this RSG settlement, in the cuts in housing subsidies, not counting VAT, the Government are pushing up inflation to a level at which working people in constituencies such as mine will be demanding wage increases to combat these massive rate and rent increases.

I do not see how Conservative Members can escape some responsibility not only for the present rate of inflation but for the rate of inflation that we are likely to have next year which will affect the rate support grant settlement.

The lion. Member for Liverpool, Edge Hill (Mr. Alton) referred to rates in Liverpool. I never know whether to call him my hon. Friend or my honourable enemy, because I am not certain whose side he is on. Indeed, he has become known in Bootle as Liverpool's nowhere man: a man who has no point of view and knows not where he is going. None the less, I think that he will be voting with the Labour Opposition tonight.

I predicted some time ago during Environment Question Time that we would have a crisis in Liverpool verging on New York proportions as we were likely to have a 40 per cent. rate increase. The Secretary of State said that I knew nothing about the rate support grant or how it worked if I could make a statement like that, because he had not then announced the settlement. He has now. Indeed, we are having a 40 per cent. rate increase, so Liverpool is verging on a New York crisis situation.

Liverpool suffered from a Lib-Tory pact which cut services, held down rates and put up council rents. There is nothing in the coffers. We had a deficit before we started, despite the cuts and the rate support grant settlement. Therefore, Liverpool people face cuts in services and a massive increase in rates at the same time.

Mr. Alton

Can the hon. Gentleman say whether the increase in Bootle, where there is a Conservative-controlled authority, is likely to be greater or less than that being suffered by Liverpool? Does he accept that rate increases throughout the country will be incredible as a result of the announcement of the rate support grant settlement today? Does he agree that to try to lay the blame on individual local authorities is nonsense?

Mr.Roberts

Yes. There is not much difference between Liberal-Conservative rule in Liverpool and Conservative rule in Sefton. The problems are similar. One of the advantages that some Labour authorities have—it will not be long-lived under this Government—is having money in reserve because of prudent management. Neither Liverpool nor the metropolitan district of Sefton has that advantage. [An HON. MEMBER: "Which ones do?"] I do not have to name them. The Secretary of State has been naming them since he became the responsible Minister. He has called them over spenders because they spend money on essential social services, housing and education.

The difference between the city of Manchester and the metropolitan district of Sefton being asked to cut services is like asking one man to take off his overcoat—that is the city of Manchester—when another man—Sefton—is already stripped to his underpants. If we have to make any further cuts, everyone, including those who receive the services, will be embarrassed.

The Government are trying to get Labour councils and councillors to do their dirty work for them in the hope that, when the cuts are made and the rate bills go through the doors, the town halls, not they, will be blamed. I assure them that the Labour movement will ensure that that does not happen. If the Secretary of State thinks that Labour councils are stupid enough to allow that to happen, he is greatly mistaken.

We must in the national interest fight the cuts in public expenditure which are being imposed on local authorities. It is not in the national interest to cut public expenditure It is not a matter of cutting our coat according to our cloth. We believe that public expenditure is essential for the good of the country and its economy. Public expenditure leads to more private expenditure and to more jobs. In areas such as Merseyside the only hope is public expenditure, and much of it must come through the local authorities.

8.55 pm

Mr. John Major (Huntingdonshire)

When I came into the Chamber early this afternoon, I did not expect to speak in the debate. However, having listened to the opening remarks of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) I felt that I should like to refer to some of his observations. I shall wait for a few minutes before doing so, in the hope that he may return to the Chamber. I hope that the hon. Member for Norwood (Mr. Fraser) will also return, because he made some remarks about Lambeth on which I should like to comment.

The rate support grant settlement was awaited with considerable trepidation in the counties. It was awaited with trepidation, first, because of the effect of the rate support grant throughout the past four or five years and, secondly, because of the economic situation and the fear that there would be substantial cuts in the level of grant.

If I may speak for Cambridge shire in particular, a county that has done badly in the past four or five years, there was an expectation this year that the 61 per cent. level of grant would be considerably reduced in the light of economic circumstances. When it was not, there was great relief that the Secretary of State had decided to maintain it at that level for the present year. Whether that can be done in future years is a matter which the course of the Government's counter-inflationary policy may well reveal in the months to come. I hope that it will be possible in future, in the light of the general reduction in expenditure, to look for a lower percentage of grant when it can be introduced without undue hardship for rural and urban counties.

The most favourable aspect of Government policy with which the counties were especially pleased after the events of recent years was the distribution of the rate support grant. Being parochial for a moment, I must say that the own county or Cambridgeshire has lost about £20 million per year in the past four years. This year, for the first time in the last five years, Cambridgeshire has found its grant maintained at a level at which it could reasonably have expected it to be mantained. Cambridgeshire had a minor gain, but certainly there was not a continuation of the loss suffered in recent years.

I am an urban creature. I have spent most of my life in urban areas. There has been some suggestion from hon. Members who represent urban areas—I can understand it—that there is no need for the money to be returned to the counties because they do not face special problems and that the justification for any form of switch back to the counties is extremely flimsy.

I say to those who think that way—again using as an example Cambridgeshire, which is atypical to a degree but none the less symptomatic of what has happened—that in Cambridgeshire there has been the most enormous population growth over the past four or five years. Much of that population growth has come from inner city areas. For a variety of reasons, including the policies of the borough councils in city areas, people have tended to flee from the inner city areas to the rural counties of England. In my own constituency of Huntingdonshire we have large overspill estates of Londoners, at Huntingdon and St. Neots. We also have half of the Peterborough new town in the constituency.

I turn for a moment to deal with what was said by the hon. Member for Norwood. Three years ago I had the privilege of being the chairman of the housing committee in the London borough of Lambeth for a brief period. I shall give an illustration, from those days, of why it is practical justice that there should be some return of the rate support grant to the county areas.

At that time, when I was housing chairman in Lambeth, we had precisely the problems which exist today, and one of the initiatives which we were pleased to take, and which people in Cambridgeshire were happy to see adopted, was the expansion of Peterborough new town and a special linking agreement so that families and individuals could move out of Lambeth, where conditions were appalling, into Peterborough new town. There has in fact been an enormous spillage of people specifically from Lambeth into my constituency of Huntingdon- shire, and especially into the northern ring of it in Peterborough.

The effect of that over the past nine or 10 years has been cumulative, but, from the standpoint of the services needed to cater for that large influx of people, the reward for Cambridge shire's gratuitously saying "Yes, we will assist" was year by year to see a continuous reduction in the level of rate support grant.

Mr. Marks

What is the rate poundage now paid in the hon. Gentleman's constituency, compared with the 119p that the Government are giving as the standard?

Mr. Major

I shall come to that, because there are other matters which need to be adjusted with that, as was pointed out a little earlier. The point that I am making now, specifically in response to the hon. Member for Norwood, is that the reward for areas beyond London for endeavouring to assist with the London problem has been a continuing diminution in the amount of funds available to them. That is grossly unfair, since so soon as one accepts a large influx of population there is of necessity a call on a considerable number of services to be moved to a far higher level of operation, and the funds have simply not been there for that purpose.

There have been other references to Lambeth, and I have already said that I am an urban creature. In fact, I spent most of my youth living in one of the less salubrious parts of Brixton, and I am well aware of the problems of inner London and of Lambeth. In my view, the hon. Member for Norwood does less than justice when he fails to recognise that many of the problems of inner London have been generated from within by some of the barren policies of total municipalisation and the successive policies of rent control which have driven out of the privately rented sector so many units of accommodation which could have helped. This has been a material factor, and, although hon. Members on the Opposition Benches choose to ignore it, it has added and is still significantly adding to the real and understandable problems being faced today in Lambeth.

Lambeth and other boroughs have added to their own problems. I shall deal specifically with Lambeth, and perhaps with Camden, if I am pressed to do so. These authorities are to a substantial extent recognised as spendthrift authorities. They have heavy social problems, they spend money on those problems, and that is understood, but beyond that they also go in for a large amount of quite gratuitous and unnecessary expenditure.

I put to the hon. Member for Norwood—he must have been most embarrassed about it—the example of the special newspaper produced by Lambeth borough council and distributed to every house in the borough asking people to join a march and demonstrate against the Government's cuts and economic policy. I do not know how much that cost, but the amount involved might well have helped with some of Lambeth's social problems. Moreover, as the hon. Gentleman knows, that was by no means an isolated example.

I turn now to the forthcoming demise of regression analysis. It has seemed to many of us, as I have said, that the spendthrift local authorities, like greedy crocodiles, have under this principle been fed with more and, because they were fed with more, have demanded more. That happened, as I have tried to show, at the expense of my county and other county areas, and the effects of regression analysis have seemed to us to be wholly unfair in a large variety of ways, and inflationary, too, in some respects. I suspect that, on its demise, the corpse of regression analysis will be the most popular in this or any other year.

Mr. Ronald W. Brown

I recall the hon. Gentleman in his period as housing chairman in Lambeth, but I do not recall the London Boroughs Association receiving from him any demand in respect of the loss of money in the rate support grant for London.

Mr. Major

The hon. Gentleman has a splendid memory, for I do not recall ever having met him at that time, although I recall that on one famous occasion a lady threw a rat at me in the mistaken belief that she was throwing it at him. I am pleased to tell the hon. Gentleman that in the event she missed. But the hon. Gentleman makes a fair point, and I have to say that in my youth I made no such representations to the LBA. Perhaps I should have done, but I certainly did not at that time.

The right hon. Member for Spark-brook talked of the reduction of services as a result of the rate support grant settlement and of the deflation of the economy. The right hon. Gentleman has a charming style of delivery but a flawed memory. It is barefaced for him to talk about deflation in the light of the policies of the Cabinet in which he sat as such a distinguished ornament for so long, namely, as Secretary of State for Prices and Consumer Protection.

I recall that his right hon. Friend the Member for Leeds, East (Mr. Healey), the former Chancellor of the Exchequer, was a great deflater. Usually the right hon. Gentleman deflated in panic, and usually at the behest of the IMF rather than as part of a considered policy. The present restraint, difficult and painful though it may be, has a clear objective, which is the continued reduction in the level of inflation.

There has been some talk—notably by the hon. Member for Bootle (Mr. Roberts)—of the levels of inflation and other problems. The hon. Member for Liverpool, Edge Hill (Mr. Alton), in his usual fashion, blamed Conservatives and Socialists—indeed, everybody except Liberals. It seems that disaster follows whenever the Conservative Party or the Labour Party enters into a pact with the Liberal Party.

I remind those who criticise the Government for the levels of inflation, and the results of those levels, of a distinguished speech that was made by the right hon. Member for Leeds, East at the Lord Mayor's banquet in 1976. I do not have his speech chapter and verse before me, but I recall that he touched upon the principle of the time lag between input and the outturn of inflation. If my memory serves me correctly, in 1976 the right hon. Gentleman was talking of a time lag of 18 months. I suggest that before Labour Members blame the Government for the present level of inflation they should re-examine that speech and their own views.

I am sorry that the hon. Member for Edge Hill left the Chamber so soon after completing his speech. He talked about the reduction of services. Out came all the usual pat arguments about meals on wheels and grannies who are to be shot by wicked Tory councillors. He made precisely the mistake that I expected him to make. Every time that the hon. Gentleman and others with his views speak, they refer to the reduction of services. They never think about the reduction of staffing levels—it is always "Maintain staffing levels and get rid of the services." Whatever we may think about the level of unemployment, that is a most barren and dangerous philosophy and not in the interests of ratepayers whom councillors are elected to serve. We have heard a great deal about local democracy and the necessity for councillors to serve their ratepayers.

There has in some respects been an aggregation of responsibilities for local authorities. My area provides an illustration of how staffing levels may be maintained, or even cut, notwithstanding a population growth of nearly 25 per cent. The staffing level of the Huntingdon district council, which includes a housing authority, has remained broadly static over the past five years. It is valid to consider those who voluntarily retire and leave local government each year. I think that the number is well in excess of 100,000. Without wholesale sackings and draconian measures, there is the possibility of staffing reductions without the desperate reductions of services that are often claimed as likely to ensue. I believe that the figures offer a practical way in which we may proceed out of our present problems.

As we proceed, it is highly desirable that, in real terms and over a period, the level of Government commitment to local authority expenditure via the rate support grant should fall. I hope that it will. I hope, too, that at some stage we are able to find a rather better system than rates to fund local government. My heart goes out to my right hon. Friend the Member for Bridgwater (Mr. King), the Minister for Local Government and Environmental Services, whenever anyone suggests that the rating system should immediately be reformed wholesale. The anomalies in the rating system are recognised. However, I hope that my right hon. Friend will take good time to consider the issue, so that when he brings forward proposals they are more likely to be right than wrong.

Some hon. Members have spoken of the wicked habit of my right hon. Friend the Secretary of State of postponing the rating revaluation. I was tempted to intervene at the time, but I was not sure of the facts. However, I am sure now. I hope that the Opposition spokesman will confirm that not one rating revaluation has been carried out by a Labour Government since the war. Whenever the issue appeared, they scrapped it. It just did not happen. Not once have they proceeded with a rating revaluation. I suggest that when they criticise us for the practical measure of removing the rating revaluation because of the rapidly impending reform of the rating system, they should have a look at their record first.

I conclude by congratulating my right hon. Friend the Secretary of State on balancing most carefully the twin needs of trying to reduce the sum total of Government expenditure, in the general interests of containing inflation, and trying to strike a balance between urban and rural areas which will bring equity and fairness to both.

9.10 pm

Mr. Gordon Oakes (Widnes)

Without doubt, this is the most important and by far the most damaging rate support grant ever to come before the House. I am surprised that, although the level and quality of the contributions to the debate have been high, so few hon. Members—both sides of the House are equally to blame—seek to participate. Many hon. Members, certainly myself, came into Government via local government. We were schooled there; it was our apprenticeship. Therefore, I should have thought that there would be a high participation rate in the discussion of any order affecting local government. Also, all hon. Members find that a considerable amount of the time, probably 75 per cent. or 85 per cent., that they spend dealing with constituency problems is devoted to local government problems rather than national problems. Any order affecting local government as massively as tonight's one has immediate repercussions upon all hon. Members.

It may well be that one reason why hon. Members do not participate in such debates is the form and shape of the orders. Frankly, they look more like tables of logarithms than the documents that usually come before the House. They might frighten off some hon. Members. For that reason, I do not propose to go into the minutiae of the formula. Five years ago, between 1974 and 1976, I had the misfortune to be the junior Minister at the Department of the Environment who dealt with rate support grant. I did not fully understand the grant then. I understand it less now. However, one thing is certain. The complicated jargon, confusion and difficulty of the formula have not changed from that period of time. It is rather like the old games that we played as schoolboys—think of a number, double it, add one and, in the case of RSG, divide by 2.3045, take away the number first thought of, and that produces the allocation for the local authority of the needs element of the rate support grant for the next 12 months. To any outsider, certainly to many councillors in local authorties, it seems to be like that.

I treated seriously the criticisms that I received when I was Under-Secretary, particularly those from Conservative Members, about the complication of the formula. They all pointed out that it should be simpler and presented in a more simple way. They were right. I tried to do so and I failed. I notice that those who made the criticisms at the time have tried to do that and they, equally, have failed. However, one thing could be done within the existing system. In a moment, I shall come on to talk about the proposals under section F.

One of the main criticisms that I had as a Minister—I am sure that it is true today—was the complaint that the statistical information that goes into the grant is hopelessly out of date and that authorities are penalised thereby. I received that complaint more than any other. In these days of microprocessors, computers and rapid communication of statistical information, I am surprised that that should still be so. I am certain that the same complaint will be made about the rate support grant that we are discussing tonight.

This rate support grant is unusual because it has two distinct parts. For that reason, unusually, my right hon. and hon. Friends will be dividing tonight against the order. One part is the ordinary financial provision for this year and next. That is a matter that we always debate—the amounts that local authorities will receive. However, there is a second part. Section F of the order has been the subject of considerable debate. The Government would probably call that section a declaration of intent, but I would call if a threat of punitive dictatorship.

On a number of occasions the Secretary of State has tried to have fun with my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) about his approach to local authorities. However, my right hon. Friend does not encourage local authorities to spend, spend, spend for spending's sake, nor does he encourage them to waste money. He encourages local authorities to stand up for their rights and for the services for those who elected them. They are not to be dictated to by central Government. The Secretary of State cannot level the same criticisms at me, and he knows it.

The hon. Member for Liverpool, Edge Hill (Mr. Alton) mentioned that when the late Mr. Anthony Crosland was Secretary of State for the Environment he told local authorities in Manchester in 1974 that the party was over. I was the unfortunate junior Minister who had the invidious task of going up and down the country shouting "Time gentlemen, please" and collecting the glasses. That was not a very pleasurable occupation, but it worked. I worked by exhortation, not by force, threats or punitive measures. It worked not because we cut the rate support grant as it is now being cut but because it persuaded both Tory and Labour local authorities of the need to an it. I agree with the hon. Member for Edge Hill that that is the approach to take rather than the draconian measures introduced by the Government.

Mr. Heseltine

The right hon. Gentleman will take into account that he had an Opposition who supported what he, as Minister, was trying to do. This Government do not enjoy that facility.

Mr. Oakes

I tried to persuade local authorities not to waste money and not to cut into essential services as this Government have done. At that time, in 1975–76, we suffered because a massive number of new local authorities had been created by the Conservative Party in 1972. Those authorties were far-away places with strange-sounding names and they cropped up all over the country. Expenditure ran out of hand at that time. The hon. Member for Rugby (Mr. Pawsey) fairly made the point that that was one of the major causes of the highest increases in local authority expenditure that Britain has ever known.

The hon. Member for Huntingdonshire (Mr. Major) congratulated the Secretary of State on maintaining the level of rate support grant at 61 per cent. A number of other Conservative Members have also made that point. It is no such thing. The expenditure calculation behind the rate support grant and upon which it is based is £15,737 million. However, the figure put forward by the local authority associations for relevant expenditure was in excess of £18,000 million. The Government's figures are wrong. The Government are always arrogant about local government figures. I accept that there is a discrepancy in accounting procedures between central Government and local authorities, but not of this size. Mr. Jack Smart, the leader of the Labour group in the Association of Metropolitan Authorities, said that to talk about 61 per cent. of relevant expenditure was a myth.

There is a belief, even among hon. Members, although not the Government Front Bench, that every authority gets 6 per cent. rate support grant and has only to spend 39 per cent. That is not so, as the hon. Member for Altrincham and Sale (Mr. Montgomery) knows to his cost. His local authority has to find considerably more because of the vagaries of rate support grant.

In addition, the cash limits assume wage rises of about 13 per cent. I remind the House that over 17 per cent. of local authority expenditure is on wages, and there have been certain developments regarding wages since the right hon. Gentleman's meeting with the local authorities. The latest agreement is a 14 per cent. rise for local government manual workers which was agreed a week ago, and it is one of the best that the Government can hope for. An announcement was made this morning that wage increases in November 1979 were 19.2 per cent.—a 2 per cent. increase from October. That is the background against which these cash limits must be viewed. We must consider the pay of other local government workers as a result of the Clegg report—teachers, white collar workers and craftsmen—whose rises have yet to be announced.

In addition to the 13 per cent. built into the rate support grant for wages, the non-salary figure is calculated at 9 per cent. Only a few days after the rate support grant was negotiated with local authorities, it was announced that the mortgage rate would rise to 15 per cent. and the bank rate to 17 per cent. I doubt whether even representatives from Conservative-controlled local authorities would have so readily agreed to the rate support grant had they known of the increase in the bank rate. As the right hon. Gentleman knows, the level of interest rate is of enormous importance to local authorities.

I am talking not only about approved capital expenditure, where a loan has to be obtained, but about the indirect results of a high bank rate. A local authority that does not have all its rates in and has to borrow money for expenditure will be badly affected. I hope that the Minister will assure the House that there will be general cover and not just for specific items where borrowing approval has been given.

The other major non-salary expenditure is for energy. It is significant that today, when the rate support grant is being discussed, we have had mention of swingeing increases in gas and electricity prices, all of which will affect local authorities adversely. The cost of motor fuel has also risen since the settlement was reached. All those items cost local authorities a great deal of money and will have a drastic effect on their expenditure this year and next.

The effect of the rate support grant will be twofold. Labour and Conservative local authorities will endeavour to reduce expenditure—they will have to—and introduce a lower level of services, although that will vary with the authority. We shall also have the most massive rate rises ever known as a direct result of the rate support grant.

The right hon. Member for Stafford and Stone (Mr. Fraser) made the point clearly when he said that Stafford was a prudent county that will endeavour to follow Government policies, and would even go so far as to reduce services. Despite all that, he assured his right hon. Friend that there would be rate increases of between 20 and 25 per cent. These are the sort of figures that we will get in London and some other urban areas, even with major reductions in spending—I would say too heavy reductions in spending. Despite all that, there will be rate increases of more than 50 per cent. in many areas as a direct result of the order that is before us today.

I should like to quote the words of the Conservative-controlled Association of County Councils. In a document which went out with a letter from the secretary, Mr Hetherington, on 8 January, the association says: The settlement means that authorities will be forced to make large rate increases as well as to cut back further the level of their expenditure and the standard of their services. The ACC's membership have always been, and will continue to be, strongly interested in achieving maximum efficiency and economy in the provision of their services. But it cannot be contended that the expenditure reductions sought by the Government, this year and next, can be achieved wholly, or even mainly, by improvements in efficiency: the level of service which local government provides has to fall if the expenditure 'targets' are to be achieved. Those are not the words of the Labour Party; they are the words of the Association of County Councils.

The other effect of reducing services is on the levels of unemployment within local Government service. Thank God, no hon. Member in this debate has used the pejorative term of "bureaucrats" which we have heard in the past from Conservatives. Dinner ladies, teachers, firemen, and road roller drivers are not bureaucrats. Even if one considers administrators in the true sense of the word, I am surprised by the amount of vituperation of the media which brushes off on Conservative Members. They should remember that they must often deal with local authority officials in their constituencies.

We do not always get the decisions we want from local authority officials, but we must remember that they are servants of the public just as we are. We have problems to put before them and they have problems as well. I do not see why the attack that is so frequently made by Conservatives on local authority workers should ever be made at all. It is unfair to suggest that they are bureaucrats—whether they are manual workers or administrators—and to speak of them as if in some way they are spongers on the community who do not deserve their wages.

These are the people who may lose their jobs as a consequence of cuts in services resulting from this rate support grant. Hon. Members should make no mistake about it: the level of cuts envisaged in this rate support grant goes far beyond the frills and far beyond dealing with waste and the elimination of unnecessary buildings. The cuts will go deep into the heart of employment, of both full- and part-time staff in local government. It is disgraceful that insufficient attention is given to the prospect of tens of thousands of local government workers being put out of work by the deliberate act of Government policy. Tomorrow we are, quite rightly, discussing the level of unemployment among steel workers. A considerably greater number of local government workers could lose their jobs as a result of Government policy, and the House should be aware of that fact.

I turn to the distribution of the needs element. When I was a Minister at the Department of the Environment, I could see the point that many shire counties made very forcibly to me about their special needs. There are difficulties of distance, of sparsity of population and of rural transport in many shire counties. These difficulties were put forcibly to me.

I should be glad, in normal circumstances, to see that the position of shire counties did not deteriorate. The difficulties of Welsh counties especially came to my notice while I was a Minister. But an improvement for shire counties has occurred at a time of considerable reduction in the amount of rate support grant. Shire counties are, therefore, helped at the expense of metropolitan areas, and especially at the expense of London.

My hon. Friends the Members for Norwood (Mr. Fraser), for Islington, South and Finsbury (Mr.Cunningham) and for Bootle (Mr. Roberts) posed the problems of local authorities, such as Lambeth. The expenditure of shire counties is often less because they export their problems to London. The young girl who is pregnant disappears into the city and becomes the responsibility of Lambeth or Islington. The runaway husband and the person without work also becomes, the problem of inner city areas, especially London.

I would normally welcome a greater proportion of grant for shire counties. But the effects on inner areas can be considerable. It is regrettable that, at a time of savage reduction in the amount available, money has been given to the shire counties at the expense of all urban areas, especially London.

I turn to the contentious section F and the transitional arrangements contained in paragraphs 42 to 46 of the document. The balance between the House and local government is a delicate and sensitive partnership. We are elected by virtually the same franchise. Hon. Members are elected at national level and members of local councils at local level. We are responsible to our constituents. They are responsible to their constituents. For many years, a delicate balance has existed. The right hon. Gentleman is shattering that balance. The whole of section F reveals the arrogant contempt for local government and local government democracy that the right hon. Gentleman feels. That contempt is shown vividly when he is interrupted by my hon. Friends and retaliates against those authorities that he thinks will defy him.

I say "arrogant" for two reasons. There was no consultation with local authorities over the proposals in section F. I intend to quote chapter and verse of what the local authorities think. I accept that the previous Government of which I was a member put forward a Green Paper which advocated a unitary grant. It was not a unitary grant with all the punitive strings that the right hon. Gentleman has introduced. The previous Government put forward that proposal because it was recommended by the Lay field committee.

It is right that when a high-powered committee such as Lay field is set up, its proposals should be presented in Green Paper form to local authorities and to the nation for discussion. The local authority associations unanimously rejected unitary grants. My Government were democratic enough, and sufficiently sensitive to the balance between local and national government, to abandon the proposals for a unitary grant. The present Government have resuscitated the unitary grant without consultation and have added the punitive strings.

The attitude that has been adopted is doubly arrogant. As many hon. Members, especially my right hon. Friend the Member for Sparkbrook, have indicated, the Government have included this proposal in the order before the Bill which will contain the legislation has been brought before the House. The Government's legislative timetable is in a mess. In nine months in office, they have introduced a Bill into the House of Lords and abandoned it, saying that they intend to introduce a Bill in the House of Commons. Nothing has been forthcoming, and it is almost February. Local authorities are awaiting that Bill to know what they need to do in next year's rating and rate support grant discussions. We have not even had the Second Reading of that Bill.

When I listened to the Secretary of State's replies to my right hon. Friend and other hon. Members about his yardstick for deciding which authorities were in defiance of the Government, were too big spenders, and all the other words that we have heard from him to describe those that offend him and his principles, I thought how subjective it all was. It is subjective in that it depends entirely on the Secretary of State's will and decision. What would have happened if we had dared to introduce such an arrogant measure as the present Government have introduced?

It was even more sinister when the right hon. Gentleman said that one of the ways in which he would judge whether an authority was in defiance of central Government was by the things that it said. No doubt the right hon. Gentleman will be the Secretary of State in 1984, so councils had better beware. The young bright-eyed councillor, of any party, who goes on to an authority not knowing much about the procedure will be warned by the chief executive "Do not say a word against the Government, or they will put us on their black list and we shall have our expenditure reduced." It was the right hon. Gentleman who said that one of the things by which he would judge an authority was not simply its level of expenditure, not what the money was spent on, but what it said. That is far too subjective a way in which to deal with local authorities.

The right hon. Gentleman said that he would have discussions and consultations with local authorities. That may be, but he has produced the order and we have had none yet. What is said by the Association of District Councils, a Conservative-controlled organisation? It says: The association is most concerned about Section F of the Order, relating to the proposed new grant structure and the transitional arrangements. This proposal strikes at the very foundation of our system of democratically elected councillors taking spending decisions in the light of local needs and circumstances." The ADC is quite right. I think it was the hon. Member for Edge Hill who quoted the response of the Association of Metropolitan Authorities, which was similar. I should like to quote also the response of the Association of County Councils, in a letter of 10 January from Mr. Hetherington to me and, I think, to all hon. Members whose constituency is part of a shire. The letter said: The report of the Secretary of State mentions the proposals for a new he proposals for a new 'block' grant system which were set out in the Local Government, Planning and Land Bill (H.L.), and proposals for transitional arrangements for 1980–81. These proposals are a matter of the utmost concern for the Association: we believe them to be strongly prejudicial to local democracy; neither do we believe that they are in the true interests of central government. Therefore, when the right hon. Gentleman is doing his consultation with the local authorities, he has three Tory-controlled local government associations strongly opposed to the very principle of what he is trying to do in the order. He will have heavy weather with them, and, I suspect, with many of his hon. Friends as well as the Opposition.

My last quotation comes not from an association but from an individual councillor: If the proposals are approved by Parliament, local democracy will be dealt a bitter blow. Very substantial additional powers will be placed in the hands of central government to influence the decisions of individual local authorities. The proposals threaten the survival of local government as we know it today and we shall be taking all possible steps to oppose these provisions. That is not the leader of Lambeth council speaking. That quotation does not come from Sheffield. It comes from Mr. Tom Holman, a distinguished Conservative who is deputy-chairman of Cheshire county council. These are the people who are opposing this order, and I suggest that many Tory Members will also oppose the proposals in the Bill. Many Members on both sides of the House—particularly those who have served in local government—have a deep and profound respect for local government. We shall not allow it to be trampled on in the arrogant way attempted by the Government in the rate support grant order and in the Bill.

I hope that many Conservative Members who have given great service in local government will think hard about the proposals. I also hope that other hon. Members, who know that their colleagues in local government have put them here, will do the same. I hope that they will all think hard tonight and, when the Bill comes before the House, about whether they should oppose it or at least abstain.

There will be serious repercussions from Conservative-controlled local authorities and associations and from Conservative Members of Parliament if the Secretary of State tries, in this arrogant way, to force the straitjacket of financial dictatorship on local authorities. If he does that, it will be at his own whim and without proper yardsticks and objective standards.

Section F alone is enough to cause my right hon. and hon. Friends and myself to oppose the order. There is much worse. The order means a drastic reduction in services for people most in need. It discriminates most against those urban authorities with the greatest need. In addition, it will produce a massive increase in rates for all authorities.

The Tories reduced income tax in the Budget and immediately increased VAT. They did that almost in the same breath. Few people benefited from the income tax reductions. Let the world outside and the House make no mistake about it: the Government are doing the same in the order. They are saying that, having reduced income tax, they need to reduce local and public expenditure. The result is that the rates are increased.

Hon. Members—particularly Tory Members—have described the rates increase as the most regressive of all taxes. The Government are transferring the burden away from income tax on to that most regressive tax. It is the latest con trick of a Government who have lost the confidence of the British public more rapidly than any other Government this century.

I hope that not only my right hon. and hon. Friends, and the Liberal Party, but some Tory Members will, in the interests of local democracy, come into the Lobby with us tonight.

9.43 pm

The Minister for Local Government and Environmental Services (Mr. Tom King)

I welcome the right hon. Member for Widnes (Mr. Oakes) to the first local government debate in this Parliament. I did my homework on his earlier contributions since he referred to his earlier career in the Department of the Environment. I was hoping to find a suitable mine of his earlier speeches. However, I am afraid that his contribution on a previous occasion, in 1974, was rather more limited than on this occasion. Hansard noted that The Under-Secretary of State for the Environment (Mr. Gordon Oakes) rose—"[Official Report, 27 June 1974; Vol. 875, c. 1782.] Unfortunately, at that point a Liberal Member was rude enough to get in the way, and that was the sole, and not very large, contribution by the right hon. Gentleman in that debate. We welcome him on this occasion all the same.

The right hon. Member for Widnes was honest enough to say that he was trying to demonstrate that we are discussing a controversial and enormously important settlement but that the debate was marked by the emptiest Benches on the Labour side that he could remember during such a debate. That did not help his argument. I sympathise with him in his honesty.

The right hon. Gentleman admitted candidly that he found it difficult to understand the rate support grant system and the mechanics and finances involved. I have grappled with the system for several months and I understand his problem. The right hon. Gentleman made one mistake. He confused the estimate of outturn expenditure for next year—he used a figure of £18,000 million—and the relevant expenditure estimation, which is about £15,700 million at November 1979 prices. In order to make a proper comparison, one must add the adjustment for price changes and allow for increase orders and specific grants. A number of commentators have made the same mistake and have suggested that the Government are involved in a terrible plot. There is confusion about the terms in which the figures were originally expressed.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) complained that he had failed to receive a reply from the Government about what happens to the surplus on the housing revenue accounts. I am pleased to have the privilege of making an important statement on that matter. The consultation paper on the proposed subsidy system said that we should be making separate proposals about the way in which any surpluses that might arise on the housing revenue accounts could be used. It is an important and complex issue, and we are considering the alternative possibilities carefully. We shall be making proposals, as promised, shortly. I hope that that is clear and that we shall have further information shortly.

My hon. Friends the Members for Altrincham and Sale (Mr. Montgomery) and for Luton, East (Mr. Bright) and the hon. Member for Liverpool, Edge Hill (Mr. Alton) questioned the future of domestic rates. I do not need to repeat our anxiety about the rating system. We made clear in the election and subsequently that we had to give priority to the reduction of direct taxation and that, changes in the rating system or its abolition would have to take second place. We have started a review of alternatives, and I take note of the warnings by my hon. Friend the Member for Huntingdonshire (Mr. Major).

I turn to the issues raised by the right hon. Members for Sparkbrook and Widnes and the transitional arrangements in the introduction to the order. The right hon. Member for Sparkbrook waxed lyrical about a Bill of Rights and a constitutional outrage. We all enjoy a certain amount of hyperbole, which removes some of the dullness from our debates, but the right hon. Gentleman cannot seriously sustain his argument. There is no question of retrospection in terms of an order. No increase order is involved. Such an order will not be introduced until next November. The increase order about which the right hon. Gentleman waxed so lyrical will appear next November, when we trust that a Local Government, Planning and Land Act will be on the statute book. Such an order will be laid under that Act. We are giving guidance in advance. That is the proper way to proceed, and Governments of both parties have done that frequently.

The right hon. Member also was churlish enough to complain that we had not yet debated in the House the Local Government, Planning and Land Bill, which will shortly be introduced here. He complained about the way in which it had been handled, and the right hon. Member for Widnes complained about the way in which the Government were getting their programme in a muddle. That is particularly churlish, since we responded to an Opposition request. The Bill having been introduced in the House of Lords, the Government responded to representations by Labour Members that we should introduce it here, and if that is all the thanks we get it is no encouragement for us to respond in that way on future occasions.

Mr. Marks

Previously Governments of both parties have paid out money to local authorities on the ground that they were planning to bring in legislation. Has money ever been taken off them before under legislation yet to be introduced?

Mr. King

The clearest warning has been given at this time. The increase order is not paid until next November and the Government are perfectly entitled to make quite clear the basis upon which payment will be made subject to the approval by Parliament of the Bill and the order. The Opposition cannot possibly sustain a charge that such action is inappropriate or unconstitutional.

The next complaint concerned uncertainty faced by local authorities in fixing their rates. We have made clear and have given as much guidance as possible on what the notional uniform rate will be. That rate is, in essence, the middle ground of the rates of all authorities. It is implicit in the present way in which rate support grant is organised. We are merely making more explicit what is implicit. I should have thought that hon. Members would welcome that.

In those circumstances, it is inevitable that a number of authorities will exceed the notional uniform rate, but we have made clear that only those authorities that are substantially in excess—[HON. MEMBERS: "By how much?"]—I cannot answer that, because that will depend upon rating decisions that have not yet been made by a whole range of authorities, and those decisions will depend upon their relative positions. However, it serves this warning: if there are authorities that are substantially in excess of any reasonable assessed spending need and they continue to increase their expenditure beyond what would be considered and what has been assessed—this assessment has been going on for many years—as a reasonable standard of assessment of need, they will obviously be moving into an area in which they could not expect automatically to enjoy the same continuing level of grant regardless of their expenditure.

I am told that this gives rise to great uncertainty, and I am asked how local authorities can possibly plan. The hon. Member for Bootle (Mr. Roberts) is not the world's greatest living expert on the rate support grant system. He now seems to have departed, after his contribution to the debate. He said that it was outrageous that local authorities could lose some grant on which they had budgeted midway through the year. He seems to be blissfully unaware that that is precisely the way in which the system operates at present. But the iniquity of that is that it happens because there is a finite pool, as my right hon. Friend explained, and that if certain authorities spend to an excessive level they attract to themselves more grant—and the only source of that grant, as we have seen in year after year, is from the more prudent and the more economic authorities.

Mr. Hattersley

On the specific question of retrospection, will the right hon. Gentleman explain why this following piece of reasoning is wrong? A London borough—let us hypothesise Lambeth—could, wholly within the law, in April increase its rate to 160p in the pound and express the view that it was doing it in defiance of the Secretary of State. That action at that time would be wholly legal. According to the Secretary of State and his circulars, that borough would be penalised in October. How is that not retrospection?

Mr. King

I was anxious to complete the whole of this section of my speech on the question of transitional arrangements, because I shall be dealing with the question of what is alleged to be punishment. If the right hon. Gentleman will allow me to do so, I shall complete it in my own way.

The second point covered in the arrangements is that we have made clear that there will also be the power to provide a waiver from any diminution or tapering of grant for those authorities which, although they may be very substantially above the level, have clearly made a significant effort to contain their levels of expenditure. The right hon. Gentleman will know that that is so.

Mr. Hardy

Will the Minister give way?

Mr. King

I think that it would be helpful to the House if I dealt with the whole of the transitional arrangements in one go. Then I shall give way to the hon. Gentleman.

Great excitement was aroused by the right hon. Member for Sparkbrook when he said that this was the most appalling, arbitrary, dictatorial use of power by my right hon. Friend the Secretary of State and that it would be exercised totally outside Parliament and without any question of parliamentary control. However, unlike, as I understand it, the claw-back arrangements, which I think are administrative arrangements under which authorities lose funds to which they have previously thought they were entitled, under this arrangement, when we reach a time at the end of next year when the next increase order has to be laid and the question of the allocation of that increase order and whether any authorities will suffer from tapering of grant will arise, it will be my right hon. Friend's responsibility to lay a report before Parliament, to set out in that report not only the details but the principles on which such tapering has been applied, and to get Parliament's approval for such action. Therefore, the right hon. Gentleman's allegation—I am sorry that he did not have the opportunity to check this matter before—that this was an arbitrary, dictatorial, extra-parliamentary act by my right hon. Friend is totally untrue.

I now turn to the issue raised about punishment, penalties and the question of people being penalised when acting in a perfectly legal way. The situation of local authorities remains exactly as it is. We have had some fairly flamboyant speeches about the end of local government and the undermining of local autonomy. Suggestions have been made and alternative schemes halve been put forward to the effect that, somehow, there should be a cash limit on individual authorities, a ceiling on rate increases, or a cash limit on total expenditure of an individual authority. Any of those suggestions would totally undermine local authorities.

The situation is that the rate-fixing of local authorities will remain entirely the responsibility of councillors and local authorities. It will be up to them to determine their levels of expenditure. They will be entitled to fix their own rate levels. What we are saying is that we reserve the right on behalf of the taxpayer to determine just how far we are prepared to go on that journey with them. We are prepared and entitled to say not that they may not fix rates at whichever level they think is appropriate but just how far we are prepared to subsidise increasing levels of expenditure with public money.

People will be acting in a perfectly legal way. They will be entitled to fix their rates. There is no question of illegality. But we are giving the clearest advice that we can at the earliest possible stage that if people rate very substantially in excess of expenditure levels they cannot automatically expect a contribution of public money to accompany that.

Mr. Hardy

Will the Minister look at the metropolitan areas? Let us suppose that either a metropolitan borough or a metropolitan county grossly exceeded the levels of expenditure which the Secretary of State wishes to see. Given the method by which the present Government are operating, is it not inevitable that although the borough or the county may be not at fault, both of them would be penalised by these arrangements?

Mr. King

I accept that the hon. Member has raised a perfectly fair point on the transitional arrangements. Although it can sound more of a problem in the way in which the hon. Member has put it, I do not expect a great problem in that respect. But there is a technical difficulty here, and I accept that in that respect there is an element of rough justice.

I am surprised how many hon. Members are quite unaware of the current problems over the resource clawback. No one can claim that the present system is very fair.

A number of my hon. Friends and my right hon. Friend the Member for Stafford and Stone (Mr. Fraser) asked about the block grant that we are proposing. I noticed that the right hon. Member for Sparkbrook kept referring to the unitary grant and made the interesting remark that he could not understand why, with the unitary grant, anybody should wish to continue to serve in local government. He seems to have forgotten that the Labour Government put forward the unitary grant when he was a member of that Government. We would not accept such a crude and unsatisfactory system as the unitary grant. We propose a number of important changes.

Everyone recognises that the rate support grant, in terms of its allocation, is not satisfactory and that there is a need for change in that respect. The Labour Govenment, as usual, put forward their Green Paper and, again as usual, did nothing about it for two years.

Mr. George Cunningham

I get the impression that the right hon. Gentleman is winding up his winding-up. I hope that he will not overlook the specific question that I put, which I hope was passed on to him, about the arrangement relating to London weighting.

Mr. King

I am trying to make progress, but the right hon. Member for Widnes ran over the time that I expected.

We are not prepared to continue a system of grant distribution and arrangement that rewards high spenders and penalises the prudent. We are determined to change that system. We are not prepared to have a system that removes the maximum autonomy from local authorities. Contrary to the many fears that have been expressed—I hope that in discussions on the Bill much of this will be clarified—I do not believe that it significantly alters the balance of autonomy or the relationship between local government and central Government.

Mr. Alton

Will the hon. Gentleman give way?

Mr. King

I should like to make some progress. The method of assessment of need is absolutely crucial. We have now started our discussions with the local authority associations. The work has started, and I hope that we shall be able to produce for the House a more comprehensible, clear and fair system of needs element distribution than exists under the multiple regression analysis. As my right hon. Friend said, no one understands the system. It is far too complex. It is also self-sustaining in the drift that has taken place in its distribution.

I turn now to the points made by the hon. Member for Islington, South and Finsbury (Mr. Cunningham). He will appreciate that his question about a Select Committee is not for me. He will also appreciate that the transfer of the police from local to national funds raises a fundamental issue.

The hon. Gentleman asked a question, of which I have a note, about the London weighting aspect. As there is some uncertainty whether we have the question right, perhaps he will write to me, and I shall give him an answer. I have an answer, but I suspect that it is not the answer to the question that he posed.

The hon. Member for Manchester, Gorton (Mr. Marks) criticised the point on rateable values and the weaknesses there. As my hon. Friend the Member for Bridlington (Mr. Townend) said, that came ill from a member of a former Labour Government when no Labour Government ever since the war had a single rating revaluation.

The hon. Member for Norwood (Mr. Fraser) raised the point about local authorities and the position of those authorities that defied the Government on expenditure cuts. They are perfectly entitled to do that and are within their legal rights. They may continue to do so. What those authorities cannot automatically expect is that they will get Government support for their actions. I should like to make that quite clear.

Mr. John Fraser rose—

Mr. King

May I just give an instance of this? My hon. Friend the Member for Bridlington drew attention to his experience of local government and the way in which Conservative local authorities sought to support the Labour Government when they called for economies in earlier years. I thought that it was disingenuous of the right hon. Member for Sparkbrook when he said "Ah, yes, but things are different now, because this is a Government who are attacking local government and calling for massive economies." I recall that we were the Government who called for 1½ per cent. economies in one year and that it was the right hon. Gentleman's Government who called for 2½ per cent. economies in one year. I note just how much those standards have changed, and how quickly.

Mr. George Cunningham

I must protest at the way in which the Minister has dealt with my question. My question was put before 8 o'clock. When I put a question, which may be obscure, before 8 o'clock in a debate asking for it to be dealt with in the winding-up speech, there were plenty of opportunities for me to be found to clarify any obscurity. That is not the proper way in which a Minister should respond.

Mr. King

That is perfectly fair point to make.

Having discussed the transitional arrangements and the block grant, the real subject of the debate is the rate support grant orders. The lack of attendance earlier in the debate, and the lack of criticism in Parliament and outside it, makes clear our contention that these are tough but fair and realistic orders. They are a stark contrast to the orders laid a year ago by the right hon.

Member for Stepney and Poplar (Mr. Shore), who is now present. He had the nerve to criticise the increase order that we made when in fact the previous Government assessed it at 5 per cent. for wage settlements and 8½ per cent. for inflation, and even invited local government to go for 1½ per cent. growth.

We faced a very difficult economic picture—one that we inherited from the previous Government. The suggestion that the right hon. Member for Sparkbrook tried to make, that all our difficulties started with a Conservative Government, is the most outrageous calumny, and he knows that all too well.

In these orders we have sought to establish a fair and reasonable settlement. It is a settlement that gives local authorities the opportunity to rate fairly in the present situation. We shall make every contribution that we can in giving local authorities freedom in charging and removing controls to loosen the burdens of expenditure that lay upon them. We believe that we have made a fair rate support grant settlement, and on that basis I commend it to the House.

Question put:—

The House divided: Ayes 305, Noes 257.

Division No. 138]	AYES	[10.08 pm
Adley, Robert	Browne, John (Winchester)	Dykes, Hugh
Aitken, Jonathan	Bruce-Gardyne, John	Eden, Rt Hon Sir John
Alexander, Richard	Bryan, Sir Paul	Edwards, Rt Hon N. (Pembroke)
Alison, Michael	Buchanan-Smith, Hon Alick	Eggar, Timothy
Amery, Rt Hon Julian	Buck, Antony	Elliott, Sir William
Ancram, Michael	Budgen, Nick	Emery, Peter
Arnold, Tom	Bulmer, Esmond	Eyre, Reginald
Aspinwall, Jack	Burden, F. A.	Fairbairn, Nicholas
Atkins, Rt Hon H. (Spelthorne)	Butcher, John	Fairgrieve, Russell
Atkins, Robert (Preston North)	Butler, Hon Adam	Faith, Mrs Sheila
Atkinson, David (B'mouth, East)	Cadbury, Jocelyn	Farr, John
Baker, Kenneth (St. Marylebone)	Carlisle, John (Luton West)	Fell, Anthony
Baker, Nicholas (North Dorset)	Carlisle, Kenneth (Lincoln)	Fenner, Mrs Peggy
Banks, Robert	Carlisle, Rt Hon Mark (Runcorn)	Finsberg, Geoffrey
Beaumont-Dark, Anthony	Chalker, Mrs. Lynda	Fisher, Sir Nigel
Bell, Sir Ronald	Channon, Paul	Fletcher, Alexander (Edinburgh N)
Bendall, Vivian	Chapman, Sydney	Fletcher-Cooke, Charles
Benyon, Thomas (Abingdon)	Churchill, W. S.	Fookes, Miss Janet
Benyon, W. (Buckingham)	Clark, Hon Alan (Plymouth, Sutton)	Forman Nigel
Berry, Hon Anthony	Clark, Sir William (Croydon South)	Fowler Rt Hon Norman
Best, Keith	Clarke, Kenneth (Rushcliffe)	Fox, Marcus
Bevan, David Gilroy	Clegg, Sir Walter	Fraser, Rt Hon H. (Stafford & St)
Biffen, Rt Hon John	Cockkeram, Eric	Fraser, Peter (South & St)
Biggs-Davison, John	Colvin, Michael	Fry Peter
Bottomley, Peter (Woolwich West)	Costain, A. P.	Gardner, Edward (South Fylde)
Bowden, Andrew	Cranborne, Viscount	Garel-Jones, Tristan
Boyson, Dr Rhodes	Critchley, Julian	Glyn, Dr Alan
Braine, Sir Bernard	Crouch, David	Goodhew, Victor
Bright, Graham	Dean, Paul (North Somerset)	Goodlad, Alastair
Brinton, Tim	Dorrell, Stephen	Gorst, John
Brittan, Leon	Douglas-Hamilton, Lord James	Gow, Ian
Brocklebank-Fowler, Christopher	Dover, Denshore	Gower, Sir Raymond
Brooke, Hon Peter	du Cann, Rt Hon Edward	Grant, Anthony (Harrow C)
Brotherton, Michael	Dunn, Robert (Dartford)	Gray, Hamish
Brown, Michael (Brigg & Sc'thoroe)	Durant, Tony	Greenway, Harry
Grieve, Percy	Marland, Paul	Sainsbury, Hon Timothy
Griffiths, Eldon (Bury St Edmunds)	Marlow, Tony	St. John-Stevas, Rt Hon Norman
Griffiths, Peter (Portsmouth N)	Marshall, Michael (Arundel)	Scott, Nicholas
Grist, Ian	Marten, Nell (Banbury)	Shaw, Michael (Scarborough)
Grylls, Michael	Mates, Michael	Shelton, William (Streatham)
Gummer, John Selwyn	Mather, Carol	Shepherd, Colin (Hereford)
Hamilton, Hon Archie (Eps'm & Ew'll)	Mawby, Ray	Shepherd, Richard (Aldridge-Br'hills)
Hamilton, Michael (Salisbury)	Mawhinney, Dr Brian	Shersby, Michael
Hampson, Dr Keith	Maxwell-Hyslop, Robin	Silvester, Fred
Hannam, John	Mayhew, Patrick	Sims, Roger
Haselhurst, Alan	Mellor, David	Skeet, T. H. H.
Hastings, Stephen	Meyer, Sir Anthony	Smith, Dudley (War. and Leam'ton)
Havers, Rt Hon Sir Michael	Miller, Hal (Bromsgrove & Redditch)	Speed, Keith
Hawksley, Warren	Mills, lain (Meriden)	Speller, Tony
Hayhoe, Barney	Mills, Peter (West Devon)	Spence, John
Heddle, John	Miscampbell, Norman	Spicer, Jim (West Dorset)
Henderson, Barry	Mitchell, David (Basingstoke)	Spicer, Michael (S Worcestershire)
Heseltine, Rt Hon Michael	Moate, Roger	Sproat, lain
Hicks, Robert	Monro, Hector	Squire, Robin
Higgins, Rt Hon Terence L.	Montgomery, Fergus	Stainton, Keith
Hill, James	Moore, John	Stanbrook, Ivor
Hogg, Hon Douglas (Grantham)	Morris, Michael (Northampton, Sth)	Stanley, John
Holland, Philip (Carlton)	Morrison, Hon Charles (Devizes)	Steen, Anthony
Hooson, Tom	Morrison, Hon Peter (City of Chester)	Stevens, Martin
Hordern, Peter	Murphy, Christopher	Stewart, Ian (Hitchin)
Howe, Rl Hon Sir Geoffrey	Myles, David	Stewart, John (East Ronfrewshire)
Howell, Rt Hon David (Guildford)	Neale, Gerrard	Stradling Thomas, J.
Howell, Ralph (North Norfolk)	Needham, Richard	Tapsell, peter
Hunt, John (Ravensbourne)	Nelson, Anthony	Tebbit, Norman
Hurd, Hon Douglas	Neubert, Michael	Temple-Morris, Peter
Jenkin, Rt Hon Patrick	Nott, Rt Hon John	Thompson, Donald
Jessel, Toby	Onslow, Cranley	Thome, Neil (Ilford South)
Johnson Smith, Geoffrey	Oppenheim, Rt Hon Mrs Sally	Thornton, Malcolm
Jopling, Rt Hon Michael	Osborn, John	Townsend, John (Bridlington)
Joseph, Rt Hon Sir Keith	Page, John (Harrow West)	Townsend, Cyril D. (Bexleyheath)
Kaberry, Sir Donald	Page, Rt Hon Sir R. Graham	Trippier, David
Kimball, Marcus	Page, Richard (SW Hertfordshire)	Trotter, Neville
King, Rt Hon Tom	Parkinson, Cecil	van Straubenzee, W. R.
Kitson, Sir Timothy	Parris, Matthew	Vaughan, Dr Gerard
Knight, Mrs Jill	Patten, Christopher (Bath)	Viggers, Peter
Knox, David	Patten, John (Oxford)	Wakeham, John
Lamont, Norman	Pattie, Geoffrey	Waldegrave, Hon William
Lang,Ian	Pawsey, James	Walker, Bill (Perth & E Perthshire)
Langford-Holt, Sir John	Percival, Sir Ian	Walker-Smith, Rt Hon Sir Derek
Lawrence, Ivan	Pink, R. Bonner	Waller, Gary
Lawson, Nigel	Pollock, Alexander	Walters, Dennis
Lee, John	Porter, George	Ward, John
Le Marchant, Spencer	Prentice, Rt Hon Reg	Warren, Kenneth
Lennox-Boyd, Hon Mark	Price, David (Eastleigh)	Watson, John
Lester, Jim (Beeston)	Prior, Rt Hon James	Wells, John (Maidstone)
Lewis, Kenneth (Rutland)	Proctor, K. Harvey	Wheeler, John
Lloyd, Ian (Havant & Waterloo)	Pym, Rt Hon Francis	Whitelaw, Rt Hon William
Lloyd, Peter (Fareham)	Raison, Timothy	Whitney, Raymond
Loveridge, John	Rathbone, Tim	Wickenden, Keith
Luce, Richard	Rees, Peter (Dover and Deal)	Wiggin, Jerry
Lyell, Nicholas	Rees-Davies, W. R.	Wilkinson, John
McCrindle, Robert	Renton, Tim	Williams, Delwyn (Montgomery)
Macfarlane, Neil	Rhodes James, Robert	Winterton, Nicholas
MacGregor, John	Ridley, Hon Nicholas	Wolfson, Mark
MacKay, John (Argyll)	Ridsdale, Julian	Young, Sir George (Acton)
Macmillan, Rt Hon M. (Farnham)	Rifkind, Malcolm	Younger, Rt Hon George
McNair-Wilson, Michael (Newbury)	Roberts, Michael (Cardiff NW)
McNair-Wilson, Patrick (New Forest)	Roberts, Wyn (Conway)	TELLERS FOR THE AYES:
McQuarrie, Albert	Rost, Peter	Mr. David Waddington and
Madel, David	Royle, Sir Anthony	Mr. Robert Boscawen.
Major, John
NOES
Abse, Leo	Booth, Rt Hon Albert	Carter-Jones, Lewis
Adams, Allen	Boothroyd, Miss Betty	Cartwright, John
Allaun, Frank	Bottomley, Rt Hon Arthur (M'brough)	Clark, Dr David (South Shields)
Alton, David	Bradley, Tom	Cocks, Rt Hon Michael (Bristol S)
Anderson, Donald	Bray, Dr Jeremy	Cohen, Stanley
Archer, Rt Hon Peter	Brown, Hugh D. (Provan)	Coleman, Donald
Armstrong, Rt Hon Ernest	Brown, Robert C. (Newcastle W)	Concannon, Rt Hon J. D.
Ashley, Rt Hon Jack	Brown, Ronald W. (Hackney S)	Conlan, Bernard
Ashton, Joe	Brown, Ron (Edinburgh, Leith)	Cook, Robin F.
Atkinson, Norman (H'gey, Tott'ham)	Buchan, Norman	Cowans, Harry
Bagier, Gordon A. T.	Callaghan, Rt Hon J. (Cardiff SE)	Cox, Tom (Wandsworth, Tooting)
Barnett, Guy (Greenwich)	Callaghan, Jim (Middleton & P)	Craigen, J. M. (Glasgow, Maryhill)
Beilth, A. J.	Campbell, Ian	Crowther, J. S.
Benn, Rt Hon Anthony Wedgwood	Campbell-Savours, Dale	Cryer, Bob
Bennett, Andrew (Stockport N)	Canavan, Dennis	Cunliffe, Lawrence
Bidwell, Sydney	Carmichael, Neil	Cunningham, George (Islington S)

Cunningham, Dr John (Whitehaven)	Hughes, Roy (Newport)	Prescott, John
Dalyell, Tarn	Janner, Hon Grevilie	Price, Christopher (Lewisham West)
Davidson, Arthur	Jay, Rt Hon Douglas	Race, Reg
Davies, Rt Hon Denzil (Llanelli)	John, Brynmor	Radice, Giles
Davies, Ifor (Gower)	Johnson, James (Hull West)	Rees, Rt Hon Merlyn (Leeds South)
Davis, Clinton (Hackney Central)	Johnson, Walter (Derby South)	Richardson, Jo
Davis, Terry (B'rm'ham, Stechford)	Johnston, Russell (Inverness)	Roberts, Albert (Normanton)
Deakins, Eric	Jones, Barry (East Flint)	Roberts, Allan (Bootle)
Dempsey, James	Jones, Dan (Burnley)	Roberts, Ernest (Hackney North)
Dewar, Donald	Kaufman, Rt Hon Gerald	Roberts, Gwilym (Cannock)
Dixon, Donald	Kerr, Russell	Robertson, George
Dobson, Frank	Kilroy-Sllk, Robert	Rodgers, Rt Hon William
Dormand, Jack	Kinnock, Neil	Rooker, J.W.
Douglas, Dick	Lambie, David	Roper, John
Douglas-Mann, Bruce	Lamborn, Harry	Ross, Ernest (Dundee West)
Dubs, Alfred	Lamond, James	Rowlands, Ted
Dunn, James A. (Liverpool, Kirkdale)	Leadbitter, Ted	Ryman, John
Dunnett, Jack	Leighton, Ronald	Sandelson, Neville
Dunwoody, Mrs Gwyneth	Lestor, Miss Joan (Eton & Slough)	Sever, John
Eadie, Alex	Lewis, Arthur (Newham North West)	Sheerman, Barry
Eastham, Ken	Lewis, Ron (Carlisle)	Sheldon, Rt Hon Robert (A'ton-u-L)
Edwards, Robert (Wolv SE)	Litherland, Robert	Shore, Rt Hon Peter (Step and Pop)
Ellis, Raymond (NE Derbyshire)	Lofthouse, Geoffrey	Short, Mrs Renée
Ellis, Tom (Wrexham)	Lyons, Edward (Bradford West)	Silkin, Rt Hon John (Deptford)
English, Michael	Mabon, Rt Hon Dr J. Dickson	Silkin, Rt Hon S.C. (Dulwich)
Evans, loan (Aberdare)	McCartney, Hugh	Silverman, Julius
Ewing, Harry	McDonald, Dr Oonagh	Smith, Rt Hon J. (North Lanarkshire)
Field, Frank	McElhone, Frank	Snape, Peter
Fitch, Alan	McGuire, Michael (Ince)	Soley, Clive
Fitt, Gerard	McKay, Allen (Penistone)	Spearing, Nigel
Flannery, Martin	McKelvey, William	Spriggs, Leslie
Fletcher, Ted (Darlington)	MacKenzie, Rt Hon Gregor	Stallard, A. W.
Foot, Rt Hon Michael	Maclennan, Robert	Steel, Rt Hon David
Ford, Ben	McMahon, Andrew	Stoddart, David
Forrester, John	McMillan, Tom (Glasgow, Central)	Stott, Roger
Foster, Derek	McNally, Thomas	Slrang, Gavin
Foulkes, George	McWilliam, John	Straw, Jack
Fraser, John (Lambeth, Norwood)	Magee, Bryan	Summerskill, Hon Dr Shirley
Freeson, Rt Hon Reginald	Marks, Kenneth	Taylor, Mrs Ann (Bolton West)
Freud, Clement	Marshall, David (Gl'sgow, Shettles'n)	Thomas, Dafydd (Merioneth)
Garrett, John (Norwich S)	Marshall, Dr Edmund (Goole)	Thomas, Jeffrey (Abertillery)
Garrett, W. E. (Wallsend)	Martin, Michael (Gl'gow, Springb'rn)	Thomas, Mike (Newcastle East)
George, Bruce	Mason, Rt Hon Roy	Thomas, Dr Roger (Carmarthen)
Gilbert, Rt Hon Dr John	Maxton, John	Thorne, Stan (Preston South)
Ginsberg, David	Maynard, Miss Joan	Tilley, John
Golding, John	Meacher, Michael	Tinn, James
Gourlay, Harry	Mellish, Rt Hon Robert	Torney, Tom
Graham, Ted	Mikardo, Ian	Varley, Rt Hon Eric G.
Grant, George (Morpeth)	Millan, Rt Hon Bruce	Wainwright, Edwin (Dearne Valley)
Grant, John (Islington C)	Miller, Dr M. S. (East Kilbride)	Walker, Rt Hon Harold (Doncaster)
Grimond, Rt Hon J.	Mitchell, Austin (Grimsby)	Watkins, David
Hamilton, James (Bothwell)	Mitchell, R. C. (Soton, Itchen)	Weetch, Ken
Hamilton, W. W. (Central Fife)	Morris, Rt Hon Alfred (Wythenshawe)	Wellbeloved, James
Hardy, Peter	Morris, Rt Hon Charles (Openshaw)	Welsh, Michael
Harrison, Rt Hon Walter	Morris, Rt Hon John (Aberavon)	White, Frank R. (Bury a Radcliffe)
Hart, Rt Hon Dame Judith	Morton, George	White, James (Glasgow, Pollok)
Hattersley, Rt Hon Roy	Moyle, Rt Hon Roland	Whitlock, William
Haynes, Frank	Mulley, Rt Hon Frederick	Willey, Rt Hon Frederick
Healey, Rt Hon Denis	Newens, Stanley	Willams, Rt Hon Alan (Swansea W)
Heffer, Eric S.	Oakes, Rt Hon Gordon	Williams, Sir Thomas (Warrington)
Hogg, Norman (E Dunbartonshire)	Ogden, Eric	Wilson, Rt Hon Sir Harold (Huyton)
Holland, Stuart (L'beth, Vauxhall)	O'Halloran, Michael	Wilson, William (Coventry SE)
Home Robertson, John	O'Neill, Martin	Winnick, David
Homewood, William	Orme, Rt Hon Stanley	Woodall, Alec
Hooley, Frank	Owen, Rt Hon Dr David	Woolmer, Kenneth
Horam, John	Park, George	Wrigglesworth, Ian
Howell, Rt Hon Denis (B'ham, Sm H)	Parker, John	Young, David (Bolton East)
Huckfield, Les	Pavitt, Laurie
Hudson Davies, Gwilym Ednyfed	Pendry, Tom	TELLERS FOR THE NOES:
Hughes, Mark (Durham)	Penhaligon, David	Mr. John Evans and
Hughes, Robert (Aberdeen North)	Powell, Raymond (Ogmore)	Mr. Joseph Dean.

Question accordingly agreed to.

Resolved, That the Rate Support Grant Order 1979, a copy of which was laid before this House on 28 November, be approved.

Resolved, That the Rate Support Grant (Increase) Order 1979, a copy of which was laid before this House on 28 November, be approved.—[Mr. Heselane.]

Resolved, That the Rate Support Grant (Increase) (No. 2) Order 1979, a copy of which was laid before this House on 28 November, be approved.—[Mr. Heseltine.]