THE BLOCK GRANT

HC Deb 08 July 1980 vol 988 cc302-66 6.30 pm

Mr. King

I beg to move amendment No. 97, in page 38, line 26, at end add— '(2A) If—

1. (a) the council of a county, the Greater London Council or the Inner London Education Authority give notice to the Secretary of State that they do not wish to be paid block grant for any year; and
2. (b) he gives them notice that he consents to it not being paid to them, no amount shall be payable to them by way of that grant for that year.

(2B) Any amount that would have been payable to them shall be distributed among the appropriate authorities, as part of their block grant for the year. (2C) In subsection (2B) above "the appropriate authorities" means—

1. (a) in relation to the council of a county, the councils of the districts in the county;
2. (b) in relation to the Greater London Council, the London borough councils and the Common Council of the City of London; and
3. (c) in relation to the Inner London Education Authority, those of the councils mentioned in paragraph (b) above whose areas are in the Inner London Education Area.

(2D) The amount to be paid to an authority under subsection (2B) above shall bear the same proportion to the amount that would have been payable to the county council or the Greater London Council or the Inner London Education Authority as the gross rateable value of the authority's area bears to the gross rateable value of the county, Greater London or the Inner London Education Area, as the case may be.'. I undertook to table such an amendment in the light of the assurance that I gave to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). He and his hon. Friends withdrew a similar amendment which was technically incorrect. This amendment enables county councils, the GLC and the ILEA to opt out of receiving block grant if the Secretary of State agrees. In such cases, the grant that they would have received is paid instead to authorities on which they precept and thus remains in their area. I make clear that there is no implication that the Government will necessarily give their consent to the non-payment of grant to certain authorities. The amendment fulfils the undertaking that we gave in Committee, and I ask the House to approve it.

Amendment agreed to.

Mr. King

I beg to move amendment No. 98, in page 38, line 30, leave out 'standard rate' and insert 'grant-related'.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

With this we may take the following amendments:

No. 299, in page 38, line 30, leave out 'standard' and insert 'notional'.

Government amendment No. 99.

No. 300, in page 38, line 38, leave out from beginning to end of line 41 and insert '"notional expenditure", for the purpose of grant distribution in relation to each authority to whom block grant is to be payable for any year would be a single figure for each authority, having regard to their functions, and expressed as an amount per head of population'.

No. 302, in page 39, line 1, leave out 'standard' and insert 'notional'.

No. 301, in page 39, line 5 leave out 'standard' and insert 'notional'.

No. 304, in clause 46, page 39, line 7, leave out 'standard' and insert 'notional'.

Government amendments Nos. 100, 105 and 107.

No. 293, in clause 46, page 39, line 31, leave out 'standard' and insert 'notional'.

No. 294, in clause 46, page 39, line 31, leave out 'standard' and insert 'notional'.

Government amendment No. 109.

No. 295, in clause 46, page 39, line 34, leave out 'standard' and insert 'notional'.

No. 296, in clause 46, page 39, line 35, leave out 'standard' and insert 'notional'.

Government amendment No. 115.

No. 297, in clause 47, page 39, line 41, leave out 'standard' and insert 'notional'.

Government amendment No. 119.

No. 298, in clause 47, page 40, line 12, leave out 'standard' and insert 'notional'.

Government amendment No. 312.

Mr. King

You have the admiration of all of us, Mr. Deputy Speaker.

Government amendments No. 98 to 100 and the consequential amendments change the terminology in the Bill. That is a matter on which there was much discussion and on which local authority associations suggested improvements to the block grant arrangements They raised the question of the prescriptive nature of both standard rate poundage and standard rate expenditure. We discussed several alternatives. The Association of Metropolitan Authorities was interested in notional expenditure, and that appears in a later Opposition amendment.

There is now fairly wide agreement that the Government's suggested alternative of grant-related poundage and grant-related expenditure is satisfactory and, as I understand, it has the support of the Association of County Councils, the ADC and the AMA. It makes clear that this is in no sense a prescriptive definition by central Government of what the local authorities should spend, but is the basis on which grant will be distributed. As there has been much misunderstanding over block grant, and although some people may feel that terminology is not important, in this case it is a significant improvement in making the purpose clear.

There are a number of other Government amendments in this group. Government amendment No. 105 is purely a drafting amendment. Government amendment No. 312 tidies up a technical point, and I hope that it will not cause difficulties for hon. Members. Amendments Nos. 293 to 304 are Opposition amendments in the name of the right hon. Member for Sparkbrook, and cover the notional expenditure to which I referred. Government amendments Nos. 101, 103 and 104 state that the Secretary of State may defray any expenditure incurred in any year in the provision of services for local authorities, by any body specified in the regulations made by the Secretary of State. The body particularly in mind is LAMSAC—the Local Authority Management Services Advisory Committee—and local and central Government contribute towards the common services that it provides. It is necessary to ensure that the Bill provides for that grant being defrayed.

Mr. Ted Graham (Edmonton)

This is the first opportunity we have of debating the block grant, and hon. Members on both sides of the House know that this is one of the prime parts of the Bill. The Opposition still need clarification from the Minister as to the relationship which has existed, and which still exists, between his officials and the working party on various matters, and particularly on the evidence that we received from the local authority associations as to their complete hostility to the Bill, even though from time to time they are prepared to deal with matters concerning the Bill.

The Minister pointed out that Government amendment No. 99 covering changes in terminology results from discussions with local authorities. The House is entitled to be puzzled, because, as recently as last week, hon. Members received a report from the local authority associations saying that The associations jointly put forward a proposal to modify the operation of the existing rate support grant system to meet the objectives of the grant system set out by the Secretary of State in the Second Reading debate on the Bill. That proposal was rejected. I appreciate that we are not discussing the principle of a block grant in this series of amendments. However, the report from the associations indicated that although the Minister invited them to make their views known, The Minister's reply indicates that only minor changes will be made by the Government at Report stage. Is the Minister saying that these amendments contain some of the minor changes that the Government have accepted? In that report from the associations, we are told that The AMA continues to believe that the block grant system as drafted represents a serious threat to local autonomy and the future of local democracy because of the power that it would give to any Secretary of State to make decisions on local government grants in such a way that individual local authorities might be penalised by Government even though they, the local authorities, were acting properly within the law. Later, we shall attack the main provisions of the block grant. We shall do so against the reports in The Guardian last week in which the chairman of the Association of County Councils, Sir Gervas Walker, said: The association's hostility to the legislation's financial proposals was undiminished … the association is coming to believe that the type of block grant envisaged by the legislation would be unworkable. The problem is how to go about persuading MPs that this is the case … By demonstrating the possibility of the block grant being operated or manipulated by the wrong hands in the future, we would carry a greater measure of support in Parliament than by making simple technical points which members would not understand. This Bill is a welter of new terminology which has been dreamt up by officials in the Department of the Environment and which one assumes has been hammered out in discussions with officials of the associations. It then has to be given some credence and understood by Ministers and hon. Members. It then has to be passed from this House, and understood by the treasurers and town clerks in town halls. It has then to be understood by councillors, by ratepayers' associations and the like and, finally by ordinary ratepayers.

Does the Minister believe that the many new terms which have been devised to give flesh to the Government's intentions—we had a good run as to what they were in the previous debate—are necessary? Does he believe that all this potential chaos, confusion and misunderstanding is necessary? Does he believe that the exercise upon which he is engaged is necessary if he wants to take the local authority associations with him? The people to whom we talk are desperately anxious to do what the Government wish in financial terms, but they are better able to produce something which is workable, understood and more acceptable not only to themselves but to ordinary ratepayers.

I hope that as we enter into the major debate on the block grant the Minister will at the end be able to give us some answers.

Mr. Alton

I wish that I could support the Government's amendments. Anyone who has been involved in local government inevitably has a certain disregard for the rate support grant system and is aware of its inadequacies. Unfortunately, many people in local government are even more suspicious about what the Minister is seeking to put in its place. Throughout local government I have not known an occasion when so many people from different sides of the political spectrum have been so united in their opposition to the new block grant system. The Conservative-controlled metropolitan authorities, the Association of District Councils, the Association of Chief Executives and local authorities of different complexions all over the country are united in their opposition to this new block grant system.

Certain elements in the block grant system could have commended themselves, because there is a desperate need to change the way in which the rate support grant system operates. I share the Minister's view that there must be some control over the way that local government funding is operated, but in many ways we are introducing a system almost of central dictatorship.

It is ironic that a Government who in the past prided themselves on being the bastion of support for local democracy should find local government turning on them and saying that they are doing local government the greatest disservice possible since the reorganisation of local government perpetrated by the previous Conservative Government in 1973. Disraeli once said that centralism was the death blow to democracy. This new system of block grants will centralise control over local government funding.

If we take power away from local authorities by limiting the amount of money that they can spend and say that we will introduce punitive measures against them if they are profligate, people will be driven out of local government. They will say "What is the point of becoming councillors if we do not get the opportunity to operate in our local communities and take decisions for ourselves?"

In some respects the Government are taking a sledge-hammer to crack a nut. It would have been easier to stop the few profligate local authorities by exercising greater discretion through the rate support grant system or by replacing it with something more equitable.

In September 1974 the right hon. Lady, now the Prime Minister, said that the incoming Conservative Government would commit themselves to the abolition of the domestic rating system. Several years later the Government have or had the opportunity in this Bill to do just that. However, they have run away from that opportunity. Instead, they have given us this highly unsatisfactory new block grant system.

The claim was that the objective of the Bill was to give local authorities more control over their own finances. But it is manifestly clear that local authorities do not believe that will happen. Another claim was that this would be a simplified system. In fact, it will be far more complex.

The Guardian, on 24 March, commenting on this legislation stated: The cornerstone of the system will thus be a massive investigation of every local authority service by civil servants combined with the implementation of a complex set of ground rules to work out whether an authority has overspent … The Labour Opposition has only been given one four-page document explaining its effects. The Guardian's 13 documents "— which it said had been leaked to it— run to thousands of words explaining in detail how the new grant will work". The Minister said that the Government had not worked out the details of the transitional arrangements and that the House would have to be patient and wait to hear the details later in the year.

6.45 pm

Members of Parliament are sometimes expected to vote blindly on the word of a Minister. I accept the good word of the Minister, but I am not so sure about the word of his right hon. Friend the Secretary of State, who has frequently treated local government with scant regard, if not great contempt. He has not had adequate discussions with local authorities. He announced his new proposals without consulting them and then had to issue an apology to the Association of Metropolitan Authorities because he had not taken the trouble to have discussions with it at that time. He has done local government and its relations with central Government a great disservice because of the arrogant and high-handed way in which he has gone about things.

The third element of the block grant system includes this punitive measure of punishment of the big spenders. Many local authorities are having to take cruel and crude decisions. The exchange earlier today exemplified that situation. Local authorities will have to declare redundancies and cut back on capital programmes. They will have to try to search out waste in an effort to comply with the Government's guidelines. The situation is no different from what it was under the previous Government. Indeed, I would expect any Government to try to operate some sort of overall guidelines for local authorities. But the danger is that local authorities which have tried to be good housekeepers will be penalised, whereas authorities with a tradition of profligacy may find under the new system that they suffer no kind of action against them.

We dealt with the transitional arrangements earlier. Suffice it to say that they are highly unsatisfactory and go no way way towards ensuring harmony or continuity in local government.

The retention of the rate support grant in its new form will mean that only two elements will exist: first, the domestic rate relief grant and, secondly, the block grant. The Secretary of State said that it would be easier for the public to understand. I dispute that. My friends in local government say that the new complex ground rules will be difficult to understand and they are anxious to know how they will operate the system. The AMA put its finger on it when it said that the whole system would be more complicated.

We have this strange turn-round. The Conservative Government have traditionally said that they were opposed to centralisation and that they supported local government, but they are now doing their best to undermine the autonomy of local government. If we constrain local government by cutting off its finance and ensure that little control is exercised by local councillors because it is being exercised in Marsham Street, people of good will will inevitably be driven out of local government. Local councils will feel put upon when the dead hand of the Secretary of State is placed upon them.

Now we have a Labour Opposition who in Government showed a passion for centralisation. For example, education decisions were taken away from local authorities and placed in the hands of central Government. But here they are at long last accepting the need for local authorities, which best know the problems in their areas, to take more de- cisions for themselves and to determine their own priorities.

Mr. Hattersley

As a matter of historical accuracy, rather than a matter of complaint, it was in fact a Liberal Government who made education a national rather than a local service, under Mr. Forster in 1870.

Mr. Alton

It was indeed, and it was a Labour Government that endeavoured later to take away from local authorities the decision as to the style of educational opportunity that they offered in their own areas. That is what I am complaining about. But all the time central Government, regardless of whether they provide a local service at a national level—and local government is a local service provided nationally—behave in a very arrogant "We know best" way. Indeed, the point that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was making earlier today was that sometimes local government knows better than central Government.

I think that one has to trust local government. Indeed, the Prime Minister at the time of Mr. Forster's Education Act said that one must put one's trust in the people. That is what this debate is about. It is about trusting people in local government who have been elected on a mandate to serve. They have been elected to govern and to take decisions in their localities. I think that they are often far better qualified and able to do that than we are on these Benches. Therefore, I do not think that we should introduce punitive measures.

Imperfect as the present RSG system is, we ought to retain it until we can come up with something better. I reject the whole concept of the unitary grant system as being far worse than even what we have now.

Mr. King

I should like to respond, first, to the hon. Member for Edmonton (Mr. Graham). We asked the local authorities to put up suggestions to the associations. I think that the hon. Gentleman will recall that when the original concerns were being expressed about the block grant, initially some of the biggest concerns which were expressed were over the prescriptive nature of the whole structure of the block grant; that standard expenditure and standard rate poundage carried the implication, with the publication of those figures, of central Government determining what local authorities ought to spend. Certainly in the initial stages they were the prime concerns of local governent as expressed to us. The associations subsequently wrote us a letter, in response to my suggestions, in which they added one or two other items that were also of concern. I was, therefore, disappointed when I saw their response to my letter, in which I conceded what had been the main points of concern to them in their original submissions, for they then rather tended to dismiss them as more minor points.

I think that we shall be debating the issue of negative marginal rates of grant. On that, I had made clear that we would be prepared to do something below standard expenditure, but I think, as we have explained the implications of doing that, the associations have perhaps felt that they did not wish to pursue that aspect.

We have also made clear that we are willing to include—we have an amendment down to do so—the definition of the use of the multiplier, which will circumscribe what might otherwise be considered an arbitrary use of the multiplier.

In those respects, I hope that we have responded rather more adequately than perhaps the reply indicated. We have not met the associations in every respect. I was a little disappointed in the way in which they described our response.

Mr. Graham

Is the Minister saying that the terminology used by the associations, that the Government have accepted minor suggestions, is true or false? The view of what the Government have accepted, as far as the associations are concerned—I quote from their brief—is that The Minister's reply indicates that only minor changes will be made by the Government at Report stage. Does the Minister agree with that assessment by the associations?

Mr. King

No, certainly not. I did not say that they were minor. Those are not my words. The complaint that I am making is that what I originally represented as major areas of concern are then, when the concessions are made, described as minor concessions. I was a little disappointed about that.

I should like now to comment on the remarks of the hon. Member for Liverpool, Edge Hill (Mr. Alton). I have heard these comments before. I think that the hon. Gentleman will not mind my saying that they were all generalisations. Some of them were based on press comment, about which I have already made some comment myself, in Committee as well as elsewhere. We have sought to put in front of people—for instance, the Committee—an accurate summary of what is some very complicated matter indeed. I concede straight away that it is complicated.

I do not concede that it is more complicated than what has preceded it. I would be very happy to make available to the hon. Gentleman some of the papers that have been involved every year in the grants working group discussions. I think that the hon. Gentleman would plead for mercy pretty quickly after I started to bombard him with the sort of material that exists in this matter. Some of the grants working group papers are not confined to the Department of the Environment but are spread around a vast range of working groups, as my right hon. and learned Friend the Member for Hexham (Mr. Rippon) knows, and people in the associations. Some people occasionally seem to have handed them to the press. Good luck to the press with them. I should think that the press finds them as confusing as the ordinary layman would.

As regards the comment about vast volumes of documents, what we sought to issue was a summary report of working to date—which is not four pages; I have just counted it, and it is some 20 pages—of fairly condensed information. It is not the easiest read that I can recommend to hon. Members; it deals with what is a complex matter, as I have said, of the mechanics of distribution of £9,600 million fairly between 454 different authorities. Of course, in searching after the fairest basis on which to do that, the officials—not just in my Department but of other Government Departments involved in local authority services—the officers of the local authority associations, and professional officers from individual authorities which are all involved in these grants working groups examine considerable areas of detail in trying to arrive at the fairest basis for this distribution.

I reject utterly the suggestion that this is somehow an attack on local government, that it is the end of local government autonomy. The hon. Member for Edge Hill said "Trust in the people; trust in local government." I happen to believe in that. I would not preside over something of this kind if I believed that it was seriously undermining that relationship. This is concerned with the distribution of public money. I have listened to these generalisations, and at no time when they are challenged are they found to be substantiated.

There are things that one could do in local government and ways in which local government finance could be approached by central Government which would substantially undermine the autonomy and freedom of action of local authorities. Some people have suggested imposing individual cash limits on every authority. That would be a very serious step indeed. There are other ways in which one could affect the autonomy and the financial independence of local government. But our proposals are concerned purely with the method by which the public money involved in the RSG is distributed. That is surely a proper concern for Ministers and this House.

Our proposals have to be submitted to the House. They will not be implemented unless this House approves them. When the public funds have been distributed, it is then a matter for individual local authorities and their councillors as to what their expenditure decisions are. It is their choice between services, their choice as to the volume of expenditure on those services, and their choice as to the rate levels that they decide to impose.

That is the freedom and discretion that exists in local government. It is this partnership: public, ministerial and parliamentary responsibility for the public funds, the national taxpayers' funds, paid to local government; the local councillors' responsibility for the final rating decisions and the expenditure of their own local authority. That is the basis on which the local government and central Government partnership exists. We each have our responsibility to our own electorates in that respect. I challenge anyone to tell me how our proposals for what we believe will prove to be a fairer and a simpler method of grant distribution actually undermine that basic autonomy of local government.

Mr. Alton

What I was trying to do in my earlier remarks was not just to point out my personal views about the new system that the Minister is introducing but to talk about the partnership, about which he is concerned, with the local authority associations. Why does he think that every one of the major local authority associations has rejected these unitary grant proposals as, first, being more complex and, second, as undermining local government autonomy?

Mr. King

I think that there were considerable misunderstandings in the early stages. I think that there were some thoughts that this was identical to a proposal introduced by the previous Government and then discarded. But the associations did not realise the safeguards and the improvements that we intended to incorporate within the scheme. There is a similarity with the previous Government's proposal, because it involves one grant instead of two. It involves a 100 per cent. deficit grant between what resources will produce at a standard rate or at a grant-related poundage, and what the grant-related expenditure assessment is. It will replace the two grants now paid, namely, the resources grant and the needs grant.

7 pm

At the beginning, there were misunderstandings. There was fear of change and uncertainty. No local authority would endorse the proposal, for one simple reason. Local authorities do not know how the pattern of distribution will affect them. If a local authority leader were to stand on a platform and say that he warmly endorsed the provision he would do so at the risk that his authority would suffer. He would be in some difficulties. I have always understood why nobody would give a warm welcome to a change in grant distribution arrangements.

There are difficulties. Anybody could point out the difficulties or say that it was a complex matter. Of course it is complex, because of the sums and range of services involved. A superficial study would show that this issue is complicated. However, I believe that this system will prove to be simpler and fairer. If I did not believe that, I would not recommend it to the House. However, I recommend it, and commend the amendment.

Amendment agreed to.

Amendments made: No. 99, in page 38, line 32, leave out from 'this' to end of page 39, line 8 and insert—

'Part of this Act— grant-related expenditure", in relation to to each authority to whom block grant is payable for any year, means the aggregate for the year or their notional expenditure having regard to their functions; grant-related poundage" in relation to each such authority, means a poundage related—

1. (a) to a given ratio between their total expenditure and their grant-related expenditure; or
2. (b) to a given difference between their total expenditure divided by their population and their grant-related expenditure so divided;

gross rateable value", in relation to each such authority, means the aggregate of the rateable values of the hereditaments in their area; rateable values", in relation to hereditaments, means subject to subsection (7) below, rateable values ascribed to them in the valuation lists on a date to be specified for each year in the Rate Support Grant Report;'.

No. 100, in page 39, line 16, at end insert 'and "valuation list" has the meaning assigned to it by section 115 of the General Rate Act 1967.'.—[Mr. Fox.]

Mr. Deputy Speaker

We come to amendment No. 101, with which it will be convenient to take Government amendments Nos. 103 and 104.

Mr. King

I have already spoken to those amendments. May I move them formally?

Amendments made:

No. 101, in page 39, line 16, at end add— '(3A) The Secretary of State may—

1. (a) defray any expenditure incurred in any year in the provision of services for local authorities by any body specified in regulations made by the Secretary of State; and
2. (b) deduct from the aggregate amount of the block grant for that year, such amount, not exceeding the total of the expenditure so defrayed, as appears to him to be appropriate;

and any regulations made under section 2(7) of the Local Government Act 1974 shall have effect for the purposes of this subsection as if they had been made under it.'.

No. 103, in page 39, line 17, after 'above', insert 'or exercising his powers under subsection (3A) above'.

No. 104, in page 39, line 22, at end add— '(5A) Regulations under subsection (3A) above shall be made by statutory instrument, and a statutory instrument containing such regulations shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.

No. 105, in page 39, line 26, leave out from 'provide' to end of line 29 and insert 'that for the year to which it relates the rateable values of hereditaments falling within any class of hereditaments shall be ascertained for the purposes of this Part of this Act otherwise than by reference to the values ascribed to them in the valuation list.'.—[Mr. Fox.]

Mr. Squire

I beg to move amendment No. 106, in page 39, line 28, after the words last inserted, insert 'and take account of such factors as differences in levels of rateable values as between local authorities for otherwise comparable properties, or incomes of the people in a local authority area or the level of rate payments in an authority's area or by any method other than that specified in this section'.

Mr. Deputy Speaker

With this, it will be convenient to take the following amendments: No. 108, in clause 46, page 39, line 30, leave out 'standard rate poundage and'.

No. 110, in page 39, line 34, leave out 'the standard rate poundage and'.

No. 111, in page 39, line 35, leave out 'are' and insert 'is'.

No. 112, in page 39, line 36, at end insert— '(3) And the principles on which the standard rate poundage shall be determined shall be such that—

1. (a) if an authority's total expenditure exceeds their standard expenditure, that authority shall not receive less grant than they would have done had the difference between their total expenditure and their standard expenditure been smaller;
2. (b) if an authority's total expenditure is less than their standard expenditure, that authority shall not receive less grant than they would have done had the difference between their total expenditure and their actual expenditure been greater;
3. (c) for all authorities with the same ratio between total expenditure [per head of population] in their area and their standard expenditure or the same difference between 317 their said total expenditure and their standard expenditure the ratio of the block grant they would have received if their said total expenditure had equalled their standard expenditure shall be the same.'.

No. 113, in page 39, line 36, at end insert— '(3) A local authority's standard rate poundage shall be determined in accordance with schedule (Determination of standard rate poundage) to this Act.'.

No. 220, new Schedule,—'Determination of Standard Rate Poundage 1. There shall be specified in relation to each authority to whom block grant is payable a "threshold expenditure. 2. An authority's "threshold expenditure" shall be a figure higher than their standard expenditure and shall either—

1. (a) bear a given ratio to their standard expenditure or
2. (b) differ from their standard expenditure by a given amount multiplied by their population.

3. The given ratio or given amount referred to in paragraph 2 shall be the same figure for all authorities. 4. (1) Where an authority's total expenditure is greater than or equal to their standard expenditure, but less than or equal to their threshold expenditure, their standard rate poundage shall be given by the formula AE+B where E is either—

1. (a) the ratio between the authority's total expenditure and their standard expenditure or
2. (b) the difference between their total expenditure divided by their population and their standard expenditure so divided:

A is a constant, greater than zero, specified in the Rate Support Grant Report; B is a constant, greater or less than zero, specified in the Rate Support Grant Report. (2) A and B shall respectively be the same for all authorities to which this paragraph applies. 5. (1) Where an authority's total expenditure is less than or equal to their standard expenditure, their standard rate poundage shall be given by the formula PE+Q where E is as defined in paragraph 4(1); P is a constant, greater than or equal to A in paragraph 4(1), specified in the Rate Support Grant Report Q is a constant, greater or less than zero, specified in the Rate Support Grant Report. (2) P and Q shall respectively be the same for all authorities to which this paragraph applies. 6. (1) Where an authority's total expenditure is greater than their threshold expenditure, their standard rate poundage shall be such as may be specified in accordance with principles to be applied for all authorities to which this paragraph applies. (2) The principles referred to in sub-paragraph (1) shall be specified in the Rate Support Grant Report.'.

No. 311, new schedule—Determination of Standard Rate Poundage. 1. There shall be specified in relation to each authority to whom block grant is payable a "threshold expenditure. 2. An authority's "threshold expenditure" shall be a figure higher than their standard expenditure and shall either—

1. (a) bear a given ratio to their standard expenditure; or
2. (b) differ from their standard expenditure by a given amount multiplied by their population.

3. The given ratio or given amount referred to in paragraph 2 shall be the same figure for each authority within a class of authorities. 4.—(1) Where an authority's total expenditure is less than or equal to their threshold expenditure, their standard rate poundage shall be given by the formula AE+B where E is either—

1. (a) the ratio between the authority's total expenditure and their standard expenditure;or
2. (b) the difference between their total expenditure divided by their population and their standard expenditure so divided;

A is a constant, greater than zero, specified in the Rate Support Grant Report; B is a constant, greater or less than zero, specified in the Rate Support Grant Report. (2) A and B respectively shall be the same for each authority to which this paragraph applies within a class of authorities.'.

Mr. Squire

After one or two false starts, most hon. Members will agree that we have reached the debate that best meets head on the provisions of the block grant. We can now discuss its implications for local authorities. Before looking at the amendment in detail, it is essential to remind those who did not have the privilege of reading or hearing the proceedings in Committee why many of us find the provisions objectionable.

Let us ask some simple questions. Does the provision represent interference in local authorities? As has been indicated, every local authority association—I am glad that at the time they were all controlled by the Conservative Party—made representations to the Government. They pointed out that the provisions were an intolerable invasion. One might have thought that there was less probability of the three local authority associations agreeing on anything, than there was of achieving an inflation rate of 0 per cent. However, we have now united those associations.

The measure represents a major shift towards central Government. It relies too much on figures that are less than reliable. It introduces positive financial penalties in areas that were previously considered a matter for the council, its ratepayers and electors. I shall not make a detailed use of newspaper quotations. However, it is worth reminding the Government that the Financial Times—not the most Opposition-minded newspaper at the best of times—concluded its editorial entitled "The ratepayer should choose" with the following words: The Government's intention to penalise local authorities with cuts in their basic grants if they increase rates 'excessively' could reduce local authorities to mere organs of central government. The Government would be right not to contribute to local profligacy with increases in the rate support grant. But it should not deprive local ratepayers of the right to be profligate with their own money. The ballot box, not the Government, should decide whether local Councillors are spending 'too much'. The measure represents an interference. Is it justified by the performance of local government? The hon. Members for Batley and Morley (Mr. Woolmer) and Bishop Auckland (Mr. Foster) mentioned that the outturn figures—the total amount of local authority expenditure in each of the years from 1975–76 to 1979–80—have been within a very small percentage of the figure agreed with the Government of the day. That figure would have been agreed at the rate support grant negotiations in about November of the year preceding the year in question. In the majority of years, the outturn has been below that figure. The figures are widely available and I am sure that hon. Members have them.

A letter to The Times of 24 June from Professor Jones, pointed out that local government can be compared with national Government over a similar period of time. The Institute of Local Government Studies review for 1980 showed that, based on the Government's expenditure plans for 1980–81 local authority expenditure should be nearly 14 per cent. lower than in 1974–75, at 1979 survey prices. Central Government spending will be nearly 8 per cent. higher.

I am sure that my right hon. Friend the Minister will mention the relevant figure for the current year. I have every belief that, as in the past, local authorities will demonstrate their desire to keep within the limit set by the Government. However, the figure is partly artificial. It arose in part because central Government chose not to make the cuts they could have made last summer. The Government probably recognised that authorities would have found that difficult. However, as they did not make a cut then, it is difficult to penalise local authorities now. Given the base that the Government have adopted, I have a horrible feeling that many of those councils that have a political complexion similar to mine will be thought of as overspenders.

Is the measure justified on economic grounds? I do not think any hon Members would disagree that central Government are responsible for controlling expenditure. Some of us have wished that central Government would make more effort to control expenditure. No one would wish to take that authority from them. Is it also in order for Government to control local authority expenditure above the rate support grant, namely, that element raised in rates? The difference between the rate support grant and total expenditure does not affect the public sector borrowing requirement. Nor does it affect that lovely phrase "council borrowing".

I should like to reassure those hon. Members who have not been involved in local authorities that councils can borrow only to meet temporary shortfalls in their cash flow. Traditionally, that tends to occur early in the year because there is a delay in receiving the rates. The Local Government Act 1972 specifically prohibits local authorities from borrowing against future rate assessments. We therefore do not want to hear too much talk about great increases in local government borrowing. Any borrowing is raised on capital, which is largely under the control of the Government of the day.

Is there an alternative? The joint submission of the three local authority associations pointed out an alternative. It would have met the Government's stated objectives, as it would have agreed a revised method of measuring need and would have tackled the bits and pieces that needed changing, including resources. Local authorities should be 100 per cent. accountable to their electors.

Lastly, on the background, I am concerned that the whole of the block grant tends to rely on figures in a way that was never contemplated for those figures. I shall give an example. Surely most hon. Members agree that one of the most vital figures is the population of a local authority. Yet no local authority can tell its exact population. It receives an estimate from the Auditor-General, but often it will challenge that figure—

Mr. Dafydd Wigley (Caernarvon)

Will the hon. Member agree that a serious problem faces those counties that have influxes of population during the holiday season? In such areas it is impossible to assess the population, yet the services that must be supplied to meet the maximum demand are a disadvantage to the economy of those areas.

Mr. Squire

The hon. Member makes a valid point. I am sure that many hon. Members could think of a number of alternative ways in which that figure could be used or misused.

There is also the question of unemployment figures. We do not know the unemployment figures borough by borough because the catchment area for unemployment consists of the appropriate offices and these overlap over local authority areas. Hon. Members may well think that if one were using various statistics to measure needs, the unemployment figure would be critical.

I turn to amendment No. 106 which refers to clause 45. That clause sets out the basic mechanism of the block grant system. The hon. Member for Rotherham (Mr. Crowther) is not in the Chamber at present, but he made the point earlier that rateable values were not a realistic way of measuring value. The amendment recognises that point. Rateable values are not a good measure of relative resources and were never intended to be used in that way. When it met, the Layfield committee showed how much rateable values for the same standard house varied dramatically across the country. Successive Governments have recognised this in the context of the existing rate support grant by not fully equalising on the basis of rateable values. With the postponement of rating revaluation, which is also contained in the Bill, we do nothing to increase the relative accuracy of rateable values—indeed, they move even further out of line with reality.

The Minister way well claim that there is sufficient flexibility to enable him to recognise that some adjustments are needed to rateable values before these are used to calculate grant. However, the local authorities would be much more secure if this amendment were accepted, so that alternative measures of resources could be used for grant purposes. It is important to ensure a fair grant distribution and equitable rate burdens between local authority areas.

I must point out the obvious problem of Greater London. I do not do this merely because I represent a Greater London constituency, but because Greater London, more than any other part of the country, highlights the problems of using gross rateable value. In London, domestic rates are more than 45 per cent. higher than the average in the rest of the country for the same sort of property, but Londoners' incomes are only 10 per cent. higher. Those incomes have to cover a range of higher costs, not just rates.

Amendment No. 112 is perhaps the most critical of the amendments in this block. It seeks to tackle what is called negative marginal increments of grants. If hon. Members are feeling a little confused about that, I have bad news for them—it gets even worse. Because of the way in which the Bill is drafted it would be possible to construct schedules of standard rate poundages in such a way that an authority that was spending £X plus 10, as against an authority spending £X plus 5 would lose more than £5 of that expenditure. That is wrong. Above a certain level of expenditure we should seek 100 per cent. accountability. We will not make local authorities more responsible by reducing their responsibilities. But we will make them more likely to be responsible and accountable by making the full effect felt by the ratepayers. I shall leave it to other hon. Members to make that point in greater detail.

For the benefit of my right hon. and hon. Friends I shall quote the "mirror image" here. Suppose that a future Labour Government face a number of Conservative-controlled authorities, each elected on a platform to restrain expenditure, in practice receiving incentive under a grant system of perhaps £7 or £8 to reimburse them for the £5 that they spent. That is the mirror image of what we are discussing tonight. Most of my right hon. and hon. Friends would be concerned with that state of affairs. I ask them to be equally concerned, in the interests of fairness, with the amendment that is in front of us today.

7.15 pm

Finally, the remainder of the amendments—Nos. 108, 110, 111 and 113—are paving amendments for Nos. 220 and 311. I shall speak to the two latter amendments together. This is a very complex matter because block grant itself is very complicated. As the Bill is drafted there is no limitation on the way in which the Secretary of State can construct standard rate poundages in each year's rate support grant settlement. The powers available are so wide that a future Secretary of State could, if he wished, use his new grant system to encourage some authorities to raise their spending to levels desired by the Government of the day. This could be done by reducing the existing grant entitlements of authorities that underspend—that is, they spend below their standard expenditure figures under the Bill—and, in effect, by promising more grant if they increase their spending closer to the standard.

Large numbers of local authorities at present spend below the assessed needs figure used for calculating their needs grant under the existing grant system. These authorities are mostly, but by no means exclusively, in non-metropolitan areas. Under the block grant, the assessed needs of the present system are replaced by standard expenditure figures. The Government have said that they propose a different method of assessing standard expenditure from that which was used for arriving at assessed needs. But whatever method is employed, it is certain that a substantial number of authorities' existing spending levels will be below the new standard of expenditure. Probably many of those will continue to be in non-metropolitan areas. Such authorities are understandably worried at the prospect of a future Secretary of State labelling them as under-spenders and using the block grant system to reduce their grant. Many such authorities would take the view that their lower spending levels reflected, at least in some cases, financial prudence, economy and efficiency and a standard of services that was not in any way inadequate.

These amendments propose a new schedule which would place limits on a Secretary of State's powers in the standard of setting rate poundages so as to prevent a rate support grant settlement from being constructed in this way. In the case of amendment No. 220 it would impose a requirement for a linear relationship between expenditure and standard rate poundage for all authorities spending below a prescribed thresh-hold, but above their standard expenditure. Secondly, it would prevent the uniform straight-line relationship between expenditure and standard rate poundages for authorities spending below their standard expenditure from giving any greater incentives in terms of extra grants to raise spending and the incentives which apply to the authorities spending just above their standard expenditure levels. Thirdly, it would provide a continuing incentive to restrain the expenditure of authorities spending below their standard level. Therefore, the amendment would build into primary legislation a continuing incentive for efficiency and economy.

Similarly, amendment No. 311 shares many of the same aims, but makes the marginal cost of spending the same for all levels up to the threshold. While the amendment does not meet all the fears of the more prudent authorities, it eliminates any pressure through the grant system for authorities to vary their expenditure if they are spending below the threshold level. The amendments are complicated but it must be realised by hon. Members that the at least annual rate support grant reports to Parliament, for which the Bill provides, will contain much more complicated provisions which Parliament will have to understand.

I am grateful for the tolerance that the House has shown in allowing me to outline these remarkably complicated matters. I reiterate that local government democracy is not an invisible force, conjured up only over matters of great peril. It is a dynamic factor. Over the years it has been a bulwark against successive Governments perhaps threatening to take excessive centralised control. Given the trust and support of the House this evening, I am sure that it will remain so for many years to come. I am not surprised that a Government should seek to take greater powers. That is in a sense the very stuff of Governments, whatever their political persuasion. However, I should be surprised if the House tonight approved the taking of those greater powers without assuring itself that they were justified and necessary, and, above all, that no alternative existed to meet the requirements.

Mr. Hattersley

I hope that I shall not do the reputation of the hon. Member for Hornchurch (Mr. Squire) irrevocable harm if I congratulate him on the clarity and force of his speech. However, by his grip and grasp of this complicated subject, he may lead his hon. Friends to believe that claims that the new grant system will be simpler than the old are justified. I believe that the new system will be a great deal more difficult. It is arcane, and will be almost incomprehensible not only to the local authorities which have to wrestle with it but to this House when we get the almost formal opportunities to debate what the Secretary of State has decided.

I shall concentrate on amendment No. 112. However, I wish first to deal with the background to the debate. My objection to the block grant is that it brings a permanently coercive element to the distribution of Government funds. No one would argue that there should be an open-ended commitment for the Government to pay local authorities whatever individual and collective local authorities consider that they should. If the Government decide that £9.6 billion is all that they can afford under their economic policies, it is not only their right but their duty to set that limit. However, that £9.6 billion this year, and whatever it is next year, should not be distributed in a way that brings pressure to bear on local authorities to do things which, in their discretion, they would not have done.

The Minister made a brief remark that intimated that we were wrong to suggest that that coercive element exists. He appeared to suggest that local authorities would still be able to raise whatever rates they wanted and spend what they wanted. In theory, that legal right may remain, but the object of the block grant is to bring pressure to bear on what a Secretary of State may regard as a profligate authority. We need not consider now whether such a determination would be correct. The question is whether it is right for the Secretary of State to distribute money in a way that could bring pressure to bear on local authorities not to exercise their traditional and legal rights. That is why we object to the scheme, and is the main reason why local authority associations have objected.

The Minister does those associations less than justice when he suggests that the objection is that no local councillor dare say that he likes the new scheme in case his authority receives rather less than it would have received under the old scheme. I give local authority associations far more credit than that. They have spoken and fought against the scheme as a matter of principle—the principle of local government autonomy. Once elected, a council is responsible to its ratepayers. That responsibility should not be eroded in the way that the Government propose.

I am accused by the Secretary of State constantly, and by the Minister occasionally, of urging local authorities to exercise their rights, raise the rate of their choice and support the spending that they consider right for their areas. I plead guilty. Before the year is over, I shall doubtless be asking for many other charges to be taken into account. However, if the Minister wants local authorities to co-operate, he must place some of the trust in them that he has talked of. Local authorities will not co-operate if they know that, while asking for co-operation, the Government are taking penal powers and will enforce their will. It is in the nature of local authorities that they will ask themselves why they should come to a voluntary agreement on spending if the voluntary agreement will no longer apply and the Government propose to apply coercion through the new Bill. It erodes the possibility of the majority of local authorities subscribing to the overall financial provisions that the Government believe are right.

The hon. Member for Hornchurch rightly said that we are dealing with complicated matters. Amendment No. 112 is not as simple as it appears. The principle behind it is clear. It is intended to protect local authorities from what is either a crude error in the Bill or a gross injustice, depending on how one judges the Minister's attitudes. When one considers how the block system works, it is clear that it is irrefutably one or the other. The amendment was suggested by the Association of Metropolitan Authorities. It is intended to protect two classes of local authority. The first class comprises those local authorities that will be described as overspenders, although we reject that subjective term, which has no real meaning. Such authorities could be penalised in a Draconian way unless the amendment is carried.

Those authorities that the Secretary of State may regard as underspenders could also be penalised. Without the amendment, it is possible that what is mistakenly described as a negative increment, which is a contradiction in terms—removing money from local authorities because of their extra spending—could be exacted from what the Secretary of State would describe as comparatively prudent authorities, which had the good fortune in general but the misfortune in particular to have high rateable values. Those authorities, which may be Conservative-controlled, will have a long record of spending no more than that which their people, and perhaps even the Government, regard as appropriate, yet they may be penalised simply because of their high rateable values.

To illustrate my points, I fear I shall have to spend a couple of minutes out-lining the principles of block grant once again. As the House knows, it is calculated on a three-part formula. First, there is an assessment of standard expenditure.

Mr. King

Grant-related.

Mr. Hattersley

Standard expenditure is one of those notions that the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) described. It does not happen in a real council in a real world, but it is a notion that the Secretary of State was required to construct. It is to be a replacement for or an adaptation of what used to be called the needs assessment. Crudely but accurately put, it becomes a statement of what it is popularly supposed the council's level of spending should be. The Minister will tell us that that is wrong. I have learnt to know if not love him. He will invent a new name, such as an "indicative total". However, when the citizens of Birmingham discover there is a figure for standard expenditure that the Government apply to Birmingham, they will consider that that is what Birmingham ought to spend, as has been adjudged by the Secretary of State. Birmingham may be spending more or less than that. Either way, the citizens of the city will say that Birmingham is spending too little or too much. It is not possible for the Secretary of State to produce a figure of spending for local authorities without its being so taken. Indeed, unless it is so taken it will make nonsense of the entire formula.

7.30 pm

The second part of the formula concerns the sum that a council might reasonably raise through rates—a combination of what is called the standard rate poundage, another wholly imaginary figure concocted from the Marsham Street air, multiplied by the gross rateable value. The Government will take what they believe the council should reasonably raise from what they believe the council ought to spend and will make up the difference.

In passing, may I say that one of the provisions in the Bill to which we take particular exception is that those two notional sums—standard rate poundage and standard expenditure—will be concocted by the Secretary of State in whatever way he wishes. The Bill is beautifully simple in that regard. It says that standard rate poundage and standard expenditure shall be determined by the Secretary of State in accordance with principles to be applied to all local authorities. That is the only check on the Secretary of State. He can decide what he believes the poundage should be and what he believes the expenditure should be.

The Secretary of State will sophisticate the system slightly by applying a number of weird devices, one of which glories in the Keynesian title of multiplier. When we told the Minister in Committee that it was a Keynesian title, he was frightened that he would be regarded as one of those who actually believe that the Government should bring down unemployment. A multiplier is to be used to sophisticate the entire scheme and to make it more complex and more incomprehensible.

Basically, there are three elements—what the Government think councils should spend, what the Government think councils should raise, and the difference, which, initially, the Government will make up. I understand that the Government will make up 100 per cent. of the difference as long as councils spend what the Government think right and as long as they raise what the Government think right. If a council exercises its free right, which the Minister says is not to be undermined or inhibited, to spend more than the Government think right, or exercise their right to raise rates higher than the Government think right, the penalties will start.

The first penalty is that a council will receive a smaller proportion of the additional expenditure than of the primary expenditure. I understand that. If a local authority spends more than the Government lay down, the Government will say that they are not responsible for paying their share of the extra expenditure. I understand why the Government say that the more that a council exceeds the notional total, the less contribution they will make towards the excess. I do not approve of such a scheme, but I understand it. I assume that the Government would go on making a diminishing contribution to extra spending until they were making no contribution.

Imagine our surprise, Mr. Deputy Speaker, when we discovered in Committee that the Government may go on diminishing their contribution towards extra expenditure to a point where their contribution is negative so that they take money away from the original sum that they proposed to give to councils. A council that spends, say, £10 million more than its original intention will receive a smaller grant than if it had not spent the excess £10 million. Clearly that is coercive and the intention is to deter extra expenditure. By any normal definition of the term, that is a fine imposed on a council. The Government are saying "Raise rates that are high enough to finance expenditure of which we disapprove and we shall positively take money from you."

The entire concept of a negative increment is as nonsensical as it sounds. It is all the more nonsensical when the negative increment can apply to councils that are comparatively low spenders. Since the formula has within it the gross rateable value, a number of authorities believe—and calculations carried out by the AMA confirm their belief—that because of the money that they receive from highly rated properties they will have to go only a few pence above what is at present a modest level of expenditure to be penalised by the negative increment.

I hope that the Minister will make clear that unless the negative increment is amended as we propose, not only will it apply to authorities that the Secretary of State regards as overspenders, but local authorities that are well down the table of spending may discover that their second assessment for rate support grant is smaller than their first and that they are being penalised as though they were overspenders.

That is such a bizarre proposition that I understand why some hon. Members find it difficult to believe that the Government have got themselves into such confusion. However, I assure the House that many Conservative-controlled authorities are worried about facing that penalty. The Minister confirmed in Committee that it could happen and I hope that he will tell us how he proposes to avoid it. We believe that this sort of nonsense is inherent in the block grant suggested by the Minister.

It seems to us absurd that Marsham Street—I shall define that in a moment—should try to assess what is the appropriate spending for 400 or 450 local authorities. I said "Marsham Street", because, while the statute will say that the Secretary of State shall determine what is the indicative total for expenditure, I do not believe that the right hon. Gentleman, whose devotion to detail is not notable, will work it out for himself. It will be worked out by civil servants.

The idea that civil servants are to lay down the indicative total of what ought to be spent in Birmingham on all the services—parks, education, housing and so on—is a negation not only of democracy but of common sense. It is "the gentlemen in Whitehall know best" with a vengeance. To start on the basis that that sort of calculation should be made by civil servants is an indication of the absurdities of the entire scheme.

Mr. Wigley

Does the right hon. Gentleman agree that the only way that that could be done in practice would be to bring in a horrible system of prefects in each area to keep an eye on what was going on? Would that not be an unacceptable addition to bureaucracy and expenditure?

Mr. Hattersley

I agree. There are two problems. If the prefects—I take it that the hon. Gentleman uses the word in the French sense rather than in the Shrewsbury school sense—are to do their job adequately, it will be a negation of democracy. My fear is that there will not be prefects and that it will all be cobbled together during April. People will say "Give or take a few hundred thousand pounds, it does not really matter, because the people of Birmingham can find their way through the gap in resources. "It will be done haphazardly and incompetently. Both the negation of democracy and the incompetence ought to give us cause for concern.

It is equally absurd that, by a number of hypotheses and a number of notional figures, the gentlemen in Marsham Street who are deciding what should be spent in Birmingham or any other city will also claim the right to determine what the rates should be. That is what it amounts to. If the two elements do not fit together, an authority is likely to receive a reduced grant which will influence its behaviour and general performance.

I hope that the Minister will tell us that he will modify the most absurd aspects of the scheme. I fear that he will not be able to make the block grant acceptable, because, by its nature, the block grant is supposed to interfere in local authority matters that the Government should not interfere in.

I suspect that the Minister will tell us that the Government have to find some way of determining what a local authority's level of expenditure should be. I suspect that he will repeat all the well-known criticisms of the present method of determining the needs element—its historical inadequacy, the fact that it requires the largest grant to go to the largest spender and so on. I accept some of those criticisms, but the test that what a council, having been elected, thought was right for its area and what it convinced the electorate to vote for the council to do is not a bad test of what ought to be spent in the area. It is giving the local ratepayer the chance to influence his local council and its decisions.

The Minister does not agree with that view. He prefers the idea that by a permanent system he should have the opportunity to bully and blackmail local authorities into spending levels that are determined in Whitehall. I do not know of anyone who suggests that the Government should provide funds to meet all the bills that all local authorities want to incur. No one suggests that there is a bottomless purse from which the Government should or can contribute.

What we resent about the block grant is that if it passes into law it will force on councils spending patterns that they do not believe to be in the interests of their areas. It will prevent councils from raising rates that their ratepayers are prepared to pay. As a result, it will mean a substantial reduction in the autonomous powers of local government. The Minister of State must accept, as I accept, that if one believes in local government autonomy—he has said several times, even today, that he does—that autonomy must include the right of individual authorities to do things that the Government do not approve of their doing. Autonomy is nonsense if it is only the right to do what the Secretary of State of the day approves.

Mr. King

I have already answered that point.

Mr. Hattersley

The Minister of State says that he has already answered that point. He has not answered it to anyone's satisfaction, as shown by the recent Division. He may like to have another shot if he intends to intervene during the debate. The idea that, by asserting that he is on the side of the local authorities, anyone should believe that he is on the side of the local authorities when he is proposing to penalise and bully them in this way is to stretch our credulity too far. It is right that some decisions should be taken locally. A council should be able to raise the rate of its own choice without being penalised if that rate is higher than the Government believe correct. If councils are prepared to finance their own spending, they ought to be allowed to maintain such spending. We shall divide against the clauses that enshrine the block grant.

Mr. Geoffrey Rippon (Hexham)

The House must be grateful to my hon. Friend the Member for Hornchurch (Mr. Squire) for the clear and concise way in which he has put forward this important group of amendments.

My right hon. Friend the Secretary of State wrote to me on 1 April assuring me that while the Government were determined to proceed with the basic principles of the block grant, he recognised, nevertheless, the genuine local authority concern about possible implications of what he termed the theoretical way in which block grant might be operated. He reasserted the undertaking given by my right hon. Friend the Minister for Local Government and Environmental Services in Committee on 25 March when he said: I confirm that the Government are certainly prepared to consider further constructive amendments that could incorporate any additional safeguards"—[Official Report, Standing Committee D, 25 March 1980; col. 757.] In my submission, my hon. Friend has tabled amendments which seek to obtain that very object. If, tonight, the Government feel unable to accept these amendments in the precise form in which they are drafted—an argument frequently put forward, no doubt, with good reason—I hope that my right hon. Friend would at least give a very firm assurance that further consultation will take place with the local authority associations in order that there can be agreed amendments in another place.

It is essential that, in such a complex matter, a real effort should be made to get agreement where there is acceptance, to a large extent, of the Government's objective. I have seen the letter that the Minister for Local Government and Environmental Services wrote on 20 June to the chairman of the Association of County Councils. I am bound to say that I share the view, expressed not only by the Association of County Councils but by the other associations, that the Government have not yet made any concession, apart from the matter of terminology. To change the phrases "standard expenditure" and "standard rate poundage" to "grant related expenditure" and "grant related poundage" does not, in itself, amount to what I would regard as a major concession. I doubt whether the change to which my right hon. Friend has referred in the use of the concept of multiplier will take us much further forward in meeting the fundamental objections to the block grant of the sort to which my hon. Friend and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) had referred.

7.45 pm

There is a genuine anxiety that the Bill is so drafted as to give any Secretary of State powers that, by any standard, are too wide. I can only join those who, while not opposed to the Government's stated objectives, are begging them to think again about such doubtful concepts as the negative increment.

I agree with my right hon. Friend that no one regards the present system of the rate support grant as being ideal. It would be fair to say that, on both sides of the House, those concerned for many years with local government are anxious to try to find the fairest system of distributing the global grant, taking into account the wide variety of considerations affecting the different types of authority, such as the extra expenditure that falls upon an authority because of the sparsity or density of the population and the whole range of different problems that face urban and rural areas.

The criticism of the present financial provisions of the Bill centres on the fact that the existing Government rate support grant, for all its weaknesses, is, as far as anyone can judge, preferable to the proposed new block grant system. It is as simple as that. I accept my share of collective responsibility for those present weaknesses. I can say, in some mitigation, that when I introduced the Local Government Bill on 12 November 1973 I stated: Certainly it is not the last word to be said on the subject. But I hope to show the House that it represents a major advance, paving the way for future developments. This is based on the principle that the right financial framework is one in which central and local government can work as partners, each representing its proper responsibilities with the minimum of overlap and potential conflict."—[Official Report, 12 November 1973; Vol. 864, c. 35.] What is so worrying about the present Bill is that this principle is so clearly breached. There are all the elements of potential conflict that one can imagine. If we accept the need for reform, I beg the Government to try to make another effort to get it right in a more acceptable way. Anyone listening to the discussions today, whether my right hon. Friend is right or not in saying that it does not have the damaging effects that some people argue, will be clear that the Government's proposals are not acceptable over the whole range of authorities of every kind, including officers and members. In my area, the Northumberland county council and all the district councils are unanimous in their opposition to these financial provisions, although they would claim to be numbered among the prudent authorities that might be expected to benefit most from some effort to restrain the so-called extravagant authorities.

The objections to the block grant have been admirably summarised by the Association of District Councils, which says that it will, first, result in a major shift in the balance of central-local relationships and substantially reduce the autonomy of local authorities; secondly, that the new system will be more complicated and difficult to understand than the existing rate support grant system—difficult thought it may be for anyone to believe that this is possible and, thirdly, that it will result in greater uncertainty and instability than the present system. That is pretty severe condemnation. It summarises the general view throughout local government.

It is not only the local associations that criticise the provisions. The City is also critical. At a seminar organised recently by Short Loan and Mortgage Co. Ltd., which specialises in this field. I noted that the managing director of Morgan Grenfell (Local Authority Service) Ltd., Mr. Richard Scriven, described the Bill as "appalling". I am bound to say that I endorse the plea made only on 3 July by the all-party Association of Councillors, which said: We hope that even at this late stage you will feel able to make some gesture to convince local government that the proposals are not a retrograde step as far as the autonomy of local government is concerned. Whatever the rights or wrongs, it is certain that the message, such as it is, has not got across. Nobody is convinced that the Bill will not have adverse effects over a wide range. When the Secretary of State addressed the annual conference of the Society of Local Authority Chief Executives on 18 July 1979, he said: I believe that an effectively functioning local democracy can monitor the activities of local councils far better than the civil servants in Marsham Street. That is exactly the point that the right hon. Member for Sparkbrook made. That is why I believe that the provisions will prove to be unworkable. It is not possible, without an enormous addition to the staff at Marsham Street and in the local authorities, to determine the needs of each local authority in the way that the effective operation of the new system requires.

The chairman of Northumberland county council, Colonel Barnett, commenting to me on the Secretary of State's speech on 18 July 1979, said: Now, with the introduction of this new Bill, he"— that is, the Secretary of State— seems to have done a complete U-turn and is seeking to give to civil servants a savage and, to my mind, completely unnecessary grip over both capital and revenue expenditure by local government. I can assure the Secretary of State that the chairman of the Northumberland county council is a mild man. It is rare for the county council to call upon me in such clear tones to express its unanimous view.

I do not ask the Government to do another U-turn. That expression, which is now so fashionable, is rather misleading. The Gadarene swine were not required to turn round and go in another direction back to whence they came. They needed only to change direction and go along the precipice instead of jumping over it.

"The Right Approach", published in October 1976—a document to which I attach a great deal of importance—stated: Within a total budget, local government should have much greater freedom over how it spends its money. Priorities should be worked out locally. It has been said that we might have been misled by the preamble into believing that the Bill is intended to remove rather than to add controls. However, I believe that the proposals breach a basic tenet of Conservative Party philosophy. The Government have stated that their strategy is to give more freedom to local authorities, more responsibility and less control within a realistic economic framework. In pursuit of that admirable objective, they have declared that: what central Government can do is to set a ceiling to spending which matches the state of the national economy. But it is for councillors and ratepayers to see that their own controls work and to see that they are guided by the values of the real world. Hon. Members who have not studied the Bill might be forgiven if they are under the mistaken belief that it conforms with those admirable principles. It does not.

We cannot effectively manage our national affairs without delegating a large measure of power and responsibility to local authorities. As the right hon. Member for Sparkbrook said, that is not contrary to the Government's responsibility to control the total expenditure in the public sector. It must determine the general level of Government grant to local authorities. They should not, and cannot in practice, impose a rigid control on the spending pattern of the individual local authorities because the spending pattern inevitably varies, for all types of reasons, from area to area.

My Hon. Friend the Member for Hornchurch rightly said that this amendments would have no effect on the public sector borrowing requirement, about which monetarists and others are so much concerned. The grant itself forms part of the PSBR, but it is fixed in advance, together with the cash limits, by the Government. The Government exercise the control. The total amount is firmly within the Government's control. That £9.6 billion is determined by the Government—that is out of total local government expenditure of £17.5 billion. The Government could properly reduce their percentage share of local government expenditure by reducing their contribution from the present 61 per cent. to 60 per cent. That might be argued about, but it is a more proper and effective way of controlling public expenditure.

The central Government grant and subsidy contribution to all local authorities in the London area in 1977 was about £1,609 million. In 1979–80, it was £2,230 million. I have no doubt that it will rise again in 1980–81. If the Government want to control local government expenditure where they think that it is excessive, they have the power to do so without this legislation. What is certain is that the local rate level has no effect on the public sector borrowing requirement.

We have had some discussion about whether the proposals will seriously damage the present democratic freedom of all local authorities. The Minister says that it will not. He must accept that all the local authorities say that it will. That certainly applies to local authorities in my area. The Conservative leader of the Northumberland county council, Mr. John Baxter, said: Northumberland is particularly concerned, as one of the vast majority of local authorities which has consistently observed the guidelines issued by Governments of all political parties. We should recognise the contribution that local authorities have made to supporting whatever is the policy of the Government of the day. They have not always liked it and they have not always been silent in their criticism, but they have carried out their obligations as part of the machinery of government. As my hon. Friend the Member for Hornchurch said, they have a far better record in recent years than central Government. That is proved by figures issued by the Institute of Local Studies in its annual review.

I have always believed that we should stand firmly for local self-government without any half measures. That often means abandoning the present passion for national uniformity that so often makes vain the hope of progress. If electors are dissatisfied with the conduct of local affairs, the remedy is in their hands. They should be encouraged to use it.

I am afraid that, by preventing variety of decision and standards of administration, we shall undermine the quality of life everywhere. That applies to almost every sphere of government. The tendency is to replace individual initiative and diversity of action with a monolithic process of central planning. We cannot have the freedoms that suit the Government and let the rest go hang. In a free society we must accept both the challenges and the risks. They are the same challenges and risks that give a quality and diversity to life that no paternalistic bureaucracy, however well intentioned the Ministers of the day might be, can hope to achieve.

I believe that my view is shared by many Opposition Members, by many of my hon. Friends and widely outside the House—that the Bill and its financial provisions in particular are a complex irrelevance and that as they stand they constitute a threat to local democracy.

If the Government are not prepared to do as the local authority associations wish—that is, to withdraw the whole of part VI of the Bill—I think that they should, as I said at the outset, give a firm undertaking that they are prepared to introduce amendments of their own when the Bill is considered in another place.

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Mr. Foster

I am glad that I am following the right hon. and learned Member for Hexham (Mr. Rippon), particularly in view of his long experience in these matters. When he had responsibility for these affairs no doubt my right hon. and hon. Friends did not always agree with what he said and did, but at least they knew that he had the interests of local government at heart. He understood local government services and he had the greatest sympathy with what local government tried to achieve.

The difficulty now is that the local authority associations—and it takes a particularly clever Government to have united them in this way—do not trust the people responsible for these matters. The Minister has spoken about the autonomy of local government and about partnership. To many of us it seems that he has learnt the words appropriate to the relationship between central and local government, but we doubt whether he understands the spirit behind those words. That doubt is shared by the local authority associations which are united in saying that the Government are fundamentally altering the balance of that relationship.

The Minister denies that; and I have no doubt that he is sincere. He says that all that is at stake is that the local authority associations and the officers and elected representatives in local government are afraid of change. But the Minister must be aware that local authorities are used to coping with change. They experience continual changes of government and within that sphere of change they have to cope with changes of Ministers. They experience changes of control in their own authorities. Local authorities are coping with change every day of the week.

We are talking about extremely able county treasurers for the most part. They have formulated the advice about which many people have spoken in the debate. They are the men who understand the system very thoroughly, even though some of us may not. As many hon. Members have said, it is an extremely complicated system. The officers understand the system and they are now saying that they are extremely fearful that the relationship between central and local government is being fundamentally altered.

It could be that, had trust been established earlier, they would have been prepared to give much more credit to the words and intentions of the Government. But the Government having forfeited that trust by some extravagant statements about the role of local government—which many of us hold in great regard and in which many of us have served as councillors and officers—and those officers knowing that local government is often the whipping boy of central Government, it is not surprising that they are suspicious of central Government of whatever political complexion.

The men of Marsham Street are being quoted in the town halls and county halls as being greatly to be feared. That is because many members and officers of local authorities suspect that in this Bill the Government, in the interests of short-term expediencies, are grasping at the evil designs of the men of Marsham Street in order to gain much greater control over local government. The Government have fallen into the trap into which civil servants always wish those Ministers responsible for local government to fall.

Whereas the Government have said that it is their intention to allow local government to do away with a host of regulations and controls to enable members and officers better to respond to the needs of their areas, this Bill will excessively restrict that freedom.

It would not be surprising if there were not many ways in which central Government could control local authorities. They do it through the voting of money in this place; through the rate support grant, and through the framework of law passed by this House. It is also done through countless circulars, guidelines and administrative memoranda. What, therefore, is the need for extra power to be in the hands of the Secretary of State or the civil servants to control further what goes on at local level?

I agree with the right hon. and learned Member for Hexham who spoke about the essential relationship between central and local government, because the strength and autonomy of local authorities has been a great bulwark of democracy in this country. Of course it is inconvenient for Secretaries of State to have to deal with what might be seen as a lot of rogue animals persistently being obstructive and attempting to frustrate their honourable intentions. But that is part of the complex system of checks and balances in democracy in this country and I would regret its passing very much.

There is another aspect of this legislation which I also regret. There are already too many tendencies towards uniformity. There are tremendous pressures upon every local authority—upon officers and chairmen of committees—to have regard to national norms; and the vested interest in education, whose services account for about 50 per cent. of local government expenditure, will persistently remind chairmen of education committees and directors of education of how far beneath the national norms their authorities are and that it would be a good thing if they reached the average pupil/teacher ratio. They ask if it would not be a good thing to spend as much upon books as other leading authorities.

That is right and proper, of course, but if we are to have local government which is really sensitive and responsive to the needs of a local area we need to expand the area within which councils can respond to those needs. We should not restrict it even further.

It is remarkable that the local authorities are universally opposed to part VI, especially to the wide-ranging powers given to the Secretary of State to set standard expenditure, rate poundages and multipliers for individual authorities. Despite the intention of the Government, the authorities feel very strongly that these will be interpreted as what individual authorities ought to be spending, and the rates that individual authorities ought to be levying.

The councils in my own constituency —the Durham county council, the Wear Valley district council and the Sedgefield district council—all agreed with the objections of the Association of Metropolitan Authorities. First, the association feels that central Government cannot possibly objectively assess the needs of each individual area. Secondly, it feels that it is not the function of central Government to assess need in that way. That is the job of local government, as accountable to its local electorate. Thirdly, it is felt that the Bill will result in a major shift in the balance of the relationship which was referred to earlier. Fourthly, the AMA feels that the block grant system will be more complicated and difficult to understand than the existing rate support grant system. One of the Government's objectives was to make the system more simple and readily understandable by councillors and by the people at large, yet the AMA feels that it is even more complex than the present arrangements. Fifthly, it is felt that the new system will result in greater uncertainty and instability than the existing system.

As the hon. Member for Hornchurch (Mr. Squire) said, it is even felt that the system could lead to an increase in the level of local government expenditure.

Mr. Leadbitter

Perhaps my hon. Friend would add a final point to his interesting list. Is he aware that the Secretary of State ought to take into account the fact that in the area which we serve and in which we live—indeed, in a number of depressed areas—local authorities are the pace setters for services and projects with regard to employment-related schemes? Surely it would be a tragedy if the fears of local authorities in those areas were such that any of those schemes, at this difficult stage in the economy, were withdrawn or even modified.

Mr. Foster

I am grateful to my hon. Friend for his intervention. I myself belong to a local authority—the metropolitan county of Tyne and Wear—whose major objective was to assist in the industrial development of the whole of that county. Indeed, I was chairman of the economic development committee which decided to spend £2 million a year on building nursery factories which would be particularly suitable for occupation by small businesses. There are many authorities up and down the land which are now realising that they have a responsibility, as well as an opportunity, to intervene in order to assist industrial development. As the rate of unemployment rises alarmingly, and as areas such as mine and that of my hon. Friend the Member for Hartlepool (Mr. Lead bitter) will expect to suffer disproportionately, it is small wonder that local councils want to do more in that respect. One would want to give them the freedom to do more, especially as central Government are cutting back by one-third on their assistance to the regions.

We may well be defining now the nature of the relationship between central and local government for the next 20 years. It has been a long time since that relationship was established. It could well be that it will be an equally long time before we again have the opportunity to change it. It is wrong for central Government to alter the nature of that relationship because of the short-term and self-imposed task of tightening their already vice-like grip on local authority expenditure, in particular by penalising a few so-called profligate, high spending authorities which find the Secretary of State's desire to show his virility no reason for them to impose hardship and suffering on the most needy in their areas.

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Mr. Charles Morrison (Devizes)

When I spoke on Second Reading I expressed sympathy with the Government in that they proposed to introduce a new block grant system aimed at overcoming all the criticisms of the rate support grant which local authorities had aimed at that system because of the profligacy and selfishness of a small number of local authorities. Yet, having introduced a new system, the Government were immediately subject to great criticism.

In the light of the criticism made by local authorities, I suggested that in the months ahead the Government should either persuade the local authorities that the block grant system was the better system or that they had to accept alternative suggestions which might be put forward by the local authorities, and that if no reasonable alternative was available it would be better to continue with the rate support grant. I am afraid that the criticisms aimed at the block grant sytem when originally introduced still exist, and that my right hon. Friends have been unable to persuade the local authorities of the benefits of the system which they are now proposing.

I want to be brief. All that I wish to do is to reinforce some of the comments that have already been made so well by my hon. Friend the Member for Hornchurch (Mr. Squire). It is remarkable that all the local authority associations are united in their opposition to the block grant. I cannot imagine any other occasion when that has been so. What is more, they agree about the reasons for criticising the system.

My right hon. and learned Friend the Member for Hexham (Mr. Rippon) quoted the views of the Association of District Councils. The views of the Association of County Councils are very similar. That association is convinced that the block grant will increase the power of central Departments to influence local spending decisions to the detriment of true local democracy. I do not agree with the hon. Member for Liverpool, Edge Hill (Mr. Alton), who said that the block grant would mean an end of local government autonomy. However, I feel that it will amount to a con- siderable diminution of the authority of local government.

The Association of County Councils points out that the proposals are so complicated that only a few experts will understand the system. Yet, as I understand it, one of the original objectives was to introduce a system which was a good deal simpler than the rate support grant which currently exists. Having listened on a number of occasions to a number of people trying to describe the detailed complexities of that system, I can see that it is easy to understand why there should be a simplier system of grant.

The block grant does not live up to that requirement. It is stated that the complexity of the block grant will make it extremely difficult to forecast, at the time of rate support grant settlements, either the effect of the settlements in total on local authority spending and rates, or the effect on individual authorities. If that is so—and it is an important criticism—it will make it extremely difficult for local authorities accurately to gauge the level of rate poundage that they require at the beginning of the year. It is claimed that the block grant will put all local authorities in a state of great financial uncertainty to the detriment of efficient planning and management of local government important services.

Reference has been made to the fact that my right hon. Friend the Secretary of State undertook to consider carefully any alternative suggestions put to him by local authority associations. Proposals were put to him, and it is believed that those proposals lived up to the objectives given by my right hon. Friend to the House. I understand that the Government do not deny that the proposals put forward by the associations meet the requirements, or live up to the objectives, given by my right hon. Friend. It would be helpful if, when he replies, my right hon. Friend the Minister, would refer to the reasons why he felt unable to accept the proposals of the local authority associations.

Mr. King

We have accepted some of their proposals. We offered to accept others, but pointed out certain complications which might not have been apparent to the local authority associations, which then decided not to pursue their proposals in the light of the points that we made. I think that my hon. Friend will find that, contrary to the impression that may have been given earlier, we have accepted rather more proposals than are apparent.

Mr. Morrison

Given the complete and total opposition that still exists to the block grant in principle, I hope strongly that my right hon. Friend will be able to accept the amendments proposed by my hon. Friend the Member for Hornchurch. If my hon. Friend will forgive me for saying so, that would be only second best, but at least it would meet some of the major criticisms and worries of local authority associations. The complexity of the amendments proposed by my hon. Friend emphasises clearly the extraordinary complications of the new block grant system. Nevertheless, if we are to have that system it must be amended to take account of some of the worst worries that have been expressed about it.

For me, the objective of the local government reorganisation which began on 1 April 1974 was to produce a structure and system of local government that would prevent the constant filching of local government power by central Government, and to provide a reinvigorated local government to take back some of the powers and responsibilities that it had lost. That has not happened. Far from regaining power and discretion, local government has continued to lose them. Those who serve in local government are, unfortunately, only too often treated as naughty children. In consequence, the atmosphere between central Government and local government is not good, and there is a good deal of suspicion in local government of the motives of Whitehall.

I accept and believe that my right hon. Friend wants a viable system of local government with reasonable freedom and power. But there will not be such a system if, at regular intervals, and at the whim of successive Governments, the power of local authorities is increasingly circumscribed or reduced. It is past the time when the process of filching power by Whitehall should be reversed. If it is not reversed, there will not be any local government that is worth its name.

Mr. Wigley

The Secretary of State and the Minister must be impressed by the representations from all parts of the House. In addition to those representations, all local authority associations and local authorities of different complexions are united in their opposition to the block grant proposal. I would have thought that the Ministers would have been worried by the position. As yet, we have not heard a word from the Conservative Benches in enthusiastic support for the Government's proposals. We have heard criticisms and suggestions for improvements from the Conservative Benches, and criticisms from the Opposition Benches.

The Government can be certain that some Conservative Members, although they will go through the Government Lobby, will not be in agreement with their proposals. The Government may be worried at the thought that some hon. Members will go through the Opposition Lobby who are not in total opposition to their proposals. For those who are centralists—whether centralists of the Right or the Left—the provision gives tremendous scope for additional powers of the Centre. The Government are opening the door through these provisions. That door could be used by future Governments in a way that they and their friends would be surprised and shocked to see, namely, greater centralisation for other purposes.

Over the past 30, 40 and 50 years we have seen an erosion of the powers of local government and the realms of its activities. Since the 1930s we have seen such powers as those relating to trunk roads. hospitals, personal health services, school health, ambulances, electricity and gas services, rivers and, to a large extent, control of the police force, taken away from local authorities.

It now appears that there is to be a further erosion of power for the overwhelming majority of those involved in local government.

If the Government's formula is intended to simplify the position, it is not seen as doing so by those involved in local government. I am lucky in my local authority, which has one of the six elected people in Britain who understand the regression formula used in the present structure. There is no doubt that it is extremely concerned with the way that the new system will operate. It is concerned that the present system does not operate successfully and accurately, and that some of its weaknesses may become even more compounded in the system that is being advocated.

I put it to the Minister that conceptually he and his colleagues have introduced a set of proposals that are inherently unacceptable. There is an attempt to arrive at some sort of an idea of what is a standard service, viewed from the centre, but circumstances vary so very greatly from area to area that it is very difficult to express this in financial terms.

My county, for example, has a very scattered population. Indeed, it is a county that has argued for super-sparsity to be built into the rate support grant settlement. The problem of maintaining second-class and third-class roads in rural areas puts a tremendous strain on the services. It is a county in which there is a very high average age. Young people are moving out; older people are moving in on retirement. There is a tremendous strain on the social services and an additional requirement of funds for those services. In an area in which the population is scattered, the size of schools and the size of forms within the schools will be very small. An additional strain is put on the education services.

8.30 pm

The cost of maintaining what may be a standard service will vary considerably from area to area. It can be very high indeed in rural areas such as I have described. It can also be very high, for different reasons, in urban areas. It is very difficult, if not impossible, for there to be a uniform assessment from the centre that is meaningful unless there is a system of monitoring and analysis that is so strict as to become not only expensive but bureaucratic and surely unacceptable to the present Government. We could, I suppose, have a system akin to the French prefect system, but I should have thought that would not be acceptable, with our structures.

On the one hand, therefore, there is the impossibility of having a uniform analysis and a uniform cost of providing anything like uniform services. On the other hand, there is a perfectly reasonable diversity in the ambitions that people have from area to area. I should have thought that the Government would accept that this is so. The people in some areas may want to spend more on certain services; the people in other areas may want to spend less on those services. That is reflected in the political balance that we have in this Chamber from area to area within Wales, England and Scotland.

It is absolutely fair and reasonable that people in different areas should want to spend more and, by spending more, get more services in the public sector, whereas people in other areas want to spend less and have less supply in the public sector. That is the whole rationale of local government—that it is possible to have flexibility from area to area in order to meet the differing standards for which people are looking.

We have two problems. There is the problem of being able to assess what a standard should be in any area and what is acceptable. Secondly, we have the reality that people want different standards from area to area. Yet the whole proposal that is before us in the Bill is one that ignores those two factors. I believe that these provisions, when enacted, will lead to a greater alienation between local government and central Government. Local government will be looking for ways of beating the system and will be in operation against central Government instead of looking after its own domain in a totally free atmosphere, within the confines of its own responsibility to its electorate.

For these reasons, I believe that it behoves the Government to think very seriously again about these proposals. They will lead to conflict, to greater cost and to greater bureaucracy. I do not think that they will deliver the goods for which the Government are looking. The Government would be wise, even at this late stage, to accept that there is, perhaps a majority view outside this Chamber in all parties that the proposals should not be enacted. Now is the time—not in a year or two—to make changes, before it is too late.

Mr. Paul Dean (Somerset, North)

I support my hon. Friend the Member for Hornchurch (Mr. Squire) in what I believe were very powerful arguments that he used in introducing the amendments.

Last week, on the first day of Report stage, I expressed some misgivings about part III of the Bill, relating to direct labour organisations. On that occasion, the Government went a considerable way to meet the views and the misgivings which had been expressed by the local authority associations and by hon. Members on each side in the debate. There was a firm commitment from the Government that a further amendment would he introduced when the Bill reached another place. I hope that my right hon. Friend the Minister for Local Government and Environmental Services will be able to be similarly forthcoming tonight.

I do not propose at this hour, after a long debate, to repeat the arguments that have been used already, nor am I qualified to go into detail on this matter. However, I should like to make one or two general points.

It has not been argued in this debate, and it is certainly not argued on this side of the House, that the Government should have firmer control than has existed hitherto over the totality of local government expenditure. That was one of the main planks in the platform on which the Conservative Party fought the general election last year. I would not dispute that for one moment. Indeed, we are dealing with a substantial proportion of public expenditure and taxpayers' money, and it is therefore right that the Government should seek a more effective instrument than has existed in the past to control that totality.

I am bound to return to the misgivings that are still expressed, and are deeply held by all the local authority associations, including those that are controlled by the Conservatives, and those councils throughout the country that are loyal to the policy of the Government, and wish to see the Government succeed. My right hon. Friend the Minister for Local Government and Environmental Services said earlier that he fully understood the fears of the local authority associations at the beginning of this process. But he would be the first to recognise that those misgivings still exist with regard to the block grant system. I have a letter from the Association of District Councils dated 26 June. That was after the various discussions and negotiations that had taken place. One of its criticisms is that in its view there is a probability that there will be an increase in local government expenditure, rather than a decrease, as a result of these proposals. I am not qualified to know whether that is likely to be the case, but it is a criticism, and I hope that my right hon. Friend will be able to deal with it in his reply.

There is another reason why the Government's present proposals are being so strongly criticised. In many areas of local expenditure there is already very little control by the local authorities—for example, in teachers' salaries or almost any other salaries that are involved. Some of the expenditure is borne by the rates, but the decisions are not made by the local authorities. They are made by some central machinery. That is another factor that partly explains the misgivings that still exist.

My hon. Friend the Member for Devizes (Mr. Morrison) asked the Secretary of State to deal more fully with the reasons why the Government do not feel able to adopt many of the suggestions. I admit that they have adopted some, but they are largely technical suggestions. rather than suggestions of substance. I hope that my right hon. Friend will deal with that matter more fully because, having listened to the views of the local authority associations and having discussed the matter with my local authorities—all of which are Conservativecontrolled—I feel that we are better with the devil we know—in spite of the considerable disadvantages that exist in it—that with the rate support grant system.

I hope also that my right hon. Friend will be able to go some way towards meeting the suggestions made by my right hon. and learned Friend the Member for Hexham (Mr. Rippon), who made a plea for further consultation. It is reasonably clear that it will be some time before the Bill is fully considered in another place, so there should be time for further consultation.

No one can say whether the Government, with their faith in the new system, are likely to be right or whether the fears expressed by the local authority associations are likely to be right. We are dealing with a highly complex matter and there is just the chance that the local authority associations are right and the Government are wrong. That is another good reason for further consultation.

Finally, any system introduced with the present atmosphere of mistrust and misgivings about it among Conservative-controlled councils gets off to a very bad start. Therefore, I hope that my right hon. Friend will respond to the widespread fears that have been expressed on both sides of the House and will assure us that further consultation with the local authority associations will take place before the Bill proceeds to another place.

Mr. Woolmer

The new system of grant goes to the heart of the Bill. When all the elements in it are put aside, we see the real nature of the Bill.

The Government, having won the election last year, started with the spirit of freeing and liberating local government from the shackles and weight of bureaucracy. However, if the logic of these financial clauses is out, we shall have a growing bureaucracy and weight of detailed intervention by central Government.

The irony is that the record of local government in recent years, taken year in, year out, has been surprisingly good. With respect to the Minister of State, it is not good enough, after two or three months of this financial year, to call in aid a percentage difference and the need to rein that back as any explanation or justification for the swingeing and radical nature of the Bill. As was said earlier, it has all the hallmarks of an overreaction.

There are many basic problems in finding a fair way of distributing central Government finance to local authorities. All areas do not have the same basic wealth, resources or problems. Areas with the least wealth often have the worst problems. They often have the highest local spending to overcome those problems, the highest local rates because they have the least wealth and the greatest Government help.

The coincidence of a high rate, high spending and high Government grant is no accident. These three elements are often a reflection of real need. Such a coincidence of features does not imply something unworthy or disreputable. It does not imply that those local authorities do not care about national problems. Indeed, they are often struggling to overcome national problems, because national problems affect local areas. The response to overcome local consequences of national problems often leads to these features.

There is no simple way of drawing up arithmetical or algebraic rules to deal with the complex relationship between the levels and rates of spending and their justification by hypothetical national standards.

8.45 pm

I suspect that the argument about a different way of distributing resources is totally removed from the true purpose of the clauses. The intention of these clauses is not to find a better way of distributing resources but to cut local government spending. If the Government's intention is to cut local government spending and Government spending generally, let them say so and let them cut spending. But they should not dress it up in a most complex system under the guise of trying to improve the distribution of grant. All the signs are that this will lead the Government further and further into the mire, into more and more detailed intervention. This course of action will not be worth the price that the Government will have to pay. If they wish to cut back spending, let them say so and let them face it out with local authorities. They should not get into a system which will lead to constitutional conflict and fundamental problems. I do not think that that is what the country wants.

Ultimately, local councils must face up to their judgment as to the balance of interest between high spending, high rates and the reaction of local households or business reaction. Some local authorities have to face up to the decision for low spending and low rates, and household and business reaction to that. The Minister of State knows quite well that many Labour Members and many people in areas of low rates who are suffering from poor services feel just as strongly that central Government should do something to compel improved services. It has been said several times this evening that this kind of approach of central Government to seek detailed controls in the Bill, as the Minister of State will be the first to accept, means that the spirit of the Bill is that the Government know best and that ultimately they will impose their will on individual local authorities. However complicated this matter is, that is the message being given to local authorities.

That message and the action foreshadowed can act in two ways. Although many Labour Members would like to see it, I should not like to see central Government saying to local authorities which have low spending and poor services "We shall step in and insist that this is done and take action against you if you do not do it." That would be the end of local government.

This matter is very similar to a Government trying to do this in relation to the nationalised industries, trying to tell them not only how much money they can have from central Government—the equivalent of the rates—but how much they should produce and sell and what price they can charge. It is like trying to tell an industry how much it should produce, what price it should charge and how much money it will get from central Government. If the Government are doing that, they might as well run the business themselves. If they want to tell a local authority by some norm what must be its level of services, the rate that it should charge and how much it will get from central Government, the Government might as well try to run the local authorities themselves.

If Ministers come to the House to justify the consequences of their complex system of fixing these multipliers and these notional norms, they will fix those figures in order, at the margin, to affect individual authorities. That is what they will try to do. They will have to justify those formulae and consequences in relation to individual authorities, because they will finish up by penalising individual authorities. If they do not do that, the whole exercise has been a great waste.

How can a Secrtary of State justify penal action against local authorities in decisions about services, rates and spending levels which have been debated month after month by dozens of local representatives—

Mr. Edward Rowlands (Merthyr Tydfil)

Elected representatives.

Mr. Woolmer

—elected representatives —and dozens of highly paid officials, and argued at the polls in an election, and then introduce and debate in, I suspect, a matter of minutes or, at the very most, an hour or two, fairly draconian measures against individual authorities?

The Bill was brought in in a rush. The timing was wrong. It is regarded as an impetuous attack on local government for the worst and most short-sighted motives. At best, it is a piece of economic engineering. At worst, it is an attack on public services in the guise of trying to improve the method of rate distribution. It is not a genuine attempt to reform local government finance. I am the first to admit that certain aspects of local government need changing. The level of percentage rate grant has to some degree sapped local responsibility and democracy. There is a need for considered change and reform. However, as I said, the Bill was brought in for the worst of motives.

If the Government do not feel able to respond to the pleas of all the local authority associations, council after council, whether Labour-controlled or Conservative-controlled, and the Opposition, let them at least pay heed to Conservative Members who have spoken with a great deal of sense. I ask the Government to reconsider. Local government and the public will consider the Government none the worse if they reconsider and produce a measure which involves local responsibility and which will strengthen local government instead of ultimately destroying it.

Mr. Beaumont-Dark

Although I have made my main remarks, I wish to support virtually every hon. Member who has spoken this evening. It is unique to have a Bill on which all local government associations, of whatever complexion, are sensibly united against the Government's measures. It is also unique that no one outside the Government has spoken up for the Bill. My right hon. Friend has listened patiently, and I hope that he has noted what has been said.

Some of us are still getting over the previous occasion on which our right hon. Friends decided to tinker with local government and make changes here, there and everywhere. A disaster that we have not yet overcome is the change in water authorities. I had hoped that the next time a Conservative Government brought in local government legislation they would lay a sensible foundation for good local government.

I reiterate that part VI of the Bill is bad in design, concept and proposed implementation. It is a relief to know that we are to hear something of the figures which have been kept from the Committee but which were delivered to the Financial Times. The Government, with their advisers, have not found a way round multiple regression analysis. I had to work with local government grant. Anyone who has had anything to do with it is aware that it is not a good system, but the proposed new system will be a not worse.

In one of the Secretary of State's golden speeches on Second Reading he said that he wanted to come to an agreement with local authorities. He rightly said that he wanted to stop high-spending authorities pre-empting a larger share of Government spending, and that electors should be more able to judge the decisions taken by their local authorities. He wanted to end the present automatic assumption that the more an authority spends, the more it pre-empts for itself at the expense of more cost-conscious authorities. I entirely agree with him on that point.

The three local authority associations got together, and, as we all know, that took some doing. They formulated a scheme which, in their view, was better, simpler and easier to understand, certain in its effect and had limited scope for manipulation to favour or discriminate against particular local authorities. Neither the Minister nor the Secretary of State has denied that the joint alternative meets the Government's proper objectives.

Therefore, I hope that tonight we shall hear that the Government will think again about the amendment. Governments of all complexions rarely think at all, judging by what one one reads in Bills. No one thinks any the worse of anyone who thinks again. Bearing in mind all that has been said in the House in the last three hours and outside among informed people over a number of months, I hope that the Government will think again.

The argument was put forward today that those people who do not agree with the Government about this matter are basically scared little men. I must tell my right hon. and hon. Friends that most people I know who have risen to prominence in local government are not scared little men. They are people who understand what they are doing as much as and even more so than many Ministers of the Crown. When they tell us that we are wrong, their judgment is based on their experience, and I believe that they have much more chance of being right than we have.

It is time to think again, and I hope that the Government will grasp the opportunity. It is not too late. Once the clause is brought into law, we shall open ourselves yet again, not to co-operation between the two great spending parts of public life, but to confrontation. Let us get rid of confrontation, at least on this level.

Mr. King

I hope that my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) will concede immediately that I have never described people in local authorities as "scared little men". Those are the words that he used; I did not and I assure him that I would not seek to use them in any sense. I was asked genuinely to account for some of the difficulties in the Act for the local authority associations. I agree that there are such difficulties.

This group of amendments covers in principle four items—a proposal that it should be possible to use a basis other than the present rateable values a proposal connected with negative marginal rate, and two others dealing with the problem of convergence or the prevention of convergence plus the positive incentive to greater reduction of expenditure. Amendment No. 311 would prevent the possibility of convergence but without the incentive—in other words, it would be neutral in its effect.

I shall comment briefly on the remarks of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). I must tell him that I do not think that we can go on meeting like this because at times I feel as though I am listening to an echo. The right hon. Gentleman's speech is half his own and half what he thinks I will say in reply to the points that he has made, not always with the exact inference that I would give. Of course, we have debated these matters in Committee and I make no objection that they have been raised again.

Before I deal with the amendments, I wish to make certain general points about the block grant. In the context of the debate, these amendments have tended to open up a discussion on the principle of the block grant.

Certain hon. Members, including my hon. Friend the Member for Selly Oak, took the opportunity to discuss the transitional arrangements. Indeed, my hon. Friend said that lie would discuss part VI as a whole. The hon. Member for Liverpool, Edge Hill (Mr. Alton) decided to discuss this issue earlier. I therefore owe it to those hon. Members who have exercised their option to discuss the issue now, to say a word about the provision.

9 pm

There was fairly wide agreement that the present system of rate support grant would not do. My hon. Friend the Member for Devizes (Mr. Morrison) commented that the issue was extremely complicated, and that only a few experts understood it. The hon. Member for Caernarvon (Mr. Wigley) immediately claimed that one of his constituents was an expert. I should be interested to meet him, as under close cross-examination on multiple regression analysis we would probably find a few chinks in his armour.

This is an extremely complicated subject. I do not pretend that block grant, and grant-related expenditure assessment, will be simple. Given the range of items that it has to cover, the range of authorities, and the volume of expenditure involved, hon. Members will not find a simple child's guide written on the back of an envelope. My hon. Friend the Member for Selly Oak asked for all the figures and papers. The grant working group's summary papers of work done to date are available. An enormous amount of work is done. That work is being done as it was done in previous years. Every year, grant working groups meet central Government, the various Departments involved in local government services, local authority officials and members of the associations. Their work is extremely detailed and complex. The outcome of their work is announced at the various meetings of the consultative council, and there is a statutory meeting in October.

A quotation was given from the Financial Times. However, the news is not always accurate. That comment was a little out of date. The work is going ahead in a satisfactory way. None of the work is easy, but we are making satisfactory progress. It was suggested that, as a result of block grant, Marsham Street—and the civil servants who sit in that ivory tower—would make assessments about the expenditure of every authority. The hon. Member for Caernarvon was concerned about that. I am sure he is aware that a needs assessment is made for every authority. That procedure will continue. However, we hope to simplify it. Although the system will not be simple, I hope that it will be simpler than the previous arrangement. I also hope that the relevant section of my Department will operate with lower staffing levels. That may indicate whether this measure is as complicated as some hon. Members have suggested.

Mr. Wigley

I am grateful to the right hon. Gentleman for mentioning my remarks. One big worry facing an area such as Gwynedd is that the present formula for multiple regression analysis cannot cope with the necessary range of circumstances, such as super-sparsity and so on. If the right hon. Gentleman simplifiies the system, might not the problem become more acute in such areas?

Mr. King

The hon. Gentleman has fairly pointed out the dilemma. In simplifying the system, we do not seek to leave out significant factors. If the hon. Gentleman talks to his constituent about the working of multiple regression analysis, he will find that there is some evidence that factors are included that coincide with the pattern of expenditure in different authorities. On any subjective assessment one would not have thought that those factors were highly significant as regards the expenditure levels of a particular authority.

In making the system simpler, we are concerned to look objectively at the factors that count for expenditure and to try to relate them more to the assessment of need. That simplification will not necessarily mean the elimination of significant factors of expenditure.

Whatever system we use for needs assessment, the peculiarities and differences between authorities make the challenge of trying to find the fairest way in which to distribute the grant a difficult and complicated issue. We have to make judgments in trying to arrive at the fairest basis.

Mr. Hattersley

The right hon. Gentleman referred to the calculation of needs assessment, or something like it, by officials, and implied that that was done already. Will he confirm that the AMA rightly says that in the new scheme the needs assessment will become a much more significant factor in the formula by which the grant is assessed? Does it not therefore become more important, and is it not more difficult for us to allow it to remain in the hands of officials?

Most important, the present individual needs assessment is not published as something that can be taken as a performance indicator of a council. The right hon. Gentleman proposes to publish it, and that makes all the difference in the world.

Mr. King

The publication point is contained in the amendments that the local authorities put to us. I find it difficult to understand why it should be considered more important under the new system. If the right hon. Gentleman had to receive the deputations that I have to receive from local authorities complaining about their needs assessments and the fact that they had not been adequately assessed and did not take into account the needs of particular areas, he would realise that it is already a matter of keen interest. I do not think that that will be vastly changed under the new arrangements.

Of course we are aware of the concern about the apparent unevenness of rateable value assessments across the country. There are problems, but they are inherent in the present rate support grant system as well. That is based on present rateable values.

The amendment suggests that there could be other bases. Three are defined and the other is an open-ended suggestion of any other basis. That is not a practical proposition. The answer to the difficulties is to approach the matter in a different way. We are concerned to move towards the abolition of domestic rates. We feel that that will be the time to tackle the problem and that we should not attempt to do that during the interim stage.

The criticism is that the rateable value basis is erratic, quixotic between different areas, and is not a fair basis on which to assess the resources of individual local authorities. We do not feel that it would be practical to change the basis proposed in the Bill.

The Bill proposes: A Rate Suppport Grant Report may provide for the determination of rateable values of hereditaments falling within any class of hereditaments by a method other than that specified in this section. That refers more to the problem of accommodating mandatory rate relief for charities and the need to discount rateable values to that extent.

Both my hon. Friend the Member for Hornchurch (Mr. Squire) and the right hon. Member for Sparkbrook, made a noble attempt to make the issue of negative marginal rates comprehensible to hon. Members. It is a technical subject. I shall refresh my memory on a few points that I consider important to get on the record. The point I make is as applicable to the present rate support grant system as it will be to the block grant system. It is concerned with equalising the cost in rate poundage terms of equal variations in expenditure. That principle was accepted by the right hon. Gentleman and his party when in office and we accept it now.

If the grant is distributed in accordance with this principle, there are bound to be unequal grant effects because the resources of authorities vary significantly. This is not a flaw in the system but a natural consequence of the poundage equalising system. Because we are equalising the poundage cost of expenditure, ratepayers in authorities that experience negative marginal rates of grant are at no disadvantage compared with those in other authorities. It is not a question of taking grant away from authorities. For any given level of expenditure, they get the grant they need to level the same poundage as authorities spending at a comparable level in relation to grant-related expenditure. If one one does not accept the risk of negative marginal rate of grant, one blows out of the water the concept inherent in the original proposal of my right hon. and learned Friend the Member for Hexham (Mr. Rippon) on rate support grant and inherent in our proposals that for an equivalent rate poundage one can provide an equivalent standard of service. We have thought it important to maintain that principle.

My hon. Friend the Member for Hornchurch referred to the concern felt by authorities over what I call the convergence argument, that, as well as any restraint on excessive expenditure, there would be an incentive for authorities that spent below the level of expenditure, and that it would be possible for the schedule to be operated in a way that encouraged higher levels of expenditure. There are technical problems about my hon. Friend's first amendment. It also provides a major incentive to substantial reductions in service levels where we believe that, below standard or grant-related expenditure, this should be a neutral line.

My hon. Friend's second amendment has such a neutral line below, but prevents the possibility of the schedule being used in such a way as to give a positive incentive to increasing expenditure. This is a serious amendment. It will be necessary for the Government to study the amendment carefully. I cannot recommend that the House should accept the amendment tonight, but I give the undertaking to my hon. Friend that we will look at it carefully. If it is possible to reach agreement on it, we shall seek to table an amendment in another place. We recognise that this is a serious amendment that could meet the point that concerns many of my hon. Friends.

A number of my hon. Friends asked me to clarify the point that was made in response to the letter that we received from the associations, and in pursuance of which an early-day motion was tabled calling on the Government to give urgent consideration to the proposed changes to the Bill's financial provisions put forward by the local authority associations. I sought to make clear in an intervention that we are conscious of the importance of the matter, and I sought to respond as positively as possible.

In the earlier debate, I discussed some of these concessions and made the point, when the original concern was expressed —I made some slightly disagreeable noises at my right hon. and learned Friend the Member for Hexham when he was playing down the concessions we had made—about the prescriptive nature of the titles of standard expenditure and standard rate poundage, and also the point that was mentioned about publication that was the initial concern of the associations, that we have responded positively. We have already moved amendments to change the titles to which such exception was taken. The amendments to introduce the titles of grant-related expenditure and grant-related poundage have been accepted. The right hon. Member for Sparkbrook seeks to play that down, but he ignores his speeches in Committee to the effect that it was an important matter.

9.15 pm

The authorities also raised the issue of publicity. They ask that the information should be contained in a report to Parliament and that the national standard expenditure and the notional standard rate poundage should not be published except as part of a full descriptive report. We have undertaken that we shall publish that in the report. There is no intention of publishing it elsewhere. It is not possible to refuse to give the information. If the information is contained in a report laid before Parliament it must be given. As far as is possible we have sought to comply with the request about publication.

The authorities are also worried about the possible arbitrary use of multipliers. We undertook to modify the Bill to clarify the matter. A later amendment honours that undertaking. The authorities are worried about negative marginal rate grant below standard expenditure. We are not able to accept the principal point, but we made clear that we are prepared to table an amendment. We drew the authorities' attention to the problems and invited them to come back to us. I understand that they do not wish to pursue the point. If they do, we shall consider the matter further. I hope that I have given an indication of the way in which we have sought to respond to the local authorities in a positive and constructive way.

My hon. Friend the Member for Devizes asked about the difficulties faced by treasurers and councils in knowing their position. I do not understand his anxiety. Under the new proposals the schedule published at the time of the rate support grant order will make it possible for an authority to determine exactly the local grant for a given level of expenditure. That might not be appreciated. The information will be clearer than it is at present.

My hon. Friend the Member for Somerset, North (Mr. Dean) talked of the issues that must be resolved and the possibility of further discussions. We have made clear how we believe that the new grant distribution system should stand and that we are prepared to talk further about it. The working parties are working out the details of the grant-related expenditure. That work will continue. However, we are ready at all times to discuss further matters.

There is general recognition among my hon. Friends that we cannot tolerate a system under which some authorities spend more of existing resources at the expense of the more prudent authorities. My hon. Friend the Member for Selly Oak made that point very fairly.

We believe that the proposals that we have put before the House represent the right way to approach the difficult and complex matter of local government expenditure and grant. We believe that the concessions we have made and the amendments that we are moving go a long way to meeting the concern of the associations on this point.

As I explained to my hon. Friend, with the exception of amendment No. 311, which we shall consider further, I cannot recommend his other amendments to the House. But I hope that the clarification that I have attempted to give will enable him to understand the reasons why.

Mr. Squire

The natural charm of my right hon. Friend—much used during three months of Committee deliberations —has been well stretched tonight in a debate in which some nine or 10 speakers have rightly criticised the block grant system. None the less, I am sure that nobody would wish a repetition of the issues so far raised.

I note the comments of my right hon. Friend on amendment No. 106, and, although I am disappointed, I recognise that there are problems with the present system as there would be with any future system. I welcome the comments of my right hon. Friend on amendment No. 311, and, although I recognise that he could give no firm, complete and cast-iron commitment, I am pleased that he is looking favourably at it and that it may yet surface in another place.

Essentially the point remains that we have heard no major justification of the block grant system that is to be introduced. I think that it is important tonight that the House has an opportunity to express its opinion on that system. I believe that amendment No. 112, which is perhaps the most important and crucial of the amendments in this group, would be such an opportunity if the House were to agree and if I received your consent, Mr. Deputy Speaker, to withdraw amendment No. 106 in order to enable a Division to take place on that amendment.

Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 46