LOCAL GOVERNMENT EXPENDITURE (CIRCULAR) (Hansard, 13 June 1980)

§ The Minister for Local Government and Environmental Services (Mr. Tom King)
The letter that the Government are issuing this afternoon will ask all local authorities to re-examine their expenditure plans and to make fresh returns to my Department by 1 August. The volume of current expenditure envisaged last November, at the time of the rate support grant, implied a reduction of 2 per cent. in real terms below the level of actual expenditure in 1978–79. I have concluded, therefore, that if the Government's expenditure plans are to be achieved, all local authorities should ensure that their revised expenditure plans should represent such a reduction. Since wages and salaries account for about 70 per cent. of gross current expenditure, I have asked authorities to have particular regard to their manpower levels.
The key to the relationship between central Government and local government has always been the voluntary compliance by local authorities with the Government's expenditure plans. It is essential, therefore, that local authorities should respond positively to this request.
Copies of the letter will be placed in the Library of the House this afternoon.

§ Mr. Hattersley
Will the Minister confirm that in initial conversations with the local authority associations, the Secretary of State accepted that much of the alleged spending was as a result of accountancy procedures? Will he further confirm that a circular simply asking for information about council budgets was vetoed by the Prime Minister, who demanded further cuts, and that as a result of the Prime Minister's actions some local authority associations have now refused to be associated with the circular? That was a point at which I think the Minister hinted, but which he could not bring himself to tell the House.
Since the demands that are implicit in the circular—demands for reductions of the size that the Minister described—are 1015 impossible to achieve in the time scale laid down, what punitive action against these councils was foreshadowed by the Secretary of State in the debate yesterday evening, and by the Chancellor of the Exchequer in his speech to the Chartered Institute of Public Finance and Accountancy last Friday, when he talked in most fierce terms about taking action? Can we be categorically assured that the punitive action will not include the much-reported moratorium on new council house building?
Finally, since this so-called over-spending is exactly the situation that the penal clauses in part VI of the Local Government, Planning and Land (No. 2) Bill are supposed to prevent, can the Minister now tell us that that offensive though apparently ineffective part of the Bill is to be dropped?

§ Mr. King
The answer to the right hon. Gentleman's last question is "No, Sir."
It is true that budgets have always tended to exceed outturn expenditure, but with the degree of overspend implicit in the budgets that we have received to date, of about 5.6 per cent., I think that there is general agreement that even with that tendency to overspend there is an excess of expenditure, which makes it necessary to issue this call for a revision of budgets.
In this connection we are following exactly the procedure observed by the previous Government in a similar situation, with the exception that our circular does not include some of the later developments that some of the right hon. Gentleman's colleagues felt it neccessary to implement.
I emphasise the last part of my reply : a number of options are open to any Government. Some of them were exercised by the previous Government in an extremely draconian way. I do not intend to speculate on what all those options might be, because it is in the interests of the House, the Government and local government that this voluntary approach to the revision of budgets should be successful. I have made it clear, and my right hon. Friend made it clear in the House last night, that that is the way in which we should prefer to proceed. I hope that this will have the right hon. Gentleman's support, in following the procedure that his right hon. Friend will recall that he followed as well.

§ Mr. Chapman
Will my right hon. Friend confirm that the last thing that the Government want to do is to impose a moratorium on capital expenditure projects, as the previous Government did in 1976? Will he also confirm that in the past local authorities have met the requirements of central Government on their expenditure programmes, and that if some local authorities do not do that this year, with these modest reductions as compared with those on previous occasions, it is the fault of the local authorities, and that in no way can it be considered a draconian economic measure on the part of the Government?

§ Mr. King
I certainly confirm the first part of my hon. Friend's question. The last thing that we wish to do is to have to take further measures. We should much prefer that this call for a revision of budgets, which we announced at the Consultative Council of Local Government Finance, should achieve the necessary objectives.
I also confirm my hon. Friend's second point. There is a good tradition, in which all those active and prominent in local government take some pride, of the achievement of central Government financial targets. That has been observed under Governments of both the major parties. That is the procedure which I hope will be observed here.
There is a lot at stake. I cannot emphasise too strongly the importance of maintaining the voluntary co-operative approach to local government finance and the need to work together to achieve the proper revision of budgets.

§ Mr. Frank Allaun
Are not the Government trampling on people's lives? Is the Minister considering a six-month moratorium on council house building? As the financial situation is worsening, does not that mean that the moratorium might go on for more than six months? Finally, if building workers are sacked, as they will be during those six months, will they ever return? Might they not disappear from the building industry altogether?

§ Mr. King
I shall not go down the road that the hon. Member wishes me to take. I have made it absolutely clear that there are a number of options open that are the last courses that the Government would wish to follow. The Government 1017 wish to follow the course of the revision of budgets by local authorities so that they can achieve the overall targets envisaged within the rate support grant settlement for local authority expenditure as a whole in England and Wales. That is the course that we wish to take. I shall not speculate on all the possible options. The hon. Member may have it deeply engraved on his mind, because one of the options about which he talks is exactly the one that was so disastrously employed by the previous Government.

§ Mr. Dubs
Will not the Minister accept that, inevitably, if local authorities are to act on the advice that is to be given in his letter this afternoon there will have to be cuts in housing, social services and support for voluntary organisations? Surely that would not be a desirable outcome.

§ Mr. King
The question of what economies must be made is a matter for local authorities. The Government's concern is that the totality of local government expenditure should conform to stated public expenditure plans. That is a matter that, in the letter, we are drawing most forcibly to local authorities' attention. I very much hope that they will recognise the seriousness of this matter and will co-operate in the revision of budgets.

§ Mr. Waldegrave
Although my right hon. Friend quite rightly refuses to speculate upon the necessity of future action, would he care to speculate upon the attitude that would be taken by at least those Right-wing members of the Labour Party who sit exactly opposite him, on the control of local government expenditure if they were in power?

§ Mr. King
I am not quite sure which Opposition Members are included in the class of hon. Members that my hon. Friend has described. The scene seems to change fairly rapidly. I am not sure what their attitudes would be.
The House must realise that those who care about a reasonable autonomy for local government realise that part of that ingredient—it is recognised by the local authorities—is agreement and co-operation on the overall totals of local government expenditure. That is the issue at stake. That is why the issue of this cir- 1018 cular, calling for revised budgets, is crucially important to the success of this exercise, not only for the Government's expenditure plans but for the situation of local government.

§ Mr. Maclennan
Does the Minister believe that the revised budgets for which he has called are capable of achievement and that the targets that the Government have set will be met? Has he taken on board the warning of the Federation of Civil Engineering Contractors that a moratorium on local authority building would constitute a panic measure and a return to methods adopted by previous Administrations that would be disruptive of the building industry and cause havoc in the housing programme?

§ Mr. King
The answer to the hon. Gentleman's first question is "Yes, Sir." The answer to his second question is "Of course." Any of the options that might be possible and necessary could have serious consequences. That is why I hope that the House will concentrate on what really matters, which is to ensure that there is the fullest co-operation with the call for the revision of budgets.

§ Mr. Speaker
Order. It appears that I rose just in time. I shall call those hon. Members who had stood before I opened my mouth.

§ Mr. Ward
Is my right hon. Friend aware that he will have the support of masses of ratepayers in his efforts to ensure that local authorities face up realistically to controlling their expenditure?

§ Mr. King
The level of local government expenditure—particularly the budgeted plans for a 5.6 per cent. excess, representing about £700 million—is a matter of great concern. It is not a sum of money that the Government can possibly allow to remain in excess of public expenditure. That is why we are taking the sensible action that we are taking in calling for the revision of budgets.

§ Mr. Hooley
The Minister will be aware that cuts in local authority services, particularly in housing for the elderly and personal social services, would have repercussions in areas over 1019 which the local authorities have no control—for example, the National Health Service. Will he give an assurance that, whatever of his options he adopts—he seems to think that there are thousands of them—there will be some reconciliation by the Government between expenditure on social welfare within the local authority area and the repercussions on the NHS and other services for which local authorities are not responsible?

§ Mr. King
My concern at this stage is not to pursue further the question of all the options but to see that the call for the revision of budgets is successful. I should be somewhat encouraged in that if one Opposition Member recognised the importance of that to local government, instead of endlessly speculating on all the possible disasters that might occur if that revision were not successful.

§ Mr. Blackburn
Does my right hon. Friend accept that in 1976, when I was serving in local government, we were requested by central Government, as a result of the intervention of the International Monetary Fund, to make reductions of more than 6 per cent? The most important word used by my right hon. Friend today was "co-operation ". With good will and co-operation, we are not asking for the cuts that were made in local government finance in 1976. In the spirit of co-operation and good will, everyone will benefit.

§ Mr. King
I think that the right hon. Member for Stepney and Poplar (Mr. Shore) would accept that when he called for the revision of budgets in 1976 all sides of local government tried to cooperate, regardless of party. I hope that that tradition of co-operation will be repeated on this occasion, because it is vital both for the future position of local authorities and, clearly, for public expenditure plans.

§ Mr. Cohen
Will the Minister accept that many of us on the Opposition Benches feel that the use of the word "voluntary" is rather hypocritical, to say the least? Will he confirm the reply that I received to a written question, clearly indicating that it was the Government's intention to reduce housing finance and house building during the next 12 months by 21 per cent?

§ Mr. King
That question does not arise out of this subject because it is a matter for my hon. Friend the Minister for Housing and Construction. Of course, economies must be made in public expenditure. Any hon. Member who has spent any time in the Chamber in the past year should know that all too well. What we are dealing with now is the totality of local authority current expenditure. That current expenditure is budgeted by local authorities to be 5.6 per cent.—£700 million—in excess of the amount calculated when the rate support grant settlement was made. This is a very important matter of current expenditure that must be recognised. I hope that all local authorities will appreciate the urgency of tackling it.

§ Mr. Hattersley
The House will draw its own conclusions from the Minister's total silence about the Prime Minister's disastrous intervention in this affair. Will he answer at least one of my questions? Is it or is it not true that some local authorities have already refused cooperation because of the Prime Minister's insistence on the circular's being toughened up? Secondly, how can the right hon. Gentleman expect from local authorities what he calls "voluntary cooperation" when he goes on to say that he will take "whatever further measures seem appropriate ", if those local authorities exercise their autonomous right to raise local revenue and protect local services?

§ Mr. King
I did not respond to the right hon. Gentleman's first question because the tittle-tattle seems to concern him much more than the real issues. I am not concerned whether my right hon. Friend the Prime Minister has or has not corresponded on this matter. The decision has been taken by the Government. Is it not interesting that the right hon. Gentleman is much more interested in that first question than in the matter of local authority expenditure and the grave situation that we face? It is indicative of his whole approach to serious political matters of this kind.
As for the right hon. Gentleman's question about local authorities that have refused co-operation, I am not aware that any have done so. They have not yet seen our circular. We shall wait to see what happens when the letter goes out. 1021 At present we have had no refusal to cooperate in the revision of budgets, as indicated, because the circular has not yet been issued. It will be up to authorities to determine their action when they receive that letter.
With regard to the question of voluntary co-operation, every responsible person in local government knows the seriousness of the issue. When the right hon. Gentleman rose again I hoped that he might at last—at this last gasp—have realised that he had some responsibility in the matter. Once again, however, there was a totally frivolous approach to the problem. This is a very serious matter. I would expect local authorities to treat it with far more gravity than the right hon. Gentleman has shown this morning.
I cannot emphasise too strongly how serious the issue is. I very much hope that voluntary co-operation will be preserved in this matter, to achieve the objectives that are so important.