§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Thompson.]2.33 pm
§ Sir Brandon Rhys Williams (Kensington)
I seek to draw the attention of the House to the rising cost of living in inner London. Many aspects of life in inner London are now becoming distressingly expensive. One could mention transport, entertainment and services of all kinds, as well as general factors in the cost of living. But this afternoon I wish to draw attention to matters on which I believe it is within the Government's power to act and to achieve something useful in the short run.
It may be that charges affecting the population of inner London are rising in the main at the general rate of inflation. However, one of the glories of London is that its population is a mixture. Not all its elements are able to protect themselves in the same way against the effects of inflation. There are many elderly people, particularly in the borough which I have the honour to represent. Families are affected differently from single people. People on fixed incomes or who are unable to increase their earnings because of their advanced age or personal circumstances are being hit by changes which are resulting in the deterioration in the quality of life in inner London.
I want to deal particularly with rates and rents, which are within the field of responsibility of the Minister who I think will seek to reply. First, let us look at the scale of the need. On the housing side, there are particular problems affecting inner London, one being the acceleration that the Government have decided upon in the pace of rent reviews. By bringing down the period between rent reviews from three years to two years, the Government have undoubtedly acted in such a way that, over the next two or three years, the increases in rents in the private sector will proceed at a higher rate than the rate of inflation. There will be an accelerated catching-up process in private sector rents.
Anyone in inner London living in a flat on which service charges can be levied will also speak of the frightening pressures of the rises in service charges. I know that legislation in recent years has increased the opportunities for people living in blocks of flats to inspect the way in which the service charges are made up, but, in spite of the changes in last year's Housing Act, it is not yet possible for tenants to challenge the expenditure in a way that satisfies them. There is no doubt that the rises in service charges which are taking place are having a most disturbing effect on the inner London population.
Let us now consider what is happening to rates in inner London. Over the country as a whole, it is accepted by all parties that an excessive weight of the local authority expenditure burden is falling on property rather than on income. The burden of the rates is unfair because of the way in which the long-standing method of local authority finance is now operating against people who cannot change their accommodation and sometimes bear burdens through the rates which are quite out of proportion to their ability to pay.
I want to draw particular attention to the way in which the new rate support grant is being calculated and the impact of the boomerang effect—the negative marginal increment system—under which certain authorities are picked upon, not just to have a ceiling applied to their 1148 RSG, but actually to suffer a sharp reduction in their total amount of grant. I believe that this policy can already be seen to be very uncertain in its effects and most unfair in many areas. It is something which I implore the Government to give up in their calculation of the RSG next year.
In London, however, we also have the special problems presented by the constitution of the Inner London Education Authority. I understand that this year ILEA intends to increase its expenditure by 26 per cent.—a rather singular decision, since the child population of inner London is declining—but the burden on ratepayers will rise by nearly 48 per cent. because of the way in which this boomerang effect on the RSG operates to the detriment of inner London ratepayers who will lose over £100 million as a result of the new method of calculation of the ILEA rate support grant.
Inner London is being fined £100 million because of ILEA's decision as to the way it will spend its money in the coming year. But the ratepayers cannot exert a direct effect on the policy-making officers and responsible councillors who run the authority; so they are now being put to exceptional and in many cases insupportable extra burdens. Something has to be done.
In Kensington the precept for ILEA will now add between £4 and £5 a week to the rates paid by the average household. That is out of order. It needs immediate attention.
We need also to consider the effect on business and employment as a result of the rapidly rising rates burden in inner London. I understand that two-thirds of the rates are paid by non-domestic ratepayers. One might have said that large companies such as ICI—were it not a particularly bad topical example—probably could find the money to pay the increases. Taking the Greater London area as a whole, rates account for 37 per cent. of firms' trading profits. If increases continue at the present pace, scores of small businesses, which add to the quality of life in London, will have to shut down. That will be an irreparable loss.
We are thus in a vicious circle. Employment is declining. Accommodation is becoming unduly expensive and the whole quality of life in inner London is going down.
Today I obtained the figures from the new electoral registers relating to the change in population in 10 central London constituencies. The electorates fell by about 2½ per cent. in the last 12 months. If that was the effect of the pressures on the inner London population last year, how much worse will the population movement be as a result of the rate increases and other burdens in the coming year? The Government cannot neglect population movement on that scale. It is getting worse and is likely to deteriorate still further unless the Government intervene.
How can the Government help? I have tabled an early-day motion, now supported by more than 60 hon. Members, calling on the Government to publish a Green Paper on the reform of local government finance. It is a pity that the Government, immediately after the election, did not seek to implement a major reform. Instead, they depended upon an interim reform involving the new method of calculation of rate support grant. It has not been an entire success, to say the least.
There are ways in which the Government could proceed in the short term, rather than ultimately. Two or three weeks ago I sought to introduce a Bill to take the cost of 1149 education completely off local authorities. I know that that is controversial; but that one change would have the decided advantage of reducing the total burden of rates in England and Wales by about 70 per cent. That one reform, taken on its own, could make a dramatic change in shifting the burden of local authority expenditure from taxation of property to income-related contributions.
The Government owe it to ratepayers and the country to make an early statement of their intentions. I hope most particularly that the Government will commit themselves to get rid of the boomerang effect they have introduced into the rate support grant system.
I turn to the question of the co-ownership of flats. There is an anomaly which is particularly important in London and which makes people living in privately owned mansion blocks into second-rate citizens. Some years ago the House of Commons decided to give the right of enfranchisement to people living in houses on long leases. That has enabled tens of thousands of householders to acquire their freeholds if they wish to provide themselves with a bulwark against the effects of inflation. My party accepts the concept of a property-owning democracy. We like the idea of families having the protection of owning the bricks and mortar in which they live.
Last year the Government rightly gave people living in public sector houses and flats the right to acquire their properties. That left flats in private ownership exposed to the pressures of international investment and rising costs in a way which is having a decidedly adverse effect on the stability of the population in central London, where there are so many mansion blocks. In Kensington, about 5,000 people live in privately owned mansion blocks. Not many constituencies have such a high proportion. Therefore, I feel that it is my duty to fight for them, and I intend to do so.
As soon as I can get a convenient opportunity, under the Ten Minutes Rule I propose to reintroduce the Bill which I have brought in in previous Sessions on the co-ownership of flats. I hope that this time the Government will welcome it. That measure would cost the Government nothing, but it would help tenants who wish to remain in their properties in central London to do so. I have never recommended that tenants under such a proposal should be given a bonus or a bonanza at the expense of their landlords. But if the finance of co-ownership schemes is carefully examined, I am sure that, possibly with the help of the Housing Corporation and of the building societies, ways could be found to enable many responsible tenants' associations to acquire their properties. I think that by and large the record of co-ownership schemes in central London is sufficiently favourable for the Government to decide now to give a fair wind to such a measure. I hope they will.
All in all, without wishing to go beyond the limits of an Adjournment debate, I hope that I have made the point that we have a serious social problem in central London which the Government must not neglect.
§ The Under-Secretary of State for the Environment (Mr. Giles Shaw)
I am grateful to my hon. Friend the Member for Kensington (Sir B. Rhys Williams) for raising this important subject this afternoon and explaining so eloquently some of the problems facing his constituents and many other residents or would-be residents of inner London.
1150 In some ways, the problems of inner London are unique. However, in other ways they are problems associated with most of our major cities. The Royal Borough of Kensington and Chelsea has a mix of problems and advantages which are all its own.
To start with, the answer that I wish to lay before my hon. Friend and the House is that the general problem of inflation must be at the back of our minds and the forefront of our actions. I need not remind anyone of the importance that the Government attach to reducing the general rate of inflation. The year-on-year rate was down to 13 per cent. in January from 21.9 per cent. last May. The decline was bigger than forecast at the time of the last Budget, and there are excellent prospects for further reductions. This will help everyone—in particular, many of those disadvantaged residents in my hon. Friend's constituency whose pressure on costs in relation to their income is causing him rightly to express such great concern.
On the inner cities front, my right hon. Friend the Secretary of State announced earlier this month the outcome of our review of inner cities policy. We remain committed to making the inner cities places where people want to live and work and where the private investor is prepared to put his money. While existing arrangements can continue to make a useful contribution, it seems to us of paramount importance not to overestimate the role of the public sector in this work. Both within and outside the urban programme context we are seeking to liberate the resources of the private sector in getting local economies moving again.
The voluntary sector also has an important role to play in the revitalisation of our inner areas. Indeed, my hon. Friend's constituency contains a most notable example—the North Kensington Amenity Trust, which sponsors social, educational and recreational facilities, and also commercial schemes providing local employment.
London will be benefiting from the special new initiatives we are taking for the inner cities. Subject to parliamentary approval, we are establishing an urban development corporation in London docklands. This should at last provide a single-minded authority to tackle the most extensive area of dereliction in the capital. We shall be allocating considerable financial resources to the corporation and, indeed, as my right hon. Friend announced on 9 February, when the allocations to the proposed urban development corporations are taken into account, we are planning a significant increase in the total expenditure on inner cities in 1981–82.
I turn to the problems of London. It has always been on the whole more expensive to live or work in inner London than in comparable circumstances elsewhere. That is recognised to some extent in London weightings applied to salaries which are set nationally, and it is also reflected in statistics of average earnings. A 1979 survey showed that average gross weekly earnings for full-time adults in inner London were 9 per cent. higher than in outer London and 15 per cent. higher than in England as a whole. That does not, of course, dispose of the problems of the less well paid in London, and my hon. Friend has drawn attention to problems of rates and rents. My hon. Friend referred in particular to the burden of rates in his constituency and suggested that the rate support grant settlement for next year will be responsible for an increase in the domestic rate bill of more than 50 per cent. I do not 1151 accept that that is a cause and effect relationship, although clearly that settlement has some effect on the overall prospects for rates in the Royal borough next year.
It may help the House to be reminded of the context within which the rate support grant settlement for 1981–82 was made. Local government as a whole has been asked further to reduce expenditure by 3 per cent. in 1981–82 compared with the target for 1980–81—a 5.6 per cent. reduction overall on what, in real terms, it spent in 1978–79.
In addition, of that lower total of expenditure the proportion met by the Exchequer centrally has been reduced by 1 per cent. Those decisions reflect the difficult public expenditure position that we shall face and the Government's determination to reduce the burden of public spending on the hard-pressed wealth-creating sector of the economy. Those decisions add up to a tough settlement. They mean that for every ratepayer in the country grant has been reduced by the equivalent of a 2.6p rate before any consideration of the distribution of the grant.
A major feature of the grant distribution for this year has been some reversal of the process by which grant was sucked into London under the previous Government with no justification other than political preference. Between 1975–6 and 1980–1 London's share of the grant increased from 13.3 per cent. to 17 per cent. We estmate that, if London spends in line with our expectations, next year its share of the grant will fall to 15.8 per cent, but that will still be higher than at any time before 1978–9.
During the period of the previous Government an extra £300 million flowed into London. Individual boroughs varied of course in how they used that windfall. Some—those that we are perhaps more accustomed to hearing about—have used the money to back a growth in expenditure, others have sought to use the money to keep their rates down. The Royal Borough of Kensington and Chelsea has been one of the latter prudent authorities. During the period of the inflow the general rate in the Royal Borough increased by just 50 per cent. compared with the average for the rest of the country of 80 per cent. Its rate in 1980–1 at 88.8 pence is among the lowest in London.
As I explained, the level of grant enjoyed by London could not be justified and the settlement for next year goes some way to reverse the losses to the shire areas. There have inevitably been losses therefore to the London boroughs. Our estimate is that, if the Royal Borough budgets to our general expectations on expenditure, it will lose grant equivalent to a 5.8p rate. Such a grant change is not in itself compatible with an overall increase in excess of 50 per cent.
My hon. Friend has made much of the fact that grant for the Royal Borough decreases as its expenditure grows—what he called the boomerang effect. That is true in cash terms, but it does not in itself lead to larger increases in the rate. That is because the grant system is designed to allow all authorities to provide a similar standard of service by charging the same rate in the pound to their ratepayer. To put it more simply, the grant settlement envisages that for each additional pound per head of population rates should in general result in an increase of a little over a half a penny. A higher rate applies for those authorities spending substantially above 1152 their assessed need. It is at this point that the grants system reduces the grant payable so that authorities have to face the same increase in poundage as other authorities for their increase in expenditure, as my hon. Friend indicated. This equalising objective was shared by the previous grant system but was never fully achieved in areas of high resource such as Kensington.
I turn now to ILEA, because in this respect my hon. Friend draws attention to one of the basic problems that the borough has to face. The increases in the rates in Kensington may largely be laid at the door of the precepting authorities. The inner London boroughs will now have to find an additional 20p in the pound because of the ILEA precept. By any standards the expenditure of that authority is vast. It has been assessed to have a grant-related expenditure of £468 million—that is more for every child in the school age range than for any other class of education authority. But the ILEA has now passed a budget which at £699 million is nearly 50 per cent. above its assessed need and 17 per cent. more than its expenditure this year. That is the same amount in real terms as this year at a time when all other local authorities are being asked to reduce the volume of their expenditure and when, because of the falling numbers of children in school—a 13 per cent. reduction in ILEA in the three years up to 1981–82—there are real opportunities for savings without loss of quality of the education provided.
My right hon. Friend the Secretary of State for Education and Science has told the House that ILEA's right to precept entails the obligation to spend responsibly and that, if it systematically abuses the rating system by unchecked extravagance, further measures will be needed. The Government are now considering what those measures should be. The damage for this year is done and we must see how the authority responds in the future.
The precepting authorities have now made then-decisions. Our estimate is that they have directly contributed 32 per cent. to an increase in the domestic rate of the borough. That compares with the change in the grant aid to which I referred earlier of 5.8p, which is the equivalent of a 6.5 per cent. increase in the rate attributable to the borough. The council itself has yet to finalise its decisions. Clearly, the members are worried by the implications of the rate rise. I am sure that they will be doing whatever they reasonably can to hold the total to the minimum now possible.
I turn now to the question of rents, which was raised by my hon. Friend. First, I have to admit that in his constituency my hon. Friend is well known as a champion of tenants in the private rented sector, especially of those who live in mansion blocks. The great majority of rented mansion block flats are regulated tenancies, for which the rent officer will register a fair rent on the application of either the landlord or the tenant. Of 50,000 rent registrations in London in 1979 only 1,000 were over £2,000 a year. The increase on previous rent was broadly in line with the general rate of inflation. The highest rents now being registered in London are £6,000 to £7,000. These rare cases are for luxury flats with full porterage and services such as heating and hot water included. The fair rent protects the tenant against the effects of the scarcity value of his accommodation. His increase is phased. In most cases his service costs are fixed for the full registration period and he will often be eligible for rent allowances. This is not a bad deal.
1153 The Government considered carefully at the time of the Housing Bill the position of the relatively few tenancies outside the rateable value limits. An increase in the limit to £3,500—as has been proposed—would bring in very high value dwellings with capital values of £200,000 or above and annual market rents of £10,000 and upwards. While the Government recognise that some tenants have been facing considerable rent increases at the expiry of their leases, they could not justify a legislative change which would suddenly reduce the value of these dwellings to their owners by very large sums. It would be a long way from the original purpose of the Rent Act to apply it to tenants able to pay the kind of rents currently being charged. Moreover, the Government receive many representations to the effect that the Rent Acts are already too broad in their scope.
I turn briefly to the question of mansion block purchases. My hon. Friend raised the point. He is a knowledgeable expert on the subject and a purveyor of Private Members' Bills in the matter. There are formidable difficulties, as my hon. Friend knows, in the way of any collective purchase right in the private sector, as my right hon. Friend explained when he saw my hon. Friend and his colleagues recently. My right hon. Friend will be writing again to my hon. Friend, and I regret that there is no more I can say at this stage.
As regards the public sector, we have, of course, systems of rent rebates and rent allowances. As a Government, we accept that we have a responsibility towards tenants who are called upon to meet, unaided, rent increases that are in prospect. It was, after all, a Conservative Government who introduced nine years ago the national schemes for rent rebates and rent allowances for council house and private tenants respectively. As recently as last November, we raised the amount of help which these schemes afford to tenants. And where rent increases are concerned tenants receiving rebate or allowance can generally count on having 60 per cent. of the increase met for them.
In some areas, where there are notably high rent levels, more generous arrangements are in force under which tenants may get up to 80 per cent. increase met for them. The Royal Borough of Kensington and Chelsea, where my hon. Friend's constituency lies, is one of these areas. I should stress that special arrangements for rent rebates apply only in five out of the 12 inner London boroughs and for rent allowances in only three of them. I would also make the point that both local authority tenants and private tenants who receive supplementary benefit generally stand to have all their rent increase met for them.
1154 As regards public sector rents and the prospect of substantial increases in council house rents in London and in my hon. Friend's constituency in particular, decisions on council house rent levels remain the statutory responsibility of individual local housing authorities—that is to say, the Greater London Council and the London boroughs.
None the less, we have made plain our expectations for the financial year 1981–82. My right hon. Friend the Secretary of State set these out both in his housing statement to the House on 15 December 1980 and again in the course of the Supply day debate this month on 11 February. We are assuming that authorities will, on average, raise rents by £3.25 per dwelling per week. Our decisions on housing subsidy for next year have been based on this assumption and we have made no secret of the fact that we look to authorities to see that it materialises.
I need not detain the House by repeating all the various factors which my right hon. Friend so cogently showed to be relevant both to his subsidy decisions and to his expectations about rent increases. Two of these, however, seem to me to be especially significant in relation to this afternoon's debate. First, it is important to place rent increases in prospect for the next financial year in their proper time context. It would be misleading to view them in isolation from the trend of rents in the recent past. If increases of this order are charged, they will serve to correct the decline in rents as measured against earnings which occurred under the last Government.
Secondly, the public expenditure resources which can be devoted to housing are by definition limited. At this time, when we need to contain public expenditure in housing as in any other sector, the effect of a decline in rent levels and a corresponding increase in subsidies towards current expenditure is especially stark. The result can only be to take up resources which might otherwise be channelled towards housing investment. It is in the interest of public sector housing, both in London and elsewhere, that we correct a balance which has already swung too far in that direction.
I should like to deal with another matter. My right hon. Friend's subsidy decisions for next year were based on each authority raising the same additional amount per dwelling, irrespective of its current rent levels or the contribution it made to its housing.
§ The Question having been proposed after half-past Two o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at three minutes past Three o'clock.