HC Deb 08 July 1981 vol 8 cc393-4
7. Mr. Douglas-Mann

asked the Secretary of State for the Environment in what circumstances, under existing or contemplated legislation, a local authority can become insolvent.

Mr. King

None, Sir. Local authorities are required by law to meet all their liabilities—whether debt charges or current liabilities—either out of revenue or by borrowing.

Mr. Douglas-Mann

Will the Minister give an assurance that in any legislation that his Department contemplates, particular care will be taken to ensure that, even if a local authority is, in the Secretary of State's view, being perverse and not fulfilling its commitment to its electorate, it will not become insolvent? Will he bear in mind that if a local authority became insolvent, that would affect the capacity of every other local authority to borrow money at favourable interest rates?

Mr. King

Yes, Sir. I am conscious of the importance of maintaining the creditworthiness of local authorities. Although I am able to give that assurance about local authorities, I cannot give it about their ratepayers. It is quite possible for commercial and industrial ratepayers to become insolvent, and many of them have faced that situation as a result of the demands being made on them by several local authorities. Given the hon. Gentleman's concern, I hope that he will recognise the need to moderate expenditure and consequent rate demands.

Mr. Squire

Nevertheless, may I endorse part of the question asked by the hon. Member for Mitcham and Morden (Mr. Douglas-Mann)? Regardless of any possible change in legislation, a number of potential lenders to local authorities have become concerned as a result of the scare headlines that have been seen. Will my right hon. Friend confirm that the situation is exactly as he has set out?

Mr. King

I confirm what I have said. It is important that this matter should be put on record. Nevertheless, as my hon. Friend said, there have been scare headlines, and it is understandable that lenders may be concerned when they see some local authorities apparently paying scant regard to the rateable resources and capacities of their areas.

Mr. Kaufman

How can the right hon. Gentleman claim that paying rates makes businesses insolvent when a survey carried out in the Manchester area, at the request of my hon. Friend the Member for Manchester, Gorton (Mr. Marks), showed that companies in that area paid 0.67 per cent. of their turnover in rates? Surely that is not a great burden.

Mr. King

If profits stand at 0.5 per cent. of turnover, that percentage could he a devastating amount.

Mr. Heddle

Will my right hon. Friend acknowledge that a major proportion of the rate burden falls on the shoulders of the industrial and commercial ratepayer, who has no voice, no vote, no say and no sanction about how profligate local authorities spend their money? Does my right hon. Friend agree that all businesses should be able to pay their rates by instalments, notwithstanding the measures introduced in the Local Government, Planning and Land Act? Given that the cash flow of businesses is more important than the cash flow of councils, should not that form of relief be extended right across the commercial sector?

Mr. King

We introduced proposals in the Local Government, Planning and Land Act so that businesses with a rateable value of up to £5,000 in London and up to £2,000 outside London could pay their rates by instalments. In some areas in which companies are in difficulties, local authorities have voluntarily entered into arrangements to help them. They have done so because they have been concerned to maintain employment and the security of companies in their areas. I wish that all local authorities showed the same concern.