Rates (Hansard, 23 July 1981)

§ Sir Julian Ridsdale (Harwich)

I wish to draw the attention of the House to the increasing burden of rates on the domestic, commercial and industrial ratepayer and especially to the threatened increase of 120 per cent. in the Greater London Council rate next year and the new supplementary rates which are being levied not only in the GLC area but in other parts of the country.

I hope to show that only an immediate reform of local government finance will overcome a system which is putting a great strain on ratepayers who comprise only 17 per cent. of those who vote in local elections.

The chief difficulty is that in inflationary times rates are not a buoyant tax. Because of that factor, local government does not have the tax base that it wants. Therefore, it has to rely increasingly on subsidy from the central Government for what are national charges or get the money from a small sector of the local government electorate—the ratepayers.

I want not to abolish rates entirely, but, by giving alternative forms of revenue to local government, to ease their incidence which, I am sure, will be a benefit to the inner cities, where it is becoming increasingly difficult not only to live as a householder but to trade as a small business man. Many householders have been forced to leave the inner cities and a number of shops and small businesses are being forced to close down because of increased rates.

Ratepayers are now facing supplementary rates bills which extravagant local authorities are forcing upon them. We must give local government a wider tax base in addition to rates. For example, a sales tax would be of great benefit to London and seaside areas. If the Government are not prepared to do that, then education, the police and fire services, for example, should be made national responsibilities paid for by the Exchequer.

I have been trying for nearly 20 years to get a reform of local government finance. I have had three Private Members' motions. The first, in 1962, achieved the setting up of the Allen committee. The result was the rent rebate scheme, which has been of great help to those on small fixed incomes. But, despite the Royal Commission, Green Papers and promises in election manifestos, that is about as far as reform has moved.

Ratepayers in various London boroughs face increases of about 52 per cent. this year. Others have fared little better, though, because of a redistribution of the rate support grant, those in rural areas have fared better than those in urban areas this year. But that does not mean that they may fare better next year. The general pattern, with the supplementary rates bills now coming in, is one of great strain on and unfairness to ratepayers, be they domestic, commercial or industrial. Essex faces a supplementary rate or cut in services. Indeed, this situation faces the country in general.

As I have said in the House on many occasions, a great deal of the increase is due to the rising cost of education. It has increased from when I first came into the House in 1954 from £400 million to £1,500 million in 1967, to £3,000 million in 1972, to £11,000 million this year.

719 In 1972, in my third Private Member's motion on local government finance, I pointed out that one of the chief problems was to know the right way to finance education. Admittedly, Government grants meet 60 per cent. of this expenditure, but, as I said then, there is still a huge amount to be collected through the rates. At that time—1972—it was £1,943 million, of which £843 million was the domestic ratepayers' share. The figure for this year is £7,800 million, of which the domestic ratepayers' share is £3,400 million. In 1972, I said that, rather than have this huge subsidy through the rate support grant for local government it would be better and fairer to relieve the domestic ratepayer of paying the education charge and to make that amount, or some part of it, a national charge.

I asked then, and I repeat today: is it right to disguise the way that the money is raised for education and to put such a heavy cost on industrial, domestic and commercial ratepayers? I said then that we would never contemplate getting money for defence by means of a tax on property. Yet that is what we are doing for education. Now we have 452,000 teachers and only 330,000 people in the Armed Forces. The bill, at £11 billion, is about the same in each case. But is it right that ratepayers should pay for this huge army of teachers?

In 1972 I said that I knew the argument about a change in the system taking away from making education a local interest. I said then, and I believe it now, that my experience as a private school governor had led me to believe in a duality of governors—some from the centre and some from the local authority. Such a system gives much better value for money. I am sure that that would be a much better system than the present one, which involves subsidy, further subsidy and disguising the whole cost of education and other charges to the electorate.

The supplementary rate being levied by the Inner London Education Authority this year shows the absurdity of the system, whereby economical councils are having to pay for the extravagant authorities such as ILEA. In addition, the hard-pressed ratepayers have to pay for the police, costing £1,400,000 in 1979 and more today. Add to that the fire services and the burden on the ratepayer begins to be apparent. This is not all. Water and sewerage charges, being connected to rateable values, mount up too.

The new GLC puts the burden of its extravagant concessionary fares scheme on the ratepayers, utterly disregarding the fact that other parts of the country, such as my constituency in North-East Essex, cannot afford such luxuries. Of course it would be far better to have a national concessionary fares scheme. I hope that such a scheme will follow the reorganisation of local government finance. Alas, faced with such a situation, councils all over the country have been cutting back on capital spending especially on sewerage which, in my constituency and in certain areas of London, is becoming an acute problem. Combined with the sewerage charge is the water rate, the incidence of which is causing grave concern, not only in my constituency but across the country.

It is easy to state the problems but not so easy to find the solutions, especially at a time when the gross domestic product is declining. I have the following advice to give to the Government; immediately appoint a Minister of Cabinet rank to deal with the reform of local government finance; bring forward the publication of the Green Paper 720 as soon as possible; give instructions that the Minister produce positive proposals by the time of the next Budget; beware of introducing a local income tax because this will put the matter back on the doorstep of those who are having to face the problem of the increasing rate burden; broaden the base of local government finance so that councils do not have to rely solely on rates as their means of finance. If we do not do this we shall kill local government altogether.

The Government should also consider very seriously taking the burden of charges for education, the police and the fire services from the shoulders of local government and its ratepayers. There should also be a limit on the amount of rate rises that councils can inflict on the ratepayers. Perhaps a mix of all these proposals will be the right solution.

I recognise that this means new legislation. I underline the need for urgent action. We have waited for too long and the problems are becoming worse, as we face supplementary bills coming in from local authorities, and the threatened vast increase of 120 per cent. in the GLC rate. I hope, most earnestly, that the time has come for early reform.

§ The Under-Secretary of State for the Environment (Mr. Geoffrey Finsberg)

After a hard day's night the rating system is still a subject which is of immense concern to millions of business men, large and small, and to many millions more who contribute towards the cost of local government as domestic ratepayers and as taxpayers. Perhaps I should mention that I am advised that 48 per cent. of electors are ratepayers and not 17 per cent. as my hon. Friend the Member for Harwich (Sir J. Ridsdale) suggested, though that does not alter the burden of his argument.

The Government agree with my hon. Friend that much of the present rating system is in urgent need of reform. My right hon. Friend the Secretary of State certainly ensures, as my hon. Friend wished, that the rating system and other issues in local government finance receive the attention that they merit from all concerned, including his colleagues in the Cabinet.

It has been our policy, in considering the whole of local government finance, to address ourselves not only to the amount of expenditure incurred by local authorities, but to the consequences when that expenditure is excessive. We must also look at the way in which local revenue is raised through the rates and the extent to which the present system produces inequities for the ratepayer.

My right hon. Friend the Secretary of State therefore announced on 2 June that he intended to issue a consultation document in the autumn on the alternatives to domestic rates. I can assure my hon. Friend that the Government indeed mean to see that that document is published as early as possible and that once consultation is complete we shall be looking to produce positive proposals.

It is not easy, however, to examine the impact of possible alternative systems—and it is, of course, essential to ensure that a thorough study of all feasible alternatives is undertaken and effective consultation carried out before the Government's firm proposals are made.

For the time being, we have been examining the broadest possible range of alternatives including some of those which my hon. Friend has mentioned and at this 721 preliminary stage none of them is being ruled out. I shall certainly draw the attention of my right hon. and hon. Friends to what my hon. Friend has said including his points about the funding of certain services such as education and the police.

Whatever system finally emerges from the Government's review as a replacement for domestic rating will clearly have a most significant function to perform in financing the activities of local government. Domestic rates produce a very substantial revenue—£3.6 billion in Great Britain in 1980–81. The replacement of domestic rates would be a radical and substantial reform which would have to produce a system capable of lasting a long time. Our consultation document in the autumn will include those options which, in our view, appear most to merit further and closer consideration as possible ways of doing that job.

It is obviously most important that any solution chosen should have the maximum of public support. We therefore intend to consult very widely on the options, and the views of all interested parties, including of course my hon. Friend, who has done so much over the years to draw the House's attention to the problems of local government finance, will be welcomed.

In the meantime, the Government have taken action within the framework of the present rating system to provide useful, if less radical, help in some areas including the introduction under the Local Government, Planning and Land Act 1980 of a measure of domestic rate relief for more mixed hereditaments. That will be of immense help to many more small businesses, and especially small family businesses run from the home.

As I have explained, the consultation process in the autumn will be concerned with alternatives to domestic rates. The Government have never envisaged that non-domestic rates should be abolished. It is clearly impossible to divorce consideration of one sector from consideration of the other, and we shall keep the problems and needs of business ratepayers very much in mind during the review that we are undertaking.

Indeed, I assure my hon. Friend that whatever shape the final reform of domestic rates takes, there should be no question of an increase in the burden which the non-domestic sector is asked to bear.

The question of non-domestic rating must be seen in the context of the Government's much wider policies towards industry as a whole. The objective of those policies is the establishment of a prosperous and competitive industrial and commercial base to generate the wealth to provide jobs and finance effective public services. Prominent among those policies are, of course, a financial strategy to bring down both inflation and interest rates; and the reduction of the demands of the public sector on the private sector.

I take entirely the point that my hon. Friend made in his speech when he dealt with the possible effect of excessive rate demands on both domestic and non-domestic ratepayers. We all know the problems that an unexpectedly large expense can cause for household budgets. Excessive rates, as my hon. Friend says, also pose a problem for businessmen; both for those in large firms who are trying to maintain levels of profitability and for those in charge of small businesses who are struggling to establish themselves or to continue as viable concerns.

My hon. Friend has spoken of a freeze on rates; and he suggested that the Government might step in to veto the levying of supplementary rates.

722 I am not in a position to offer such simple solutions, but I can assure him that the Government recognise very clearly that local authorities must be prevented from crippling commerce and industry by the imposition of ever-larger rate burdens as exemplified by the new power-crazy dogma-ridden Marxist GLC, whose supplementary rate and whose reported plans for next year's rate are an affront to common sense and an intolerable burden on ratepayers both commercial and domestic. I warned the people of London before the GLC elections that the election of a new Labour GLC would mean that the rates would double in two years. Sadly, I have been proved right.

A comment was made yesterday by the Labour leader of Southwark council, who described what is happening at County Hall as a Walt Disney situation. I assume that Mr. O'Grady, the Labour leader of Southwark, was not referring to Mr. Kenneth Livingstone as Snow White, so I have to assume that he was thinking of him as one of the dwarfs. I can only call him Dopey, the dwarf of County Hall, who is totally out of touch with reality. The tragedy is that his lack of touch with reality will cause even more job losses in London, unless his colleagues knife him in the back as he knifed his leader, Mr. Andrew McIntosh. Those who live by the knife frequently find that their colleagues exert and extract the same penalty from them. Certainly, his removal in a democratic way by his colleagues would help the ratepayers of Greater London and would help sanity in local Government.

Our public expenditure plans require a reduction in the volume of local authority current expenditure by 5.6 per cent. compared with 1978–79. This overall reduction by local government is a vital part of the wider public expenditure reductions that are needed to restore the health of the economy, and make more room for productive investment in the private sector.

In the past, local authorities of both parties have always accepted that it has been central Government's responsiblility to set expenditure targets for local government as a whole—to say, in other words, how much the country could afford to spend on the services provided by local authorities—and local government has prided itself on achieving those targets.

I speak with personal knowledge, having served for 25 years in local government. During all those years, whatever the political complexion of central Government was, we in local government listened to what they said, believing it to be in the national interest.

This year, however, initial budgets prepared by local authorities nevertheless showed a planned expenditure some £800 million or 5.3 per cent above this target level.

On 2 June, my right hon. Friend the Secretary of State accordingly asked all authorities in England to review and revise their budgets, and warned that if the response was not satisfactory, he proposed to ask Parliament in the autumn to reduce the total rate support grant for 1981–82 by about £450 million.

My right hon. Friend the Secretary of State is waiting to see the revised budgets and is considering representations about the proposals before taking final decisions on the supplementary report that he will be laying before Parliament in the autumn.

We recognise the problems faced by local authorities and the achievements already secured, but we hope that they will be able to achieve additional savings. We need help from all authorities in this objective if the public 723 expenditure targets are to be achieved. In the end, of course, what must not be forgotten is that any reduction in a council's expenditure is of direct benefit to it's ratepayers.

In addition, if local authorities reject these calls for economy, it will be necessary for the Government to consider further measures, including the possibility of legislation next Session, to bring home to individual local authorities and their electorates the consequences of high spending policies.

I note what my hon. Friend said about the desirability of increasing public investment at the expense of current spending on wages and administrative expenses, and I accept that capital expenditure by local authorities has fallen substantially in recent years as a proportion of their total spending. But the previous Administration was prepared to accept this to safeguard public sector jobs. We have asked local authorities to reduce their current expenditure to a level 5.6 per cent. below 1978–79 levels, in real terms, in view of our overriding commitment to a substantial and sustainable reduction in public spending generally. In so far as they are unable to achieve this, we may be obliged to reduce the provision for capital spending to safeguard our overall public expenditure targets.

724 In the meantime, there is a great deal that domestic, industrial and commercial ratepayers can do to ensure that their interests do not go by default when expenditure and the rates are considered at local level.

Business interests can ensure via their chambers of commerce or the CBI that their views are made clear to elected members and fully represented in councils' deliberations. A regular dialogue with the business community can make local authorities much more alive to the problems and needs of commerce and industry. Local authorities which do not encourage and take part in that dialogue are not serving their electorates sensibly .

Domestic ratepayers also have ways of ensuring that their views are expressed with due emphasis either directly to elected members, through ratepayers' groups and associations, or, in the last analysis, the ballot box.

I believe that my hon. Friend has again done a service to the House in focusing our minds on the crucial rates issue at the end of a long parliamentary day. He is pushing at an open door. The Government have made it clear that they intend as rapidly as possible in the autumn to produce a Green Paper for consultation. In the light of the result of that consultation they will not hesitate to act.