§ Mr. Neil Thorne (Ilford, South)Mr. Deputy Speaker, you will be pleased to see that only one hour and three more speeches after mine stand between you and the Summer Recess.
First, I wish to express my support for what my right hon. Friend the Secretary of State for the Environment is trying to do to bring local authority public expenditure under control, although I wish that his efforts could be directed with equal ferocity against Government expenditure. Be that as it may, I believe that it was quite wrong in the past for local authorities to set their own levels of spending and retain the right to put their hands in the pockets of the taxpayers at large, particularly as those who pay rates account for less than half, some say much less than half, of those on the voters' list—in other words, those who are responsible for electing the local authorities.
Consequently, there is often a conflict of interest between the electorate and the ratepayer, who are not one and the same, although those who demand a generous level of service, because they do not assume a direct responsibility for rates, nevertheless appear to be the first to complain about unemployment, without realising the effect that those costs have on an employer's ability to employ.
However, some ratepayers are fortunate in occupying property in an area that is run by a prudent and cost-conscious local authority. The London borough of Redbridge is one such authority, having had the good fortune to be Conservative-controlled since its formation in 1964.
However, in spite of the careful and diligent way in which the council has gone about its task of providing the services that Parliament requires of it, and of anticipating what additional expenditure it can afford, it finds itself at present in an extremely unhappy situation. Apparently, the present rate support grant figures were calculated from a baseline or snapshot which was taken as the authority's expenditure in 1978–79. In my opinion, that is where the present system is defective, because I do not consider that the 1978–79 figures fairly reflect need. They might represent wants, but not necessarily needs. Consequently, those authorities which took little care to curb their wants into the needs that their ratepayers could justly afford start from a much higher base of both expenditure and staff than authorities which have been cost-conscious throughout.
In my opinion, the new way of calculating grant-related expenditure is to be applauded as the first positive step towards determining what local authorities really need to serve the population in their areas, although the statistical figures and multipliers that are used in these calculations are, I understand, produced largely by the local authorities themselves and their associations. It is therefore important to ensure not only that the correct weighting is provided but that those figures are not manipulated between and within areas by internal pressure which might arise—for example, in Greater London between the inner and outer London boroughs. If a national adjustment is required by the Secretary of State because he wishes to reduce expenditure, he should look to those figures and not to 1470 some historic baseline—the 1978–79 outturn—if he is confident that the grant-related expenditure figures are properly calculated in the first place.
It therefore seems quite wrong that a penalty should be considered by way of a hold-back in grant, because that would have significant implications for both the council and its services, particularly if the Secretary of State intends to introduce limitations on rate increases for 1982–83.
As a result of the policy of reducing expenditure adopted by Redbridge since 1975, reductions up to the current year have amounted to £16 million at current prices. If those reductions had not been made, the current rate would have been 38.9p in the pound higher. They are significant factors when considering further reductions and the baseline from which the Secretary of State is now considering the hold-back provisions.
Under those provisions, because the council is alleged to be an overspender by 1.4 per cent.—£849,000 on the arbitrary guideline—it will lose £586,000 in grants. If decides to reduce expenditure by £750,000, leaving a difference of £99,000 excess expenditure, the grant penalty will remain the same at £586,000. There is no continuous correlation between the level of overspending and the grant penalty. That results in some authorities.' grant penalty substantially exceeding their excess expenditure, even though difficult and conscientious decisions have been taken to reduce expenditure.
The efforts made to reduce expenditure should be recognised. The Secretary of State should seriously consider reducing the penalty for those councils that just miss the target by a small percentage, perhaps under 1 per cent. Such councils should be subject only to a small penalty—for example, 5 per cent. That would give a protection of 95 per cent. rather than the 75 per cent. that applies at present in the zero to 2 per cent. band. That would provide greater encouragement to councils to meet the figure next year, quite apart from the problems of cash limits and further expenditure reductions.
The Secretary of State is of the opinion that the London grant is still too high and more grant should be transferred from London to the provinces by way of an increase in the London clawback. Apart from that factor, the possibilities of a change in the grant mechanism must be faced with the adoption of percentage equalisation, which would move grant from outer London to inner London.
Clearly, Redbridge has already significantly reduced expenditure and already has a lower level of service provision than neighbouring authorities—that is supported by statistics—with the possibility of further reduction in grant due to grant mechanisms. The room for manoeuvre within any rate limitation policy is virtually infinitesimal and may result in a damaging impact on services for the community.
The rate limitation will be applied on the basis of a percentage on the existing rate levy. If that rate levy is already of the lower order, there can be little room, if any, for manoeuvre. However, those authorities that are spending more and have a higher rate levy clearly have more room for manoeuvre and flexibility in their budgets. Any percentage increase applied to a higher rate levy results only in a higher ceiling
The various factors that the Secretary of State will be considering as a policy for next year will operate to the detriment of Redbridge. It has been a prudent authority, having reduced expenditure between 1976 and 1979 by 5.6 1471 per cent. and having the third lowest manpower ratio per head of population for outer London, being 16 per cent. lower than average.
The council is being penalised for having been prudent, because the base from which all comparisons are made is much lower than for many councils and the room for manoeuvrability must inevitably be considerably smaller in those authorities with much higher expenditure. I hope that my hon. Friend the Under-Secretary can acknowledge that Redbridge is not an overspender in the popular sense of the word.
The grants are partly calculated on the total rateable value of the authority, that being the assessment of the council's ability to pay for its own expenditure and, therefore, how much grant it should receive. If those values are becoming out of date—as they are—and if the trend is moving against London as a whole—as it is—it is quite wrong to try to claw back so much from London. We must take account of this fact if we are not to have the revaluation that should have been carried out before now and allow for the fact that the rates are out of date and that the ability to pay in London is now proportionally much less than it used to be. That is an important factor that must be taken into consideration if we are to be fair in assessing what rate support grant should be given.
§ The Under-Secretary of State for the Environment (Mr. Geoffrey Finsberg)This is not the first time that my hon. Friend the Member for Ilford, South (Mr. Thorne) has drawn the last subject on the last sitting day before a recess. When he did so on a previous occasion he spoke on town planning in Redbridge. I hope that he was satisfied with what came out of that debate.
§ Mr. ThorneIndeed.
§ Mr. FinsbergI hope that he will be equally satisfied with that which emerges from this debate. I am grateful to my hon. Friend for raising the issue It is one of topical and wide importance, since today is the day by which we have asked authorities to submit revised budgets for their current expenditure plans in 1981–82.
The points that have been put to me about Redbridge are in principle and in substance the same as those put to us on behalf of many authorities—the way the current expenditure targets that we have set for this year have been constructed and the various special circumstances that we should take into account, whether entirely local or of wider application, in considering the responses of authorities in their revised budget.
The starting point is our wider economic objective of containing and reducing public expenditure. Unless we get that right, nothing else can come right. If we do not achieve this and the related fall in public borrowing and taxation, we shall not be able to achieve the objectives of reducing inflation and interest rates and arranging for the release of resources for investment in the private sector. I shall not go any further into the wider economic issues today. I hope that my hon. Friend will feel that my remarks set the debate in a proper context.
The real point behind my hon. Friend's speech is, I think, how we should set out to meet this objective as far as local authorities generally, and the excellent London borough of Redbridge in particular, are concerned. I hope 1472 that it is agreed between us that local authorities must play their part in the reductions that are necessary. Their revenue spending on current account amounts to some 20 per cent. of public expenditure generally. In England in cash terms this year planned spending will be approaching £20 billion all told. They employ over 2 million people.
Our public expenditure plans require a reduction by 5.6 per cent. in the volume of current expenditure in local government in England in 1981–82 compared with the spending by local government in the financial year 1978–79, which had just ended when we came into office. This measure of spending covers wages and salaries, goods and services. The pay bill makes up around 70 per cent.
In January of this year we had to consider how best to secure delivery of this overall public expenditure target for local government. My right hon. Friend the Secretary of State consulted the local authority associations about this but they were unable to offer positive suggestions.
My right hon. Friend therefore concluded that the Government would themselves have to propose targets for individual authorities. In doing so we faced a dilemma. The Government have never been in a position to form a judgment on the particular circumstances of individual authorities in a way that would permit us to lay down individually tailored targets, because to attempt to do this would have involved us in a wholly unacceptable degree of central scrutiny and supervision of individual authorities' budgets and could well prove unworkable in practice. We were therefore obliged to adopt a general target.
My hon. Friend has clearly explained why he and the London borough of Redbridge feel that a general target based on the 5.6 per cent. reduction is unfair. He referred to the level of expenditure in the 1978–79 base year, and to the history of tight budgeting and control over expenditure and staff since the borough's inception in 1964. In these circumstances he suggested that for Redbridge the 1978–79 base already reflects a low level of spending as a result of years of careful housekeeping. By contrast, it was suggested that some other authorities without such a background have a relatively higher base from which to make the 5.6 per cent. reduction that we are now asking for.
My hon. Friend suggested by implication that we in the Government might construct individual targets for every authority, including Redbridge. These might take into account the level of service that we believe the authorities should provide, the level of staff that we think is needed to provide the services, and so on. This is an interesting thought. I believe that it would have the effect of fundamentally altering the present relationship between central and local government. It would amount to the Government going into local authorities, looking at the books, and taking decisions about the quality of each service provided, and how the authority should organise and manage itself accordingly. In effect, the Government would be deciding the policies and priorities of each local authority. It would also imply decisions about rate levels and the use of balances, to cover expenditure not financed centrally from grants and subsidies.
I wonder whether Redbridge—or any other local authority—would really want to accept this shift of decision-making to the centre. For our part, we would take a lot of convincing that such a step would be the right one to take. It would need a reversal of the stance taken by 1473 successive Governments over local government finance and expenditure. That is not to say that we should not consider a change if we believed that it was in the best interests of good government, centrally or locally. But we should need to be convinced that the gains outweighed the costs.
At this point, I should like to explain briefly why we have not hitherto gone down that path. There are over 400 local authorities in England. Together they employ around 2 million people. The range of local circumstances and detail that they can and do take into account is enormous. The Government have never been in a position to take the detailed decisions based on these local circumstances which add up each year to every authority's rate fund budgets and rating decisions. In practice, we could not do so without a very large increase in the number of officials, even if they could acquire the detailed local knowledge of the authorities concerned.
In principle, could any Government take on this task and still preserve a healthy, independent local government, which people of integrity and ability would want to serve?
With these considerations in mind, the Government's financial relations with local government—at least, concerning rate fund spending—have had to be framed in legislation and conducted in practice in general, not specific, terms. For example, rate support grant has always been distributed under a formula—both under the old system arid under the new one—under which the various needs assessments are now separately identified.
The local circumstances of authorities will affect their entitlements to grant depending on how they relate to the formula. But the Government have never made unique assessments of overall expenditure levels or grant entitlements based on the particular circumstances of individual authorities. Nor has the legislation under which rate support grant is paid been framed with this in mind.
My hon Friend also referred to the importance of the need for early information about these targets. I recognise that local authorities want to know as swiftly as possible so that they can work out their figures. It was as a result of our 1980 review of public expenditure, which was announced by the Chancellor of the Exchequer on 24 November, that the 2 per cent. reduction for 1981–82, provisionally given in the March 1980 White Paper, had to be increased to 3 per cent., because of the deteriorating general economic situation.
Despite that regrettable but necessary change, the authorities should have had sufficient time to take it on board within their final budgets and rate-making cycles. When I was in local government, that decision was made in ample time. With his experience, my hon. Friend will accept that it was made in sufficient time for the adjustments to be made. In addition, my Department's circular letter of 23 January gave each authority its individual target, based on the value of reduction required for 1981–82, implied by our expenditure plans and the rate support grant settlement announced in December.
Having said all this, I assure my hon. Friend that I am not dismissing the valid points he has put to me this afternoon about how a general target can interact with an individual authority's circumstances. As I said at the beginning, we have had similar representations from many quarters. Some have covered local circumstances, others more general points.
1474 My right hon. Friend the Secretary of State has made it clear that he will consider all the points put to him about the targets and the proposals to hold back grant in certain circumstances before coming to decisions. I stress that no decisions about hold-back have been taken. The budgets are still coming in. Then they have to be analysed. When decisions are taken, they will need to be put to the House in the form of a supplementary rate support grant report for approval.
I understand that Redbridge's initial budget implies a current expenditure volume 1.4 per cent. above the individual target that it was set. I am happy to accept the fact that this appears to be so. If the tables published by my Department did not pick up the amendment earlier, I am very sorry. What it means is that Redbridge is within easy sight of achieving its individual target and of obtaining full exemption from the effects of a general reduction of grant where that may be necessary.
We nevertheless require the help of all authorities if the Government's overall public expenditure target is to he achieved. Any savings that Redbridge will be able to make will be of direct benefit to its own ratepayers. That is of maximum importance in such a well-run borough.
The case that my hon. Friend has raised is one that we shall need to examine very closely, although I hope that he will understand why our decisions will have to be taken on the basis of general rather than purely local considerations. But his points will, in addition, be particularly useful to us as we look to the future, when we shall be planning expenditure in cash and not volume terms.
§ Mr. Neil ThorneBefore going any further with the review, will my hon. Friend give an undertaking to go back beyond 1978–79, because the performance over the previous five or 10 years is also relevant to what a local authority can now afford to cut? If its expenditure was almost cut to the bone when it started in 1979, it is then extremely difficult to go on cutting. On the other hand, those local authorities which had grown very fat by 1979 have a lot more to cut, and it is not so difficult to cut off 5.6 per cent. Would by hon. Friend be kind enough to look at the matter?
In the year 1978–79 in particular, my local authority was having a very difficult time. It had just taken on stream many additional commitments that were required of it by the Government, and the situation was very difficult. I am confident that in the future Redbridge will go on doing what it has done in the past by being an extremely good housekeeper, but it is starting from too low a base.
§ Mr. FinsbergMy hon. Friend has made a very important point. But I do not think that I can give him the undertaking for which he asks, for a wide variety of reasons, the main one being that whatever date one picks is bound to be a difficult date for somebody. He has the benefit of representing a borough that has remained under sensible political control since its inception as a shadow council in 1964 and as an elected council in 1965. Some of us are in areas where councils have changed politically from time to time.
It would be impossible to offer to consider any other date than the one we have taken. If we had picked 1977–78, some people would have said that we should have gone back to 1975–76. Unless we went back in the 1475 case of London to 1963–64, and in the rest of the country to 1973–74, I do not think that it is possible for me to give the undertaking requested by my hon. Friend. We have had the figures and targets for a while. However, I shall make certain that my right hon. Friend has drawn to his particular attention my hon. Friend's cry from the heart, but, because of our friendship for many years, both outside and inside the House, I would not want to give my hon. Friend the impression that there might be a change in the date.
At the end of his speech my hon. Friend raised the broader questions of rates and the rating system. I can only refer him to my earlier speeches, the first in reply to my hon. Friend the Member for Paddington (Mr. Wheeler), which dealt with rates in London in general, and the second in reply to the hon. Member for Hackney, South and Shoreditch (Mr. Brown), which dealt with some of the problems in Hackney. I hope that what I said was sufficient to reassure my hon. Friend. It should have demonstrated that the Government are well aware of the burdens that excessive local authority expenditure is placing on too many ratepayers in London and elsewhere. There may be a case for changes in the way in which the present system distributes the burden on ratepayers.
I explained the measures that the Government have taken to ensure that expenditure by local authorities is contained within reasonable bounds. I reminded the House that my right hon. Friend announced that the Government would publish in the autumn a consultative document on alternatives to domestic rates that will look at the extent of the inequities in the way that local revenue is raised from that source. I hope that when it comes my hon. Friend will send in the views that he expressed and any more that he feels are relevant when he has read the document. We want the widest measure of response.
I also recalled earlier that my right hon. Friend announced that the Government were considering further measures, including legislation next Session, which may be needed to bring home to individual local authorities and their electorates the consequences of high spending policies.
I trust that my hon. Friend will feel satisfied that he has raised a matter of great importance. Although he raised it in relation to Redbridge, it none the less has wider implications. I assure him that the Government will take on board the points that he has made and that my right hon. Friend will bear them very much in mind in preparing his document and coming to his decisions.
§ Mr. Donald Thompson (Sowerby)I beg to ask leave to withdraw the motion.
§ Motion, by leave, withdrawn.