§ The Secretary of State for the Environment (Mr. Michael Heseltine)With permission, Mr. Speaker, I will make a statement on current expenditure by local authorities. My right hon. Friend the Secretary of State for Wales will be making a statement later today, and my right hon. Friend the Secretary of State for Scotland will be making a statement shortly.
My Department has now analysed the revised estimates of local authorities in England and Wales for the volume of their current expenditure in 1980–81 and the budget plans of English local authorities for 1981–82. In the light of this analysis, I have today put proposals to the Consultative Council on Local Government Finance.
Hon. Members will recall that when local authorities in England and Wales originally submitted their budgets for 1980–81 these suggested a planned excess in the volume of current expenditure by local government as a whole of some £740 million at November 1979 prices. This was 5.6 per cent. above the Government's public expenditure plans. As a consequence, in June last year I called for revised budgets, which led local authorities to reduce this planned excess to some £350 million at 1979 prices, or 2.6 per cent. above the Government's targets. In order further to reduce this remaining excess, the Government asked the House to approve the withholding of £200 million from the increase order for England and Wales made in January 1981 on the understanding that we would be prepared to restore all or part of that sum if the outturn figures for 1980–81 showed an acceptable reduction.
The analysis of the revised estimates for 1980–81 indicates that there will still be a volume excess, which the local authority associations estimate could range from £50 million to £250 million in England. Final figures for the outturn expenditure in 1980–81 are, however, not yet available. I shall have to wait, therefore, until more accurate outturn figures are available in the autumn before considering restoration of grant.
Budgets of local authorities in England for this year—1981–82—indicate a volume of current expenditure about £800 million or 5.3 per cent above the Government's target level at November 1980 prices. Local authorities have also made provision for higher pay and price increases than allowed for in the cash limits, and have thus budgeted for a cash excess of £1,250 million above the amount assumed for current expenditure in the RSG settlement. This is an inadequate response to the Government's request for lower public expenditure and protects the current consumption and staffing levels of local government at the expense of the ratepayers, whose ability to pay is already seriously diminished by the present recession.
The traditional relationship between central Government and local government rests on the clear understanding that local government keeps within the overall financial policies of the central Government. The Government believe that this understanding must be upheld.
I am, therefore, asking all local authorities to review their budgets for 1981–82 by the end of July to achieve levels of expenditure consistent with the Goverment's public expenditure plans. If the call for revised budgets does not produce a satisfatory response, I propose to ask 778 the House in the autumn to approve a reduction in the total amount of grant available this year. I cannot be certain until I know the results of the revised budgets what would be an appropriate figure, but, if the present spending plans remain unchanged, the Government consider that £450 million would be the appropriate amount to withhold in grant. Authorities which achieve the Government's volume targets will not suffer from this reduction in grant. I also intend that those close to their volume targets will be partially exempted.
I am placing in the Library detailed figures showing how this proposal would affect individual authorities. I shall be inviting detailed consultations about these proposals with local government.
I must emphasise that it lies entirely in the hands of local government to revise its plans so as to achieve the necessary reduction of public expenditure and thus to avoid loss of grant.
The House will want to know that over one-third of all local authorities—responsible for about 11 per cent. of local authority expenditure—have already budgeted within the Government's volume targets and thus will lose no grant from this reduction if they stick to their present plans. Over half of all local authorities—responsible for over one-third of local authority expenditure—would already be protected wholly or in part from holdback.
The Government have not only to consider the consequences of excessive expenditure but also the extent of the inequities in the way in which local revenue is raised through the rates. The Government, therefore, intend to issue a consultation document on the alternatives to domestic rates in the autumn. In the meantime, we are considering further measures, including legislation next Session, which are needed to bring home to individual local authorities and their electorates the consequences of high-spending policies.
§ Mr. Dennis Canavan (West Stirlingshire)On a point of order, Mr. Speaker. The Secretary of State said that a similar statement would be made shortly by the Secretary of State for Scotland. Will that be today, and will it be an oral statement? Some of us are fed up with the Secretary of State for Scotland hiding behind parliamentary written questions.
§ Mr. SpeakerOrder. A point of order must be addressed to me and not to anyone else. I have not yet had notice whether the statement will be written or oral.
§ Mr. Gerald Kaufman (Manchester, Ardwick)Is the right hon. Gentleman aware that what he has announced is a witch-hunt against local government? The right hon. Gentleman had the audacity and effrontery to refer to the traditional relationship between central Government and local government but is he aware that his statement totally violates that relationship? Does he accept that he has admitted that two months after the end of the previous financial year he has only a vague idea, within the range of £200 million, of what he regards as excess expenditure for that year, yet he is proposing to victimise local authorities which he accuses of overspending on the basis of figures available only two months into the present financial year? Is he aware that not a single local authority is overspending? What local authorities are doing in upholding services for their electorate is declining to conform to arbitrary unilateral ceilings laid down, not by 779 Parliament, but by one overweening person—the Secretary of State for the Environment. Refusal to give way to a dictator is defence of democracy.
Is the Secretary of State aware that he deliberately withheld his statement until after the local elections because he would have had to admit that, under the statement, all but two of the Conservative councils up for re-election would have been subject to penalty? That still did not save 1,000 Conservative councillors. Is he aware that his expenditure ceilings are so unfair and unrealistic that 65 per cent. of local authorities have found it impossible to conform to them and that 60 per cent. of Conservative-controlled authorities providing miserable services even so have been unable to conform to his criteria? Is he aware that, having cut rate support grant by a scandalous 8½ per cent. in his announcement last December and proposing now to cut it by a further 5 per cent., this is a ruinous imposition on ratepayers?
Finally, is the right hon. Gentleman aware that his announcement today is an attack not on councillors but on the voters whom he is fining £450 million for their effrontery in choosing policies that they prefer rather than policies that he dictates? The Secretary of State makes a mockery of local democracy and confirms his reputation as the commissar of local government.
§ Mr. HeseltineI shall try to help the right hon. Member on his first point. He attacked me for having only vague estimates of the outturn for last year. The statement made clear that they were the local authorities' estimates and not mine. I have relied upon what the local authorities have told me. As they have not yet been able to make up their minds about their own expenditure levels, I have decided that we must wait until the autumn when more accurate figures are available.
I turn to the substance of the right hon. Gentleman's comments—I think that there was some substance beneath the invective—namely, the relationship between local government and central Government. I repeat what I said in my statement. It is the Government's view that the traditional position of central Government as being able to lay down the levels of public expenditure must be upheld. I remind Labour Members of the words with which the right hon. Member for Stepney and Poplar (Mr. Shore) in 1976 removed grant from local Government without any consultation. He said:
Local authorities will know that the present economic situation makes it imperative that the Government's plans for public expenditure are not exceeded".I further refresh the minds of Labour Members by referring to another Labour Secretary of State for the Environment, who preceded the right hon. Member for Stepney and Poplar, namely, the late Mr. Anthony Crosland. Having just come to the job of Secretary of State, he said:An energetic council served by able and energetic officers will always have a thousand-and-one desirable projects on the shelf which it would like to set in motion. What the council will have to say quite simply is' no, we cannot afford them; the country cannot afford them.The right hon. Member for Manchester, Ardwick (Mr. Kaufman) should remember that he was a junior Minister in the Department of the Environment when that statement was made. The statement was headlined under the classic words "The party is over". The problem was that the party had hardly begun.
§ Mr. Sydney Chapman (Chipping Barnet)Is my right hon. Friend aware that the total revenue collected by all local authorities this year will be 18.2 per cent. more than last year? That figure surely gives the lie to the idea that he is trying to screw down local authorities' expenditure. Does he agree that the system is being abused simply because the rating system itself, which is the principal source of local government funds, is unfair, illogical and archaic? Does he therefore accept that we welcome the consultation paper as a first small step in replacing this iniquitous impost?
§ Mr. HeseltineMy hon. Friend refers to a very important and central point. It is relatively easy to get a mandate for higher levels of local expenditure when sometimes only a minority of the people concerned actually pay directly for the expenditure for which they vote. It is for that reason that the Conservative Party made its commitment in 1974 and we shall proceed with a consultative document in the autumn.
§ Mr. SpeakerOrder. I propose to let Members' questions run until 4.5 pm and then to move on to the second statement.
§ Mr. Stephen Ross (Isle of Wight)Does the Secretary of State agree that the vast majority of local authorities have shown considerable responsibility in their budgeting, particularly over the past few years? Will he explain what is meant by the words "close to…volume targets" in his statement? We welcome the statement that there will be a discussion document on domestic rating, but we remember that in 1974 the right hon. Lady the Prime Minister was promising to do away with domestic rating. We welcome the document, but will it be flexible in its content?
§ Mr. HeseltineIt will be a consultative document. Few things are more flexible than that. I agree with the hon. Gentleman that a very large number of local authorities have been responsible. By and large, the record of local authorities in keeping to Government targets has also been extremely good. But the whole local government machine, largely since the end of the last war, has assumed that there is to be an ever-increasing level of expenditure. As a nation which does not now enjoy the economic resources to pay for such a concept, we have to reverse attitudes and practices which have become ingrained in many parts of the public sector.
§ Mr. Charles Morrison (Devizes)I fully understand and support my right hon. Friend's desire to stop profligate local authorities from misusing and misspending ratepayers' money, but does he agree that many local authorities, particularly those which are Conservative controlled, have been doing their best for a considerable time to live up to the Government's guidance on expenditure? If he has to come back to Parliament in the autumn, will he take account of that? Is he aware that if he does not do that, and if he adopts a blanket approach to both good and bad authorities, not only will local government be to some extent emasculated, but he will reduce some of the few remaining checks and balances in the constitution?
§ Mr. HeseltineI very much sympathise with my hon. Friend's last point. I value the concept of an environment of freedom for local government. But I must make the 781 point which was made time and again by Labour Members, that that can be based only upon the right of central Government to manage the national economy. My hon. Friend will be pleased to know that I have been able to give assurances of exemption from holdback to significant numbers of authorities which have already achieved our targets. Nearly half of local authorities now have the knowledge that even on their present levels of planning there will be exemption in whole or in part from the holdback now under discussion. I think that that meets my hon. Friend's point.
§ Mr. George Cunningham (Islington, South and Finsbury)Does the Secretary of State remember that last October, when he was on this sort of game, he put some local authorities into the penalty box through quite unnecessary wrong facts and information that the Department of the Environment could have got right through better consultation with local authorities? In particular, will he now look at the difficulty of partnership authorities, which are being told that partnership expenditure, which was intended to be additional to other expenditure, will be counted within the totals for the purpose of these penalties?
§ Mr. HeseltineThe hon. Member will know that the use of the transitional arrangements under the local government legislation is the subject of court proceedings. It would therefore be wrong for me to comment at this time.
With regard to the incidence of urban expenditure in the budgets of local authorities, I have said to the consultative council today that my announcement is my initial reaction to the budgets that have been sent in. I want to have detailed consultation about the points made by the hon. Gentleman and a whole range of other matters to see whether there is any way in which we can ease forward the process of achieving the Government's public expenditure targets.
If there are better ways of doing it, I am prepared to discuss that with local authorities and to raise the sort of issues that the hon. Gentleman has raised. I must secure the Government's public expenditure targets. I have offered local authorities the opportunity to put forward other ways of making progress in that direction, but so far they have made no positive response to that invitation.
§ Mr. Robin Maxwell-Hyslop (Tiverton)Will my right hon. Friend bear in mind the urgent need to introduce a rate reform Bill in the coming Session? Will he time his consultations so that the time span does not render it impossible to introduce that urgently needed Bill in the coming Session?
§ Mr. HeseltineI am grateful to my hon. Friend for making that point. Two steps are involved. The first is a longer term step which involves reform of the domestic rating system. It would be unrealistic to suggest that a consultation document this autumn could lead to legislation in the next Session. However, I am aware of the urgency that my hon. Friend attaches to this matter. The Government intend to make progress as soon as practicable.
The second step that I referred to in my statement involves the possibility of a need for interim measures to 782 deal with some of the more difficult areas of pressure that could be created by the levels of expenditure that I have mentioned. That could be the subject of legislation this autumn.
§ Mr. SpeakerOrder. If questions and answers were briefer, I could call more hon. Members.
§ Mr. Michael English (Nottingham, West)The right hon. Gentleman is to be congratulated on pointing out that local authorities for 1980–81 are likely to exceed the Government's targets by less than 2 per cent. and possibly by less than 1 per cent. Can the right hon. Gentleman give the same percentage figure for the amount by which central Government have exceeded their targets for that year? If it is in excess of the figure by which local authorities have exceeded their targets, will he resign?
§ Mr. HeseltineI am not unsympathetic to the gist of the hon. Gentleman's question. I have often pointed out that local government's record in achieving its targets over a spread of years, has been extremely good——
§ Mr. Ted Graham (Edmonton)Better than central Government.
§ Mr. Heseltine—and better than central Government. It is only now, when we are trying to reverse the assumption of upward direction, that we are running into such difficulties. Even now, one can see that local government is beginning to respond to the requests that central Government have made, but it is not doing so fast enough or on a sufficient scale. In the light of the general problems involved in reducing public expenditure, we should not in any way underestimate the scale of local government's response.
§ Mr. Nicholas Winterton (Macclesfield)Is my right hon. Friend aware that all responsible people will welcome the Government's announcement about the consultative paper on changes in the domestic rating system? What action is my right hon. Friend prepared to take against those county councils that are likely, because of the change of control, to issue a supplementary rate? Might that not be extremely damaging to industry in particular areas of the country? Is it not hypocritical of the Opposition to play on unemployment so much when their local authorities are likely to add to the number of unemployed because of supplementary rates?
§ Mr. HeseltineThat is one reason why I must go for a revision-of-budgets exercise in order to ensure that I have the most up-to-date information about local authorities' intentions. In my statement I have made it clear, in a general way, that the Government would not be prepared to stand back and to watch changes of the type that my hon. Friend referred to and would, if necessary, be prepared to legislate next Session. At this stage of consultation with local government and at this stage in the Government's analysis of the problems, I do not want to make specific threats. However, it must be understood that there is now a fundamental challenge to the assumptions about the relationship between central Government and local government.
§ Mr. Greville Janner (Leicester, West)Does the Secretary of State accept that most beleaguered city authorities, such as Leicester, are doing their best to provide services for those who live in the city? Is he aware 783 that, essentially, his statement means that all sections of the community, particularly those most in need of the services, will get fewer services?
§ Mr. HeseltineThe hon. and learned Gentleman implies that wealth and jobs can be created in cities only by local authorities and within the public sector. I do not accept that assumption. By charging rates that are higher than those that can reasonably be afforded local authorities are deterring and destroying private investment and job creation in the private sector.
§ Mr. Terence Higgins (Worthing)Although my right hon. Friend is right to take steps to prevent certain local authorities from undermining Government control of public expenditure, does he accept that the answer must lie in the abolition of the rating system? We need not more consultative documents or reform of the domestic rating system, but its abolition.
§ Mr. HeseltineTo paraphrase my right hon. Friend's question, he is saying that we need a system to replace the present domestic rating system. That will be the subject of a consultation paper in the autumn. The House will appreciate that it is important to understand that, just because one changes the basis of raising money, one does not automatically affect the Government's ability to control the level of expenditure. Indeed, some of the alternatives to domestic rates might encourage increased expenditure.
§ Mr. Arthur Lewis (Newham, North-West)Is not the right hon. Gentleman aware that, try as they may, some local authorities cannot control expenditure? I have in mind areas such as mine, where 25 per cent. of the population are immigrants. That means difficulties in housing, education, health and so on. Thousands of the immigrants' relatives are still coming in. What can a council do if relatives come into the country and make an overcrowded house even more overcrowded? A council has to find housing for such people. How can it do so if the amount of money it receives is continually cut?
§ Mr. HeseltineThe hon. Gentleman will appreciate that there is another side to the coin, namely, the need to ensure that there are job opportunities for many of those living in such areas. Over-high rate levels are bound to destroy job opportunities and to create another set of problems for local government or central Government. For the first time we have a method of measuring independently the relative needs of individual authorities through the grant mechanism. The factors that the hon. Gentleman mentioned can therefore be taken into account in the grant distribution process.
§ Mr. Peter Hordern (Horsham and Crawley)Although I completely accept my right hon. Friend's determination to control the volume of rate support grant, does he agree that there are some curious quirks in the way that the system works? Under the grant-related formula, West Sussex county council spends less than the national average but more than it was supposed to spend compared with 1978–79 simply because of the increase in population. Will my right hon. Friend ensure that such strange quirks are ironed out so that a proper system can be presented that is fair to every authority?
§ Mr. HeseltineMy hon. Friend has mentioned a fundamental challenge that faces local government and myself. It is a question of how to move from the volume 784 targets which we had no choice but to set—based on the outturn for 1978–79, when we first came to office—towards a system that reflects the needs of individual authorities. In this afternoon's consultative council, I told local authorities that I wished to talk to them about such issues. I must achieve the Government's public expenditure targets, but I am happy to have detailed consultations about such problems. The base line of 1978–79, from which we requested the economies, reflected the highest level of current consumption and of manpower in the history of local government.
§ Mr. Frank Allaun (Salford, East)Is it not clear and inevitable that these cuts will lead to still more people on the dole? Instead of reducing the number of building workers, home-helps and dustmen, should not the right hon. Gentleman increase their numbers in order to relieve the tremendous well of suffering and, at the same time, to reduce unemployment?
§ Mr. HeseltineThe hon. Gentleman is on a familiar theme. One consequence of the ever-increasing level of current consumption in local government is that the Government have had to look elsewhere for economies in order to pay for it. Under the last Labour Government the capital investment programme was £3 billion lower at the end compared with the first year.
It was cut by half, but the current expenditure was increased by 10 per cent. There is a direct trade-off. Anthony Crosland was honest about that when he said that the party was over. He said that he had to make exactly that sort of allocation of priorities in housing. That is the dilemma with which we are all faced. As long as the current consumption bills rise as they have done for 30 years, the capital bills will be cut to pay for them.
§ Mr. John Cartwright (Woolwich, East)Will the Secretary of State accept that some of us would give no more than a guarded welcome to the consultation document. We have seen many similar exercises over the years. Those of us who went through the Layfield operation know that it is much easier to demonstrate the deficiencies of the rating system than to find an acceptable and workable alternative.
Does the Secretary of State accept that where local authorities make good from supplementary rates the cuts in grant, the ratepayers will find themselves taking the unfortunate role of "piggy in the middle" in a tug-of-war? If the Secretary of State wants that sort of "High Noon" confrontation, why should the ratepayers have to pick up the bill?
§ Mr. HeseltineThe alternatives to domestic rates have been the subject of a long period of discussion. There are many difficulties to be overcome, and the consultation paper will deal with them. The House will accept that the anomalies and the pressures of the rating system today are such that there is a need to replace it with a fairer system that would be subject to less criticism.
The hon. Gentleman asked me about the problems of the ratepayers who, as he put it, are in the middle. It is with this in mind that I mentioned that the Government are considering legislation for next Session in order to bring home to the local authorities and their electorates in the areas concerned the consequences of their high-spending policies.
§ Mr. Michael Shersby (Uxbridge)May I press my right hon. Friend to give the House some indication of the 785 interim measures that he has in mind, pending consideration of the consultation document? Will he say what consultation will take place with local authorities about those interim measures, and when he expects to bring them into force?
§ Mr. HeseltineMy hon. Friend will appreciate that deliberately today I have not announced the specific measures that the Government are considering. But it is fair to say that within my Department a significant number of options are being considered. At this moment, while I am asking local government to revise its budgets, it would be seen as unnecessarily threatening, before I get any reaction to that exercise, to produce a catalogue of things that we might do. As my statement intimated, we are considering legislation for next Session. Therefore, there is not a great deal of time left, if we intend to do so, before I shall have to make further public statements.
§ Mr. Laurie Pavitt (Brent, South)In his judgment of these matters, is the right hon. Gentleman fully seized of the importance of three factors? The first is the genuine needs of inner city areas such as Harlesden compared with the lush pastures of Henley. Secondly, there is the responsibility of local authorities with large ethnic minorities. Thirdly, in the International Year of Disabled People, is it not appalling to ask local authorities to cut expenditure in that direction?
§ Mr. HeseltineThe hon. Member will appreciate that we have made no suggestion that expenditure on the disabled should be cut. Indeed, within my Department, where I have a specific understanding on this question, we have made definite attempts to ensure that a greater concern will be shown for the disabled, particularly in this year.
The hon. Member asked me about the problems of the inner cities and of the ethnic minorities. It is precisely because we recognise that there are these difficulties between local authorities that we introduced the grant related expenditure assessment concept, so that there could be a statistical reflection of the distribution of rate support grant. If any hon. Members are not satisfied about the insistence placed upon those factors, now is the time to have a discussion about the additional weight that 786 should be given to them. It is the first time that anyone can have such a discussion, either in this House or in local government, about the priorities that we should select.
§ Mr. Robin Squire (Hornchurch)Will my right hon. Friend, when he is contemplating penalties in the autumn, consider moving away from the 1978–79 outturn as a base? In practice, it has penalised a large number of authorities which have complied with the wishes of successive Governments over a number of years.
Secondly, will my right hon. Friend, when his consultation statement is issued, ensure that due attention is paid to the Layfield recommendation that rates should not be abolished but topped up by other forms of income, thus preserving some independent source of finance?
§ Mr. HeseltineI think that my hon. Friend will want to see this issue properly ventilated at the time of our consultation process. He mentioned the conflict between the 1978–79 volume targets and the GREA targets, if they are to be so described. We have never accepted that they should be. I am anxious to have a discussion with local authorities about how we can move from the 1978–79 base line, which becomes progressively outdated, but as yet I have had no positive suggestions from local government.
§ Mr. David Stoddart (Swindon)Is the right hon. Gentleman aware that the concept of the relationship between local government and central Government is one of partnership? I speak with 18 years' experience of local government at my back. It is not a concept which means having a mace-wielding gauleiter imposing his will on local authorities which have responsibilities to their electors and to their ratepayers.
Will the right hon. Gentleman also understand that in Wiltshire—which he was praising not long ago for holding the rate by cutting services—the authority is expecting to be penalised by £3 million? Is not that kicking his friends in the teeth?
§ Mr. HeseltineIf the hon. Member has had so much experience in local government, he must have seen Labour Secretaries of State putting forward precisely the same argument that I am putting forward today. Indeed, the most conscious intervention of the sort that the hon. Gentleman mentioned was by the right hon. Member for Stepney and Poplar who, without consultation and without a statement in Parliament, told local authorities that they must reduce their expenditure, and introduced a penalty in order to ensure that they did so.