HC Deb 20 December 1982 vol 34 cc687-92 4.43 pm
The Secretary of State for Wales (Mr. Nicholas Edwards)

With permission, Mr. Speaker, I wish to make a statement on the Welsh rate support grant settlement for 1983–84.

I am today announcing to the Welsh consultative council on local government finance the details of the 1983–84 RSG settlement. I have arranged for copies of the final text of my statement to the consultative council to be placed in the Library of the House. I am also laying before the House today the Welsh rate support grant report for 1983–84.

I have also laid supplementary reports for 1981–82 and 1982–83. These adjust the amount of block grant payable to reflect adjustments in relevant expenditure and, consequently, changes in GRE and grant. They also affect the grant reductions announced in July in respect of the current and total expenditure overspends in the two years.

The main features of the settlement for 1983–84, which broadly confirm the intentions I announced in July, are as follows. The total of relevant expenditure provision accepted for grants is £1,385 million. This comprises £1,205 million for current expenditure and £180 million for non-current items. Aggregate Exchequer grant will be £975 million, comprising £114.7 million for specific grants, £31 million for transport supplementary grant, £1.8 million for national parks supplementary grant, and £827.5 million for the rate support grants. Domestic rate relief is unchanged at 18½p in the pound. This costs £25 million, leaving £802.5 million for distribution as block grant.

The settlement is a very fair one. Current expenditure provision is increased by £79 million, or about 7 per cent. Put another way, it is equivalent to about 5 per cent. more current expenditure than in authorities' revised budgets for the current year.

Since July, interest rates have fallen markedly and inflation has fallen faster than anticipated and is now forecast to be 5 per cent. next year. However, I have not reduced the amounts previously announced, which makes it easier for local authorities to keep their expenditure within the settlement provision.

Aggregate Exchequer grant is £975 million—an increase of £32 million, or about 3½ per cent. I am satisfied that, if authorities' expenditure is kept within provision, on average there need be hardly any increase in rates next year.

An important objective of the settlement is to influence Welsh local authorities to keep their expenditure at a level the country can afford; and, to help achieve that objective, I have toughened the block grant mechanisms.

This mechanism will be of benefit to ratepayers where authorities spend close to GRE; but authorities must recognise that increases in expenditure above the cash increases provided by the settlement will lead to additional burdens on their ratepayers.

I have also set individual authority expenditure targets. Targets complement the block grant mechanisms and are helpful in letting authorities know exactly where they stand. This allows me to withold grant in a discriminate manner. I do not wish to withold grant, but, if it becomes necessary to do so, the grant withheld at the individual authority level should be related directly to an authority's expenditure performance. The target system I have used achieves this aim.

The targets I have set can be achieved by all authorities. Every authority's target allows a cash increase in its current expenditure. After making allowance for the reduction in authorities' national insurance surcharge next year and a modest amount of budget drift, the minimum current expenditure cash increase is 3 per cent. and the maximum 7 per cent.

Should grant withholding be necessary, the grant withheld will not exceed the amount of the overall net expenditure excess. There is an upper limit on the amount of grant holdback for any particular authority and also a maximum rate poundage for grant withholding for different levels of overspending.

The overriding need is for continued restraint in local authority expenditure. Some progress has been made, but more is needed. The settlement is a very fair one. We have increased the expenditure provision and aggregate Exchequer grant. The expenditure targets set are all capable of being achieved.

There is no reason why local authorities should not keep their expenditure within the settlement provision. In that case, there need be virtually no rate increases next year. Indeed, if authorities apply part of the substantial increase in their balances which has occurred this year, there could be significant rate reductions. This would be of enormous benefit to all ratepayers and especially to industry and commerce.

The opportunity is there. I look to Welsh local authorities to seize it.

Mr. Alec Jones (Rhondda)

I refer to the relevant expenditure figure of £1,385 million. Will the Secretary of State confirm that local authorities, which undoubtedly know their problems best, do not share the rosy and cosy optimism which the right hon. Gentleman expressed today that this figure would enable them to maintain their existing level of services and have no rate increases?

Does the right hon. Gentleman understand that unemployment in Wales, now more than 16.7 per cent., increases the number of demands on local government services? We have, for example, more 16-plus students in colleges, more children applying for free school meals, more clothing allowances for pupils and more elderly people needing help from the social services. Does the right hon. Gentleman accept that local authorities also have added responsibilities with the transfer to them of housing benefits and the increased level of applications for improvement grants? To meet these extra demands and added responsibilities means either cutting other services, which is virtually impossible after several years of cuts, or overspending according to the Government' s guidelines?

Why should democratically elected local authorities be penalised if they choose to use part of their balances to maintain services or to increase job numbers? Is the Mid-Glamorgan county council, for example, to be branded a criminal spendthrift because it proposes to use some of its balances to employ more teachers and to buy more books and other equipment? In view of current criticisms of education provision, surely such action should be commended.

Will the Secretary of State confirm that cutting the level of rate support grant to 70.5 per cent. of relevant expenditure, which is at least the third consecutive cut, means that the average increase of rate levels in Wales will be about 7 per cent., which is more than 10 per cent. higher than if the present level of RSG had been maintained? If that estimate is wrong, what effect does the right hon. Gentleman think this reduction will have on rate levels?

As for council rents, will the right hon. Gentleman confirm that after his 85p increase, council rents will have risen by 127 per cent. between 1979–80 and 1983–84? What other section of the community has faced such large increases in housing costs? After this increase, how many housing authorities in Wales will be in surplus on their housing revenue accounts? Is it intended that council rents shall rise to pay for other council services or to finance reductions in the levels of Government support?

I want to ask about the national parks supplementary grant of £1.8 million. The Secretary of State will be aware that the national parks of Snowdonia, Brecon Beacons and the Pembroke coast have increased responsibilities stemming from the Wildlife and Countryside Act 1981. Will the right hon. Gentleman confirm that there is no decrease in real terms in the grant to the national parks and that it takes account of the added responsibilities as a result of the 1981 Act? Despite the Secretary of State's pious platitudes, which we have heard on every occasion when he has introduced the rate support grant settlement, this year, again, we face reduced services, higher rates, increased unemployment or a combination of all three.

Mr. Edwards

The right hon. Member for Rhondda (Mr. Jones) referred to the relevant expenditure figure and increased burdens falling on local authorities. Local authorities, like others, will benefit substantially from the reduction in the inflation rate and the forecasts for the coming year. Inflation has fallen significantly since the original budgets were prepared in the summer. I have not, however, reduced the provision, so there is an added margin for local authorities.

The right hon. Gentleman referred to the cost of financing the planned level of capital expenditure in Wales. Total relevant expenditure takes into account the cost of financing that planned level of capital expenditure.

The right hon. Gentleman spoke about the prudent use of balances. He does not perhaps realise that since local authorities prepared their original budgets in the summer, the estimate of balances for this year, which was then about £70 million, has increased to about £130 million. It gives local authorities real scope to use some of their unexpected increases in balances to hold down rates, particularly for industrial ratepayers.

I welcome the right hon. Gentleman's reference to Mid-Glamorgan. Press reports say that Mid-Glamorgan intends to overspend its expenditure target by about £9 million, which would lead to grant loss of £4.6 million. The leader of the council is quoted as saying that if the Government want to commit political suicide, they should try clawbacks in the run-up to an election.

The county must not be under any illusion about my intentions. If there is an aggregate overspend in Wales, I shall not hesitate to go ahead with clawbacks from Mid-Glamorgan or any other authority. Mid-Glamorgan ratepayers should reflect that a budget of £9 million over target means an additional 33p on their rates—a 20 per cent. increase in the coming year. Worse still, non-domestic ratepayers would be affected by a levy of £30 for every person they employed. That would be an outrage when anxiety is being expressed about unemployment. It is an appalling prospect, and I call upon the county council to think again. The county's target allows a cash increase of 4 per cent. above the amount it is likely to spend on the basis of its revised budget. It is an achievable target.

The right hon. Gentleman suggested that the settlement implied rate increases of 7 per cent. I do not accept that. On the basis of the mathematics, which have been accepted by the local authorities, there is no reason why on average local authorities should increase rates. If they use some of their large balances, there is real scope for reductions.

The Labour Administration of which the right hon. Gentleman was a member said that it was right for the Government to increase council rents in line with the increase in the cost of living, but they failed to do so. We have carried out a catching-up exercise. It is right that we should, because if council rents are set too low, even by the previous Government's standards, there will be less money available for capital spending, new housing and housing improvements. In a previous statement to the House I announced an increase of £17 million in capital spending above previously planned levels.

The right hon. Gentleman asked about the national parks, and I shall write to him on that specific point.

The right hon. Gentleman said that there was no scope for reducing rates. I disagree. I suggest that if £45 million of the balances were used by Welsh local authorities, there could be a 10 per cent. reduction in rates. I cannot think of a better gift to local industry and employment prospects.

Mr. Geraint Howells (Cardigan)

Is the Secretary of State satisfied that Welsh local authorities are treated fairly compared with their counterparts in England and Scotland? What action will he take if all the Welsh local authorities propose a rate increase next year of between 10 per cent. and 20 per cent?

Mr. Edwards

The settlement is extremely fair compared with England. In part it reflects the reasonable attitude shown by Welsh authorities compared with authorities in England over the past year or two years. The Welsh figures for increases in relevant expenditure and the amount of grant percentage compare favourably with those in England.

As to rate increases, I have already made it clear that if local authorities in aggregate and individually exceed targets there will be a holdback. Rate increases are matters for local authorities to determine. As a result of this settlement, they have it within their power not just to hold, but to reduce, rates. I hope that they will seize the opportunity that I have given them.

Mr. Tom Hooson (Brecon and Radnor)

While the overall proposed allocation appears to be generous, given the need to control public expenditure, will my right hon. Friend assure the rural districts and counties in Wales that he will review the sparsity factor when he meets local authorities?

Mr. Edwards

As I have said on many occasions to my hon. Friend, who has been assiduous in raising this point, we look at that matter regularly. The local authorities agree the method of distribution among themselves. I cannot hold out any immediate prospect of change. I know that my hon. Friend has the most responsible local authorities in his area, and I am sure that they will achieve the objectives that I have set.

Mr. Dafydd Wigley (Caernarvon)

The Secretary of State is inadvertently misleading the House and Wales. According to the figures that have been announced, there cannot be a reduction in the rates without a severe effect on services. The Secretary of State shakes his head. Does he accept that in the county of Gwynedd there must be a cut of £1.5 million in services or the county will be fined £500,000? Does he accept the figures given by my right hon. Friend the Member for Rhondda (Mr. Jones) that the aggregate Exchequer grant of £975 million in relation to the total relevant expenditure of £1,385 million gives a ratio of 70.4 per cent. compared with 72.5 per cent. last year? The ratepayers' burden will be increased from 27.5 per cent. to 29.6 per cent. next year. As a result, there will be a 7 per cent. or 8 per cent. increase in the rates. In my county that means a 9p increase. The Secretary of State cannot say what he has said.

Mr. Edwards

I do not accept what the hon. Gentleman says. Local authorities do not accept my general point, but they accept the mathematics on which my settlement is based. It arises from a comparison with and relationship between the two years and the assumptions and over-provision by local authorities last year relative to the budgets and expenditure this year. It is complicated, but on the basis of those assumptions, and without using any of the balances to which I have referred, we believe that on average local authorities need not increase rates. The position of one local authority will differ from that of another.

However, as I pointed out, there is considerable scope for using the balances to produce rate reductions in Wales as a whole.

Sir Anthony Meyer (Flint, West)

Is it not clear that if local authorities apply the same strict criteria to contain expenditure as the Government have done—at least in every sector except, perhaps, steel—there should be no substantial increases in domestic rates in Wales next year? Do not councils in areas of high unemployment face a severe and painful dilemma: that if they increase rate-borne expenditure to deal with the consequences of high unemployment that very increase in rates will frighten away potential employers?

Mr. Edwards

Faced with that dilemma, one of the few contributions that would help local industry to provide more jobs and reduce the burdens on local authorities would be a 10 per cent. cut in the rate bill. That would be of direct assistance to industry. I cannot think of anything more damaging than the proposals of Mid-Glamorgan—apparently for political as much as any other reasons—for an enormous increase in expenditure, because that would fall directly on employers and reduce employment in that area.

Mr. Tom Ellis (Wrexham)

The right hon. Gentleman said that the targets he has set can be achieved by all authorities. On what basis was that statement made? Was it made after consultation with all or any of the authorities and with their concurrence, or was it the result of his Department's calculations? If the latter, does he know whether any authority, apart from Mid-Glamorgan, will overshoot the targets?

Mr. Edwards

I do not want to make general forecasts about the intention of local authorities. In the past, a great majority of Welsh local authorities have sought to meet the Government's objectives and to avoid penalty. If a council such as Mid-Glamorgan acts in the way suggested, it will put at risk all other Welsh local authorities. As well as such a council taking more than its fair share of local authority grant available from Government, it will make an aggregate overspend more likely. Therefore, it is a particularly selfish act.

I believe that the targets are attainable. I stand by my statement that, on the whole, there is no need for local authorities to contemplate increased rates or significant reductions in the services that they provide.