HC Deb 02 March 1983 vol 38 cc347-54

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Archie Hamilton.]

11.44 pm
Mr. David Penhaligon (Truro)

It is always a pleasure to bring before the House problems that affect my remote part of the world. On this occasion I bring to the House's attention the dilemma that faces Cornwall in this year's rate settlement. I am sure that the Minister does not need to be told that Cornwall is a poor county that has had substantial economic difficulties for some time. The average wage there is 20 per cent. below the national average, and unemployment has been endemic for some time and currently represents about 20 per cent. of the adult male population. However, to be fair, Governments of all colours have recognised that fact during the years to a greater or lesser extent, and they have implemented policies to try to reverse the difficulties. Cornwall county council has tried to compensate the people by fulfilling its responsibilities as economically as possible. It has a good record of co-operating with various Governments' requests to reduce expenditure in keeping with the economic targets. Requests for reductions in local government expenditure have been made by Governments other than this one.

The county council believes that it is now paying the penalty for such co-operation and that the position that it faces this year is fundamentally unfair. This debate enables me to explain to the House why the council feels that way. The council spends £29.19 a head on social services provision, whereas the average for the English shire counties is £31.61. That difference underestimates the problem. The county has an above average elderly population, and we are told that during the next decade the number of those aged over 85 will double. The infra structure problems that that presents are frightening, and those who consider the long-term future of the county have good reason to be worried about the encroaching difficulties.

Expenditure per head on education is more or less the average for the shire counties. The county has some real problems because of its rural nature. It has many small schools that some may allege should be shut, but if they were shut that would involve enormous transport bills. One must spend the money either on maintaining small schools or on transport. I am sure that the hon. Member for Falmouth and Camborne (Mr. Mudd) and the hon. Member for Bodmin (Mr. Hicks), who are present this evening, would opt for maintaining the smaller school. Cost-wise it does not make much difference. Our primary schools are in poor condition, although I do not argue that the only thing that gives a good education is the state of the school buildings. One cannot help but recall the words of the Prime Minister, when she was Secretary of State for Education, when she said that there would not be a single primary school in the United Kingdom that was built before 1900 that would not be replaced before she finished her term of office. At the current rate of progress, we shall be well into the next century before Cornwall can replace all its pre-1900 primary schools.

I do not suggest that Cornwall county council has never wasted money, but by United Kingdom standards it has not wasted much. It is now in an amazing position. The cause of the difficulty is the Government's grant-related expenditure. I have obtained from the Library a document that explains those words. It states: The basis of this is the 'assessment of the cost to [an] authority of providing a comparable standard of service to other authorities, allowing for differences in the characteristics and needs of the different areas'. Those hon. Members who have been foolish enough to try to understand how this works cannot help but admire the enormous work that has been done. One suspects that it is a reasonable estimate by central Government of what is a reasonable amount for a local authority to spend.

The GRE for Cornwall is £138.2 million. The proposed expenditure by the county this year is £133.1 million. That is £5.1 million below the GRE, or 3.83 per cent. The county expected an enormous pat on the back for such an achievement. It expected to be held up to the nation as an example to other authorities as to how it is economically possible to carry out responsibilities fairly and efficiently. What is certain is that the county this year will be the lowest or the second lowest spending county authority in the United Kingdom relative to the GRE. This GRE is prepared with great care and effort but it has nothing to do with how much a local authority is allowed to spend. The Government have another figure for that, called the expenditure target. This is a crude operation which boils down to little more than taking whatever the authority spent last year and adding 4 per cent. to it. That was the original proposal. In the end it was 3.3 per cent., because the Government recouped the savings the authority would have made through national insurance contribution reductions. That gives a figure of £130.5 million. Relative to that figure, the county council was alleged to be overspending by £2.6 million, but relative to the GRE, which is the Government's calculation of what is reasonable to spend, the authority is under-spending by £5.1 million. This is not the simplest of matters to explain to an audience when one tries within one's own county.

It was interesting to note how the council reacted to this dilemma. Three councillors voted to reduce expenditure. I know that the Cornwall county council is an independently controlled council but I am not sufficiently optimistic to believe that the supporters of the Government on that council number three. There are 15 Conservative elected members on that council. The council recognised that there was little it could do.

The truth is that in Cornwall there is no fat that can be easily cut. As a result of a parsimonious, or sensible, history of expenditure, the county finds itself in the position of not being able easily to make economies. If the pupil-teacher ratio had been high in Cornwall, it could have been cut, but it was not. If the old folks' homes had been overstaffed, they could have been cut, but they were not overstaffed. If the county had been over-generous in discretionary grants, it could have reduced them, but it was not. The county faces this year a financial penalty for overspending of £800,000. That is a useful sum. It could build a primary school. It would employ 100 teachers. It is twice this year's county budget for providing books for our schools. It could have provided the major part of the financial contribution to an old folks' home.

The ratepayers of Cornwall face an increase in their rates of 14.2 per cent. The Government have often stated in the House what effect such increases have on the business community as well as the obvious effects they have on one's constituents who have to find that money. That is the background. I cannot understand the Government's policy, and nor can a large number of people within my county.

Those counties that are below the Government's GRE—that are below the Government's estimate of what it is reasonable to spend—should suffer no penalty. How can the Government fine a county that is so low-spending? How can the Government justify applying a penalty to the council such as Cornwall, which is one of the lowest-spending authorities in the United Kingdom? As the position appears to exist, it is just not fair. I look to the Minister, just as most of the county is doing tonight, to offer us some relief. The problem is, indeed, serious. The county feels insulted by what has happened. The sad thing is that if any Government were to go to Cornwall again, and beg it to reduce expenditure in the national interest, it would be a fool to take that advice. If cash limits were introduced in future, the county would be bound to overspend.

It is not too late to say that counties that have such low spending records as Cornwall should not be fined for overspending. The situation is remarkable, and I look forward to the Government relieving my county from its agony.

11.56 pm
The Under-Secretary of State for the Environment (Mr. Giles Shaw)

I admire the cogent way in which the hon. Member for Truro (Mr. Penhaligon) has put the case for his county with his customary energy. I do not expect my response to satisfy him fully, but this debate at least gives me the opportunity to explain why we continue to attach such high priority to the restraint of local authority expenditure. It also allows me to put the record straight about some of the misunderstandings that have been expressed by the hon. Member and others about our policy towards local authorities and the rate support grant system.

The hon. Gentleman was concerned that Cornwall was not receiving a fair deal from the Government in the rate support grant settlement for 1983–84, which my right hon. Friend the former Secretary of State for the Environment announced on 16 December. Let me make it clear at the outset that we fully recognise that Cornwall county council is a responsible local authority, which has made real efforts—as the hon. Gentleman said—to adhere to the Government's guidelines on expenditure, including those on public sector pay. Cornwall has in the past played its part, and in the current year budgeted to stay well within its target. That is a responsible attitude, which I greatly welcome.

In recognition of that, we have set Cornwall an expenditure target for next year of £130.5 million which is a 4 per cent. increase on its budget for the current year. With inflation and interest rates at such low levels that does not seem an unreasonable figure. I am glad too that the local authority manual workers' pay settlement vindicates the Government's view that this is realistic. The 4 per cent. increase—I stress this point to the hon. Gentleman and to my hon. Friends—is the most that any major spending authority has been allowed in 1983–84, and the maximum that the country can afford in the present economic circumstances.

I understand that Cornwall's objection to its expenditure target for 1983–84 is based not on the fact that it has been increased by 4 per cent. but on the baseline which has been chosen. That is the burden of the hon. Gentleman's case. Cornwall argues that, because it budgeted to spend below its target in 1982–83, its target for 1983–84 is more onerous than for authorities which took full advantage of the expenditure allowed by their 1982–83 target. But if, as I have argued, the 4 per cent. increase on budget allowed for is reasonable, the budget baseline will present a problem only if it is not a true reflection of what the authority expects to spend in the year.

Cornwall argues that its budget is not in fact a fair reflection. It says that the budget allowed for only the Government's assumptions about the increase in pay and prices throughout the year while other authorities allowed for higher inflation figures. That may be. But Cornwall was certainly not alone in budgeting on the Government's pay and price assumptions. More than 50 other authorities including 12 other counties did exactly the same.

But the real point is not whether the baseline established—at this time last year—was as high as it could have been on other assumptions but whether it is a reasonable reflection of the likely outturn of expenditure for the year. We cannot know that—because the year is not yet over—and even Cornwall cannot yet be sure. But we cannot overlook the fact that since budgets were set last year interest rates have fallen and the annual rate of price inflation has dropped below 5 per cent.

The hon. Gentleman suggested that Cornwall was being unfairly treated in the RSG settlement—indeed, that it was perhaps being classified as a profligate authority like some of the major overspending councils in the big cities, and being penalised through the target system. Those authorities which overspent their target in the current year have a target for next year which is 1 per cent. in cash terms below their 1982–83 budget.

That is indeed a tough target to meet and of a quite different order from Cornwall's, whose cash is increased by 4 per cent. But we are determined that overspending authorities should have a strong incentive to do so, and that is why we have introduced a tough scheme of grant holdback for 1983–84, which the House approved on 20 January. For each of the first two percentage points of overspend, authorities will lose grant equivalent to a penny rate. After that, each percentage point of overspend will lose them grant equivalent to a 5p rate, and so on up the scale, so that there will be a continuous incremental penalty attached to those who overspend deliberately.

I think that my hon. Friends the Members for Bodmin (Mr. Hicks) and for Falmouth and Camborne (Mr. Mudd) will recall that one of the greatest pressures by my hon. Friends has been to ensure that shire counties are not made the scapegoats for the relatively few, usually Labour-controlled, authorities that seem to spend willy-nilly without regard to Government targets. I am sure the hon. Member for Truro recognises that that has been at least strongly suggested by a number of people from time to time.

We also recognise that many authorities, including Cornwall, had benefited from the grant-related expenditure exemption in 1982–83, which allowed them to spend up to their GRE without incurring financial penalties. We simply did not feel that this exemption could be continued in 1983–84 without serious risk to the Government's whole policy on restraint of local authority spending.

The House will recognise that with so many billions at stake—about 18 per cent. of the gross national product—a policy for the containment of national expenditure must also include a policy for the containment of local authority spending. But the gentle lead-in to holdback is designed to help those authorities which come close to meeting their targets but narrowly fail to do so. They will not incur the heavy financial penalties which are aimed at the truly profligate authorities.

Mr. Robert Hicks (Bodmin)

I am sure the House recognises the need for the Government to try to control those local authorities which in the past have acted with financial irresponsibility. But the essential point made by the hon. Member for Truro (Mr. Penhaligon)—who put our case very fairly—is that Cornwall is a poor county, and that we feel that we are being penalised for the essential prudence that we have pursued in the past. It is the baseline from which we begin that is causing great local concern.

Mr. Shaw

I understand my hon. Friend's point. It is frequently perceived that the GREA system or the target system has not been presented to local authorities in a way that allows them to feel fairly treated while at the same time wishing to control their own expenditure to the greatest extent possible. We are here dealing with the balance that Government must inevitably strike between the amount of central financing—the 52 per cent. or 56 per cent., as it has been over the years—and what the local authority seeks to go through its own resources year by year. If my hon. Friend will allow me to continue, I think that he will understand some of the problems that are reflected in the point that he makes.

As the hon. Member for Truro fairly pointed out, Cornwall's expenditure target for 1983–84 is 5.5 per cent. below its grant-related expenditure assessment. The problem is not unique to Cornwall. It applies to many other shire counties. In Kent, the target is 6.3 per cent. below, and in West Sussex 4.1 per cent. below, the GREA.

To make a direct comparison between GREAs and actual expenditure levels is to misunderstand the nature of the GREA. As the hon. Gentleman stated, the GREA is a notional measure of the cost of providing a standard level of service. It is not a budgetary tool or a financial instrument, but a base averaging out what would be the notional cost of achieving a comparable level of service.

Individual local authorities must inevitably make individual decisions about spending needs on particular services in their areas, and I fully appreciate that in a county such as Cornwall, where many problems are related to distance and small communities, there are bound to be individual decisions on expenditure which truly reflect local needs.

As the hon. Gentleman said, Cornwall has traditionally been an economical and low-spending authority. There is therefore no reason why it should now budget to spend up to its GREA.

However, Cornwall is helped in another way because the level of its GREA goes into the calculation which determines the amount of block grant that the county receives. Cornwall's GREA for 1983–84 is £325 per head. That is by no means the lowest for a shire county. Neighbouring Devon and Somerset, for example, will receive £312 per head next year. The GREA is reflected in Cornwall's block grant entitlement, which compares very favourably with that of other counties.

If the council budgets to spend at target, its block grant in 1983–84 will be £72 million—an increase equivalent to a 2.8p rate on the grant that it will receive in the current year. That compares very favourably with the average shire county which will suffer a decrease in grant equivalent to a 1.2p rate. I put it to the hon. Gentleman that that is not a bad position for a county to be in—receiving an increase when most will suffer a decrease.

Mr. Penhaligon

What is the purpose of working out a notional level of expenditure, as the Minister described it, if when a county spends substantially below that it finishes up being fined for overspending? That is the point that is not understood in the county.

Mr. Shaw

Overspending relates to target spend, so a county can be penalised if it exceeds its budgeted expenditure and its targets. The GREA is a way in which central Government, in determining what block grant is to be used for, uses a central calculation to try to arrive at what the figure should be for each of a range of services. As the hon. Gentleman knows, about 60 different elements make up that calculation. Nevertheless, I realise that there is some confusion—the hon. Gentleman is certainly not alone in this—because GREA is assumed to be a budgetary instrument and a target when in fact it is a notional method of calculating expenditure and it is the actual targeting, which the county does, that is the trigger which determines whether the penalties apply.

The rate support grant settlement for 1983–84 can only be described as a good one for Cornwall. Cornwall is being treated more generously than most other shire counties which are, none the less, generally going for single figure rate increases. I hope that the hon. Gentleman will recognise that Cornwall is not being so unfairly treated as he suggested today.

Why, then, did Cornwall county council agree last week to a 14 per cent. increase in next year's rate when most counties are going for single figure increases? First, Cornwall was able to cushion its rate rise this year, and keep it in single figures, by drawing on its balances. I believe that the hon. Gentleman recognises that. It is an exercise that it plainly cannot repeat next year, and accounts for about one third—around 5p—of the proposed rate increase in 1983–84. Another third is due to allowing for the likely effects of inflation in 1983–84.

The rest of Cornwall's proposed rate increase is the result of its expenditure plans, which allow for real growth in a number of areas. It is something over 2 per cent. of target. It is entirely a decision for the county council. If that is its priority, the Government can hardly be blamed for the size of Cornwall's rate increase.

I hope that I have been able to make it clear that the Government are not treating Cornwall as an extravagant authority. I commend it, as I said at the outset, for its efforts over past years to contain expenditure and help the fight against inflation. As a result of those efforts, Cornwall managed in 1982–83 to levy the lowest rate poundage—117.5p—of any county, and I believe that the size of next year's rate increase needs to be seen in that context. Cornwall must be congratulated on those efforts. However, I regret the prospect of a 14 per cent. rate increase next year, even though it is 14 per cent. on a low base.

If shire counties all meet their expenditure targets—that is the crucial point—in 1983–84, they are entitled to block grant which amounts to 43.6 per cent. of their total expenditure targets. Cornwall, by comparison, would receive grant equal to 55.1 per cent. of its target. That is a substantial level of taxpayer support, reflecting, as the hon. Gentleman wished to see reflected, the Government's view that Cornwall deserves a significant increment because of the problems it faces. The rate support grant system is a strong incentive for Cornwall to continue to strive for greater efficiency and economy in its future expenditure plans.

I hope that the hon. Gentleman and the House will agree that it has been a fair RSG settlement for Cornwall.

Question put and agreed to.

Adjourned accordingly at eleven minutes past Twelve o' clock.