HC Deb 18 July 1984 vol 64 cc331-40 4.33 pm
The Secretary of State for the Environment (Mr. Patrick Jenkin)

With permission, Mr. Speaker, I should like to make a statement on local authority capital expenditure in England. My hon. Friend the Parliamentary Under-Secretary of State for Wales will make a separate statement afterwards. [HON. MEMBERS: "Where is the Secretary of State?"]

Local authority capital expenditure, like capital spending by central Government Departments, is subject to a national cash limit. For last year, 1983–84, local authority returns suggest that the cash limit was overspent by around 13 per cent., that is, about £368 million. Normally, an excess over the cash limit would be deducted from the resources available in the following year. Rather than do that in this case, the 1983–84 overspend will be taken into account when setting the limit for 1985–86. Although we are only three and a half months into this financial year, returns from local authorities suggest that the overspend will be at least as high as last year's, and it could well be higher.

The anticipated overspending arises because each local authority is free to spend for capital purposes in any year the sum of its allocations plus the prescribed proportion of the capital receipts arising in the current year or in previous years. Many authorities have substantial unspent capital receipts from previous years: the House will remember that in 1981–82 and in 1982–83 local authorities underspent the resources available to them. The ability to spend receipts accumulated from previous years and other elements of flexibility in the capital control system mean that the aggregate of all authorities' capital expenditure can exceed the national cash limit allowed for in the public expenditure White Paper without any individual authority exceeding its own capital provision.

Local authority capital spending makes a valuable contribution to the development of the country's infrastructure. It is an important part of the work load of the construction industry. Nevertheless, the Government must take steps to deal with the prospective overspend. On the basis of present information, I believe that it would be wrong to ask for a complete halt to all new capital spending commitments this year. Instead, after discussions with the local authority associations yesterday, I am asking authorities to co-operate by restraining their capital spending this year to the level of the capital allocations made to them for this year, plus the prescribed proportion of new capital receipts arising this year. If they are already committed by contract to expenditure higher than that, they ought to enter into no further commitments at this stage.

This arrangement leaves every authority with the incentive to continue to make sales and so to add to the prescribed proportion of receipts which they will be free to spend. In this way, they can spend without adding to net public expenditure. Provided we have the co-operation of local authorities, this will be an effective means of restraining expenditure with the minimum of disruption. Capital spending will be monitored in the coming months. I shall be keeping the position under close review.

The arrangements which I have announced rest on the voluntary co-operation of local authorities. However, for 1985–86, I shall have regard to the extent to which authorities have responded to my request. If necessary, I shall use my statutory powers to reduce the total expenditure which local authorities collectively or individually may incur in that year. I hope that this will not be necessary.

The Government are committed to firm control of public expenditure, lower public sector borrowing and a proper monetary discipline. Cash limits are part of that discipline. My proposals are intended to hold expenditure in line with the cash limit while allowing authorities, particularly if they can increase their sales of assets, a measure of flexibility this year.

Mr. Eric S. Heifer (Liverpool, Walton)

The right hon. Gentleman has given us a typical example of doublespeak—that is George Orwell, in case the right hon. Gentleman has not read him. On the one hand, the right hon. Gentleman has suggested that the Government are not introducing a moratorium and that they will pursue a system more or less of flexible controls, but his statement clearly adds up to a moratorium; in other words, a moratorium by any other name. …

I understand that the right hon. Gentleman told the Association of Metropolitan Authorities that six options were available to it. If I may quote Mike Millwood, the president of the Building Employers Confederation, which, incidentally, until now has been a great supporter of the Government, he said in today's Financial Times: It is like asking an unjustly condemned man whether he prefers to be hanged, shot, or starved to death. In the end, all the options add up to the same thing—more jobs lost, more urban decay, and disruption to capita] projects. I think hon. Members will agree that the Government's decision, on top of the decline that is taking place in the whole of the construction industry, including the private sector, plus, incidentally, the inevitable consequences of last week's rise in interest rates and the effect on mortgages, is nothing other than a disaster for the construction industry. I could give quotation after quotation from people in various building organisations who in the past have been great supporters of the Government. I shall not give them but they are on record. I assure the right hon. Gentleman that there is a feeling of utter despair in the construction industry.

We were told by the Prime Minister in the debate on the Loyal Address: We need more capital spending by local government and in the public sector generally."—[Official Report, 3 November 1982; Vol. 31, c. 21.] The right hon. Lady had previously, prior to the election, said in a letter to Sir Jack Smart: Local authorities have been enabled, and indeed encouraged, to increase their capital expenditure by using capital receipts to supplement their capital allocations. The Government's present policies are the opposite of what the Prime Minister has urged in the past.

In view of the disasters for which the right hon. Gentleman has been responsible, does he not think that it is time that he stepped down from his job?

Mr. Jenkin

The hon. Gentleman is wrong. This is not a moratorium. It is certainly nothing like the massive cuts in capital spending that were ordered by the Labour Government in July 1976. Compare what I have announced today with what the Government of which he was a member announced — [Interruption.] Labour Members do not like it, but they are going to hear it. Their cuts were on roads, car parks and public transport projects, they put a complete ban on construction and purchases for environmental services, they reduced spending on housing and they placed limits on spending on education, libraries and museums.

By contrast, we are not asking for cuts, but only that rising spending should be stopped from exceeding the limits set out in the White Paper. Furthermore, if local authorities can sell more houses and other assets, part of the proceeds can go towards maintaining their capital programmes.

The hon. Member for Liverpool, Walton (Mr. Heffer) referred to urban decay. The urban programme—the derelict land grant and many other forms of urban aid, such as assistance with derelict land reclamation—and sums spent on the police, the probation service and magistrates' courts are subject to separate cash limits and are not covered by this statement.

I remind the hon. Gentleman that in 1983 the construction industry's output rose to £24.3 billion, an increase of 8 per cent. in cash terms. The overspend in 1983–84 rose to about £250 million worth of construction output, or about 1 per cent. Thus, as a result of the overspend, the industry received a little extra last year.

For 1984 the NEDO is forecasting a 2.5 per cent. increase, or about £26 billion, in cash. The public sector accounts for about £12 billion of that. If local authorities now spend within the cash limits for this year, the growth should be more or less in line with those NEDO forecasts. The overspend would mean output higher than those forecasts, and that we could not afford.

Several hon. Members

rose——

Mr. Speaker

Order. Many of the right hon. and hon. Gentlemen who are seeking to intervene are interested in the debate on the rate support grant that follows. In view of the time and the fact that there will follow another statement and a ten-minute Bill, I propose to allow questions on this statement to continue until 5.5.

Sir Ian Gilmour (Chesham and Amersham)

I sympathise with my right hon. Friend for having to defend the ridiculous results of Treasury dogmatism, which he obviously deplores. Does he agree that the effect of his statement will be to make it difficult for local authorities to plan their capital expenditure properly and result in increased unemployment in the construction industry?

Mr. Jenkin

It is not ridiculous Treasury dogma to argue that an excess over the cash limits feeds into local authority borrowing, which increases the local authority borrowing requirement, which in turn is a significant element in the public sector borrowing requirement. As my right hon. Friend fought the last two elections on a firm policy of keeping those under control, I hope that he will support these measures.

Mr. John Cartwright (Woolwich)

Will the Secretary of State try to understand the frustration in local authorities, which were berated by his predecessor 18 months ago for not spending enough on capital projects and which are now being penalised because they responded too vigorously to the Government's pre-election demands on them? Does he appreciate that local authority capital schemes take time to work up and that they cannot be switched on and off like a tap without disruption and the waste of a great deal of money?

Mr. Jenkin

That is precisely why I have announced these flexible measures today. Two years ago, local authorities were heading for a massive underspend. My right hon. Friend the Prime Minister was right to urge them to spend up to the limits which they were allowed and for which the Government had planned. If they had done that earlier, the need for today's statement would never have arisen. As it is, capital spending is now pushing the total above the planned figure and we have no option but to seek the restraint for which I have asked.

Mr. Reg Freeson (Brent, East)

Why no option?

Mr. Jenkin

My right hon. Friend's call in 1982 and the present measures should be seen as efforts to secure a more even level of investment and to smooth out the wilder fluctuations.

Mr. Mark Carlisle (Warrington, South)

I recognise my right hon. Friend's desire to control the overall amount of public expenditure, but will he accept that any idea of a moratorium on local authority capital expenditure—leading, as it inevitably would, to higher unemployment and the loss of many necessary public works—would be far more unacceptable to many than some increase in the public borrowing requirement?

Mr. Jenkin

I am sure my right hon. and learned Friend recognises that this is not a moratorium. [Interruption.] A substantial degree of flexibility is built into the arrangements which I have announced and, as I said, if authorities can sell more assets this year, they can maintain or increase their capital spending.

Mr. Allan Roberts (Bootle)

The Secretary of State is not executing local authority capital expenditure programmes, but is asking local authorities to commit suicide. This is a moratorium by any other name. Are not the Government, for the first time, replacing stop-go with stop-stop and producing more banana skins than bricks? Are local authority improvement grant loans included in the arrangements he has announced? Will the owner-occupier be attacked and criticised? Does the right hon. Gentleman appreciate that a decline is taking place in capital receipts because of high interest and mortgage rates? Is he aware that he should be announcing an increase, rather than a reduction, in capital allocations?

Mr. Jenkin

I will not take criticism from the Opposition about improvement grants. These grants totalled £900 million last year, whereas they were £90 million when the Labour party was in office. If we are to keep the economy on course, we must maintain cash limits and live within them, and local authorities cannot expect to be immune from that. Indeed, it was made clear when the new system of capital controls was set up that it would have to be subject to a firm annual ceiling and total capital spending figure. If overspending appears likely, it will be necessary to take corrective action … which may include adjustments of allocations. I am not asking for any adjustment of allocations at this stage.

Sir Hugh Rossi (Hornsey and Wood Green)

In view of rumours that have been circulating in the construction industry in recent weeks, the statement that local authorities will be able to spend capital within their cash limits for this year and spend capital receipts within the limits for this year without any reduction will be received with great relief. However, is my right hon. Friend aware that that relief will be tinged with some regret that we appear once more to have returned to the old concept, beloved of the Labour party, of annuality on capital expenditure? We hope that this will be only temporary.

Mr. Jenkin

I am grateful for my hon. Friend's recognition that this is indeed a good deal less swingeing than some rumours circulating in the press had suggested. As for the future, the local authority associations have put forward proposals for monitoring the system of capital controls. I shall be happy to enter into discussions with them to see whether we can find a satisfactory system which delivers the cash limit rather more accurately.

Mr. Chris Smith (Islington, South and Finsbury)

When will the Secretary of State for once stand up to the Treasury and tell it that its economic theories about the effect on the public sector borrowing requirement of the spending of accumulated capital receipts are sheer nonsense? When will the right hon. Gentleman tell the Treasury that the thousands of families who are waiting for homes and the hundreds of thousands of construction workers who are waiting for jobs will be severely disadvantaged by the effects of his statement? When will the right hon. Gentleman fight for his corner, our corner and the corner of people waiting for homes, and not fight for the Treasury's economic theories?

Mr. Jenkin

As my hon. Friend the Member for Hornsey and Wood Green (Sir H. Rossi) recognised, my statement contained a considerable degree of flexibility for local authorities, and that should be of some relief to the construction industry. Nevertheless, when we are heading for an overspend of the size that I mentioned in my statement, it would be irresponsible of the Government not to take some action to bring it under control.

Mr. John Heddle (Mid-Staffordshire)

As local councils can now retain more of their capital receipts, does my right hon. Friend agree that an enormous number of local authorities are backsliding on their obligation to sell council houses, land and other wasted assets positively? Will he use the power given to him by the House to ensure that they abide by their obligations? Does my right hon. Friend agree that, because of annuality, certain underspending authorities are positively penalised? Will he conduct a review during the current financial year?

Mr. Jenkin

I am grateful for what my hon. Friend has said. My statement will mean that local authorities will now have an enhanced incentive to sell assets this year to maintain and, if appropriate, to increase their capital spending programmes. Local authorities, especially those which have been dragging their feet over council house sales, might care to note that point. I shall certainly look into the last part of my hon. Friend's question and, if necessary, write to him.

Mr. Freeson

Will the Secretary of State give an undertaking that he will not add to the shambles that he is creating by announcing in September, October or November further cuts or a moratorium on local authority capital spending? Will the right hon. Gentleman undertake not to make such a decision later this year?

Mr. Jenkin

It would be most unwise to give such an undertaking. I have said that I shall carefully monitor spending. I shall be asking local authorities to let me know swiftly their current capital commitments for the year. When I have the further information and the first quarter's outturn, I shall be in a position to decide. The decision may go either way—either to ease the restraints or to impose more stringent restraints to keep the spending within the cash limits.

Mr. Christopher Chope (Southampton, lichen)

ft is a great relief to hear that there is to be no moratorium. Are the local authorities likely to co-operate with the request for voluntary restraint? Will my right hon. Friend ensure that the responsible authorities, especially those which keep down revenue expenditure — unlike those which have contributed to a £840 million overspend—will not lose at the expense of the extravagent authorities?

Mr. Jenkin

I shall have an opportunity tomorrow at the meeting of the Consultative Council on Local Government Finance to discuss my statement with the local authority associations. From the preliminary soundings that I took yesterday, it is clear that the leaders of some of the associations are willing to recognise the Government's problem and to do what they can to help to solve it. As for the question of distinguishing between authorities which behave responsibly and those which do not, I should not want to acid to my statement, where I made it clear that, if necessary, I would be prepared to use my statutory powers next year in respect of those authorities which, either selectively or individually, do not pay regard to my requests.

Mr. Simon Hughes (Southwark and Bermondsey)

Will the Secretary of State at last admit to the House that the Government's local government finance policies are all over the place, that their housing policies are a disaster for those in the public sector and that this statement is totally illogical?

Local authorities have more money to spend largely because they receive capital receipts from sales of council houses. The right hon. Gentleman is now encouraging those authorities to increase those sales. Does he agree that that is discriminatory, because authorities such as mine, which have few desirable and saleable public sector properties—their properties are all in tower blocks or flats—receive little money from sales? If it is such a wonderful scheme, why did the Minister for Housing and Construction meet those Conservative Back Benchers with an interest in the construction industry at 2.45 pm today to explain to them what was in the right hon. Gentleman's statement before the statement was made to the House? What did the hon. Gentleman say to them that the right hon. Gentleman has not said to us?

Mr. Jenkin

If it ever happens, and I doubt that it ever will, that any member of the Liberal party has to make a statement from the Dispatch Box, the hon. Gentleman will find that it is normal procedure——

Hon. Members

No.

Mr. Speaker

Order.

Mr. Jenkin

—to discuss in general with one's supporters what is likely to happen. The hon. Gentleman could not, however, be expected to know that. The hon. Gentleman will know that last year we reduced the prescribed proportion of housing from 50 to 40 per cent. so that we would have a larger slice to reallocate to those authorities which did not have the same opportunities for sales as others. I had hoped that the hon. Gentleman would give the Government some credit for that.

Mr. Fred Silvester (Manchester, Withington)

I recognise that my right hon. Friend has protected local government capital expenditure from the worst excesses of the Treasury's demands, but will he recognise that his statement is very unsatisfactory? What sum of money is expected to be saved by his announcement? What proportion will that sum be of total expenditure in the coming year?

Mr. Jenkin

It is not possible at this stage to put a precise figure on what might be saved. Until one knows the details of the commitments into which local authorities have entered—I have said that I am preparing to ask them to give the details swiftly—it is not possible to put a precise figure on the amounts to be saved. As I have said, the amount of possible overspending is at least as high as last year and is possibly higher. We shall, if necessary, have to take steps to ascertain whether we can bring that spending into line with the cash limit which was published before the Budget last year.

Mr. Geoffrey Lofthouse (Pontefract and Castleford)

What figures on capital payment intentions has the Secretary of State obtained from local authorities? Will the right hon. Gentleman confirm that yesterday he told the local authority associations that the figures were unreliable? That being the case, how can the right hon. Gentleman base a judgment on them? Will he confirm that no local authority has overspent?

Mr. Jenkin

The hon. Gentleman must recognise that in asking for the estimates return this is the first time that the Government have asked for information in this form from local authorities. It is difficult to analyse the results, because we do not have previous experience to go on. We treated the local authority estimates with a good deal of circumspection and made a good number of adjustments, on the assumption that there had been a high degree of over-estimating about what they might succeed in spending during the year. Having made all those adjustments, it is the Government's view that, according to the figures that we have received, we are heading for an overspend. In those circumstances, it would be irresponsible for the Government to stand by and do nothing. That is why I made the statement.

Sir Dudley Smith (Warwick and Leamington)

Despite what my right hon. Friend said in one of his answers, did he say in his original statement that he would pay regard to those authorities which responded to the guidance that he is now giving? If so, surely that step will be welcomed by those responsible authorities which are trying to play the game.

Mr. Jenkin

I assure my hon. Friend that the words I used towards the end of my statement were intended to show that if authorities co-operate, as I am sure most will, with the Government's requests, they need not suffer under the arrangements that I have outlined. Some authorities may be tempted not to co-operate. It is only right at this stage to warn that I might then have to use my statutory powers.

Mr. Tony Lloyd (Stretford)

Is the Secretary of State aware that those in local government in general rightly resent the fact that, because of the Government's financial crisis management, they are never able to plan their capital programmes? The people who suffer especially are the homeless and the badly housed in inner urban areas. Does the right hon. Gentleman accept that, although he is announcing something which, by its nature, is voluntary at the moment, the plan almost certainly cannot work, because many local authorities, such as Manchester, will have to ignore his blandishments and the right hon. Gentleman will therefore come back much later in the financial year with even more draconian powers causing much greater hardship?

Mr. Jenkin

The city of Manchester is rather wiser than the hon. Gentleman. It recognises that it is in the interests of all authorities that they should collaborate to try to help the Government achieve the cash limit. I am well aware of and have a great deal of sympathy with the desire of local authorities to plan their capital expenditure over a longer time scale. That is why earlier this year I gave them an assurance that they could—apart from deductions for overspend—look forward to 80 per cent. of this year's allocations next year and 70 per cent. the year after. That was much welcomed by the local authorities.

Mr. Teddy Taylor (Southend, East)

Will these capital restraints apply to the substantial sums recently transferred by at least one local authority from revenue to capital account as an exercise in creative accounting to avoid grant penalty, or will these restrictions not be applied to Liverpool?

Mr. Jenkin

The restrictions for which I have asked apply to all authorities. I am sure my hon. Friend recognises that that form of accountancy has the effect of reducing the capital which a local authority has available to spend, and therefore makes more stringent the effect of the restraints which I am now asking all local authorities to observe. There is no question of any authority avoiding that by creative accounting.

Mr. Allen McKay (Barnsley, West and Penistone)

Has the Minister considered constituents such as mine who have high expenditure at present because of the industrial problems within the area which is causing local authorities legitimately to spend considerable sums of money? Has he also considered areas such as mine where, before the industrial dispute started, 58 per cent. of the tenants received rent rebates? There is no chance that they will buy their houses. Will he also consider the fact that because of the dispute many people who desire to buy their own houses will not be able to do so? The local authorities have already put into being a two-year programme to spend all the capital receipts on housing repairs and modernisation. What effect does the Minister think that will have on the Housing Defects Bill 1984?

Mr. Jenkin

Most of the matters to which the hon. Gentleman has drawn the attention of the House refer to revenue spending and not capital spending. I recognise the point that he has made that because of the most misguided coal strike a number of his constituents who might otherwise have been looking forward to buying their houses now cannot do so. That will, of course, reduce the receipts of the local authorities in that area. The blame does not lie at the Government's door. The hon. Gentleman knows where the blame lies.

Mr. Richard Tracey (Surbiton)

My right hon. Friend can be congratulated on his light touch, which compares favourably with the sledgehammer imposed by the Labour Government in 1976. Will he contrast the non-public housing construction output record of this Government with that of the previous Labour Government, when there was a steady decline?

Mr. Jenkin

This Government have been a great deal more successful than their predecessors in sustaining capital programmes. Our predecessors had the bailiffs in, and that of course made life difficult for them.

Mr. Eddie Loyden (Liverpool, Garston)

Will the Secretary of State accept that his statement will worry those unions, such as the Transport and General Workers Union, involved in the construction industry? It has about 300,000 members in the construction industry. What hope does he give those people, who represent the highest proportion of unemployed in areas such as mine and the north-west, if his statement means a cut in capital programmes in cities such as Liverpool? What does the Secretary of State believe the effect will be on the 17 priority areas in Liverpool which have just been announced?

Mr. Jenkin

It is impossible for me at this stage to say what the effect might be on individual authorities. That is why I am asking for urgent returns of the commitment levels. I remind the hon. Gentleman that I said that the NEDO estimate for the output of the construction industry for the current year is a 2.5 per cent. increase. For those authorities which keep their capital spending within the national cash limit, that increase should be delivered.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Will my right hon. Friend accept that I have considerable sympathy with the fight that he put up against the powerful Treasury team? However, does he agree that the problem is that local authorities are treated like a wicked dog and are now beginning to bite because they are always being kicked? We must arrive at a system whereby we deal fairly with local authorities on current account —where the rules are changed if they guess right—and on capital account when they invest capital because they are asked to and are then told that they are overspending. With the problems in our inner areas, we cannot run great authorities upon that basis. When will we do something with local government to ensure that fairness and common sense prevail?

Mr. Jenkin

No one would wish to find that Holy Grail more keenly than I. With regard to controls over capital spending, I have already said that we have had a number of proposals from the local authority associations. I shall want to sit down and discuss with them whether we can find a better system. On current expenditure, perhaps my hon. Friend will catch Mr. Speaker's eye during the debate that will follow.

Mr. John Fraser (Norwood)

First, I accuse the Secretary of State of a lack of candour over this announcement, which is characterised by the language that he has used. He has failed to tell the House, after a great deal of questioning, what is in his mind. He has today announced a cut.

Mr. Jenkin

No.

Mr. Fraser

Yes, it is a cut in this year's and next year's capital expenditure to take account of the so-called overspend. In fact, no local authority has overspent. They are being penalised for obeying the rules. Only a demented monetarist would cheer the statement that has been made to us today. For the rest of the people—the homeless, the badly housed, the building industry and building workers—it is a dose of despair and a kick in the groin for all those who took him and his predecessor seriously and believed that they cared about housing.

Mr. Jenkin

The hon. Gentleman is wrong when he says that this is a cut. Expenditure is heading for overspend. We are seeking to ensure, so far as we can, that the total capital spending of local authorities comes into line with the net cash limit which was published at the time of the Budget earlier this year. If that is achieved, the spending will be in line with what was planned when we embarked upon the year. I know that most local authorities will do their best to follow my request to try to achieve this objective.