HC Deb 18 December 1985 vol 89 cc310-30

4.3 pm

The Secretary of State for the Environment (Mr. Kenneth Baker)

With permission, Mr. Speaker, I shall make a statement about the 1986–87 rate support grant settlement and selective rate limitation for local authorities in England.

I have laid before the House today the rate support grant report for 1986–87, together with supplementary reports adjusting grant for 1984–85 and 1985–86. Copies of the reports, the rate limits and other explanatory material being sent to local authorities today are available in the Library and the Vote Office.

The main feature of the settlement is the abolition of expenditure targets and the associated grant penalties. That decision has been warmly welcomed by the great majority of local authorities. It is a major simplification of the grant system.

Our aim is still to bring local auhority current spending down to a level that the economy can afford. Though we have a system that gives low spenders a fairer share of grant, we are maintaining strong pressure, even on them, not to take advantage of the abolition of targets to increase spending in real terms.

The aggregate of Exchequer grant will be the same cash sum —£11,764 million—as the figure originally provided for this year. But it is about £400 million more than the amount of grant now being paid for this year, because local authorities are forfeiting £400 million through holdback. The grant which central Government will pay to local government next year will be about 46.5 per cent., which is about the same as the figure for this year after allowing for holdback.

Provision for local authority current expenditure has been set at £22.25 billion. That figure takes no account of the additional provision of £1,250 million over four years, which has been offered if satisfactory agreement can be reached on school teachers' duties and salary structure. My right hon. Friend the Secretary of State for Education and Science has already said that, subject to the passage of the Education (Amendment) Bill, he is ready to bring forward £37 million from that sum in 1986–87 in order to secure the supervision of schools at midday.

I announced provisional grant-related expenditure assessments—GREAs—on 28 October. They incorporated various technical adjustments. The cities will benefit from changes in the concessionary fares and social work GREAs. The remote shires will gain from changes in the education GREA.

Mr. Robin Maxwell-Hyslop (Tiverton)

It is a fiddle.

Mr. Baker

I have considered carefully the many representations made to me since that announcement, but have decided that my original proposals should stand. Individual authorities' GREAs will, however, differ somewhat from the figures issued in October as a result of more up-to-date information.

I am also changing the grant system so that the impact on the rates of every extra pound an authority spends or saves will be much sharper than before. As in past years, the pressure will become more severe if the authority's expenditure exceeds a threshold set at an average of 10 per cent. above GREA.

The important message is that—

Mr. Maxwell-Hyslop

It is a fiddle.

Mr. Baker

—for all but a handful of authorities, more spending will result in less grant and less spending will result in more grant.

As usual, there are arrangements to limit the impact of distributional changes on individual authorities' grant entitlements. I have also ensured that the changes to the grant system required by the abolition of the Greater London council and the metropolitan county councils are broadly neutral in their overall effects. If successor authorities carry out their inherited tasks more efficiently, their ratepayers will benefit.

I refer to the rate limitation. In July my predecessor announced the list of 12 authorities selected for rate limitation in 1986–87, together with expenditure levels. In most cases they represented a cash freeze on 1985–86 budgets. Seven of the 12 authorities have now applied to me for a redetermination of their expenditure levels—Camden, Greenwich, Hackney, Lewisham, Lambeth, Liverpool and Newcastle. I have considered their applications carefully and in each case increased the expenditure level somewhat, though overall by substantially less than they themselves had sought.

I am today proposing rate limits for those authorities. They have until January to make representations to me about a higher limit if they think it appropriate. Again, I shall of course consider carefully any representations they make.

In five of the authorities, ratepayers should see a cut in their rate bills next year. In all 12, the rates will be lower than they would have been without capping. In 1985–86, rate capping has saved ratepayers in those areas subject to rate limitations hundreds of millions of pounds. They will have good cause to thank us again in 1986–87.

My right hon. Friends the Home Secretary, the Secretary of State for Education and Science, and the Secretary of State for Transport are to make separate announcements about precept limitation for the new joint authorities in the metropolitan areas and London.

If local authorities budget sensibly and economically, the average rate increase next year should be no higher than this year, and it could be lower. Higher spending will mean sharply higher rates. That is why local government must stand firm in its wage negotiations, and most implement the many savings identified by the Audit Commission.

My proposals for 1986–87 represent a major advance. I have abolished targets which many of my hon. Friends pressed me to do. I have improved GREs. I have established a clearer relationship between what councils get and what they spend. I have built on the success of rate limitation in 1985–86. I commend them to the House.

Dr. John Cunningham (Copeland)

Is the Secretary of State aware that we welcome the fact that he, not the chairman of the Conservative party, is making this statement? However, does he accept that we cannot welcome what we understand to be the case—that additional information about some cities and towns in Britain has been provided to the press outside the House, and is not in the statement.

Is the Secretary of State confirming that the difference between the settlement announced today and what local authorities need to maintain the present level of their community service provision is a shortfall of £1.25 billion? That is the gap between what local authorities say they require just to maintain existing services and what the Secretary of State is offering. Is the right hon. Gentleman aware that we cannot accept that the total grant should be reduced to less than 47 per cent. of local authorities' expenditure from almost 62 per cent., inherited by the Government in 1979? Is he further aware that that reduction, now for the seventh successive year, has meant a loss, in accumulated terms to local authorities, of over £16 billion?

Has not the Secretary of State just announced that once again local authorities are to be penalised for spending in excess of their grant-related expenditure assessments, which are being used for a purpose for which they were never intended? Is not the right hon. Gentleman overriding the proper, considered judgment of all locally elected councils in doing so? If, to quote his statement, more spending will result in less grant how can he claim to have abolished targets and penalties?

Is the Secretary of State aware that authorities in the metropolitan areas and the GLC still do not know the cost to them of the Government's abolition proposals? How long must they wait before they are told the size of the bill that they will have to pick up, especially given the fact that the Government are now putting through the House legislation to enforce fixing of a rate by 1 April, which we do not oppose. That is a serious problem for many authorities of all political persuasions.

We note the increased expenditure levels given to the seven councils applying for redetermination under the Rates Act. We welcome those concessions, as far as they go, but even they fall short of what those seven authorities believe they need.

Is it not the case that the settlement takes no account of the eventual and urgent need to settle the dispute about teachers' pay? What allowance are the Government making to resolve that problem, as the right hon. Gentleman has produced a settlement that falls so far short—£1.25 billion short—of what local authorities believe is necessary? May I draw his attention and that of the House to the fact that in the 1970s, the Labour Government, to take account of the Houghton settlement on teachers' salaries, increased the rate support grant from 61 per cent. to 66 per cent. of expenditure to give teachers their long overdue salary award? Why do not the Government take the same approach?

In his statement the Secretary of State referred to his announcement on 28 October, when he increased the share of GRE to the inner cities by half of 1 per cent. of the total. Does he not recognise that that is a pathetic increase when set beside the consistent withdrawal of support from the partnership and programme authorities, which totals more than £427 million since 1981–82? Is not the implication of that a continuation of the massive problems of our inner cities and urban areas?

I return to what the Secretary of State said about the application of the Rates Act. Will he tell the House and the local authorities before what date he believes they should apply to him for discussions about maximum rate levels? Does he accept that we cannot agree with the continued fragmentation of the announcement, splitting up announcements by the Department of Education and Science, the Department of Transport and the Home Office, to obscure the full implications of what is intended? Will he deny that those arrangements will lead to further cuts and higher rates and fares in many local authority areas?

Will the Secretary of State justify what he said about local authority wage levels in the very week when the low pay unit has said that as many as 30 per cent. of local authority manual workers receive wages that are only at the poverty level? We in the Labour party cannot accept that.

Will the Secretary of State confirm, as the hon. Member for Tiverton (Mr. Maxwell-Hyslop) seemed to be saying, that what he has announced today is that he intends to maintain pressure on authorities spending below GRE, that is, below what is required to maintain even average services in education, highways and social services and thereby denying people, particularly in those shire counties, the benefit of a decent service, even under Conservative administrations? [HON. MEMBERS: "Too long."]

Will not the statement lead inevitably to higher rates, even if the provision of services can be maintained? Are not the right hon. Gentleman's words about rate levels meaningless when set beside what his predecessor said this time last year, when in the past year rates have risen by more than twice the level of inflation, on average? Is it now not also the case that there is nothing in the statement at all that addresses the real and deepening problems of our inner city communities? For that reason, above all, it should be condemned.

Mr. Baker

The hon. Gentleman has asked me many questions, and I shall try to answer as many as I noted.

I refer first to teachers' pay. This point is of importance to local authorities. Exceptionally, if, as a result of the teachers' negotiations for next year, it is agreed that extra provision is made, the education GREA will be increased and there will be a proportionate increase in Exchequer grant. That is to say, there will be more money on the table, if a proper package for teachers is agreed, covering structure and conditions as well as pay.

The hon. Gentleman chided me about the proportion of grant provided by the Government. I remind the hon. Member for Copeland (Dr. Cunningham) of the basic figures. The proportion which central Government will be making available to local government next year is about 46.5 per cent. and that roughly corresponds to this year's figure. The hon. Gentleman will understand that in cash terms that will be roughly the same as this year.

The hon. Gentleman asked about the inner cities. A week ago the House debated the inner cities and we were pressed to increase support for the inner cities. The rate support grant settlement that I have announced will increase the grants for towns and cities by about £227 million. That takes into account the extra costs of providing social services in the inner cities, and concessionary fares. I would have thought that the hon. Gentleman would welcome that change.

The hon. Gentleman's first question concerned the overall level of provision. The hon. Gentleman said that, next year, local authorities wanted to spend £1.25 billion more than I had allowed for. That is quite true and I have agreed only £0–5 billion. Once again the Opposition Front Bench has become the spokesman for high levels of municipal spending. The Labour party would give in to every demand for spending made by town halls. If I had given in to town hall proposals it would have meant either higher rates or higher taxes. When the hon. Gentleman presses me to agree to that level of expenditure, he is pressing me to agree to substantially higher rates and higher taxes. The settlement that I have announced today has set out how much authorities can get.

The hon. Gentleman asked about the date on which the rate-limited authorities should make their representations. I would hope that they would be able to make representations to me by 22 January. The whole thrust of this settlement is that if authorities can make economies and savings rates will go down. It is for the councils to find the savings. The hon. Gentleman knows that the Audit Commission has pointed the way. The commission has shown that councils could save over £130 million a year through better vehicle fleet maintenance, £50 million through the cleaning of secondary schools, £200 million through more efficient purchasing and £30 million through more economical refuse collection. When such savings are possible, ratepayers are right to be fed up with weak councils who will not make them.

Mr. Francis Pym (Cambridgeshire, South-East)

As someone who has been highly critical of the target system, I welcome the demise of that unfair methodology. Will my right hon. Friend the Secretary of State make sure that the allocations to local authorities bear a closer resemblance to the needs that have been established by these local authorities? My right hon. Friend has a message this afternoon for local authorities, "Spend more and the grant is less, spend less and the grant is more." Can my right hon. Friend say how he has taken that into account in the 1986–87 allocations in rewarding the thrifty, economical, low-spending shire counties, which have demonstrated the good management that they are able to give? How has my right hon. Friend fulfilled the undertakings previously given to these counties?

Mr. Baker

I am grateful for my right hon. Friend's support. We have abolished penalties, targets and holdback. I appreciate the interest he has taken in these matters, especially with regard to Cambridge. Low spenders, under the system announced today, will get their rewards. We have capped the gains of the low spenders, which they will get as a result of this change, just as we have safety-netted the grant losses falling to the higher spenders. The cap on gains will disappear over a period of possibly two or three years. This will allow low spenders to get the full benefits of the change.

Cambridgeshire will get a £74 million grant this year. If we had retained the existing system, it would have fallen to £65 million. The grant that is available to Cambridgeshire next year depends on its level of spending and will be either £75 million, £71 million or £70 million. I remind my right hon. Friend and the House that the level of grant depends entirely on the authorities' levels of expenditure.

Mr. Simon Hughes (Southwark and Bermondsey)

Can the Secretary of State confirm that, although he said there has been an increase in cash terms or at least a standstill in cash terms, the reality is that there is a reduction in real terms? This will not alleviate the needs of local authorities. Can the Secretary of State confirm that, although targets have been abolished, there is still equal complexity and uncertainty? Those who administer local authority finance fear that under this system there will be less opportunity for prediction than in the past.

How can the Secretary of State explain the phrase that has governed his allocations—less spending means more grant—in terms of the inner cities and urban areas? Such places have more need and should have more grant. The two views seem to be incompatible. Does the Secretary of State agree that the figures confirm what everybody has been asserting for months? The gross aggregate allocation to inner cities, the rate support grant and all other funding has been declining gradually and will continue to decline with this settlement and for each year since this Government came into office in 1979.

Mr. Baker

The hon. Member says that the position is less predictable now than in other years. If one has targets and penalties one can say quite specifically what the grant will be. In future the grant will depend on the level of expenditure of the individual authorities. I have set out in the papers available to Members three estimates of different levels of expenditure and grant that local authorities can get. I cannot agree with the hon. Gentleman's last statement that money has been taken away from the cities. In regard to his own local authority of Southwark, it received a grant of about £45 million. In the figures available in the Vote Office the hon. Gentleman will find that next year Southwark, assuming that it will take on responsibilities from the GLC, could get either £66 million or £60 million. This year, as a result of the changes in grades, there is a flow of about £227 million to the towns and cities.

Sir Ian Gilmour (Chesham and Amersham)

Does my right hon. Friend the Secretary of State agree that, as far as I can understand his moderately illuminating statement, it has serious implications both for the rates and services of the shire counties, especially Buckinghamshire? Although I appreciate that the financial difficulties of Buckinghamshire county council are not the fault of my right hon. Friend, they are not the fault of the county council. Can my right hon. Friend say what steps he will take to alleviate its problems?

Mr. Baker

My right hon. Friend will have heard what I said about teachers' pay in reply to the hon. Member for Copeland (Dr. Cunningham). It is of considerable importance to shire counties. Buckinghamshire's grant this year is £54 million. If the present system had continued, it would have got only £46 million. It has the chance of getting as much as £59 million, £52 million or £50 million. That cannot be represented as a major withdrawal of grant.

It is in the hands of local authorities to determine how much grant they get. If they can make savings—possible savings have been mentioned by the Audit Commission—their grant will increase. If low spenders continue as such, they will get higher grants, and if high spenders overspend, the money that they sacrifice as a result of overspending will not go to the Treasury, as is the arrangement this year, but will remain in the pool available for local authorities. It is therefore possible that low spenders will get even higher grants than have been estimated in the figures that I have announced.

Mr. Allan Roberts (Bootle)

Will the right hon. Gentleman explain the following contradictions? He represents a party which believes in public expenditure cuts, but is claiming today that he is not really cutting public expenditure. He says that he is giving more money to inner cities, but he is cutting the total grant while promising his right hon. and hon. Friends that he is giving more money to shire counties. Where will the money come from? He and the Government claim to be on the side of ratepayers, yet he has launched an attack on ratepayers. Without cuts in Government grants, rates would today be 25 per cent. lower. The settlement represents a major attack on ratepayers, especially owner-occupiers, and comes on top of a moratorium on improvement grants for owner-occupiers. Moreover, there has been a fourfold increase in the number of owner-occupiers who, because of the Government's economic policies, are defaulting on mortgage payments.

Mr. Baker

The hon. Gentleman says that rates could be much lower as a result of higher grants. Where would the money for higher grants come from? It would have to come from taxpayers. It cannot come from anyone else. I have allowed for an increase of about 4.5 per cent. in the overall level of local government expenditure and provided roughly £500 million. The Opposition Front Bench want an additional f1.25 billion, which is possible only as a result of a massive increase in taxation or a massive increase in rates. There is no other way in which to finance it. The hon. Gentleman mentioned cities. His local authority—Sefton—gets £43 million in grant this year. It could get £56 million, £55 million or £54 million next year.

Mr. Jack Straw (Blackburn)

That is because of abolition.

Mr. Baker

It includes an increase for abolition expenditure. GREAs for all towns and cities have been increased in recognition of the higher cost of social services and concessionary fares.

Mr. Charles Irving (Cheltenham)

I am sure that both sides of the House are extremely grateful to my right hon. Friend for the simple clarity of his statement and the marvellous way in which, 10 minutes before we are to discuss the settlement, we receive 200 pages of simple explanation. As I am an ordinary hon. Member who is not equipped to deal with already complicated circumstances that are unnecessarily complicated still further, can I ask a simple question? I have gone through the technical data used in the calculations for 1986–87. I have dealt with the GREA and multiplied it by the rateable value plus the population and the expenditure estimate. I have looked at the local government finance rate support grant document—the third paper. I shall not go through the others because they are just as simple. I have taken column I with the grant-related expenditure and coupled it with the abatement multiplier and the published multiplier. All I am suggesting is that it would be simpler to be told in simple language what the hell the rate will be in Gloucestershire next year.

Mr. Baker

I have great sympathy with what my hon. Friend says. Mr. Edward Pearce, the political writer, said that on these occasions every occupant of my office has to indulge in the verbal sludge of municipalspeak. My hon. Friend indulged in it as well. Cheltenham's grant this year is £1.8 million. Next year, it could qualify for £2.6 million, £2.4 million or £2.4 million. My hon. Friend's local authority will receive more grant next year than this year.

Mr. Terry Davis (Birmingham, Hodge Hill)

As the Secretary of State says that he wants the effect of the abolition of metropolitan county councils to be neutral, will he now answer the question that I put to him on behalf of a delegation of Birmingham Members of Parliament a week ago? Will he confirm that Birmingham city council will take on some additional responsibilities next year as a result of abolition of the West Midlands metropolitan council? Will he also confirm that, as a result of taking on those additional responsibilities, Birmingham city council will receive less money than it would otherwise have received? If the Secretary of State does not agree with that allegation, will he explain why his civil servants have failed to contact the city treasurer to clarify the point, as he promised that they would?

Mr. Baker

The hon. Gentleman came to see me with certain other Birmingham Members of Parliament last week. They were discussing estimates. The figures that I have announced today show that the benefit to Birmingham city council due to abolition is 3.7p, which means that its grant is £165 million. Allowing for the allocation of new responsibilities following abolition, it could qualify for grant of £201 million, £185 million or £180 million.

Mr. Maxwell-Hyslop

How does the Secretary of State acquit himself of the charge of sheer political cowardice by reducing the percentage of Government grant instead of reforming the base of local government taxation, to which this party—to which he is meant to belong—has been committed for many years?

Can he deny that he is deliberately fiddling the GREA formula to transfer funds from rural areas to the towns? To be fair, the same happened when the leader of the Social Democratic party was a Cabinet Minister in the Labour Government, which the Liberal party supported, which robbed the Devon rural areas of £49 million. How can the Secretary of State deny that his fiddling of the GREA formula this year is to transfer money in support of the aboliton of the metropolitan councils? Does he not realise that, in so doing, he has destroyed credibility in the GREA system just as he has destroyed credibility in himself as Secretary of State?

Mr. Baker

As for the first question which my hon. Friend asked, I intend to introduce a Green Paper after Christmas—

Mr. Maxwell-Hyslop

A Green Paper?

Mr. Baker

My hon. Friend must be patient. We would like to hear the views of the country and people other than my hon. Friend. It will be a Green Paper on the reform of rates. Regarding my hon. Friend's point about the transfer from shires, this year Devon—

Mr. Maxwell-Hyslop

What about district councils?

Mr. Baker

I shall come to district councils because the message is even better for them.

This year the county of Devon will receive a grant of £148 million. Under the existing system it would have received a grant of £142 million. Next year it stands to receive a grant of £155 million, £151 million or £150 million. Therefore, Devon is likely to end up with a larger grant.

Mr. Martin Flannery (Sheffield, Hillsborough)

That is enough.

Mr. Baker

That is pretty good, but just wait.

My hon. Friend's district council is Mid-Devon. This year its grant is £1.1 million. It would have decreased by £50,000 under the old system. Under the new system it is likely to end up with a higher grant next year than this year.

Mr. Robert Parry (Liverpool, Riverside)

Will the Secretary of State now accept that since 1979 the Government have stolen more than £350 million in rate support grant from the city of Liverpool? What will next year's allocation be? Will it not be peanuts compared with this year's allocation? Will the Secretary of State say when he intends to meet leaders of Liverpool city council to discuss those serious problems?

Mr. Baker

In response to a request from the chief executive of Liverpool city council I have already said that I am willing to meet the leader of the council or a delegation from it. The council has set a budget target for 1985–86, so next year it will not forgo grant because of holdback this year. Liverpool city council was one of the city councils that asked for a redetermination of its expenditure level because it is to be rate-capped next year. If I had agreed with its request, there would have been a 27 per cent. rate increase next year. I did not agree with it, and as a result there will be a 15 per cent. rate increase next year.

Mr. John Cartwright (Woolwich)

As the Secretary of State commends the Audit Commission, does he recall the harsh comments that it levelled against the waste inherent in a centralised bureaucratic system of control of local authority expenditure? Does he accept that the welcome abolition of the target system would have been even more welcome if he had not retained a tough penalty system based on GREAs, about which local authorities of all political persuasions are worried? Finally, is not the conclusion of the settlement further confirmation of the Government's policy of shifting the burden of paying for local services from taxes, which are basically fair, to rates, which are inherently unfair?

Mr. Baker

Next year the contribution of central Government to local government will be 46.5 per cent., the same as for this year. I thank the hon. Gentleman for his comments on simplification. Next year the system will be much simpler than that this year because grants, penalties and holdback will not exist. Many hon. Members may feel that GREAs are imperfect, but in one way or another the Government must assess the relative needs of individual authorities. As a result, the inner cities can get GREAs per head as high as £800, whereas the shires get GREAs of about £400. That is an attempt to recognise that the social needs of some of our towns and cities must be met through this system.

The hon. Gentleman will know from the figures that Greenwich will, in effect, have a rate standstill because of rate capping next year. However, if the borough of Greenwich had been allowed to proceed as it planned, there would have been a rate increase of 22 per cent.

Mr. Charles Morrison (Devizes)

The extra help for our inner cities is welcome. However, at a time when the Chancellor of the Exchequer is talking about scope for tax cuts, not increases, it is a matter of great regret that Treasury parsimony has not allowed my right hon. Friend to treat the shire counties as well as he should have done. On what does he base his belief that rate increases next year will be similar to those for this year, taking account of the fact that the Association of County Councils believes that rate increases in the shire counties could be as high as 20 per cent. in some cases, and will average about 15 per cent?

Mr. Baker

Those were estimates well before the event. During the past 18 months I have learnt that estimates made before the rate support grant settlement are usually much higher than the rate settlements themselves. This year my hon. Friend's county of Wiltshire will receive a grant of £84 million. Under the old system it would have received £79 million. Under the new system it will receive £86 million, £84 million or £83 million. The figures for Wiltshire which my hon. Friend submitted to me show that the county appears to be planning significant growth in expenditure. I was not surprised at that because it is not unusual when a council has the misfortune to be hung and falls prey to Liberal indecision.

Mr. Chris Smith (Islington, South and Finsbury)

Will the Secretary of State tell the House whether the people of the borough of Islington, exercising their unfettered power through the ballot box, or the Secretary of State and his civil servants doing the Treasury's bidding in Whitehall, know better what the needs of my constituents are and what expenditure should be used to provide services for them?

Mr. Baker

As the hon. Gentleman follows these matters, he will know that successive Governments—any change in the rating system will involve future Governments doing the same—make some assessment of the relative needs of different areas. That must be done impartially. Opposition Members say that I have moved the GREA system, but the consultative process before I changed GREA lasts between six and nine months, and I take representations from the towns, cities and shire districts.

As the hon. Gentleman knows, Islington council did not seek redetermination. Next year the rate decrease for his constituents will be 18 per cent.

Mr. John Wheeler (Westminster, North)

My right hon. Friend's statement will be greatly welcomed by the people of London, especially responsible borough leaders. How will his settlement and proposals affect London, recognising its special needs, and, particularly, the largest rate-paying authorities—the cities of Westminster and of London?

Mr. Baker

As I have made clear, we have not used what is called the London lever, which can be pulled to divert grant into London. Instead, we have reassessed the GREAs across the country, and taken particular account of those for social services and concessionary fares. As a result, all towns and cities will benefit, not merely London or only towns in metropolitan areas. I, like all my predecessors who have held this office, have had to make decisions about the proportion of grant going to different areas. That is done only after the most lengthy process of consultation. The arrangements that we have made for London will allow all the different London authorities to take over the responsibilities of the Greater London council. The level of rates in London will depend essentially on the economies that can be made by the successor authorities to the GLC.

Mr. Tony Banks (Newham, North-West)

Does the Secretary of State think that it is right that he or his Department should leak comprehensively the details of the rate support grant settlement and give newspapers far more information than he has provided at the Dispatch Box today? In view of the question from the hon. Member for Westminster, North (Mr. Wheeler), will the Secretary of State tell the House whether the report in today's Financial Times that at least £100 million of Government grant is to be switched from England's rural areas to London for the 1986–87 settlement, in advance of the 1986 borough council elections, is correct? Is that not a Government bribe to stop the disastrous consequences that—[Interruption.] No, we are grateful for every penny that we can get. Is it not a bribe to try to stop the Conservative party suffering badly at the ballot box in 1987? Will the right hon. Gentleman admit that he has not the faintest idea about how much money boroughs will have to pay out to compensate for the shortfall in GLC funding?

Mr. Baker

The hon. Gentleman is insensitive and has the brass neck to talk about allocation of money on political grounds. As chairman of the GLC he knows that during the past few months the GLC has been dishing out money to its political friends in inner London on an unprecedented scale. I repeat that I have purposely not used the London lever. The needs of all towns and cities have been assessed through GREAs. London will benefit by about £220 million, the metropolitan areas by about £80 million and other towns and cities—

Mr. Jeff Rooker (Birmingham, Perry Barr)

Who gets less?

Mr. Baker

The money comes from the holdback operating this year. That is why the allocation has been made.

Sir Anthony Grant (Cambridgeshire, South-West)

Cutting through the arcane arithmetical dexterity so splendidly exposed by my hon. Friend the Member for Cheltenham (Mr. Irving), will my right hon. Friend, as a reasonable man, lay his hand on his heart and confirm that his proposals regarding Cambridgeshire cannot be used in future as an excuse for mismanagement by the Liberal-controlled Cambridgeshire county council?

Mr. Baker

Yes. In the recognition of towns and cities, the grant for the city of Cambridge will increase. This year, South Cambridgeshire, which covers most of my hon. Friend's constituency, will receive a grant of £324,000. Under the existing system, next year his council would have dropped out of grant and received nothing, but now it is likely to receive more than £200,000.

Mr. Peter Hardy (Wentworth)

Will the Secretary of State confirm that he is maintaining the Government's share of local authority expenditure at about 30 per cent. less than it was when Labour was in office? Does he accept that that means that business and industry bear an extra £2,000 million burden? Will he quantify the number of jobs that that has cost? How does he reconcile that with the fact that the Secretary of State for Social Services is to impose on the poorest of the poor a burden of £70 in contributions to the rates?

Mr. Baker

The progressive reduction in the amount of grant from the Exchequer to local authorities was mentioned in the debate a week ago and has been mentioned many times in the past. The biggest cut was made by the former Labour Chancellor of the Exchequer from 1966 to 1969. There was nothing sacred about 1969. We have reduced the grant progressively because we believe that that enhances local accountability.

The hon. Gentleman's implication is that the towns and cities have been starved of expenditure. I remind the hon. Gentleman of the point that I made yesterday and last week. In the seven most deprived inner cities of Britain, local government current expenditure was £700 million when we came to office, and this year it is £1.4 billion. That is double the amount and an increase in real terms.

Mr. Richard Holt (Langbaurgh)

My right hon. Friend will recall that at the beginning of the pantomime season last year, so graphically illustrated by my hon. Friend the Member for Cheltenham (Mr. Irving), there was a dispute between us about the size of Cleveland. An hour and a half ago I checked on that. Twelve months later his Department has still not resolved that dispute, so I have no idea how it could resolve the rate support grant. Will he repeat his promise of last year that when he discovers that his Department has got it wrong, the shortfall, which was denied last year and will be denied next year, will be made up to Cleveland?

Will he also examine the Rate Support Grant (Reduction in Rateable Values) (Specified Percentages) Regulations 1985? In Langbaurgh, which has lost the ICI and Shell plants, the rateable value has fallen, but it will be swept up in the 2.5 per cent. safety net. Cleveland as a whole will not be. My constituency will receive a grant of 1.7p because of the 2.5 per cent. safety net, but it will lose 2–8p because Cleveland does not fall into the net.

Mr. Baker

The answer to my hon. Friend's first and second questions is yes; to the third that I will re-examine the matter; and to the fourth, that I shall check his figures.

Mr. Allen McKay (Barnsley, West and Penistone)

Is the Minister aware that his announcement is a recipe for disaster in local government? It will mean a vast increase in the rates, a vast reduction in services, or both. How does the Minister propose to overcome the fact that, by abolishing the counties, the services granted under section 137 will be passed to local authorities, but not the money to deal with them? The recalculation of section 137 will mean that Barnsley will receive only a third of the present grant. What will happen to the fire service? The Minister's predecessor gave a categorical assurance that the fire service would not be reduced. What can the Minister say about the hundreds of men who will be forced to leave the fire service because it cannot be paid for? What about the fire cover that is essential for those areas?

Mr. Baker

Later today my right hon. Friend the Home Secretary will be announcing the expenditure level and rate limits for successor authorities with regard to fire services. Undertakings given during the debate will be fulfilled.

The Widdicombe inquiry is examining section 137, and I do not wish to anticipate its recommendations. I appreciate that some areas are in difficulties because of the recalculation. I am considering the matter.

Mr. Patrick Cormack (Staffordshire, South)

Does my right hon. Friend accept that gobbledegook and incomprehensibility are rarely the hallmarks of good government? This makes the Schleswig-Holstein problem appear positively kindergarten. Will my right hon. Friend tell the House that the needs and prudence of South Staffordshire have been recognised in the assessment?

Mr. Baker

I have said before that the whole system of rate support grant is Byzantine in its complexity.

Dr. Cunningham

I said it.

Mr. Baker

We have both said it. Although the House cherishes this statement once a year, it might be better to issue the figures so that hon. Members and the authorities can absorb and analyse them.

South Staffordshire's grant this year is £686,000. If the system had not been changed, it would have dropped by about £200,000 to £437,000. South Staffordshire is eligible for a grant ranging from £600,000 to £650,000, which could be more if the economies recommended by the Audit Commission were made.

Mr. Robert Kilroy-Silk (Knowsley, North)

However complex or Byzantine, one fact stands out. During the years, the Government have massively reduced the proportion of authority expenditure that is provided by central Government. That reduction has been directed disproportionately at the poorest local authorities representing the most deprived areas. Do not those proposals, coupled with those announced yesterday by the Secretary of State for Social Services, represent a massive, sustained and vicious attack on the poorest people for the benefit of the rich and privileged?

Mr. Baker

The hon. Gentleman is indulging in pre-selection rhetoric. The increase in grant in his constituency will be significant, after allowing for the transfer of responsibilities from Merseyside county council. In current expenditure in 1979 and current expenditure this year in all the metropolitan areas, the towns and cities and the partnership areas, there has been an increase in real terms of 7.5 per cent.

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

I shall ask no question about Byzantium or Schleswig-Holstein, but I wish to know about somewhere nearer home. It is like walking through a sea of treacle to get to the figures on Birmingham. Am I right in assuming that Birmingham will get a little more, at least for the grave problems that it faces, or have the targets been drawn so hard that the noose will be so tight on an authority which, although regrettably Labour-controlled, has been pretty responsible— [HoN. MEMBERS: "Oh!"] Not very, but pretty. Will we get more money to deal with those problems, or shall we unleash militancy upon all cities because justice is not done to those with the greatest problems? Can my hon. Friend tell us how much we shall get? But please do not tell me yet.

Mr. Baker

I shall try to thread my way through the maze of figures for Birmingham. This year, its grant is £165 million. Had we not changed the system, it would have received £158 million. If it were to spend at cash standstill—that is probably ambitious in terms of a city—it would receive £201 million. Should it spend at 3.5 per cent. above the rate of inflation, it would receive £185 million, and should it spend at 4.5 per cent. above the rate of inflation, it would receive £180 million. Birmingham spends about 6 per cent. below GREA, and we have increased its GREA by 7.5 per cent. If it wishes to spend right up to its GREA, there will be substantial rate increases in Birmingham. But that would mean an increase of about 14 per cent. in expenditure, and I do not believe that the sort of council to which my hon. Friend referred would take such an irresponsible decision.

Mr. Max Madden (Bradford, West)

The Secretary of State seems to have achieved the biggest miracle since the loaves and the fishes, inasmuch as he has reduced the total money available, but every place mentioned so far has received more.

Does the right hon. Gentleman remember a brief visit to Bradford at the end of November? Does he recollect being told that there is a belief in the city that, since we took legal action against his Department, it has undertaken a vendetta against Bradford? How can he reconcile the amount of grant paid to Bradford—a city whose population will increase by 10 per cent. during the next 20 years, and which faces a massive unemployment crisis and serious problems in the housing and education services?

Mr. Baker

I remember my visit to Bradford, and I refute completely the allegation that my Department is undertaking a vendetta. That is extravagant and absurd language, as the hon. Gentleman well knows. This year, Bradford will receive £107 million. Next year, it is likely to receive a grant of about £125 million. I admit that a large proportion of the increase is due to abolition. The hon. Gentleman will know that the urban programme for Bradford is worth between £4 million and £5 million. I have shown my readiness to approve further sums for Bradford if it introduces schemes for redeveloping the city centre.

Mr. Robin Squire (Hornchurch)

Will my right hon. Friend confirm that the increase in grant for Havering—a law-abiding authority—is almost the lowest in London, despite the fact that it will also have to take on many new responsibilities after the GLC is abolished? Will my right hon. Friend comment on the operation of the concessionary fares calculation, under which the cost of a statutory scheme in London from next April, which will be about £2.7 million to Havering, is met by a GREA of no more than £1 million?

Mr. Baker

I shall have to check the calculation for a specific borough, but I can confirm that the grant to Havering will be higher next year. I accept at once that that is a reflection of the services that it will have to take over form the GLC. But after discussing the matter with authorities in London, I am convinced that they will make substantial savings, because the grants that I have announced for London assume a continuation of expenditure at broadly the level of this year. If savings can be made, the position of the successor authorities will be much better.

Several Hon. Members


Mr. Speaker

Order. A statement on Wales will follow this one. I shall allow questions on this statement to continue for 15 minutes, and, if questions are brief, I hope that everyone can be called during that time.

Mr. Martin Flannery (Sheffield, Hillsborough)

Will the Minister admit that his bland and smiling effrontery in the face of misery and poverty is nauseating? The industrial city of Sheffield has more old people than any city in Britain and is doing its utmost to supply services to ordinary folk. How can the Minister and Conservative Members—the Conservative Benches are full of consultancies, wealth and directorships—have the nerve to say that the Government will cut our services while pouring wealth into their pockets? How does he expect us to explain to our people, in the face of that, that this place is hardly worth inhabiting?

Mr. Baker

The hon. Gentleman has come to the House on the wrong day for the wrong debate. He should have been here for the debate yesterday—

Mr. Flannery

I was here yesterday. [Interruption.]

Mr. Baker

My right hon. Friend the Leader of the House says, "We did not want him there."

There will be an increase in grant to Sheffield. I accept that it will have to take over some of the responsibilities of South Yorkshire county council. The latter was rate-capped last year. If the hon. Gentleman wishes me to extend rate capping to Sheffield, perhaps he will let me know.

Mr. Terry Dicks (Hayes and Harlington)

Unlike members of the press, I was not privy to this information in advance, so I had to make some quick calculations. Will my right hon. Friend explain why Hillingdon—a good Conservative authority—will lose about £9 million in grant, which will mean an 8 per cent. increase in rates if it is to stand still? That does not take into account costs after the abolition of the GLC. Is that not disgusting, and is it not a great shame for the ratepayers of Hillingclon? Should not the Secretary of State and his civil servants be ashamed of themselves for treating us in this way?

Mr. Baker

I recognise the anxiety of my hon. Friend and the other two Members who represent Hillingdon about this matter, but I regret to say that Hillingdon is likely to get less grant next year. That reflects its relatively high expenditure—

Mr. Dicks

Because of Labour councils before us.

Mr. Baker

That is absolutely right. However, a further reduction in spending—I can put this to my hon. Friend, who is a member of that council—will increase its grant significantly on top of its lump sum receipt of more than £4 million from the London rate equalisation scheme.

Mr. David Penhaligon (Truro)

Which authorities will receive a smaller percentage of the global sum available as a result of those changes?

Mr. Baker

That is a broad question. I hope that the hon. Gentleman will study the figures. This year, Cornwall will receive £77 million. Under the present system, that sum would have fallen next year to £74.9 million. Instead, it could be eligible for £79 million, £78 million or just below £78 million.

Mr. J. F. Pawsey (Rugby and Kenilworth)

Does my right hon. Friend accept that the abolition of targets will be warmly welcomed by all those involved in local government? What effect will the settlement have on low-spending shire counties such as Warwickshire and on low-spending, careful authorities such as Rugby?

Mr. Baker

I reiterate that the premiums in the new system means that the rewards will go to those councils that can make savings and are low spenders. That is the effect of the abolition of targets, penalties and holdback. There will be a considerable premium for all those authorities that can make savings, because their grant will go up in relation to the savings that they can make.

Mr. Norman Atkinson (Tottenham)

On the more general message that the Minister gave earlier to local authorities, will he explain why it is bad for the economy for a person to receive a dustbin through the rates, but a good thing for the economy if he buys a dustbin over the counter of a shop?

Mr. Baker

I can only say, in respect of the question to the extent that I understand it, that those authorities that have privatised refuse collection have always made savings, and the Audit Commission has identified in refuge collection savings of at least £30 million to £50 million a year. Those are the sort of savings available if proper management and controls are introduced into local government expenditure.

Mr. Michael Shersby (Uxbridge)

How will the system of caps and safety nets produce the phasing to which my right hon. Friend referred in answer to a parliamentary question from me on 4 December? What is the precise percentage by which Hillingdon's block grant entitlement will fall this year?

Mr. Baker

I shall write to my hon. Friend with the answer to his second question.

On the first question about caps and safety nets, needless to say anything in rate support grant is complicated, but this is one of the more complicated aspects. My hon. Friend has written td me about a different system of capping and nets. The caps and nets that we have introduced will phase out over the years, and that is important because I am anxious to ensure that the gains to the low spenders should come through as quickly as possible.

Mr. John Fraser (Norwood)

Am I right in thinking that Lambeth will lose £7 million-worth of grant if it maintains services next year at the same level as this year? What justification can there be for that differential of £7 million, which is almost as great as the net contribution that the Government make to the inner city partnership funding for that borough?

Mr. Baker

I ask the hon. Gentleman to look at the figures on Lambeth. Matters are always complicated regarding a successor council authority in an abolition area. There is a significant increase in grant for Lambeth, and I have no doubt that there are significant savings to be made in Lambeth. The classic comparison is always between Lambeth and Wandsworth. The savings are there to be made in Lambeth and I believe that, in his heart of hearts, the hon. Gentleman knows it.

Mr. Anthony Nelson (Chichester)

Does my right hon. Friend appreciate that there wil be a widespread feeling of betrayal in the shire counties at today's announcement? Is he aware that many of the figures that he has given consistently show in real terms a reduction in the support for the next financial year? Will he confirm that the shire counties, as a proportion of expenditure, will now receive less than at any time since the new system was introduced? What is the basic, fundamental political judgment that my right hon. Friend has made that has shifted him away from the policy of his predecessors who were gradually shifting resources to the shire counties and away from the inner cities?

Mr. Baker

The fundamental judgment that I have made is that it is right and appropriate to recognise the higher costs arising in our towns and cities for the administration and provision of social services and concessionary fares.

My hon. Friend knows well, because like me he represents a rich and prosperous area—

Mr. Nelson

It is not. Pensioners make up 23 per cent. of the population.

Mr. Baker

The county has a grant of £52 million and will suffer a significant drop down to £41 million under the old system and can then qualify for grants of between £53 million and £46 million. As regards the town of Chichester, my hon. Friend will find from the figures that it has a grant this year of £1.6 million. It would have dropped £200,000 uder the old system and it will qualify for a grant of broadly what it gets this year.

Mr. Peter Pike (Burnley)

When will the Secretary of State understand that the so-called overspending authorities such as Burnley are virtually unable to provide adequate service levels to the people in their town? When will he also understand that, if he wants a system based solely on the factor of GREAs, unless he can prove that that system is fair, the foundation on which it is based is false? If he is confident that he is right, why should the Under-Secretary in his Department, who agreed to meet a delegation from the majority group and the Conservative group and officers from Burnley borough council who were appointed to discuss this subject in January, arrange a meeting with the leader of the Conservative group for the week before?

Mr. Baker

That was prudent of my hon. Friend the Under-Secretary. Savings can be made in levels of expenditure in towns such as Burnley. We are not asking for draconian savings. When the rate support grant statement was made last year, my predecessor was told that huge staff cuts would be made and tremendous cuts in services. This has not proved to be true. We are asking authorities, particularly the high-spending ones in the northern towns and cities, to run their affairs more efficiently and economically and still provide a service to the public.

Mr. Conal Gregory (York)

I am sure that many people in Yorkshire, and the city of York in particular, will welcome my right hon. Friend's statement. Would he like in particular to commend those in the Conservative group on York city council who have held back the excessive spending that the Labour leadership wanted? As it is, I imagine that he will confirm that York will do better out of the statement, substantially because the Conservative group held back against the Labour councillors.

Mr. Baker

I confirm what my hon. Friend has said and will also say that that success has been achieved as a result of the efforts by the Conservatives in the city of York. I applaud them for what they have done.

Mr. Eric Cockeram (Ludlow)

Has my right hon. Friend noted the widespread concern in the shire counties at the state of rural roads—the cost of which falls disproportionately heavily on a scattered population? The shire counties have not received sufficient support in recent years for adequate maintenance of roads following severe winters. Will my right hon. Friend assure the House that the component part of the announcement today calculated for this specific purpose, allows that maintenance to be made good?

Mr. Baker

Yes, one of the elements in GREA is the maintenance of roads, including their maintenance in severe weather. It also takes into account those parts of the country that are geographically widespread. However, if hon. Members wish to influence the consideration of GREAS, this is done in the spring and summer, when they are being examined by the local authority associations and the council. That is the time to lobby for a particular preference for a particular element of GREA taking greater priority over another. That has been done. I note what my hon. Friend said about the maintenance of roads, and I shall bear it in mind.

Mr. Derek spencer (Leicester, South)

Does my right hon Friend agree that this setting gives Leicester city council the opportunity to learn a permanent lesson from the rate capping of last year, and that, provided that they do not act like town hall Bourbons, this settlement will be in the interests of the people of Leicester?

Mr. Baker

I can confirm that. The towns and cities benefit from this grant settlement, and this could not have been arrived at without taking the action that we took in respect of Leicester last year. I thank both my hon. Friends who represent Leicester for the warm support that they have given me and my Government during that process.

Mr. John Powley (Norwich, South)

My right hon. Friend and his predecessors will be aware that, in past years, Norfolk county council has worked its budgets in an economical fashion. It has practised economies and management technique which have kept the rate down to a prudent level. Will my right hon. Friend give me an assurance that past performances in rate support grant, which have not recognised those economies, will be put right this year, after all the sufferings that we have borne because of the rate support grant system deficiencies in previous years?

Mr. Baker

The leader of Norfolk county council has consistently lobbied us about the position of Norfolk county council. I recognise that it is an economical council. If we had maintained the present system of targets and penalties for next year, Norfolk county council would have lost a substantial amount of grant. However, the persuasive arguments of the leader of Norfolk county council—one among many, but a significant voice—led me to believe that we had to abolish targets, penalties and holdback. I have had to stage the gains that will flow to a county such as Norfolk over two or three years; otherwise the losses that would be sustained by many authorities would be too great. However, the gains will come through. I would say to the shire counties, and to Norfolk in particular, that the rewards are there to be taken if they can run economical services.

Mr. Timothy Wood (Stevenage)

My right hon. Friend need not, I am afraid, tell me what is Stevenage's grant. It is nothing this year and it is nothing next year. However, Hertfordshire's grant has been reduced by £20 million—by over one third—for the coming year. Hertfordshire can surely not be called an extravagant county. Can my right hon. Friend justify this reduction?

Mr. Baker

It is true that Hertfordshire has not benefited from the GREA changes. However, as with all low spenders, it stands to gain from the abolition of targets and penalties and the consequential alteration to the grant arrangements. We have had to cap the gains that low spenders will get next year from our changes. However, the cap on gains will disappear over a period of years. That will allow low spenders to get the full benefit of the changes that we are making.

Mr. Bowen Wells (Hertford and Stortford)

Will my right hon. Friend confirm that this decrease in the grant will result in a rate increase in Hertfordshire of between 20 per cent. and 25 per cent.? During the last seven years, Hertfordshire has done exactly what my right hon. Friend advised us to do: to see Ministers about the calculation of GREA in May and June. We were given assurances by his hon. Friend the Minister for Environment, Countryside and Local Government that he would make certain that the GREA contained a weighting to protect Hertfordshire My right hon. Friend has gone back on that arrangement. May I ask him to look again at the GREA calculation? It discriminates seriously against Hertfordshire, which cannot make reductions without very seriously damaging education.

Mr. Baker

I appreciate my hon. Friend's concern about the calculation of GREAs, but he is mistaken if he believes that I alone decide these matters. It is a most elaborate process of discussion, negotiation and calculation in which the officials of the county councils and district councils are involved.

Mr. Wells

But my right hon. Friend ignores them.

Mr. Baker

With great respect to my hon. Friend, we do not ignore their representations.

Mr. Wells

Hertfordshire's representations have been ignored.

Mr. Baker

The point about Hertfordshire is the point that I made a few moments ago: that, if the caps and gains affect Hertfordshire, the effect will be reduced in the course of the next two or three years. The rewards will be there for low spenders.

Mr. Tim Smith (Beaconsfield)

Will my right hon. Friend confirm that the home counties are being asked to pay for the abolition of the Greater London council, as follows: Bedfordshire, £10 million; Berkshire, £8 million; Buckinghamshire, £4 million; Essex, £16 million: Hertfordshire, £20 million; Kent, £10 million; and Surrey £14 million? What is the justification for this, and why were we not told before?

Mr. Baker

I reject completely the implication behind my hon. Friend's question. I have already said that. I have deliberately not used the London lever—the diversion of grant specifically to London. We examined the basis of the GREA calculation. I should not have thought that my hon. Friend would object to the recognition of the higher social and personal needs of our towns and cities, or to concessionary fares. That is why there has been an increase in the grants to the towns and cities.

Mr. Michael Knowles (Nottingham, East)

I can help my right hon. Friend on this occasion. I shall say something nice to him, which is more than my hon. Friends have done. Can he confirm that in Nottingham's case the combination of the switch of resources to the inner cities and concessionary fares means that Nottingham city council will be eligible for more grant in the coming year, provided that it holds its spending?

Mr. Baker

Yes, I can confirm that precisely. Nottingham city council will be eligible for more grant. The size of the extra grant that it receives will depend entirely upon the economies and the savings that it can make. If it can make more savings, the grant will be greater.

Mr. Piers Merchant (Newcastle upon Tyne, Central)

Will my right hon. Friend ensure that the greatest vigilance is exercised in determining the level of limitation upon rate precepts in the metropolitan counties so that cities such as Newcastle upon Tyne, with an already very high rate, do not show an increase, bearing in mind that, under today's rate limitation announcement, which is welcome, a suspiciously large rate figure is still allowed for?

Mr. Baker

Newcastle upon Tyne is one of the authorities that is subject to rate capping. If we had not rate-capped Newcastle upon Tyne, the rate increase would have been about 29 per cent. The result of rate capping is that the rate increase in Newcastle upon Tyne will be about 7 per cent.

Mr. Peter Bruinvels (Leicester, East)

I recognise my right hon. Friend's commitment to the inner cities. I recognise also that Leicester will receive at least an extra £2 million in grant. But what financial checks will be made available to ensure that Leicester, as a transport undertaking, continues to provide concessionary bus fares instead of spending excessive further sums on political propaganda?

Mr. Baker

Leicester has spent a very large amount of money upon political propaganda, and, as my hon. Friend pointed out, that money has largely been wasted. This is essentially a matter for the Leicester city council. If it continues to waste money in that way, the result will be that it loses grant.

Mr. Jack Straw (Blackburn)

Since rate increases this year have risen, on average, by just under 10 per cent.—that is, by 9.5 per cent.—and since the Secretary of State says that the average rate increases next year should be no higher than the rate increases this year, will he confirm that this statement means that he is predicting rate increases of about 10 per cent.?

Mr. Baker

During the exchanges this afternoon, several hon. Members have estimated the rate increases. I would counsel everybody to be very careful about giving credence to estimates that are made today. The level of rate increases depends not just upon the statement that I have made today but upon the reserves and the balances.

Given the grants that I have announced today, and the possible projected expenditure patterns, I have said that the rate increases next year are likely to be of the nature of the rate increases in the current year. I think hon. Members will find that they are rather lower than that. The increase will probably be 7.5 to 8 per cent. However, my point is that the level of rate increases depends essentially upon the budgets that local councils draw up during the next two or three months and upon their ability to make savings.