§ The Secretary of State for Wales (Mr. Nicholas Edwards)
Mr. Speaker, with permission, I wish to make a statement about the Welsh rate support grant settlement for 1986–87.
I am today announcing to the Welsh Consultative Council on Local Government Finance the details of the 1986–87 rate support grant settlement. Copies of the text of my statement to the consultative council, together with a number of key statistical tables, have been placed in the Vote Office and in the Library of the House. The rate support grant report has been laid before the House today and will be debated in the usual way. A copy of the report has also been placed in the Library.
This settlement marks an important stage in the process of bringing Welsh local authority expenditure into line with the Government's plans. My strategy for 1986–87 reflects the commendable performance of Welsh local authorities in reducing the overspend against the Government's targets from around £50 million in 1981–82 to £4.5 million in 1985–86. The total increase in rates since 1979 has been kept to seven percentage points below the change in the retail prices index. This success in reining back current expenditure has enabled me to release additional resources for much needed capital investment.
Against that background, the 1986–87 settlement presents a challenge to local authorities in Wales. I acknowledge that in meeting it they will face difficult decisions. They will need to press for moderate pay settlements for their employees and find a way of absorbing any additional costs if they are to avoid taking the easy option of adding to the burden on ratepayers. Pay awards should not lead automatically to higher spending in either the public or private sectors, nor should they be passed straight on to customers. The aim should be to seek to absorb any additional costs through the better use of resources and by achieving better value for money. Good examples have already been set by many authorities in Wales in this respect.
I turn now to the details of the settlement. The main features confirm the intentions that I announced in July, subject only to modifications to reflect the reduced level of interest rates and revised estimates for specific and supplementary grants. The total of relevant expenditure provision accepted for grants is £1,597.1 million. This marginal reduction of £900,000 on the provisional figure announced in July allows for a reduction reflecting the fall in interest rates which has broadly been balanced by an increase in provision for financing additional capital expenditure. The total comprises £1,368.1 million for current expenditure and £229 million for non-current items.
Current expenditure provision—after taking into account the higher level of direct funding in the further education sector by the Manpower Services Commission—is £51 million, or 3.8 per cent. more than the expenditure underlying local authorities' budgets in 1985–86, while the total of relevant expenditure is about £75 million, or 4.9 per cent. more than the comparable budgeted total for the present year.
Aggregate Exchequer grant, as announced in July, will be £1,067 million, comprising £169–4 million for specific grants, £19.6 million for transport supplementary grant, 332 £2.2 million for national parks supplementary grant and £875.8 million for the rate support grants. Domestic rate relief remains unchanged at 18½p in the pound, which costs £25.8 million, leaving £850 million as block grant. After deducting £600,000 for payments to specified bodies, the amount available for distribution to local authorities is £849.4 million.
The aggregate Exchequer grant of £1,067 million is £52.8 million or 5.2 per cent. more than the aggregate Exchequer grant provision in the main report for the current year, and represents 66–8 per cent. of relevant expenditure, as against an effective rate in the current financial year of 66.6 per cent. Broadly speaking, therefore, the level of grant support has been maintained.
The settlement marks the end of individual local authority expenditure targets, which have been abolished for 1986–87. They will be replaced by a tougher block grant system which provides a fairer method of containing expenditure. The precise mechanisms have been developed in close consultation with the local authority associations and in particular take account of proposals put forward by the Welsh Counties Committee. The associations accept this as a reasonable price to pay for moving away from selective controls and for restoring a greater measure of local accountability.
Under these arrangements, for any given increase in expenditure there will be a reduction in grant. This means that a significantly higher proportion of costs will be borne by the ratepayer as spending is increased. Conversely, the new system also offers positive financial rewards to ratepayers in authorities where spending is held down. There will be significant rating benefits for authorities which budget to reduce spending or which increase spending by less than the anticipated rise in inflation.
If local authorities spend in line with this settlement, the amount of grant claimed will equal the amount of grant available. If aggregate spending exceeds the level of expenditure provision, and there is an underclaim of grant, the margin of resources will remain available for local government spending in Wales. I shall await local authorities' 1986–87 budget returns before deciding how any such surplus grant might be distributed. In setting their budgets councils should not assume that they will benefit from the redistribution of any resources released by overspending.
This settlement is a good one for Wales. The increases in relevant expenditure and in aggregate Exchequer grant are higher than the forecast rate for inflation and provide a realistic basis for next year's budgets. Rate increases, on average, need be no more than 3 or 4 per cent. Spending at the settlement level would be the same in real terms as spending in 1979–80. Local authorities can plan ahead secure in the knowledge that this provides the degree of stability in expenditure that they have been seeking.
Both domestic and business ratepayers have the right to expect their local authorities to manage services, on their behalf, in an efficient and cost-effective way. This settlement recognises that right and provides a solid framework for progress. I sincerely hope that local authorities will meet the challenge and the opportunities that it offers for the benefit of the communities which they seek to serve. I ask hon. Members on all sides to support them in that task.
I commend my proposals for the Welsh rate support grant settlement to the House.
§ Mr. Barry Jones (Alyn and Deeside)
The Secretary of State, not unnaturally, put a self-congratulatory gloss on his complex statement. Has he forgotten that the overall cut in grant in real terms between 1978–79 and 1985–86 has been 13.4 per cent.? That is a statistical way of saying that local councils have taken a severe financial beating from the Welsh Office.
At the same time, have not the Government permitted a blizzard of unemployment in Wales and permitted the consequential and unprecedented demands upon council services which were grossly underfunded? Is there not now another cut, albeit small?
Have not the Welsh district authorities warned the Secretary of State that the average Welsh domestic rate bill might increase by 8 per cent. or more, and that Welsh county rates increases will be significantly above the inflation rate—so I am informed? The right hon. Gentleman has failed to protect the budget. The local authorities say that we are short of about £27 million to stay level with this year.
Are not district councils in Wales astonished that the right hon. Gentleman has presented a settlement based on grant mechanisms which are so complex that even council treasurers are perplexed? Depending upon the order in which the figures are fed into the Welsh Office computer, does the Secretary of State agree that there will be a change in the grant-related poundages of 1p for 15 councils? Will that system not create problems for certain counties, not least for West Glamorgan? Will the right hon. Gentleman concede that he has espoused an unsatisfactory system? Will he promise next year to adopt a simpler and more equitable approach? Will he call a joint conference to tackle the issues by 1987–88?
The right hon. Gentleman purred with satisfaction at the increase in capital investment. I acknowledge sincerely the increases to which he pointed. They are a most welcome development, but they merely edge towards the levels of previous years. Has the right hon. Gentleman forgotten that, notwithstanding his boast of a £31 million housing increase, the allocation is £60 million down on the allocation for 1983–84—general election year.
Are not local authorities deeply apprehensive about the settlement and their ability to meet pay and price increases? The right hon. Gentleman has presented the settlement in the most favourable light, but has he not masked the fact that authorities might make cuts of 3 to 4 per cent., since the increase in current expenditure is insufficient to keep pace with the movement in costs? Has the right hon. Gentleman forgotten local authorities' difficulties in meeting the pay claims of their white collar staff, the police, the firemen and the teachers, with their end-loading complications and settlements above 5 per cent.? Here is the flaw in the settlement. What extra cash does the right hon. Gentleman have to fund the teachers' increase? Does he have the extra money in the way in which the Secretary of State for the Environment said that he had the money? The House would like a comment from the right hon. Gentleman on the question of teachers' pay.
Will not joint financing schemes with health authorities now come under extremely severe pressure? This settlement will not help authorities to meet the needs of the elderly in the community, remembering that the legitimate demands of the elderly and disabled are increasing hugely year by year. In other words, are the compassionate plans at risk at county level?
334 Is it not a fact that the sums advanced are insufficient? We find this a depressing statement. Where does it make amends for the savage cuts that have occurred in previous years? Money is not being given back. There is still a trend, for all its dressing up by the right hon. Gentleman, of cuts, and it is backed by a harsh regime. The right hon. Gentleman is not acknowledging sufficiently the crisis of unemployment and bad housing in the south eastern valleys of Wales and in the steel townships. All councils in Wales will be deeply disappointed by his statement.
§ Mr. Edwards
The hon. Gentleman referred to an overall cut in real grant since the Conservatives came to office. I repeat what my right hon. Friend the Secretary of State for the Environment said in connection with the English statement, that it was a deliberate decision to transfer some of the responsibility for financing local government from the central taxpayer to the ratepayer. I remind the hon. Gentleman that in Wales this year there has been no further switch in that direction. We have maintained the percentage grant. Indeed, we have marginally increased it this year.
The hon. Gentleman talked about a severe financial beating, but in fact both provision and aggregate grant are being increased by more than the expected rate of inflation. He made the usual gloomy and pessimistic rating forecasts. In the period for which I have been responsible, the Welsh Office has had a good record in forecasting the likely rate pattern. There is no reason why, if expenditure is in line with provision and the use of balances is at about the same level as last year, average rate increases in Wales should be more than the going rate of inflation. Indeed, there are a number of counties in which we expect to see rate reducions. Dyfed is one such county.
The hon. Gentleman talked about the complexities of the grant mechanism, and we can agree that the systems are complex. The mechanisms that we are using this year, particularly the system that is replacing the target mechanism that we previously employed, has been designed in close consultation with the local authorities in Wales, and they believe that this is a considerable improvement.
The hon. Gentleman talked about increases in capital expenditure. I am glad that he acknowledges the substantial additional capital provision that we have made, and have made for a number of years, thanks to the way in which Welsh local authorities have been able to hold down current expenditure.
I told the House in the summer that we were now within 1 per cent. of the target that we originally set, which was designed simply to stop the headlong annual increase in spending and to get expenditure back to the level of 1978–79, when the Conservatives came to office, and this settlement should enable Welsh local authorities to do that.
I was asked about pay and price provision. The House must understand that if there are large pay settlements, someone must pay, either through the rates or through a loss of services. From the education point of view I confirm what my right hon. Friend said, in that we have not included in this provision the money that the Government have said will be on the table if there is a settlement that takes proper account of the conditions of services and the other requirements that the Government have made clear are necessary for a settlement of the education dispute. We have made provision for a 7.5 per cent. increase in police pay.
335 The hon. Gentleman said that cuts of 3 or 4 per cent. might be required. I was not clear what he meant, because cuts in the level of expenditure by local authorities will lead to increases in grant, and I emphasise that if authorities overspend on the basis of this provision they will get less grant. Authorities which reduce their expenditure will get additional grant, and their ratepayers will benefit directly.
I remind the hon. Gentleman that West Glamorgan does well out of the settlement. We expect that if it settles expenditure in line with the assumptions that I have set out, there should be increases in West Glamorgan on the rates bill of about 2.5 per cent. That is below the general level of inflation.
I was asked by the hon. Gentleman about specific services. The way in which local authorities decide to spend their money is for them. They must decide their priorities, but they should remember that they also have a responsibility to the ratepayers who fund them.
§ Sir Anthony Meyer (Clwyd, North-West)
Is not the helpless floundering of the hon. Member for Alyn and Deeside (Mr. Jones) the clearest possible acknowledgement of the success of my right hon. Friend in achieving a settlement that is regarded as satisfactory more or less throughout Wales?
Will my right hon. Friend comment on the fact that possibly the greatest threat to ratepayers in Wales conies not so much from Labour councillors, who know that they carry some responsibility in these matters, as from the existence in many counties, and particularly in the county of Clwyd, of a large block of so-called independents, who hold the casting vote and who refuse to make the necessary economies that would enable efficient administration to be carried out at reasonable cost?
§ Mr. Edwards
I entirely agree with my hon. Friend. If the council in Clwyd can limit the year-to-year growth in its spending to 5 per cent., I expect that it will have a similar increase in rates. Indeed, in Colwyn and other districts—for example, in Glyndŵr—I expect that the rates could be held at their present level, or even reduced.
§ Mr. D. E. Thomas (Meirionnydd Nant Conwy)
How does the Secretary of State equate his statement to the consultative body that local authorities should be expected to maintain services at their present levels with the massive cuts in the nursery school programme approved this morning by Clwyd county council? Will the right hon. Gentleman look again at his statement about the work of the Audit Commission? Is he satisfied that the commission has taken sufficient account of the particular problems of local authorities in Wales in its overall studies of England and Wales?
As for grant-related expenditure, the right hon. Gentleman's Department admits that this is a rough and ready calculation of the relative needs of various authorities. Is it not time that there was a more clearly agreed indicator related to the social needs of areas? Is the right hon. Gentleman aware that the rent increase of 65p a week will itself be an added burden on many low income families in Wales? Is he also aware that the transport supplementary grant capital spending is totally inadequate to meet the kind of road programme that local authorities in Wales really need?
In relation to the national park supplementary grant, I fully endorse the right hon. Gentleman's statement 336 criticising those county councils and local authorities which are not funding their part of that programme. Will he ensure in future that it is withheld from their overall block grant if they are not prepared to spend that money on their national park functions?
§ Mr. Edwards
The national parks supplementary grant has been increased by not more than 9 per cent. and that takes account of the requirements being placed on the national parks authority.
The hon. Gentleman referred to the transport supplementary grant, where the system has been changed and the scale of the projects for which grant is provided has been altered. I believe that grant is in line with the assessed needs for grant on the basis of our negotiations with the local authorities.
The hon. Gentleman says that we are dealing with a rough and ready system. Yes, but it is a system that we discuss at great length with the local authority associations and we seek to build into it all the points that they make. We made various alterations this year. It is a basis not for making absolute judgments about the level of services required in a particular area, but for obtaining a fair distribution between the Welsh local authorities. It follows from that that if one authority gets more, it will inevitably have to come from one of the other authorities.
The Audit Commission has spelt out particularly clearly the enormous scope for savings that exist to the benefit of ratepayers from local government in Wales, as in England. The hon. Gentleman referred to expenditure in Clwyd and I have already pointed out that Clwyd has been set a reasonable objective. If he did not refer to Gwynedd, as might have been expected, it is because if Gwynedd county council can limit its spending growth I anticipate that there should be a rate reduction of over 3 per cent. for the ratepayers there.
§ Mr. Speaker
Order. This is a Back-Benchers' day so I shall endeavour to call all those who are rising hut I ask them to be brief in their questions, please.
§ Mr. Ian Grist (Cardiff, Central)
I warmly congratulate my right hon. Friend on his statement this afternoon. What will its effect be on south Glamorgan, Cardiff and the Vale of Glamorgan? Can he name any authority in Wales which has privatised any of its services and with what result?
§ Mr. Edwards
Yes, some local authorities have privatised and have begun to show savings. There are significant savings to be made. I know that the Welsh local authorities have been listening seriously to the suggestions put to them by the Audit Commission and I hope that that will lead to further substantial savings.
The south Glamorgan authority made heavy use of reserves in the present year and as a result it is likely to increase its precept above the general rate of inflation. If it spends at a 5 per cent. increase this year we could see an increase in rates of more than 6 per cent. On the other hand, the Cardiff city authority could have a small increase in rates if it holds expenditure levels to that kind of figure. There is a similar possibility of a substantial reduction in the Vale of Glamorgan.
§ Mr. Donald Coleman (Neath)
As has already been said of the English rate support grant settlement, the 337 Secretary of State for Wales' announcement is complex—the most complex yet. There is no doubt that treasurers in Wales will be perplexed.
Is the Secretary of State aware that, for west Glamorgan, there are signs that, despite this announcement today, there will still be considerable increases in rates next year? Will he undertake not to be disposed to penalise the county for taking action that arises directly from the rate support grant settlement?
What provision has been made to help the district councils deal with the considerable problems of local authority housing in Wales?
§ Mr. Edwards
I have already announced substantial increases in capital allocations, which will make a considerable contribution to the problem of local authority housing in Wales.
I must make it clear that, because of the relative success of Welsh local authorities in holding down their current expenditure and their rate increases in recent years, this is a much easier settlement for Welsh local authorities to achieve than will generally be the position in England. They have been meeting the objectives that we set over a period and they now find themselves in a position where there is a substantial increase above the anticipated level of inflation in aggregate Exchequer grant and in current and relevant expenditure and that position compares favourably with England.
The hon. Gentleman's pessimism about west Glamorgan is misplaced. It may go back to some of the figures that we looked at when we were considering the original proposals for the settlement in the summer. As a result of representations made by the Welsh counties and certain changes in the technical system since then, the position of west Glamorgan has substantially improved and I do not anticipate the necessity for more than low rate increases for districts in west Glamorgan.
§ Mr. Stefan Terlezki (Cardiff, West)
I commend and congratulate my right hon. Friend on presenting us with a good package. It is good housekeeping on behalf of the Principality. Will there be any cuts in services in Cardiff, whether in transport, health or housing, or is he satisfied that we shall continue to go from strength to strength under this package?
§ Mr. Edwards
There is no doubt that Cardiff is in a position to provide a satisfactory level of services without increasing rates. There is no doubt that it should be able to hold its rate increases to a relatively low level and increase expenditure in line with the increase in costs. However, as I have explained, the impact on the ratepayers of south Glamorgan's decision to use a lot of money from its balances last year will be felt in the rate bills of ratepayers in the area.
§ Mr. Donald Anderson (Swansea, East)
Does the Secretary of State at least recognise that if there is less criticism this year from Labour Members and local authorities it is because the annual reduction, year on year, in the proportion of local government expenditure covered by the Government at last appears to have stabilised, although the cumulative damage over the years since 1978–79 remains?
338 Does the Secretary of State assume that the sale of council houses has now peaked? Why are Welsh local authorities allowed to retain a smaller proportion of those receipts than their English counterparts?
§ Mr. Edwards
They are also allowed to retain a larger proportion of receipts of sales of other capital assets. We have taken a decision on the overall balance, taking the allocations into account as well, which we believe is to the greatest possible advantage of Welsh local authorities.
The accumulated damage is that rate increases in Wales have been 7 per cent. below the increase in inflation and we have been able to get expenditure back to the level of 1978–79 at which we can offer stability to the local authorities in Wales. I have told them that if they could meet the Government's targets and objectives they not only had the prospect of being able to give a satisfactory settlement to their ratepayers but they had the prospect of stability, in the knowledge that they would continue to receive the same overall level of provision. We have honoured that undertaking. We have now got to the point where they can look to the future and plan for it with a great deal of confidence.
§ Mr. Keith Best (Ynys Môn)
Is not the Opposition's allegation of complexity designed to camouflage the fact that this is a good settlement and they do not know how to attack it? Is not the message to Welsh authorities that, if they can contain current expenditure, greater autonomy and greater capital expenditure will follow?
§ Mr. Edwards
Yes. If expenditure is held below our assumptions, there will be additional grant and an even greater opportunity to reduce the rate burden. That is certainly true in my hon. Friend's part of Wales, where there is a real opportunity to reduce rates. I hope that that opportunity will be taken and that there will be a real reduction in rates in Gwynedd.
§ Dr. Roger Thomas (Carmarthen)
How will today's statement alleviate the problems faced by the highways department in the right hon. Gentleman's and my county? Is he aware that Dyfed has one third of the total road mileage in Wales, but that roads are crumbling and bridges are collapsing?
§ Mr. Edwards
The GREA system takes full account of total road mileage. That is one of the factors on which the assessments are made and the grant distributed after discussion and negotiation with all the counties in Wales. The settlement for Dyfed is extremely favourable and should allow the maintenance of services and a significant reduction in rates.
§ Mr. Keith Raffan (Delyn)
I congratulate my right hon. Friend on obtaining yet again such a favourable settlement for Wales, which is clearly shown by the way in which it has thrown the Opposition. Does he agree that in moving from a system with targets to one without it is extremely important that local authorities do not exceed their targets if they want to secure a better launching position in a tougher grant regime? Does he agree that Clwyd county council especially should heed that point by concentrating on its statutory obligations?
§ Mr. Edwards
The effect of the new regime for ratepayers will be very severe if there is any excess spending, but the rewards will be substantial if spending is kept down. The system that we have introduced will give real choice to local authorities.
§ Mr. Richard Livsey (Brecon and Radnor)
Why have Powys and Clwyd county councils been singled out for a block grant increase of only 1.8 per cent. when Powys is considering closing 13 schools and decimating the education system? How will the settlement ease that situation?
§ Mr. Edwards
When the hon. Gentleman last made accusations about decimating the education system, which was during an election campaign, he falsely invented the threatened closure of a school. The allegation is equally false today. Powys comes out relatively badly because it is a relatively high spender in relation to GREA, but its ratepayers have relatively low rate bills. The hon. Gentleman should consider the rate bills being paid and the level of expenditure in relation to GREA.
§ Mr. Gwilym Jones (Cardiff, North)
I am sure that my right hon. Friend's abolition of individual targets and the provision for expenditure increases above the likely rate of inflation will be warmly welcomed, but my constituents are apprehensive about excessive rate increases by South Glamorgan county council. My right hon. Friend has twice mentioned reductions in balances by that council this year, which had been called for on many occasions by my right hon. Friend and others, but this was a county council election year. Now that an election is no longer in prospect, what action does my right hon. Friend contemplate to encourage the council not to go in for excessive spending which will result in excessive rate increases for my constituents?
§ Mr. Edwards
My hon. Friend has given the answer himself. There is no doubt that excessive spending will result in high rate increases. Electors in the area must understand that that will be the result of decisions taken by the local authority.
In an earlier answer, I referred to getting spending back to the year in which we took office. I should have referred to 1979–80, not 1978–79.
§ Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)
The Secretary of State talks approvingly about reining in current expenditure, but should he not make it clear that that means cutting nursery education, provision of school books and other educational materials? Does his statement not also assume that the teachers' dispute will drag on and on?
§ Mr. Edwards
No, it means none of those things. It means that local authorities have choices to make. It means that when there are substantial reductions in the number of pupils, as there have been, local education authorities must adjust provision. It also means that we have been able to provide substantial additional capital resources for local government in Wales as a result of holding current expenditure. The hon. Gentleman does no service to anyone by making suggestions of that kind.
§ Mr. Robert Harvey (Clwyd, South-West)
I warmly congratulate my right hon. Friend on his statement. Will he confirm, however, that it does not allow for any increase in teachers' pay beyond the current guidelines put forward by the Government?
§ Mr. Edwards
The position was clearly spelt out earlier by my right hon. Friend the Secretary of State for the Environment. Any settlement which does not meet the Government's condition that it must be related to terms of service and assessment is not provided for in the arrangements that we have made. If an acceptable settlement were reached, however, there is scope for additional money to be placed on the table by the Government. That has always been our position. Those resources are not built into the settlement that I have put to the House today. My right hon. Friend spelt this out precisely and in some detail. I refer my hon. Friend to that statement.
§ Mr. Ron Davies (Caerphilly)
Does the Secretary of State agree that the best that can be said of the statement is that it does not impose any immediate further burden on Welsh authorities? Does he also agree, however, that when the current round of pay negotiations is completed and the teachers' dispute is ultimately settled there will undoubtedly be further pressure on Welsh education authorities and district councils which will inevitably mean more cuts and further reductions in services as the year unfolds?
§ Mr. Edwards
I do not think that it means more cuts at all. Far from being the best that can be said, it is clear from the questions asked today that the hon. Gentleman's initial comment is about the worst that could be said about the settlement. The Opposition have worked themselves up as much as they can, but they cannot make out that it is other than a good settlement.
§ Dr. John Marek (Wrexham)
Does the right hon. Gentleman agree that, having used jackboot methods to control local authority expenditure in Wales for six years, in his statement today he anticipates wholly unrealistic percentage rises in wages and salaries?
§ Mr. Edwards
If the hon. Gentleman believes that local and central Government should automatically endorse and pay every claim and settlement that is made, he believes that we should return to a period of uncontrolled inflation which might indeed be the precursor of the jackboot, as it has been in the past. The most disastrous thing for a free society is uncontrolled inflation.
§ Mr. Allan Rogers (Rhondda)
What will be the impact of the settlement on the 18,000 people in the Rhondda valley who are waiting for improvement grants?
§ Mr. Edwards
I made a separate announcement about increased capital allocation for Welsh authorities. The hon. Gentleman already knows what that settlement is.