Rate Support Grant (England)

HC Deb 16 January 1985 vol 71 cc337-424 3.42 pm

The Secretary of State for the Environment (Mr. Patrick Jenkin)

I beg to move, That the Rate Support Grant Supplementary Report (England) (No. 2) 1984/85 (House of Commons Paper No. 81), which was laid before this House on 11th December, be approved.

It may, Mr. Speaker, be for the convenience of the House if we also discussed the following motions: That the Rate Support Grant Supplementary Report (England) (No. 3) 1983/84 (House of Commons Paper No. 82), which was laid before this House on 11th December, be approved. That the Rate Support Grant Report (England) 1985/86 (House of Commons Paper No. 142), which was laid before this House on 20th December, be approved.

Mr. Speaker

Is that acceptable to the House?

Hon. Members

Aye.

Mr. Speaker

So be it.

Mr. Jenkin

Before I describe the rate support grant reports, I should like to set them in context and remind the House of some of the facts about local authority current spending. This year in England—in this debate we are concerned only with England—such spending amounts to £24 billion, more than a fifth of total public spending. Its significance to the Government's overall economic strategy is, therefore, obvious, and both we and the previous Labour Government have rightly treated local Government current spending as a crucial element within public expenditure as a whole.

To illustrate this, I remind the House of the experience of former Ministers within the Treasury and the Department of the Environment when grappling with this problem. In his book "Inside the Treasury", Lord Barnett wrote: For years current expenditure of local authorities had grown steadily under Conservative as well as Labour Governments. It was £5.5 billion in 1970/71 and by the time we took over it was £6.8 billion. We then proceeded to increase it substantially. By 1979, at 1975 Survey prices it was some £13 billion".

As he rightly said, that is a lot of money.

He went on: The main source of control was the size of the RSG. As Chief Secretary I would be arguing for as low a grant as possible—Tony Crosland for his part, while reluctantly recognising the need to cut expenditure, feared that the squeeze of a lower grant would simply lead to large rate increases.

We all know who won that argument! The hon. Member for Copeland (Dr. Cunningham) was PPS to the Prime Minister at that time, and will no doubt remember how the battle went. Cutbacks in local current expenditure began under Labour; reductions in the percentage of Exchequer grant began under Labour; the system of cash limits on RSG began under Labour. The House will listen with care to see whether the Labour party in Opposition condemns the policies which it followed in office and which it knew to be necessary.

In the 1960s and 1970s, local authority current expenditure was growing in real terms on average at 3.5 per cent. a year. Between 1952 and 1979 the numbers employed by local government had doubled. By 1979 they had reached the all-time record of 2.51 million—11.5 per cent. of the total labour force in local government.

Thanks partly to successive rate support grant settlements since then and thanks, certainly, to better management by many councils, that growth in spending has been reduced to a little below 1 per cent. on average per year. Manpower levels have dropped by over 4 per cent.

It is right to pay tribute to what many councils have achieved in making themselves more efficient. It is also right that the pressure to control spending should be sustained. [Interruption.] I am astonished that the hon. Member for Blackburn (Mr. Straw) should make that comment. Does he really regard local government as a form of outdoor relief, simply to provide jobs to keep unemployment down? Of course he does not, and his party never did.

Mr. Jack Straw (Blackburn)

The House may not have heard what I said. I said that the Secretary of State was praising local authorities for forcing up unemployment. The Secretary of State must regard local authorities as a form of outdoor relief. I believe that local authorities provide vital services, in many cases to assist those thrown out of work by this Government's policies.

Mr. Jenkin

The hon. Gentleman is trying to deny what he said. Of course, it is the job of local authorities to provide services as efficiently, economically and as effectively as possible. There is no doubt that, thanks to much better management by many councils and the pressure of the rate support grant, many councils are doing just that.

Mr. Tony Marlow (Northampton, North)

We have just seen a show of indignation from the Opposition Front Bench. The whole issue has been accompanied by indignation from the Labour party. Is it not worth noting that fewer than a dozen Labour Members are in the Chamber for this important debate.

Mr. Jenkin

That is a fair point.

Mr. Patrick Cormack (Staffordshire, South)

Will my right hon. Friend give way?

Mr. Jenkin

May I develop my argument?

Mr. Cormack

I am grateful to my right hon. Friend. It is important to put on record the fact that not only Labour Members are incensed, because some prudent Conservative-controlled councils with excellent records, such as mine, are suffering deeply as a result of what has happened.

Mr. Jenkin

I have no doubt that my hon. Friend the Member for Staffordshire, South (Mr. Cormack) will have an opportunity to make his point if he catches your eye, Mr. Speaker. What he says does not detract from the fact that many councils have made strenuous efforts to make themselves more efficient. The gainers are their ratepayers.

Reining back expenditure has benefited domestic ratepayers, householders and businesses. In each of the last five years the average rate increase has fallen, despite annual panic stories from the Opposition. Last year the average rate increase was only 5.5 per cent.—the lowest in 10 years.

Therefore, we have disproved Tony Crosland's fears, as recorded by the noble Lord Barnett, that a falling percentage of Exchequer grant necessarily means steep rate increases. On the contrary, a falling percentage of grant has been accompanied by a fall in the rate of growth of spending and, therefore, by a steadily reducing rate of increase in local rates. A great many authorities have managed to sustain or even improve the level of services by making themselves more efficient. There are still plenty of opportunities for that.

The third supplementary' report for 1983–84 adjusts block grant entitlements for that year in the light of the latest information. The second supplementary report for 1984–85 implements grant holdback for Liverpool. The House will remember that its budget came too late for last July's supplementary report. Therefore, it is a necessary adjustment.

The main interest in today's debate lies in the report setting out the settlement for next year, 1985–86. I shall deal separately with its three elements—targets, total grant and distribution of grant between authorities.

The key feature of the settlement is that all authorities budgeting to spend more than 0.75 per cent. below their GREA this year can increase their spending next year by at least 4.5 per cent. without incurring grant penalty. For the lowest spenders—those whose budget this year is at or below target as well as below GREA—the increase is slightly higher—up to 4.625 per cent. over this year's budget.

I can, therefore, claim to have set targets for the low-spending authorities and fulfilled the undertaking that I and my hon. Friend the Under-Secretary gave to the House during last year's debate. That has been recognised by many of the councils concerned. Many low-spending authorities have acknowledged that the targets are more favourable than the targets that they have been set previously.

The other side of the coin is a tougher holdback schedule for authorities that spend above their targets. It must be remembered that this year 84 per cent. of all authorities are budgeting to spend within 2 per cent. of their targets. Next year, with the more realistic targets, I hope that that figure will be even higher so that fewer ratepayers will bear the costs of council overspending. Higher current spending means higher rates, which mean lower profits for industry, which means less investment, which means fewer jobs. The connection between those facts is absolutely irrefutable.

Mr. Tony Banks (Newham, North-West)

Another argument is that lower spending means fewer services and lower levels of service. The right hon. Gentleman said that the low spenders last year will be rewarded by better targets next year. Can he explain — especially to his Conservative colleagues—why the GLC, which he has always accused of being a high spender, has had a 63 per cent. hike in its target for next year over last year? I am sure that his colleagues will be interested in his answer.

Mr. Jenkin

The hon. Gentleman is, of course, seeking to throw dust in the eyes of the House. He is talking about a comparison of target over target. The real comparison, on which authorities have always focused, is based on what their spending is this year, what their budget is this year, what they expect to spend and how much they can increase on that next year. They want to know what is their margin and headroom. The GLC is, indeed, a massive overspender, and I do not expect it to be entitled to any rate support grant—or only a nominal amount—because it is so far in excess of its target. Judging by the cries of woe from county hall, I do not think that many of my hon. Friends will suspect that we are letting off the GLC lightly.

Mr. Michael Hancock (Portsmouth, South)

How can the right hon. Gentleman equate what he has just said with the position in Hampshire, which has stuck religiously to the guidelines set by the Government but which will suffer worse than any other county council in England next year, having about 7 per cent. less cash to spend?

Mr. Jenkin

The hon. Gentleman has misunderstood the point. Hampshire is one of those authorities which, because it is budgeting this year both below its target and the GRE, falls squarely within our definition of a low spender. It therefore has a target hike above this year's budget that is the highest of any authority—4.652 per cent.

I recognise that a number of low-spending authorities say, "That is all right for this year and we can manage for 1985–86, but we face real difficulties in 1986–87." I appreciate that a number of my hon. Friends are concerned about that. They will understand that I cannot at this stage give detailed figures for individual authorities for 1986–87, though I hope to be able to make a helpful comment.

I repeat what I have said, that I should like to be able to abandon targets and holdback. While it has undoubtedly helped to rein back the growth of local authority' current spending, I understand those who argue that, coming on top of the system of block grant and the quite sophisticated system of taper, it makes for complications and difficulties.

Much depends on the level of local authority spending in the coming year and on what alternative pressures there can be to achieve delivery of the Government's public expenditure plans. I am considering this urgently. I can say no more on that today. In what follows, therefore, I am assuming that the target system is to be retained for 1986–87.

Mr. Charles Morrison (Devizes)

I am grateful to my right hon. Friend, not only for what he has said but for what he has done for some shire counties, not least for mine in Wiltshire, in relation to target. Is he aware that those who represent shire counties will support him strongly in his desire to abandon targets in 1986–87 and in the battles that he may have with the Treasury, because if those targets are not abandoned, or at least considerably relaxed, the situation in the shire counties will become impossible? They are managing this year only as the result of balances. They have juggled their finances for years, but next year will be the crunch year and if there is not a major relaxation life will become impossible for them and services will have to be severely cut.

Mr. Jenkin

As to whether we shall have targets, I cannot say more than I have said today. The more favourable targets that I have given low-spending authorities for 1985–86 have been made possible because of the savings achieved from rate capping the high spenders. I made that clear last year. Rate capping will continue to produce savings in the years after next, in 1986–87 and thereafter, as we continue to bring down what we have no difficulty in recognising as the excessive spending levels of authorities selected for rate capping under the Rates Act. I repeat that low-spending authorities will benefit from that rate capping. They will benefit next year and we will want that to happen again in the year following.

Mr. Roger Gale (Thanet, North)

My right hon. Friend has said that he intends to maintain target. Does he accept that in Kent the gap between target and GREA is £37 million? If he is to retain target, the logical extension of that must be to abolish GREA.

Mr. Jenkin

My hon. Friend is aware that GREA is the basis of the distribution of rate support grant. I cannot take my hon. Friend's suggestion at face value, but I recognise the argument that he is advancing.

For authorities that budget in the coming year — 1985–86 — to spend at or below both their target and their GREA, the targets for the following year —1986–87—will take account of the further savings to be achieved from rate capping the highest spenders. A number of authorities have wanted me to make it clear that this is not a one-off position for this year. Rate capping will continue and that will enable us to continue to pursue the policy that I have been describing.

Sir Ian Gilmour (Chesham and Amersham)

I appreciate that my right hon. Friend is trying to help the House. Does he agree that unless the system is changed fundamentally—that does not mean a few adjustments because of rate capping — and the target system is abolished, many shire counties will be in an impossible position? Will he undertake to ensure that the present system is not preserved into next year?

Mr. Jenkin

I understand entirely how my right hon. Friend and others feel. I have made it clear in previous debates, and I do so again today, that the Government are anxious to dispense with the target system as soon as they can. However, I cannot go further than what I have already said this afternoon. We are studying the matter urgently and if it proves possible to dispense with the target system, nothing will give me greater pleasure than to do so. However, I cannot make a commitment to the House about next year.

Mr. Simon Hughes (Southwark and Bermondsey)

If the Secretary of State is saying that he is reconsidering the target system I ask him to make one other suggestion to his Department for its consideration. He will know that there is now a discrepancy in rate-capped authorities between the rate-capped limit and the target limit. Some authorities which spend up to the rate-capped limit will incur penalty because they have spent over target. If he tells the House that he considers that to be inadequate and unsatisfactory, there will be some light at the end of the tunnel for high-spending authorities which are high-need authorities, which presently have an equal if greater cause for complaint than low-spending and low-need authorities. The high-spending and high-need authorities are now facing total darkness.

Mr. Jenkin

The feature to which the hon. Gentleman has drawn the attention of the House was debated exhaustively during our proceedings on the Rates Bill. Had we not maintained the gap between target and the expenditure limit, there would have been great unfairness to other authorities which are close to the level of rate-capping but which are not being capped. They would have suffered an even greater penalty on their spending than capped authorities, and that would have been unfair.

Mr. Norman Atkinson (Tottenham)

rose—

Mr. Robert C. Brown (Newcastle upon Tyne, North)

rose—

Mr. Jenkin

No, I shall not give way. There are many hon. Members who wish to contribute to the debate and I wish to press on with my remarks.

Mr. Atkinson

rose—

Mr. Jenkin

No, I shall not give way. I have given way a good deal already. We are not discussing rate capping today. There will be an opportunity to discuss the issue when we place, if we have to, the orders before the House.

If all local authorities had shown responsibility, equal to that of those on behalf of which my right hon. and hon. Friends have been intervening, and if Labour authorities had continued to follow the policy of the Labour party under a Labour Administration there would have been no need to enter into the business of targets and to have imposed some of the measures for which we are criticised by local government.

The picture is startlingly clear in the current year. Total overspend above targets is £850 million, and 75 per cent. of that overspend comes from 12 local authorities, every one of which is Labour-controlled.

I turn from targets to Exchequer grant—

Mr. Richard Holt (Langbaurgh)

rose—

Mr. Jenkin

I hope that my hon. Friend will forgive me for not giving way to him. I must press on. As I have said, many hon. Members wish to contribute to the debate.

The total grant figure in the settlement is £11.8 billion. That is about the same in cash terms as that for the current year. As has been said, this represents a lower percentage of next year's planned expenditure. It will be 48.7 per cent. compared with 51.9 per cent. in last year's settlement. We have reduced the grant expenditure percentage in each year since 1979 and on each occasion there have been scare stories, not least from the Opposition Front Bench, of massive rate increases going far beyond anything we have experienced. The fact is that each year the average rate increase has been lower than in the previous year.

Mr. Tony Banks

On average, yes.

Mr. Jenkin

Of course. There will be a variety of rate increases. I am not quarrelling about that. The key point is that cutting the grant percentage adds to the pressure that we put on authorities, as Lord Barnett has said, to find economies in their spending and reduce spending, which leads to lower rate increases.

In the debate on this matter which took place last year, the hon. Member for Copeland said: Most ratepayers would face steep rates increases in the spring as a direct result of the Government's policy".—[Official Report, 23 January 1984; Vol. 52, c. 646.] We know what happened. The average rate increase was 5½ per cent., which was the lowest for 10 years. It is worth noting that the cut in percentage terms this year is less than the cut of four and a half percentage points which the Labour Government imposed in 1977–78. I hope that on this occasion the hon. Member for Copeland will keep his scaremongering to himself.

I repeat what I have already said to the House. If local authorities budget to meet their targets next year, the average increase at ratepayer level—I stress "average" —should be even lower than this year's 5½ per cent. I stress that that is an average figure. The figures for individual authorities are bound to vary as their grant entitlement changes.

Mr. Peter Hordern (Horsham)

I thank my right hon. Friend for showing his invariable courtesy. He has referred to rate support grant. Will he address himself to low-spending authorities such as West Sussex, which he told us last year would receive special attention as low spenders and whose target was considerably below GREA? The same authorities, which he assured would be treated more favourably if they went over target, now find that the penalties for doing so are to be increased substantially. Will he give some assurance to the x j 1lowest-spending authorities of all — I know of no lower-spending authority than that of West Sussex—which will have inescapably to spend more towards its target to approach what the Government believe is the proper proportion of expenditure that it should incur?

Mr. Jenkin

My hon. Friend knows a great deal about these matters. With respect, I do not think that I can go further on target for the following year than what I have already said. I have said in reply to my hon. Friend the Member for Devizes (Mr. Morrison) and other of my hon. Friends that we intend to continue the process while recognising the position of the very low spenders. I believe that they appreciate that we have done a great deal for them for next year. [HON. MEMBERS: "No."] The county of my hon. Friend the Member for Horsham (Mr. Hordern) has had one of the greatest increases in target of 4.625 per cent. That is likly to be ahead of the rate of inflation.

Mr. Charles Irving (Cheltenham)

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Mr. Geoffrey Rippon (Hexham)

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Mr. Jenkin

When I deal with distribution of grant, I hope to be able to show my hon. Friend the Member for Horsham that we have taken account of the position of the lowest spenders.

Mr. Rippon

My right hon. Friend talks about 1986–87 and he is talking inevitably about national averages. Does he realise that many areas are concerned about 1985–86? There are sparsely populated rural areas in Northumberland which have special problems and such authorities are not susceptible to having their problems dealt with in terms of the national aggregate.

Mr. Jenkin

I know that my right hon. and learned Friend will recognise that Northumberland is a county which could not be described as a low spender. It has not budgeted as economically as it could and, therefore, it would be entirely consistent with what I have said to other of my right hon. and hon. Friends not to give the same target latitude to such counties as that which we have been able to give to the lowest spenders. That was the pledge I gave to the House at this time last year.

I know that the sparseness of population was a matter discussed by the five local authority associations and my officials when refining the grant-related expenditure assessments. It is a question not only of the size of the grant but of its distribution. The 1985–86 settlement incorporates rather bigger changes in GREAs than have been made in recent years. Some arise from the decision by my right hon. Friend the Secretary of State for Transport to pay transport supplementary grant only on capital expenditure on roads and traffic management schemes from next year. As a result, revenue expenditure on highway maintenance and passenger transport support will, in future, be supported through block grant. There are, therefore, entirely new GREAs for those two services.

I have introduced new and improved GREAs for the recreation service that takes more account of actual use by visitors and commuters. That point was pressed on the Government by a number of my hon. Friends. I have introduced amended GREAs for housing that reflect more accurately the support given to the housing revenue account from the general rate fund.

Of course, a number of authorities have made it clear to me that they are unhappy about the reduction in their grant entitlements arising from these GREA changes. Although I sympathise with the problems this can cause individual authorities, I must point out that it cannot be right to freeze, for all time, the GREAs in their present form simply because there are bound to be some losers as well as gainers. The changes I have made this year represent real improvements in the fairness of GREAs and, therefore, in the fairness of the system of distribution of block grant.

A further change I have made for 1985–86 is to give more of the available grant to authorities spending at or below GREA. I come now to the point made by my hon. Friend the Member for Horsham. As with targets, my objective is to recognise the achievements of low spenders. For 1985–86, spending in relation to GREA will be a more important factor in determining grant entitlements. Correspondingly, the marginal costs in terms of the taper of the grant for those authorities that spend above GREA will be higher. This reinforces our policy of targets and of recognising the difficulties faced by low spenders.

Mr. Straw

Will the right hon. Gentleman confirm the figures he has given in parliamentary answers that, if all authorities spent at GREA, many Conservative shires would suffer massive loss of grants? West Sussex would receive no grant at all for this year and Cambridgeshire would suffer a loss of £26 million in grant. Paradoxically, so-called overspending by higher needs authorities is keeping the rates lower in the lower spending authority areas.

Mr. Jenkin

I agree with the figures but not with the hypothesis the hon. Gentleman postulated. A great many authorities find that they can give their communities a perfectly adequate and acceptable level of service and can, through greater efficiency, spend lower than the GREAs. They are to be commended.

Dr. John Cunningham (Copeland)

rose—

Mr. Jenkin

I should like to respond to the point made by my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour).

Dr. Cunningham

rose—

Mr. Jenkin

I have given way to the hon. Member for Blackburn (Mr. Straw) on the Opposition Front Bench. The hon. Member for Copeland can make his point when he makes his speech. I and many hon. Members on both sides of the House appreciate the fact that the system of local government finance has become increasingly complex. Even the terminology we must use is double-Dutch to most laymen. The important point is that, the more difficult it is for people to understand a system, the harder it is to persuade them that it is fair. I understand that, and that is not the least of the reasons why I asked my right hon. Friend the Minister for Local Government and my hon. Friend the Under-Secretary of State to undertake a series of studies of the whole field of local government finance. Those studies are well under way. Rate support grant settlements in England distribute almost £12 billion of Exchequer cash in support of £24 billion of local authority expenditure by more than 400 very different local authorities. Simplification is always an important objective, but so is equity. We must remember that fact.

This year, 84 per cent. of authorities are spending at or close to their targets. They include authorities of all categories and all political colours. They have managed to do so without what is sometimes described as catastrophic service cuts. Targets for next year are more favourable for most authorities than they were this year. Doubtless, we shall again be told of the services that must be slashed, but all the evidence suggests that that is nothing but wild exaggeration. The point is that the targets we have set are realistic.

Another point I should like to make clear concerns the equity between responsible authorities, which have made efforts to find economies and the minority which have not. This is an important aspect that has been pressed on the Government year after year by my hon. Friends.

Mr. Robert C. Brown

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Mr. Jenkin

I am coming to the end of my speech, so I shall not give way.

Three quarters of this year's overspend comes from just 12 local authorities, all of them Labour-controlled. We are now leaving behind the days when the responsible low-spending majority of authorities had to be asked to find substantial economies to compensate for the massive overspends of the irresponsible minority. We deliberately introduced rate capping to escape from that position. Selection of 18 authorities for rate capping next year should mean that actual expenditure will be £400 million lower than it would have been if the authorities had continued on their Rake's Progress of squandering as they have done in recent years. For 1985–86, I have used those savings to secure more favourable targets than ever before for low-spending authorities, and I proposed to continue to use them to help low spenders in 1986–87.

It is now for each local authority to make its budget and rating decision. This settlement sets the framework so that, if local authorities budget reasonably, they can continue to provide a reasonable level of services while protecting their ratepayers against excessive rate increases. I commend the report to the House.

4.17 pm

Dr. John Cunningham (Copeland)

The Secretary of State in his opening comments tried to suggest that his policy was simply a continuation of the policies pursued by the last Government. I reject that suggestion as fundamentally dishonest. When the last Labour Government left office, they were providing 61 per cent. of council current expenditure by way of rate support grant. The Labour Government had no targets, no penalties and no individual controls over local councils, and they had no punitive Rates Act to undermine the local democratic process.

Dr. Keith Hampson (Leeds, North-West)

rose—

Dr. Cunningham

I shall not give way. I have just begun my speech.

This is the sixth annual report on the rate support grant introduced by the Conservative Government since taking office in 1979. Each year, the most significant feature has been the reduction in grant percentage paid by central Government to local councils. In 1979–80, the Labour Government provided cash to finance 61 per cent. of current council expenditure at a time when there was much lower unemployment, a much better social climate and much better circumstances than the appalling conditions that prevail today.

The report proposes to reduce cash support to councils for the sixth consecutive year to only 48.7 per cent. of their expenditure. The proposed reduction for 1985–86 amounts to £775 million compared with the fiscal year 1984–85.

Dr. Hampson

rose—

Dr. Cunningham

I am not giving way.

The curious and deliberate thing about the Secretary of State's speech was that he talked about targets for almost all of it. He never mentioned the reduction in grant and its impact on authorities, nor did he say that it was likely to cause problems, hardship or difficulties for the local authorities involved.

Dr. Hampson

rose—

Dr. Cunningham

I am not giving way.

Mr. Speaker

Order. I have heard the hon. Gentleman say on three occasions that he is not giving way. Many hon. Members wish to speak, and all interventions take up time.

Dr. Cunningham

The hon. Member for Leeds, North-West (Dr. Hampson) stood up to intervene within the first minute of my speech. I should tell him that my record on giving way is much better than the Secretary of State's. I shall give way to the hon. Gentleman when I have finished the introductory part of my speech. I have not yet gone beyond the first page.

The Secretary of State's persistent and deliberate policy of making significant annual reductions in the cash support for local councils is the root cause of all the problems that the Secretary of State's hon. Friend's have been quoting to him today. It causes unemployment, undermines the quality of community and public services, such as education, transport, meals on wheels, concessionary fares, and help for elderly and disabled people and for families who are suffering deprivation. That is the real impact of his policy and that impact will be continued as a result of his report.

Dr. Hampson

I rose immediately because the issue of whether the percentage rises or falls is at the heart of the hon. Gentleman's case. The Labour Government immediately raised it from 60.5 per cent. to 66.5 per cent. They found that that was unsatisfactory and reduced it progressively to the 61.5 per cent. about which he is now boasting. Even before that, during the Wilson Government, it was as low as 54 per cent. They have had it all ways. The hon. Gentleman should know better than to argue as he has.

Dr. Cunningham

My first response to the hon. Gentleman is that he is talking about two different systems. My second response is that in each year of the previous Labour Government, the percentage paid by that Government was higher than it has been in any one year of this Administration. That is the fundamental difference.

Ratepayers will again face increases in the coming year—there is no point in trying to disguise that—because the persistent and deliberate reduction in grant is the biggest factor and the most important reason why average domestic rates—that is what the right hon. Gentleman and his predecessors have talked about—have more than doubled since 1979. Average domestic rates have increased by 108 per cent. since the Conservative Government came to office.

Those burdens are a direct result of the Prime Minister's policies. It is significant, although not surprising, that she never attends these debates. She is never present to support the right hon. Gentleman, even in his most difficult times—and there have been many of those—because she has comprehensively betrayed the ratepayers by doubling rates and ratting on her promise, twice made, to abolish domestic rates.

Like young people who were promised work and real jobs by the Prime Minister—perhaps the biggest and most cynical betrayal of all — ratepayers will never forget the Prime Minister's promise to them, which was repeated in two general elections, that she would relieve them of the burden of domestic rates. After six years, she has succeeded in more than doubling rates, and the increase will continue.

In addition to the reduction in cash support for councils and ratepayers, the most important features of the report are the harsher financial penalties for councils which used their own money to uphold the quality of their services and to protect their communities; changes again in the principles used to construct the Whitehall-imposed targets for the fifth successive year; inadequate application of the Secretary of State's use of disregards; and the persistent and continued use of data which even the Audit Commission—the right hon. Gentleman's own creation —has described as open to serious question.

It is important to examine those matters in detail and, not least, to contrast their impact with the promises made to local government by the Secretary of State and his predecessors. The way in which councils' spending targets have been constructed by the Government means that 85 per cent. of the metropolitan councils will be required to make real cuts in expenditure.

Many of the areas with the greatest social need are again being asked to make the biggest cuts and to carry the heaviest burden. The Secretary of State, in paragraph 7 on page 4 of his report, when talking of expenditure provision, claims: This should enable the Government's policies for individual services to be broadly maintained. At best, that is an ambiguous statement. At worst, it is dishonest. Government policy is to reduce cash support for councils.

The two supplementary reports for 1983–84 and 1984–85, which are before the House, remove yet more grants from local councils through the operation of an increasingly punitive penalty system based upon arbitrary spending targets. For 1983–84 another £281 million passes to the Treasury. That is more than in the previous supplementary report. For 1984–85, the Treasury's windfall is £455 million—an increase of £3 million on the supplementary report approved in July 1984.

How can councils maintain their services in the face of persistent cuts in the real value of Government grant? They can do it by spending more of their own money raised from the rates, by increasing rates to increase their revenue, or, as the Secretary of State suggested, by trying to improve their own efficiency.

Demands on council services are increasing because of the appalling social and economic consequences of the Government's policy. As the House is aware, millions more people today face hardship, deprivation and poverty compared with 1979. No improvement in the management of services could hope to offset the combined effects of major increases in demand and the cumulative withdrawal by the Government of more than £12 billion in real terms from council finances since 1979.

The Secretary of State seeks to impose his ceiling on every council budget as his authoritarian attitudes expand and engulf all aspects of policy. He reduces grants; imposes more drastic fines and penalties on councils which spend above his arbitrary Whitehall view of their necessary expenditure; and controls their rates. The outcome of that cannot be the maintenance of services. He does it regardless of the councils' performance or efficiency.

I give two examples to illustrate that point — one Labour, one Conservative. For three years the Stevenage council held the rate level. Last year it was reduced by 7.2 per cent. Despite that performance, the council now faces a loss of over £500,000 in grant because of changes in the methodology of calculating its entitlement. That council is spending at target. It is not profligate. It has not forced up rates year after year.

Sevenoaks district council is Conservative-controlled. The leader, Councillor Garner, has written to the hon. Member for Sevenoaks (Mr. Wolfson), and sent a copy of his letter to every member of the council, including Labour members. He said: We have just received notification from the Department of the Environment that our block grant is to be reduced this year from £2,054,000 to £1,674,000 … a staggering reduction of 18.5 per cent. This means we will be forced to increase our rates by almost 20 per cent. next year, an increase which is entirely caused by central Government decisions. He goes on: Mr. Jenkins is reported as projecting average rate rise 'in low single figures'. Against such statements, how are we expected to explain to our ratepayers that their rate increase of 20 per cent. is entirely due to the capricious decisions of Mr. Jenkins' own department? He adds a postscript to his letter: Mark—we have had enough! That is the comment of the Tory leader of Sevenoaks district council, and that is increasingly widely recognised by council leaders of all persuasions up and down the country.

The scope and quality of public services are undermined, provision is cut, redundancies occur, and vacancies are not filled. Those are, in reality, the aims of Government policy. In consequence, our towns, cities and boroughs begin to suffer neglect. Transport is threatened in rural areas. Education — surely a country's best investment — is undermined. The Government are increasingly enforcing a run-down, often second-class and inadequate public provision by their inadequate and increasingly incompetent administration of local government, and Conservative Ministers are determined to impose their view, regardless of the wishes of local communities as expressed in local council elections.

Councils trying to resist and to respond to the legitimate wishes and aspirations of the people who elect them are not only penalised but often subjected to petty abuse and vilification. Elected councillors are increasingly and knowingly prevented from meeting their statutory obligations and duties by this Conservative Administration. That is true of a wide range of services, such as housing, planning, building control, public health, education, and provision for disadvantaged people. But a blind eye is turned to all those services by Ministers and their supporters in the House. Meanwhile, Ministers abuse their powers and act unlawfully.

Recently, the Secretary of State for Transport deliberately and unlawfully robbed the Greater London council of more than £50 million. Is he to be surcharged? Is he to be removed from office? The Secretary of State for the Environment does not have a very good record either in that respect, because he ignored his duties in respect of the GLC development plan. When the courts found against him, he ignored them, too, and changed the law. He is currently hiding behind the dubious interpretation of the Rates Act to disguise from the House his use of its powers to fix budgets for councils which he has quite deliberately "fitted up" to suit his own political purposes. It is squalid behaviour on the Secretary of State's part that he does not tell the House about his assumptions in the application of a highly contentious and fundamentally important Act of Parliament.

The Secretary of State's claim that the Rates Act is designed to protect ratepayers had a very hollow ring when contrasted with his proposal today to reduce by £775 million the support that the Government are providing to them. His argument that rates increases would be in single figures ignores the real impact of what he is doing and is contradicted by the Association of Metropolitan Authorities, the Association of District Councils and the Association of County Councils, all of which condemn the report. The Secretary of State also misleads when he pretends that rates can be held down without serious consequences for jobs and services.

The effect of trebling penalties is punitive in the extreme. For spending of just 1 per cent. above an arbitrary and imposed ceiling, councils will be clobbered. Currently, 110 authorities spend at just 2 per cent. over target, and altogether 138 authorities—about one third of all councils — are being penalised because they choose not to accept a Whitehall-imposed ceiling on their budgets. Ironically, the savage increase in penalties, as the hon. Member for Horsham (Mr. Hordern) pointed out, will affect low spending councils worst of all. In addition, those extreme penalties on councils further blur local accountability by placing elected councillors in the invidious position of determining policies not by assessing local needs and desires, but by reference to the punitive extra cost enforced by central Government.

The dubious use by the Government of grant-related expenditure plumbed even new depths when Ministers' manoeuvring over council housing finance, using the so-called "E7 factor", came to light as a result of a leaked document a few months ago. Those calculations are crucially important for many housing authorities. In the leaked document last September, the Under-Secretary of State, the hon. Member for Ealing, Acton (Sir G. Young), described his own civil servants' study of the issue as "political dynamite", because it showed that the Department had been unfair to several authorities. A cover-up then followed, and the full picture was never revealed, either to the local authority associations or to the House of Commons.

Mr. Patrick Jenkin

rose—

Dr. Cunningham

I shall give way to the right hon. Gentleman, although today, as on the last occasion that he spoke, he refused to give way to me.

Mr. Jenkin

I absolutely refute the hon. Gentleman's charge that there was a cover-up. On the contrary, the documents were circulated widely to the local authority associations. The hon. Gentleman tries to pretend that some copies of the document were leaked. They were to be found in the offices of every local authority association in England. The hon. Gentleman's comment is a damp squib. The authorities welcomed the changes in GRE that we have introduced. Is the hon. Gentleman saying that we should not have studied that reaction?

Dr. Cunningham

I question what the right hon. Gentleman has just said to the House, because copies of the leaked document were not available in that form to local authorities; nor were the written comments of the right hon. Gentleman's junior Minister, describing the document as "political dynamite", available to the local authority associations.

The point is worth developing a little further. In 1984–85, Hackney borough, the most deprived borough in England, was allocated £11.4 million by the use of the E7 factor. The leaked document said that Hackney should have received £20 million. When the local authorities were finally consulted, that figure had become £16 million. Following further discussion, Hackney was allocated £7 million for 1985–86, but the council has finally ended up with £13 million.

Ministers continue to pretend that GRE is an objective and unbiased test of needs — a claim that is totally belied by the events that I have just described. They illustrate all the symptoms of political chicanery and political dishonesty at their worst. But it is on the basis of Government manipulation of those allegedly fair calculations that the iniquitous Rates Act is applied to override local democracy and accountability.

The report, and Government policy underpinning it, stands condemned by all national local authority associations. The Tory-controlled Association of County Councils has been bitterly critical of the report because of its impact on the shire counties. A few weeks ago—this was repeated to me in a letter that I received on Christmas Eve and mentioned again today—the Secretary of State said that the settlement shows that I am, thanks to our rate limitation policies, now in a position to stop asking prudent authorities for real terms cuts to counter the excesses of the high spenders.

The fact is that 65 out of 77 metropolitan authorities, 11 out of 39 shire counties and 113 out of 296 district councils face real terms cuts in their grant as a result of the right hon. Gentleman's policies. He has consistently promised help to his shire county friends and said that the report fulfils his pledges and those given by the Under-Secretary of State, the hon. Member for Bristol, West (Mr. Waldegrave). In reality, 38 out of 39 shire counties have spending ceilings below their GRE—below what the Government say is our objective test of what they should spend. That is a worse situation than in the current financial year. Things will he worse next year than this year. Sixteen shire counties suffer grant loss even if they spend at target as a result of the report. Essex will lose £19 million, Hampshire £15.5 million, Surrey £15.7 million, Hertfordshire £14 million and Berkshire, the very shire county that the Secretary of State chose to speak about in his statement in December—what we might call the Berkshire factor—will lose £10.4 million in grant if it spends at target next year. Oxfordshire will lose £10 million.

In his statement on 11 December, the Secretary of State mentioned Berkshire as an example of a county given favourable treatment. Now we know the result—a loss of grant of over £10 million next year for spending at target. The reality is that, in exchange for a minuscule increase in a target that is arbitrary anyway, a massive loss of cash results. As the ACC says, the 10 shires that benefit from the additional 0.125 per cent. increase in targets are allowed, in total, to spend an extra £2.7 million of their own money between them on total targets of £2.42 billion. That is a measure of the right hon. Gentleman's generous help to his friends. As a consequence of his decision, those same authorities will lose cash grant of £46 million in the process. That is how the Secretary of State has helped the shire counties. That is the true nature of the right hon. Gentleman's help, if it can be called that, to the shires; and it remains the case that lower spending authorities receive lower than average target increases in the report.

If in 1985–86 shire counties spend at their GRE, they will lose £1.5 billion in grant penalties under the present system. The right hon. Gentleman hinted at getting rid of targets and replacing them with GRE. That would be worse for the shire counties than the present situation, because they would catastrophically lose grant. That is a measure of the ferocity of the Government's policies.

The ACC and the Association of District Councils confirm, as has the Secretary of State for Education and Science, that the Rates Act, far from benefiting the shires, has greatly restricted their share of the total available increase in targets and their receipt of grant. The Rates Act does not help the shire counties—quite the reverse.

The ACC calls on the Government to recognise that Government policy has resulted directly in the equivalent of a 38p national rate increase since 1980–81 before any excess spending is allowed for. The ACC believes, as we do, that those policies lead to instability, incomprehension and a further loss of local accountability.

It is worth referring to some of the comments by shire county leaders in the Tory party. Councillor Roger Parker Jervis, for one, wrote to The Times and said: Right across the country prudent Conservative councillors know their targets are unrealisable and ridiculous, and that to spend above them is inevitable if local services are not to break down or become the subject of derision. Thus penalties will, as in Buckinghamshire, increasingly fall heavily on the same hapless ratepayers for whom the Government claims to stand champion. I am not willing to countenance such injustice.

The Tory leader of Oxfordshire, Councillor Eric Bond, predicted a steep rate rise in the county next year". Mr. Bond has called for a meeting with the Secretary of State to discuss the implications of the report. He made it clear that Oxfordshire councillors had been stung be Mr. Jenkin's claim on Tuesday that 'our undertakings to the shires have been met to the letter'". Going on to discuss the implications of the report, Councillor Bond said: This contradicts Mr. Jenkin's claim that people will be delighted with the Government's attempts to control rates.

The Conservative leader of Oxford city council, Councillor Janet Todd, said: Councillors are being made whipping boys for the defects of the rating system.

Even the chief constable of South Yorkshire, Mr. Peter Wright, has said that his police authority is caught in a vice between the Home Office and the Department of the Environment. One report says: The Home Office always said that extra resources must be found from existing manpower and finance, said Mr. Wright. 'That is one side of the vice, and the other is provided by the Department of the Environment … Having gone through a recent budget trimming exercise, I know that any further cuts mean losses in manpower'. That is the sort of thing that is being said about the rate support grant. I learnt today that even the Tories in Bradford are seeking legal advice about the implications of the report for them and their authority.

The Audit Commission, set up by the Conservative Government, has produced a damning indictment of Government policy towards local government finance. The report contains fundamental contradictions of all that the Secretary of State has been saying about the effect of Government policies on local councils. It demonstrates the futility of those policies. It demonstrates the futility of Government claims to be improving the efficiency of local government, with their systems of penalties and Whitehall interference. The Audit Commission's report makes it clear that rates in England are now higher than they would otherwise have needed to be, as a direct result of Government policy. The commission estimates that rates over the past three years have been higher than they need to be by some £1,200 million. Government-imposed targets are also shown to be confusing and based on inaccurate and inadequate information about the situation in our towns, cities and counties. Whitehall interference has undermined local accountability and management, and confused ratepayers.

That is what the Audit Commission says. Its report not only vindicates and substantially underlines what the Labour party and I have been saying about the ineptitude of Government policy, but makes it clear that Government policy is creating an appalling situation and making difficulties for local councils very much worse. That view is shared by every major local authority association, many professional bodies, the trade unions and the academic world.

Mr. Robert C. Brown

Does my hon. Friend agree that the policies of the Government are multiplying the problems in the inner cities? Does he agree that councils, such as Newcastle city council, have to spend more money on the problems of the inner cities, but the more inner city partnership money they spend, the nearer they are brought to being rate-capped? Is that not a monstrous injustice to the inner cities?

Dr. Cunningham

Yes, I agree with my hon. Friend. The reality is that the Government are in the ridiculous position of giving extra resources to partnership authorities with one hand and taking those resources away from them with the other.

The Secretary of State used to speak favourably about the Audit Commission. At a conference in Wembley last year, he said: The Audit Commission has provided councillors with a powerful new weapon in their fight to keep costs down and so keep their rates down. He went on to say that it would help them to improve their efficiency. However, when the first major report of the Audit Commission on the Government's own system of local government finance was published, the right hon. Gentleman changed his tune. He said: The Government's immediate reaction to this Report is that whilst most of its recommendations seem reasonable, they are based on a number of wrong-headed arguments. The Secretary of State is the only person who believes that to be the case.

The Secretary of State ignores all criticism, advice and evidence, and staggers on into the quagmire of his own creation. Promises and undertakings are cynically cast aside and all the arguments in favour of good local government and better and more efficient public services go unanswered. They are cast aside—throughout my speech the right hon. Gentleman has made a series of running sedentary interventions—rather in the way that the Under-Secretary was cast aside after his performance on the Rates Act in the House and in Committee. The behaviour of the right hon. Gentleman has been very nasty, if he does not mind me saying so.

Government policy is inconsistent, incoherent, incomprehensible and incompetent. In these matters—local services, education, housing, social services, transport — there is worse to come from this most criticised of Governments.

In these matters, too, the gulf between the Labour party view and Tory policies is vast and increasing. We are concerned to enhance local democracy. This Government destroy it. We are committed to better quality public services. This Government undermine them.

We condemn the report as mean, vindictive, biased and incompetent. It is typical of the gerrymander philosophy that the Government have expressed throughout their local government policy. I urge the House to reject it.

4.53 pm

Mr. David Howell (Guildford)

There can be no doubt that the system of holdback, targets and block grant based on grant-related expenditure and grant-related poundage is one of the most miserable inheritances that any Secretary of State has ever had the ill fortune to receive. It has now reached a degree of complexity, as my right hon. Friend conceded today, which compares with the way in which the administration of the Austro-Hungarian empire was conducted, when it was said, hon. Members will remember, that items were put in an, endless series of pigeon holes and never recovered. It is in fact a machine without direction. I share the hope of my right hon. Friend that it should go as soon as may be and, indeed, the wish of others of my right hon. Friends that it should go as soon as possible.

I was never, I concede, a fan of the great complexity involved in the system and I must confess to my right hon. and hon. Friends on the Front Bench that I am not totally uninfluenced in my renewed views about this by the fact that the borough of Guildford has received news of a 73 per cent. cut in its grant in 1985–86. This tends slightly to colour my views. I understand that this is called "a search for overall fairness", but it is a little difficult to see exactly how that fairness works out. There is also the difficulty that this news has been received two months before the rate is made by the borough. I know it has been a continual difficulty over the years that the basic arithmetic on which local authorities, both district councils and county councils, have to plan tends to get dumped on them impossibly close to their major decisions on planning their expenditures on services and, indeed, their longer-term projects.

This brings me to the substantial point that I wish to make, and which I think my right hon. Friends have already accepted—namely, that we simply must handle these issues in future in a more strategic, systematic and long-term way to make any kind of sensible economising and to make the drive for higher efficiency sustained and sustainable.

It is perfectly true—this must fairly be conceded to my right hon. Friend—that his undertaking that the target situation for the low-spending authorities will be improved has been met. If I may refer again without apology to my own borough of Guildford, the target of what it may spend of money raised in one way or another has substantially increased. For the coming year, I think that it is something approaching 6 per cent. However, what has not increased, but, as I have already said, gone dramatically the other way, is the grant. It has been cut by 73 per cent., and that announcement reached the borough council about which I am speaking two months before it has to make a rate.

I say to my right hon. Friend — here I depart strongly from the histrionics that we have heard from the hon. Member for Copeland (Dr. Cunningham) and the general view of the Labour party—that I am not against a strategy of reducing the central Government taxpayer support for local government spending. I think that that is a worthy strategy. I can never really understand the modern Labour party's view that more and more taxes should be taken from often very low income taxpayers and families in straitened circumstances to finance substantial expenditure by local authorities, which does not necessarily go the poorest people of all. This is a sort of mad redistribution in reverse of the kind that only the unthinking group of people which the Labour party today is comprised of, could possibly espouse. If it is to be the pattern—I believe that it is right—that we reduce the grant support element to local authorities over the years, it must be done in line with a strategy. It is virtually impossible if it is done by the sort of hiccups and sudden moves that have been operated in recent years.

Why has this difficulty arisen? Again the mechanics are obvious. Each year a terrific fight takes place in Whitehall, and people are so exhausted by the settlement this year that it is in the interests of no party to go on and try to work out a settlement for next year. The Treasury does not want to settle it because it hopes that it might get a still tougher settlement, and the spending and sponsoring departments, the local authorities, do not want to come immediately to a conclusion because they hope, always with fingers crossed, that there will be some better prospects for next year.

Thus, there is no strategy and no one has been able to say over the years to the local authorities—particularly those which seek to economise and co-operate and to be, in the words used by the Minister for Local Government to describe Guildford borough council — a model authority—"Over three, four, or five years the grant element will be reduced by so much and you can plan accordingly." Therefore, they have not been able to plan and have been thrown into these great difficulties.

Behind this lies a much bigger question, of which my hon. and right hon. Friends on the Front Bench are well aware. There is no strategy for reducing grant year on year, because there is no strategy yet established of what that grant should be for, what the source of finances should be for local authority functions, and, indeed, what the pattern of local authority functions itself should be.

The Committees and groups that have been formed by the Department of the Environment will have to address themselves to that aspect and make some radical decisions if, as I passionately believe, the amount of taxpayers' money going from central Government to local authorities is to be radically reduced and the independence of local authorities increased in the way that I and many Conservatives wish. If that is the aim, we need a major re-examination of the vast range of functions now financed by local government and inevitably requiring huge injections of central Government funds.

Mr. Laurie Pavitt (Brent, South)

The hon. Gentleman's generalisations seem to ignore the fact that ratepayers are also taxpayers, and vice versa. Moreover, he seems to assume that all taxpayers are poor and all ratepayers are rich. In my area the reverse is usually the case.

Mr. Howell

I am making no such assumption. I am simply seeking greater independence for local authorities. I am sure that the whole House will agree that a great deal of the difficulty and bad blood under successive Governments has arisen because of the transfer of taxpayers' money from central Government through the processes of local government into a certain range of functions. I do not expect this to be generally agreed, as I do not believe that public policy makers have yet thought the matter through, but I believe that we shall have to face the question of the largest consumer of local government funds handled through local authorities—education. If teachers' salaries were centrally funded, we might at last begin to move towards the stage at which rate support grant was no longer needed — except for a certain equalisation across the country, the admitted complexities of which are as nothing compared with the vast difficulties and visible injustices of the present system.

The difficulty for Ministers at present is that they are under pressure from the Treasury to reduce the rate support grant each year—from 51 to 48 per cent, and so on down—but the reallocation of functions which would allow a really radical reduction is not yet in place. That vital part of the strategy is not yet established because the breakthrough in thinking has not yet occurred to enable major reform of the range of functions that local authorities are allowed to conduct. When that takes place we shall begin to return to the independence of local government, with local activities financed from the rates, with a certain amount of equalisation grant for areas in greatest need, which was always the intention in earlier days and from which we have departed.

Until that basic difficulty is solved we shall remain in the quagmire of complexities in which Ministers currently have to struggle amid great difficulties, making very little progress and facing a storm of criticism at every turn. The latest attempt to achieve the "overall fairness" to which I rather cynically referred earlier takes the form of a new type of grant-related expenditure calculation, with some very bizarre elements.

A great deal of this seems to relate to the amount of money that local authorities are allowed to spend on leisure facilities. If I have this wrong, I hope that I shall be corrected, and I shall value any comment on this aspect. The new arrangements appear to mean that the greater the charges imposed by local authorities for entry to leisure facilities such as parks and swimming pools, the less grant they will receive, but the less grant they receive, the more they will of course have to charge for entry to those facilities. That merely adds to the great complexities already inherent in the system.

I shall not detain the House further on that aspect, as I believe that we have now all realised that that is the fundamental problem. Until we get the question of functions straight, we shall not get the finances straight.

There is, however, an additional factor, which we debated before Christmas — what local authorities are allowed to do with capital receipts. Here, too, much more fundamental reforms are required. In this context, the right hon. Member for South Down (Mr. Powell), who is not in the Chamber, in one of his fascinating speeches suggested that the Government were wrong to seek to control expenditure of capital receipts, which belonged not to the authorities but to the ratepayers—it is easy to fall into collectivist language and imply that the institutions own the funds—but should instead examine the control and administration of local authority borrowing. He went on to say, amid cheers from the Opposition—erroneous, in my view, as I do not believe that they fully understood the right hon. Gentleman's point — that if local authorities had full control of their capital receipts, but had to raise loans on their own security rather than on the credit and security of central Government, that would be a logical and rational approach to increase the independence of local government.

I do not think that I have distorted the right hon. Gentleman's point. I am sure that many of the authorities now moaning for more access to capital receipts to supplement their budgets do not for one moment envisage having to raise loans and borrow on their own security, and many of them would have great difficulty in doing so.

Mr. Patrick Jenkin

I, too, heard the comments of the right hon. Member for South Down (Mr. Powell), but I do not entirely follow the point that my right hon. Friend the Member for Guildford (Mr. Howell) is making. It is important to put it on record that local authority borrowing is not guaranteed by the Government. I think that that has become more widely known in recent months as some authorities faced with rate-capping have threatened not to pay their debts. That being so, I am not sure that the right hon. Gentleman's point had quite the force that my right hon. Friend suggests.

Mr. Howell

I am interested to know that. If local authorities borrow on their own security and not on that of central Government, that is a desirable state of affairs which should lead to greater independence of local authorities without their activities constantly undermining the Government's economic and financial strategy, which has been a constant difficulty in the past. The question of capital receipts is very much part of the jigsaw and requires further reforms and improvements.

I end this somewhat one-tracked contribution by repeating what I said at the beginning. We shall have no peace, no clear basis and no feeling of fairness among local authorities, even the low spenders, until we have clearly established what their functions should be and how the rate support grant can fairly be reduced in line with the reduction in the functions on which local authorities are required to spend money.

5.8 pm

Mr. Norman Atkinson (Tottenham)

I wish to comment briefly on some of the conclusions reached by the right hon. Member for Guildford (Mr. Howell). The policy of non-payment of debt to which he referred was reached collectively by the authorities concerned when they were thinking of pursuing a policy of non-compliance with the Government's wishes. That has now changed considerably. No doubt, as the debate develops, we shall hear what is the current position on how those authorities can best seek to defend their services and employment responsibilities.

I agree with the right hon. Member for Guildford that the whole miserable system should go and I believe that majority opinion favours that. The curious thing is that the Government have lived with it for five years. Despite their constant references to the inherent injustice of the system, they have merely added to the injustice and are now making it even worse. As the right hon. Gentleman said, the Government's proposals are bizarre—even when one considers the major influences that have driven the Secretary of State to make his decisions and to reduce the aggregates in the way that he has done.

Someone receiving a meal from the meals-on-wheels service would find it incomprehensible if he were told by the person delivering the meal that the reason for his saying, "I am sorry, love, but there is no meat today," was that to all intents and purposes, Britain now had an oil economy and an oil currency, that there had been a row in the Gulf, or a run on the pound, and that the interest rates were worrying the Treasury. Decisions about the quality of local authority services are dictated by external events in no way related to this country's attempts to maintain a welfare system which recognises the priorities to which Conservative Members continually refer.

I want to consider the difficulties created for the London borough of Haringey by Government policy, and the difficulties with which it will have to contend in attempting to protect the local people. The Secretary of State has now taken on the role of sequestrator. Philosophically, he is using the same methods and mechanism as the sequestrators who are tackling the trade unions. In relation to authorities such as Haringey, his functions seem to be identical to theirs.

The right hon. Gentleman was once a member of the borough council of a constituent part of Haringey, and was at one time, I believe, the chairman of finance.

Mr. Patrick Jenkin

Housing.

Mr. Atkinson

I thought that the right hon. Gentleman had been the guru in charge of Hornsey finance. The right hon. Gentleman is familiar with some of the problems of the borough, and I am amazed that he can gloss over so easily the difficulties that now beset Haringey as a normal London borough.

First, there is the formula which the right hon. Gentleman has used in setting targets and in deciding the amount of grant. We hear constant references to the local authorities' spending ceilings and general expenditure limits. As I understand it, the right hon. Gentleman will not legally enforce any expenditure limit except for the purpose of imposing penalties. If a local authority wishes to spend above its target, or above the spending ceiling to which the Department refers, the right hon. Gentleman will not prevent it from doing so as long as the money is not drawn from rate revenue. If the money is found from other resources controlled by the authority—from any savings which the authority may have made—it may use such resources to enable it to spend more than its ceiling in order to maintain services. I take it that the right hon. Gentleman's silence means that I am right and that there is no such thing as a legal ceiling on local authority expenditure.

Mr. Patrick Jenkin

What the hon. Gentleman says is broadly correct. The expenditure level of which we gave notice last July was intended to make clear the basis of the rate limit that I announced in December. It is the rate limit which the House will shortly be invited to confirm, and which will be the legal limit. If Haringey or any other authority has other funds tucked away which it wishes to spend in order to maintain a higher level of spending, it will be free to do so. That will be its choice. The rate limit is designed to potect the ratepayers. It is an upper limit on the amount that an authority can raise from the ratepayers.

Mr. Atkinson

That is a most important statement. It clarifies the Minister's thinking. He is concerned about extracting more penalties out of savings, as he will do if the authorities exceed their ceilings. The penalties inflicted under the present ceiling arrangement will increase the right hon. Gentleman's revenue.

Haringey now has no savings and depends entirely upon the money that it receives from rate revenue. In fixing the maximum amount to be collected in rates the Secretary of State ignores the fact the last year Haringey spent the money that it saved. In rate-capping Haringey at a certain level, the Secretary of State has ignored totally the fact that Haringey had to spend all its savings last year in order to stand still. That has created serious problems for the authority.

Mr. Patrick Jenkin

This is an important point. If Haringey believes that because we have not taken account of the state of the borough's reserves the rate limit that we have set requires of it greater savings than we have estimated, the legislation provides the remedy. However, the borough must get a move on, because I shall very soon have to confirm the limit and lay the order. The borough has a remedy. It may ask for the limit to be raised. I have said so again and again. If it refuses to do so, it must be satisfied with the limit that I fix.

Mr. Atkinson

It is not too late for all the rate-capped authorities to talk to the Secretary of State about such problems.

Mr. Patrick Jenkin

Where are they?

Mr. Atkinson

There is every chance that they are on their way to talk to the right hon. Gentleman about their problems. The implied unemployment is now becoming a real factor, as is the unfairness that arises where there is a difference of millions of pounds between the savings of one authority and those of another.

The right hon. Gentleman referred to the statement that he made on 24 July. He has also said that there would be only a minimum reduction on the amount that Haringey was to be allowed to collect via the rates. But that is not so. According to the right hon. Gentleman's figures, Haringey must cut its expenditure by nearly 14 per cent., rather than the 3.5 per cent, which the right hon. Gentleman mentioned on 24 July and subsequently. Because, last year, in order to maintain its services and its employment levels, Haringey had to dip into its savings and clear out the cupboard, the borough is now being heavily penalised by the massive reduction being imposed by the Minister. This is an astounding situation and is contrary to everything that the right hon. Gentleman has said.

According to the figures now produced by the right hon. Gentleman, Haringey will receive a total grant of £20.8 million. That is an amazing reduction from 1979–80, when the Government funded 56 per cent, of total expenditure in the borough. The grant has been reduced from 56 per cent, of permitted expenditure to 14 per cent, of budgeted expenditure for next year. The Secretary of State is suggesting that Haringey should restrict its expenditure to £128 million next year, but Haringey says that merely to provide the same services as were provided last year it will need £148 million.

Of the £148 million, the grant is worth only £20.8 million. That is an astounding reduction. It is not a wild exaggeration to say that that is punitive for the people whom Haringey is trying to protect — the most vulnerable. It is one of the most heavily populated areas of London and suffers some of the most severe social deprivation. We have 16 per cent, unemployment—the level is still higher at my end of the borough. Nevertheless, the Government are insisting on reductions in Haringey's expenditure. That will result in massive job losses in the authority. The Government's figures suggest that between 2,100 and 2,300 employees will have to leave.

The block grant system is also grossly unfair because the formula for grant-related expenditure means that there is a maximum variation of only 4.5 per cent, between good and bad authorities in terms of social conditions, not expenditure. That is astounding. Haringey is dealt with exactly like Doncaster and Wakefield, although the unit cost of providing services in such Yorkshire authorities is far lower than in Haringey—far less than 4.5 per cent. The figures that the House is considering show that the differences that affect allocations are insufficiently taken into account.

Mr. Michael Shersby (Uxbridge)

I have listened to the hon. Gentleman's argument carefully. What is the population of the London borough of Haringey?

Mr. Atkinson

It is 201,000. Although I understand that the number has come down recently, it is comparable with the areas to which I have referred. The variants that are built into the numbers are insufficient.

Mr. Pavitt

Much of what my hon. Friend has said applies to the London borough of Brent, which has a population of 250,000. Ethnic changes have had a substantial impact. Half of the population being from ethnic minorities requires many differences in rate support considerations to enable us to have a multiracial community. Does he agree that such considerations seem to be missing from the documents before us?

Mr. Atkinson

My hon. Friend is right. The problem is not that the differences are not recognised, but that the variants are insufficient to take account of those social differences.

We should register our dissatisfaction, from a London point of view, with a system that does not take care of our needs. Government grant represents just 14 per cent, of Haringey's budgeted expenditure. Haringey has mandatory commitments involving between £58 million and £61 million. The Secretary of State might shake his head and say that that is irrelevant, but it is an important consideration. When total Government grant is only £20 million and mandatory commitments involve about £60 million, it is clear that if we are to achieve the savings on which the Secretary of State insists—from £148 million to £128 million — the majority must come from job losses. The Secretary of State is coolly telling the House that the great bulk of the savings will come from pushing people on to the dole queue. That does not seem to worry him. No doubt he thinks that some other Secretary of State for the Environment will pick up the tab and that, in the meantime, such savings will solve his problem. The social consequences of such action are enormous in areas such as mine. That part of the argument seems to have been glossed over.

There are many ways in which savings can be made. I do not claim that everything that the public sector does is the epitome of efficiency. There are many criticisms —we all know what they are—but most local authority money is spent sensibly. All of those whom local authorities employ are accountable and contribute to social welfare in the authority's area. If, because of mandatory commitments, so much of the money that must be saved has to come from job losses, the Secretary of State is saying that Haringey must reduce its work force by about 2,000 to 2,300.

That is an enormous cut. The Secretary of State has said that he does not think it possible to cut by more than 5 per cent, in one year, yet here he is demanding a cut of 14 per cent.—nearly three times what he believes is attainable. That is what he is imposing upon an authority that is driven almost spare by the pressures upon it. If that is not upside-down leadership, I do not know what is.

From now on there can only be misery — cuts in services, in jobs and everything else that the Haringey authority provides. Who will benefit? Certainly the people of Haringey will not, nor will the Government. If we consider the aggregate, the Government will be the loser, because it will cost more to get rid of those people than to increase grant support.

We have four requests. There should be a removal of holdback. Secondly, the 1984–85 slope should be retained. The Minister has said with a great deal of pride that he has increased the slope. That is damaging for inner London authorities, because, as the slope is increased, so things will become increasingly difficult. Thirdly, the GREAs should be improved in line with the recommendations of the Association of London Authorities. Fourthly, grant percentage should be restored.

London authorities, particularly those like Haringey, do not want increases in expenditure limits or matters like that to be discussed. What they want is money. They want more from the Secretary of State than he is proposing to give them. That is where the damage is being done. Surely he does not want to go down in history as the person who cut Haringey's services and denied so many people not just the inheritance that he has talked about in welfare services but their jobs. He will be the biggest butcher of jobs of all time in Haringey if this policy is pursued. Let us hope that it is not too late for him to give hope to people in Haringey by revising the figures.

5.32 pm

Mr. Michael Shersby (Uxbridge)

For the past seven months or so I have spent much time discussing the effect of the rate support grant settlement on the London borough of Hillingdon, in which my constituency is situated, and upon the domestic and business ratepayers. During that period I have attended numerous meetings with the leader of the council and his colleagues and I have made the strongest possible representations to my right hon. Friend the Secretary of State and the Minister for Local Government about the way in which the block grant system is operating most unfairly against prudent Conservative-controlled local authorities, particularly in outer London.

The reason for all the activity in which I have been engaged, together with my hon. Friends the Members for Ruislip-Northwood (Mr. Wilkinson) and for Hayes and Harlington (Mr. Dicks), is that by last summer the leader of the council and his colleagues were keenly aware that, unless the calculations upon which the grant is distributed took account of their excellent performance since they came to office some six years ago, it seemed certain that the grant would be too small, the target out of reach and the penalty in terms of grant loss such as to result in a rate increase of over 40 per cent, or massive reductions in public expenditure to maintain existing services at their present level.

The House, and particularly my hon. Friends, will agree that this is serious for a good Conservative-controlled authority which has already reduced expenditure considerably over some six years. It is extremely depressing for the hard-working councillors who have carried out Conservative policy and for the ratepayers who are concerned about what is happening. They are particularly concerned because Hillingdon has, for the past six years or so, delivered an annual rate increase which has been little, if any, more than the rate of inflation. That is a very good record which is appreciated by the business community. In other words, both the domestic and the business ratepayers in Hillingdon have had a good deal from their council and they expressed their confidence in that council at the last election by providing the Conservative party with a substantial majority to continue its policies. One of the key elements of those policies is the control of public expenditure, which has substantial support within my borough, as has been made known to me by residents' associations, business men and many others.

What is the problem that faces Hillingdon and a number of authorities which, like Hillingdon, are not rate-capped? To answer the question it is necessary to examine the grant-related expenditure assessment. Since the 1981–82 First Supplementary Report which set GREA for England at £17.2 billion there has been an increase of 23.4 percent.

in the settlement to £21.22 billion for 1985–86. The GREA for outer London boroughs in the same period has increased by 17.4 per cent, to £1.71 billion. The Hillingdon GREA has increased from £71.7 million by 16.2 per cent, to £83.3 million. That means that outer London has received an increase in GREA which is less than three quarters of the national increase for England as a whole, but Hillingdon has been treated to an even lower increase. Why?

One explanation which has some validity is that Hillingdon provides certain services which were introduced by the previous Labour-controlled council which was in office for some years and which was succeeded by the present council in 1978. Those services relate mainly to education and social services. It has been suggested by some of my colleagues that perhaps we are spending too much on, for example, adult education, the rising-fives programme and nursery education.

If my right hon. Friend feels that we are spending too much on those services, I cannot do better than to draw his attention to the remarks of my right "hon. Friend the Prime Minister in the House on 19 February 1973 when, as Secretary of State for Education and Science, she was introducing the White Paper entitled "A Framework for Expansion". She said: Dealing with nursery education, the first major proposal in the White Paper was that within 10 years nursery education should become available without charge to children of three or four whose parents wished them to have it." — [Official Report, 19 February 1973; Vol. 851, c. 42.] Hillingdon implemented that policy. Many people in my constituency find nursery education to be a great advantage, and I share their view.

In regard to social services, we have 12 old people's homes, we provide a subsidised meals-on-wheels and home-help service, and we pay special attention to the needs of the mentally and physically handicapped. I am sure that my right hon. Friend will recognise that if Hillingdon did not provide those services to that extent it would probably not exceed its GREA. If Hillingdon and other authorities are being told to change their expenditure on such services, at least it would be sensible to provide notice and some material help to achieve that objective.

Let us consider the block grant. The first calculation for the 1981–82 financial year was £29.9 million for Hillingdon. The computation for 1985–86 is £17.9 million — a reduction of 40 per cent. I stress that the 40 per cent, reduction has nothing to do with the borough council's spending plans. However, it has a great deal to do with the distributive mechanism for block grant. The reduction for 1985–86 brings the safety-netting process into operation to protect Hillingdon against loss of grant. Hillingdon is not alone. For example, nearly one half of the 146 non-metropolitan districts are in the same position.

Hillingdon is, however, in that select group of eight authorities—with Cumbria and Durham county councils, Chester-le-Street and Forest Heath non-metropolitan district councils, Salford metropolitan district council, Tower Hamlets and Richmond upon Thames London borough councils—which have been safety-net protected against grant loss for each of the five settlements between 1981–82 and 1985–86. Is that not curious? Does my right hon. Friend agree that to require safety-net protection in each of the five settlements suggests that something fundamental is wrong with the figures that he has set for each of those authorities from the outset of the block grant system?

Surely my right hon. Friend must accept that the order has to apply safety-net protection against grant loss for 161 authorities — approximately 40 per cent, of local authorities in England—which is more than the previous highest number of 142 in 1982–83. That demonstrates beyond argument the instability and manifest unfairness of the system which prevents the proper forward planning of services which Parliament has authorised, and, indeed, encouraged the authorities to provide.

Mr. Patrick Jenkin

I am listening carefully to my hon. Friend's case. As I said in my speech, this year we made more adjustments in the GREAs to take account of representations by local authorities and local authority associations about unfairnesses that existed before. We have recognised them and made changes. Of course, as my hon. Friend says, the safety-net procedure exists to minimise the impact on local authorities which lose grant. I should have thought that my hon. Friend would have recognised that the safety-net procedure is designed to protect authorities such as his from what might have been a greater impact as a result of changes in GREAs.

Mr. Shersby

I do not question the safety-net provision. It is there to avoid excessive losses caused by changes in grant methodology. However, I question the efficacy of a system that necessitates such protection for a large number of local authorities. The system is far from perfect.

Let us consider the effect that this unjust system has upon my constituency. The continuing reduction in base grant, the 15 per cent, increase in grant-related poundage slope and the swingeing effects of the massive increase in penalty—up 250 per cent, from 2p to 7p for 1 per cent. over target—will require the council to slash its services if it is to continue with its previous record, which I have been proud to support, of containing rate rises to the level of inflation, in spite of the adverse effect of excessive grant settlements.

The decision about what action to take rests with the Hillingdon councillors alone. Let me make the options clear to the House. They are a rate rise of over 40 percent, or service reductions of 15 per cent., equivalent to £11 million, to produce, say, a 5 per cent, increase in line with inflation. They are the two extremes facing local councillors. I do not envy them their task of having to find an acceptable solution. I hope that they will find a compromise somewhere between the two extremes.

I remind my right hon. Friend that I am speaking about an authority which, according to the 1984–85 Audit Commission profile, spent £27, or 6 per cent., per head less than the outer London local government family average. Even after the disastrous effects of grant which pushed rateborne expenditure to £71 or 30 per cent, above that local government family average, it still managed to levy a rate in 1984–85 below that local government family average.

Why, after all the representations by my colleagues and myself, do the Government intend through the rate support grant system to mete out such treatment to a borough such as Hillingdon? Why should I be expected to support a settlement which, at the same time as having a devastating effect on my local authority, can increase the entitlement of one of its rate-capped neighbours by 11 per cent.? I am sorry that the hon. Member for Brent, South (Mr. Pavitt) is no longer in his place, because I am sure that those figures would be of particular interest to him.

I must tell my right hon. Friend that I cannot and will not any longer support a settlement which is so manifestly unjust and which cannot operate with sufficient sensitivity as to take into account the success and achievement of my local authority which is of such a high order that it was described by one of his predecessors in office as one of the blue chip authorities.

I am most grateful to my right hon. Friend and the Minister for Local Government for their constant courtesy and willingness to meet me, councillors and local business men to consider Hillingdon's plight, but I cannot accept that my right hon. Friend has been able to make any real impression on the rigidity and inflexibility of a system which cannot and should not continue.

My right hon. Friend has said today that he hopes in due course to bring forward some proposals for change. I hope that they will be significant and that he can make some meaningful changes for next year.

I have to ask myself what is my duty to my constituents tonight. I am clear that it is to express in no uncertain terms to my right hon. Friend and his colleagues my constituents' grave concern about his inability to meet the reasonable expectations of one of the best local authorities in Britain. I very much regret, therefore, that I shall not be able to support the motion to approve the report.

5.48 pm

Mr. John Cartwright (Woolwich)

This is the fifth rate support grant settlement since the Government started to try to control local authority spending under the Local Government, Planning and Land Act 1980. It must take the doubtful prize of being the most complicated settlement yet. It has been made more complicated because it is the first settlement under the new rate-capping regime set up by the Rates Act 1984.

The Secretary of State accepts that the complexity of the settlement makes it almost impossible for anyone to understand it. That must undermine the accountability that is so vital to local government. In the past Ministers have argued that complexity is necessary to achieve accuracy in assessments, but Ministers frequently tell us that grant-related expenditure settlements involve a broad brush approach and a rough approximation.

In fact, we have the worst of both worlds — a complex system based on somewhat dubious assessments. Ultimately, that must become self-defeating. If GREAs cannot be understood, changes in grant cannot be understood. That makes it impossible to explain to ratepayers why their rates vary, which makes the defence of local accountability very much more difficult to mount.

The other major feature that has become all too obvious about this settlement is that the Secretary of State has achieved the dubious distinction of having upset virtually everybody. The metropolitan authorities are unhappy because they are being asked to make real cuts in spending when the majority of the shire authorities are not. The shire authorities are equally unhappy because extra block grant and extra leeway in targets have gone to the so-called overspending rate-capped authorities and not to the more prudent ones.

The Association of Metropolitan Authorities has argued that, on the basis of the Government's inflation figures, real cuts in spending are being asked of 65 metropolitan authorities, which is 85 per cent, of the total. In the non-metropolitan areas, real cuts are being sought from only 11 counties, which is 28 per cent, of the total, and from 113 districts, which is 38 per cent, of the total. Not only are the targets generally unfavourable to metropolitan authorities, but the revisions to the target methodology have not helped. Of those authorities that have had their targets increased, only 13 out of 213 are metropolitan authorities. That is the case for the metropolitan areas.

The Association of County Councils argues that the 18 authorities due to be rate-capped have target increases of nearly 21 per cent, and that those authorities alone have taken up 43 per cent, of the total increase in targets available. In a judgment that cannot be very good news for the Secretary of State, the Conservative-controlled Association of County Councils states: The introduction of rate-capping, far from benefiting lower spending authorities, has very greatly restricted their share of the total available increase in targets. That, of course, is not the prospect that was offered by Ministers when they were seeking to encourage their Back-Bench supporters to go through the Lobby in favour of rate-capping, but that is what has become all too clear in this settlement.

As we have heard in the debate already, some of the loudest screams of pain and bewilderment have come from those authorities which have actually done what the Government asked them to do—cut their spending and kept to their targets. As a result they do not find that they are being rewarded in any major way by the Government. The concession that has been granted to the lowest spending authorities is minimal. Those who try to follow what the Government dictate are still being penalised.

My hon. Friend the Member for Portsmouth, South (Mr. Hancock) intervened in the Secretary of State's speech to point to the problems being experienced by the Hampshire county council. Its chief executive said that he regards the concessions being given to authorities such as his as only minimal. He said: The gap between the target and the Government's own assessment of Hampshire's needs as reflected in the Grant Related Expenditure Assessment is widening and now stands at £29 million. If the County Council were to spend up to the level of assessed need it would incur penalties of £94 million involving a rate precept increase of a further 40 per cent. So far as Hampshire is concerned the purpose of GREA appears to have been lost. That loyal Conservative authority clearly feels that it has not been given a proper reward for having stuck so closely to the Government's guidelines.

The same pattern has been clear in London, as the hon. Member for Uxbridge (Mr. Shersby) made clear. The Tory-controlled London Boroughs Association points to the fact that all of its 24 authorities budgeted within 5 per cent, of their target for 1984–85. All but two of them were within 2 per cent, of their targets and 10 were actually at or below targets. Yet in 1985–86 those councils—with the exception of Westminster—will be required to make real cuts ranging from 0.7 per cent, in Kensington and Chelsea and the City to 5.9 per cent, in Hounslow.

The London Boroughs Association, with commendable loyalty to the Government, said that it hoped that its member authorities would endeavour to meet their targets.

However, it pointed out that that would be a difficult task, especially in view of the stringent economy that most of the boroughs had exercised for many years.

The system is clearly rigged to keep low-spending authorities as low-spending authorities. Back in what appears to be the almost halcyon days of 1983–84, a 1 per cent, overspend resulted in a loss of grant equivalent to a 1p rate. In 1985–86, a 1 percent, overspend means the loss of grant equivalent to a 7p rate. It is, therefore, very much more difficult, both politically and financially, to raise spending levels. The new draconian system means that lower-spending authorities suffer most from penalties in relative terms.

The Association of County Councils has pointed out that if its members has overspent their targets in 1984–85 by an average of 1 per cent, the penalty grant loss would have been £68 million. If the same overspend were to take place in 1985–86, the penalty grant loss would be £240 million—an increase of more than 250 per cent. That shows the way in which the small overspenders will be substantially penalised in the settlement before the House.

Together with hon. Members from both sides of the House, I believe that that underlines once again the inadequacy and unacceptability of the whole complex system of targets and GREAs. The whole system is failing to make sense. GREA was originally introduced as an independent measure of what an authority needed to spend to produce a standard level of service. As other hon. Members have said, many authorities have budgets fixed well below the GREA level and are forced to keep them that low by Government targets and by the punitive system of penalties.

We have already heard that three shire counties— Berkshire, East Sussex and West Sussex-would lose all their block grant in penalties if they spent to the GREA level — the level which the Government suggest they need to spend to provide an acceptable level of service. Another four counties — Buckinghamshire, Dorset, Norfolk and Surrey—would lose 85 per cent, of their grant if they spent to GREA level. That undermines the whole case that has been presented during the past five years, that GREA is a useful objective assessment.

I wish briefly to deal with rate capping. I remain convinced that it is an unacceptable interference in the affairs of local government. It is obviously interference in the affairs of the rate-capped authorities. It is now becoming all too clear that it also interferes in the affairs of the non-rate-capped authorities, because they are losing grant which they might otherwise have had if it had not been diverted to the rate-capped authorities.

The effects of rate capping are clearly much greater than the Government originally thought. That results from the distortions that are produced by the whole system of targets and penalties. In earlier years a number of the rate-capped authorities understated their budgets to qualify for more grant, which now has an impact on their expenditure limits.

The expenditure limits which the Secretary of State announced on 24 July did not, at first sight, appear unreasonable. He was asking for a cash freeze in 15 authorities and a 1.5 per cent, cash reduction in the GLC, the ILEA and my borough of Greenwich. Closer analysis shows that the expenditure limits were much tougher than that. The Secretary of State has taken a very narrow view of expenditure in 1984–85. He has chosen to ignore expenditure being financed from special funds and a variety of other what are now called creative accounting devices which councils have been forced to adopt to minimise grant penalties. The effect of that was to turn what was claimed to be a cash freeze into an average real cut of 11.9 per cent, for the rate-capped authorities. Individual councils face real cuts of between 6 and 28 per cent, to get down to the expenditure limits.

The Government on the one hand, and rate-capped councils on the other, are taking part in a damaging game of political brinkmanship, and what is at stake is the quality of services provided to local people. I fear that the local people will be the losers in this battle. Rate-capped councils should stop their political posturing and negotiate with the Secretary of State. Meanwhile, the right hon. Gentleman should be as flexible as possible to correct what are clear errors in the original expenditure limits that he fixed. We should accept that this is not a private fight between Conservative Ministers and Labour councillors. We are talking about extremely important services on which many of our constituents depend.

Mr. Tony Banks

Is the hon. Gentleman aware that, by their actions, the Government have turned this into a party political fight? The decisions now being made by Ministers are based, not on a rational assessment of need, but on party political spite. What other response does the hon. Gentleman expect Labour-controlled authorities to give?

Mr. Cartwright

If the rate-capped authorities have a good case—I do not accept it in its entirety, though I accept it to the extent of believing that the expenditure limits imposed by the Government are sometimes based on faulty information—I cannot understand why it should not be argued with all the power at their disposal before the Secretary of State. That is what councillors were elected to do, but they fail in their duty if they simply sit on the sidelines trying to extract political benefit from the brinkmanship that is now going on.

We have in Britain a rating system that is unloved and unreformed. Not only are rates an inappropriate tax to carry the heavy burden that is placed on them, but rateable values are wildly out of date and the Government have not fulfilled their promise on revaluation. In the White paper, entitled "Rates", Cmnd. 9008, of August 1983, the Government said about non-domestic rates: Significant changes have occurred in the relative values of some categories of property since the 1973 revaluation. The Government accepted that that had distorted the tax base. As a result, rate bills for some categories of property are much higher or much lower than they ought to be. In particular, the relative rental values of large, old buildings, occupied by labour-intensive industries, many of them in the Midlands and the North, have in general declined substantially since 1973. The Government also said: These distortions should be rectified. The Government propose to set in train the work required for a non-domestic revaluation. Referring to domestic values, the White Paper said: The Government are considering urgently the case for a domestic revaluation and will issue a consultation document as soon as possible. Those clear commitments were given 18 months ago, but we have seen no indication of what will be done as a matter of urgency to deal with the distortions in the system of rateable values.

I agree with hon. Members who argue that changes are needed in the system of local government finance, but we need a more radical change than some have in mind. There is no lack of evidence on and results of research into the problem. It is more than eight years since the Layfield committee presented its report based on two years of detailed expert work. The Government undertook their own consultation exercise in the last Parliament. Yet now we are promised another series of inquiries and studies into the whole problem of local government finance.

We need no more research and study, but the political will to change the system. We must accept that there is no ideal system, one that is proof against every possible criticism. I remain convinced that Layfield was right when it recommended that the only way forward was the introduction of a system of local income tax to replace or supplement the system of rating. The computerisation of the Revenue has made that a more practical proposition than it was in 1976. The sooner we get on with the job, the better for the ratepayers and the health of local government in Britain.

6.5 pm

Mr. Churchill (Davyhulme)

I agree with the hon. Member for Woolwich (Mr. Cartwright) that low-spending authorities are boxed in should they seek to increase their expenditure.

I have great sympathy with the Secretary of State. Those, if there be any, who would present him with bouquets are significantly absent from the Chamber, whereas those who wish to belabour him with brickbats are here in force, and I regret to tell him that I find myself in that latter category.

Last year the Secretary of State undertook to assist low-spending authorities. Much has been said about the plight of the shire counties, but not only those counties are suffering. As the representative of part of the metropolitan borough of Trafford in Greater Manchester, I assure my right hon. Friend that we suffer the same problems with a vengeance.

The Secretary of State claimed to have honoured his pledge, given last year, to assist the low-spending authorities on the basis of the 4.625 percent, increase. In consequence of that increase, Trafford has benefited to the extent of £267,000 in the current settlement but, regrettably, because Trafford is labelled a high-resource authority it will lose £56,000 of that in grant if it spends the extra money, for we suffer from what is known in my right hon. Friend's department as a negative marginal rate of grant. As a result, we lose 21p in every pound. While, therefore, I am sure it was not my right hon. Friend's intention to mislead the House, his opening remarks today were not accurate in the case of Trafford borough council.

Thus, while the net benefit from this special dispensation for low-spenders is barely £200,000. in almost the next breath my right hon. Friend is again removing £2 million in grant from Trafford. Our grant is being cut from £20.5 million this year to £18.5 million next year, and we have recently been informed that we have lost a further £1.05 million on notifications of adjustments on previous years.

Mr. Straw

The hon. Gentleman says that his authority's grant has been reduced from £20.5 million to £18.5 million. Does he appreciate that that grant this year would have been only £18.5 million but for the fact that his authority was given grant that was taken away from so-called overspending local authorities? In other words, his borough is the classic example of a lower-spending Conservative authority benefiting through the grant system from alleged overspending by Labour authorities.

Mr. Churchill

I am all in favour of the borough of Trafford benefiting from the excellent rate-capping policies of the Government. My complaint is that we do not seem to be benefiting. The bottom line for my constituents is that, in spite of the Secretary of State's promises and the £250,000 added to us for being a low-spending authority, Trafford is this year losing £3 million, or 15 per cent, of its rate support grant, and that is an unacceptable level of penalty.

I regret to say that this is not a one-off situation. Last year we lost £2.5 million, and the year before that £1.9 million. In the preceding year we lost £2 million. If we take a 10-year perspective, it is estimated that at current prices, and allowing for the transfer of part of the grant to the Greater Manchester council, Trafford's 1975–76 grant would be worth £40 million. If the 26 per cent, overall reduction nationally in rate support grant is applied, Trafford's grant this year, on the basis of the 1975 settlement, would be £29.6 million. That means that Trafford has lost £11 million over and above the national reduction.

I am sure that my right hon. Friend the Secretary of State will concede that no local authority could have followed the Government guidelines more closely than Trafford. In each of the past four years it has been within £2,000 of the low side of the Government's guideline, with the exception of 1983–84, when it undershot by £1.75 million. I believe that Trafford should be congratulated on the responsible way in which it has budgeted and sought to remain within the Government's guidelines. However, it has been losing about 10 per cent, of its rate support grant year in and year out.

This year the Government have excelled themselves. Trafford's loss this year, including the clawback of £1 million in respect of previous years, is about 15 per cent. What is the Secretary of State's purpose? Why does he insist once again on kicking in the teeth his most loyal supporters? I freely exonerate my right hon. Friend from any charge of malice. However, following his remarks in opening the debate, about the complications of the formulae and the abstruseness of the acronyms that are involved, we must wonder whether he and his ministerial colleagues begin to understand the system, let alone its unfairnesses.

Trafford suffers from being labelled a high-resource area. One of the key reasons for that is that it encompasses the vast industrial area of Trafford park. As is recognised in a recent White Paper, which was referred to by the hon. Member for Woolwich, the industrial areas of the north of England are seriously overvalued and, therefore, overrated. The Government's failure to proceed with a rating revaluation—there has not been one since 1973— means that my constituents are being penalised in each RSG settlement.

Trafford is not alone in being labelled a high-resource area. London is in the same boat. However, unlike London, Trafford does not have its difficulties acknowledged by the Government. The London boroughs benefit from the effect of the so-called multiplier. Paragraph 9 of the rate support grant White Paper states: Multipliers are a device for adjusting grant entitlement. They can be used for a number of reasons—for example, to … discount part of the rateable resources in a particular area eg in London".

Why should all the privileges and cash go to London? Why should an industrial northern area such as Trafford not be entitled to benefit in the same way and to be protected from being, allegedly, a high-resource area?

Mr. Simon Hughes

I appreciate the problems which the local authority within the hon. Gentleman's constituency has to face, but the implications are the same when a London borough has suffered a reduction in its share of the budget from 16 to 15 percent. If that happens, we may reach a similar conclusion. I hope the hon. Gentleman will agree that he cannot conclude that London must be happy because it is a net beneficiary of the readjustments of which he is complaining, because it is not.

Mr. Churchill

London has benefited for a long time from the multiplier effect. Its effect is to enable most London boroughs to enjoy a discount of 30 per cent. I believe that Tower Hamlets receives a 45 per cent, discount. This obviously has a bearing on the resources available to it. If this system were applied at the London level in the Manchester borough of Trafford, the resources that it receives from central Government would increase by £12 million to £15 million. I ask my right hon. Friend the Secretary of State to take into account the clear bias and unfairness that exists because there has been no proper rating revaluation. This has had an adverse effect on industrial areas in the north. Secondly, high-resource areas such as London are discounted, whereas Manchester is not.

Last year I and my hon. Friend the Member for Altrincham and Sale (Sir F. Montgomery) took on trust the assurances of my right hon. Friend the Secretary of State and his ministerial colleagues that positive steps would be taken to help low-spending authorities. I cannot accept that to give Trafford £211,000 with one hand and to take away £2 million with the other is an acquittal of that promise. As a strong supporter of the Government's policies across the spectrum, it will give me no pleasure whatever to be unable to support the Government when the House divides later this evening.

6.17 pm

Mr. Peter Pike (Burnley)

During the election campaign prior to the Conservative Government taking office in 1979, Conservative party candidates promised to give more freedom to local government. They promised also to abolish the rating system. Local government has not been given more freedom. Indeed, it has been subject to increasing restrictions year after year.

I was involved in local government until last year. At the time when I was elected to this place, I thought that local government had seen the worst of the Government's impositions. Unfortunately, local government finds itself in an even worse position. The controls that the Government have placed on capital and revenue expenditure have tied down local government and made it impossible for councillors to do the job for which they are elected. I often wonder now why members of the public stand for election as councillors. If elected, they will be unable to do the job that they wish to carry out on behalf of those whom they represent.

We have seen no change in the rating system since 1979. I recognise that the present system is an easy and cheap form of taxation and that it is difficult to agree on an alternative system that would not produce more anomalies and problems. However, the Government have failed to meet their promise to abolish the rating system.

A considerable burden has been transferred from the Government to local ratepayers since the Government were elected in 1979. The RSG settlements since 1980–81 show that a massive burden has been transferred from central Government to local ratepayers. That would be so even if we assumed that there had been no inflation and that the costs of running local government during that period had remained static. The 1980–81 RSG settlement was 61 percent. In 1981–82 it was reduced to 59 per cent., in 1982–83 to 56–1 per cent., and in 1983–84 to 52.8 per cent. For the current year it is 51.9 per cent., and we are talking of 48.7 per cent, for the following year. That means that an additional burden of 13 per cent., which would have been borne by the Government if the settlement were still 61 per cent., has been transferred to local ratepayers. At the same time, additional burdens and tasks have been thrown on local government by central Government.

The Government admit that they cannot assess the costs borne by local government. It is extraordinary that the Government can introduce policies without fully knowing the cost implications to local government in terms of staff and revenue. It is clear that, even without taking account of holdback and penalties, the Government are responsible for most of the rate increases in recent years.

The Secretary of State referred to rate increases next year in single figures, yet the Association of District Councils forecasts that 67 shire district councils will need rate increases of more than 20 per cent, and 164 district councils will need increases of between 10 per cent, and 20 per cent., with the average increase likely to be 11.7 per cent. The ADC is certainly not a Socialist-controlled body, yet it says that this year's RSG settlement is harsh, and I certainly agree.

My hon. Friend the Member for Copeland (Dr. Cunningham) said that 38 out of 39 shire counties had cash targets below their grant-related expenditure assessment level. Lancashire is in that position. If Lancashire county council were to spend up to its GRE figure, it would incur penalties of £46 million. The GRE is, however, the level considered to be necessary to provide a typical standard of service, according to the Government's criteria. That level is not determined by the local authorities; it is the Government's basis for determining what a council should spend.

Lancashire's GRE is just over £532 million and £22 million over its cash target figure. Expenditure above that level results in the council incurring a penalty. That is nonsense. To maintain its present level of services next year, Lancashire would need to increase its precept by 46 per cent. I do not envy the councillors' unpleasant task of dealing with their budget in the months and years ahead. The council really needs to spend more on education and social services, and surely it cannot be expected to cut fire, ambulance or police services.

I am annoyed about the way in which we allow subsidies to be provided for private residential homes for the elderly. There has been a massive growth in the number of those homes. Would it not be far better to allow those Government subsidies to be transferred to local government to provide care for the elderly than to permit profit to be made from them? If the Lancashire county council does not make economies, the ratepayers will be heavily penalised by the Government. That is wrong. The Government must think again about their proposals.

The position of the borough of Burnley differs from that of the county of Lancashire. The borough's cash target is higher than its GRE. The GRE assessment for the year ahead is £5,422,000, which is £50,000 less than this year. We are not certain why the figure is lower. The cash target has increased by 3.75 per cent, on this year's target to £8,481,000—much higher than GRE. During the current year, the council is budgeted to spend slightly over its cash target. If the council budgets in 1985–86 to spend at target, what will happen as a result of the Government's proposals for next year's RSG? The reduction in grant alone will cost Burnley ratepayers £510,000, or the equivalent of a 6p rate on top of this year's 40p rate. Just to spend at target, the council will have to increase the rate by 8p to 52p. That is what will happen without inflation and extra services.

At the top end of spending on this basis, the rate of grant will be down by 12.5 percent. That is the penalty incurred for having a cash target higher than GRE. Once a council spends above its GREA, the rate of grant decreases. When a council spends at the threshold level, RSG decreases again. That causes a considerable difference at the top level of 12.5 per cent. That is what the measures will mean to Burnley next year.

Burnley council feels that its GRE is far too low. That point has been made on many occasions to Ministers, but there has been no reaction from them. It is nonsense for Burnley to experience such a large difference and to receive such a large part of its grant at the lower rate once it has gone above GRE. The ratepayers of Burnley must, therefore, meet a much higher percentage of the cost, and that is wrong.

The Government recognise Burnley as a deprived area according to its designation in the Inner Urban Areas Act 1978. In 1983, Burnley was designated as a deprived area. Because expenditure arising from Burnley's designation is not disregarded and because there has been no adjustment in GRE, there have been revenue implications. Burnley can, therefore, incur further penalties, and that is wrong.

Burnley has not yet finalised its budget for 1985–86. At this stage, its estimates are well above target. Burnley council is not a high spender or overspender. Burnley is an old industrial town. It is like other towns in Lancashire, such as Preston and Blackburn, on which this country's wealth was built during this century and the last. Those towns, which have experienced industrial dereliction, must deal with many problems. Inflation has caused some increase in expenditure, because the inflation rate is higher than the increase in target.

I am worried about the fact that, year after year, the Government fail to recognise that capital allocations have revenue implications. Many people, on noting housing investment programme allocations, tend to think that that money is handed on a plate to local government. They do not think of HIP as permission to local authorities to borrow money or of the revenue implications. Capital allocations affect staff and thereby revenue.

Each year, Burnley council has great difficulty in ensuring that revenue demands are containable within the budget. Our HIP allocation is totally inadequate. Indeed, next year's allocation has been decreased by £1 million. We cannot deal with the housing problems facing us in Burnley. Burnley and many other towns are heading in the near future for a housing crisis in the public and private sectors, but that is a subject for another debate. It is appropriate to consider the revenue implications of the HIP allocation in today's debate.

When I was chairman and leader of Burnley borough council I believed that the grant portion of the HIP allocation had only a small revenue implication and that the council should spend more of the grant in the private sector because the revenue implication was less than new build of sheltered housing or improvement of council houses. However, the 10 per cent, revenue implication for Burnley on meeting the debt charge for improvement in the private sector is now running at about £250,000 which is equal to a 3p rate.

Mr. Straw

Does my hon. Friend accept that there are indirect as well as direct revenue implications from HIPs in boroughs such as his and mine upon all the current services of the borough and Lancashire county council from not solving the mounting housing crisis due to the additional burdens that will be placed on the social services?

Mr. Pike

I accept that point. The burden on social and other services will increase rapidly. In the long run, the cost to central Government will be high because we will reach a stage where we can no longer improve the housing stock but will face demolition and clearance, which is far more costly.

Ministers often imply that council balances are too big and that they should reduce them. As I have said more than once, a balance can be used only once. Once it has gone, the implication has to be met the following year. It also reduces revenue because interest is obtained on investments.

Next year only 20 per cent, of capital receipts can be used. That has serious implications. This year Burnley will have spent the 40 per cent, permitted. That will reduce the income to the housing revenue account from the money that has been invested and held in reserve. I utterly oppose the reduction. Capital receipts supplement the capital programme. If the council can pay from capital receipts, there are no revenue implications. Councils should have been permitted to continue to spend at the present level of their capital receipts.

Burnley is not an overspender. That applies to all Labour-controlled councils which are referred to continually as overspenders. They are trying to provide services for the elderly and transport for those who need public transport, to improve industrial requirements to maintain jobs, and to clear industrial dereliction and take their boroughs and citizens into the next century in the type of environment to which they are entitled. They are not overspenders. I challenge the Secretary of State to come to north-east Lancashire to see its towns. If he believes that we are overspending, let him tell the public what he would want to cut and where we could save money. I am opposed to the Government's proposals for next year's RSG.

6.33 pm

Mr. Robin Squire (Hornchurch)

Unlike most speakers, may I begin with a kind word for my right hon. Friend the Secretary of State? [Interruption.] I have no interest in the Secretary of State. My kind word arises from the outcome of the 1984–85 settlement. It is worth putting that on record, because we were told then by many prophets of doom that rate increases would be 15 to 20 per cent. They turned out, as my right hon. Friend said, on average to be 5 per cent., and some were even reduced.

My right hon. Friend has also said that he believes that the picture will be similar for the 1985–86 settlement. I join him in hoping that that will be true as I need no convincing that high rates are damaging to employment prospects and industry generally.

I hope that my right hon. Friend who is to reply to the debate will take it in good part if I devote the rest of my speech to analysing the 1985–86 settlement with, I hope, constructive suggestions of how we may proceed a little better.

It is perhaps stating the obvious that no one but the Treasury seems to welcome the RSG. This year is no different from any others. There seems to be a growing tendency for so-called high and low-spending authorities to claim piously that they, more than any other group of authorities, have been treated worse by the settlement. A moment of thought will convince us that both groups cannot be right. It is a consequence of the complexity of the system, which, in fairness, my right hon. Friend the Secretary of State has acknowledged, that all groups of authorities sooner or later find themselves out of sympathy with one or other of the many complex ways in which the settlement operates.

I shall consider, first, the rate-capped authorities. I fear that one consequence of the system will be the reduced accountability of rate-capped authorities to their electorate. The Government's stated intention is to have low rate rises and lower expenditure in real terms. In broad terms, I applaud that. As a consequence of the settlement, some authorities have received more grant and many have received easier targets. Let us consider the example of the Islington people's republic. It did not receive any grant in 1984–85. It has now been rate-capped and is scheduled to receive £25 million in 1985–86, and, because targets are based broadly on 1984–85 budgets, its target will be only 1.5 per cent, down on that figure, which, in relation to other London boroughs, was comparatively high.

I accept that penalties for overspending have been made considerably more severe in this settlement, although they are predominantly—

Mr. Jeremy Corbyn (Islington, North)

How much grant is Islington due to receive in the next financial year under the settlement announced by the Secretary of State?

Mr. Squire

As I said to the House a moment ago, according to the figures that I have, Islington is scheduled to receive £25 million in 1985–86. No doubt if I am wrong the hon. Gentleman will give us another version.

The effect of raising penalties on overspending will be felt proportionately more by the marginal overspenders than by the large overspenders. It is difficult to get away from the feeling that at least some of the wages of sin are high grants.

The key point is that the total of the grant adjustments and various assumed spending level adjustments affect rate demands by much more than adjustments in local authorities' spending levels. That worries me a great deal. I believe—I hope that my right hon. Friends accept this —that we should be moving towards greater accountability of local authorities to their electors, rather than appearing at times to be moving in the opposite direction. I contrast that with the position of low-spenders. This year—this is welcome—they received an improvement in their target figures of 4.5 or 4.625 per cent. on their 1984–85 budget.

However, the system, in effect, underplays the cumulative effect of years and years of overspending or underspending. Regardless of one's political view, that means, as we have already heard today from other hon. Members, that many so-called low-spending authorities face massively steep cuts in Government support. I can give a few examples. The royal borough of Kingston falls from £15.7 million to £14 million; Surrey county council falls from £46.5 million to £36.2 million—at that rate it will receive no grant in another three years—and Essex county council goes from £147 million to £132 million. They are all low-spending authorities. I know that my right hon. Friend, when he replies, will say that it is an unavoidable consequence of the system, arising from its treatment of high resource authorities, but it comes a little hard on such authorities when they compare that treatment with the treatment apparently meted out to the high-spending authorities.

I will use my own authority, the London borough of Havering, to illustrate what I think will happen in London. If I get it wrong, I am sure that my right hon. Friend will point me in the right direction. The London borough of Havering, like most outer London boroughs, is a responsible authority. As I understand it, the GLC capped precept for 1985–86 will be under 1 per cent. less than the current year, so we can probably assume that there will be approximately the same precept for the coming year as for the current year.

In addition, outer London boroughs will need to find the LRT precept of 10.8p. There is an overall reduction—we all know about it—of central Government grant, and clearly London will take its share of that reduction. All boroughs must also find money to fund the inflation-adjusted cost of their existing services, plus the inevitable improvements in some services. I do not believe that it is possible to find all that money without having a rate increase higher than the rate of inflation. I say that with some sadness, because I hope that we would seek to have rate increases at or about that level, but I am worried that it would be difficult, if not impossible, for that to be so in outer London.

I should like briefly to put down a marker for the settlement for next year. I noticed that it was done in the debate last year, albeit in a different context. My short and simple point concerns the financial arrangements for the abolition of the GLC. The present proposal is that certain functions will be charged to the boroughs on the basis of population, whereas in the past they have been charged on the basis of rateable values. I am the first to accept that in theory, by the time that we have passed through the equalisation process and all the other measurements, everything will turn out to be exactly the same, but that is in a perfect world. In this respect, perhaps more than in most others, I submit that we do not live in a perfect world. There is real concern in outer London boroughs that they will suffer as a result of the proposed new basis. I hope that my right hon. Friend will consider that problem in time for next year's settlement.

I should like to place on record the importance of the continuation, for much of London and the London boroughs, of the equalisation scheme whereby the inner London high resource authorities fund the rest of London. Much of that resource is generated by the activity, in employment or shopping terms, of outer London residents, and it is only fair and proper that they should continue to have some share of that benefit in the future.

With regard to grant-related expenditure, I should like to follow some of the interesting points made by my hon. Friend the Member for Uxbridge (Mr. Shersbyl, who is not at present in the Chamber. I welcome the improvements which have been made in refining GRE statistics, although there are still one or two bugs in the system. The two largest areas of expenditure are education and social services. The GRE figures for London boroughs show that no more than two or three of the outer London low-spending boroughs can come down to anywhere near the level of their GRE figures. I shall need some convincing that that is because they are wild overspenders and not because there are inherent faults within the system of measurement which, I am sure, also apply outside London. It seems unlikely in the extreme that all the otherwise very responsible authorities should consistently find themselves way above the figures for grant-related expenditure. If targets are to be abolished some day, and if GRE is to become virtually the sole source of control and measurement, reform will become even more essential because of its higher elevation within the system.

I welcome—as I am sure almost every hon. Member must—the recent announcement of a review of the system of funding local authority expenditure. However, there is some danger of the announcement that there is to be a review of local authority finance becoming the equivalent of, "Your cheque is in the post." None the less, we cannot have everything in life. Above all, I assume that my right hon. Friend will confirm that there cannot realistically be a prospect of a new system being in place before the next general election. Therefore, we shall be looking at at least three settlements—or perhaps more—the basis of the present system. That is why it is so important to improve it.

The present system relies on rateable values that are now 12 years out of date. It relies on a total rate support grant that has fallen below 50 per cent. On the basis of the principle that he who pays the piper should call the tune, now that local authorities are meeting more than half the expenditure, will my right hon. Friend, as a starter, consider removing the existing targets and controls from low-spending authorities, as they are already paying, in virtually every case, more than half the cost of their services? That suggestion at least seems to be worth looking at.

I remain convinced, as I think several hon. Members know, that the only real solution is a major long-term reform which above all recognises the social revolution that we have experienced. The old concept of one rateable unit and one wage earner in a household has long gone out of the window. The fact is that several earners within a home are competing, so to speak, with those homes with only one earner and it is the central fault of the present system. That is the only reason why putting still greater weight on local expenditure, as against income tax, must remain a little suspect until the necessary reform is in operation.

In essence, the whole problem with targets and penalties is that, the more we have, the more we seen to need. Perhaps it is a consequence of pressure building up. The more we seek to stop pressure here and there, the more we seem to need it. It is almost a form of addiction—a sort of local government bondage. The more controls we try, the harder it is to give up the habit.

Years ago the last Labour Government—it was years ago, fortunately — successfully managed to shovel largesse to their friends quite shamelessly year by year. Today, despite a vast amount of human and computer effort, and consequent expense, we simply cannot do that. That may be a gain or a loss, depending on how people look at it, but it is a reality. Perhaps, until we get the necessary reform, the safest thing for all of us to accept is that virtue in general will be sparsely rewarded, and that those seeking to achieve anything better than that will have to look forward to the long-awaited outcome of my right hon. Friend's review.

Several hon. Members

rose—

Mr. Speaker

Order. Before I call the next speaker, I should tell the House that I understand that the first Front Bench speaker would like to rise at about 9 o'clock. I estimate that if those who are in the Chamber now speak for approximately 10 minutes each, I shall be able to ensure than everyone who wishes to participate in the debate will be called.

6.50 pm

Mr. Jeremy Corbyn (Islington, North)

There is a common theme to debates on local government matters—that, in the many hours intervening between the time when the Secretary of State opens the debate and the Under-Secretary replies, there are no speeches in support of Government policy either from Tory or Opposition Benches. That is because every hon. Member is under great pressure from his own local authority or from people in his area, concerning local authority services and the way in which Government funding is continually taken away from local authorities.

With glee, Tory Members ritually attack the inner city authorities, the Greater London council, the metropolitan counties and all the others, and have voted through the Rates Act and with it rate capping. They will rue the day that they did that, because the Government are fundamentally attempting to destroy democracy for local government. They have been doing so since 1979. The political principle on which they have operated is sheer selective vindictiveness against the poorest people in the country. Every inner city area has been penalised by the Government because the Government's notion of overspending is that, if a council tries to provide services that go some way towards meeting some of the needs and aspirations of the poorest people, they kick the council in the teeth. If a council continues to do that, despite the Government's blandishments, it does not get kicked in the teeth, but has its head cut off and suffers an unprecedented media barrage inspired by the Government. If one looks at any inner city area, one finds that disgraceful pattern.

The Government's policies are not only unpleasant and vindictive but, in their own economic terms, very shortsighted. If all those councils made the cuts that are requested by the Government, what would be the cost in economic terms of paying redundancy money, unemployment benefit and supplementary benefit, and of the loss of tax income, rate income and all the other incomes that would be lost from those deliberately made unemployed by Government policy? There is a circular effect. The Secretary of State for the Environment might not care to reflect on that side of it, but when his term of office ends, as I hope it will soon, he might care to reflect that, during his time as Secretary of State for the Environment, he has done more damage to local government than any of his predecessors, without exception, because he has sought to destroy the very basis on which local government was set up.

Mr. Nicholas Baker (Dorset, North)

I have great respect for the hon. Gentleman because I know that he has some knowledge not only of inner cities but of Dorset. However, can he modify his strictures a little? Under the system, a county such as Dorset, which has followed the Conservative Government's guidelines, comes out worse, so it is said, than many other local authorities, particularly in inner city areas.

Mr. Corbyn

I thank the hon. Gentleman for his intervention, because it illustrates my point.

I represent an inner city area that has suffered badly at the hands of the Government, on rate support grant. It must be said that Islington borough council has not sought to follow the Government's guidelines on spending and has been penalised. However, county councils, shire counties and others that have followed the Government's guidelines are now also being penalised and the Government seem unable to recognise that a county council has services to maintain, often at great expense, as do councils in rural areas—something which, again, is not understood by the Government.

Tory Members might rub their hands with glee at the attack that the Government are making on Islington and other councils like it, but the time will come when the same attack will turn on them. There is an inexorable logic in the Government's process of destroying all local authority independence and democracy as they proceed over the years. Therefore, I hope that tonight there will be a large rebellion by Tory Members against the report, because it will destroy all forms of local government as the Government carry on destroying the welfare state.

I should like to refer to the effect of the Government's cuts on my constituency and Islington borough. I shall try to demonstrate to the House that, had the Government not changed the rules on local authority spending and not so shamelessly attacked certain borough councils, this year the ratepayers of Islington would not face large rate bills but there would be a cut of about 50 per cent. in those bills. That would have happened if the Government had played by the rules under which the current borough council in Islington was elected in 1982. The same could be said of many other local authorities.

The Secretary of State has said that the borough of Islington's budget should be £85.6 million. The council carefully examined all the costs of its services, the needs of the poorest people whom it represents and the implications of the manifesto on which it was elected in 1982. It feels that the budget should be £94 million. That argument can be supported in detail by the borough council. If the Secretary of State wishes, he is free to visit the borough of Islington and find out for himself what is going on there. I renew my invitation to him to come to Islington and join in a public debate on why he selected it for such vindictive treatment. I understand that the last time that he visited Islington he took part in a dinner of the Conservative association—

Mr. Tony Banks

Has it got one?

Mr. Corbyn

The borough has a Conservative association, but it keeps behind closed doors.

The Secretary of State proposes a cut of £8.4 million in the budget of the borough of Islington. The effects of the cut would be felt by everybody in the borough. There would be a loss of around 800 jobs, the closure of several important facilities and cuts in the street sweeping services, the library service, services to help those with disabilities, day centres for the elderly, and home help services. With that tale of misery, a further 800 people would be in the dole queue in a borough where the unemployment rate is already well over 20 per cent. In the two Department of Health and Social Security districts that cover most of my constituency, there are already over 34,000 registered claimants. Therefore, by any stretch of the imagination, it is an area of high unemployment and enormous, grinding poverty.

The Government's solution is to take money away from my borough and my constituency by cutting rate support grant and health spending and by rate-capping the other two authorities that are of great assistance to us—the Inner London education authority and the GLC. Therefore, we are not just rate-capped but tri-capped by the Government. I hope that the Minister for Local Government, for one, will begin to understand—he has some experience of local government—exactly what the effect of all that is.

If the Government had not altered the rules on holdback of grants, the borough of Islington would be £23 million better off. If they had not altered the slope, we would be £28.1 million better off. If they had not changed the rules on the GRE formulae on housing expenditure, we could have a budget of £94 million, which is what is needed for this year, and there would be a rate reduction this year of 40 per cent. for the ratepayers of Islington. That is the truth, which the Government are not prepared to listen to or concede. They are guided in their proposals for local authorities not by notions of efficiency or of the way in which local authorities should be run, but simply by vindictive action against the poorest inner city areas. That is what the rate-capping proposals are about. That is what the abolition proposals are about. That is what the rate support grant cut is about.

In examining each local authority's performance, instead of penalising those which attempt to provide for the needs of the elderly and single people and the housing problems in inner city areas, the Government should look at the high unmet need in any inner city area. I happen to represent Islington. Its needs are not that different from those of any other inner city constituency. We would like more home helps working for the council, more day centres for the elderly and better facilities for the physically and mentally handicapped, because in all those areas there are waiting lists, not at the wish of the council but simply because the Government treat our local authority in the same way as every other.

I believe that we are now coming to the end of the period when local authorities were in a position to argue with the Secretary of State and, if necessary, raise the rates in order to maintain services. That is a painful process that local authorities have gone through every year since 1979. But since the announcement of the rate-capping proposals and the further cuts in the rate support grant, we are reaching the end of the road on which local authorities can negotiate their way out.

The Secretary of State has succeeded in uniting a large number of local authorities of differing areas and in some cases differing needs, uniting all the local authority trade unions in support of those authorities' policies, but also uniting a huge volume of public opinion against the Government because people in the poorest inner city areas realise that public spending through local authorities matters, it is important, and it is a way of redressing some of the imbalances that are endemic in society as it is currently organised.

Mr. Tony Banks

Is not the point that my hon. Friend is making further support to the point that I tried to make to the hon. Member for Woolwich (Mr. Cartwright) when he suggested that Labour authorities should go and argue their case with the Secretary of State? The Secretary of State is not interested in listening to a rational case. All the evidence on local government restructuring in the country is against what the Government propose, but the Government wilfully ignore it. What is the point of listening to people who have open mouths but closed minds?

Mr. Corbyn

Precisely. The Secretary of State continually says that the local authorities on his hit list should come and negotiate with him and talk to him. Frankly, they have had nothing but attacks from him for the past five years. Why should they assume that anything will be different now? Why should they assume that he wants to do anything but try to destroy the unity that has been built up between those authorities and the trade unions that support them?

The Secretary of State has created a monster in his rate support grant proposals and his rate-capping proposals. He has created the most enormous opposition to himself and the Government. The Government may well squeeze this nasty little measure through the House tonight, but the opposition that they have created will live for a long time. The unity of that opposition will live for even longer. It will destroy him, his Government and this kind of attack on democracy, and it will lead to the election of a Labour Government committed to the restoration of genuine local democracy that has been so shamelessly destroyed by the Government.

7.2 pm

Mr. Mark Wolfson (Sevenoaks)

I shall endeavour to respond to your call for brevity, Mr. Speaker.

In following the hon. Member for Islington, North (Mr. Corbyn) — I am aware, having fought my first parliamentary election in that constituency, that Sevenoaks is an area with very different conditions from those of north Islington—I wish to bring to the attention of my right hon. Friend the Secretary of State the way in which the rate support grant settlement has affected the Sevenoaks district council.

The council has done all that the Government have asked of it. I believe that three examples will suffice to demonstrate this fact. First is the record on rates. Expenditure has increased by only 8 per cent. over the last five years against an inflation rate in that time of some 50 per cent. Rate increases in Sevenoaks have gone up by 4.6 per cent. in four years. As to staffing, in the council there were 779 full-time staff in April 1981 and by October 1984 the numbers were down to 559, a drop of 28 per cent. in three and a half years. This has required major reorganisation of management, of structure, of staffing and of working methods. Nevertheless, the council has continued throughout 1984 to plan further economies, further streamlining of services and further productivity increases. At least some of these schemes are unpopular with ratepayers and politically difficult, but in my view they have been right and proper decisions courageously taken by councillors who are determined to achieve value for money for their ratepayers. I will not labour the point, but by any standards this is a record to be proud of. I believe that my right hon. Friend would not disagree.

However, financial planning for 1985–86 is made nonsense by the announcement by the Secretary of State last December of the rate support grant as it affects Sevenoaks and other district councils. Without adequate warning, this year's grant to Sevenoaks has been reduced for 1985–86 by a staggering 18.5 per cent. Of this reduction, one third had been anticipated by the council and taken into account in its proper and prudent budgeting, but the other two thirds comes as a bolt from the blue, far too late for the council—if, indeed, it has any further scope to do so—to make additional cost reductions in time for next year. This means, therefore, as night follows day, a rate increase way above the Secretary of State's guidelines and what the district council wished or deserved to have to levy.

I want to make it clear that neither I nor the Conservative-controlled council is disputing the necessity for the Government to achieve a reduction in the overall level of Government support for local authorities on current spending. That policy has my approval and support. What I do complain about most forcefully is the way in which the rate support grant settlement has continued to penalise the prudent and in some cases to reward the profligate. My hon. Friend the Member for Uxbridge (Mr. Shersby) has given another example on a far larger scale, as has my hon. Friend the Member for Davyhulme (Mr. Churchill).

From my discussions with my hon. Friend the Member for Bristol, West (Mr. Waldegrave) and his advisers, it is clear that two factors in particular cause part of the problems for my district council. These are the change of criteria for assessing the recreational requirement of district councils and the fact that the spending of town and parish councils within the district is not subject to any overall control.

Parish precepts in recent years have increased by between 10 and 12 per cent. annually. In my view the grant-related expenditure factor for total parish precepts bears little resemblance to actual expenditure, despite the statement that GREs take special characteristics into account. I put it to my right hon. Friend that parish precepts should either come into both target and GREs on an actual basis or be excluded altogether. I ask for his assurance that this point will be considered further by his Department.

I return to the main complaint which I wish to put to my right hon. Friend in the strongest terms. Here is a council that has done all that the Government have asked of it. Prudent budgeting has been penalised and forward planning has been made impossible by an unexpected and heavy blow delivered at the eleventh hour. The rate support grant system is still a very blunt instrument. Further refining is essential and such refining must surely result in a very much greater reward for those councils that do what is asked of them. We were given assurances about that last year, but it still has not happened. This year's settlement, although necessary for the nation as a whole, is still far from satisfactory in its application to my own and other careful authorities.

7.9 pm

Mr. William O'Brien (Normanton)

As I listened to the Secretary of State's presentation of the reasons why he believed that the House should accept the proposals, I thought on more than one occasion that it resembled something out of the well-known series, "Yes Minister".

The hon. Member for Sevenoaks (Mr. Wolfson) brought in a new dimension when he pointed out that parish precepts were not covered by the legislation. If he is suggesting that parish council rates should attract rate support grant—he will be aware that at present they do not—I am sure that he will have the support of many Opposition Members. I hope that he will press his right hon. Friend on that.

In addition to 1985–86, the year under discussion, the Secretary of State advised the House that he could not envisage any relaxation of control or rate-capping for the following year, 1986–87. There are already problems this year. The right hon. Gentleman said that, although last spring there were claims that the rate support grant then proposed would mean rate increases of 15 to 20 per cent., rates had in fact been kept down. He boasted that that proved the success of the Government's restrictions, but rates have risen by only 5 per cent. or so because local authorities have had to cut their services. If they had been allowed to maintain services at their previous level, rates would indeed have risen by 15 to 20 per cent., and to provide that same level of services in the future would mean that the 5.2 per cent. increase proposed by the Secretary of State would in fact amount to a reduction of 0.05 per cent. in the money allowed for the provision of local government services.

The Secretary of State said that high rates contributed to high manufacturing and industrial costs, leading to a loss of employment. He said that rate increases were being kept to a minimum to ensure that hardship would not be caused to industry and commerce. If he genuinely means that, why does he not apply the same philosophy to the regional water authorities, which also levy rates? The Yorkshire water authority has imposed increases of 19 or 20 per cent., but rate-capping does not apply to that precept. If the Secretary of State is sincere in the belief that he must control high-spending authorities, he should apply the same rules to regional water authorities, which are creating the same problems for ratepayers as he claims Labour-controlled local authorities are creating in their areas. Incidentally, the chairman of the Yorkshire water authority has laid the blame for those increases above the rate of inflation fairly and squarely at the door of the Secretary of State. I hope that we shall have an explanation from the Government on that, as it seems very strange that there should be two sets of rules in the same game.

Mr. Tony Banks

It would also be interesting to hear an explanation from the Secretary of State as to why rate-capping does not apply, for example, to the Metropolitan police precept or to that levied by London Regional Transport since that area of authority was taken away from the GLC.

Mr. O'Brien

I am grateful to my hon. Friend for drawing attention to those other anomalies. It is clear that the Government wish to attack only Labour-controlled authorities providing the services required by the people in their areas. The cut in rate support grant has created further problems for local authorities seeking to provide the necessary services for the people whom they represent. Having served in local government for 30 years, and having witnessed the recent actions by the Government, I am glad that I am now out of that area so that I do not have to explain to people that education, recreation, planning and social services can no longer be provided adequately because of the cuts in rate support grant and the rate-capping measures introduced by the Secretary of State.

There are also problems in the joint financing system involving local authority social service departments and area health authorities. In Wakefield and Leeds — I represent people in both ctities—the joint financing so necessary to provide the services required by an aging population and to meet the needs of the mentally sick and the disabled have been seriously affected by the cuts and restrictions imposed by the Secretary of State, so that the people most in need are being denied those services as a result of Government action. I ask for some special consideration to be given to the jointly financed schemes.

Mr. Patrick Jenkin

In order to keep my speech short I did not talk about the disregards. However, I have made it clear that next year we will repeat the disregard for penalty for authorities' increased expenditure on schemes jointly financed with health authorities. The arrangements that apply this year will apply next year, too.

Mr. O'Brien

I am grateful for that intervention. A number of hon. Members are very concerned about jointly financed schemes. I hope that the problems facing social service departments which have jointly financed schemes will be given serious consideration—problems connected with the aging population and the care of the mentally sick and the mentally handicapped.

Other hon. Members have referred to the rating system, to the anomalies that exist in the system and to the problems inherent in it. I share the concern that has been expressed. The valuations are 12 years old. The Secretary of State has said that there is to be a review of the financing of local government. If rates are still to be levied on rateable values, I urge the right hon. Gentleman to consider updating the valuations on which rates are levied. The system is 10, 12 or 15 years out of date. When those whose rates have been assessed on those out-of-date levels appeal against assessment, they have to refer back to the value of the property 12 or 15 years ago. That is most confusing. I am sure that the Secretary of State could ease the problems by dealing with some of the anomalies in the system. I appeal to him carefully to consider doing so.

As there are anomalies, and as services are to be cut in many areas, and in my own area in particular, I ask the House not to accept the report. Some Conservative Members have, on behalf of their constituents and local authorities, described problems similar to those described by my hon. Friends. There is some unity about the problems facing local authorities. I hope that those hon. Gentlemen will join us in rejecting the report.

7.22 pm

Mr. Michael Lord (Suffolk, Central)

I am grateful for the opportunity to say a few words about the rate support grant settlement in general and its effect on Suffolk.

If the House stands for anything, it stands for justice and fairness. I am not entirely convinced that, in this settlement, Suffolk is given a fair deal. I support fairness. That is why I support rate-capping and welcome unreservedly the Secretary of State's hope that he may be able to abandon targets next year.

I understand only too well the almost impossible dilemma in which my right hon. Friend finds himself in bringing back under control the runaway expenditure of local authorities in toto. He has the difficult responsibility of controlling local authority expenditure as a whole while, if we are not careful, some hon. Members are tempted to concern themselves solely with their own local problems. I also understand how difficult it is to cut back the wildest spending authorities as quickly and harshly as would be appropriate without causing a degree of hardship and perhaps unrest that would be too high a price to pay.

My right hon. Friend makes no secret of the fact that this is a national problem. It is a problem that we all share. Indeed, some sensible local authorities may have to suffer to some extent as the highest spenders are brought under control. However, that is seen by many people — certainly in Suffolk—as rough justice. In their view, the Government are robbing Peter to pay Paul; and in the past, that has sometimes led the Government to reward profligacy and penalise prudence.

Suffolk county council has a history of managing its affairs carefully and sensibly, yet it now finds itself in a difficult position. In the current year the difference between its GREA and its target is £5.6 million. Next year — 1985–86 — the gap will widen to £12.4 million. In 1985–86 the council will try to use reserves to bridge the gap, but if the situation continues into 1986–87 that will be increasingly difficult to do. Burdens on services will increase and there will be excessive rate increases. For example, the growth in the number of old people in Suffolk far exceeds the national average, yet the number of residential places is below the national average, as is the number of home helps and the provision of meals on wheels, even though I am sure the social services departments are doing their best to manage their services with great care.

The Government may assess the financial needs of a local authority carefully and in detail, taking into consideration all the factors involved, in order to establish its GREA. They may then, by setting a target, deny it the necessary finance. They may do so not because of the behaviour of the authority concerned, but because of the behaviour of other authorities over which they have no control. That cannot be right. I was therefore delighted to hear of the Secretary of State's intention to end targets as soon as possible.

My right hon. Friend has my sympathy in dealing with an intractable problem. However, I return to the question of justice and fairness. The present system cannot be regarded as fair. If, when he replies to the debate, my hon. Friend the Under-Secretary of State is able to confirm my right hon. Friend's suggestion about abolishing targets next year, I am sure that the whole House will be delighted.

7.27 pm

Mr. Tony Banks (Newham, North-West)

One day soon, I hope to find myself discussing in this House something other than local government business. Local government matters seem to be gradually taking over our entire proceedings. Indeed, the Government seem determined to turn this place into a mega town hall and all hon. Members into souped-up councillors—although the material on the Government Benches is not promising.

We discuss the rate support grant every year but, to an increasing extent, the Government are attempting to force the House into interfering with and attempting to control the day-to-day affairs of local government. Hon. Members on both sides have pointed out how arcane the system of local government finance has become. Few hon. Members fully understand it. It is clear that the Secretary of State is not among them. The Prime Minister does not understand it either. A few weeks ago, attempting to answer a question during Prime Minister's Question Time, the right hon. Lady became completely confused between GREAs and targets. I do not blame her for that, but I see her as the spectre behind her Ministers, pushing them into doing things about which they are unhappy. If Ministers are unhappy about what they are doing, they know what—in all honour and integrity—they should do about it. However, I doubt whether we shall see much of those qualities.

The subject has become confused and difficult to understand. That might explain why so few right hon. and hon. Members on either side are present. That has been true for all this important debate. Hon. Members are getting fed up to the teeth with being required to discuss and make decisions on matters that should be left to locally elected councillors. That is why hon. Members decide to take their pleasures elsewhere. We elect councillors to deal with these issues. Why do the Government want to interfere in the day-to-day running of town halls and county halls.

We have heard that the level of rate support grant for next year is to be nearly £12 billion. That sounds a lot of money, but the percentage of Government funding of local authority expenditure has decreased from 60 per cent. in 1978–79 to the 48.7 per cent. of next year. That represents a massive switch of tax burdens from the Government to local government. It is no great surprise that local authorities — Conservative and Labour-controlled — are beginning to rebel.

The grant-related expenditure that the rate support grant proposes for the Greater London council shows a need to spend GREA of £549 million — an increase of £32 million on the settlement for 1984–85. However, if we allow for London Regional Transport and the transport supplementary grant, it represents an increase of about 18 per cent. That leaves a substantial gap between the council's basic budget of £853 million and the £549 million "need to spend" assessment. We can therefore see the great problems that the GLC will face.

The Secretary of State has told us that GREAs have been altered. The GLC was surprised and pleased to learn that there was an increase of £27 million in its GREA for the housing revenue account. We need to know whether the GREA figure for the housing revenue account for last year contained the large error that we understand it to have contained. We have to explain the great differences in the figures. It does not surprise me that miscalculations are now rife in Marsham street, as civil servants struggle to understand the system — just like Members of Parliament.

I asked the Secretary of State why the GLC's target had increased so remarkably. Far be it from me to complain about that, but I need to know the Secretary of State's reasons. Last year, the GLC was accused of being one of the so-called overspenders but, even after allowing for the removal of London Transport, the increase in the GLC's target for next year is a 63 per cent. hike on last year's settlement. The GLC would like to know why there has been such an increase. I should have thought that many of the right hon. and hon. Members who should be sitting behind the Minister would be interested to know why there has been a 63 per cent. increase for what the Government say is one of the highest spending authorities in the country.

I believe that the increase merely shows that the figures are infinitely manipulable and that the Government can change them at whim. That merely makes the system even more uncertain. Moreover, the GLC's targets for last year were the very targets that were used to criticise that council's expenditure levels. Indeed, they were given, in part, as a reason for its abolition. The Government owe the House an explanation for these dramatic changes.

London's total rate support grant has been eroded steadily in real terms since 1979–80. Had the total been maintained at that level, London would have received about £3.3 billion more grant from 1981 to 1985–86. That estimated loss is based on the assumption that London local authorities will spend in line with their targets in 1985–86. If those targets are exceeded, the loss will be greater. When the Government start talking about the level of rate increases in London, they should remember that, since 1979–80, they have filched £3.3 billion from London ratepayers. That is yet another example of the massive switch of tax burdens from central to local government.

The Secretary of State said today that if all local authorities had shown equal responsibility in spending, there would be no need for these levels of targets. In his defence, I should add that he said that rate support grant had steadily decreased since 1979–80 and that the average level of rate increase has also decreased. However, he said that those are only averages. They cover up all of the big differences between local authorities in different parts of the country. The figures do not tell us about the level and quality of services that are now provided in different local authority areas.

It is easy and cheap for the Secretary of State to talk about over-spending local authorities. It becomes a matter of how the Government manipulate the figures, as I said in regard to the 63 per cent. increase in the GLC's target.

Overspend or underspend is what the Secretary of State decides it will be. They depend on the figures that he manipulates in Marsham street. It must occur to the Secretary of State in his more reflective moments that overspending also comes with local authorities concentrated in urban areas, where the problems are greatest—as we heard in yesterday's debate on infrastructure, investment and unemployment. The greatest concentration of problems is found in our great urban areas. It is no wonder that socially responsible Labour-controlled local authorities are attempting to protect their ratepayers from the impact of the Government's economic and social policies. The Government's manipulating the figures pushes them into so-called overspending, whereupon the Government systematically attack them, in alliance with their poodle press in Fleet street.

The Secretary of State said that local authorities can now plan their budgets for 1985–86. That is a joke. How can the GLC or any other responsible local authority plan its budget now for 1985–86? The first reason why local authorities cannot budget is rate-capping. We shall have a long and, I suspect, acrimonious debate on rate-capping in a few weeks time. When considering the timetable that the Secretary of State has set, the GLC consulted counsel. Mr. Roger Henderson, QC, advised the GLC that the Secretary of State's rate-capping timetable can be challenged on the grounds of irrationality and procedural impropriety. Mr. Henderson also said that the Secretary of State is acting with unreasonable haste to implement rate limits which are based on faulty arithmetic.

We know how faulty the arithmetic is. The Secretary of State has estimated that the GLC has about £71 million in reserves. According to the GLC's official estimates, given by professional officers to elected members, the GLC's reserves stand in the range of £2 million to £12 million, depending on the outcome of litigation. As we all know, the GLC is perforce in and out of the courts these days to try to defend itself against the attacks of central Government. No information is given by the Secretary of State about how he arrived at the calculation of the GLC reserve of £71 million. How can a responsible local authority plan its budget when it is clear that it is operating on completely different figures from those that the Secretary of State makes up as he goes along? Therefore, the GLC must use the courts to proceed against the Government on rate-capping.

Rate-capping, and the influence it has on trying to make a budget in line with the gratuitous advice of the Secretary of State, is compounded by what Mr. Justice MacNeill said in a judgment in the High Court on 11 January on the demand of the Secretary of State for Transport for at least £50 million more from the GLC than he was entitled to ask in support of London Regional Transport. Mr. Justice MacNeill said that the Secretary of State for Transport had acted unlawfully, irrationally and procedurally improperly". In that case, costs were awarded against the Secretary of State for Transport. As my hon. Friend the Member for Copeland (Dr. Cunningham) said, despite the fact that the Secretary of State for Transport acted illegally, he will not be surcharged for what he did, because surcharging does not exist for incompetent central Government Ministers. It exists only to penalise democratically elected local authority members who try to defend their services. The difference in approach and in scale of values as between local government and central Government is deplorable.

Mr. Straw

Is my hon. Friend aware that the Public Accounts Committee of the House roundly condemned the present Minister with responsibility for consumer affairs, then a junior Minister in the Scottish Office, for selling off Hamilton college of education at a loss to the taxpayers of £5 million? If he had been a councillor, he would have been surcharged and discharged from office. Because he was a Minister, all that happened was that he was promoted.

Mr. Banks

It would appear that Government Ministers can act with total disregard of the laws that they or previous Parliaments have made. That is grossly unfair. Surely all hon. Members on both sides of the House must accept that standards are different for the conduct of central Government Ministers and of locally elected councillors. The dice is loaded heavily in favour of central Government. The Government come along like a bunch of bully boys and stamp all over town halls and county halls; they declare that their mandate is so much greater than that of democratic local councils that they can do what they want. I believe that hon. Members on the Government Benches are beginning to realise how unfair it is.

When the Secretary of State for Transport demanded that extra £50 million from the GLC, I do not believe that he was acting out of sheer incompetence. We know that he is more than capable of that, but in this case I think he was doing it deliberately to make it difficult for the GLC to keep to its budget. Of course, he has been found out and he will have to get his fingers out of the till.

All this makes it much more difficult for a responsible council like the GLC to proceed with its budget making for 1985–86. How can my council make a budget when there is so much uncertainty and so many legally dubious decisions by incompetent and vindictive Ministers? Labour-controlled local authorities and councils are discussing extensively what they can do. Law-breaking comes into it. The Secretary of State for the Environment, in regard to the Greater London development plan and the Secretary of State for Transport, in regard to the excessive demand from GLC for London Regional Transport, are not setting a good example for law-abiding councils because they have both been prepared to break the law.

The Government are gradually forcing local authorities into a position where they must choose between bad and vindictive laws or the services that they were elected to preserve. The Secretary of State for the Environment is criminalising democratically elected and responsible councillors. Sooner or later, someone will have to give ground. I am convinced that it will not be the majority of Labour-controlled local authorities. I am reminded of the words of George Lansbury in 1921. He was not a head banger. He would not be described as an ultra-Left member of today's Labour party or, indeed, of the Labour party of the 1920s. He held firm Christian beliefs. He said that wicked laws ought to be broken. When Poplar council was resisting unjust laws he also wrote: The question is not whether what we are doing is legal or illegal but whether it is right or wrong. That question is as relevant in 1985 as it was in 1921.

Labour councils would be well advised to decide whether they should set rates at all. As an option, they should now think about refusing to pay debt charges of any sort. When Third world countries got themselves into financial problems over debts owed to the industrialised world they decided that they would not pay and, of course, rescue operations were mounted. Some Labour local authorities might decide to emulate that example during 1985–86. Local authorities might also decide to defy the Secretary of State and set illegal budgets.

These are real options. I would support and advocate a combination of such measures. I believe, like George Lansbury, that wicked laws ought to be broken. If laws are to be party political and if this place is to be used to force through bad administrative law which is clearly based on party political spite, it will become a duty rather than a crime for democratically elected Labour local authorities to defy the Government. From that defiance, we will be able to mobilise the sort of support that is needed to throw the Government out of office.

7.47 pm

Dr. Michael Clark (Rochford)

I might talk about Essex county council or Rochford district council, because both have suffered as a result of the rate support grant. There are 15 other Members of Parliament who could speak for Essex county council so I shall confine my remarks to Rochford district council.

Rochford is a well-run council which has never before taken issue with the Department of the Environment on rate support grant calculations, even though those calculations leave a lot to be desired. Rochford has supported the Government in all their objectives to reduce public expenditure. It was the first council to consider privatising refuse collection. Although in the end it did not go ahead with it, its refuse collection costs compare favourably with neighbouring Southend, which has privatised its refuse collection service. In recent years Rochford has cut its staff by 15 per cent., even though it was tight on staff compared with other councils of a similar size. It sold off surplus buildings and centralised offices. In its policy on council house sales it was well in advance of Government legislation.

As a result of these prudent policies Rochford has, over the last nine years, kept its rate increase every year to single figures. Generally, rate increases have been about 6 or 7 per cent., but in 1979, the year in which the Government were returned to office and inflation was 28 per cent., Rochford district council reduced its rate by 7 per cent.

During the past nine years, Rochford's rates have risen by 52 per cent. while the retail price index has risen by 170 per cent. That has been achieved by effective use of balances and capital receipts and by identifying long-term savings well in advance so that they could be realised and taken into account. Auditors' reports on Rochford show that, in almost every area, its spending is lower than the spending of other councils in the same family of district councils.

At a council meeting before Christmas and before the RSG settlements were known, the council proposed to increase its rates, for two reasons. First, it proposed to increase them by 5 per cent. to allow for inflation and, secondly, by 7 per cent. to allow for the expected reduction in RSG. That 7 per cent. was to take into account a transfer from central taxation to local taxation which would have to be borne by the people of Rochford. The plan to increase rates by a total of 12 per cent. would have meant that it would be the first time in the history of Rochford district council that rates had been increased in double figures.

When the RSG settlement was known, the grant was cut by 19 per cent. more than the council officers and councillors had expected. There had been a major cut of £263,000. That might not appear to be a great deal of money compared with the money referred to by the hon. Member for Newham, North-West (Mr. Banks), but it is a great deal of money for a small council like Rochford. The cut meant that the rate had to be increased by 24 per cent., and we must bear in mind that the highest previous increase during the past nine years had been 9 per cent.

If we look back, the block grant from central Government to Rochford district council in the four years to 1984 actually paid for 44 per cent. of the council's revenue expenditure; last year, it paid for 36 per cent., and this year it will pay for 26 per cent. There has been a major cut in the financing for Rochford from central Government.

The 24 per cent. rate increase that is now a possibility in Rochford—although we hope that it can somehow be avoided—will come about despite Rochford spending in line with Government targets and no grant penalty being incurred. Rochford will have to increase its rates because it has followed and adhered to all the guidelines set by the Government.

One has to ask what the reasons are for that. We are told that one reason is that the method of grant distribution has been amended and that Rochford's GREA has been reduced by 3 per cent. in 1985–86 even though nationally GREA has been increased by 6 per cent. We all know that GREA is calculated on a variety of factors—the number of people in an area, the physical features, the cost of providing services, social and environmental problems and recreational requirements. Of those factors, the number of people in Rochford has increased, the physical features have not changed, the cost of providing services has risen in line with the rate of inflation, the social and environmental problems have got no less, and recreational requirements are ever increasing as people expect more to fill their leisure time.

Why is Rochford facing such a cut? I do not understand it, Rochford district council and its officers do not understand it, and I have no doubt that the people of Rochford do not understand it.

The second reason we are given for the cut is that there is a change in the calculation. I must tell my right hon. Friend that there is no change in the income of the Rochford ratepayers, nor in the services that they expect. I want to draw his attention to the shire areas, counties and districts that will receive a lower share of the grant. That appears to be inconsistent with my right hon. Friend's claim that the shire areas will be treated better.

When we asked the Department of the Environment to give reasons for the cut in Rochford's allocation, it said: The main reason for the loss of GRE for recreation is a major change in the methodology"— a lovely word— designed to take account of the differential use of recreational facilities by different groups in the population, the demands placed on city centres and resorts by commuters and visitors. Rochford prides itself on its recreational facilities, and it has a right to the same recreational facilities as any other district council.

I wonder whether the Department has looked at its map and realised that Rochford is adjacent to Southend—only half a dozen miles away. Many of the summer visitors to Southend use Rochford's recreational facilities, as do Southend's residents.

I want to ask my right hon. Friend a few questions. Is he aware that the Association of District Councils estimates that, as a result of the RSG calculation, 231 district councils will have to increase their rates by more than 10 per cent., 67 by more than 20 per cent.—that includes Rochford—and 18 by more than 30 per cent.

Does my right hon. Friend accept that a 24 per cent. increase in the district rate is acceptable and that an authority making such an increase is not necessarily being irresponsible? What advice does he give to a local authority that has met every one of the Government's requirements, yet finds itself in the same position as those councils that have ignored them? I echo the comments of my hon. Friends the Members for Davyhulme (Mr. Churchill) and for Sevenoaks (Mr. Wolfson) on that point.

My hon. Friend the Member for Devizes (Mr. Morrison) asked what guarantees there were for 1986–87. If Rochford exhausts its balances or reduces its services, what assurances are there that next year a further adjustment in the methodology will not occur that will once again disadvantage Rochford? I hope that my right hon. Friend will accept that the rate support grant calculations are so complex that few people understand them. We had budgets that were replaced with GRE, we have GRE that is qualified by targets, and the Government choose the figure, the title, the word or the set of circumstances that best suit their purpose.

District councils do not know where they are. They cannot plan for the future. They are in the frustrated state of not knowing how to establish or to begin a three-year, let alone a five-year, plan. I believe that as a result of these complications, people will begin to reject local democracy because they reject that which they they cannot understand. Local democracy is now in the first stage of being rejected. To a large extent, it is being ignored, as the hon. Member for Newham, North-West pointed out. That is shown by the low turnout at local elections.

I fear that it will not be long before local democracy moves from being ignored to being rejected, and that would be a dangerous precedent for democracy both for the country and for this place. I ask my right hon. Friend to attempt to simplify the whole of the structure that finances local government.

I regret that it is unlikely that I shall be supporting the Government tonight. If the Minister's reply persuades me, I shall be happy to support them, but, as things stand, it is unlikely that I shall support the Government.

I ask the Secretary of State, in the short term, to review the system and its injustices, and in particular to review Rochford's case. In the medium term, will he abolish the current incomprehensible rate support grant calculations and replace them with a simpler system that facilitates long-term planning, demonstrates fairness and, above all, encourages understanding of and support for local democracy?

8 pm

Mr. Simon Hughes (Southwark and Bermondsey)

It is notable that, one after another, year in and year out, Government Back Benchers, make the same claims and ask their Government to try to do something about local government finance and to deliver that which clearly has not been delivered in the past.

My hon. Friend the Member for Isle of Wight (Mr. Ross) took his place in the Chamber a few minutes ago. He has been a Member for 11 years and within seconds of arriving in the Chamber tonight he said, "We hear the same speeches every year." That is evidence that it is about time that the Government did something. Promises, words and hopes for the future are not enough.

Exactly 51 weeks ago today the House was asked to consider the Government's proposals for the current financial year's rate support grant settlement. The Government were under enormous pressure, particularly from their own Back Benchers. They were under even more pressure than they are today.

The Government were repeatedly told that low-spending authorities were not able to spend what they needed to spend without penalties because their targets were below the Government's declared expenditure. On that occasion, the Secretary of State laid great store by two matters. The first was the efficiency and accountability of local government. I have no doubt that the phrase "the magic of the market place" was in his mind, although not uttered. In that context he praised the Audit Commission's work.

The second was the effect of the Rates Act, implemented late last year. The Secretary of Stare did not concede that the system was ramshackle and needed to be replaced. He simply said that he would try to reward the low spenders.

Those of us who live in high-spending authority areas—because they have high need levels—thought that it was a simple, political buying-off operation. We thought that we were witnessing a crude political device to buy support in the Lobby. The Secretary of State succeeded to some extent by persuading some of his colleagues not to vote against him, but to abstain, so he reduced the number who voted against the order.

Unfortunately, logic and the Chancellor of the Exchequer have made it impossible for the Secretary of State to fulfil his promise. Public expenditure levels have been set and the Chancellor has said that in real terms this year local government expenditure will be cut by 3 per cent. We protest about that.

If the Secretary of State was to do what he promised and give low spenders the benefit of low spending for this year, he had to fiddle with the arbitrary targets and arbitrary penalties for the high-spending authorities with the biggest needs. Unfortunately, he failed on both counts. He is still being criticised by his back benchers who say that the system is still inadequate and has not met their needs. Essex is a good example of a Tory-controlled shire county. The urban areas are equally unhappy, not least because they have been rate-capped.

The hon. Member for Davyhulme (Mr. Churchill), who represents the area covered by the Tory-controlled Trafford authority in Greater Manchester, makes it clear that the system has not worked. That is because in theory the system is fundamentally flawed and in practice hopeless—and it is becoming worse.

Since last January, 51 weeks ago, there has been a 3 per cent. cut in central Government's contribution to local government expenditure. The much-lauded Audit Commission produced a stinging report in August which said that the system was responsible for adding £1,200 million to the rates bill. The Government were so sure of their ground that the Secretary of State's response was that the Government would not examine the report in detail. The Secretary of State praised the Commission last January and now hides from its conclusions.

Under the Rates Act, for the 18 rate-capped authorities—16 Labour-controlled, one hung and one, Portsmouth, Conservative-controlled—the squeeze comes from both ends. The Government's contribution to them is being reduced but they are told that they cannot raise the money by putting up rates because that is illegal and such rates would be invalid. They cannot meet their expenditure requirements.

Many obligations imposed upon such authorities are statutory. The Government do not now even believe in accountability. In the context of education, they say that people should be allowed to vote with their feet and take their children out of school A into school B. They say that that is the principle of the market economy. The Government do not apply that principle to local government. They do not say that the results of local elections should be determinative. They do not think that locally elected councillors, many of whom are members of the Conservative party, should be able to make ultimate decisions.

The only ray of light is that at the Tory party conference last year we were assured again — 10 years on—that there would be consultation about reform of local government finance. We welcome that, provided it produces results.

Consultations were referred to by the Minister for Local Government in Committee recently. I hope that the consultations that he offered the hon. Member for Copeland (Dr. Cunningham) and the Labour party will be offered to all other party spokesmen in the House.

Our view does not parallel that of the Labour party. We do not believe that the problems of local government will be solved by increasingly funding local government from central Government through block grants. We believe that local government should be made more accountable. That means reducing the money that comes from central Government and raising more money locally. As my hon. Friend the Member for Woolwich (Mr. Cartwright) said, that means local income tax in addition to rates.

We have to have reform to make local government more accountable. I hope that real progress will be made before next year and that we shall not have to listen to ever more plaintive cries from more and more hon. Members.

The only way open to people outside the House who want to protest is to vote against the Government at every opportunity. They will have that opportunity this May in the shire county elections and next May in the London borough elections. I hope that in their thousands they will vote against this ridiculous imposition of central Government policy on their local councils by their Conservative Government and reject them and all their works.

The Guardian yesterday made it clear that the local authority settlement that we are being asked to approve tonight threatens to cause big rate increases in most of the Tory counties only a month before they go to the polls in the four-yearly county elections. It says that, unless the councils are able to raise their balances, they will be forced to raise rates significantly higher than inflation, even if they keep fairly constant in real terms.

The effect will be even more severe in the districts, as the hon. Member for Rochford (Dr. Clark) said. A whole list of counties will be affected — Berkshire, East Sussex, Essex, Gloucestershire, Hampshire, Hertfordshire, Surrey, Warwickshire, West Sussex and Wiltshire. I quoted the example of Warwickshire last year when it said that it had done everything possible but still could not meet the targets. That is still its position. It also applies to other Labour, Tory and Liberal-controlled county councils.

We have heard that, except for Bedfordshire, all the shire counties have targets below GREA. Avon, a Labour-controlled council, has reached the stage at which, because its GREA is £6 million higher than its target, it would incur a penalty of £18 million if it spent up to its GREA. I was told that the people of that area are saying that they must empty the cocoa tins and use all possible reserves to avoid cutting services. Allowing even for that, because of Government policy, next year it will need a 19p rate increase if the system is not altered.

My hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) has received a letter from the chief executive of Northumberland county council, sent with the approval of the political leaders of that area. In that Labour-controlled council—just: it has a majority of one—the settlement continues to be poor; it follows a series of poor settlements for that area. The letter to my hon. Friend points out that the Government make insufficient allowance for inflation, continue their policy of transferring the burden from the taxpayer to the ratepayer and impose policies the implications of which are that if the council was able to contain its spending to last year's level, allowing for the Government's assessment of inflation, the authority would receive £5 million less in grant in the coming year than it received last year, which would represent a 10 per cent. reduction. In fact, it would be much worse because of pay settlements, which would mean the authority losing £7.5 million more.

There is insufficient assessment of the needs of such counties, which have huge rural areas. In Northumberland's case, it has been greatly depopulated, particularly for educational assessment purposes. It is clear that the Government's calculations do not work. Northumberland has had to reduce highways manual staff from 580 10 years ago to 307 and has had to reduce the number of teachers from more than 3,000 to 2,500. It cannot do more.

Northumberland, looking at the whole situation from a different perspective from, say, the Isle of Wight, says that, while it might do well out of a particular alteration —in Northumberland's case, the changes in rules about transport grant benefit the authority, whereas the Isle of Wight does badly out of that alteration—nobody wants a system under which proper assessments cannot be made because one decision goes in their favour and the next goes against them. They do not know where they are.

Northumberland serves also to illustrate an important constitutional point. It says that the effect of Government policies is driving out the people who were in control of the area — the same applies in other areas — the moderates in the Labour party, to be replaced by extremists. In other words, the Government are forcing people to take extreme positions by making extreme proposals, and that cannot be good for the future of local government.

The Isle of Wight, on all definitions, has been a low-spending authority. It has been Liberal-controlled for a long time and, I hope, will remain so for even longer. It cannot begin to do what the Government expect of it. The Isle of Wight has probably the highest percentage of population over pensionable age, plus 17 per cent. unemployment. It is told, nevertheless, that it cannot even have the money that is needed to carry out a fundamental service such as providing facilities for the disposal of waste. All the holes in the Isle of Wight where waste could be deposited have been filled, and the authority is not being given the money to put the waste elsewhere. What is it supposed to do, remembering that the disposal of waste is a statutory duty?

Further, the Isle of Wight wants to deal with its unemployment problem, but instead of being allowed the money to buy land to develop for industrial purposes, it is not even given central Government assistance by way of area status. The Isle of Wight is in a hopeless position, all because of the Government's policies. There should be no friends of the Government in that island.

I could go on giving examples. Consider Bedfordshire, which is having to reduce the number of old people's homes and even police overtime; this Government of law and order are forcing their colleagues in Bedfordshire to cut the services of law and order.

In Cheshire, a hung council, for the first time in 93 years the Tories cannot produce a budget. They say that they could make savings of £12 million to meet the Government's requirements, yet they are not producing a budget. Thus, not just Labour and Liberal authorities, but the Government's supporters too, are in difficulties. In other words, Cheshire's example shows that local Tories cannot cope and take the strain.

Cambridgeshire is likely to incur a penalty of £19 million. Things got so bad in Somerset that the Tory education sub-committee proposed making a charge on youngsters for the water they consumed while eating packed lunches. The full committee rejected that idea, but the council did decide that the local authority could not afford to buy any fiction for local libraries. Perhaps one can say that the facts are so appalling that to add fiction would be a distraction.

The shire counties are in a desperate position, but the urban areas are in an even worse state. I made the point earlier that the distribution of block grant means that London has had a reduction of 1 per cent., even though GREAs have been increased, that many London authorities will not be able to meet their targets and that the penalties for overspending are being increased enormously.

In Southwark, the method of calculating GREA for the social services is inadequate. It does not reflect changes in the needs of the population. We have one of the highest calls for social services in the country and, of the 12 inner London boroughs, we are first in the list with the largest number of blind, deaf, and handicapped people; we are fourth highest in the number of social workers; we are top of the league in the number of elderly; third in the number of young people who are handicapped and in care; fourth in the number of mentally handicapped; and second in the number of children boarded out in care.

Only about two thirds of those factors are recognised by the Government. The GREA data for social services are out of date, too few factors are taken into account and simple population figures dominate the assessment of social service needs, leaving out the social isolation of people—for example, the elderly are not taken into account—with the population at risk not being sufficiently considered. I understand that next year the Government are to set up a working group of officers of local authorities and the Department of the Environment. I hope that something will be done to meet the needs of the social services.

The Government promised to do something last year and they have failed to deliver. They have not rewarded prudence—Conservative Members are telling them that—and they have not made an objectively accurate assessment of profligacy. They have misjudged. Some councils, however hard they try, will not be able to preserve essential services within the financial constraints, the straitjacket, that the Government are imposing on them. The Government will have to concede that people may be forced into breaking the law. Unless there is a realistic concession that adapts policies to people's needs—not formulae from Marsham street—the Government will be running themselves and local government into disrepute.

Mr. Stephen Ross (Isle of Wight)

Is my hon. Friend aware of another problem that is looming up fast? I refer to the White Paper on buses, remembering that we have been promised a Bill a fortnight from now. Evidence from Kent county council is being taken tonight by the Select Committee on Transport. It is reckoned that what is proposed in that Bill will cost that authority an additional £2.5 million, which will immediately put it into penalty, in that it will not be able to meet that expenditure without going into penalty.

Mr. Hughes

My hon. Friend reiterates the point that we are making constantly. It is that the Government must say, "Enough of the old system." If we in this House insist on imposing duties on local government—for example, relating to buses—we must at least compensate local government. Authorities cannot be expected to provide local services without the necessary resources. Central Government hold the purse strings. If local authorities are not permitted to raise money elsewhere, they cannot be expected to find the cash out of the air. Conservative Members are fond of telling people that money does not grow on trees.

I urge the Government to think again. I warn them that, if they do not, the electors will go on voting even more consistently against them at local elections and will increasingly withhold their support, even in the traditionally Tory shire counties, which are becoming less and less traditionally Tory. Until the Government return to what we were led to believe were traditional Conservative views, and lay off local government—returning accountability to local government—they will find resistance in Parliament to this and all similar measures.

8.20 pm

Mr. Richard Holt (Langbaurgh)

I tried to make an intervention this afternoon during the speech of my right hon. Friend the Secretary of State for the Environment. My right hon. Friend did not allow me to intervene, so I shall make a speech instead.

Many of us have been concerned recently about surrogate motherhood. The issue has not crept up suddenly on the House, but it is with us. The Government have formulated no policies or plans to deal with it. The same can be said of local government. Local government issues are creeping up on central Government and they are not making proper plans to ensure that the type of scaremongering that is indulged in by the hon. Member for Newham, North-West (Mr. Banks) is treated in the way that it deserves. I notice that the hon. Gentleman has had the good grace to make his speech and leave the Chamber. He seems always to fail to listen to those who speak after him. I always thought that it was a tradition of the House to remain in one's place to listen to succeeding speeches. Of course, the hon. Gentleman is not a traditionalist. Indeed, he seeks to abolish this establishment altogether—[Interruption.] If any Opposition Member wants to intervene, I shall be glad to let him do so.

I was first elected to local government 22 years ago, and much of what I have listened to so far has caused me a sense of déjà vu. However, I must compliment my right hon. Friend the Member for Guildford (Mr. Howell), who made an excellent contribution, as did several of my hon. Friends subsequently. I have been disappointed by the contributions of Opposition Members, especially by that of the hon. Member for Southwark and Bermondsey (Mr. Hughes), who spoke on behalf of the Liberal party. The hon. Gentleman talked about local income tax as though it were a wonderful panacea and a workable solution. That must be a broad-brush strategy, and I invite the Liberal party to address itself to the attendant detail.

The Conservative party has been giving local income tax considerable thought for a long time and it is clear that there are many questions to be asked. For example, who will pay the local tax? Will it be paid by the unemployed man or old lady? Will it be received by a head office or at the place where we happen to live or in which we work? Where will a travelling seaman pay his local income tax? If local income tax is the best policy that the Liberal party has to offer for reforming our rates—it is the only one that it has produced this evening—it is clear that it has nothing to offer that will be meaningful in future.

Mr. Simon Hughes

The hon. Gentleman may not know that for many years the Liberal party has been putting forward detailed proposals for local income tax. I assure him that we are ensuring that our proposals are brought up to date and made even better in time for the next general election. The hon. Gentleman will be able to pass judgment upon them when they are placed before the electorate.

Mr. Holt

I am grateful to the hon. Gentleman, but I have not been much encouraged by his intervention. It was a bit of flannel to cover up the fact that the Liberal party has been rumbled.

I think that most hon. Members will agree that GRE is a lottery. Several of my colleagues have already drawn attention to the way in which it is formulated. I doubt whether many members of the general public have delved into the White Paper for the purpose of bringing out some of the statistics with which local government is expected to grapple and to understand. I was a councillor for 22 years, and I never understood exactly how local government was financed.

Mr. George Park (Coventry, North-East)

Huh!

Mr. Holt

I doubt whether many Members of this place including the hon. Member for Coventry, North-East (Mr. Park), ever understood how it was done.

Mr. Park

Perhaps the hon. Gentleman does not know that I was the chairman of a local government finance committee for many years. I thought that I understood how local government was financed. That is why I said, "Huh!"

Mr. Holt

The hon. Gentleman may think that he understood it. As he was a Labour chairman of a finance committee, that suggests to me that he did not. No Labour chairman understands financing fully.

I shall refer to the details under which we are supposed to work. This is what prompted me to try to intervene during the speech of my right hon. Friend the Secretary of State. As I have said, he refused to allow me to do so. I think that many members of the general public would be thrown into a sense of wonderment if they knew the details with which councillors and hon. Members have to grapple when dealing with GRE.

I do not know—I am willing to allow my right hon. Friend the Minister to intervene to explain this to me—whether the Treasury sets a global figure for all time and whether everyone within the Department of the Environment has to work within that constraining figure. Alternatively, is someone confronted with all the statistics and indices which are contained in the White Paper and required to work with them carefully and diligently in coming to a conclusion? There is every chance that the person who does that will find that he has overshot the Treasury target by several thousand millions of pounds.

The hon. Member for Southwark and Bermondsey referred to the figures in the White Paper and said that there were too few of a fine-tuning nature. An example of detail is to be found on page 66 where, under the heading, Children aged 5–17—factor for residential care", We are told that (X6) is calculated as the number of children aged 5–17 in the area of the authority, multiplied by the sum of the factors below:

1. (i) a constant of-0.0033014;
2. (ii) Indicator X4 as defined above, multiplied by 0.000028512;
3. (iii) Indicator X5 as defined above, multiplied by -0.000016818;
4. (iv) the proportion of children aged 5–17 in households that contain a lone-parent family as estimated by the Secretary of State on the basis of the 1981 Census, multiplied by 0.04786."

Mr. John Wilkinson (Ruislip-Northwood)

Is that why my local ratepayers are facing a rate increase of up to 42 per cent. this year?

Mr. Holt

I am not qualified to answer my hon. Friend's question. However, if those who are setting the rate within my hon. Friend's constituency even understand the formulae, they are doing extremely well. That is only one of the marvellous elements which, when combined, produce GRE at the end of the day.

We are told at the beginning of annex K that GREs have been calculated by means of a formula which is a development of that used for previous years. However, the marginal indicators are minus 0.000 something. What happens if the sum total overshoots or undershoots the Treasury target? Does someone have to revise the noughts, the pluses, the minuses and the indices so that local government can understand exactly what is happening? It would not be too bad if these nonsensical figures were themselves understood to be of relevance in assessing rates in a local area. They do not take sufficient notice of whether an area is in the north or the south.

Another interesting section is to be found on page 55. B12 is followed by the heading Weather adjustment factor for road maintenance". The first subsection states: the annual average number of days of snow-lying during 1979/80 to 1981/82 as estimated by the Secretary of State for Transport, multiplied by 7.10522. That is followed by the annual average number of days of frost during 1979–80 to 1981–82 as estimated by the Secretary of State for Transport, multiplied by 0.77115. That is the road/weather adjustment factor for maintenance purposes that is supplied by the GRE assessors for local government departments.

Mr. Terry Dicks (Hayes and Harlington)

Does my hon. Friend agree that the scheme or system was invented by idiots and applied by fools for the benefit of no one in particular?

Mr. Holt

I suggest that I am not qualified to answer my hon. Friend's question. That is an issue on which everyone should make up his own mind. A factor in which we are all interested is unemployment. C9, which is headed "Total unemployment", states: The number of persons who were in receipt of unemployment benefit at May 1984 as estimated by the Secretary of State on the basis of information supplied to him by the Secretary of State for Employment. There is no factorising there. No account is taken of whether unemployment is long-term, short-term, medium-term or permanent. That is one more example of the calculative methods by which GRE is put together.

I do not feel sorry for my colleagues on the Government Front Bench, for they are big enough to look after themselves. I am not sorry for Opposition Members, because I do not have much time for the majority of them in any event. I feel sorry for the civil servants. They must work with and understand these methods. I do not know how they cope with the mass of figures which no one else understands.

Mr. Simon Hughes

Does the hon. Gentleman accept that if this system has become the law of the land, one should not have any sympathy with the civil servants? They obviously are the power in the land, because they have in their captivity all those who do not understand the system. They will not let those people be free, so they must struggle out. The sympathy of the good Conservative Members behind the hon. Gentleman for the people who may well be the GRE assessors is probably a little out of place. We should have more sympathy for the rest of the people, who are their prisoners for a long time.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I remind the House that Mr. Speaker appealed for brevity. Interventions make speeches even longer. A number of hon. Members are still waiting to catch my eye.

Mr. Holt

I accept your stricture, Mr. Deputy Speaker.

I come to the real reason why I wished to intervene in this debate. We have had all the fine tuning and figures. This morning I recevied a missive from Cleveland county council. There are six Members of Parliament from Cleveland, five of them Socialists. Not one of the five Socialists has been in the Chamber at any time during the debate. Perhaps that reflects the fact that the Tory party is to take over in Cleveland shortly and the Labour party has already washed its hands of it.

That is possibly why I received that missive, which asked me whether I would draw to the attention of the Secretary of State the fact that Cleveland was upset, not by the GREA machinations, but by the fact tha: between last year and this year, according to the civil servants who do not make the mistakes to which the hon. Member for Southwark and Bermondsey referred, the county of Cleveland has shrunk. It may well be that the population has moved, but it takes some believing to accept that a geographical land mass change is sufficient reason to justify an alteration in GREA.

The letter from the chief executive of Cleveland county council stated: The error has been pointed out to the Department of the Environment. The Department accept that the area used is wrong".

Mr. Wilkinson

Coastal erosion.

Mr. Holt

There is a little, but not that much. The Department is using a different ordnance survey from the one used last year. The result is that £221,000 has been wiped off from Cleveland's GREA. The Cleveland council is a profligate Labour-controlled authority, and I have little brief for that body in that respect. The council is, however, entitled at least to the honest effects of the rules as long as those rules exist.

My right hon. Friend the Secretary of State is to move the GREA and the grants, but he is moving the goal posts by changing the land mass area of Cleveland during the 12 months. Worse still, having admitted the error, the Department is not prepared to correct it until some time in the future. Because of a simple error by the Department of the Environment, every ratepayer in Cleveland will have to pay extra next year. I hope that, if nothing else comes from the debate today, my right hon. Friend will take on board the need for something which is so complex and misunderstood as the current system to be urgently reviewed. I shall vote with the Government, but I shall do so out of loyalty and not conviction. Next time, I might change my mind.

8.33 pm

Mr. Stan Thorne (Preston)

A number of hon. Members have said that they served their apprenticeship in local government, and I am no exception. During the 1960s and early 1970s, there was some concern about the services that local authorities were providing. Looking at the services provided by local authorities attempting to meet social needs—whether in social services, housing or education—one must feel that councillors taking on the responsibility of local government do so with a definite commitment. As the hon. Member for Langbaurgh (Mr. Holt) attempted to suggest, councillors may have had an education that is not adequate to equip them to deal with the responsibility of local government in terms of finance and so on, and that is understandable. The Labour and Conservative parties have failed to give the type of training and skills to our local councillors that should have been provided. Generally, councillors attempt to meet their responsibilities and commitments. They do so not lightly, but in their determination to oppose cuts in services that are not in accordance with their views on what local authorities should be providing.

The Government are changing the word "needs" to "targets". Those targets are to be determined by central Government, thereby reducing local authorities to mere instruments of Government policy. It is no wonder that the Government see elections in Greater London as superfluous. Local government is a major aspect of our form of democracy. I use the word "democracy" with some trepidation, because it is almost non-existent in Britain today.

The rate support grant measures, far from protecting ratepayers, will mean cuts in jobs and services. Certain jargon appears to be relevant these days when debating expenditure by local government. Reference is made to low and high-spending authorities. It is fairly clear, especially when listening to Conservative Members, that low-spending authorities are apparently responsible bodies according to the Government's Victorian values. The Secretary of State or other Ministers have given no specific examples of what irresponsible spending is. Is it irresponsible to provide bus passes for the elderly, old people's homes, sheltered accommodation, community centres for young people, meals on wheels, and nursery facilities and to adapt property for disabled people in need? We in Lancashire seek to meet those needs as far as we are able, given the resources available to us.

The rate support grant in Lancashire will be £24 million less than if the current year's percentage had been maintained. That is equivalent to a precept of 17p in the pound. Grant penalties could ensue to the county council if it spends up to the Government's GRE formula, as my hon. Friend the Member for Burnley (Mr. Pike) said. The penalties would have to be met from the rates. Some local authorities may find it acceptable to reduce services and to create further unemployment, but they have a responsibility to defend the interests of their local residents. The statutory political and moral obligations of local authorities are held by many local Labour councillors as serious responsibilities to uphold, and rightly so. To protect the elderly, the sick, the young and the disabled is the responsibility of local authorities. Many of them will not accept the Government's clear dictates directed towards ignoring those responsibilities. In essence, local authorities are asked to collect more in rates and to provide fewer services.

Yesterday we debated unemployment. Today we do not hear from the Government how they intend to reduce unemployment; we hear the direct opposite. An increase in unemployment of between 70,000 and 80,000 will be the product of the Government's rate support grant proposals. The Government have been trying to get across the idea that they care about unemployment, but this measure proves beyond doubt that unemployment is an instrument of economic control for the Government to which they are fully committed. The people of Britain may appear to be slow to grasp that fundamental point, but I am convinced that unemployment will yet be the basis of the Government's ultimate downfall.

8.40 pm

Mr. Warren Hawksley (The Wrekin)

I do not wish to follow the line of the hon. Member for Preston (Mr. Thorne); I wish to be unashamedly parochial. Most speakers have been parochial today and that is right on an occasion such as this. I also hope to be brief, but as I served on a county council for 12 years, I think that I can offer some explanation of why Shropshire county council feels bitter about the way that it has been treated under the orders that we are discussing.

I served for four years as chairman of Shropshire county council's general purposes sub-committee. During that period it was a responsible authority. During the period of the previous Labour Government when the IMF had to come in and bail them out and we saw even greater public expenditure cuts than we are seeing today, Shropshire county council, then a Conservative-controlled authority, responded to the Government's demands and cut its expenditure in line with Government requests. Ever since, Shropshire county council has responded to the needs and requests of Government, yet today it finds itself with problems. It is unfortunate that by these orders we should again appear to be hurting those authorities which have shown prudence in recent years. It is paying a heavy price for the responsibility that it has shown.

Irresponsible authorities which have occasionally spent money as if it were going out of fashion even today can possibly find room for further cuts, but responsible authorities do not have that option. By using the year that the Government use as the base for their calculations, they are creating problems for those authorities which were responsible when it was not fashionable to be so. The Government should not penalise the authorities which were good boys in those days.

The Government are right to tackle overall local government expenditure. They should not increase the total amount of local government expenditure; they should consider carefully the way in which they allocate the money that they have available.

My arguments on the rate support grant order will not be about the total amount of money available, as Members on both sides have argued. My arguments will not lead me to vote against the Government or abstain, like some of my hon. Friends. That is not because I think of the orders as great support for local government but because the Department of the Environment and the Government generally have supported Shropshire and Telford in other ways. They have supported the new town of Telford, given us a new motorway, a new hospital, regional aid and an enterprise zone, but with a 22 per cent. unemployment rate, the rate support grant should also be used to help councils in the area. It is not enough to suggest that all the other aid can, by itself, respond to our needs.

Shropshire is the fourth hardest hit of the shire counties. Its social services are running at 75 per cent. of the national norm. That has been the case for some years. We do not complain about that; we are happy to run them more cheaply than some other areas. It shows that we have tried to run local government as cheaply as we can.

Last year, as has been mentioned, we were given a pledge by the Secretary of State in the RSG debate. It is right that the House should hear the wording in which it was given. He said: I would expect in 1985–86 and thereafter to be able to set targets which take greater account of GREs and thus recognise the efforts which low-spending authorities have made."—[Official Report, 23 January 1984; Vol. 52, c. 642.]

What has happened in Shropshire? Last year, the gap between GREA and target was 5.4 per cent. This year it is 8.9 per cent. The move has been in the wrong direction. Despite the 4.5 per cent. spoken of by the Secretary of State when he started the debate, the anomalies of the responsible low-spending authorities have not been tackled this year. I hope that when my right hon. Friend replies he will tackle the problems that will arise. Although I shall support the Government tonight, the problems will be even greater next year if we do not have a stronger and clearer commitment than the one we had last year, so that there can be no getting out of what last year we thought was a commitment. Shropshire based its budgeting on the assumption that there would be action.

Mr. Barry Porter (Wirral, South)

I hope that my hon. Friend realises that his speech is one that I should have made if I were going to be called. If for Shropshire one reads Wirral district council, I should have made exactly the same speech. Does he accept that the only way that we will solve this ridiculous problem, whether it be in Shropshire, Cleveland or Wirral, is by a fundamental review of local government finance? If we have to go through this procedure time and time again, the Government will have to accept that those of us who are loyal to their macro-economic policy will lose patience.

Mr. Hawksley

I agree with my hon. Friend's comments, but I do not think that that is relevant to the debate today. As the Inland Revenue computer centre is in my constituency, I should encourage the idea of moving to local income tax to replace the rates. That has been advocated by other hon. Members.

About nine months ago, Shropshire county council expressed anxiety at the lack of capital for educational work. I took a delegation to my right hon. Friend the Secretary of State for Education and Science. As a result, he sent one of his officials to Shropshire to see what the position was. He reported to my right hon. Friend and as a result the capital allocation for education in Shropshire was increased from £2.1 million to £3.9 million but—this is the important point—no allowance has been made in the rate support grant for the extra revenue which is necessary to go with that capital. One Secretary of State accepts the need, so I hope that my right hon. Friend the Secretary of State for the Environment can work in tandem to provide the necessary resources. The cost to the revenue is about £250,000, which is a large sum to a small rural county. I ask the Secretary of State to repeat with greater strength the commitment that he made last year.

Problems also arise at district council level. Wrekin district council is Labour-controlled. The county council has no overall political control. The Labour authority shouts along political lines even before it is affected, made dire forecasts of its rate increase. Its target is way below its GREA, which I gather is common for district councils in areas which have new towns. I wonder whether the needs of the new town possibly throw out the GREA calculation in some way. There would seem to be the possibility of some problems in that respect. Perhaps in reply the Minister will say whether the GREA for new towns in district council areas is accurate.

Wrekin district council has suffered through the reduction in the block grant this year, but before I support its protestations I suggest that, as a fairly high spending Labour council, it should put its own house in order. I will give some examples of its expenditure. The council has a lottery in the neighbourhood which is supposed to help with, for example, appeals and social services. This year resources have been allocated from that lottery to the striking miners—of whom, I am glad to say, there are very few in Shropshire. Resources have also been allocated to the local Anti-Apartheid organisation, which does not have much relevance to the electors of the Wrekin area.

The council has a public relations department which employs three officers full time, as far as I can see, on Labour party political propaganda. Our county council, which has a budget of about £150 million, recently discussed whether it needed a public relations officer. It decided that it did not. Some of the Socialists on the county council led the attack against the proposal. The district council's budget is about one twentieth of that of the county council, yet the district council is employing three such officers. The county council reckons that the cost of a public relations officer would have been about £30,000. The district council must therefore be spending about £100,000 on political propaganda.

The district council prints a broadsheet, the "Wrekin Report", which could be produced, I should have thought, by Transport house. It has nothing to do with providing information to the electorate; it is purely and simply a political document. Until such time as the district council is prepared to cut out those frivolous expenses, my support—however hard the council has been treated under the block grant—will not go to it.

I finish where I started, by appealing to the Secretary of State to think again and to make sure that the shire counties have a better settlement, and the GREA is used as a basis for targets. The problems that the treasurer, the members of the Shropshire county council and I foresee as being even worse next year should not be allowed to develop. It is important to be fair to those authorities which have been so good over the years.

8.52 pm

Mr. Bill Michie (Sheffield, Heeley)

I do not suppose that anything that has been said during the debate will make much difference to the outcome. However, I am amazed that from all parts of the House—from the Conservative, the Labour and the Liberal parties—there has been a very good coverage of the criticisms of GREA and the way that the rates are assessed by each county borough or county council. Although, as I have said, it will not make much difference to the outcome, surely the Minister in his reply, and in the coming months, must look seriously at the anomalies, discrepancies and injustices created by GREA throughout the country.

We all compare our own areas with similar areas. Many anomalies have appeared within the area that I represent, and they have still to be dealt with by the Government. The Minister and the Government have been asked why they have produced a rate settlement such as the one before us.

The 1985–86 GREA for Sheffield has been assessed at £187.1 million—an increase of 3.5 per cent. on 1984–85—yet the national average is 6.7 per cent. Perhaps it is thought that Sheffield does not have problems connected with unemployment, the environment or the elderly, but that is not so. Although we are to some extent getting used to the difficulties which arise from the reduction of grant from central Government, the situation is getting out of hand. The city council has been accustomed to adverse RSG settlements. It has been calculated that the combination of all overall grant reductions, cash limiting and distributional charges caused by GREA, as well as tapering and penalties, has cost the city £151 million since 1980–81—in other words, that money has been taken from the Sheffield ratepayers.

I cannot understand why Conservative Members are always criticising the high spenders when areas such as Sheffield could, if it had not been for so many penalties and cuts, have provided the same services last year without any increase in rates. I do not think it is fair for the Minister to say that the Government are looking after the ratepayers' interests when the Government have made the position worse than it need be. Indeed, in some cases the situation would not have been at all bad. The problem seems to be related to the complications of GREA itself, as many hon. Members have said.

The Minister should endeavour to convince the House that the system is fair. In the Sheffield area, in regard to museums and arts, the GREA element is calculated according to shopping and floor space. Obviously, there is no direct relationship between the authority's function in providing museums and arts and the area of shopping floor space. Over 50 per cent. of the Sheffield GREA is calculated by reference to school pupil numbers. The calculation assumes that expenditure changes result from changes in pupil numbers occurring within 18 months. The Department of Education and Science knows and recognises that such is not the case; thus, the calculation is wrong. The cost is 10 per cent. of the education budget in Sheffield, and there is a reduction of £5.5 million in 1985–86.

With regard to education for people over 16—a statutory obligation—the GREA assessment is made by reference to the number of pupils in education at the time in question. But that is only half the calculation, because the demand for that sort of education is much higher. It is estimated that another 600 full-time places could be filled if the city council could provide the facilities. Obviously, with the present restrictions, it cannot do so. Ironically, because the places cannot be created to meet the demand, the city is penalised even further in GREA, to the tune of £1.2 million.

I should like to refer to the Library service. Everyone has libraries, but in the calculation no consideration is given to the fact that we are a major polytechnic and university city. Thousands of students who use the facilities are not brought into the calculation. I refer also to environmental health. No calculation is made of the special circumstances of industrial decline over the past 10 years. We also have problems of air, water and land pollution that are not given fair consideration when GREA is calculated. Finally, I refer to the elderly. Sheffield has one of the highest numbers of elderly of the major cities, yet that is not properly calculated for in the GREA.

Whether hon. Members vote for or against the report, the Minister must justify carrying on without taking into consideration all the points that have been made. It is hardly fair on authorities, whether they are considered good or bad, to have to struggle on year after year with this crazy system of GREA.

9 pm

Mr. Jack Straw (Blackburn)

I thought for a moment that the hon. Member for The Wrekin (Mr. Hawksley) was going to be unique in the debate and complete a whole speech from the Conservative Benches without uttering a single word of criticism of the Government. However, he did not break ranks, as I originally thought he would. With his contribution, speeches from Conservative Back Benchers were completed with not a single Member speaking in full support of the Government. Not one Opposition Member spoke in support of the Government either. Conservative Members will make up their minds whether to drag their feet or sit on their hands in the Chamber when we vote, but there is virtually no support on either side of the House for the settlement.

We have had some excellent speeches from the Opposition. I show no favouritism when I commend in particular my hon. Friends the Members for Burnley (Mr. Pike) and for Preston (Mr. Thorne). I note the fact that all three Labour Members representing Lancashire have spoken—or are speaking—in the debate and that not a single Conservative Member from Lancashire has even deigned to be present during a debate of critical importance for our county.

I welcome the Minister of State to what I think will be his maiden speech on the rate support grant. Perhaps this is yet another occasion on which he wishes that he was back in the calm waters of the Department of Trade and Industry or anywhere but enveloped by GREA—an animal to be found only in the zoo.

Over the past five years we have witnessed the application of an ever-tightening vice over local authorities by the Treasury and the Department of the Environment. Long-standing conventions—which were respected by both sides—governing the relationship between the Government and local authorities and operated by both parties over many decades, have been unilaterally jettisoned. The Conservative party, once the champion of local democracy and choice, has become its destroyer. Sir Winston Churchill's famous injunction to "set the people free" has been turned upon its head to "set the people free to do as this Administration tells them." Even the much more recent pledge, under which all members of the Conservative party were enjoined to roll back the frontiers of the state, has been torn up. Instead, an ever larger and more monstrous leviathan has been unleashed, in the form of the Secretary of State, the Chancellor of the Exchequer and the Prime Minister, to devour local freedoms and arrogantly and autocratically to replace the decisions of 24,000 councillors and 500 separate communities by central diktat. The haunting spectre, the nightmare raised by the present Lord Chancellor that a Government with a large majority could become an elective dictatorship has, in large part, turned into reality.

In terms of their principles and claim to be the party of freedom, the Government have extracted a heavy price from their supporters in the country for their policies towards local government. The question that many wiser counsels on the Government Benches may ask—and, I suspect, even the Secretary of State in one of his rare moments of peace—is whether all this has been worth it. What exactly has been achieved in return for the destruction of the hallowed principles, the conventions governing the relationship between the Government and local authorities, and the destruction of some ministerial reputations besides?

If there has been a major shift in power between town hall and Whitehall over the past five years, there has also been a major shift in Whitehall itself, from the headquarters of the Department of the Environment in Marsham street to the corridors of the Treasury in Great George street. Local government has been sacrificed and the Department of the Environment Ministers sometimes nearly crucified upon the alter of pseudo-monetarism. What that one true believer, the Chancellor, has asserted and will assert is that controlling the totality of local authorities' current and capital expenditure is central and essential to the cause of the Government's economic policy.

What I have to say to the House—I address my remarks particularly to Conservative Members—is that, even within the criteria set by the Chancellor for the success of this policy, the case for controlling local authority expenditure in the present way is wholly unjustified. It is that case that I first wish to examine by reference to our own recent history and by reference to the current practice of other countries more successful than we are

Local authorities, as the Secretary of State told the House earlier today, spend £24,000 billion each year. It is a large sum, of which just under half is met by central Government and the other half from local revenue—principally the rates, charges and rents. What local authorities spend in totality is classed as public expenditure. The Pavlovian response of the Chancellor, when challenged upon this, is to say that unless all public spending is strictly controlled, the whole of the Government's economic strategy will be knocked off course.

I am self-evidently not a monetarist economist—there are very few of these, and it is an ever-diminishing breed —but, even for those who are, control of public expenditure is not an end in itself but a means to the end of controlling the things about which monetarists worry—the money supply, the public sector borrowing requirement and, they say, through both of those, the rate of inflation.

The Government's fundamental error is to believe that what local authorities spend from their own local revenue can have any significant effect upon public borrowing or through that upon the money supply, interest rates and the rate of inflation. Local authorities are not allowed by law to borrow to finance their current spending. That means that except in the most marginal and indirect way what local authorities spend out of their own current resources cannot affect the monetary aggregates upon which the Government—not we—say that their policy should be judged.

In short, the Government have made a rod for their own back by seeking to control that which there is no need directly to control, even within the terms of their own policy.

Mr. Patrick Jenkin

Perhaps I may cast the hon. Gentleman's mind back to the passage from the memoirs of Lord Barnett in which he explained that the Labour Government took a totally different view and in fact insisted on regarding local authority current spending as part of total public spending.

In those circumstances, is the hon. Gentleman now saying that the Labour Government got it all wrong and that the Opposition are going to pursue an entirely different policy?

Mr. Straw

I am happy to reply to the point raised by the Secretary of State. Indeed, I anticipated it in my speech.

There is a fundamental distinction in terms of practice between this Government and the last Labour Government, and that concerns the control that the Government are exercising. This Government have viewed all items within the public expenditure survey operation as items which have to be directly the subject of control. I fully accept that in terms of public expenditure conventions the die was cast in 1962 when the Plowden committee recommended the present system of public expenditure survey committee. The fundamental difference is that, even though Plowden recommended, and Otto Clarke implemented, that all local authority public expenditure should be classed as public spending, initially that was only for the purposes of indicative planning by the Treasury to give it an idea of what was happening elsewhere in the economy, not for the purpose of control.

I accept that the last Labour Government introduced cash limits over their expenditure. I have no objection to that; nor do I have any objection to cash limits over rate support grant. It is the duty of any institution with responsibility for public money to ensure that it spends that money wisely and efficiently, and cash limits in my judgment are one way of ensuring this. We have never questioned—and neither did Mrs. Margaret Hodge, the leader of Islington council, who appeared recently on television, dispute—the right of central Government to close-end and cash limit what they gave to local authorities. We will argue about the amount as we are doing tonight, but none of us has said that central Government are not entitled to say, "That is the amount, and no more."

Mr. Patrick Jenkin

This is very important. The hon. Gentleman's argument simply will not wash. My quotation from Lord Barnett makes it abundantly clear that the Labour Government used the rate support grant not just to close-end the amount of Government grant to local authorities, but to reduce the percentage so as to reduce local authority current spending. I shall not read the quotation again. That is what Lord Barnett said and that is what the Labour Government were trying to do.

Mr. Straw

The Secretary of State ignores the fundamental difference in the relationship between central and local government before 1979 and now. I anticipated all those questions. Of course central Government have sought in the past and will seek in the future to influence what local authorities do, just as local government seeks to influence what central Government do, but there is a fundamental difference in terms of the democratic balance of power between seeking to influence what an institution does and seeking directly to control it. Since 1979, the Secretary of State and his predecessors have sought to break the convention that Governments should control what they give to local authorities and to seek in various ways to influence what authorities do and to say that in future central Government should wholly control all local authority spending, leaving the authorities no discretion whatever. If the Secretary of State thinks that the present system is the same as that operated by the Labour Government, he should ask the local authorities themselves. Conservative and Labour-controlled authorities and the Association of County Councils will tell him that there has been a fundamental change and that they want the old system back.

Mr. Norman Atkinson

The Government, and especially the present Secretary of State, have said that they have no objection to local authorities selling off their assets to fund their services so long as they pay their penalty to the Government. The Government deserve even more condemnation if they are not just seeking to control local authority expenditure with certain qualifications but actually encouraging local authorities to do their own asset stripping to fund their services.

Mr. Patrick Jenkin

I did not say that.

Mr. Straw

My hon. Friend the Member for Tottenham (Mr. Atkinson) is quite right. There are all kinds of anomalies, even in the present public expenditure conventions.

We must deal with the fundamental argument here. I have taken part in more debates on this than I care to recall. The Secretary of State has constantly claimed that local government expenditure is part of public expenditure and must therefore be controlled in totality, but he has never answered our point, with which some Conservative Back Benchers agree, that what local authorities spend out of current resources does not and cannot affect the things that the Government regard as the test of their economic policy—the money supply, the public sector borrowing requirement and interest rates.

It is essential that the Government address themselves to that point. Let them consider the example of other countries. The United States and West Germany have both to some extent been following monetarist policies—certainly until 1982 in the United States, and until now in West Germany. Both those countries are more successful than ours, but neither seeks centrally to control local authority expenditure. The Secretary of State may argue that they are federal countries. Constitutionally that is so, but they are as unitary in economic terms as this country. If they do not find it necessary to control local authority expenditure but still have more successful economies than ours, why is such control so necessary here?

Ten years ago, the Prime Minister, when she was the Shadow Environment spokesman, promised to abolish domestic rates. That promise was repeated in the 1979 Conservative manifesto. Worn down by utter failure in that respect, the Prime Minister has sentenced the Minister for Local Government to the purgatory of seeking to redeem her pledges. If he succeeds, no doubt the right hon. Lady will claim the credit. If he fails, his efforts to reach the Cabinet Room will be thwarted—at least under the present Prime Minister.

After four major Acts, GREAs, targets, rate-capping and endless Green and White Papers, we are now to have a fundamental review of local government finances. We wish the Minister nothing but well, and look forward to the results. However, unless the review addresses the central economic question, it will not lead to the removal of the fetters on local democracy, which Conservative councillors seek as ardently as do the Opposition.

The Minister must not deceive himself into believing that there is a middle way. The hon. Member for The Wrekin and the Association of County Councils have suggested that the local authorities' tax base should be broadened to include a local income or sales tax and that the central Government grant should be correspondingly reduced from half—as it is today—to, say, a quarter. In fact, the broadening of the local government tax base would not make the slightest difference to the Treasury's present case for controlling every penny spent by local government. The Treasury and the Chancellor wrongly, but powerfully, believe that every pound of local government expenditure must be controlled by the state, whatever its source. The proof of that lies in the fact that, contrary to the conventional wisdom of Layfield and many others, control has increased as the contribution of central Government has decreased.

Central Government's control is greatest where its contribution is tiniest. Central Government now seeks control of the total expenditure of Islington, Camden, the GLC and ILEA, while those authorities have received not a penny from central Government or from the Treasury.

If the Minister is to spring out of the trap in which he and the local authorities are currently imprisoned, he must first fundamentally challenge the accounting conventions which are the gaoler. It is often assumed that those conventions are God-given, permanent and value-free. They are not. They are man-made and politically weighted, and they can be changed.

The Secretary of State referred to the example of the Labour Government. In 1976, the present right hon. Member for Glasgow, Hillhead (Mr. Jenkins), a member of that Government, made a speech in Llangefni in which he said that with public expenditure crossing the boundary of 60 per cent. we were close to the frontiers of social democracy. Six months later the Treasury reworked the conventions, and it appeared that public spending was not 60 per cent. but 47 per cent.

Mr. David Howell

The hon. Gentleman says that the convention that all local authority spending should be controlled is man-made. Would he agree that the conventions were established by the Labour Government in 1976?

Mr. Straw

Perhaps the right hon. Gentleman was not present during my exchanges with the Secretary of State at the beginning of my speech. As I have said, there is a fundamental distinction between the practice of previous Governments of both major parties, who sought to influence the level of local government expenditure, and the practice of the present Government. If I seek to influence an institution, I respect its right to do something different if it disagrees with me. That principle is fundamental to the democratic balance. The present Government seek to control local authorities and, in doing so, to take away their democratic rights altogether.

In short, there is no economic justification for this monstrous system of controls. However, the system is doubly damned because it has not even worked out as Ministers intended. Ministers have claimed to be anxious about rate increases, but their policies have led directly to rate rises which have been far faster than the general rate of inflation. No doubt the Minister for Local Government will rattle through a list of figures showing how, year by year, the rate of increase in rates has declined. He will not say, however, that, year by year, rate rises have been far higher than the rate of inflation. Since 1978–79, rates have increased by 141 per cent., whereas prices have risen by 50 per cent. The Tory-dominated Association of County Councils has said that the reason for the increase in rates above the rate of inflation is the direct responsibility of the Government in cutting grant.

We must also consider the fairness of the system. The ACC has damned the settlement, complaining that it is the most complex ever in a system that is renowned for its complexity. It has challenged the Under-Secretary of State for the Environment, who prayed the ACC in aid in favour of reducing grant. The Government will seek any alibi. So incensed was Mr. John Lovill who, as far as I know, is not known to be a rabid Socialist, by what the Under-Secretary of State said, that the ACC wrote to him saying that it was quite untrue that it supported such a reduction in the level of rate support grant and that it was unacceptable when accompanied by constant accusations of local authority overspending and a refusal to allow the deficiency in income to be made good from other sources.

The inequity, unfairness and sheer insanity of the present system derives from the ever more frenetic efforts of Ministers to second and third-guess decisions which should sensibly be left with councillors. It also derives from their trying to substitute bizarre mathematical formulae for individual judgments, as the hon. Member for Langbaurgh (Mr. Holt) said. He should know because I understand that he used to be in the bookmaking industry, as it is delicately described, before coming to the House. It is ironic that the modern, extremist Conservative party has become the arch practitioner of rigid central planning and control. It is ironic that, while we are opening our ears to the need for greater decentralisation and more local sensitivity, the Conservative party is closing its ears. It is extraordinary that the Conservative party, above all, should have ignored the warnings of Karl Popper—that although it is possible to centralise power, it is not possible to centralise the knowledge needed to exercise that power widely. Popper, drawing on the Tories' favourite guru, Hayek, said of the central planner: Unable to ascertain what is in the minds of so many individuals, he must try to simplify his problems by eliminating individual differences…But this attempt to exercise power over minds must destroy the last possibility of finding out what people really think…Ultimately, it must destroy knowledge; and the greater the gain in power, the greater will be the loss of knowledge. As much of what is intellectually respectable among modern Right-wing Conservatism derives from Popper and Hayek, it is time that some Conservative Members took notice of their philosophies.

Virtually every social and economic need from the cradle to the grave is now measured by GREA, but so detached have Ministers become that even the apparently simple issue of the demand for cemeteries and crematoria has not been measured, until this year, by reference to the number of people who are expected to die but by the number of people who are expected to go on living. It took the local authority associations four years to persuade the Department of the Environment—the hon. Member for Langbaurgh will know that this is the E8 factor—that a better measure of the demand for cemeteries and crematoria, far from being the number of people who are likely to carry on living, is the number of people who are likely to die. It is no wonder that we are in a mess.

GREA is bad enough, but now, quite contrary to the undertakings that have been given, it is used not merely to allocate grant but as a means of control. In addition, we have target, which is based on separate yardsticks and is inconsistent and in conflict with GREAs. One measure tells authorities what they need to spend and the other tells them what they will be allowed to spend. Of the 39 shire counties, 38 find that their target is below their GREA and that they will therefore be penalised heavily by the Government if they do no more than spend the Government's own assessment of their needs. The Government have consistently sought to hit at Labour authorities working in areas of serious social and economic need. The settlement will do so again.

Some authorities have been rate-capped and their position is worse. All face cuts. Some, like Hackney and Haringey, face catastrophe. Some, like Leicester, have been told that they have got to cut their rate by 50 per cent. even though, if the assumptions were correct, that would lead to a doubling of their rate next year.

I have not been in the Chamber all day so I did not get this at first hand, but I understand that rate-capped and high penalty authorities have decided today to seek a collective meeting with the Secretary of State to put forward representations about the dire problems they face. The hon. Member for Devizes (Mr. Morrison) spoke of the impossible position of Conservative authorities. Labour authorities are in the same difficulty. It is the hope of all my hon. Friends that that meeting will be fruitful and that the Secretary of State will recognise that he is pushing authorities into a corner from which they may not reasonably be able to extract themselves.

In regard to the shire counties and Conservative authorities, last year Environment Ministers staved off a major Back Bench rebellion only by giving promises to the right hon. Member for Cambridgeshire, South-East (Mr. Pym) of better things to come. The hon. Member for Bristol, West (Mr. Waldegrave) gave a categorical "yes" when asked by his right hon. Friend: from 1985–86 and thereafter, will the Minister be fairer to the low-spending authorities than his statement suggests?—[Official Report, 23 January 1984; Vol. 52, c. 737.] I remind the Minister and Government Back Benc hers that that promise has not been met.

Mr. Bowen Wells (Hertford and Stortford)

Hear, hear.

Mr. Straw

That "Hear, hear" came from the hon. Member for Hertford and Stortford (Mr. Wells) on the Government's Back Benches.

Hon. Members need not take this from me. They should have listened to the comments of their hon. Friends and of the Association of County Councils. The hon. Member for Uxbridge (Mr. Shersby) described the settlement as manifestly unjust. The hon. Member for Davyhulme (Mr. Churchill) said that his authority had been kicked in the teeth. We have heard many similar epithets about the settlement.

The final absurdity about the system, if it can be adorned with that name, that the Government have created, is that the Government claim that they have had to hit Labour overspenders so as to help Conservative underspenders. Some hon. Members on the Government Benches understand this, but it is so bizarre that most people turn off when it is explained to them. So crazy is the system that Conservative underspenders have only escaped even more massive cuts in grants and increases in rates because of overspending by Labour authorities.

If the Government's policy for Labour authorities works, if those authorities sack staff by the thousand and make massive cuts to meet the Government's targets, who will benefit? Not the low-spending shire authorities—quite the reverse. As expenditure came down in the high-spending Labour authorities, they would earn more grant. As the Treasury will not give the Secretary of State more total grant, the additional grant for the Labour authorities would come from Conservative authorities. Hon. Members do not need to take it from me; it is in the Official Report.

When Government Back Benchers go through the Lobby tonight they should appreciate that they are voting for higher rates in their own areas. If Labour authorities meet the Government's targets, Berkshire will lose £35 million in grant and have a 20 per cent. increase in rates. The right hon. Member for Cambridgeshire, South-East is not here, but before he goes into the Lobby he should weigh with care the fact that Cambridgeshire would lose £26 million in grant and its rates would go up 21 per cent. Essex would lose £35 million in grant and its rates would go up by 25 per cent. Kent would lose £90 million in grant and its rates would go up by 35 per cent. Wiltshire would lose £80 million in grant and its rates would increase by 22 per cent. West Sussex would lose so much that its rate would go up by 44 per cent. and it would get no grant at all; it would be in the same position as the GLC.

It is said that those whom the gods wish to destroy, they first make mad. This is a mad, crazy system in which the Secretary of State has imprisoned himself and the other authorities. If he were kicking the guts out of Labour authorities, one would have thought that at the very least Conservative authorities would benefit, but not a bit of it. If that policy works, and Labour authorities sack thousands of people, the result will be cuts among Conservative authorities and massive rate rises. That is written in the Minister's own answers.

The Government's policy towards local government is bereft of compassion, comprehension and common sense. The system that they have created defies rational analysis or explanation. It savages authorities which spend too much and impoverishes those which spend too little. Above all, this system has already destroyed local choice and freedom in pursuit of an utterly bankrupt economic policy. If carried through, it will destroy thousands of jobs and undermine the quality of life for millions of our citizens. That will be the consequence if this report is approved. That is why the Labour Opposition condemn it utterly and will vote against it tonight.

9.31 pm

The Minister for Local Government (Mr. Kenneth Baker)

As the hon. Member for Blackburn (Mr. Straw) said, this is my maiden speech in a rate support grant debate. In the years that I have been in the House, when I have looked in on such debates, I have soon found that on the whole hon. Members keep away from them unless they have been alerted to attend by their local authorities. Rates debates are occasions when the disgruntled speak to the disenchanted in front of the disbelieving. Every system of rate support, including the one which existed in the 1960s and 1970s, is well nigh incomprehensible and is understood only by the initiated. Thankfully, few hon. Members wish to be initiated.

I accept that the system is byzantine in its complexity and that it is probably fully comprehended only by those who have a taste for scholastic theology. I can only recall the remarks of Palmerston on the Schleswig-Holstein question last century, when he said that only three people understood it—himself, a Danish professor who was in an asylum and a third who had died.

I appreciate that it is exceptionally difficult to explain our system and that in double quick time, in attempting to discuss it, one sinks into a jargon which Mr. Edward Pearce of The Daily Telegraph referred to as the verbal sludge of municipal speak". Therefore, I have every sympathy with those on both sides of the House who are impatient with this system and want to see one that is more easily understood and more predictable in its effect.

My right hon. Friend the Member for Guildford (Mr. Howell) made that point in his speech when he called for a more strategic, systematic and sustainable way of running our affairs. My right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) also made that point, as did my hon. Friends the Members for Hornchurch (Mr. Squire) and for Langbaurgh (Mr. Holt). They welcomed the review that I am undertaking. So did the hon. Member for Blackburn, who, in an elegant and interesting speech—it was a pity that more of his hon. Friends were not present to hear it—addressed himself to some of the fundamental issues which I shall have to include in the review. In that review it will be possible to cover some of the points raised by my hon. Friend the Member for Davyhulme (Mr. Churchill), who referred to the extreme differences in rateable resources. Inevitably, such questions will have to be considered in the review.

I noted the points made by my hon. Friend the Member for Rochford (Dr. Clark) who pressed me to consider the fundamental changes that are needed.

Mr. Bowen Wells

Will my right hon. Friend give way?

Mr. Baker

I hope that my hon. Friend will allow me to press on for a moment, because I should like to answer the points that have been raised.

My hon. Friend the Member for Uxbridge (Mr. Shersby) spoke about Hillingdon. I very much appreciate the efforts made by Hillingdon council to reduce the high level of spending that it inherited. I regret that in a year when we have provided more favourable targets for most authorities, we have not been able to do as much as it would have liked.

Mr. Wilkinson

I appreciate, as always, my right hon. Friend's generous sentiments, but I must vote against the settlement. Last year my hon. Friend the Under-Secretary of State for the Environment made some reassuring remarks to my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym). We were led to expect a better settlement than this, and for that very good reason I shall not be able to support the Government.

Mr. Baker

I understand. My hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) has made his position clear to me. Accompanied by his colleague the hon. Member for Hayes and Harlington (Mr. Dicks), he brought a delegation to see me. I shall deal shortly with the commitment on targets that was made in last year's debate. The target was directed towards low spenders.

I did not hear the speech by my hon. Friend the Member for Sevenoaks (Mr. Wolfson), but I have been told what he said. I was aware of his view because he, too, brought a delegation of councillors to see my hon. Friend the Under-Secretary. I shall certainly examine the important matter of the parish council precept for his area.

My hon. Friend the Member for Langbaurgh, apart from supporting the review, said that apparently some acres of Cleveland county had been overlooked. If we have lost bits of Cleveland, I assure him that they will be discovered and the appropriate changes will be made.

Mr. Holt

When they have been discovered, will we receive the correct rate support grant, which we have so far been denied?

Mr. Baker

If the areas have been lost and they are discovered, justice will be done.

I enter a note of caution about the review. Any system which seeks to distribute £12 billion to over 400 local authorities by way of grant must be complex. The attempts to recognise the different resources and expenditure needs of different areas adds a great deal to the complexity. Attempts at trying to be fair in that distribution of central Government grant make the system complex.

The system which preceded that which now operates was equally complex and equally difficult to understand. It was based upon what mathematicians call regression analysis, which meant that the more one spent, the more grant one received. That gave a great boost to the continual high spenders.

One of the advantages of the present system is that it has broken the link, but it is complicated. The old system required 14 variable step-wise multi-variate regression analyses. In the late 1970s that could be done only on a computer in America. I say that because to find a system which is transparently simple and clear might be difficult. I have no shadow of doubt that I have to try to point the way towards a system which more people can understand and explain.

It is alleged that the complexity of the system increases the tension between central and local government. The real reason for so much tension about rate support is that since 1979 we have tried to restrain the total level of local authority spending. If one examines the pattern over the last 20 years, one sees that local authority spending in the 1960s and 1970s was rising by about 3.5 per cent. a year in real terms. Since we have been in office it has risen by about 1 per cent., or slightly less, in real terms per year.

The first Minister who tried to put the handbrake on local authority expenditure was Tony Crosland when, in 1976, he went to Manchester city hall and made a grave speech saying that the party was over. It was over for about a year, and then the high-spending pattern revived and we inherited a very high level and increasing rate of growth of local authority expenditure. Since 1979 we have been trying to reverse the trend, and we have had some success. However, I do not underestimate the difficulty that that imposes upon local authorities, whether Labour or Conservative.

The Government continue to keep a tight control on local authority expenditure. We have been able to set targets for 1985–86 which assist and reward the low-spending authorities. That fulfils the commitment given by my right hon. Friend and my hon. Friend the Under-Secretary during the debate a year ago.

Those authorities spending just below GREA have been allowed to increase their spending by 4.5 per cent. A few authorities — those spending not only below GREA but close to target — can increase their spending by 4.625 per cent. That is much better than has been possible for the past two years. For those authorities, there should be no real cuts. I am aware that many of those authorities still feel hard done by, and some believe that the targets set for next year are still too easy for the high spenders.

Mr. Churchill

It is not correct to say that all low spenders will receive the 4.625 per cent. increase. Some, such as Trafford, are having it clawed back under the negative marginal rate. It is clear that that is not a fulfilment of the pledge given last year, because Trafford is being given £200,000 but will have £2 million taken away. For that reason I—and I am not alone in this— will have no choice but to vote against the settlement.

Mr. Baker

I appreciate my hon. Friend's point, but it is on a different part of the system. I am talking about the targets set for expenditure. The 4.625 per cent. increase applies to Trafford next year. My hon. Friend is referring to grants.

I am aware that many of the low-spending authorities still feel that the high spenders are getting away with it. That has been expressed by the leaders of some of the shire authorities. I have told them that the high spenders are not getting away with it. Targets set for overspending authorities spending above GREA have been tough. As Opposition Members have said, that has involved real reductions in expenditure—in some cases as much as 6 per cent.

The targets that we have set do not favour the high spenders, and the controls on them are threefold. First, there are tougher targets for them. The hon. Members for Burnley (Mr. Pike) and for Sheffield, Heeley (Mr. Michie) made that point. Secondly, there are higher penalties in the amount of grant that is lost if the targets are exceeded. The level of penalty has been criticised, but those who overspend their target this year will suffer a very severe cut in grant. Thirdly, the 18 high spenders have been rate-capped.

I appreciate that the low spenders feel that their regard for Government policy during the past four years has been inadequately recognised. That has been the burden of many of the comments from hon. Members from both sides of the House. My hon. Friend the Member for The Wrekin (Mr. Hawksley) made the case for the county of Shropshire and my hon. Friend the Member for Suffolk, Central (Mr. Lord) made the case for Suffolk. I re-emphasise the point made by my right hon. Friend during his speech. I repeat again that we would like to abandon targets and holdback altogether, but that depends on the level of local authorities' budgets — how much they spend in the next year, 1985–86—and on the alternative pressures which can be brought to bear to achieve the delivery of the Government's public expenditure plans. We are considering various alternatives urgently to see whether they would be operable.

Mr. Charles Morrison

As my right hon. Friend began by speaking of targets with reference to tight controls and notes of caution, will he give a guarantee, looking further ahead — this is important in relation to an intervention of mine when the Secretary of State was speaking — that, whatever happens, the situation facing shire counties in 1986–87 will be better than it is now?

Mr. Baker

I remind the House that my right hon. Friend said earlier that the more favourable targets which we have been able to give low-spending authorities for 1985–86 have been possible only through the savings which have been achieved in public expenditure terms by rate capping the highest spenders. Rate capping will continue to produce savings in 1986–87 as we continue to bring down the excessive spending levels of the high spenders.

Thus, low-spending authorities will benefit from rate capping. For authorities which budget in the coming year, 1985–86, to spend at or below both target and GREA, targets for the following year, 1986–87, will take account of those further savings to be achieved from rate capping the highest spenders. To answer my hon. Friend's intervention, these low spenders' targets in 1986–87 will therefore be both more favourable than they would have been but for rate capping, and more favourable than for authorities which budget this year to spend above either target or GREA.

Mr. Eldon Griffiths (Bury St. Edmunds)

As one who will be supporting my right hon. Friend in the Lobby tonight, may I remind him that many of us will be doing so because of the prospect that has been held out of targets being got rid of altogether? That cannot come too soon. I appreciate the Government's difficulty in giving commitments against the changing background of public expenditure. Nevertheless, will my right hon. Friend give to shire counties, or at least to low-spending counties, some incentive which will enable them to assist the Government to get rid of targets that have been unjust?

Mr. Baker

I shall consider what my hon. Friend has said. The undertaking that we have given is to set targets which recognise low spending by the shire counties.

Dr. Cunningham

That question was asked in last year's debate, when many Conservative Members went into the Lobby in support of the Government on the basis of the assurances that they were then given. The outcome, according to the Association of County Councils, is that the average target increase for shire counties is 4.6 per cent., compared with the national average increase in target of 6.8 per cent. It remains the position, therefore, even under the present White Paper, that the lower-spending authorities receive lower average target increases. That is the reality of the situation, so what is the right hon. Gentleman's assurance worth?

Mr. Baker

I shall tell the hon. Gentleman what it is worth. I regret that we become involved at this stage in a great deal of what I described earlier as the verbal sludge of municipal speak. The hon. Gentleman is seeking to make target-to-target comparisons, but the real measure is the target-to-budget comparison. What was said a year ago about the low-spending authorities has been met. The low-spending authorities below GRE have had increases of 4.5 per cent. The increases for the very lowest spending authorities have been 4.625 per cent. The undertakings that my right hon. Friend the Secretary of State and I have given during the debate have been explicit. The leaders of the Tory shire counties have made it clear again and again that they expect recognition to continue of their efforts to keep spending low.

The hon. Member for Blackburn made an interesting and important comment. I was delighted to hear from him that the Labour rate capped authorities are now prepared to discuss the Rates Act 1984. My right hon. Friend said last week that if they wished to meet him collectively he would be happy to see them, and the Government stand by that. The earlier the meeting, the better. However, as the circumstances of authorities vary greatly, any decision to change the rates limit of a particular authority must take account of its circumstances. I hope that the authorities will come to the meeting ready, if they wish, to make clear their views on their proposed rate limits in their respective financial positions. My right hon. Friend will be able to consider any new information before reaching his final decision.

Rate capping has been mentioned on several occasions during the debate. I remind the House that there will be other opportunities to discuss the matter, as the orders applying to the precepting and rating authorities will have to be debated. The help that we have been able to provide for the low spending shire counties this year depends essentially upon our rate capping proposals.

The proportion of local expenditure which central Government have funded through grants will fall next year from 51.9 to 48.7 per cent. That was very much the main thrust of the speech of the hon. Member for Copeland (Dr. Cunningham). The RSG has dropped from 61 per cent. since the Conservative Government took office in 1979. We have taken this course to increase the accountability of local authorities. It is the main reason for the drop in grant to the shire counties and districts this year.

I am aware of the campaign that has been run by many of the high-spending Labour authorities against the Government's policy. They are demanding that they should be given back the grant which they would have had if the level of Government funding had remained at 61 per cent. The hon. Member for Copeland said, in effect, "When you came in, Government support was 61 per cent. It has been reduced progressively to 48.7 per cent." It is claimed by many, including many Labour Members, that the moneys which have been made available belong to the high-spending authorities. They advance the argument that the Government have stolen their grant. Some authorities seem to imagine that they have an inalienable entitlement to taxpayers' money. They imagine that they have the right to put their municipal fingers into taxpayers' pockets. It is fanciful to claim that the Government have stolen local authority grant. It is not their grant, and there is nothing special or sacred about 61 per cent.

The grant percentage is calculated each year and authorities have no right to expect their grant in any particular year to be based on what they received in any previous year. The Labour Government reduced the percentage from 66.6 per cent. in 1975–76 to 61 per cent. in 1977–78 and 1978–79. That cut, which was introduced by the then Chancellor of the Exchequer, was by far the largest ever made. If one counted up all that money, one would find that by the time the Labour party left office £1.4 billion had been forgone. I never heard arguments from any Labour Members that this money should be given back.

Mr. Straw

The right hon. Gentleman should not try to mislead the House about the record of the last Labour Government. When Labour came into government the rate of grant was set at 61 per cent., and it was 61 per cent. when Labour left office. The rate was increased to 66 per cent. to cover the exceptional increase in the cost of the Houghton recommendations in 1975. The last Labour Government's record was one of maintaining the grant at above 60 per cent., and this Government's record is of cutting the grant every year, year by year.

Mr. Baker

The hon. Gentleman's figures are correct. The rate started at 61 per cent., and went up to 66 per cent. The largest single cut of central Government support to local authorities was made by the Labour Government. We believe that we have been right since 1979 to continue to reduce that grant.

Mr. Simon Hughes

We certainly accept the proposition that local authorities have no inalienable right to taxpayers' money. In return, the right hon. Gentleman must accept the proposition that, when central Government impose duties on local authorities, and when services have to be provided, money must be found from somewhere. Establishing a system which does not allow that is not justifiable by anyone's reckoning.

Mr. Baker

The present system seeks to do that, and it does so. It seeks to measure the expenditure needs of different authorities. We have heard that many hon. Members are dissatisfied, and I accept their criticisms. The system is by no means perfect. We have been right in protecting the taxpayer by reducing the amount of central Government grant to local authorities. It is often said that the consequence is an increase in the level of rates. I remind the House that the average level of rate increase has fallen during the past four years, as the hon. Member for Blackburn reminded the House. In 1980–81 there was an average increase of 27 per cent. It fell to 23 per cent., to 16 per cent., and then to 13 per cent. In the last year the average increase in domestic rate has been 6.4 per cent.—the lowest for 10 years. I hope that my right hon. and hon. Friends will note that fact.

What policy on local government expenditure would the Opposition follow? Would they allow expenditure to go through the roof and force up rates? That idea was implicit in the speech of the hon. Member for Blackburn. Would the Opposition increase the central Exchequer grant to local authorities? That would be bound to increase taxes.

Local government expenditure can be financed from only two sources, because local authorities cannot borrow for their current spending. Local government expenditure can be financed from either rates or taxes. Several hon. Members have rightly said that it cannot be satisfactory to have rates as the single tax base because that places too great a burden on too few shoulders. Each year, a smaller number of householders pay rates. My hon. Friend the Member for Hornchurch made that point, and that is one matter that I shall have to study carefully in my review.

The ratepayers know only too well which party protects their interests. This Government's record should leave them in no doubt. We have reduced the seemingly inexorable growth in spending, without unacceptable reductions in services. We have abolished supplementary rates, which has prevented ratepayers from being caned twice in one year. We have obliged all authorities to consult properly and fully with their industrial and commercial ratepayers. We have set up the Audit Commission, with a new emphasis on value for money in the provision of services. We have introduced selective rate capping to protect the ratepayers of the highest spending authorities, including the GLC, from the extravagant waste of money by those authorities on political propaganda. As my hon. Friends know, £10 million was spent by the GLC on that propaganda. What would that money have bought in terms of meals on wheels or home helps?

That is the kind of unacceptable expenditure against which we are acting. It has nothing to do with services; it is purely political. If anyone seriously believes that ratepayers would have seen such achievements under a Labour Government, I suggest that he looks again at the history books. Average rate increases have fallen in each of the past five years. That is what ratepayers want, and that is what the Government have given them. It is what the 1985–86 settlement will achieve if local authorities behave responsibly. I commend these documents to the House.

Question put and agreed to.

Resolved, That the Rate Support Grant Supplementary Report (England) (No. 2) 1984/85 (House of Commons Paper No. 81), which was laid before this House on 11th December, be approved.

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1. RATE SUPPORT GRANT (ENGLAND) (No. 3) I983/84 31 words
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2. RATE SUPPORT GRANT REPORT (ENGLAND) 1985/86 2,234 words, 1 division