HC Deb 25 July 1985 vol 83 cc1319-38

4.8 pm

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

With permission, Mr. Speaker, I shall make a statement about local government finance for 1986–87. It contains my proposals for the rate support grant settlement for England, and my decisions on selective rate limitation.

First, I deal with rate limitation. This year's round has gone well. It has saved ratepayers over £300 million. We have begun to curb the worst overspending of the most profligate authorities. Despite the disgraceful scenes of violence and intimidation in several town halls, there were majorities in every rate-capped council for complying with the law and the will of this House.

I am today laying before the House a report setting out how authorities will be selected for rate limitation next year. For authorities not previously selected, I am proposing the same criteria as I used this year: I am selecting authorities whose budgets this year are more than 20 per cent. above grant-related expenditure and more than 4 per cent. above target. For authorities which were selected this year, I am reselecting them if their budgeted expenditure is more than 20 per cent. above GRE and either more than 1 per cent. above target or more than 30 per cent. over their expenditure in 1981–82.

On these criteria, two authorities, Liverpool and Newcastle, are selected for the first time, and 10 authorities are reselected. They are Basildon, Camden, Greenwich, Hackney, Haringey, Islington, Lambeth, Lewisham, Southwark and Thamesdown. Next year new authorities will come into existence under the Local Government Act 1985 and will be affected by the automatic precept control provided by that Act. Under that provision the Government will set expenditure levels and precept limits for three years. In all, the Government will next year be limiting the rates or precepts of 32 authorities with expenditure totalling some £3.5 billion. That demonstrates the Government's continued determination to rein back the profligacy of the largest overspenders and to prevent extravagance in the initial years of the new authorities.

I am setting expenditure levels for the 12 rate-capped authorities. In most cases there will again be a cash standstill on budgeted total expenditure in the current year. In three 'cases where budgets this year show an exceptionally sharp increase in spending, I am setting lower spending levels.

I am open to representations for redetermination of expenditure levels. Where an existing authority applies mainly because it considers we have made inadequate allowance for functions inherited from the GLC and metropolitan counties, or mainly because special accounting arrangements in its view imply unachievable economies, I shall not use my powers to reduce expenditure levels or impose conditions. My right hon. Friends the Secretaries of State for Education, the Home Department and Transport will be making separate announcements about expenditure levels for ILEA and the new joint authorities.

The success of rate capping in curbing. the worst excesses of the highest spenders means that for the generality of authorities we can now do without targets and penalties next year. That brings me to the rate support grant settlement as a whole. I am today issuing to local authorities proposals for the main features of the settlement for next year. Copies are in the Library and the Vote Office.

The target system has operated since 1981–82 in order to put pressure on councils to restrain spending. Many of my hon. and right hon. Friends have in the past made the point that the system operates unfairly on low-spending councils, especially those spending below their GRE. Last January in the RSG debate I expressed the hope that for 1986–87 we could do without targets if there was a satisfactory alternative means of restraining spending. I believe that the block grant system can be modified to provide a sufficient deterrent to overspending and accordingly I can tell the House today that the system of targets and penalties will not apply next year.

Instead, expenditure restraint will be achieved by much stronger block grant pressures. I am proposing sharply to increase the rate at which a council's grant will be reduced as its spending rises in relation to GRE. The system will thus put more weight on the comparison of a council's spending with its GRE which is what my right hon. and hon. Friends have sought. Powerful pressures will remain on those councils which spend well above GRE. I am consulting local government on the details.

I am proposing that aggregate Exchequer grant should be the same cash sum as in this year's settlement, £11.8 billion, which is likely to be just under 47 per cent. of relevant expenditure next year. I am proposing to increase the sum provided for local authority current expenditure for 1986–87, as shown in this year's public expenditure White Paper, by £500 million, to £22.250 billion. That is less than local authorities would like but the Audit Commission's reports are showing how councils could save hundreds of millions of pounds without reducing services, simply by getting better value for money.

The RSG settlement that I am proposing will be less complex than in past years; it will be fairer to responsible, low-spending authorities; it will maintain pressure on higher-spending authorities to find savings; and it will place firm control on the most extravagant authorities. If local government responds sensibly, average rate increases next year should be in low single figures.

Dr. John Cunningham (Copeland)

Is the Secretary of State aware—clearly some of his hon. Friends are not—that he has just announced a massive increase in authoritarian central control of local authority expenditure and budgets? He has done so on two counts: first, on the implications of his statements on the Rates Act and, secondly, on his proposals for the rate support grant settlement. Is the right hon. Gentleman also aware that the reality of his statement is that more than 20 million people, under more than 30 authorities, will now have the level of their services and the budgets of their authorities dictated and controlled from Whitehall? That is what the Secretary of State has been telling the House this afternoon.

Why do his right hon. Friends who are responsible for the Inner London education authority, the police service, the fire service and transport, apparently intend to slip out in written answers, either today or tomorrow, their decisions on budgets for those authorities, instead of telling the House of Commons in this or other statements this afternoon? It is a scandalous abuse of Parliament. Why do transport authorities such as South Yorkshire have to wait to be told by how much the Government intend to force up fares for public transport users in those areas?

Will the Secretary of State explain why the city of Newcastle upon Tyne is to be designated under the Rates Act? That city's expenditure has increased by 91.5 per cent. in real terms since 1978–79. For example, expenditure in Buckinghamshire in the same period increased by more than 112 per cent., in Somerset by more than 103 per cent., in West Sussex by 99 per cent., and in Cornwall by 98 per cent. Is the Secretary of State aware that the net expenditure of the city of Newcastle upon Tyne has fallen in real terms over that period? Is the Secretary of State also aware that if the penalty system that he imposed had not applied there would have been no need for rates increases in that city in the current financial year?

Why should the Secretary of State and his hon. Friends take any pride in increasing the problems facing the people of Liverpool and its city council by further designating that authority under the Rates Act?

The Secretary of State said that he wanted to encourage negotiations in the coming financial year. I welcome at least that part of his statement. So will he give a categorical assurance now, without equivocation, that if authorities approach him on that basis he will not use his severe reserve powers to make the situation worse for them?

On the rate support grant settlement, is the Secretary of State aware that this is the sixth successive year in which the Government have deliberately reduced the rate support grant-in this case, from 48.7 per cent. to just under 47 per cent. of local authority current expenditure? The figure of £11.8 billion that he announced will be a cut in real terms of 7 per cent.. bearing in mind the current rate of inflation, because it is a cash freeze. Hon. Gentlemen need not shake their heads. That is the reality of the announcement.

Is the Secretary of State aware that there will be a shortfall in what councils — including Conservative councils — need to maintain their existing services, of almost £1 billion next year, as a result of this statement?

As Conservative Members appear to be welcoming this statement—based on the use of the GRE in a way that was never intended — will the right hon. Gentleman explain to them what will happen in the Tory borough of Brent, with an expenditure of 18.3 per cent. over GRE? What is to happen in the City of London, with a staggering excess of expenditure over GRE of 252 per cent.? What is to happen in Hammersmith and Fulham, where expenditure over GRE is more than 12 per cent., or Hillingdon, where it is more than 9 per cent., or Harrow or Enfield or Havering or Bexley or even — dare I remind the right hon. Gentleman? — Barnet, where expenditure is also in excess of GRE? What about Conservative Harrogate, Conservative Dartford, Conservative Adur or Conservative Ribble Valley or Hertsmere? The list goes on and on. Having engineered a debacle for the Conservative party in the shire counties this year, the right hon. Gentleman is about to do the same for the district authorities. Or does he, through some political fix or manipulation of figures, intend to bail out the outer London Tory boroughs and others in a political gerrymander?

Is the Secretary of State aware that the £1 billion gap will inevitably increase if a settlement of the teachers dispute exceeds the 5 per cent. budgeted for, as is inevitable if there is to be a settlement? What impact does the right hon. Gentleman expect that to have on his proposals?

In using GRE in this way, the right hon. Gentleman again casts aside promises made to the House by his predecessors about its use. I refer principally to pledges given to the House by the previous Secretary of State for the Environment, now Secretary of State for Employment. He said of GREAs: It is not suggested that it prescribes a specific level to which an authority ought to spend…want to make it clear that that was not the purpose."—[Official Report. Standing Committee D; 1 April 1980, c. 941.] The Secretary of State is totally casting that promise aside. He knows that the Audit Commission and all local authority associations reject this approach to local authority expenditure.

Finally, what now of the Chancellor of the Exchequer's claims that the Government want to increase expenditure on local authority services, as the only way that that can be done is by all authorities—Tory as well as Labour—spending in excess of their GREA?

Mr. Jenkin

I can well understand the wish of the hon. Member for Copeland (Dr. Cunningham) to redeem himself. His questions were certainly numerous and long.

My right hon. Friend the Secretary of State for Education and my right hon. and learned Friend the Home Secretary have today answered written questions setting out the expenditure levels for ILEA and the police and fire authorities. My right hon. Friend the Secretary of State for Transport has said that he does not yet have the information to enable him to set the expenditure levels for the transport joint boards and that he will make anouncements later.

The hon. Gentleman suggested that my statement constitutes an increase in authoritarian control. He is absolutely wrong. The abolition of targets means that we can leave local authorities a greater measure of control over their spending than has existed in the past three or four years.

He asked why we had selected Newcastle for rate capping. Newscastle is overspending its target this year by 7 per cent. and overspending its GRE by 31 per cent. It therefore qualifies under the criteria that I announced. Newcastle's rate is one of the highest in the country—70 per cent. over the past average. It employs one third more staff per thousand than the average of metropolitan districts, and its rates have risen by 66 per cent. in the past four years, compared with the rise in general price index of 23 per cent. I have no doubt that most of the ratepayers in Newcastle will be delighted that I have capped the authority.

The hon. Gentleman mentioned Liverpool. He will be as aware as I am of the refusal of Liverpool city council this year to strike a budget in line with the rate that it has voted. No doubt it has that matter under consideration. It is quite clear that, on the budget that it has published, it is well above the target limit that we have set and well above the GRE and therefore qualifies for ratecapping next year. I am grateful for what the hon. Gentleman said about my assurances about redetermination and I stand by the words of my statement. Doubtless he will wish to read it carefully. In those terms they were unqualified.

The hon. Gentleman suggested that there was a £1 billion shortfall to maintain services. He takes the figure which the local authorities identified in the expenditure groups of the consultative council. We have increased the amount to be provided in the public expenditure White Paper by £0.5 billion. That represents a significant move towards what the local authorities are requesting, but it would be foolish for the Government to fail to indicate to local authorities that this rate support grant settlement is intended to sustain the pressure for economies and savings.

The hon. Gentleman asked about what would happen, if a teachers' settlement were made, if the teachers' unions and the employers were to agree by October, in the terms of my right hon. Friend's statement, a settlement that would raise the level above that accounted for in this settlement. There would obviously be time to make the necessary adjustments in the final rate support grant settlement for next year.

The hon. Gentleman asked about GREs and quoted my right hon. Friend the Secretary of State for Employment. GREs are not targets. They are not prescriptive and in no sense do we regard them as a substitute or surrogate for targets. That has always been the case. There will be no holdback of grant to the Treasury next year for overspending GRE. We are proposing to use the GRE and the block grant mechanisms to a greater extent than before to exert pressure on high-spending authorities to find savings. We have no intention of forcing authorities to spend at the GRE level. They can spend at other levels. It is up to them and what they can justify to their ratepayers. As for the string of local authorities which the hon. Gentleman mentioned in the course of his question, I can only imagine that he was recounting his journey on Tuesday night. Individual authorities will need to study the consultative document to see how the settlement applies to them.

Mr. Francis Pym (Cambridgeshire, South-East)

My right hon. Friend will know with what relief his announcement today of the abandonment of targets and penalties for the generality of authorities will be greeted. Hon. Members who have been campaigning for that will wish to thank him for that, and no one more than I. Mind you, Mr. Speaker, when my right hon. Friend makes another benevolent announcement, I hope that he can do so before the local elections rather than after. I should like to put two questions to him. First, will he assure me that he will not invent any device remotely comparable to targets and penalties and that the low-spending authorities can in future receive that fair treatment to which he referred in his statement? Secondly, in considering local government financial reform and local government generally in future, will he reject the false notion that Whitehall knows best and give local electorates the greatest degree of local responsibility and accountability possible?

Mr. Jenkin

I thank my right hon. Friend for his remarks. I can certainly give him the assurance that low-spending authorities, spending below or close to GRE will, on average, stand to gain grant, but of course will continue to face grant pressures against increased spending. On his second point, those two propositions of greater accountability and greater responsibility are the two principles which underpin the local government finance studies on which my hon. Friends are currently engaged.

Mr. Eric S. Heffer (Liverpool, Walton)

Is the right hon. Gentleman aware that he is being wholly illogical today? Is he aware that, although he says that he is abolishing penalties, he is reintroducing them by another name? The right hon. Gentleman is suggesting that, with all its problems, Liverpool city council is profligate, yet he went to Liverpool and was shocked at the housing conditions and recognised the terrible housing problems and high levels of unemployment. Is what the Government are doing to Liverpool under the right hon. Gentleman's announcement this afternoon not sheer vindictiveness? If the right hon. Gentleman is serious about negotiations, he should for God's sake open discussions with the councillors to try to reach a sensible settlement instead of pushing them over the brink so that there will be a glorious smash-up for which the right hon. Gentleman, if he continues, will be responsible.

Mr. Jenkin

I utterly refute the hon. Gentleman's allegations. There is no vindictiveness. The council has made its rate and budget decisions this year in full knowledge of the conditions voted and approved by the House as long ago as last January. I assure the hon. Gentleman that Liverpool city council is perfectly capable of managing its affairs if it chooses to do so. I fear that a number of its councillors do not seriously wish to live within the rules that apply to everyone else, but no doubt there is still time.

On Liverpool's housing, the city has 8 per cent. arrears on council house rent income and 10 per cent. of its total housing stock is lying empty. Liverpool is perfectly capable of finding economies in managing its service and it is time that it started to do so.

Mr. Charles Morrison (Devizes)

I congratulate my right hon. Friend on making the block grant system less incomprehensible and for responding so warmly to requests from local authorities and from so many of his right hon. and hon. Friends to abolish targets and penalties. However, will the new arrangements allow low-spending counties complete discretion to spend up to GRE without running into block grant pressures? Will my right hon. Friend also take account of the fact that the savings suggested by the Audit Commissioner, to which he rightly referred, cannot be made equally by all local authorities? Some are more efficient than others and so have not the same scope for savings.

Mr. Jenkin

I entirely accept my hon. Friend's last point.

The revised block grant schedules are spelled out in the consultation document and the House will wish to study the details. Low-spending authorities will start with a higher entitlement to grant than hitherto but the steeper slopes of the block grant schedules will mean that authorities will face grant pressures against increased spending, albeit with greater flexibility than under targets and holdback. Correspondingly, high-spending authorities can achieve considerable savings for their ratepayers if they restrain the growth of their spending and begin to cut back. In that way the block grant system will achieve what was intended when it was introduced in 1980.

Mr. John Cartwright (Woolwich)

Will the Secretary of State accept that if GRE is to be used to control local authority spending it must reflect much more accurately than it does today the social problems of the inner cities? How does the Secretary of State expect local authorities to plan sensibly when every year they have to face a major upheaval in the administration of the block grant system? How does the Secretary of State equate the centralised control of 32 authorities' expenditure with the principles of local government?

Mr. Jenkin

The GREs have been in existence for five years and have been subject to repeated refinement in a process that is carried out jointly by local authority associations in the grants working group of the Consultative Council on Local Government Finance. There is always room for further refinements and improvements, but they are achieved year by year.

Between now and the final announcement of the rate support grant settlement, which I hope will be in December, we shall continue that process so that the GREs can increasingly reflect the reality of local authorities' spending needs.

We are not making this an alternative to targets. The hon. Member for Woolwich (Mr. Cartwright) will see that the revised block grant schedules—the slopes that will result in the reduction of grant as spending rises—do not hinge on the GRE. There is a margin 5 per cent. above and 10 per cent. above, so there is scope for flexibility. I understand the point that the hon. Gentleman is making, but these are matters which can be discussed with the local authority associations.

Sir Dudley Smith (Warwick and Leamington)

Despite the attacks which have been made on him over the past 18 months or so, my right hon. Friend is to be congratulated on his tough and resolute approach towards the whole vexed question of rates. Will he reiterate the fact that only a minority of individuals in this country pay direct rates? Is he aware that two or three days ago I learned quite unexpectedly that I, as a humble ratepayer in Lambeth, should be paying about £30 a year less than previously, and that—far more important—many hundreds of other people will be paying far less? In those circumstances, my right hon. Friend must be justified in his actions.

Mr. Jenkin

I am grateful for my hon. Friend's words. It is the limited number of those who pay rates which has given rise to the mismatch between those who vote and those who receive services. That, too, is one of the issues at the heart of the local government finance studies in which my hon. Friends are engaged.

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

Is the Secretary of State aware that he makes Tammany hall politicians look like amateurs? Is it not monstrous that he should make this rate-capping statement today without giving hon. Members from Newcastle upon Tyne, which it affects, any details or any opportunity to go into the Library to look up the details and then savage him as we would have a right to do? Is it fair for the right hon. Gentleman to prattle on about rate increases of 91 per cent. in Newcastle upon Tyne since 1978–79, when he knows well enough that the reason for 91 per cent. rate increases is the savage reduction in the rate support grant that he has inflicted on Newcastle upon Tyne and on every other major city?

The Secretary of State went on to berate Newcastle for being 7 per cent. above target, spending 31 per cent. More than the GRE. He knows quite well that the GRE for Newcastle is much less than the target. This year, Newcastle city council has very responsibly set a standstill budget of £146 million. The right hon. Gentleman said nothing about the price that will have to be paid for the abolition of Tyne and Wear county council, although I concede that he said he was prepared to have discussions. That should have been in his statement, and we should have been allowed time to consider it and debate the issue.

Mr. Jenkin

The hon. Gentleman may have lost sight of the fact that this is a provisional announcement, in accordance with the pattern followed by Governments in recent years. The final rate support grant settlement will be announced in December and will be debated soon after Christmas. I can promise the hon. Gentleman — no, perhaps I cannot promise the hon. Gentleman. He will have plenty of opportunities to savage whoever will be standing at this Dispatch Box then.

Mr. Alex Carlile (Montgomery)

The right hon. Gentleman is to be reshuffled.

Mr. John Cunningham

It will be the right hon. Gentleman.

Mr. Jenkin

I am grateful for the hon. Gentleman's assurance. However, I must point out that Newcastle has been a high-spending authority for years. Its rate has been one of the highest, if not the highest, in the country. Its expenditure per head last year was nearly a quarter as high again as the average for metropolitan district councils. The hon. Member for Newcastle upon Tyne, North (Mr. Brown) will be well aware of the outcry which greeted this year's rate increase, which I believe was about 23 per cent. I think that there would have been great disappointment in Newcastle if I had not included its name among those to be rate-capped next year.

Mr. Robert N. Wareing (Liverpool, West Derby)

Does the right hon. Gentleman not agree that through his statement, far from reducing penalties and lifting the burden from local authorities, he is ensuring that a local authority does not have to reach a target to be penalised but must merely exceed its GRE?

Does the right hon. Gentleman not agree that his remarks today — during what is, apparently, his swansong—on the subject of Liverpool will be regarded there as a gross betrayal of the citizens of that city after the visits paid to it last year by him and his hon. Friend the Minister for Housing and Construction? On that visit, he promised to devote his best endeavours to assisting the city with its serious housing problems. The only way in which he can now show that he is not being vindictive is by agreeing to meet the democratically elected councillors of Liverpool.

Mr. Jenkin

As the hon. Gentleman knows, the chief executive of the city council recently wrote to my Department setting out two or three matters about which he thought it would be useful to have a meeting.

As I explained to the hon. Gentleman and his hon. Friends when they met me to discuss the matter, in view of the situation in Liverpool there seems to be no purpose in our meeting now to discuss those matters.

The trouble with Liverpool city council is that its demands are always so extravagant and unreasonable that any discussion of them is bound to end in tears. There is, therefore, no purpose in embarking on that course

Mr. Malcolm Thornton (Crosby)

I join many of my right hon. and hon. Friends in saying how pleased my authority of Sefton will be with the Secretary of State's announcement that targets and penalties are to be abandoned.

Will my right hon. Friend confirm that, contrary to what the hon. Member for Copeland (Dr. Cunninghan) said about him adding to the problems of Liverpool, since he took office in Marsham street in 1983 he has devoted more of his time and made more offers of co-operation to Liverpool council in an attempt to sort out its problems than to any other council in the country?

Will he also agree that the refusal over many months of the leaders of Liverpool city council to co-operate with his Department is a major contributing factor in the problems that Liverpool faces in determining its rate and budget?

Mr. Jenkin

I agree with every word of what my hon. Friend said. I add only that last year, at the end of lengthy discussions with Liverpool, we agreed to an addition to its urban programme of £2.5 million if it could identify suitable projects. Now, over a year later, the council has put forward projects amounting to only £1.7 million; and as I told the hon. Members for Liverpool constituencies who came to see me, the balance remains on offer and the undertaking that I gave will be honoured. If the council wants the benefits of that money, it should put in the necessary applications.

Sir Anthony Grant (Cambridgeshire, South-West)

Is my right hon. Friend aware that I warmly welcome the fact that he has at last recognised the unfair way in which the target system bore upon responsible authorities such as Cambridgeshire?

To clarify the point made by my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym), will my right hon. Friend confirm that if, in future, the authorities in Cambridgeshire pursue the same financial disciplines and prudent policies of their predecessors, the ratepayers will benefit from his announcement today?

Mr. Jenkin

That is quite right. Conversely, if those authorities now choose to raise their spending sharply they will find that that will impose considerable penalties on their ratepayers.

Mr. Simon Hughes (Southwark and Bermondsey)

Will the Secretary of State accept——

Mr. Jenkin

If I may correct myself, I did not mean penalties in the sense of the targets, but that the ratepayers will find themselves paying higher rates.

Mr. Simon Hughes

Will the Secretary of State accept that, while we welcome the abolition of part of the monopoly of control exercised through the target and penalties system, we do not believe that people will be deluded into thinking that the settlement as a whole is advantageous?

First, the Secretary of State should tell the House that there will be a cut in central Government money for local authority services, as that is what his announcement implies. Secondly, it would be helpful if he would state the three local authorities that will have lower spending limits, which he mentioned in his statement.

The right hon. Gentleman may not want to be wise after the event, which is the lot of all his right hon. and hon. Friends who pleaded with him to benefit the shires. On behalf of all the alliance authorities which now control those shires, I am happy to accept that benefit. However, does he now need to be wise before the event in the context of the inner city? What is apparent is that the inner city authorities, with the transitional scheme, are likely to be particularly hard hit in future. There will have to be changes if they are not to be penalised unnecessarily—Tory, Labour or alliance—in the coming year, and if the system is to be fair Where the needs are clearly still greatest.

Mr. Jenkin

I should like to compare the Exchequer grant figure in my statement with what will now be paid to local authorities following the first interim supplementary report for this year. There is an increase in the percentage next year. The withholding through the penalty system of over £500 million of grant under the target and penalty system has reduced this figure to below 47 per cent. this year, and it will be above that next year. Because there will be no holdback of penalty that will go to the Treasury, any grant which is withdrawn from an authority which increases expenditure will be redistributed among the remainder of authorities, and particularly benefit low-spending authorities who have budgeted responsibly.

On the question of the consequences of abolition, I assure the hon. Gentleman that they have been taken into account in setting the expenditure levels of successor authorities which are rate-capped.

Several Hon. Members

rose ——

Mr. Speaker

Order. The Secretary of State said that there would be a debate later. I appeal to hon. Members to ask briefer questions and not to give a forecast of the speech that they may make later.

Viscount Cranborne (Dorset, South)

Will my right hon. Friend acknowledge the history of financial rectitude by the county of Dorset over the past few years in contrast to other authorities, not all of them Opposition-controlled? May we look forward to an appropriate reward in years to come?

Mr. Jenkin

Dorset will find that it has its rewards in this rate support grant settlement.

Mr. Laurie Pavitt (Brent, South)

Brent is very temporarily Conservative-controlled. Will the right hon. Gentleman confirm that it will not be rate-capped next year? His statement means that he—if he is still there—will have the same controls as he has at the moment. Has he had the opportunity of discussing with his hon. Friend the Minister for Housing and Construction the three-hour visit, for which I was most grateful, that he made to look at the squalid plight of 1,100 homeless families in sleazy hotels? The several clergymen present made some suggestions to which his hon. Friend listened with great courtesy. Does this statement mean that there will be no hope for the homeless families in Brent?

Mr. Jenkin

On the first part of the hon. Gentleman's question, Brent is not being selected for next year because, as a result of the selection and rate capping this year, it has succeeded in restraining its expenditure to the point where it is below the criterion of 20 per cent. above GRE. It has therefore properly — I am glad of this — removed itself from rate capping.

I should like to discuss with my hon. Friend the Member for Housing and Construction what the hon. Gentleman said in the second part of his question.

Mr. Wilkinson

I warmly welcome my right hon. Friend's statement. The target and penalty system which my hon. Friends the Members for Uxbridge (Mr. Shersby) and for Hayes and Harlington (Mr. Dicks) and I campaigned so vigorously against is to be withdrawn. Will he reassure us that our borough of Hillingdon, which had the highest percentage increase in rates in London, and was not rate-capped, will he compensated in full by central Government for those extra functions which it will have to inherit following the abolition of the GLC?

Mr. Jenkin

I understand the anxieties that many successful authorities are feeling as these matters have not been finalised. The intention is that the GREs of the abolished authorities should he distributed among the successor authorities, so that they have an adequate base from which to supply the appropriate level of services. It will be up to the successor authorities—such as my hon. Friend's London borough of Hillingdon—to decide how many extra staff, and so on, they will need to fulfil those functions. I have been greatly reassured by the number of authorities which believe that they can take on the GLC's functions in transport and planning and so on, with very few additional staff. That will redound to the benefit of their ratepayers.

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

How can the Secretary of State justify what will amount to harsh and cruel cuts in the services for and living standards of the poorest people in the poorest borough in the country, Hackney, when across the road in the City of London rich, powerful and fraudulent people at a bank are being bailed out with public money to the tune of £248 million? Is there one law for the rich and one for the poor?

Mr. Jenkin

Hackney's rates, despite rate capping this year, are 124 per cent. above the average for inner London authorities. If the hon. Gentleman cannot recognise the damage that that does to Hackney's economy, he is past praying for.

Mr. George Walden (Buckingham)

In his announcement of the abolition of targets and penalties, for which we are duly grateful, my right hon. Friend stated that they operated unfairly. Is he aware that in Buckinghamshire that unfairness has been compounded by the population problem to the point where a cut of 12.5 per cent. in capitation for schools has been precipitately made? Will my right hon. Friend look for ways to alleviate that problem before next April?

Mr. Jenkin

I am well aware of the problem, and I know that the Buckinghamshire authority will be helped by the abolition of targets. But in respect of population increase, I must remind the House that, just as there is a lag of a year or more in taking account of the most up-to-date population figures, equally there is a time lag in taking account of the latest increase in rateable value as a result of that expansion. Both those factors move in parallel. It is not right merely to look at one side of the balance sheet; both sides should be considered together. Nevertheless, I do not believe that serious harm is done to places with substantially increasing populations.

Mr. Greville Janner (Leicester, West)

Will the right hon. Gentleman inform rate-capped authorities such as the city of Leicester, which have been forced to cut into their already inadequate reserves, whether he proposes to provide any compensation in 1986–87 for the use of those reserves in 1985–86? Bearing in mind that the cities such as Leicester which are suffering hardship are precisely those on which there is the greates pressure to spend, will he show that the Government have some understanding of the problems that they face in trying to give service to disadvantaged people in the face of the Government's awful policy?

Mr. Jenkin

Considering that I have decided not to rate-cap Leicester next year because, according to the latest estimate, it has brought its expenditure below the level that would come within the criteria, I find the hon. and learned Gentleman's remarks astonishing. If Leicester will submit a proper return, signed by a proper officer, with an accurate estimate of what it will spend this year, perhaps the city and the Department of the Environment will get on a little better.

Mr. Peter Bruinvels (Leicester, East)

Is my right hon. Friend aware that I agree with him that Leicester should not be rate-capped again this year? The success of the Government's policy is shown by the fact that the city has kept within its budget for the coming year; it is to be congratulated on that. However, will my right hon. Friend take careful note of whether Leicester city council misbehaves in any way, and monitor the authority throughout the year? The council is scaremongering, and alleging that it will not have enough money at the end of the year.

Mr. Jenkin

Leicester is seeking to pretend that it will spend this year something over £30 million. Despite all the efforts of my very able civil servants, we cannot conceive how it will have the resources to spend more than about £25 million. If the council ends up by spending £25 million, it will bring itself below the level of the criteria for rate capping. That shows that the system is working.

Mr. Nicholas Brown (Newcastle upon Tyne, East)

Why has the Secretary of State singled out for punishment provincial capitals such as Newcastle and Liverpool which are areas of high unemployment and social deprivation? The Minister seemed to think that his announcement would be popular in Newcastle, but is he aware that the size of the Conservative group on Newcastle city council has shrunk to just over half what it was when he first became Secretary of State for the Environment? Is he further aware that among those who will undoubtedly become unemployed as a result of his announcement will be his hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Merchant)?

Mr. Jenkin

I had gained the impression from my recent visits that if Newcastle had not been included in the list of rate-capped authorities next year, that Conservative group might have found itself even smaller after next year's elections. As it is, I believe that it now has something to sell.

Mr. Derek Spencer (Leicester, South)

Does my right hon. Friend not agree that, as is so often the case, Leicester can teach the rest of the country a lesson? The lesson is that rate capping need last for 12 months only and can introduce financial sanity where there was madness. That quite destroys the myth that selection has been on the basis of political vindictiveness.

Mr. Jenkin

I am grateful to my hon. and learned Friend for that comment. We have attempted to adopt objective criteria for the determination of the selection of authorities and expenditure levels, and that is right. In regard to selection, we have obtained stability by applying the same criteria for new authorities as we had last year.

Mr. Terry Fields (Liverpool, Broadgreen)

Having refused to meet members of Liverpool city council, and obviously being convinced that his policies are justifiable and defensible, will the Secretary of State join me later and speak to the wives and families of Liverpool city councillors and seek to convince them of the legitimacy of his ideas? Perhaps he is prepared to pre-empt the Prime Minister's axe by committing political suicide because when the people of Liverpool hear what he intends to do to them next year there will be a movement that will be echoed throughout the British Isles. I warn the Secretary of State on behalf of the people of Liverpool that they will be dancing on his political grave if these policies go through.

Mr. Jenkin

The House will recognise some of the pressures that I come under from Liverpool city council.

Mr. Roger Freeman (Kettering)

Is my right hon. Friend aware that prudent spending councils in the shires, such as that in my constituency of Kettering, will welcome his statement about the abolition of targets? However, current and capital expenditure are closely linked, for both national and local government, and last year he made a statement about voluntary restraint on capital expenditure as part of a similar statement. Will my right hon. Friend assure the House that there is no prospect of calling for voluntary restraint on capital expenditure and that he will make a statement to the House as soon as possible on reorganising and recasting the system of capital expenditure allocations?

Mr. Jenkin

I am sure that my hon. Friend will have noted the answer that I gave to my hon. Friend the Member for Skipton and Ripon (Mr. Watson) in which I said that it was not the Government's intention at present to contemplate making a statement this year about this year's potential capital overspend, despite the fact that it might be quite considerable and any overspend will be a charge against the contingency reserve. In regard to the reform of the capital control system, we are well advanced in discussions with local authority associations. It is not a straightforward matter, but I hope that we shall be able to reach a conclusion in due course on a better system than that which we have at present.

Mr. Tony Banks (Newham, North-West)

The House realises that the Secretary of State is hoping that the rate support grant settlement will save him from the Prime Minister's award of a second ball bearing plant at Omsk. However, before he bedazzles his hon. Friends, will he tell the House how many authorities are already spending over GREA and, therefore, how many Tory authorities will come into penalty during next year? Will he also tell the House whether he intends ever to do something about the low level of services provided by many Tory authorities because that is the other side of the coin?

Mr. Jenkin

The hon. Gentleman has not fully understood the system and I do not blame him for that because it is complex. GREA is not a substitute target so that those which go over GREA suffer penalties while those which are below it do not. We are seeking to increase the slope of the withdrawal of rate support grant as expenditure increases. Those authorities below GREA will start with a higher level of grant, but, as I said to my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym), if they increase their expenditure sharply they will lose grant and their ratepayers will have to pay most of the excess in rates. Those whose spending is well above the level of the GREA will find that that presses more sharply. The system operates by reference to the GREAs and not by targets—that was the complaint about past expenditure patterns—and most authorities will find that it is fairer and more flexible.

Dr. Keith Hampson (Leeds, North-West)

Is my right hon. Friend aware that in 1981, many of us keenly supported legislation designed to abolish the old rate support grant system which automatically paid more Government grant to each local authority, such as Newcastle and other profligate authorities, which spent more? It is most welcome to have returned to the original ideas for which we legislated in 1981. It will give more stability to local treasurers and benefit the more economical councils. The essence of abolishing targets and holdback means that next year more money will be distributed among councils rather than going to the Treasury. If councils wish to spend more they will lose grant progressively. There will be more money available under this system than there is for the current rate support grant in this financial year.

Mr. Jenkin

My hon. Friend is right. If account is taken of the holdback on the first supplementary rate support grant report, which was debated last week, the percentage of grant next year will be higher than the percentage this year. The country was sick and tired of a system which rewarded extravagant authorities for their extravagance and penalised careful authorities for their care. The system of block grant taper has put that right.

Mr. Eddie Loyden (Liverpool, Garston)

When will the Secretary of State realise that quoting arbitrary figures does not resolve the problems in many of the larger industrial conurbations? Is not it time that the Government recognised, as my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Brown) said, that areas such as Liverpool and Newcastle suffer serious deprivation? The Government should turn to the needs of Liverpool, Newcastle and other places rather than bandy about arbitrary figures that are meaningless against the background of cities which are suffering as a consequence of the Government's policies.

Mr. Jenkin

The hon. Gentleman fails to recognise that the calculation of GREs takes account of the circumstances of the inner cities. Liverpool's GRE at £432 a head is the second highest of all the metropolitan areas. It is far higher than the average for metropolitan districts. Let us take some London figures. Camden has a GRE of £381 a head, Islington of £396 a head and Southwark £373 a head. The average for outer London boroughs on services excluding education—the figures must be on a comparable basis—is only £156 a head. The difference between those figures represents the differences in need, as measured by the GRE system.

Mr. Tim Smith (Beaconsfield)

At what point will the block grant pressures, to which my right hon. Friend referred, come to bear on an authority? Will it be before or after it passes its GRE? Will there be any loss of grant by a county such as Buckinghamshire which spends around GRE?

Mr. Jenkin

An authority which spends below GRE will start with an increase in its grant. As its expenditure increases, so will the local contribution, and the grant will be reduced. If an authority spends around GRE it will receive the appropriate level of grant for doing so but if its spending rises above that level on a progressively steepening schedule it will find that its grant is withdrawn and more of its extra expenditure will have to be met by its ratepayers. Unlike the system of target and penalties, as an authority decides to spend up and so loses grant, that will be to the benefit of other authorities which have kept their spending down.

Ms. Harriet Harman (Peckham)

Does not the Secretary of State realise that the reason that Southwark is what he describes as a high-spending council is that it is struggling desperately to meet the needs of, and provide services for, the people of Southwark? Perhaps he ought to refer to the league table of home help provision, as his Government say that they are concerned about care in the community. The councils that he calls irresponsible are those that are actually meeting the DHSS guidelines for the number of home helps per 1,000 elderly in the community —I refer to Hackney, Lambeth, Lewisham, Haringey, Camden, Greenwich, Islington and Southwark — yet those are the councils that he is penalising. The councils who fail to meet the Government's guidelines for provision for the elderly, leaving them in the lurch, are Kingston, Sutton, Croydon, Essex, Bromley, Kensington and Chelsea, and Kingston is providing less than a quarter of the home helps required by DHSS guidelines. Is it not the Tory councils, the shameful low spenders, who are the irresponsible ones, while the Labour councils, the high spenders, are the responsible councils because they try to meet the needs of their communities?

Mr. Jenkin

Southwark's rates have risen 71 per cent. above the class average. Southwark's expenditure per head is 24 per cent. higher than the class average and its GRE recognises the difficulties to which the hon. Lady referred because it is two and a half times the size of the average outer London GRE covering the same services—that is to say, excluding education for outer London.

Southwark has spent freely and rated high, and driven many businesses away from the borough, as the many letters I have had from Southwark business men establish. The result is that unemployment is high in Southwark and no doubt many of the problems that the hon. Lady mentioned are a consequence of it. If Southwark council can be persuaded to bring its expenditure under control by making sensible economies and bringing down its rates, perhaps it can have some of the prosperity of some of the other authorities that she mentioned.

Mr. Henry Bellingham (Norfolk, North-West)

When my right hon. Friend came to Norfolk earlier this year he was given a hard time due to intense ill-feeling in Norfolk because the county council's target for this financial year was so many million pounds below its GRE, which was having a severe effect on essential services. Today's announcement about the abolition of penalties and targets will therefore come as an enormous relief to the people of Norfolk.

Will my right hon. Friend confirm that Norfolk will now control its own destiny and will have the finance for essential services?

Mr. Jenkin

How much finance Norfolk county council has will depend on its decisions. I am grateful to my hon. Friend for what he said. Norfolk has been a sensible, moderate, low-spending authority—the type of authority that should benefit from my announcement today.

Mr. Guy Barnett (Greenwich)

Will the right hon. Gentleman take it from me that his GRE system simply does not take proper account of multiple urban deprivation — the reason why there are high spenders in inner London—or of unemployment and the problems arising from it for local authorities? It also does not take account, because figures are out of date, of the rising population in my borough. Given that he places such emphasis on GREs, using them both as a penalty and to decide on those boroughs that need to be capped, he really ought to revise the whole system in order to bring some element of justice to it.

Mr. Jenkin

We do not expect the rate support grant system to recognise all the levels of deprivation in inner city areas, which is why the Government are spending well over £300 million a year on the urban programme. Various forms of urban programme support go to many of the authorities that complained.

The receipt of urban programme support should in no way relieve an authority of the obligation to run its own services efficiently and economically. Many inner city councils fail competely to do that because — in the language that they always use—it is always "jobs before services". They look after the trade unions and their employees and hang the ratepayers.

Mr. Piers Merchant (Newcastle upon Tyne, Central)

Does my right hon. Friend agree that despite the insinuations of the hon. Members for Newcastle upon Tyne, North (Mr. Brown) and Newcastle upon Tyne, East (Mr. Brown), his announcement will be widely welcomed and warmly applauded in Newcastle where the district rates are the highest in the country, with an increase of 23 per cent. this year and spending 30 per cent. above GRE? Does he agree that Newcastle has deliberately and knowingly priced itself into rate capping by irresponsible overspending? Nevertheless, will my right hon. Friend afford every opportunity to encourage city councillors to meet him to discuss the announcement? However at the same time, my right hon. Friend should bear in mind the heavy weight of representations made to him by ratepayers in the city about the high rates.

Mr. Jenkin

As a rate-limited authority, Newcastle city council can, under the Rates Act, apply to me for a redetermination. That will give members of the council the opportunity to meet representatives of the Department of the Environment to discuss Newcastle's financial problems.

Mr. Jeremy Corbyn (Islington, North)

Will the right hon. Gentleman explain why the document that he produces year after year does nothing more than take increasing sums of money from inner urban areas which suffer from multiple deprivation? Does he agree that the document fails to take account of the needs of the people in the borough of Islington and instead seeks to make enormous cuts in council services with a consequent loss of jobs? Will he say how much money he proposes to take this year from the 10 poorest inner urban areas? The document is a measure of vindictiveness against the poorest people and it tries to force local authorities to be in conflict with the right hon. Gentleman. He began the conflict, but he will suffer the political demise as a result.

Mr. Jenkin

I remind the hon. Gentleman that Islington's GRE per head is £396, 2.5 times the size of the comparable GRE per head for the average outer London boroughs. Those figures demonstrate clearly that the system takes account of the social needs of inner city authorities. If Islington had been able to maintain the 3 per cent. downward trend in the number of employees instead of increasing its full-time employees by 19 per cent. since 1981, perhaps Islington's rates would not be so high as to drive businesses out of the borough. Unemployment would have been lower. There would have been more rate income and the people of Islington would have been better off. It passes my understanding why Left-wing councils cannot understand that simple arithmetic.

Mr. Edward Leigh (Gainsborough and Horncastle)

Is my right hon. Friend aware that the whole county of Lincoln will welcome the announcement, for which I campaigned, first, because a decreasing amount of precious resources will be drained away into the higher-spending authorities. Secondly, while Lincolnshire has cut £5 million in waste and consistently spends below GRE, it has been forced to spend above target because of the sparsity factor which entails almost £4 million for school transport costs alone.

Can my right hon. Friend now offer Lincolnshire more hope on the sparsity factor and on capital balances? May we say that we are now in the business of rewarding the friends of low spending in the shires instead of sustaining the apologists for high waste in the cities?

Mr. Jenkin

I am grateful for my hon. Friend's comments. I acknowledge the part that he and others played in campaigning for the end of targets. The target system was intended to rein back the rapidly increasing local authority expenditure overall. That has succeeded. The average per year before 1980 was more than 3 per cent. in real terms while this year's spending has been static. That is a considerable achievement by local authorities. It would not have been achieved without the target system. Now we can move to a system which, I hope, will be fairer. GREs and sparsity factors will be discussed between my Department and local authority associations between now and December.

Mr. Bill Michie (Sheffield, Heeley)

However the right hon. Gentleman dresses it up, penalties are penalties. If the slope is increased that will obviously affect local authorities, especially the caring Labour ones. One of the problems that the Secretary of State seems to miss continually is that of the extra pressures on inner cities.

Will the Secretary of State let us know as soon as possible when he has finally decided on GREs and the effects of the transfer of services? Does he agree that those measures are likely to cause a 300 per cent. rise in bus fares in Sheffield and south Yorkshire? If not, will he state categorically that that will not happen?

Mr. Jenkin

I hope that the hon. Gentleman recognises that the Sheffield's budget this year has taken its spending below the figure of 20 per cent. over GRE and it, too, has taken itself out of rate capping.

We wish to ensure that successor authorities know the financial consequences of abolition as soon as possible, but that task has not been made easier by authorities such as the hon. Gentleman's which, until yesterday, refused point blank to take part in discussions. I very much welcome the decision of the national executive committee of the Labour party yesterday to end that non-compliance.

The hon. Gentleman's second point, is a matter for my right hon. Friend the Secretary of State for Transport. He will no doubt clarify the matter when he makes his announcement about the transport joint boards' expenditure levels later in the year.

Mr. John Fraser (Norwood)

Does the Secretary of State agree that in boroughs such as Lambeth the reduction in the level of rate support grant is only a shift in the burden of taxation from those most able to bear it to those least able to do so? Does he agree, too, that the rate capping of Lambeth for a second time cuts services for those least able to bear them? Next year, all the London boroughs will be up for election, so why does not the Secretary of State leave the choice on such matters in Lambeth and elsewhere to the electorate? The Secretary of State has already confessed that he has become redundant and is rabid about the opposition of Labour authorities.

Mr. Jenkin

The hon. Gentleman should hang, his head in shame at the way in which Lambeth council behaved in the first three months of this financial year. The way in which Councillor Ted Knight led the mob to town halls of other London boroughs in an attempt to intimidate them not to make their rates was disgraceful. He got his comeuppance when his council decided, at long last, to make a rate. The auditors' procedures have now started and are, of course, outside my control.

I cannot possibly agree with the hon. Gentleman. Relatively few high-spending authorities have shown themselves impervious to ratepayers' pressure and have placed intolerable burdens on them. That is why the Rates Act was passed; rate capping has saved ratepayers in the capital authorities over £300 million.

Mr. Tony Lloyd (Stretford)

If the high rates are responsible for job losses, why has the Conservative-controlled borough of Trafford, which has adhered slavishly to Government policy, lost far more jobs per head than the city of Manchester? Will the Secretary of State also say whether he feels more sympathy for my constituents in Trafford who will be deprived of services because the council wants to follow a Government diktat; or for my constituents in the city of Manchester who will be deprived of those same services because the Government make the city council underspend?

Mr. Jenkin

The city of Manchester has the highest GRE per head of all the metropolitan districts, and so receives substantial help from the Government. No one has ever questioned that Trafford has suffered seriously in the recession, but its council recognised that its problems would have been much worse if it had increased its rates sharply. It kept its expenditure firmly under control and will benefit from the new arrangements next year.

Mr. Pike

Will the Secretary of State not recognise that most people in the country will regard the package that he announced this afternoon as a con trick? It may benefit some local authorities but it will switch the attack quite viciously to others. For instance, Lancashire county council will benefit as a result because it will be able to spend up to its GRE without being heavily penalised. It will spend that money because it needs to do so, and there will be no rate reduction for the county. By comparison, Burnley—because its target is currently 50 per cent. above GRE—will lose cash, and that is a penalty. Can the Minister not accept that if he wishes to make the GRE the main plank of his RSG settlement he needs to get the basic matter right and base it on the needs of the local authority and not on the present system, which no one can understand, and which his Department cannot explain?

Mr. Jenkin

The GRE, as the hon. Gentleman will know if he studies the Blue Book which we publish each year, is a sophisticated way of seeking to represent precisely what he said about the needs of individual authorities.

Perhaps I should say, lest the hon. Gentleman has been misled, that in order to avoid excessive grant gains or losses as a result of the changes embodied in my announcement today, for all authorities there will be safety nets on losses and limits on grant gains. That will bring a measure of stability to the system, which I know many local authorities are anxious to see.

Dr. Cunningham

Will the Secretary of State confirm that the consultation paper, which he has published today in conjunction with this statement, says that he proposes the steepening of the schedule at 10 per cent. above GRE as under the existing arrangements…these changes would significantly increase the marginal cost to authorities of additional spending"? Does that not mean, in plain English, that authorities spending in excess of 10 per cent. over their GRE will suffer a loss of grant through a penalty?

Mr. Jenkin

The answer is that certainly they find that as they increase their spending above GRE, above 5 per cent., above 10 per cent., a higher and higher proportion of that additional spending will have to be met by ratepayers. With respect, as my hon. Friend the Member for Leeds, North-West (Mr. Hampson) said, that is exactly what he was hoping the system would do. He recognises that this system will not let high-spending authorities off the hook. It contains a strong downward pressure for those authorities to economise and provide savings along the lines adumbrated by the Audit Commission.

I hope that the hon. Gentleman will support those authorities which seek to use the Audit Commission's report in order to deliver their services more economically.

Dr. Cunningham

On a point of order, Mr. Speaker. I raise a point of order because it was in the hearing of the whole House that the Secretary of State, in response to a question from one of his hon. Friends, used the word "penalty" in response to a question about his proposals. The Secretary of State described that as a slip of the tongue. May I have your assurance, Mr. Speaker, that the exact words used by the Secretary of State in those exchanges will be recorded in Hansard?

Mr. Speaker

Certainly. Hansard is a verbatim report.

Mr. Heffer

On a point of order, Mr. Speaker. Because of the statement that we have heard this afternoon, and because of the situation in Liverpool, I should like to move the Adjournment of the House——

Mr. Speaker

Order. Is the hon. Gentleman seeking to make an application under Standing Order No. 10?

Mr. Heffer


Mr. Speaker

The hon. Gentleman will have to do that after the next statement, please.