Rate Support Grant (Wales)

HC Deb 25 July 1985 vol 83 cc1339-46 5.24 pm

The Secretary of State for Wales (Mr. Nicholas Edwards)

With permission, Mr. Speaker, I wish to make a statement about my proposals for the 1986–87 rate support grant settlement for Wales.

Local councils have begun to plan their budgets for next year. To help them I am today circulating my proposals for the key elements of the 1986–87 settlement. Copies of the explanatory material sent to Welsh councils have been placed in the Library and in the Vote Office.

Before outlining my proposals it is important briefly to summarise the record of Welsh authorities in recent years, as this has had a major bearing on my strategy for 1986–87.

Local government spending on services in the 1960s and 1970s grew by 3 per cent. or more a year in real terms, absorbing an ever-increasing share of the national product. I am pleased to say that in Wales this damaging trend has been halted. Spending in the present year is only fractionally higher, in cost terms, than in 1979. Since 1979 the average annual increase in rates has been 30 per cent. lower than when Labour was last in office. The total rise since 1979 has been seven percentage points below the change in the RPI.

Success in reining back current spending has also enabled me to release a significant amount of resources for capital investment. Gross capital spending in Wales has grown twice as fast as inflation since 1981–82. In the RSG debate last January I told the House that I would consider whether to abandon targets for 1986–87. I have now decided to do so, but at the same time to toughen the alternative means of containing spending by raising the rate at which local authorities will lose grant as their spending rises relative to GRE. I believe that this will restrain spending in a way which is as effective as, but fairer than, targets. The local authority associations, with whom I have discussd the issue in detail, are prepared to accept this as a reasonable price to pay for moving away from selective controls and for restoring a greater measure of local accountability. The precise system of controls proposed for 1986–87 has, in fact, been strongly influenced by the views of the associations, and the Welsh Counties Committee in particular.

Under the new arrangements, the great majority of councils will now face a cash reduction in grant if they opt for an above average increase in spending. An important feature of the new scheme is that it also dramatically increases the rating benefits for below average growth in spending, and I am sure that many councils will come to recognise this in the coming months.

In order to moderate some of the large poundage increases which would otherwise have come about, I have taken up the Welsh counties' idea of limiting the aggregate of GREs to a total 10 per cent. below the actual level of provision for the year.

I deal now with the level of resources. Following discussions with the associations, I propose to add £15 million to the provision for current expenditure shown in last year's public expenditure White Paper. The adjusted total proposed is £1,368 million. If councils succeed in holding their spending to that figure, by the end of this Parliament they will have met my objective of returning spending — in cost terms — to the level recorded in 1979–80.

Taking into account the other elements of spending, total relevant expenditure for RSG purposes is provisionally estimated to be £1,598 million. This is £76 million, or 5 per cent., more than the amount that authorities have budgeted to spend in the present year.

In arriving at the relevant expenditure total I have taken account of the pressure on the resources for advanced further education. The committee of the Wales Advisory Body has told me that an early decision on the size of the AFE pool would greatly assist its annual planning exercise for this sector. I have therefore proposed to the Welsh Counties Committee that the pool should total £31 million in 1986–87, an increase of £2.5 million, or 8.8 per cent., over the figure for 1985–86.

Aggregate grant in support of relevant expenditure will be £1,067 million, giving a grant percentage of 66.8 per cent., which is virtually the same figure as for the present year. In cash terms, grant is £54 million, or 5.3 per cent., higher than the level in the supplementary report for 1985–86.

The final ingredient of my proposed package is an £11 million addition to the existing provision for local authority capital investment. This enhancement of 1986–87 resources is linked directly to Welsh authorities' efforts to contain their current expenditure in 1985–86.

When all the elements of the package are taken together, the arithmetic shows that if councils spend in line with the provision which I have set, rate rises next year should not, on average, exceed the going rate of inflation. Indeed, a good number of councils will be able to cut the rate burden while still budgeting for a moderate cash increase in spending.

The tough but more straightforward and less interventionist arrangements which I intend to introduce next year should provide authorities with sufficient incentive to budget moderately, and a firmer basis on which to plan their spending effectively. Targets and holdback have been extremely successful in Wales, and I believe that the new arrangements will be equally effective.

I commend my proposals for the 1986–87 settlement to the House.

Mr. Barry Jones (Alyn and Deeside)

The right hon. Gentleman beats a partial retreat. The House of Commons research staff have calculated that between 1978–79 and 1985–86 the overall cut in grant. in real terms, is over 13 per cent.

The new regime poses new problems for the district councils. Does the right hon. Gentleman agree that the Welsh districts have performed admirably and have been co-operative? Is he aware that in spite of that they now find themselves faced with an equally penal grants system to replace the system of targets and penalties? The new system will penalise up to 31 of the 37 district authorities, as opposed to a mere five in 1985–86.

Can the right hon. Gentleman confirm that the vital element of 90 per cent. GRE, the safety net and gain cap limiters will be retained in future years, as requested by the Welsh district councils when they accepted the change?

The Secretary of State knows that there is a 5 per cent. increase in the counties' relevant expenditure overall. This includes only 4.5 per cent. current expenditure over and above the revised figures for the current year. Bearing in mind the teachers, police and fire service pay awards, is that adequate? The county authorities are justifiably apprehensive. Is the right hon. Gentleman selling them short?

On the question of the block grant, will the Secretary of State recycle any grant losses below the £850 million block grant underlying the provisional statement?

The Secretary of State has attempted to paint a rosy picture on capital spending. Why are Welsh housing authorities restricted to using only 15 per cent. of the cash raised from council house sales, when the equivalent authorities in England can spend 20 per cent. of their receipts? The right hon. Gentleman has never explained why he settled for that injustice. Rhondda borough council, which faces a Herculean housing task, has had to sell £10 million-worth of its best mortgages to meet legal requirements on house renovation programmes. Would not an enlarged house building programme make major inroads into the dole queues in Wales?

Will the financial allocations not be insufficient to cope with the worst housing problems in Britain, especially those in the south Wales valleys? The allocations will not help local councils in grappling with the major unemployment crisis that has hit Wales — with more than one in five Welshmen out of work. Is it not true that the allocations are insufficient for the councils of the south Wales coalfields which face pit closures and for those coping with the closures of steel works in north Wales? Bearing in mind the previous niggardly annual settlements, this cash settlement is not at all satisfactory.

Mr. Edwards

The hon. Gentleman has done his best to attack what the Welsh local authorities know to be an extremely good settlement. He talked about a partial retreat. The reason why we have been able to end the target system is that the Welsh local authorities have come so close to achieving the objective that I set them of getting their spending in real terms back to where it was when the Labour Government left office. We have not reduced it below that level. We have simply stopped the upward surge in local authority expenditure.

The hon. Gentleman talked about the penal results for the Welsh districts. I do not understand how he can suggest that the system is penal when it will mean the possibility of a substantial reduction in rates in all but a tiny handful of the Welsh districts if they spend at approximately the expected level of inflation.

The hon. Gentleman asked about the district authorities' request on 90 per cent. GRE, limiters and so on. When the authorities asked me about that at the consultative council meeting this afternoon, I referred them to our previous discussions in that council.I reminded them that over the period during which we have had a separate Welsh rate support grant system, I had met the undertakings that I had given. No one can give absolute guarantees about the exact mechanisms in the period ahead, but just as they, on the whole, have co-operated with the Government under the separate Welsh rate support grant system, so, of course, shall I endeavour to meet the commitments that I have made.

The hon. Gentleman talked about the problems of current expenditure. The provision that we have made is certainly attainable by Welsh local authorities. The Audit Commission has shown the substantial scope that exists for improvements in efficiency and the local authority associations accept that there is room for further savings through efficiency.

I come now to the issue of teachers' pay. If only we could have a settlement and get the NUT to accept the Government's proposals before October, we could make an adjustment in the additional resources which the Government have said could be available for next year. My right hon. Friend the Secretary of State for the Environment made that point. In any case, the level of the settlement does not alter the fact that the Audit Commission's figures and pupil numbers show that scope for reductions exist, as there has been a substantial fall in pupil numbers over recent years.

The hon. Gentleman mentioned recycling. We intend that resources should be retained by Welsh local authorities. I have told local authorities that I intend to discuss with them in the coming months a system that will mean that those resources will return to the low-spending authorities and not to those which have spent at a high level and have therefore incurred reduced grant.

The hon. Gentleman also talked about capital allocations and housing. Decisions on those matters will be taken in the normal way in the autumn. They have not yet been taken. The £15 million to which I referred is a capital allocation which relates solely to the current expenditure performance of local authorities. The hon. Gentleman's argument on the need for capital expenditure in Wales will be considered in the normal way in the public expenditure round and will be announced in the autumn.

Sir Anthony Meyer (Clwyd, North-West)

Is my right hon. Friend aware that his announcement today will give general satisfaction throughout Wales and will be regarded as a result of the firm and clear leadership that he has given in this matter?

Am I right in thinking that this marks the beginning of a move towards a more rational system of lcoal government financing in which local authorities will have a real incentive to provde the best services that they can at the lowest possible cost, and that it also marks the beginning of the end of the unhealthy situation in which local authorities seek to shift the blame on to the Government for their difficulties, and the Government in their turn blame local authorities for everything that goes wrong?

Mr. Edwards

I am grateful to my hon. Friend for that. He is absolutely right about the incentives provided under the present arrangements. There is a direct incentive for authorities to contain their expenditure, because it enables them to reduce the burden on those who pay rates.

In Clwyd the county precept is projected to rise by only about 2.8 per cent. if the council can limit the year-to-year growth in its spending to 5 per cent. Among the districts, only Colwyn is projected to require a rate increase for spending 5 per cent. more in 1986–87, and even then it is only a tiny percentage increase. Substantial rate reductions are in prospect for several district authorities in Clwyd.

Mr. Alex Carlile (Montgomery)

I welcome the Secretary of State's retreat from targets, and also the recent increase in consultation with local authorities, but I wonder whether the new estimated figure for total relevant expenditure for RSG purposes reveals the fact that there will continue to be a decline, in real terms, in the level of housing, planning services and environmental health services provided by district councils. Equally, will there not be a decline in education and in social, fire and consumer protection services provided by county councils?

Is it not unseemly for the Secretary of State to continue to play the role of the miserly Mr. Bumble, making the Welsh local authorities come to him, month after month, like Oliver Twist, asking for more?

Mr. Edwards

At the start of his question the hon. and learned Gentleman congratulated me on the increased consultation, and in fact I have consulted frequently. At the end of his question he appeared to be complaining because the local authorities discuss these matters with me every month.

The truth is that there is no basis whatever for the hon. and learned Gentleman's suggestion that there need be the cuts in services of which he spoke. We are increasing relevant expenditure by about 5 per cent. —which is more than the expected rate of inflation. Although current expenditure provision is increased by rather less than the expected rate of inflation, it takes account of the fact that the Audit Commission has shown that substantial savings are still possible through greater efficiency.

Local authorities themselves have in the past year or two begun to show that they can make improvements in efficiency without cutting services. Anyone who thinks that there is no further room for improvement knows nothing about local government — either in Wales or anywhere else. That may well be the case with the hon. and learned Gentleman.

Mr. Keith Best (Ynys Môn)

Will my right hon. Friend acknowledge the responsible role played by local authorities in Wales, which has enabled him to make the increases in both capital and current expenditure for which so many of us have campaigned?

I acknowledge my right hon. Friend's helpful leadership, and he will know that I welcome the abolition of targets, which I have for long told him were an unfortunate, and, I hoped, temporary, measure. We can now get back to greater local authority autonomy over expenditure?

On my reckoning, should Ynys Môn borough council budget in line with an inflation rate of 5 per cent. next year, it will lead to a rate reduction of 11 per cent. for its people. Will my right hon. Friend confirm those figures? I estimate that that is the seventh largest reduction of any local authority in Wales. That must be good for business locally, and on that so much of our future employment depends.

Finally, will my right hon. Friend confirm that when he comes to take his decisions this autumn he will take into account the large backlog of home improvement grants waiting to be processed?

Mr. Edwards

I certainly acknowledge that my hon. Friend has campaigned relentlessly on the subject of targets. His is one of the many voices to which I have listened on the subject.

I can also confirm the figures that my hon. Friend gave for the Government's projections about possible rate reductions. The actual rate set by any district will depend upon the decisions that the district council takes. When we make our assumptions, we are saying that if councils spend broadly 5 per cent. more than they did in the same budgets last year, and if they achieve the same balances, figures of this order will be achieved. There is scope for reduction in the rate burden.

I confirm that we shall, of course, consider the backlog of improvement grants when we come to take our decisions on capital in the autumn. I remind my hon. Friend that, as a result of the good behaviour of Welsh local authorities and even before my announcement today, capital expenditure in Wales is twice the level per head of that in England.

Mr. Alan Williams (Swansea, West)

Is not the only extra freedom announced the freedom to choose between the rack and the thumbscrew? Is not the reality of the Secretary of State's so-called success story today that after his six years in office, and after an extra £40,000 million has gone from the North sea into the Government's coffers, our local authorities are expected to manage on real resources which are no greater than they were when the Government came to office?

Moreover, with the same resources—fewer of which now come from the Government—councils are expected to meet the extra social costs of having an extra 2 million people unemployed and of the essential social costs of services, such as housing benefit, which previously were met by the Government. Is it not a recipe, inevitably, for further cuts? Will the Secretary of State confirm that, of all the Welsh counties, West Glamorgan will lose the most as a result of this so-called improvement?

Mr. Edwards

Welsh local authorities do not share the right hon. Gentleman's view about the proposed change. The Welsh counties, including the representative from West Glamorgan, advocated the change as a great improvement on the previous arrangement.

I acknowledge, of course, that, of all the counties, West Glamorgan will have the greatest difficulty with this change. It will have the largest prospective rate increases, although that is because its expenditure is higher in relation to GRE than that of any other Welsh local authority, and its spending record is greater. That is the explanation.

I am grateful to have the right hon. Gentleman's acknowledgement that we have not cut local government expenditure in real terms, but merely sought to get it back to what it was when his Government left office. I am sorry that he of all people has not yet learned the direct relationship between the level of local authority expenditure and the rate burden and job creation and the viability of businesses in the area. There is no doubt that the local authorities which spend most and rate highest are those which drive away prospective employers.

Mr. Ian Grist (Cardiff, Central)

Does my right hon. Friend agree that the synthetic indignation displayed by the Opposition will not be echoed by local authority treasurers, who know that high rates drive away business and cause misery to countless people, that the rate burden counts towards the retail prices index, and that that in turn has an affect on wage settlements and the economy of the whole country? My right hon. Friend is to be warmly congratulated on the leadership that he has given in Wales in this respect.

Mr. Edwards

I am not sure that it is right to talk about synthetic indignation, when only a tiny handful of Welsh Labour Members have bothered to turn up for this debate. Perhaps they knew that it was not necessary to attack the rate settlement, and that is why they kept away.

I have a word of caution about possible rate effects in South Glamorgan, because that county has made heavy use of reserves in the current year, and I suspect that that may have to be paid for subsequently.

Mr. Ray Powell (Ogmore)

When the right hon. Gentleman talks about 1979 and the extent of the rates in Ogwr borough and Mid-Glamorgan county, is he aware of the difference between the situation then and now? When he talks about rating and attracting industrialists to place such as Ogmore and Maesteg, does he realise that his Government's economic policies have caused factories and pits to close? As a result, there are fewer ratepayers to pay rates to the Ogwr borough—not because of the policies of Ogwr borough or the county, but because of the Government's economic policies.

Last week the right hon. Gentleman imposed a restriction, with a total of £844,000 for Mid-Glamorgan and £446,000 for Ogwr borough. When the new procedure comes in next year—I hope, incidentally, that it will be arithmetically correct, unlike the last ones, so that treasurers can reasonably assess the position—what will he say to the 2,000 applicants for council accommodation in Ogwr borough, who were told that under the present system, with the present restrictions by the Secretary of State, they would be lucky to be housed in 10 years' time?

Mr. Edwards

As a result of our ability to control current spending in Wales, there has been a substantial increase in capital allocations for Welsh local authorities. Another £15 million has been announced in the statement, which will help to ease the housing burdens mentioned by the hon. Gentleman and help to provide facilities for the jobs that he wishes to create. That is in marked contrast to the slashing cuts in capital spending which resulted from the pilgrimage of the Labour Chancellor to the IMF during the Labour Government's term of office.

Mr. Keith Raffan (Delyn)

I congratulate my right hon. Friend on once again obtaining such a favourable settlement for Wales. Does he agree that the lesson for local authorities is that if they can get their current spending under control, additional capital resources will be available? Will he persist in that message to Clwyd county council in particular? Will he try to convince its councillors that if they reduce their rates that will help to create more jobs, and that they should concentrate on their statutory obligations and take on board the Audit Commission's message that they are grossly overmanned in some of their departments?

Mr. Edwards

My hon. Friend is right to refer to the relationship between current and capital spending. I believe that in my previous answer I mentioned £15 million extra, when the figure should be £11 million.

Mr. Barry Jones

Wrong again.

Mr. Edwards

That is characteristic of the childish conduct of the hon. Member for Alyn and Deeside (Mr. Jones). The day on which he announced additional capital spending for Wales would be a day indeed.

If Clwyd county council manages its affairs sensibly, there will be a very modest rate increase. In the hon. Gentleman's borough, there is the prospect of a rate reduction.

Dr. John Marek (Wrexham)

I hope that Clwyd county council will look after the needs of its people and not apply policies advocated by the hon. Member for Dlyn (Mr. Raffan). The Secretary of State said that he had consulted the county associations and that they were fairly agreeable to the new regime. Does he not think that the local authority associations feel themselves to be under the hammer and that they will accept any crumb from the table? Does he not also think that they loathe the policy of incessant meddling in local government practised by the Government since 1979 and that they detest the centralised Whitehall jackboot policies that have been pursued?

Is there anything that the Secretary of State can do to exempt local authorities which want to encourage industrial development in their areas — he must remember that the Government's economic policies are falling to pieces with the continuing increase in unemployment — from capping and return of block grant? Or can he improve the safety net so that they can spend on industrial development without detriment to any of their other functions?

Mr. Edwards

The hon. Gentleman talks about centralisation. He seems to forget that the Government introduced a separate Welsh rate support grant system, which has been widely welcomed by Welsh local authorities. They know that it has been administered so as to produce enormous benefit to Welsh local authorities and that their relative position has been much improved because they have behaved more sensibly than many extreme Labour authorities in England. The best contribution that the hon. Gentleman's local district can make to industrial recovery in Wrexham is to spend in line with or below inflation. There will then be the prospect of a 16 per cent. rate reduction. I can think of no more substantial contribution to attract industry.

Mr. Barry Jones

The right hon. Gentleman has recently given many wrong answers to questions, both in the Chamber and in Committee. He has also presented faulty documents. When he next has a statement to make, I shall be prepared to go over it with him beforehand.

Mr. Edwards

Once again the hon. Gentleman, who takes his responsibilities so seriously, has not bothered to listen. The statement was perfectly correct, but, in answering a question across the Dispatch Box, I gave a figure which I immediately corrected. I also note, and I hope that the people of Wales will note, that that is the only criticism that the hon. Member is able to make of the settlement, which he knows is one of the best rate support grant settlements to be given to the people of Wales in many years.