Local Government Expenditure

HC Deb 16 December 1986 vol 107 cc1053-62 3.31 pm

The Secretary of State for the Environment (Mr. Nicholas Ridley)

With permission, Mr. Speaker, I should like to make a statement about the calculation of expenditure for rate support grant purposes. Relevant and total expenditure are two key concepts that are basic to the local government finance system in England and Wales. Since 1981, relevant and total expenditure—[Interruption.]

Mr. Speaker

Order. Will hon. Members clear the Chamber quietly if they do not intend to remain?

Mr. Ridley

Since 1981, relevant and total expenditure have been calculated on the basis of the expenditure charged to a local authority's rate fund revenue account. That expenditure includes contributions from that account to, for instance, the housing revenue account and other special funds. Contributions from such funds and accounts to rate fund revenue account have been regarded as income-reducing relevant and total expenditure. That approach was adopted in 1981, in response to the views of local authority associations.

I have looked closely at the definitions of relevant and total expenditure because of some anomalies in the returns of expenditure received from a number of authorities. I was concerned that the accepted approach, despite the local authority associations' desire for it, did not seem to correspond to the statute, and I sought legal advice about this. [Laughter.]

Mr. Speaker

Order.

Mr. Ridley

That advice made it clear that the Department's treatment of expenditure was incorrect in law. [Laughter.]

Mr. Speaker

Order. This is a highly complicated issue. I ask the House to give the Secretary of State a fair hearing.

Mr. Ridley

Transfers between funds and accounts within the rate fund are not expenditure. Expenditure takes place only when an authority has liabilities in the outside world and meets them from the general rate fund. A second opinion confirmed the advice.

I must accept that advice. It means that past decisions that involved the concepts of total or relevant expenditure are put in doubt, and that it would be quite improper for me or my right hon. Friend the Secretary of State for Wales to ask the House to take further decisions on the present basis. Until this matter is put right, we therefore cannot make any further RSG reports, including the main report for 1987–88, or complete the rate limitation process.

To deal with this highly technical problem, the Government therefore will bring urgent legislation before Parliament which will validate for England and Wales all past decisions involving the use of relevant or total expenditure and allow decisions to be properly taken for the remainder the present rate support grant system, in line with the practice that has hitherto been adopted. Because the Bill is unlikly to receive the Royal Assent in time to allow for the normal timetable on rate limitation, I propose to include in it provisions to set rate and precept limits for designated authorities by formula. The Bill is designed to make no changes in policy, but as far as possible to apply existing policy within a tight timetable.

My right hon. and learned Friend the Secretary of State for Scotland administers the Scottish rate support grant under separate legislation, and the same problem does not arise. Some more minor difficulties in Scottish practice that have come to light will, however, also be remedied in the proposed legislation.

Authorities will be concerned, in the light of my statement, about the immediate position for 1987–88 and on outstanding supplementary reports. When the House returns in January I hope to announce my firm intentions for the 1987–88 settlement for England and the supplementary reports for 1986–87 and 1985–86. The Bill is designd to fulfil those intentions. I shall make the relevant reports immediately on Royal Assent to the validating Bill. Authorities will therefore be able to plan their budgets and rates for 1987–88 with confidence on the basis of my statement in January. Also in January, my right hon. Friends and I will inform designated authorities of the exact rate and precept limits that will be set for them in accordance with the provisions of the Bill.

My Department is today writing to all authorities and their associations to explain the position.

Dr. John Cunningham (Copeland)

May I begin by thanking the Secretary of State for the courtesy of the early notice of what is, by any test, a very complex and very important issue. This is the fourth statement on rate support grant in five months, and does it not demonstrate the absolute shambles into which Tory Ministers have driven local government finance?

For how long has the Secretary of State known of this situation? When did he first receive the legal advice to which he referred? Does it, for example, explain his refusal to make a rate support grant statement, as he promised he would, as long ago as mid-November? Why was the right hon. Gentleman not frank with the House about the matter when he answered my private notice question on 3 December, just a few days ago? Will not this latest Department of the Environment fiasco cause massive uncertainty about local authority budgets and rates throughout England and Wales? Will it not cause massive diffficulties especially for the local authorities framed by the right hon. Gentleman by his manipulation of the Rates Act?

Is the right hon. Gentleman aware that there have been five Acts of Parliament on the issue in the past six years, and that the latest of them received the Royal Assent only on 31 October this year? May I remind the right hon. Gentleman of what a ministerial colleague was claiming for that Bill, which was rushed through the House? He said that the House was about to pass a Bill which will clarify the law and make it what it was thought to be in a number of important … respects in relation to rate support grant settlements".—[Official Report, 21 July 1986; Vol. 102, c. 151.] How could a Minister be saying that as recently as July in the House, yet the right hon. Gentleman comes to us now and has to confess the appalling state of affairs into which he and his right hon. Friends have led that crucial national policy?

I draw to the right hon. Gentleman's attention what his Department said in a circular to local authorities when the original legislation was introduced. According to a report, the Department of the Environment made it clear that total expenditure"— which is at issue today— for the calculation of block grant should include contributions from the rate fund to the housing revenue account and other trading accounts, and that it was only interest receipts on the rate fund revenue account which should be taken into account to adjust relevant expenditure to total expenditure. What has changed since the Department made that statement?

Will the right hon. Gentleman say when he will publish the Bill, how many clauses it will contain and what he expects from the House in dealing with it? How much time will be allowed? Given the Government's abysmal and repeated failures to get their legislation right, and the resulting massive backlash to local government, does the right hon. Gentleman recognise that it will be the duty of the House rigorously to scrutinise this proposed legislation? To do anything else would be an abdication of responsibility on both sides of the House. Does not this fiasco confirm the political incompetence of a succession of Tory Secretaries of State for the Environment, who have legislated themselves into what is clearly a maze of stupid legal controls?

Mr. Ridley

The hon. Gentleman had some fun with his adjectives, but let me ask him what scrutiny he gave to the 1980 — [HON. MEMBERS: "No. What did you do?"] It takes me to do not only my job but the Opposition's job in pointing out what Parliament failed to stop in 1980. The hon. Gentleman talks about the events of 1981 and the circular from my Department. But he will know that local authority associations, including all the Labour-dominated ones, wanted the definition which has now been found to be in question. Is the hon. Gentleman really saying that he — [Interruption.] I listened with respect and quiet to the hon. Gentleman, Mr. Speaker. I am surprised that the Opposition do not want to listen to the answers.

Hon. Members

Answer.

Mr. Speaker

Order. It does not help for hon. Members to shout, "Answer", across the Chamber. There is a very full day ahead of us.

Mr. Ridley

The hon. Gentleman asked me some specific questions. The first intimation I had that the legal advice was as I have described it was towards the end of October, and this was confirmed in a second opinion. If I may, I should like, unusually, to quote the advice of my right hon. and learned Friend the Attorney-General that the first opinion was correct and that I should therefore correct the anomaly. As soon as proposals could be drafted and brought before the House, I made this announcement. The Bill will be published either tomorrow or the next day. I think that it will contain 17 clauses. I hope that the House will agree that, if it wants the Government to pay rate support grant in the next financial year, it would be expedient for the Bill to reach the statute book so that rate support grant can be paid in future.

Mr. Patrick Jenkin (Wanstead and Woodford)

Is my right hon. Friend aware that he has the sympathy of many hon. Members, and not least of those who have held his high office before? Is not my right hon. Friend to be warmly commended for having come to the House at an early opportunity in order to make known the error discovered and his determination to put it right? Is this not another case of merely putting the law back to what everybody thought that it was for the past five or six years? Is it not also clear that any attempt to hold up the Bill will merely postpone the final RSG settlement for 1987–88?

Mr. Ridley

My right hon. Friend is exactly right and I am grateful to him. The Bill will simply seek to return to the legal position that everybody, including all local authorities, thought existed. It was the Government who spotted the error, so the credit should go to the Government for having identified a legal weakness and for having sought immediately and honourably to put it right, albeit at some inconvenience to the House. However, I hope that the House will not take too much trouble over the legislation, as no change of policy is involved. We are merely validating the past and putting right for the future the position that the whole House thought obtained.

Mr. David Alton (Liverpool, Mossley Hill)

Was not the Secretary of State's statement that his illegal actions over the past seven years did not seem to correspond to the statute the most breathtaking understatement that the House has heard for a long time? Is he not today trying to make legal what was previously illegal, and admitting that the Government did not even understand their legislation when they introduced it seven years ago? Are the Government not now trying to pass the buck to the local authorities for the Government's own incompetence, ineptitude and inefficiency?

Mr. Ridley

I think that the hon. Gentleman is making more out of this than it is worth. However, if he does not want the Government to pass this legislation, he will have to face the consequence that local authorities will not get their rate support grant settlement or any grant. I think that local authorities will be on to Opposition Members very quickly, asking them to facilitate the Bill's early passage so that they know where they are and can obtain the grant that they expect.

Mr. Cranley Onslow (Woking)

Is my rt. hon. Friend aware that his statement should be welcomed by anybody who wants local government expenditure to be kept under control? Will he answer two straight questions? First, what effect will his announcement have on the authorities' ability to fix their rates for next year? Secondly, what effect will it have on their entitlement to grant this year?

Mr. Ridley

My hon. Friend is right. There should be no difficulty for authorities in fixing their rates by the due date of 1 April, because I shall make the settlement soon after the House returns in January, and they can plan on the basis of the settlement as then announced. There is no reason for them to delay making their rates until the Bill receives its Royal Assent. My announcement will not affect grant for this year, which will be paid in accordance with last year's formula and RSG settlement, although I cannot make a supplementary report until the Bill has received Royal Assent.

Mr. Peter Hardy (Wentworth)

Will the Secretary of State acknowledge that, quite apart from the display of recidivism that we have been presented with this afternoon, his announcement will provide considerable fuel to those across the political spectrum who believe that, if British local authorities were run as inefficiently and incompetently as the Department of the Environment has been during the past few years, the ratepayers would have far greater cause for concern than they might have because of any deficiency in local administration?

Mr. Ridley

That is a curious comment, because it was the local authority associations, many of which are run by the Labour party, that strongly made the case for this definition to be adopted. Now that it is being adopted, there seems to be some complaint from the hon. Gentleman. I agree with the hon. Member for Copeland (Dr. Cunningham) that the deficiencies in the system that we are trying to operate are becoming more manifest, but curiously enough, when my right hon. and learned Friend the Secretary of State for Scotland introduced a Bill last week to reform the system in Scotland, every Opposition Member voted against it.

Mr. Michael Heseltine (Henley)

If I understand the thrust of a complex and technical statement by my right hon. Friend, it is that I have spent £30 billion of taxpayers' money illegally. If this judgment is right, I promise him my unswerving and urgent support for the legislation.

Mr. Ridley

I thought for a moment that my right hon. Friend was going to offer to pay. I assure him that I would not suggest that for one moment. I do not suggest that we should apportion blame in this matter. There has been a distinction between what people thought the law was and what it is. We can easily put that right, and the House can then pass on to more important matters.

Mr. Allan Roberts (Bootle)

Is the Secretary of State suggesting that the next time somebody appears in court before a magistrate his defence should be that he was not certain what the law was, because that seems to be the Secretary of State's defence? Is it not obvious to all that the Government could not organise a reception in a lord major's parlour, let alone run the detailed day-to-day services of local government in the way that they are trying to do? Is not the way around this difficulty for the Government to drop their policy of trying to control in detail local government services and expenditure? If the Secretary of State introduced a Bill along those lines, we would support it.

Mr. Ridley

The hon. Gentleman is totally wrong. I am the only person who is quite certain what the law is. [Laughter.]

Sir Geoffrey Finsberg (Hampstead and Highgate)

I sympathise with my right hon. Friend—

Mr. Allan Roberts

There is another one.

Sir Geoffrey Finsberg

—in being the latest fall guy following, for example, Mr. Fred Mulley, who, as a Labour Minister and the political head of a Department, relied on inefficient and inadequate legal advice within his own Department.

Mr. Ridley

I am grateful to my hon. Friend.

Mr. Frank Dobson (Holborn and St. Pancras)

Plead guilty but insane.

Mr. Ridley

However, I do not need sympathy. I have brought to the House a problem of which nobody else was aware, so my Department has the legal advice right when every local authority has it wrong.

Mr. Nigel Spearing (Newham, South)

Does not the Secretary of State recall that, when he was Secretary of State for Transport, he tried to charge Londoners extra millions of pounds, and the judge said that it was illegal, improper and administratively incompetent, in words to that effect? Does that now describe the position in which he has found himself? Will he take into account the needs of inner-city areas such as Newham in his means and needs formula?

Mr. Ridley

The hon. Gentleman has quoted the judge's words wrongly. If he wants to quote the judge, he should quote accurately and properly. I make a distinction between the events to which he referred and the events about which we are talking. In that case there was a court case, where the judge interpreted the law differently. [Laughter.] In this instance, I have anticipated and sought to put the law right before the matter went to court.

Sir Hugh Rossi (Hornsey and Wood Green)

Will my right hon. Friend confirm that the practice which has now been found to be wrong in law — [HON. MEMBERS: "Illegal."] — has operated to the benefit of local authorities generally and that if the House does not put it right, local authorities will be in severe financial difficulty this year? Does that not argue that legislation for a general review and revision of the complicated finance system of local government should be introduced quickly?

Mr. Ridley

Yes, my hon. Friend is quite right. It will not be possible to pay rate support grant to local authorities in the next financial year, without the Bill becoming law. That would put them in severe financial difficulties. We have held our review into the future of the present system of local authority finance. The Scottish Bill will be followed by the English Bill, which will do away with the legislation that we are discussing and replace it with, a more sensible system.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

Exactly what did the Secretary of State mean by "minor difficulties" in Scottish practice and what are the implications? Will there be a separate Scottish statement?

Mr. Ridley

In Scotland, transfers between the general rate fund and special funds have been counted as expenditure when the Secretary of State has determined grant penalties for overspending authorities. The Bill will therefore validate past decisions on grant penalties and, for the future, allow my right hon. and learned Friend the Secretary of State to continue to take account of such transfers when he is considering imposition of grant penalties and action to reduce an authority's rate. There will be two clauses dealing with Scotland.

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

Does my right hon. Friend agree that he is the least guilty in a long line of guilty Ministers who have produced one local government Bill after another, and that some of us spelt out the dangers? Does my right hon. Friend agree that, when we are told that what we all thought was right is wrong, he is really saying that what he thought was right many of us knew was wrong? We must ensure that justice, and not expediency, prevails, as has been the case year after year with Bill after Bill.

Mr. Ridley

Wise and profound as many of my hon. Friend's statements in that supplementary question were, I do not quite see the question for me.

Mr. Clive Soley (Hammersmith)

How many times as a Minister in this or other Departments has the right hon. Gentleman been found to be in breach of the law?

Mr. Ridley

The hon. Gentleman is trying to score an incredibly naive point. Every hon. Member is in breach of the law in this regard for not having drawn attention to the deficiencies in the system.

Mr. Ian Gow (Eastbourne)

Is it really the case that, until my right hon. Friend made his statement this afternoon, not one Labour Member, not one Liberal Member, not one member of the Opposition Front Bench in another place and not even the glittering talents of my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) could have understood that which my right hon. Friend now understands?

Mr. Beaumont-Dark

I understood that it was wrong.

Mr. Gow

Ought not my right hon. Friend, who has a brain that is even finer than that of his four distinguished predecessors, to earn the congratulations of the House? Does he agree that, when he presents his Bill to the House, he will be restoring the law to that which Parliament intended, and which the Opposition, the Liberals and local authorities believed was the law? Is my right hon. Friend aware that he has earned the admiration of the House for his courage?

Mr. Ridley

I join my hon. Friend in bewailing the fact that, for all the barrack-room lawyers in the Opposition, not one spotted this problem and it was left to me, who am not even a lawyer, to explain it to the House.

Mr. Frank Cook (Stockton, North)

Overwhelmed as I am by the Secretary of State's singular—aye, unique—awareness and understanding of current statutes, and bearing in mind the importance and complexity of the issue, why, when the Secretary of State was first made aware of it in mid-October, was no reference made to it in the Queen's Speech on 12 November?

Mr. Ridley

I can tell the hon. Gentleman that if one comes with a problem to the House it is right to offer some solution. A Bill will be published tomorrow or the day after which deals with the problem that I have put before the House. Opposition Members would have been right to criticise me if I had brought the problem without the faintest idea of a solution.

Mr. Michael Latham (Rutland and Melton)

Instead of tinkering around with a system which my right hon. Friend knows to be obsolete, why does he not introduce immediately his community charge Bill and make these retrospective provisions effective in a clause of that Bill?

Mr. Ridley

My hon. Friend is so much more percipient. Would that I could introduce the new Bill. I cannot say that it would have the same level of preparation as the Bill that I have announced, although I greatly wish that it would. If we could deal expeditiously with the rest of the business before the House, I am sure that I could fit that Bill in before the end of the Session, if the House would pass it on the nod.

Several Hon. Members

rose—

Mr. Speaker

Order. I have to bear in mind that we have a further statement and a heavy day ahead of us. I shall take two more questions from either side and then we must move on to the Welsh statement.

Mr. Allen McKay (Barnsley, West and Penistone)

Is it not a fact that, in trying to make local government the whipping boys for the failure of Government policies, the Secretary of State has proved himself to be the failure?

Mr. Ridley

No, Sir. I simply seek to ask the House to validate the practice which local authorities want and which everybody thought was in place.

Mr. Spencer Batiste (Elmet)

Has not the grave disparity between taxation and representation at local authority level forced the Government down the path of increasing complexity to protect ratepayers from the rapacious attention of local authorities? Is my right hon. Friend aware that he will have the widest support on this side of the House for his root and branch treatment of the problem by his introduction of the community charge in place of rates? Can he ensure that, in the legislation, he pays particular attention to the need to simplify legislation, so that people who are not ordinarily concerned with local authority finance can understand what is involved?

Mr. Ridley

My hon. Friend is exactly right. I wish I were introducing, not this Bill, but the one to which he refers, which would put a community charge in place and reform the whole system. But past rate support grant settlements are in question and the future rate support grant settlement for 1987–88; which must take place whatever happens because it is imminent, cannot be validated unless the Bill becomes law. It would be wrong to allow my hon. Friend's general strictures on the present system and the need to reform it in any sense to be involved in the need for this Bill.

Mr. Tony Banks (Newham, North-West)

The right hon. Gentleman has found himself at odds with the law on more than one occasion in the past. He is not just a recidivist but an incompetent recidivist. Is it not a fact that, from the beginning, he knew that he had to introduce retrospective legislation? Similarly, it is not the first time that he has had to do that. Is it not a fact that there is a big difference between a mistake being found in local government, which is penalised and surcharged and, indeed, whose goods are put at risk, and a Minister being found to have acted incompetently and illegally, who merely uses parliamentary sovereignty to introduce new legislation? Is it not time that we equalled the odds? The best way of doing that is for the Minister to resign and take this shambles of a Government with him.

Mr. Ridlley

I cannot see what the hon. Gentleman means. I have done nothing incompetent or illegal. When I realised that to make a rate support grant settlement in January would be illegal, I came to the House to ask it to give me the validating powers so that I could take action to make the settlement. Nothing that I have done has transgressed the law.

Mr. Robin Squire (Hornchurch)

My right hon. Friend is obviously right to make a statement today and to introduce legislation. Nevertheless, does he accept from someone who, together with my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), battled long and hard against block grants years ago, that this is but the latest instance whereby we have underlined the foolishness of giving so much support from the centre, through a series of measures created by the centre, to local government? Instead, we should rely on a system which gives greater accountability to local authorities.

Mr. Ridley

I cannot claim in aid the advantages of the reform of local authority finance that we are proposing in the Bill, which is about validating the past and ensuring that we continue for next year. I am delighted to hear my hon. Friend's conversion to the need for a change of system and I hope that when we get closer to home than Scotland on these matters, he will be with us in the Lobby.

Dr. Cunningham

If the right hon. Gentleman is, as he claims, the only person who is certain what the law is now, how will he, of all people, persuade his right hon. and hon. Friends to follow him into the Lobby to vote for it? Is it not the case that this insight results, not from some brilliance on his part, but from a legal challenge to the Government from the London borough of Greenwich, which the Government are desperate to have set aside in the courts? Is it not the case that all his claims of a brilliant reading of the legislation are false? Will he confirm that this has come to light because of a legal challenge to the Government?

Will the Secretary of State explain, more adequately than he has done so far, why he has been sitting on this information for six weeks? Why did he not bring it to the House when he spoke in the Queen's Speech debate, or announce it on 3 December when he had the opportunity? Will not this delay on his part mean further unnecessary uncertainty and delay both to the resolution of the problem and to the fixing of local authority finance for next year?

Mr. Ridley

No, Sir. It will not cause further delay or difficulties, because I shall make a settlement as soon as the House returns. Local authorities can then proceed to set their external limits, precept limits and rates in the proper timetable during the Bill's passage, but in the full knowledge of what the Government intend to put before the House. Therefore, that point is false.

A perfect hail of legal cases are brought by local authorities against the Government. There is no case before the courts that I know of based on the lacuna which I have exposed to the House today. Therefore, that is not appropriate.

It is right that the full legal position should be made clear in public, so that the courts know that the Government intend to put the law as it was thought to be. The hon. Gentleman had better wait to see how many of my hon. Friends follow me into the Lobby. I hope that I shall have the support of many of his hon. Friends who have the sense to want to see rate support grant paid.

Mr. John Home Robertson (East Lothian)

On a point of order, Mr. Speaker.

Mr. Greville Janner (Leicester, West)

On a point of order, Mr. Speaker.

Mr. Speaker

Order. I hope that this is not because the hon. Members were, sadly, not called.

Mr. Janner

My point of order arises directly from the statement, Mr. Speaker. As the Secretary of State's statement concerns a most important rule of law and as on this occasion, as opposed to others, it appears that he consulted the Attorney-General, would it not be right for the Attorney-General to make a statement to the House on the criminal implications of the Government's regrettable behaviour?

Mr. Speaker

Who makes the statement is not a matter for me.

Mr. Home Robertson

On a point of order, Mr. Speaker. In reply to a question from my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) the Secretary of State let slip the Scottish aspects of the statement. It is one thing for the Secretary of State for the Environment to get himself into trouble for giving money to local authorities in England illegally yet, as I believe he suggested to my hon. Friend, the Secretary of State for Scotland had been taking money away from local authorities in Scotland illegally. There is another name for that and I hope that the Scottish Law Officers are considering the matter. Would it be appropriate or possible to ensure that the Secretary of State for Scotland comes to the Chamber and makes an appropriate statement?

Mr. Speaker

Again, that is not a matter for me, but the hon. Gentleman's point will have been heard.

Mr. Dennis Skinner (Bolsover)

On a point of order, Mr. Speaker.

Mr. Speaker

Does it arise directly out of this matter?

Mr. Skinner

Yes, yes—it is seriously a point of order. I was wondering whether, if the BBC, which produces the programme "Yes, Prime Minister", were to come along and ask you whether it could have a copy of the script of today's events you would feel that it was a little over the top. If you provided it, would you be prepared to stand up to any bullying that might come from the Chancellor of the Duchy of Lancaster trying to stop the BBC from screening those events?

Mr. Speaker

I am not certain that what has happened in the Chamber this afternoon would be happy as far as the electors are concerned — [HON. MEMBERS: "Hear, hear."] Order. I mean the noise.