Rate Support Grant (England)

HC Deb 20 January 1986 vol 90 cc38-114

Mr. Speaker

I must tell the hon. Member for Tiverton (Mr. Maxwell-Hyslop) that I am not able to select his amendments.

4.40 pm

The Secretary of State for the Environment (Mr. Kenneth Baker)

I beg to move, That the Rate Support Grant Report (England) 1986–87 (House of Commons Paper No. 140), which was laid before this House on 18th December, be approved.

This afternoon we shall be considering the three rate support grant reports which I laid before the House on 18 December. Before I describe them in detail, I should like briefly to remind the House of where we stand on local authority spending.

This year local authority current spending amounts to about a quarter of all public spending and it is for that reason that the Government seek to influence it.

Mr. Speaker

Order. I did not hear the Secretary of State say whether he was taking the three reports together.

Mr. Baker

Yes, I would ask for the House to take them all together. The other two motions are: That the Rate Support Grant Supplementary Report (England) (No. 2) 1985–86 (House of Commons Paper No. 587), which was laid before this House on 18th December, be approved. That the Rate Support Grant Supplementary Report (England) (No. 3) 1984–85 (House of Commons Paper No. 138), which was laid before this House on 18th December, be approved.

Mr. Speaker

It seems that the right hon. Gentleman has the leave of the House to do so.

Mr. Baker

Thank you, Mr. Speaker. We do riot want three debates like this.

Current spending by local authorities for which they get grant has grown by about 4.5 per cent. in real terms since 1981. This means that local authority spending is growing at about 1 per cent. a year above the rate of inflation, despite all our efforts to encourage restraint. We have had some success. In the present financial year there has been no real increase at all. This is an improvement on the 1960s and the 1970s when councils were spending at about 5 per cent. more in real terms each year than the rate of inflation. That was when Tony Crosland went to Manchester city hall and made his famous speech about the party being over. But the party did continue in full swing and it was not until 1979 that one began to see a significant downturn.

I am sure that all my right hon. and hon. Friends will agree that we should continue our policy of expenditure constraint. But I do accept how strongly some shire counties have felt that they have more than played their part, and some indeed have. I must tell the House that on average since 1978–79 shire counties have increased spending by nearly 5 per cent. in real terms and only seven counties have cut their current spending over this period.

Having said that, in no way do I want to denigrate the work that the shires do. They have done much better than many of the high-spending Labour-controlled authorities. Indeed, so great has been the extravagance of those that we have had to introduce rate capping to curb their expenditure. The sort of levels of expenditure that one has been seeing among those authorities is: Wolverhampton, up 8 per cent. in real terms since 1979; Kirklees up 11 per cent.; Sheffield up 14 per cent.; and Hackney, at the top of this unenviable league, up 46 per cent. We have had to introduce rate capping to restrain the expenditure of Hackney and many other central London high-spending Labour authorities.

Mr. Tony Banks (Newham, North-West)

Will the right hon. Gentleman give way?

Mr. Baker

Not just yet.

Sir Peter Hordern (Horsham)

Would my right hon. Friend care to make an amendment to the public expenditure White Paper which has just been published and which shows that, so far from the increase in expenditure for the shire counties being 5 per cent., as he mentioned, the figure appears to be 1.5 per cent., 9 per cent. for metropolitan areas and 13 per cent. in London? Disregarding that point, will he now make an exception for those shire counties that have consistently spent less than their grant-related expenditure and allow them at least the progression that has been accorded to them in each of the past two years?

Mr. Baker

May I answer that point, which is known as the GREA exemption proposition, in a moment, when I have cleared up the other two reports? I agree that that is central to the point and I am aware that many of my hon. Friends feel that local authorities should be allowed to spend up to GREA without loss of grant.

First, may I deal with the two subordinate reports before dealing with 1986–87? The first is the third supplementary report for last year, 1984–85. That adjusts block grant for 1984–85 in the light of the latest information about authorities' expenditure. The other report is the second supplementary report for the current year, which takes account of late budget data received after the first report which was laid last July. The very fact that, in these two subordinate reports of the reports relating to this year and last year, the grants of local authorities are being changed as the year is progressing, or in the case of last year, when the year is over, shows how deeply unsatisfactory the system is. No treasurer either this year or last year has been able to know the exact amount of grant that his authority is likely to get.—[interruption.] I shall be bringing forward proposals in the Green Paper next week which will change that.

Let me make a technical point which is important because two local authorities—one has just sent me a telex which I received on coming into the House—have submitted revised budget information for 1985–86, too late to be taken into account for this report. I shall, of course, be making further supplementary reports in the current year so that the authorities need be in no doubt that their revised spending will be reflected in their final grant entitlements for the current year. However, the figures in the second supplementary report have been used as the basis for caps and nets on grant changes in the 1986–87 report. I do not at present propose to redetermine the caps and nets in the light of late information about spending in 1985–86.

The main issue before us is the report for 1986–87.

Mr. Tony Banks

rose—

Mr. Baker

I want to deal with this and then reply to the point raised by my hon. Friend the Member for Horsham (Sir P. Hordern).

The first point I want to make, Mr. Speaker, is that the amount of grant which the Exchequer, and that means the taxpayer, will pay to local authorities next year is £11.8 billion. This is the same figure as we announced a year ago for the current year. It is, however, about £400 million more than we actually expect to pay out this year because of penalty holdback and I want to come to that later in my speech as it is of material concern. This means that next year the Exchequer will be funding about 46½ per cent. of local spending. Local authorities have known this since my predecessor's announcement in July. Also in July my right hon. Friend announced that we were providing for £22¼ billion of local authority spending next year. This is nearly £1 billion more than was provided for the current year.

Those are substantial increases and at the time the local authority associations protested. They wanted on top of that a further £1¼ billion. But the Government could not agree to that substantial increase and I do recognise—this is at the core of many of the problems affecting the shire counties represented by my hon. Friends—that the figure announced last July does imply real term cuts in this year's budgets.

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

Will my right hon. Friend give way?

Mr. Baker

No. I want to come to the point made by my hon. Friend the Member for Horsham.

Mr. Beaumont-Dark

What about the fall in the Exchequer grant from 61 per cent. to 46 per cent.?

Mr. Baker

My hon. Friend asks in parenthesis about the fall in the Exchequer grant from 61 per cent. to 46 per cent. We have made it clear that we have followed that policy because we have wanted to reduce the Exchequer support to local government in an attempt to improve local accountability. My hon. Friend has a distinguished career in local government and we are agreed that local government in Britain would be much enhanced, without a shadow of doubt, if one could improve local accountability and reduce controls from the centre.

I come now to the comments of my hon. Friend the Member for Horsham about the GREA exemption. I remind the House that local authorities knew when my predecessor made those announcements in the summer that the Government were not prepared to underwrite expenditure of that level. I am sorry to say that many local authorities appear to be ignoring the advice about budgeting which my predecessor issued and largely as a result of that they are now facing substantial rate increases.

I must say in defence of the Government's policy that we should not be blamed for that. Take, for example, wage settlements. I have seen several delegations in the past fortnight with county treasurers, county councillors, district councillors and their Members of Parliament. So have many of my ministerial colleagues. Many of the delegations have said that it was all very well for the Government, in the summer of 1985, to say that we were only prepared to fund a 3.5 per cent. increase in expenditure but many of them are having to bear high wage bills this year of 7 or 8 per cent. I have had to say to them that when, for example, the negotiators who were discussing the manual workers' wage claim just before Christmas in October and November said that they would offer 8.2 per cent., I said to the negotiators—which is a mixed team from all parties—that if the offer was made and settled they should not come to me at the end of the day and ask central Government to make up the difference between 3.5 per cent. and 8.2 per cent. If local government agrees to an inflationary wage settlement of 8.2 per cent. it must be up to local government to pick up the difference. In reply to that they said that it would not be an inflationary wage settlement. They said they would make offsets and savings. I thought that that was callous because, in effect, they were saying that they would lay people off and their wage bill at the end of the day would be no more than the 3.5 per cent. suggested by the Government although they would actually be paying 8.2 per cent. I have had to say to the treasurers and the various delegations that I have seen during the week that if they are building wage settlements of that level into their budget forecasts the Government will never find that extra amount.

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I am anxious to hear every word of the speech and I would be grateful if the right hon. Gentleman would address the Chair more directly and not turn his back on it.

Mr. Clive Soley (Hammersmith)

He is worried about his back.

Dr. John Cunningham (Copeland)

I am grateful to the Secretary of State for allowing me to intervene, particularly as my question is on the matter of wage settlements. Is it not the case that the report before the House does not enable local authorities to receive sufficient money even to accommodate the wage offer that has been made to teachers, which the Secretary of State for Education and Science has approved? If there is an even higher supplement, does that not mean that the gap between what the local authorities can pay and what the Government are offering will be even larger?

Mr. Baker

I have a comment, which I was going to make later, but I shall make it now if the hon. Gentleman wishes to know the exact position on teachers' salaries.

Some more grant will be available next year for education authorities for lunchtime supervision. I made that point to several of the delegations that I saw. I notice that some of them had anticipated that and some had not. In addition, if the local authority employers can negotiate a satisfactory agreement with teachers on duties and salary structures, we would make block grant available to help finance another £150 million worth of expenditure in 1986–87 on teachers' pay in England. Clearly, that additional provision would have consequences for education GREAs, which I am sure the hon. Member for Copeland (Dr. Cunningham) appreciates. Our present thinking is that the education GREA totals would be increased by the £150 million rise in provision in 1986–87. With an overall percentage of grant of 46.4 per cent., that would attract an additional £70 million to education authorities in grant, not at the expense of non-education authorities. That depends on my right hon. Friend's conditions about agreement on duties and salary structures being met. The longer such agreement is delayed, the more difficult it will be to make the necessary adjustments in local government finance in 1986–87.

Mr. Douglas Hogg (Grantham)

I understand the answer that my right hon. Friend has just given. He does not fully deal with the main point that the current offer of around 6.9 per cent. has to be financed out of a settlement that implies a decrease in spending of 3.5 per cent. I do not see how that can be done. It seems to me that the basic assumption that the increase in local government spending will be 3.5 per cent. is simply unrealistic.

Mr. Baker

My right hon. Friend the Secretary of State for Education and Science has made clear in the various negotiations on wage settlements for the current year that there is no extra money on the table. In my talks with delegations, treasurers have told me that they have taken this into account in their forecasts. I hope that what I have just said suggests that there is a possibility that they will have a further flow of grant in the next year, 1986–87, to meet the extra wage costs.

The most important feature of the settlement next year is that we have got rid of targets. That decision has been commended by the Public Accounts Committee in its valuable report published last week. I believe that Members on both sides of the House welcome the abandonment of targets and penalties. I was repeatedly pressed by all authorities, not just the shire counties, to do that. However, I accept that some authorities are disappointed that we have retained strong pressures for restraining expenditure through the new slope schedule that we have introduced. Some of my hon. Friends have made that point to me.

Those slopes mean that as authorities spend more they get less grant. Even those authorities spending below GREA, which is the point of my hon. Friend the Member for Horsham, will lose grant if they increase their spending. The possibility of granting what is called the GREA exemption was put to me earlier in the debate. That would mean allowing authorities to spend up to GREA without incurring any further penalties. I asked my officials to calculate the increase in public expenditure if that were extended to all authorities spending below GREA. I have been told that the increase in public expenditure would be an additional £1.1 billion. If that exemption were granted, they would certainly spend up to GREA. I say to my hon. Friend the Member for Horsham that I understand the case he is making for West Sussex.

Sir David Price (Eastleigh)

(rose)—

Mr. Baker

Please allow me to deal with one matter at a time.

My hon. Friend the Member for Horsham is quite right to say that West Sussex is the lowest spending of all the shire counties. If there is to be a GREA exemption the national consequences for all authorities would be an extra increase in public expenditure of £1.1 billion. I can think of few Conservative Members who have been so resolute in supporting the Government's overall economic strategy that is based upon the containment of public expenditure.

Sir David Price

What is the point of GREA in the circumstances explained by my right hon. Friend? Why have it at all? I thought that it was expenditure up to statutory responsibility as determined by the Department.

Mr. Baker

The GRE assessment of needs is not a target in that sense. The authorities below GREA are better off on the new system than on the old system of targets and penalties. The loss that West Sussex would suffer for every extra pound that it spent above target this year would be £3.10. However, under the new slope it will sacrifice only 74p. That means that it can move towards GREA with considerably less penalty loss of grant next year than in 1985–86.

Sir Peter Hordern

With the greatest respect, that is not the case. Under the old target and penalty regime West Sussex, being the objective low spender, was allowed the largest increase of any authority below GREA. The proportion was an increase of 4.625 per cent. before any penalty was attached. It could at least be argued that that was higher than any authority received, and that those authorities which spend, and continue to spend, well above GREA were not allowed to spend even a small proportion. How can it be argued that it is a good thing to do away with the target and penalty system when the result of that abandonment, as my right hon. Friend has explained to the House, makes it much worse for the county of West Sussex than it was before?

Mr. Baker

I may not have explained the point clearly. The new system undoubtedly places authorities such as my hon. Friend's in a better position than the target and penalty system. It does so for three reasons. First, low spenders, which is what West Sussex is, would receive more grant at their present level of spending than they would have received if we had not scrapped the targets and steepened the slopes. Secondly, they receive more grant for spending at GREA than they would have done. Thirdly, they have a much reduced rate of grant loss if they reduce spending from present levels. I should be happy to set out that point to the treasurer of West Sussex county council and to my hon. Friend.

Dr. Oonagh McDonald (Thurrock)

I thank the right hon. Gentleman for giving way, because I represent part of a shire county. Of course, it is a lower spender than I should like. [Interruption.] It is. It does not provide a proper level of services. If it were to spend enough to meet the standard services that the Government require, the rates would have to go up and the level of grant would be reduced. How does he explain that absurd position?

Mr. Baker

The answer lies in the reply that I gave to my hon. Friend the Member for Horsham. Under targets and penalties there is no doubt that the authorities in those areas that the hon. Lady and my hon. Friend represent would be much worse off. I am afraid that that is how the system works and has worked. That is why we have abandoned it.

At the centre of the debate lie the estimates of expenditure for next year that have been made by various shire counties and all district councils and metropolitan authorities. Local authorities are estimating what their budgets will be. I received a delegation from Buckinghamshire last week. The meeting was attended by my right hon. Friend the Member for Chesham and Amersham (Sir. I. Gilmour). I shall give my recollection of the meeting. If it does not accord—[Interruption.]

When I asked the chairman of Buckinghamshire county council what its budgeted increase in expenditure was for next year, he said that it was 12 per cent. He set out the reasons why he was budgeting for an increase of 12 per cent. I told the chairman—I believe that my right hon. Friend will agree—that in no way could the Government be expected to finance that degree of overspending. It is well above the rate of inflation and the level announced by my predecessor in July. I said that it was pointless for authorities to come to me and say, "Please fund that level of spending with central Government grant." The chairman wrote to me after the meeting and said: The presentation I made and the notes I have left you with did, I trust, bring out the essential financial problems facing the County Council, but I should like to re-emphasise that the exercise to examine our projected expenditure level next year is still at an early stage and depends on decisions not yet made about the extent of budget reductions the County Council may choose to impose.

The point that I want to make is that all local authorities are now making up their budgets. They are, to some extent, negotiating not just with the various members of their councils, but with central Government. It is clear that Buckinghamshire's estimate was a preliminary one. If there were to be an increase of 12 per cent., there would be a substantial rate increase. The chairman has gone away and is to examine with his committee chairmen whether they can make any savings. I expect that they will be able to make savings.

Sir Ian Gilmour (Chesham and Amersham)

I do not dispute in any way my right hon. Friend's recollection of that meeting. The county council chairman has now written a second letter to him, which I believe I am at liberty to quote. He points out how the 12 per cent. was arrived at. He reiterates his points, but says that he is still going to look for economies. He shows that what he said about the 12 per cent. was nothing like as tentative as my right hon. Friend has inadvertently suggested.

Mr. Baker

It is a strange parallel. I received the letter literally as I came into the Chamber. In the penultimate paragraph of the second letter, the chairman says: However, I must continue to stress that the County Council is actively seeking ways to reduce its expenditure in 1986–87 both by real terms reductions and further management efficiencies." I applaud him for doing that.

Mrs. Elaine Kellett-Bowman (Lancaster)

rose—

Mr. Baker

If I may continue—

Mrs. Kellett-Bowman

My right hon. Friend referred to the fact that local authorities are now making up their budgets. Would he care to contrast the negative view taken by the Lancashire county council, which has been profligate over the past four years and has increased rates massively, with its excellently conducted, but Conservative-controlled, city council which has not raised rates at all over the past four years but which may have to make a small increase this year?

Mr. Baker

I am glad that I gave way to my hon. Friend. She has shown that some authorities continue their high-spending habits. Lancashire county council is one of them. Another group of councils that is substantially increasing expenditure consists of those councils that have no overall control. Those that have no overall control, which are the nirvana of coalition politics, seem to be in agreement on only one thing—spend more. Hung councils mean high-spending councils; high-spending councils mean high rates.

Mr. Stephen Ross (Isle of Wight)

rose—

Mr. Baker

May I move on, please?

Mr. Ross

The right hon. Gentleman must be fair to this Bench.

Mr. Baker

May I move on and say—

Mr. Ross

The right hon. Gentleman is dodging the issue.

Mr. Baker

—that, having sought to make the points that I have, I none the less accept that it has been said to me repeatedly during the past few weeks that shire authorities have suffered a disproportionate loss of grant.

Mr. Michael Grylls (Surrey, North-West)

rose—

Mr. Baker

May I get just a little further on before I give way again?

One of the foundation stones of the rate support grant system is called resources equalisation. That is why something like £1 billion each year is transferred through the grant system away from London and the south-east to the rest of the country. Few people appreciate how the grant system works—[Interruption.]—as a major redistributive element. That is one of the fundamental—

Mr. Robin Maxwell-Hyslop (Tiverton)

Defects.

Mr. Baker

I agree with my hon. Friend that it may be a defect. But it has been in the system for a long time. It means that when the available block grant is reduced, all authorities lose a common rate poundage of grant but that loss is greater in cash for the higher rateable value authorities such as the home counties. This principle of resource equalisation is reputed to have been inspired by the late Sir Winston Churchill when Chancellor of the Exchequer, the late John Maynard Keynes and the very much alive Earl of Stockton. Some of my hon. Friends, though not all, would consider that an impeccable pedigree.

In answer to the intervention of my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), I should say that the Green Paper on local government finance, which I shall bring out next week, will raise the issue of resource equalisation. In the period of consultation which will be available, Members and outside interests will be able to comment upon this. It is central to the grant system. I want to consider whether it should continue at its present level or at a lower level as a less significant feature of the new arrangements. It is a fundamental and important part of any change in the grant system and accounts for some of the loss of grant this year to the home counties.

Mr. Tony Banks

rose—

Mr. Grylls

Will my right hon. Friend give way?

Mr. Baker

May I press on?

Mr. Grylls

My right hon. Friend, as a Surrey Member, will know that there is a feeling of outrage in Surrey. Surrey has lost £22 million in grant this year, yet it is the second lowest spender after East Sussex. People cannot understand that. Will my right hon. Friend look at that aspect and seek a fairer distribution? We are asking not for more public expenditure, but for a fairer distribution and no penalties for economic and efficient local government.

Mr. Baker

Like me, my hon. Friend the Member for Surrey, North-West (Mr. Grylls) represents a Surrey constituency. I saw the Surrey delegation with the treasurer last week. Surrey is budgeting for an increase of 5.7 per cent. That is one of the lowest in the range of expenditure increases.

Mr. Simon Hughes (Southwark and Bermondsey)

But a rate increase.

Mr. Baker

I think that the rate increase in Surrey will be significantly less than 20 per cent. However, there are several other factors still to be taken into account, some of which I shall come to in a moment.

Mr. Tony Banks

Will the Minister give way?

Mr. Stephen Ross

Will the Minister give way?

Mr. Baker

I will take one intervention.

Mr. Ross

Does the Secretary of State agree that the GREA methodology has been reduced this year? If the Isle of Wight spends the GREA, it will still have a rate increase of 16 per cent. The island has had the worst settlement of all, except for Bedfordshire. Will the Minister listen to our pleas? The Isle of Wight is under Liberal control, but it has not overspent.

Mr. Baker

I do not have to hand what the level of budgeted expenditure will be for the Isle of Wight next year. I dare say that that will be a material fact if there is to be a rate increase of that level.

Another feature of this document is the support given to the inner cities. I want to meet this issue head-on. I think that my right hon. Friend the Member for Chesham and Amersham made a speech on this matter just before Christmas. My right hon. Friend and other hon. Friends will agree that the problems of some of our towns and cities are acute. High levels of social deprivation, large numbers of single-parent families, pockets of poverty, pockets of unemployment as high as 50 per cent. and the problems of large ethnic minorities require extra resources. I have thought it right to recognise that. No Secretary of State can walk by on the other side when faced with those problems.

Some say that, while they recognise the needs of the towns and cities, those needs should be met from resources other than through the rating system. But if more resources are to be found, they have to be found either from the ratepayer or the taxpayer. At the end of the day the resources cannot come from anywhere else. As my hon. Friend the Member for Surrey, North-West has pointed out, my own constituency is making a contribution to that shift this year, and I steadfastly defend that policy.

Dr. Keith Hampson (Leeds, North-West)

I am sure that my right hon. Friend the Minister will agree that not all his right hon. and hon. Friends come from the shire counties. Will my right hon. Friend look again at the GREA formula? I am the only person here from any party representing Leeds, which has a deprived inner-city area, acute ethnic problems and the largest percentage of defective housing in the country. How is it that the formula has given us fewer resources this year than last year?

Mr. Baker

I shall certainly look at the GREAs. Some have suggested that I should not look at GREAs and that they should remain the same, but I believe that it is necessary to do so. This year, Leeds has a grant of £111 million and next year Leeds could qualify for a grant of between £123 million and £128 million. I am not familiar with the expenditure pattern, but I will look at what my hon. Friend has said.

Mr. Beaumont-Dark

I do not doubt the sincerity of my right hon. Friend when he says that he wishes to tackle head-on the problems of the inner cities. Why is it that when he tries to help Birmingham, we always come out as the sufferer? With help like that, Birmingham is not encouraging any enemies. The rate of penalties for Birmingham is 180 per cent. Over the past two or three years Birmingham has spent within the Government guidelines and spent below the wretched GREA principle—which I warned the Government against years ago. Why should Birmingham now be penalised for doing what the Government wanted it to do? It seems not common sense but lunacy.

Mr. Baker

I received a group from Birmingham before I made my statement in December. There was then talk of a rate increase in Birmingham of 60 per cent.

Mr. Beaumont-Dark

They always do.

Mr. Baker

There is an element of negotiation in estimated rate increases. As I understand it, the rate increase will be substantially lower than that this year.

My hon. Friend asks if the Government will do anything about the GREA. The Green Paper makes two specific proposals on grant. One is an infinitely simpler system of grant, and the other is the need for a simpler set of formulae other than GREA. The system has become over-complex, and we are attempting to fine—tune elements of local government expenditure which should not be fine tuned.

Mr. Max Madden (Bradford, West)

rose—

Mr. Tony Banks

Will the Minister give way?

Mr. Baker

I shall not give way again.

Mr. Banks

The Minister has not given way once.

Mr. Baker

The problem of London and grant recycling will critically affect the level of rates next year. A central issue for all London boroughs, both inner and outer, will be the levy of the London Residuary Body. The chairman issued a proposed budget involving a high proportion of capital items. If that had been the basis of the levy, London rates would have been very high. The chairman has now written to me with a much lower budget of about £60 million.

Mr. Banks

Who leaned on him?

Mr. Baker

The chairman proposes to use capital receipts from mortgage repayments and GLC balances to meet some of the obligations of the London Residuary Body.

Mr. Banks

There will not be any.

Mr. Baker

That seems to me to be a reasonable basis for determining the levy.

In addition, London Members will know that I have been consulting about the basis of how the balances should be distributed—whether on a rateable value basis or on a population basis. I have decided that the balances should be distributed on a population basis.

Mr. Banks

That helps Croydon.

Sir William Clark (Croydon, South)

I am sure that my right hon. Friend will appreciate that the inner and outer London boroughs are similar to the shires. The outer boroughs have been prudent but are to be penalised. The budget of the London Residuary Body was £170 million, but my right hon. Friend says that that has been cut to £60 million. Does that mean the elimination of the redundancy payments within that budget? Any redundancy payments due to the abolition of the GLC should not be carried forward, but should be settled by the GLC before it is abolished.

Mr. Baker

The answer to that question is yes, it does exactly that.

Dr. John Cunningham

I am grateful to the Secretary of State for giving way again—he has given way a great deal. Is he saying that the London residuary body will have total freedom to use however much of its capital receipts it thinks fit—in contrast to the rigid controls that the Government have put on the capital receipts of local authorities?

Mr. Baker

As for capital receipts, one of the major items of the Budget was £70 million of mortgage repayments. One of the original proposals was that that should be recycled to the boroughs, but the collective view is that those capital receipts should be used against capital items.

Dr. Cunningham

So the answer is yes.

Mr. Baker

I am not so sure that it is. I shall look carefully at what the hon. Gentleman has said. The main item here is the adjustment of mortgage repayments. I shall now consider grant recycling.

Under the old system of targets and penalties, the grant lost by the high spenders was surrendered to the Treasury. Last year, this holdback amounted to £450 million and this year it is about £430 million. Under the new system, the grant that will be lost by the high spenders will form a pool which will be recycled to local authorities. Therefore, if traditional low spenders can keep their spending right down, and if the high-spending Labour authorities cannot break the habit of a lifetime and spend as usual, substantial amounts of grant will flow back to the low spenders.

Mr. Tony Banks

Will the hon. Gentleman give way?

Mr. Baker

I regret not.

From the picture that is emerging of budgets for next year I have little doubt that there will be significant extra grant available from this source. I cannot estimate the figure precisely, but I have exemplified the effects of a pool of £400 million which is a little less than holdback this year. If such a pool existed, it would be distributed on an equal poundage basis. This would mean that Bedfordshire could get an extra £4.5 million, Buckinghamshire nearly £6 million, Cambridgeshire just over £5 million, Devon nearly £7 million, Dorset £5 million, East Sussex nearly £6 million, Essex £13.5 million, Hampshire over £12 million, Hereford and Worcester over £5 million, Hertfordshire nearly £9.5 million, Kent over £11 million, Norfolk over £5.5 million, Staffordshire over £7 million, Suffolk over £4.5 million, Surrey £9.5 million, Lincolnshire £3.7 million, West Sussex over £6 million and Wiltshire over £3.5 million. I had that exemplification in my Box last night and I think that I had better put it in the Library.

Mr. Paddy Ashdown (Yeovil)

Will the right hon. Gentleman give way?

Mr. Baker

No.

Mr. Neil Macfarlane (Sutton and Cheam)

Will my right hon. Friend give way?

Mr. Baker

I really should finish my speech but I shall give way once more.

Mr. Macfarlane

Might any of the outer London boroughs such as Sutton or Croydon be added to that list?

Mr. Baker

When I put the figures in the Library, my hon. Friend will find that that is the case.

Mr. Ashdown

Will the right hon. Gentleman give way?

Mr. Baker

I hope that the hon. Gentleman will forgive me, but no. I have already given way once to a Liberal, and that is disproportionate to their representation in the House.

I want to stress that I cannot guarantee that this extra grant will be available since it will depend upon the extent of the overspend, but it is quite clear from the meetings that I have had with the treasurers that some are anticipating in their budgets some flowback, because they too have done these calculations. It is a question for them and for their finance committee to judge how much could reasonably be estimated.

I think it right to set out for the House the position on the recycling of grant since this is the first year in which it will operate in this way. During the coming weeks, treasurers and finance committees will want to consider how this is likely to affect their cash position and how in turn it is likely to affect the rates which they will agree.

In a few moments, we shall hear from the Opposition. I hope that the hon. Member for Copeland will set out the Opposition's policy on local government finance. Would he increase grants from the Government next year? If so, by how much? How much would go to the shires? Would he stop rate capping?

Dr. Cunningham

Yes.

Mr. Baker

Has he estimated the cost of ending rate capping? How many hundreds of millions of pounds would it cost? How many millions of pounds would then be thrust to the most extravagant councils in the country? Before he poses as the friend of shire counties, will he spell out what role he sees for them? During the past year, he and the hon. Member for Blackburn (Mr. Straw) have made speeches advocating new regional councils and powerful district councils.

Mr. Tony Banks

Will the right hon. Gentleman give way?

Mr. Baker

Where does that leave the shire counties? What functions will he move away from the shire counties? Social services? Roads? Education? Police? Fire? Will such functions go up to regional councils or down to district councils?

Mr. Banks

Will the right hon. Gentleman give way?

Mr. Baker

I am being asked by several of my right hon. and hon. Friends to try to square the circle between increases in spending well above the rate of inflation and low rate increases, while holding down total local government expenditure and curbing the excesses of the lunatic Left. I make no bones about it—

Mr. John Fraser (Norwood)

Will the Secretary of State give way?

Mr. Baker

No.

Mr. Fraser

I speak for the lunatic Left.

Mr. Baker

If the cap fits, wear it.

I make no bones about the fact that the settlement attempts to keep the lid on rising expenditure while recognising the efforts made by lower-spending authorities. It is well known to the House that I am not enamoured of the system of local government finance——

Mr. Tony Banks

rose—

Mr. Maxwell-Hyslop

Will my right hon. Friend give way?

Mr. Baker

Very well.

Mr. Maxwell-Hyslop

If my right hon. Friend is not enamoured of the rating system of local government finance, why does he increase the proportion of local authorities' income from that system and reduce the proportion from the system of which he presumably is enamoured—central Government taxation?

Mr. Baker

My hon. Friend might not have heard what I said earlier—[HON. MEMBERS: "He did."] I have been asked to square the circle between expenditure that is rising well above the rate of inflation, to secure low rate increases and to contain Government expenditure. The containment of general Government expenditure lies at the heart of the Government's economic policy and that is why I have not been able to agree with the GREA exemption and why the settlement cannot increase grants significantly. However, as a result of recycling, higher-spending authorities will contribute significant grant to lower-spending ones. My hon. Friend's criticisms of the system are well known.

Mr. Tony Banks

rose—

Mr. Baker

Next week I shall bring out a Green Paper which deals with the fundamental question, which is as my hon. Friend said, the constitutional question whether we want more central control or more local accountability. I stand firmly on the side of those who want more local accountability. [HON. MEMBERS: "Come off it."] The House will be able to judge that statement when it sees my Green Paper. Until a new system, which will involve fundamental changes, is in place, I commend this fair settlement to the House.

Mr. Simon Hughes

On a point of order, Mr. Deputy Speaker. The Secretary of State referred to a document containing figures of how much might return to shire counties this year. It is a key element in the debate. The right hon. Gentleman said that he would put it in the Library. Can it be put in the Library within minutes, rather than hours, so that it is available to hon. Members during the remainder of the debate?

Mr. Deputy Speaker

That is a matter for the Secretary of State, not for me.

5.30 pm

Dr. John Cunningham (Copeland)

The House is asked today to approve the seventh major rate support grant presented to Parliament by the Conservative Government since they took office. There have been many supplementary reports, and there are two more of those before us today. Entertaining as it might be for the House to discuss Labour party policy on local government, that is not the purpose of the debate. I am happy to say that if the Government will provide a day for such a debate, we will be more than willing to participate. During the last six years the Government have introduced many major policy changes—major reconstructions of the methods and systems employed to distribute grants to local authorities. They have introduced many more powers for Ministers to employ, scrutinise, control, and direct what councils can and cannot do with their money and with the money that they receive from the Department of the Environment, through this and similar reports. They have been seven hard, difficult and often confusing and frustrating years for many councillors of all political parties, for local government as a whole and, I might add, for some Conservative Members too.

It is interesting to reflect that the report was a matter of such little controversy during the period of office of the last Labour Government that in one year the Conservative Opposition chose not to debate it at all. It went through on the nod. Each year since the Conservative Government came to office there have been significant changes to understand and accommodate, and this report is no exception. Indeed, it introduces some of the most significant changes of all. I shall come to those later.

I must compliment the Secretary of State on at least one thing. In the presentation of his report he employed a certain amount of skill, not to say sleight-of-hand, in trying to deflect what he no doubt thought would be the criticism of his hon. Friends who represent shire counties. I should perhaps remind him that there are people on this side of the House who represent shire county constituencies, not least my hon. Friends and myself. I shall have something to say about that in a moment. Perhaps he felt like a Labour Cabinet Minister in the 1945 to 1950 Government who said, "The Opposition is in front of us and the enemy is behind". I say that because the Minister was certainly under some scrutiny from his hon. Friends. Following his uncertain and unconvincing performance, it will be interesting to see whether they will support the Government in the Lobby tonight.

Mrs. Kellett-Bowman

The hon. Gentleman referred to the swing to London affecting the shire counties.

Dr. Cunningham

I did not refer to that.

Mrs. Kellett-Bowman

The hon. Gentleman was talking about the practice affecting the shire counties. He was referring to representations made at the time of the Labour Government. I have a letter dated 10 January 1978 complaining that Lancashire county council was affected by the basic swing to London and complaining about the position as it applied to shire counties generally. That was when Lancashire started to suffer.

Dr. Cunningham

Lancashire county council, or any other county council, Tory or Labour-controlled, would give its eye teeth to have the 60-odd per cent. rate support grant that it was getting in those days compared to the 46 per cent. grant offered in this report. It is a massive tribute to the strength, stability and confidence of local government, and to local democracy, that in the main it is able to respond to this panoply of Government changes positively, vigorously and with considerable ingenuity to maintain services and employment, to provide efficient management and, perhaps above all, to retain the understanding of local communities.

Over a six-year period the Conservative Government have consistently pursued a number of basic policy objectives that are opposed by local government, and they have pursued those policies with mixed results. The original aims of the Government, some of which everyone could and would support, were to protect ratepayers. I almost forbear to remind the House that Government policy was to abolish rates altogether, to reduce Government controls over local government, to reduce central Government financial support to local authorities, to simplify the system, and to reduce local government current expenditure. The Secretary of State had something to say about the growth of local government current expenditure. It is nothing compared to the growth in central Government current expenditure. On a comparable basis, it is probably less than 50 per cent. of it, and I suggest that the right hon. Gentleman and his friends in the Cabinet should address themselves to that much bigger target rather than to local government current expenditure.

Mr. Stephen Ross

Last September the Cabinet had the benefit of a presentation from the Audit Commission, when it was pointed out that the county, borough and city treasurers were much better at estimating public expenditure than were central Government Departments.

Dr. Cunningham

The Audit Commission has recently published a report in which it compliments local government on its competence, on the management of its affairs and on its handling of the precious public resources at its disposal.

From the start of this Government's period of office there have been massive internal conflicts at the centre of local government policy. The strategy was incoherent at the beginning, and it remains so today. The centrepiece of Conservative policy is consistently and systematically to reduce the rate support grant year by year, and that is again proposed for the coming financial year. The grant has fallen from 61 per cent. of council expenditure in 1979–80 to 46 per cent. for the coming year.

In the absence of any other major change of policy towards local government income, this change can have only one result—major rates increases. The conflict, indeed the contradiction, of promises to protect ratepayers is obvious. During the Government's period of office, average rate payments in England and Wales have more than doubled. Comparing 1979–80 with 1985–86, one finds that average rates payments under the Conservative Government have risen from £3.73 per week to £8.27 per week, and the percentage increases have been 27.2, 21, 14.9, 7.2, 6.8, and last year there was an increase of 9.5 per cent. in the domestic rates.

In this Parliament, as in the last Parliament, the Government have simply abandoned their promise to abolish rates. Far from protecting ratepayers, the Government have consistently and deliberately shifted burdens from high income taxpayers to lower income ratepayers, and they continue to do this in the report before the House.

Each year since 1979 the amount of Government cash provided to local authorities through the rate support grant has been cut substantially. In accumulated terms, at 1985–86 prices, the loss to councils amounts to a staggering £16.1 billion. The grant losses have been felt by all local authorities, and the average level of domestic rates has risen far in excess of the rise in inflation. In 1978–79 the average unrebated domestic rate bill was £128. Last year it rose to £345, an increase of 169.5 per cent., or 82 per cent. in real terms. Between 1979–80 and the last financial year, the overall average increase in local authority current expenditure was 98 per cent. The increase for central Government was much higher, at 106 per cent.

The loss of grant is the biggest single reason why rates have risen so sharply. Without these deliberate cuts, average rates levels would be at least 25 per cent. lower—equivalent to £86 per annum, or almost £1.70 a week, for the average family paying rates. In a press release entitled "Surrey's message to Kenneth Baker", Surrey county council's policy chairman, Tory Councillor Douglas Robertson, said: The authority's carefully worked out plans to have a rate increase in single figures have been shattered by loss of grant." The press release stated that Councillor Robertson asked the Secretary of State to tell the Chancellor of the Exchequer that rate increases should not be used to reduce taxes and … to look again at the grant formula which year after year has penalised Surrey". Those words are not from any Labour local authority leader or the leader of a hung council or a council controlled by the Liberals or the SDP; they are from true blue Surrey.

After six years, local government is more rigidly controlled from Whitehall than ever before. Grants are now specifically controlled and, consequently, accountability to local communities has been eroded rather than enhanced—another failure of Government policy, and contrary to what the Secretary of State has told the House is one of his personal objectives for Government policy.

It is not unreasonable for the House to ask the Secretary of State why, after almost seven years in office, the Conservative party has failed to reach most of its policy objectives for local government and why it has simply abandoned others. Are we and the electors and the colleagues of the Secretary of State to be thankful and to console ourselves with the words of Cicero: Promises are not to be kept if the keeping of them would be harmful to those to whom they have been made"? That certainly seems true of most promises made by the Secretary of State and his Cabinet colleagues.

The right hon. Member for Mole Valley (Mr. Baker) must have been delighted to reach the Cabinet table finally, but his pleasure must have been shortlived when he realised that, with one bound, he was up to his neck in a bog. We now know that that is how he feels about this matter, because he was candid enough to tell us so during the Tory party conference in October 1985. In an almost Reaganesque one-liner he described the achievements of his Government colleagues after six years in local government finance as a maze, surrounded by a marsh, shrouded in a fog.

After seven years of consistent Conservative legislation, massive changes and more central control, the trail to the Department of the Environment, which is littered with abandoned election promises, apparently leads to a maelstrom of political doom, a charnel house of political ambitions. We should reflect on the whereabouts of the right hon. Gentleman's predecessors in office, Mick, Tom and Pat—those well-known builders of local government financial systems. One was sacked, one resigned and one fled the country. Typically, while those maze manufacturers, quagmire constructors and fog fabricators have almost disappeared without trace from the local government scene, poor councillors have been left to deal with the bills.

For several years successive Conservative Ministers have promised that, in the end, their policies would benefit low-spending authorities. As the Secretary of State asked me about this, let me make our position clear. We are not sure why such authorities should be helped, because experience shows that often they are the authorities offering a range of low quality or even mean service provision, from education through housing to social services.

Mr. Maxwell-Hyslop

In many cases, local authorities are low spenders because they have such slender financial resources, because their rateable values are low, and the incomes of the people are low. Because their populations are so scattered, the cost of administering is high. That is why they have a policy of low spending.

Dr. Cunningham

That argument will come as a surprise to residents of stockbroker belts in Surrey, Sussex, Hampshire and Kent. I am prepared to accept that that may be true in some parts of the area represented by the hon. Member for Tiverton (Mr. Maxwell-Hyslop). Low spending is not the same as efficiency or good management, any more than high spending can be equated with carelessness with public money, as the Audit Commission continues to demonstrate in successive reports.

Mr. Ashdown

The hon. Gentleman's description of low-spending authorities and inadequate resources—for instance, for education—fits Somerset county council under its previous administration. That council was hounded by Her Majesty's inspectors for inadequately fulfilling its education requirements. Is it not an appalling indictment of what the Secretary of State now proposes that the maintenance of that scandalous neglect of Somerset, which was the hallmark of the previous Tory Administration, will still require a rate increase of 20 per cent.?

Dr. Cunningham

I agree with that. Much the same could be said of the county of Norfolk and many other Tory-dominated counties.

Sir Bernard Braine (Castle Point)

I hope that the hon. Gentleman will not leave the House with the impression that lower spending is synonymous with inefficiency. In counties such as Essex—my county—low spending is a product of prudent financial management. It has been praised on the Floor of the House by successive Secretaries of State. I hope that the hon. Gentleman will not pursue that argument.

Dr. Cunningham

It is an argument which I would be more than willing to pursue, but I shall let the right hon. Member for Castle Point (Sir B. Braine) pursue it with my hon. Friend the Member for Thurrock (Dr. McDonald), who also represents an Essex constituency. She put an entirely different point to the Secretary of State.

Systematic reductions in rate support grant cannot ensure better value for money. In any event, councils of all political persuasions are surely entitled to believe that their good management—this is the point, with which I agree, made by the right hon. Member for Castle Point—and their efficiency should benefit their communities and not lead to further loss of grant from central Government. Surely central Government's task should be to reinforce good local authority management, not to undermine it. This year, the Government's failures are more exposed than ever. It is clear that the Rates Act 1984 has not helped the counties, as was frequently promised it would. It is clear also that money from a smaller pool has been transferred from counties and districts to conurbations in an attempt to cover up the cost to boroughs of the abolition of the metropolitan counties and the GLC. Government policies have seriously damaged the county councils' share of RSG, as we always said they would. Anger and dismay in the Association of County Councils is widespread and deep, so much so that the association has written to all hon. Members asking for this report to be rejected by the House—an unprecedented move by that local authority association.

Last year's county council elections saw the Conservative party humiliated in its heartland. Now, even the last bastions of Toryism are saying enough is enough—Surrey, Suffolk, Norfolk and others. Captain Robert Sheepshanks, Tory chairman of the East Anglian Consultative Committee on Local Government, said: There is considerable frustration in East Anglia—the settlement will lead to a very high rate increase across the region.

Mr. Soley

He is being fleeced.

Dr. Cunningham

He is indeed.

In this report, the Government have imposed on shire counties the largest year-on-year cut ever imposed on any class of authority since the block grant system was introduced. This is a measure of the change that is being imposed on the counties.

In addition, there have been large grant losses for county councils because of the impact of new grant-related expenditure assessment. How can Conservative Members from counties vote for this report? It represents a massive kick in the teeth for rural communities, which in many cases—as in my constituency, the borough of Copeland and Cumbria county council—are massively disadvantaged. People in rural boroughs and districts are thus hit, not once, but twice by the proposals. It comes as no surprise that the Association of County Councils is forecasting rate increases next year far in excess of the rate of inflation.

Mr. Kenneth Baker

The hon. Gentleman has quoted some comments about this rate support grant settlement from various parts of the country. Exactly what would he propose instead? Would he increase the grant this year, how would he vary its distribution, by how much would he put it up from 46.5 per cent.? Who would benefit, because if the hon. Gentleman abolishes rate capping, some of the most extravagant local authorities will benefit? Will the rural authorities benefit as well, and if so, by how much?

Dr. Cunningham

Perhaps sooner than he would like, the Secretary of State will have the opportunity to debate a Labour Government's rate support grant report. I am astonished at his surprise at my commitment to abolish the Rates Act. On Second Reading, a long time ago, I gave that commitment, which we retain. As for our distribution of rate support grant, the right hon. Gentleman and the Minister will have to bide their time. They will see soon enough. In every year of office of the last Labour Government the rate support grant settlement was higher than in any one year of this Government. That is a measure of our record on rate support grant, and it is a record that is a million miles in advance of the miserable performance and proposal that the right hon. Gentleman has put before the House.

Mr. Tony Banks

I am sure that my hon. Friend will make a far better speech on the rate support grant when he is Secretary of State for the Environment, because his material will be so much better. He was talking about how Tory Members should vote when the time comes. Will he quantify these figures, which I hope I have got right? Is it true that the 1986–87 settlement gives London an extra £221 million, while the shires lose about £250 million?

Dr. Cunningham

My hon. Friend has the figures near enough to make no difference on this side of the House. We wonder whether they will make any difference to the Tory side.

The Association of District Councils has given its view of the Government's proposals in this report. Councillor John Morgan, another Conservative, and chairman of the ADC, says of the report: Ironically, many of those most badly hit by the settlement are those which have always responded to Government exhortations to keep their expenditure within targets set by Whitehall—including many who have suffered severe grant losses in the current year". Illustrating that, Councillor Morgan said that some of the metropolitan districts that stood to be "most badly hit" ranged from those in the depressed areas of the north-east to others in the south-east stockbroker and commuter belt. He said: The unfairness demonstrated through the current grant settlement highlights the wholly inaccurate assessment on the part of the central Government of what local authorities need to spend in their own areas. The Government's rate support grant system is clearly now nothing more than a crude device to hold down spending right across the board. That was confirmed by the Secretary of State when he met the executive council of the ACC and said: The Government was not prepared to support present policies expenditure levels of local authorities"— whatever their performance in the past. The implications of that statement clearly point to cuts in services and in jobs. Today, almost in a throwaway line, the Secretary of State said that GREA was a measure of need but not a target. The reality of that is that meeting need is apparently not a Government target.

We cannot accept the Government's claim that the settlement will bring major benefits to urban authorities either. Indeed, we reject the principle of taking more resources from rural areas to transfer to the cities, as we reject the implication that urban communities can be helped only at the expense of rural areas, where, often, deprivation can be equally serious and service provision totally inadequate. The Government claim that improvements have benefited metropolitan areas. While any increase is welcome, that included in the report is less than 0.5 per cent. of the national total of grant-related expenditure.

Like other authorities, urban councils are badly affected by the real cuts in the total grant available and by the shortfall, in the Government's view, of current expenditure plans compared with what councils require simply to maintain present levels of community services. In no way do the proposals make up for the loss of income caused by the abolition of the metropolitan councils and the GLC.

The Association of London Authorities believes that grant gains are more than outweighed by the additional costs resulting from abolition following the transfer of duties and responsibilities. It believes that the Department of the Environment has failed to take proper account of the higher levels of GLC funding of services in many boroughs. This will lead to higher than assumed expenditure and subsequent loss of grant. Councils in Birmingham, Newcastle upon Tyne, Sheffield, Manchester and Leeds might all say the same.

I have a technical point for the Secretary of State. I shall try to put it simply, because it had to be put simply to me so that I could understand it, but it is an important matter nevertheless. It concerns the treatment of grant for metropolitan districts which have taken over services from the soon to be abolished metropolitan counties. Section 80 of the Local Government Act 1985 makes specific provision for the Secretary of State to determine the amount of additional grant which a successor district would have received in 1985–86, the current financial year, if abolition had taken place a year earlier. The purpose of that provision in the Local Government Act 1985 is to ensure that a proper comparison can be made between this year's figures and next year's figures. If the Secretary of State wants to cap gains, as he does, he needs to have a fair basis for doing so.

The Secretary of State has never published what the additional grant would be. For example, Birmingham wrote to him in October 1985 and asked how the figure was to be worked out, but it has never received a reply. To continue the Birmingham example, it appears to the city council that it has been allowed only an additional grant of £2 million, despite being a theoretical major gainer from the new grant system. Prima facie, this appears to be an unreasonable use of the Secretary of State's powers to cap grant gains. I do not expect the Secretary of State to rise immediately and respond, but I hope that we will have an explanation of the implications from the Minister for Environment, Countryside and Local Government when he replies to the debate. If this matter cannot be clarified to the satisfaction of the House, the only proper course is to withdraw the order and resubmit it to the House when the matter has been properly and fully explained.

After seven years of Conservative government the local government finance system is now much more difficult to understand and predict than ever before. The figures issued by the Government on the entitlements of individual authorities are misleading, because they ignore the "close-ending" factor. The Secretary of State cleverly made seductive promises this afternoon to right hon. and hon. Members about what their authorities might get. Does he suppose that responsible councils and treasurers can fix budgets ånd levy rates and precepts on what they might get after close ending? Of course not. He knows that that is a preposterous suggestion. He knows that no responsible local authority would dream of budgeting on that basis or of fixing a rate on that basis, not least because if it did and its hopes were dashed the councillors would be liable to surcharge and disqualification. That is the reality of making wild guesses about what income might or might not be forthcoming. It was absolutely dishonest of the Secretary of State to suggest that Conservative Members should go into the Lobby and support these proposals on that basis.

Sir Kenneth Lewis (Stamford and Spalding)

Will the hon. Gentleman give way?

Dr. Cunningham

In a moment. Is the Secretary of State suggesting that they should go into the Lobby on the basis of a wing and a prayer? He knows as well as we do that councils will not budget and fix their rates on that basis.

Sir Kenneth Lewis

I accept the hon. Gentleman's point that we need firm assurances from my right hon. Friend the Secretary of State for the Environment. However, the hon. Gentleman went too far when he suggested that councillors would be surcharged. They could take in more from reserves, on the assumption that they might get this amount from my right hon. Friend and then repay the reserves.

Dr. Cunningham

The House is aware that the implication of that suggestion is even bigger rates increases than many councils are now facing. I do not regard that as either sensible or good management. It would be much simpler and clearer for everybody, the House and local authorities included, if the Secretary of State were a little more candid about what is to be the fate of these authorities.

Large losses of grant under this system seem to be likely in London and in the metropolitan areas next year and in later years because the so-called safety nets and caps are only temporary. Local authorities will still suffer penalties because the report ensures that an additional £1 of spending costs all but a few authorities much mere than £l. In 1986–87, 32 authorities will have their budgets and rates or precepts fixed by Whitehall under the Rates Act 1984. Over 15 per cent. of total local spending is involved. We deplore this major erosion of local democracy and freedom.

Specific grants and supplementary grants have increased disproportionately. Such trends do not make local government more accountable, and they do not reduce central Government interference. On the contrary, they increase it.

This rate support grant settlement introduces the biggest changes that have been made to the system since it was introduced. While targets are dropped, penalties remain under another name. The report attempts to deal with the consequences of abolition and the second year of the Rates Act, but the situation is more confused, uncertain, unstable and unfair than ever before. It fails to meet the needs of local authorities by a massive £1.4 billion, as demonstrated by the updated expenditure group's costing of present policies in 1986–87. The Government have long accepted the basis of those figures.

The report assumes less for the teachers' pay awards than is currently on offer, and it assumes nothing at all for a conditions of service settlement, thus demonstrating to parents and teachers alike the Government's indifference to what is happening in our schools—in particular, the damage to the future careers of the thousands and thousands of people in secondary education.

After six years in office, the Government have run out of excuses. It is to the credit of local government that the determination to fight to preserve its freedom, accountability, community services and jobs is as high as ever, despite the Government's absymal failures. The Labour party rejects this report. I ask Conservative Members not just to denounce it in their speeches, but to join us in the Lobby to defeat it.

6.6 pm

Mr. Francis Pym (Cambridgeshire, South-East)

I think that all right hon. and hon. Members agree that the complexity of this subject, especially the method of distribution of grant, is such as to make it almost incomprehensible. It feels like a machine that is out of control. It is reminiscent, I find, of Charlie Chaplin in "Modern Times". I rather wish that he had been spared to make a similar film about computers. Any system that is so incomprehensible as this must be unacceptable. Therefore, I congratulate my right hon. Friend the Secretary of State for the Environment on bringing forward his Green Paper on rates reform next week. Obviously we must not prejudge it, and obviously the consultation process will take some time, which I am sure is very wise. But the corollary of the delay in changing the system must be that the present arrangements will continue for some years and will therefore continue to be of significance.

The report before us today disposes of the old penalties and targets which received so much criticism, but in their place there are three new devices that are equally powerful and that hit the shire counties hard. My right hon. Friend gave to the first the elegant title of slope schedules—the point at which grant is reduced as expenditure rises. I am all in favour of a system that provides an incentive to save expenditure, but in Cambridgeshire that point has been set at £127 million, which is 54 per cent. of grant-related expenditure. Grant-related expenditure is the figure that is deemed to be appropriate for the authority to spend, taking into account all its circumstances. Under this system, Cambridgeshire will incur penalties when expenditure reaches a figure that is just about half its GRE: just about half the figure that the Government admit is appropriate for Cambridgeshire's expenditure needs. I call that a very severely set slope schedule. The second device is that of thresholds set at GRE plus 10 per cent., at which point the penalty increases further. It is not applicable to Cambridgeshire, so I will not dwell upon it, but it is a device in the new system.

The third device is that of spending assumptions, which amounts to a type of target. The assumptions are out of line with reality. They make the sums come right from the Government's point of view, but they are unrealistic in terms of local authority expenditure.

The gap between GRE and what used to be targets, which are now spending assumptions, is increasing. In East Anglia in 1983–84 the gap was £25 million. In 1986–87 it is expected to be £75 million. That is in addition to the overall reduction of grant on a national basis from 48.7 per cent. to 46.4 per cent. Cambridgeshire was never up to the national average. In 1986–87 the block grant as a percentage of budget will fall from 37 per cent. to 23 per cent., which is a big drop.

So the result of the report is bound to be a substantial and unavoidable rate rise in the counties in East Anglia, unless services are cut in an unacceptable and unwise way. Bearing in mind that Cambridgeshire is one of the fastest growing counties, that is unacceptable. Under Conservative leadership my county council achieved considerable additional efficiencies through privatisation of various services, central purchasing and the establishment of computers. In the Department it is well thought of as an efficient and low-spending authority. The parties that now control the council—the Liberals, the SDP and Labour—are considering additional expenditure which I and my colleagues—the Conservative councillors—believe to be unnecessary and too expensive for the ratepayer. Even without that expenditure, a substantial rate rise is inevitable.

I have three basic objections to the system. The first is that it is unfair because it penalises authorities that have been careful, that have shown good management and that have responded positively to the Government's policy of reducing expenditure. The system is in breach of undertakings given to me by the Government two years ago. I and others believe that last year's settlement was in breach, but my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) believed otherwise and we gave him the benefit of the doubt. I cannot say that the undertaking has been fulfilled this year.

Mr. Patrick Thompson (Norwich, North)

Does my right hon. Friend agree that, despite assurances, the system is still basically at fault? If the political will had been there, something would have been introduced this year that would be fairer to the low-spending councils such as Norfolk county council and Norfolk district council.

Mr. Pym

There is no doubt that the system is at fault, but as so often happens in politics, it is the operation of the system that is crucial. That principle remains so as long as the system exists. I am glad that my right hon. Friends are introducing new plans to change the system.

Mr. Douglas Hogg

Will my right hon. Friend clarify his remarks? The system is at fault, but the cause of the problem is the important matter. The Government have not provided sufficient money from the Exchequer to meet the divers objectives of controlling local government expenditure.

Mr. Pym

It is always arguable how total public expenditure should be divided. My point is that, whatever the limit for local government spending, the system as we know it today is unsatisfactory and I believe that the Government and the House regard it as such.

My second objection is that the system is contrary to Government policy, or, at the very least, a contradiction of Government policy. In respect of the anti-inflation policy, the effect of the report will be to raise rates far more than inflation, however good the management is or however the authorities conduct their business. In East Anglia it is expected that rates will increase between three and five times the rate of inflation. That is inconsistent with Government policy.

The settlement is hostile to small businesses. The establishment of small businesses is a central plank in the Government's employment policy. I support totally the Government's encouragement of small businesses and the grants that they provide. I support the fact that the Secretary of State for Employment is trying to reduce the number of forms and the amount of red tape. Yet we are being asked today to send small businesses a large extra bill for rates. That does not strike me as being coherent. Another contradiction of Government policy is that payment for services is being shifted from general taxation, which most hon. Members regard as relatively fair, to rates, which are grotesquely unfair. Most hon. Members agree that rates are unfair. It must be wrong to increase taxes by this unfair method of transferring resources.

The third basic objection is that the £200 million worth of extra resources for the inner cities and urban areas, which the Government are rightly providing, is to be paid for entirely by the ratepayers of the shire counties. I believe that it is right to give more support and finance to the inner cities. Their need is greater than anyone's, but that is a national responsibility that should be met in the fairest possible way by the nation as a whole.

Mr. Maxwell-Hyslop

Will my right hon. Friend make it clear that he is not referring to the inner cities of Bath and Hove, which are receiving massive increases in Government funding at the expense of the truly rural areas?

Mr. Pym

I plead guilty to using the jargon of the moment by referring to the inner cities, which are those areas in the older cities that are especially badly hit. However, I do not believe that it is right for the whole amount to be funded by shire county ratepayers, including the commercial and industrial ratepayers, who are the lifeblood of Britain's economy.

Mr. Tony Banks

Will the right hon. Gentleman quantify the amount of money that he understands is being removed from the shire counties in the 1986–87 settlement?

Mr. Pym

It is almost exactly the same amount as the sum being provided for additional resources for the inner cities.

Mr. David Madel (Bedfordshire, South-West)

Bedfordshire has been hit hard by the settlement. However, when one talks of shifting shire money to the inner cities, the Government appear to forget that for 25 years Bedfordshire has been helping the inner cities by taking London overspill and paying for all the necessary social services so as to make overspill a sensible reality in Bedfordshire.

Mr. Pym

That is in line with what I have said. My right hon. Friend the Minister spoke about rate equalisation and about how it all began in 1929. Does he not consider that in this settlement he is taking that sound principle—which should remain part of any system—too far?

I believe that my objections to this report are formidable. However, I strongly support giving incentives for greater efficiency and economy. It is right to encourage authorities to spend less and to save money. By applying that sound principle too harshly, I suspect that the results could be counter-productive.

It is clear that I am not in favour of the settlement. However, the Secretary of State says that there is to be a recycling of extra funds, which is extremely welcome and which should help. If Cambridgeshire receives the £5 million that the Secretary of State speculated that it might receive in certain hypothetical circumstances, the problem is not solved, but it is helped. On my calculations, the difference in Cambridgeshire would be a rate increase of about 20 per cent. instead of one of more than 25 per cent. That would be extremely welcome, but it is none the less a large increase.

I hope that we shall hear more tonight before the vote is taken, and that the Government will reconsider the distribution of available resources, because that would make it possible for me and some of my right hon and hon. Friends whose constituencies are similarly affected—and for the Government—to keep faith with our ratepayers.

6.20 pm

Mr. John Cartwright (Woolwich)

Those of us who are masochistic enough to be regular attenders at these debates will recognise several themes that regularly flow through our discussions. The first, complexity, was mentioned by the right hon. Member for Cambridgeshire, South-East (Mr. Pym). To be fair, rate support grant has never been easy to understand. I recall the criticisms levelled at the old regression analysis system. However, when the Government came to office, they assured us that their Local Government, Planning and Land Act 1980 would give us a system of distributing rate support grant which was more logical, defensible and comprehen-sible. The trouble is that legislation rapidly followed legislation, and every year has seen a major change in the administration of the rate support grant. To accuse the present occupants of the Treasury Bench of being adherents of Leon Trotsky is an unusual charge to make, but when they approach local government finance it seems that they believe in the Trotskyist theory of permanent revolution.

Mr. Robert B. Jones (Hertfordshire, West)

When the Local Government, Planning and Land Act was being considered, I was the Conservative whip on the Association of District Councils. My right hon. Friend the Member for Henley (Mr. Heseltine) was trying to dream up a simple system, but the local authorities kept saying, "You must have this factor and that factor". Of course, it became more and more complicated and we ended with a much more complicated system than was originally proposed.

Mr. Cartwright

That is an inherent criticism of the attempt to establish a GREA approach. We cannot blame local government for some of the legislation that came thereafter, including the Local Government Finance Act 1982 and the Rates Act 1984. Whatever the reason, we ended with a system of local government finance which was so complicated that the Audit Commission commented last year that many officers and members of local authorities had totally abandoned any attempt to understand it. To some of us, it became patently obvious that the Ministers responsible for it did not completely understand it, either. Like Frankenstein, they created a monster which got out of control. Like Frankenstein, they then took fright and promised that we should have simplification.

As a trailer to this rate support grant settlement, on 25 July last year, the right hon. Member for Wanstead and Woodford (Mr. Jenkin) assured us: The RSG settlement that I am proposing will be less complex than in past years."—[Official Report, 25 July 1985: Vol. 83. c. 1317.] On that basis, many right hon. and hon. Members will have turned eagerly to the documents that support this year's debate. Anyone who has tried to read them and to master the complexities of caps, nets, close ending and grant recycling will have been sadly disappointed. The most pointed comment about the alleged simplicity of this year's settlement came in the circular letter from the Association of County Councils, which apologised for the fact that it had not produced its normal detailed brief on the settlement. Its reason was that the RSG Settlement this year is so complex that a full brief would either be a very lengthy document indeed … or it would be incomprehensible to the non-professional reader. So much for simplicity.

The second theme of the debate is uncertainty, which the Secretary of State also mentioned, in the operation of the system. Local councils have been forced to await the results of the RSG settlement, rather like a punter waiting for the result of the annual lottery. Like a lottery, the rewards seem to bear little or no relationship to the efficiency, effectiveness or spending performance of the authority. Last year, the Audit Commission said this about the situation: There are too many unnecessary uncertainties inherent in the system. These inhibit authorities from planning ahead.

The Audit Commission went on to say that local authorities had been building reserves at the rate of at least £400 million a year during the past three years, which was more than 2.5 times the average rate of increase in the period before 1981–82. The reason is easy to understand. The Audit Commission believes that the unpredictability of the system encourages local authorities to build up reserves as a prudent hedge against the uncertainties of the future.

This year's settlement is no different; it has built in uncertainty once again. London and the metropolitan areas appear to have done well, but the safety nets and caps that protect them are only temporary. The authorities that have gained this year know only too well that their apparent gains can be snatched away in next year's spin of the Secretary of State's roulette wheel. The pattern of our RSG settlements during the past six years has been that one year's winners can be the following year's losers in Marsham street's version of snakes and ladders.

The third issue that constantly crops up in such debates is that of fairness between authorities. On 25 July, the right hon. Member for Wanstead and Woodford promised that the new arrangements would be fairer to responsible, low-spending authorities."—[Official Report, 25 July 1985; Vol. 83, c. 1317.] The results, as we have already heard, are very different. The settlement has had some extraordinarily bizarre effects. For example, Gillingham district council could cut rates altogether because of the RSG bonanza that has descended upon it from the heavens of Marsham street, yet neighbouring authorities in Kent have done badly. Ashford faces increases of 19 per cent., Sevenoaks of 15.5 per cent. and Tonbridge and Mailing of 16.5 per cent. Two other authorities—Bath and Hove—are in the happy position of being able to set a zero rate as a result of the RSG settlement. Small wonder that the Bath city treasurer is quoted in the Local Government Chronicle this week as saying: We are looking at it as a one-off bonus.

Others have not been so fortunate. When the initial announcement was made by the former Secretary of State last July, the hon. Member for Dorset, South (Viscount Cranborne) sought confirmation that what he called, the history of financial rectitude by the county of Dorset would be recognised. The right hon. Member for Wanstead and Woodford assured him: Dorset will find that it has its rewards in this rate support grant settlement."—[Official Report, 25 July 1985; Vol. 83. c. 1325.] I have examined the figures and I understand that Dorset will lose £15 million of grant if it spends at GRE level, and it faces an implied rate increase of 30 per cent. I am not sure whether that was the sort of reward that the hon. Member for Dorset, South had in mind.

The right hon. Member for Cambridgeshire, South-East told us about the problems in that county. He will recall that he and one of his hon. Friends pressed the former Secretary of State hard for assurances that if Cambridgeshire followed a spending pattern similar to the one that it had followed in the past, it would not be penalised in the RSG settlement. Those assurances were given. I have examined the figures for Cambridgeshire, and I understand that if the new administration's medium-term plan was followed it would imply a rate increase of 32.2 per cent. That includes an improvement in services. If Cambridgeshire spent at the GREA figure, it would imply a 28.1 per cent. rate increase. But if Cambridgeshire was not to improve services at all—if it remained at a standstill—it would still need a 23.3 per cent. increase in rates. That is a strange way of honouring the undertakings that were given last July.

On the overall impact of the settlement, right hon. and hon. Members have mentioned the fact that once again there is a reduction in the proportion of local authorities' relevant spending met by Government grant from 48.7 per cent. to 46.4 per cent.—the sixth successive year in which there has been a reduction. The proportion has decreased from 61 per cent. in 1979–80 to 46 per cent. next year. The Association of County Councils estimates that this latest drop is equivalent nationally to a 7.8 per cent. increase in rates, which clearly undermines the Secretary of State's suggestion that rate increases next year will be no higher than those of this year.

The Secretary of State has confirmed the consistent policy of switching the burden of paying for local services from national taxes, which are broadly fair, to local rates, which can be extremely unfair. It will strike many ratepayers as a strange way of fulfilling the Government's undertaking to protect them.

I noticed that the Secretary of State sought to justify that cut in the proportion of local council spending met by national taxation by implying that it improves local accountability. That is an extraordinary argument. It is true that some who have argued for increasing local accountability have said that dependence on central Government grant is a threat, and that grant should be reduced. But this must be accompanied by a new source of independent finance to enable local government to stand on its own feet. The Government have given us the worst of all worlds. We have a cut in the proportion provided by the national Exchequer and ever-tightening restrictions on local authorities to prevent them from using their one and only source of income—the rating system.

The situation on GREAs is again extremely unsatisfactory. I object to the way in which Ministers constantly parade GREAs as a model of scientific and impartial assessment. All hon. Members know of the considerable deficiencies in information going into those assessments, which cast great doubt on their validity, and certainly help to produce their rather strange results. It is also suggested that GREAs are the result of detailed consultations with local government. Yet the Secretary of State made it absolutely clear in his statement on 18 December that, although he had received many representations from local authorities about the deficiencies of GREAs, he had rejected them all and decided to continue with his own approach. That is a strange definition of consultation.

It is clear that GRE is being asked to do things which it was never intended to do. That may be justifiable as a way of distributing grant, although I have grave reservations about that, but it is certainly not justifiable to use GREA arrangements to control local spending. In recent years we have seen a cynical manipulation of the GREA machinery, which is why there is widespread distrust throughout local authorities of the whole GREA exercise.

Like other hon. Members who have spoken in the debate, I welcome the Government's intention to provide more resources for the inner cities. However, their targeting seems to have been a little inaccurate. I cannot understand why Gillingham, Hove and Bath should be the recipients of so much extra help when some hard-pressed inner city areas have not done so well. I strongly endorse what the right hon. Member for Cambridgeshire, South-East said. If we want to produce more resources for the hard-pressed inner city areas, that should be a national responsibility, funded from national taxation, and should not be paid for by adding to the burdens of ratepayers in the shire counties who often have inferior services and who may have grave difficulties in meeting the extra burden involved as a result of the changes.

In Greater London the total grant has increased in cash terms by £221 million. That is presented as a generous settlement for London. However, many of those gains could be dramatically reduced or wiped out. First, they are only cash increases, and in real terms they are equivalent only to increases of £166 million. Secondly, they depend on the Government's assumption that councils will spend at 1985–86 budgets plus an increase of 3.4 per cent. The transitional costs of abolishing the GLC make that unlikely, and if the councils spend at the 1985–86 budgets with an increase of 4.5 per cent., which is the Government's assessment of inflation—in other words, if spending genuinely stands still—the benefits of the extra rate support grant will not be £221 million, but in real terms only £130 million. Even that could be threatened as a result of levies being imposed by the London Residuary Body. They are being charged, not on a rateable value basis, but per head of the population. The first indication suggests burdens between £3.6 million and £8.6 million per borough, depending on size.

I welcome what the Secretary of State said about the possibility of easing those burdens. However, for rate support grant purposes the levies count against the boroughs' spending, although boroughs have absolutely no control over them. The grant mechanisms impose high costs on London councils which increase their spending. The more that councils spend or are deemed to spend, the more grant they lose. That could mean that London ratepayers will face a double blow. They could first face the problem of paying the residuary body levy, and then have to pay higher rates to make up for grant losses caused by the levy. I hope that the Secretary of State will not merely seek to ensure that the levies are reduced, but will consider the rate support grant element, and try to ease the impact of the levies, either by providing additional GRE for the London boroughs involved, or by disregarding all or part of the levy for the purposes of the penalty arrangements.

The much-publicised new approach set out today seems to have produced a chaotic mess. The Audit Commission and the Public Accounts Committee have cruelly exposed the defects of the present system. The most appropriate epitaph came in the editorial of the Local Government Chronicle on 17 January which stated: The government's tinkering has only served to illustrate rather than correct the failings. It has done nothing to deal with the basic flaw identified by the PAC and establish a clear relationship between a council's spending decisions and the rate that is set. At present a council can spend vast amounts above the rate of inflation without penalty and without increasing its rate whereas other councils can hold spending and yet be forced into increasing rates massively. Councillors are bemused and the public just plain fed up. That is an accurate assessment, and that is why we shall vote against the orders tonight.

Several Hon. Members

rose—

Mr. Deputy Speaker

Order. Many hon. Members are waiting to speak. I am sure that the House will appreciate brief speeches and minimal interventions. I call Sir David Price.

Mr. Anthony Nelson (Chichester)

On a point of order, Mr. Deputy Speaker. I do not wish to detain the House, but it is within your recollection that my right hon. Friend the Secretary of State said that a paper relating to the reallocation of moneys for various shire counties would be placed almost immediately in the Library. As it seems material to our debate and it is now more than two hours since he spoke, will you make inquiries why that essential paper is not yet available to hon. Members?

Mr. Kenneth Baker

I have asked for the paper to come, and I will check immediately where it is.

6.37 pm

Sir David Price (Eastleigh)

I shall be as brief as possible, and I hope that the House will bear with me if I go at a gallop.

As my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) told us, the reports are bad news for the shire counties. The House will not be surprised to know that Hampshire is no exception. In view of your injunction to be brief, Mr. Deputy Speaker, I shall not go through the details as they affect Hampshire. I am sure that they are similar to the effects on many other counties. I shall content myself by summarising the position as I have it in a letter from the leader of Hampshire county council. It states: Hampshire's past record in restricting its expenditure levels whilst maintaining efficient services is exemplary. Its ratepayers, both domestic and business, will feel badly let down when they realise that these efforts are unrecognised and in a single year could be asked to pay one fifth more for their service. I expect that that is the experience of many of my right hon. and hon. Friends in other shire counties.

Regarding the assumptions behind the reports, I see three major errors in the Government's calculations. First, they have assumed no element of real growth. Overall Government policy is full of growth consequences for local government, and I shall give three examples. The first is the new youth training scheme and the merger of mode A with mode B. The move from one to two years will have considerable financial consequences. The second relates to the consequences year by year of joint funding with the National Health Service. The House will know that initially that is gentler in its expenditure consequences on local authorities, but that as the years progress the local authority takes over more of the cost of the particular scheme. Therefore, there is a higher expenditure for the local authority. Thirdly, there is the move towards more care in the community. As a member of the Select Committee on Social Services, I am a strong supporter of more care in the community, but it was made clear in the Select Committee report that that could be achieved only by a transfer of resources from the NHS into local authorities and to voluntary bodies.

The second error is the lower rate support percentage grant. My right hon. Friend the Member for Cambridgeshire, South-East and other hon. Members have spoken about that. If we had an entirely reformed structure of local government finance and local government taxation, there would be a strong case in favour of such a move. I believe that my right hon. Friend the Secretary of State has anticipated such a change and he is bringing in one of the bonuses of such a change before the change has taken place. It is rather like spending the income from a new job for which one has applied before one gets the job.

The third major error concerns the shift in grants from the shire counties to the deprived inner city areas, and in particular to London. Like some hon. Members who have already spoken, I agree entirely with the policy of more resources going to deprived areas. However, I strongly object to the fact that the shire county ratepayers will have to finance that. In any reformed model of local government taxation, even one in which counties like my own might be asked to pay virtually the whole of their expenditure if they were equipped with the proper taxation, it would still be proper that the national taxpayer should pay for the extra aid that went to deprived areas. That was the concept behind the original deficiency grant system. I suggest that we return to the principles of that system.

For the three substantial reasons that I have described, I believe that these reports are most unsatisfactory. The heart of the matter is the inadequacy of the rating system as the sole source of local government taxation. Hon. Members will know that I have been a consistent critic of the rating system for many years. I remind the House that in February 1970, in the debate on the Redcliffe-Maud report on the reform of local government, I said: To discuss local government reform without having proposals for the reform of local government taxation is like attempting to act the Prince of Denmark without Hamlet."—[Official Report, 18 February 1970; Vol. 796, c. 513.] That has remained my consistent view.

I should like to remind the House briefly why the rating system is so inadequate, unsatisfactory and certainly untenable as a method of redistributing resources from the shire counties to the inner city.

First, the rates form too narrow a tax base to be the sole tax available to modern local authorities, with their extensive responsibilities and the inevitable financial consequences. One immediately thinks of education and, increasingly, of the social services.

Secondly, the rates bear little relationship to the ability to pay. They are regressive. Thirdly, the liability to pay rates bears no relationship to the individual ratepayer's use of the services provided. Fourthly, the capacity to pay local taxes brings us to the current complaint from commerce and industry about the burden of rates upon their enterprises. I was interested in what my right hon. Friend had to say on that matter, as that is extremely pertinent.

Fifthly, as a tax the rates are not buoyant. They do not keep pace with the growth of local authority services, and they are not inflation proof. Sixthly, the rates do not necessarily produce the same income for individual local authorities with similar needs. Indeed, they often do not.

Seventhly, there is the uneven and inconsistent nature of domestic valuation. All hon. Members know that this has been a major source of complaint. Eighthly, there is the related criticism that when there are extra earners in some households who use the local services, they do not pay extra local taxes. That is a familiar criticism. Finally, domestic rates are a tax on property betterment, even when that betterment is in direct line with national policy.

I am conscious of the fact that many of my right hon. and hon. Friends wish to speak. Those are just a few of the major criticisms of the rating system as a form of taxation. They are a devastating sum of criticisms, so I am astonished that my right hon. Friend the Secretary of State, whom I regard as realistic and progressive in these matters, should bring forward reports based on the assumption that the rating system is a proper mechanism for the redistribution of resources. I believe that it is not.

If my hon. and right hon. Friends on the Government Front Bench think that I am being excessively aggressive to the Government and their problems, I should like to quote the following words: We are all concerned about very high rates. The system was never designed to bear the levels of taxation now being placed on it."—[Official Report, 4 November 1981; Vol. 12, c. 20.] I agree with that, and I should like to consider with my right hon. Friends who said that. That was a quotation from my right hon. Friend the Prime Minister in her speech in the debate on the Address on 4 November 1981. That was four and a half years ago, when the Prime Minister was proposing the legislative programme for that year. My right hon. Friend was then promising a Green Paper on rate reform.

With that form of authority, I suggest to the House that those of us who are unhappy with the reports, and who will find it impossible to vote in favour of them, are being consistent with the leadership of the Conservative party. I am disappointed that my right hon. Friend the Secretary of State finds it necessary to bring these reports before the House. I was not elected to the House to be oppressive to Hampshire and reports are oppressive to Hampshire and the shire counties—

Mr. Christopher Chope (Southampton, Itchen)

rose—

Sir David Price

—without fulfilling any countervailing national purpose. I shall therefore be unable to support the Government today.

6.48 pm

Mr. George Park (Coventry, North-East)

I shall try to continue the endeavour to be brief.

There are few people who pay their rates without some sense of disgruntlement. That is hardly surprising, considering the complexity of the subject. Even the permanent secretary at the Department of the Environment admitted, under questioning in the Public Accounts Committee, that only 20 or 30 people in the Department fully understood the complexities, although others were experts on certain aspects.

Realising how unpopular the rates were and are, the Prime Minister decided that they should be abolished, totally ignoring the many efforts over the years to do just that. But the Prime Minister also ignored the fact that it is much easier to point to the faults in the rating system than it is to come up with a viable alternative. The present Secretary of State for the Environment is the latest recruit in a line of predecessors trying to carry out the Prime Minister's wishes. Not that they have not tried. Each in his turn has tinkered with the system making it more divorced from reality at local government level, more complicated, and shifting the goal posts halfway through the financial year so that forward planning is impossible.

Only one aspect is consistent—the steady reduction in the amount of support for local authorities. That forces local authorities to increase the rate poundage if they are to maintain their services and employment at the present inadequate levels, thus confirming the view fostered by the Government that local authorities are spendthrifts. Despite the fact that local authorities keep to their budgets far better than any Government of whatever political complexion, their efforts to explain the situation through local news sheets is now to be stifled at birth.

The Secretary of State is no exception to the tinkering that has gone on. In his announcement of the rate support grant settlement for 1986–87, he abandoned the targets which had been a feature of the grant system since 1981–82 and replaced them with new block grant mechanisms, combined with the grant changes made necessary by the abolition of the GLC and the metropolitan counties, making the 1986–87 settlement the most difficult to comprehend since the new grant system was introduced. It is small wonder that the shire counties are complaining that it is unfair to expect their ratepayers to bear an extra burden as a result of a policy decision to give more help to inner cities.

The letter sent by the Association of County Councils to all hon. Members has already been quoted. The association contends that the current expenditure plans are deficient by more than £1.4 billion, compared with the updated expenditure group's costing of local authorities' present policies in 1986–87. It contends that the Government have long accepted the basis of these figures. Moreover, the £1.4 billion assumes less for the teachers' pay award than is currently on offer, and nothing at all for a "conditions of service" settlement. The deficit may therefore be even greater. The Secretary of State's explanation still leaves a gap to be filled by local authorities. It appears that the outcome will be a substantial overspend relative to the Government's plans—as I said earlier, there will be large rate increases unless balances are plentiful—or cuts in services.

I appreciate the dismay of the shire counties, but it should not he thought that metropolitan districts are faring any better. The national cash freeze on rate support grant means that the proportion of local authority spending that is met by central Government has fallen again, from 47.4 per cent. to 46.4 per cent. That will cost the ratepayers of Coventry over £2 million—the equivalent of a 5p rate.

Nor does the abolition of the old system of targets and penalties mean that the Government are not still controlling local authority spending. Settlement is based on local authorities spending 3.4 per cent. more than the 1985–86 budget, and penalties are now imposed through loss of grant for spending more than that. Under the new system, Coventry city council will lose grant of £5 million for so-called overspending. The city council disbenefits especially from the new system because its expenditure is higher than the Government's measure of need—the grant-related expenditure assessment—despite the fact that it has never spent more than its target. Such "overspending" will add at least 11p to the city council's rate. Yet it is an authority whose real expenditure is under control and has even fallen slightly compared with 1985–86.

The abolition of the previous system of targets and penalties is not neutral in its effects because of the high. Government-set, maximum rate precepts and expenditure limits for the joint boards, which are being treated more favourably than local authorities. That is likely to cost Coventry ratepayers over £7 million, which will mean another 17p on the rate. Coventry ratepayers face a rate increase of up to 30 per cent. in 1986–87, which can be reduced only by measures which will increase the 1987–88 rate.

The national distribution of grant is crucially dependent on the expenditure assumption of 3.4 per cent. above 1985–86 budgets. In the longer term, as the temporary multipliers are withdrawn—that is, the series of arbitrary caps and safety nets on particular system changes—ratepayers in the metropolitan areas are likely to fare worse because of the impact of the new grant mechanisms.

Far from being simpler and fairer, local authorities face a mass of technical complexities, distortions and uncertainties. To suggest that it could be illegal for local authorities even to attempt to explain this maze to their ratepayers is adding insult to injury. To say, as the Secretary of State did, that he is in favour of more local accountability is to fly in the face of the facts.

6.55 pm

Sir Ian Gilmour (Chesham and Amersham)

Like everyone else who has spoken so far, I am in favour of giving more money to the inner cities, but that is a red herring in the context of this debate. There is every reason to give more money to inner city areas, but that should be done by increasing the rate support grant or by general taxation. There is no reason why it should be done at the expense of shire counties. I realise that the fault lies with the Treasury—which can think of nothing other than reducing income tax—not with my right hon. Friend the Secretary of State for the Environment. Therefore, the Treasury is squeezing my right hon. Friend. However, he is in the unfortunate position of being responsible for Government policy. I am not criticising him personally except in one respect to which I shall come later.

I shall proceed from the particular to the general and use the Buckinghamshire county council to demonstrate the full idiocy of the system. My hon. Friends the Members for Milton Keynes (Mr. Benyon) and for Beaconsfield (Mr. Smith) have asked to be associated with my remarks about Buckinghamshire.

No one suggests that Buckinghamshire county council is inefficient, badly managed or extravagant. Indeed, it is extremely efficient, economical and well managed. It does a great deal to try to obtain value for money. No one has ever criticised it for spending too much. Indeed, some have criticised it for spending too little. All the evidence shows that its expenditure is at average or below average levels compared with other authorities. In common with all authorities, a great deal of its expenditure is fixed, and that part of its budget cannot be touched in any way. For example, it cannot sack 100 teachers or put them on half pay. The idea that there is scope for substantial economies is moonshine. There must be a substantial increase in expenditure if only because, contrary to what my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) said, Buckinghamshire is the fastest-growing county in the country and obviously needs additional resources.

How have the Government dealt with the extremely simple situation of an economical and efficient local administration serving a fast-growing population? First, the Government have taken no account of the increased population of Buckinghamshire. Their figures are wrong by at least 4 per cent., or 23,000 people.

Secondly, instead of increasing its GRE by more than the average, they have increased it by less than the average. The Government's new and rather dubious methodology has resulted in Buckinghamshire receiving a GRE that is probably £3 million less than what it would have been.

Thirdly, and as a result of the absurdities of the system, if Buckinghamshire spends its GRE figure next year, which is £236.6 million, it will lose £20 million, or 37 per cent., of its grant compared with this year. In fact, it is unlikely to get its spending down to its GRE figure, and it would probably be disastrous if it did. However, a great deal more is being asked of it than that.

It is true that my right hon. Friend the Secretary of State has said that he would consider the question of burden payments for Milton Keynes, and we are grateful for that. However, that will be only a minor palliative. It remains a fact that the result of what is being proposed is indefensible and unacceptable. It will lead to a rate increase of up to 30 per cent.

That brings me to the point where I take issue with my right hon. Friend the Secretary of State. He should have said from the outset how serious the assessment was for the shire counties. It would have been much better if he had come clean before Christmas instead of producing the answers that he gave to our questions. I draw attention to the answer that he gave me, for a reason to which I shall come, when he said that the Buckinghamshire grant this year is £54 million, that if the present system had continued it would have got only £46 million, and that it had a chance of getting as much as £59 million, £52 million or £50 million. In fact, to get £59 million the county council would have had to cut its expenditure this year, compared with last, by at least 5 per cent. in cash terms; in real terms, taking inflation and a rising population into account, it would have had to cut it by about 20 per cent.

It is inconceivable that anyone should do that. It shows—this became plain at the meeting of which my right hon. Friend spoke—that the Department of the Environment is working from the wrong figures. It got the Buckinghamshire expenditure wrong last year by no less than £12 million. That sort of error produces the kind of idiocies about which we have all been talking this afternoon.

Mr. W. Benyon (Milton Keynes)

A modest householder in my area on the average industrial wage will pay £150 more in rates per year, equivalent on his wage to 2p on income tax.

Sir Ian Gilmour

I agree with my hon. Friend. It is an extremely serious situation. I hope that the Government will think about it when considering tax cuts.

The reason why my right hon. Friend was misled and misleading is, I think, that he thought that if he abolished targets and penalties that was all there was to worry about: everybody would be so pleased by their abolition that no one would worry. I congratulate him on doing that, but the fact is that he has not totally abolished penalties. He has abolished a very bad system and put in its place merely a bad system, so our gratitude is modified. He has not abolished penalties altogether because the so-called "taper", as far as my county council is concerned, works very much as a penalty.

Since 1979 we have had 10 different local government finance systems—more than one a year. The present one is not the worst on record; only the second worst. Like its predecessor, it suffers from two fundamental defects stemming from central Government arrogance. The first is the idea that Whitehall can lay down what local authorities should spend. They simply are not equipped to do it. Every local authority has different needs and different resources. A few civil servants and Ministers, however able, in the Department of the Environment simply cannot know. That is why we get the idiotic things that have been mentioned today. The whole system is fundamentally wrong. There is no basis for the Department of the Environment thinking that it can do what it purports to do, so I hope that it will stop doing it as quickly as possible.

Mr. Tony Banks

So would the right hon. Gentleman be in favour of central Government support to the rate support grant being increased from its present low level of 46 per cent?

Sir Ian Gilmour

That is what I have been saying for the past three years. In other words, what I have opposed is its reduction year after year, because that can only lead to a substantial increase in rates.

Secondly, in pursuit of the dogma that all public expenditure is bad, the Government seek to impose on local authorities quite unacceptable economies. They seem to forget that local authorities have statutory responsibilities. My right hon. Friend is asking local authorities to impose cuts and economies which he would not impose if he had the statutory responsibilities for those services. The Government are asking local authorities to do things that no Minister would conceivably do. Ministers seek only to impose savage and totally unrealistic economies because they provide the money—although it is not enough—and the local authorities provide the services. That, again, is a fundamental defect of what the Government are trying to do. They should take note of the statutory responsibilities of local authorities.

My right hon. Friend has said that he will announce a new system next week. That is very gratifying, provided that it is not worse than the present one. I am bound to say that, from what I read in the newspapers, I find the idea of a poll tax distinctly unappetising. In any case, as my right hon. Friend the Member for Cambridgeshire, South-East said, it will be several years before it comes about, so we shall have to live with the present system. The idea that we can go on with the sort of absurdity that everyone has mentioned this afternoon is quite wrong. The system is totally unacceptable. The way in which it is operated is equally unacceptable.

The Government are treating Buckinghamshire county council and the ratepayers of Buckinghamshire, both commercial and ordinary ratepayers, in a way which is totally undeserved and quite intolerable. Therefore, I cannot possibly support the motion.

7.5 pm

Mr. Stan Thorne (Preston)

Like other Members who have participated in the debate, I shall confine my remarks in the main to the area that I represent. The effect of these reports on Lancashire will be catastrophic. There will be rate rises later this year on an unprecedented scale. It will be a question of record rate rises or massive cuts.

If one looks at the alternatives to cutting spending, one sees that there is no choice at all. Reports prepared by county council officers outline the effects of cuts of up to £25 million on the people of Lancashire. They make extremely grim reading. The figures show that just to continue spending on services at their present level would mean a rate rise of more than 46p in the pound.

If Lancashire were to cut spending by £25 million—a move which could be achieved only by sacking 2,500 employees—ratepayers would still be faced with a rise of more than 25p in the pound. Teachers would have to be sacked. Fire service manpower would have to be reduced. There would have to be fewer police officers, at a time when more are needed. Not only would the increasing demand for home helps, for example, not be met, but there would be a fall in the number now provided. Homes for the elderly would close, concessionary bus travel would be scrapped, fire engines would be taken off the road, libraries would close and roads would be left to deteriorate.

Many of these forced cuts would affect the young, the elderly and the disabled. The Labour group on the Lancashire county council will not be party to cuts of this magnitude. Its members will not make wholesale redundancies. To do so would make a mockery of everything worth while being done by Lancashire county council to create jobs in its area.

In common with many other shire counties, Lancashire did not create the crisis in local authorities. The Government must accept full responsibility for the situation. They have demonstrated ever since 1979 that they have not the slightest interest in the welfare of the people of Lancashire.

In an intervention, the hon. Member for Lancaster (Mrs. Kellett-Bowman) referred to profligate spending in the Lancashire area. With myself and others, the hon. Lady attended a meeting last week in the House, called by the Lancashire county council, to consider education, the rapidly falling level of building maintenance and the rising number of old schools that require replacement. At that meeting she said nothing about profligate spending. I am sorry that she is not in her seat at the moment. It seems possible that when local authority delegations come down to the House Conservative Members can say one thing and then, in a different situation in the House, say something totally different.

Happily, Preston borough council has some reserve funds. In 1980, when the £2 million subsidy to the housing revenue account wiped out the Government's policies, the council dipped into those reserve funds. Preston has some appalling deprivation. In areas such as St. John's, Ullswater road and Deepdale it is worse than in parts of inner London. In several blocks of high-rise flats in the central ward of Preston the unemployment rate is 77 per cent. Not only do the people there reside in bad housing, but there are many one-parent families and deprivations of various types. It is to such inner town areas that the Government are said to be allocating special resources.

Preston should be spending nearly £13 million. The Government say that it should spend £9 million. It will again have to seek recourse to reserve funds. That cannot go on, because the reserves will soon run out. Preston needs £13 million for capital expenditure, but it will be able to spend only £2.6 million. Housing capital schemes must be cut from £10 million to £1.5 million. It is against such a background that public expenditure on other services has been cut. Ambulances in the Lancashire area will be cut. Public expenditure on hospital beds is highly questionable, and we are facing major problems in education in terms of school repairs, books and so on.

I mention only one aspect of housing, because several cases have come to my notice recently. On the basis of the Government's public expenditure plans, nothing can be done to alleviate the circumstances of disabled people who require minor adaptations to their homes to make them more accessible or to make it easier for families to cope with their disabled relatives.

I hope that Conservative Members who have received the same letter as we have from the Association of County Councils will heed its request and vote with us tonight against the Government's policies.

7.12 pm

Mr. Robin Maxwell-Hyslop (Tiverton)

This is a short debate, so short that we might have had the presence of the Secretary of State for a more generous proportion of it, particularly as it started late because of the statement on the Channel tunnel. I asked him to be here and he is not, so I am not very pleased with that for a start.

To set the scene, although targets have now been abolished, the system of penalties that has replaced them is based on the expenditure levels themselves formed by the target system. So already we start with levels of expenditure distorted by the target system. In fairness, and in setting the scene, I must point out that many of the low spenders, certainly those in my part of the world, have a posture of low spending not least because they were robbed during the tenure of the Labour Government, including when they were kept in office by the Liberals between 1974 and 1979.

It is as well to remember that—and the right hon. Member for Plymouth, Devonport (Dr. Owen) has not shown his face in the debate to date, and nor has the leader of the Liberal party—the alterations in rate support grant between 1974 and 1979 while the Liberal-supported Labour Government were in office deprived Devon, to take one example, of £36 million. So it started from a low base, and, as with many other county and district councils, the target system was imposed immediately after my right hon. Friend the Member for Henley (Mr. Heseltine) had introduced the grant-related expenditure system, and stated that never again would the low-spending councils be made to pay for the sins of the high-spending councils. He then introduced a target system which did the exact reverse of what he had undertaken. That is the history leading up to where we are today.

There has been much talk about the needs of the inner city areas; but is Bournemouth or Hove an "inner city area"? I believe that Hove will not be charging any rates at all because it does not know how to spend all the money that it will get out of the system. What about the district councils, about which we have heard so little? I shall give a second example from Devon, not because the problems of Devon are of obsessive interest to the House, but to illustrate what is happening in an area which I know best. What will happen to the impoverished rural councils which have a posture of low expenditure because their resources are so slender and because they have incomes so much lower than the national average and populations so dispersed?

We were glad to see my hon. Friend the Member for Torridge and Devon, West (Sir P. Mills) recovering and back in the House last week. [HON. MEMBERS: "Hear, hear."] West Devon will, if it increases its expenditure by what the Government consider to be only a standstill amount in real terms, get 2.54 per cent. more. Bournemouth will get 32.63 per cent. more. Mid-Devon, most of which is in my constituency, will get 2.8 per cent. more. Torbay—an "inner city"?—would get 15.3 per cent. more. Exeter, not noticeably poor, will get 23.5 per cent. more. Plymouth, bursting with money from every direction, will get 30.94 per cent. more if its expenditure is at a standstill in the Government's own terms compared with 2.54 per cent. for West Devon and 2.8 per cent. for Mid-Devon. What sort of madness is that?

Did the Secretary of State intend that or did it happen by negligence? He altered the composition of the formulas to try to achieve something. There is a case to be made for inner cities such as Liverpool, Leeds, Birmingham and parts of London: but that is a case for a transfer of funds from the fairest possible taxation system, which is the Government one which, presumably, my right hon. Friend supports as a member of the Cabinet, rather than by imposing further burdens on a notoriously unjust taxation system, which is the present rating system. We do not need another Green Paper, we need legislation. Until that legislation comes, we do not need a further transfer of the burden from the system of Government taxation under the direct control of the Cabinet in every Budget. That is where more of the burden should be borne until there is a replacement system of local government taxation. We should not go on, year after year, transferring more of the burden, from what is either the most just central Government system—if not, my right hon. Friend the Secretary of State and the rest of the Cabinet should be doing something about it—to a system that the whole Government reject as deficient of logic and equity.

I believe that it is right for me to castigate the Government in this way, but there is no reason for complacency from the Opposition or the alliance. Devon is now controlled by a witches' brew of Liberal, SDP and Labour Members. There is not a single SDP Member in the Chamber, including the right hon. Member for Devonport

The leader of the council issued a press statement that is in today's papers saying that the council has written to all Devon Members and that he wants the letter used in today's debate. The letter was sent at 9.45 on Friday night to the House of Commons, not to Members' homes. No Members are here on Saturday and Sunday and they were not told that the letter was on its way. The hon. Members concerned had to look through 150 letters to find it, even if they did know that it was coming. That is the incompetence that adds to the matter. I had to read over that letter once I was in the Chamber. There are two arithmetical mistakes on the key figures on the front page, and the quantum of the clawback assumption is not quoted anywhere in the letter. As a result I dare not use the figures that the alliance-controlled council has asked me to use because of the evident errors in the ones that I have been able to check. I am not pleased about that.

Mr. Simon Hughes

rose—

Mr. Maxwell-Hyslop

If the hon. Gentleman can produce a member of the Social Democratic party, I will give way. The fact that there is not a single SDP Member present in the House deprives that party of any say in the matter.

When we look at the increased burdens that local government is asked to finance from a decreased percentage contribution from central Government, I have to ask my right hon. Friend the Secretary of State how he can expect county councils to take on an increasing burden from the National Health Service by joint funding when it is receiving a decreased percentage of its revenue from central Government, and is being subjected to penalties if it increases its expenditure. That does not make sense. At district council level the Government continue to impose more and more burdens. If the Government pay for the extra burdens that is fair. If they say that district councils are more efficient in their administration—as Devon ones certainly are—there is a case for that. There is no case when they do not pay for it.

The Government passed the Housing Defects Act 1984 forcing district councils to buy back defective houses. That left district councils with an enormous bill to pay. In Mid-Devon the whole of the housing investment programme will be used to pay for defective houses and rehousing the people from them for the next five years. It will also have to pay for the sudden emergency need to rehouse people who are moved out while the work is done. It is enjoined to use the most economical treatment on the house. Is it economical to repair, at great expense, a house with a life expectancy of not more than 10 or 12 years, instead of building new ones?

In the previous Parliament, when we gave the right to buy—of which I approve—we included a protection for designated rural areas where it was impractical to build more council houses so that the local housing authority could buy back those houses if necessary when they come on to the market, rather than letting them go as holiday homes. That has been nullified by the financial restrictions that completely prevent local authorities from buying back those houses. One must not forget that a former Minister for Housing and Construction amended the original Act to weaken the safeguards. There is not enough council housing in rural areas now for old people, many of whose needs would have been met by their sons and daughters or nephews and nieces. They have to move into the towns, where there is nobody to look after them unless they live in warden-controlled bungalows at extra cost to the ratepayer. What provision is made for that by central Government? None.

It is the refusal of central Government to live with the consequences of their expenditure legislation that is becoming so intolerable. That goes on apace because Ministers will not look at the expenditure implications of the legislation that they put through the House. If they can pass the burden to another Department of State involving the same amount of Government money, they imagine that they have in some way eased the public sector requirement. They have not. If the burden is transferred from the Department of Health and Social Security to the Department of the Environment, the Chancellor of the Exchequer still has to budget for it. If it is transferred to district or county councils, they need more money from central Government, not less.

I say to my right hon. Friend the Secretary of State that this nonsense cannot be met by pushing out another Green Paper. It requires legislation to reform local government finance. There is nothing left to be said in the debate about the reform of local government finance that has not been said since 1964. There have been Royal Commissions and committees of inquiry. There is nothing left to say but there is much left to do. My message to my own Government is to stop transferring the burden from the central Government taxation system to the local government taxation system. The local government finance system is utterly unjust for reasons given earlier by my hon. Friend the Member for Eastleigh (Sir D. Price). I do not need to repeat those reasons. Until that has been remedied, central Government must pay for a higher not smaller proportion.

That is why I shall vote against all of the reports tonight. I believe that many of my hon. Friends, with great reluctance, will also vote against them.

7.28 pm

Mr. Tony Banks (Newham, North-West)

This is probably the most enjoyable rate support grant debate that I have been able to listen to. The speech of the hon. Member for Tiverton (Mr. Maxwell-Hyslop) only enhanced the level of my enjoyment. As in recent years, the rate support grant settlement has taken on the appearance of Marsham street's great annual lucky dip. This year we saw a new Secretary of State playing his role of little Jack Horner sitting in the corner putting his finger in the pie and pulling out a plum. It is a bitter plum for the shire counties and it is a rotten pie all round.

The hon. Member for Tiverton and others have made it clear that the proportion of central Government support to local authorities has declined from 61 per cent. of spending in 1979–80 to 46.4 per cent. in 1986–87. As hon. Members on both sides of the House have said, that is an example of the hidden taxation that has been used by this dishonest Government to transfer tax burdens from central to local government and from the rich to the poor.

The hon. Member for Tiverton could perhaps have gone on to mention the same sleight of hand in which the Government have indulged with regard to gas, electricity and water prices, because they fall into the same category of hidden taxation that the Government have been using.

In last year's lucky dip from Marsham street, the shires thought that they were doing reasonably well. I remember the former Secretary of State. I wish that he were here this evening. I am sure that he would have enjoyed some of the discomfort being experienced by the present Secretary of State, because he experienced it so often himself. He could not pluck up the courage to be here.

With the last settlement, the shires were saying that they had at least reached a reasonable balance, but they were warned that it was not likely to remain because of the way in which the rate support grant system can be manipulated by Marsham street. In last year's settlement, London lost out. This year, the switch in funds is the other way, mainly because of the effects of the GLC's abolition.

The Opposition endorse what the Secretary of State said about putting more funds into the inner cities. We do not think that that should necessarily be at the expense of the shire counties. Of course, the Secretary of State's extreme discomfort at being attacked so much from behind was something that gave the Opposition great pleasure. Long may it continue.

The Government are finding out, with respect to London, just how efficient and cost-effective the GLC is in running London's strategic services.

Mr. Peter Pike (Burnley)

My hon. Friend was making a point about assistance being given to the London boroughs. Does he feel confident that the Government would give as much assistance to the London boroughs this year if local elections were not going to take place in. the London boroughs in May?

Mr. Banks

Not at all, because one realises that it is being done because the 1986 elections in London and elsewhere are on the way. I fully expect that next year's rate support grant settlement, assuming that there is a Conservative Government in control—there is no guarantee of that—will probably be switched back the other way yet again because of the effect of the revolt in the shires. That cannot be something that hon. Members on either side would endorse. We need a degree of certainty in local authority finances, not this constant annual backwards and forwards movement when no one who is responsible for administering public funds and public services in the town and county halls can have any assurance about the future.

The shires are up in arms, and one understands that. I should like the Minister to tell us the amount of money that the shires will lose this year under the 1986–87 settlement. Is it £250 million, £260 million or £266 million? I do not know. I should be grateful for the information and I am sure that Conservative Members would like to know.

We know, because the Association of County Councils told us, that this year's settlement is at the expense of the shire county ratepayers. It is remarkable but, as I said, most enjoyable for the Opposition to see the revolt of the bourgeoisie on the Conservative Benches. It continues Marsham street's amazing ability to get up someone's nose in a big way every year.

Mr. Terry Dicks (Hayes and Harlington)

It is not just the bourgeoisie that is up in arms. It is the constituents of Hayes and Harlington in Hillingdon. We have had a 71 per cent. decrease in grant from central Government this year. In fact, because of the machinations of this settlement we shall be out of grant altogether. In 1983.84 we received £21 million from the Government. It is the working class of what is known colloquially as "Ayes and Arlington" which is fed up with this Government and their attitude to the rate support grant.

Mr. Banks

One always excludes the hon. Gentleman from any accusations of being bourgeois. His exceedingly muscular approach to local government, and all other subjects, gives us great amusement. He is merely pointing out something that the Government need to understand. Although there is an overall transfer on this occasion of about £21 million of grant to London, it is very much a differential transfer because some of the outer boroughs, including Hillingdon and Newham, will suffer badly from the settlement. Not all the London boroughs will benefit. In many ways, it is London Regional Transport and the other successor bodies to the GLC which will benefit.

The hon. Gentleman has put his finger on something about which all of us in the House are worried—that the rate support grant system has reached the level of low farce. It is complex, unstable, inherently unfair, and, as I have said, infinitely manipulable.

I shall try to demonstrate the manipulability of the system with regard to London. In broad and relative terms, the rate support grant settlement is good for London. London's grant in 1986–87 is estimated to be £221 million above that to be paid to London authorities in 1985–86. I say relative because the cumulative reduction in grants to London since 1979–80 has been £3.5 billion. That, of course, is the main reason for high rates in inner London.

London's more favourable treatment in the 1986–87 settlement has been achieved by improved GREAs for London boroughs and a technical adjustment to London Regional Transport's notional GREA. The GREA total for London represents an increase of 9.2 per cent. over last year compared with 7.3 per cent. increase in GREA nationally. Here is the sleight of hand—had the GLC remained in existence the GREA attributed to it would have increased by no less than 26 per cent. On the basis of this settlement, the GLC would have received grant of £128 million for spending £770 million—the level of the 1985–86 budget with an amount for inflation—and yet in 1985–86, with that budget, instead of receiving £128 million it received Government grant of only £36 million.

If we add the GLC's 1985–86 GREA to the notional GREA for London Regional Transport, the total GREA for London was up by 63 per cent. in one year. The 1986–87 settlement makes that position even more absurd, because we now have a further 26 per cent. increase in GLC GREA and a 67 per cent. increase in notional GREA for London Regional Transport resulting in a GREA some 11 per cent. greater than the Government estimates of expenditure on those services. Clearly, Marsham street's financial calculations have gone crazy.

Let us compare that with 1984–85 when the GLC allegedly overspent its GREA by 53 per cent. The position becomes more bizarre when one realises the size of the increase in the Government's expenditure target for the council, which increased by 63 per cent. between 1984–85 and 1985–86. That was achieved as a result of dropping the special rule, which applied only to the GLC. Thus, at a stroke, and using the rate support grant settlement, the GLC was transformed from being a massive overspender against target to an underspender not liable to grant penalties which could be passed on to London boroughs after abolition.

What an act of wizardry. What an act of necromancy by the Secretary of State. I am surprised that with so much expertise he has not already become the Prime Minister.

What was the reason for the switch? As I understand it—perhaps the Minister will correct me if I am wrong—the Government deliberately held down the GLC's targets in 1983–84 and 1984–85 better to accuse the GLC of the overspending which they then used to justify the abolition of the GLC and rate capping.

However, after abolition the effect of transferring those artificially low targets to the London boroughs would have had an adverse effect on the cost of abolition to the London ratepayers, and hence the dropping of the special rule which increased the GLC's targets by some 63 per cent. Now we have lies, damn lies, statistics and the rate support grant settlement. The Government gave costs as one of the major reasons for the abolition of the GLC and yet destroyed that argument with the 1984–85 settlement. We still do not know about costs. Try as one may to get statistics out of the Government about the cost of the GLC, the result is a refusal to give any information.

During the early days the Government plucked a figure of £100 million out of the air and said that that would be the saving to London from the abolition of the GLC. We were never told where the £100 million came from. I have just received another reply from the Parliamentary Under-Secretary of State for the Environment, the hon. Member for Surbiton (Mr. Tracey). I asked if he will make it his policy to update the estimates of savings and costs regarding Greater London council and metropolitan county abolition given by Ministers during the passage of the Local Government Act 1985 and included in the explanatory and financial memorandum to that Act". The reply was, no. Marsham street has not the foggiest idea how much abolition will cost London ratepayers. The Labour party, and I suspect the hon. Member for Hayes and Harlington (Mr. Dicks), will say that it will cost a hell of a lot. One has only to look at the circulated provisional budget of the London Residuary Body to appreciate that. We understand that Tag Taylor has been leant on by the great bulk of the Secretary of State and he has changed the budget yet again. When the London boroughs look at the costs of replacing services, especially in the outer parts of London, they will find that they have not got the money from Government to maintain those services. When the charges and levies come through from the London Residuary Body and all the other quangos inheriting services from the GLC, the real cost to London ratepayers will be seen and it will be high.

My own borough of Newham will suffer badly because of the rate support grant settlement. The Minister is well aware of the problems of Newham. According to the Department of the Environment's own calculations, Newham is the second most deprived borough in the whole of England. This rate support grant settlement will not assist Newham. Partnership status would assist the borough of Newham, as would the disregard of the expenditure of £11.5 million for 1983–84 and the revision of the 1985–86 target. I understand that the Secretary of State has refused this revision of our 1985–86 target. If this situation is left as it is Newham will end up with a revenue deficit at 31 March. Will the Minister or the Secretary of State he prepared to meet a delegation of hon. Members from Newham, councillors and officers who would explain the extreme difficulties in our deprived borough? I would be grateful if the Minister would give an affirmative reply to this.

In the meantime we are left with a patchwork quilt of rate support grant settlement. It is an administrative and economic chaos. The Secretary of State deserves such chaos as his role in clambering up to the top in the Department of the Environment leaves much to be desired. This is especially true with regard to his loyalty to his own predecessor, the poor old right hon. Member for Wanstead and Woodford (Mr. Jenkin) who is not present today, probably because he is too embarrassed to show his face. The rate support grant settlement is a mess and so is the Government's policy on local authorities. The sooner the Front Bench of the Labour party is transferred to the other side, the sooner we will get some order back into local authority expenditure.

7.43 pm

Sir Bernard Braine (Castle Point)

I should think that it is now painfully obvious to my right hon. Friend the Secretary of State that those of us who represent shire counties are dissatisfied with the way in which the rate support grant has been calculated and distributed. Why should this be? My right hon. Friend the Secretary of State defended what he has done, with his characteristic good humour and grace, on the ground that it is necessary to ensure that total public expenditure is kept within bounds. That is an objective that all Conservative Members share. It is right that local authorities which were overspending—some in a reckless fashion—should be brought to heel. It is right that local authorities should be obliged to curb waste and to avoid excessive rate increases, especially when so many small businesses are struggling for survival. But what is the reality?

I have had the honour to represent an Essex constituency for nearly 36 years and I can safely say that the Essex county council, for the earlier period Labour-controlled and later Conservative-controlled, has always been a prudently led and economically run local authority. Why is it that such an authority—there are others, too—which has for many years been a low spender and done its level best to meet the requirements of successive Governments, and which has been praised by Secretaries of State for its performance in this regard, is now penalised by the formula that the Government choose to determine the distribution of rate support grant?

There is no rhyme or reason in the system they employ. My hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), in his spirited speech, went so far as to describe it as one of "madness". I do not know about that, but, whatever it is, there is no justice in it. No reasonable person would deny that, given the serious problems of our inner cities, there must be some shift of resources in that direction. The Association of County Councils agrees with this. But it is unfair that the shift should be wholly at the expense of the shire counties, with the result that there will have to he substantial rate increases if the present level of our services is not to be reduced. I understand that the cost of the shift is equivalent to a 5.7 per cent. rate increase. We simply cannot reduce the level of our services.

Dr. Michael Clark (Rochford)

Does my right hon. Friend agree that if, in the Budget in March, there is a significant reduction in taxation, Essex constituents will require all that rebate to pay for increased rates?

Sir Bernard Braine

Yes; that had occurred to me. If one went into the ramifications of all this, perhaps what my hon. Friend the Member for Tiverton said is correct—that it is madness. The full implications have not been understood by the Government and have not been grasped. How can we reduce the level of services, which are now at the lowest level consistent with our county authority carrying out the obligation put upon it by Parliament? The level of our services is now irreducible. When it comes to finding the resources for the proper maintenance of our school buildings, the situation has reached a dangerous point. Our spending is far below what is required if we are not to face masssive capital expenditure on replacement and reconstruction in a few years time. Under the present system, this will certainly raise the rate. Putting the whole burden of shifting resources to the inner cities from the shire counties is unfair and wrong and—I suspect that many of my colleagues will agree—unacceptable.

Mr. Dicks

Will my right hon. Friend confirm that today he is making the same points as he made two years and one year ago and that nothing has changed?

Sir Bernard Braine

Yes. I am grateful to my hon. Friend. I shall come to that in a moment.

Thus, to maintain its present level of services, Essex county council must increase its current year's spending from £500 million to £548 million. The increase is due mainly to commitments arising from 1985–86—inflation, including index-linked pay awards for police and firemen, provision for teachers' pay and restructuring and allowing for underprovision for pay awards in 1985–86. The RSG announced by my right hon. Friend the Secretary of State on 18 December 1985 means that to meet that increase our county rates will have to increase by 18 per cent. and grant would go down from £132 million to £115 million.

The Government have set the Essex GRE at £552.77 million, which is their assessment of the cost of providing a standard level of services in our county. To increase expenditure to that level will mean a rate increase of 20.3 per cent., while grant will be reduced to £105 million. That underlines what my hon. Friend the Member for Rochford (Dr. Clark) said a moment ago.

Ever since the system of targets, GREs and penalties was introduced, Essex has consistently made the point that it penalises the low-spending counties. Every year from 1979–80, the RSG has meant a continuing grant loss for Essex. Every year, Essex's expenditure has been far below GRE, the Government's estimate of the cost of providing a standard level of services, and below target. Every year, budgets have been based on standstills and cuts in expenditure. Against that background, how can there be any planning for the future? If there are to be rate increases, such as I have mentioned, how can business and industry in the county plan confidently for the future? This, mark you, Mr. Deputy Speaker, in a county that has been expanding and, as a result of the M11, offers great possibilities for industrial grants. What is now proposed will have an adverse effect on the high hopes for develpment that we held a couple of years ago. Every year since 1979, the chairman of Essex county council and I on behalf of the county of Essex Members of Parliament have taken a deputation to successive Secretaries of State. Each time we have been told that our circumstances are understood and that if we are patient it will eventually come right. Targets have been abolished, but RSG settlements have cut Essex's grant. We were surely entitled this year to a correction of the unfairness of our position compared with London, but we are worse off than ever before.

I should like to respond to what my hon. Friend the Member for Hayes and Harlington (Mr. Dicks) said and give some idea of the assistance that has been given to us. On 23 January 1984, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) said: I would expect in 1985–86 and thereafter to be able to set targets which take greater account of GREs and thus recognise the efforts which low-spending authorities have made … When I draw up the targets next year I shall take greater account of those authorities which have budgeted carefully and which could not, by any stretch of the imagination, be called high spenders."—[Official Report, 23 January 1984; Vol. 52, c. 642–43.] On 25 July, he said: 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."—[Official Report, 25 July 1985; Vol. 83, c. 1317.] Maybe, but not in Essex.

On 16 January 1985, my right hon. Friend's successor, who inherited these assurances, said: Thus, low-spending authorities will benefit from rate capping. For authorities which budget in the coming year, 1985–86, to spend at or below both target and GREA, targets for the following year, 1986–87, will take account of those further savings to be achieved from rate capping the highest spenders. To answer my hon. Friend's intervention, these low-spenders' targets in 1986–87 will therefore be both more favourable than they would have been but for rate capping, and more favourable than for authorities which budget this year to spend above either target or GREA ."—[Official Report, 16 January 1985; Vol. 71, c. 417.] My right hon. Friend the Member for Wanstead and Woodford, on 25 July 1985, went on to say: I can certainly give him the assurance that low-spending authorities, spending below or close to the GRE will, on average, stand to gain grant, but of course will continue to face grant pressures against increased spending."—[Official Report, 25 July 1985; Vol. 83, c. 1320.] Not in Essex, which has been a low-spending authority for a long time. Its budget has always been below GRE. It is the very type of authority that successive Secretaries of State have said need helping once a new system of grant is introduced.

In 1985–86, the Essex GRE was £524 million. The county budget was well below that at £500 million and the grant received was £132 million. For 1986–87, the GRE is £552 million. That is an increase of 5.5 per cent., to include the extra money that is required just to stand still, to keep pace with inflation and to pay increased wages. Under the new grant system, if Essex contemplated doing no more than increasing its budget by a similar 5.5 per cent. and spending £524 million, what would be its grant from the Government? Surely, one could confidently expect the grant would be similarly increased from last year in accordance with the promises that the Government had given to authorities like Essex to provide a fairer settlement. Not at all. I am assured that, on those figures, if Essex was to spend £524 million and no more against its GRE figure of £552 million, its grant would be no less than £21 million below that of last year.

My hon. Friend the Minister for Environment, Countryside and Local Government was told yesterday by representatives of the three parties on the county council that a budget has not been finally agreed, but for some increases in our expenditure there is no escape. I did not intervene during the Secretary of State's speech, but he seemed to be taking out of account those factors that make for increased expenditure over which local authorities have absolutely no control. For example, there are statutory wage awards for the police and the fire service over and above inflation. Essex can do nothing about this—it is automatic. There is the minimum replacement of buildings that are falling into disrepair. The council can do nothing about that either. Indeed, it would be failing to perform its statutory duty if it did not patch up a few windows and doors and give its buildings a lick of paint. There is not one constituency in Essex where such problems are not being faced.

Mr. Madel

Does my right hon. Friend agree there is also another unavoidable cost? I have in mind debt charges on schools which had to be built, not least in Essex and Bedfordshire, to cater for the overspill from London. That is yet another example of Essex and Bedfordshire, to name but two, helping the inner cities.

Sir Bernard Braine

My hon. Friend is absolutely right. We are now getting down to the nitty gritty. In its wisdom this House passes legislation which puts increased burdens upon local authorities. We do this because we consider it to be right. Take, for example, the provision of increased residential care which the care in the community programme requires. As my hon. Friend the Member for Harwich (Sir J. Ridsdale) will testify, Essex has a high proportion of elderly people, and that is placing an increasing burden upon the local authority. We cannot escape that burden because Parliament expects us to respond to the need.

Sir Julian Ridsdale (Harwich)

Is my right hon. Friend aware that the lower income groups will be badly affected by this settlement? In my constituency, we are putting burdens on the lower income group which it cannot afford. Those burdens should be borne by the taxpayer, not by the ratepayer. Over many years in the House I have said that and asked for reforms. Alas, they have not come about.

Sir Bernard Braine

My hon. Friend is absolutely right about this hit and miss system. He has been a Member of this House for many years and is a doughty champion of the elderly in our county. I am sure that is well recognised. The effect of all this on a county like ours, with an expanding population, an increasing number of retired people and an increasing need for services, is devastating. Perhaps I may adapt a phrase associated with our county's most distinguished parliamentarian, "Up with this unfairness we in Essex will not put."

8.1 pm

Mr. Peter Pike (Burnley)

My hon. Friend the Member for Preston (Mr. Thorne) referred to some of the difficulties facing Lancashire, and I fully endorse his comments. I listened to the right hon. Member for Castle Point (Sir B. Braine) and to the hon. Member for Tiverton (Mr. Maxwell-Hyslop). It is remarkable that time after time when we debate the RSG settlement they criticise the Government, but when it comes to the vote very few Government Members vote with us. They will come back in a year's time and hear the Government again say, "We believe we have got it right this time. We will still pursue Conservative party policies." They will not solve the problems facing local government.

The front page of Thursday's Lancashire Evening Telegraph carried an article warning of big rate rises. The article tried to show the problems that will face Lancashire. My hon. Friend the Member for Preston highlighted those problems when he spoke about the type of rate increases that Lancashire will have to face in order to stand still, purely allowing for inflation and a rise in costs.

In its budget, Lancashire works on the basis of a 6 per cent. rise in wages and a 5 per cent. rise in prices. Those are not unreasonable figures on which to base an estimate. In opening the debate the Secretary of State referred to the manual workers' settlement and said that the settlement reached in November last year of 8.2 per cent. was wrong and a bad settlement, and that local government should carry the burden for anything over 3.5 per cent. He failed to say that that settlement was particularly aimed at the lowest paid workers in local government. It was not a flat rate settlement which gave all workers an 8.2 per cent. increase, because it gave a greater pay increase to those at the lower end of council service. We have to accept that many people employed in local government and in public service as a whole are paid extremely low wages. It is time we did something to ensure that they have reasonable and fair wages. The RSG settlement should take those points into account.

Mr. Barry Porter (Wirral, South)

Will the hon. Gentleman accept that in practice there will be an extra £400 million to be recycled to local authorities as a result of some of the spending decisions by local councils? Would it not be helpful if the Government would at least determine a minimum amount from that £400 million which local authorities could take into account in setting their rates? Unless that figure is given, we will get ridiculous rate suggestions. If the Government could give an indication of a minimum amount from the £400 million, it might at least persuade me not to vote against the Government.

Mr. Pike

I think that the hon. Gentleman has been slightly misled by what the Secretary of State floated in his speech. He floated that £400 million in his speech without anything to guarantee it. It was an offer without any evidence to prove that it would be carried out. The Secretary of State did that purely to confuse some of the doubters on the Government Back Benches and to persuade them not to go into the Lobby and vote with the Opposition, but to abstain or to vote in support of the Government.

Mr. Tony Banks

My hon. Friend has made a valuable point. Because of the way in which the rate support grant settlement was ordered this year, it is likely that those previously alleged high-spending Labour local authorities will be low-spending authorities in terms of the Government's calculations. Therefore, they will not attract a penalty and there will not be a £400 million kitty.

Mr. Deputy Speaker

May I appeal to hon. Members for brevity and remind them that many interventions make long speeches even longer and prevent other Members from being called?

Mr. Pike

The point made by my hon. Friend the Member for Newham, North-West (Mr. Banks) is correct and important.

The hon. Member for Lancaster (Mrs. Kellett-Bowman) spoke about the problems of Lancashire county council. Her intervention was totally misleading and needs to be taken in perspective, having regard to the situation in Lancashire. The RSG settlement that the Government are proposing will by itself mean that Lancashire will be faced with a 13p increase. When Labour took control of Lancashire county council in 1981, it had to put right many years of neglect.

The cash target system on which we will operate until the changes now proposed take place was based on a low spending year when the Conservatives were in control. Because of the arbitrary date on which the cash target was based, many councils were placed in difficulties. All along, Lancashire has been spending less than its grant-related expenditure assessment. If it had spent up to its grant-related expenditure assessment, it would have been penalised.

Most people in local government now see the Government moving towards a point where the grant-related expenditure assessment is replacing the target. The Government are saying that there cannot be exemptions for councils spending up to the grant-related expenditure assessment. Several hon. Members intervened when the Secretary of State made this point, and he replied forcefully that it would cost the Government over £1 billion if they were to make that exemption. The Secretary of State was misleading the House, because he was making the assumption that every local authority now spending below its grant-related expenditure assessment would spend up to that figure. His argument was questionable and needs to be put to the test. Even if it were true and every authority spent up to that amount—if the Government want to base the system on grant-related expenditure assessment—how could they accuse those authorities of being profligate? It would be nonsense to do so. This proves that the Government have always had a system based on something which they cannot justify and prove.

Lancashire needs to spend an extra £44 million over the next five years to put its schools into good order. Two schools in my constituency are almost not suitable for use. More than half of Burnley Wood school has been secured because it had to be quarantined as a result of dry rot. Another primary school, Stonyholme, is in a similar condition. I shall visit it on Friday to look at its state.

Lancashire county council has not been able to provide sufficient old people's homes to meet needs. It has not been able to paint and repair them, yet the Government have failed to recognise that expenditure on maintenance provided at the time that it is needed often saves more in the end. If the council had been able to repair the Burnley Wood school when it first needed it, the cost woulc have been £150,000. On the last estimate, the cost was £399,000. I looked at the school only a fortnight ago, and I think that the cost of repair would be £500,000. The county may have to demolish that school and build another.

Another example of where the council is considering saving money is the pulveriser in Burnley, which serves the whole of north-east Lancashire, not just the council area. The county council is considering stopping the use of that waste disposal unit, taking the waste as it comes off the waste wagons and disposing of it on an infill site. That would be a retrograde step. Although that measure is designed to save the county council money, it will cost the borough council an additional £140,000. That will be almost equal to a 2p additional rate.

Because of the changes in RSG, Burnley will need a 12p rate increase—a 25 per cent. increase on top of the existing 48p rate—just to maintain its .position. Burnley is a deprived area which is designated under the inner urban areas programme. It is, of course, not exempt from penalties imposed by the Government with respect to expenditure arising from the urban programme. The council does not have the money needed to improve housing or to give grants. Because it cannot give grants, people cannot buy empty houses. Houses become derelict and, in the long run, the council has to demolish them, thereby creating greater expense for the authority and for the Government.

The Government always fail to recognise that capital expenditure by local authorities has revenue implications. Burnley's 25 per cent. rate increase to maintain a standstill position is after the safety net in this year's proposal, but we do not know what will happen in future years. What do the Government propose that Burnley should do? Should we stop improving our houses? Should we stop our capital programme? Should we close the recreational centre? Should we make massive cuts and impose

This RSG settlement has implications for section 137 of the Local Government Act 1972. Under that section, local authorities are empowered to spend for the benefit of their inhabitants, where they have no other legal powers to do so, up to the equivalent of a 2p rate. As a result of the RSG proposals, the grant inclusive penny rate product is reduced. This reduces the amount that local authorities can spend under section 137. Most of the money spent under section 137 is used for worthy schemes. Because of the proposed changes, many local authorities will not have sufficient money to meet their commitments. The abolition of the GLC and the metropolitan counties will result in some of the money that could be used to the benefit of the people in those areas being lost.

The Government should undertake to maintain the present position, at least until after the Widdicombe inquiry has dealt with this issue. Burnley will suffer a 38 per cent. reduction under this measure. This year, the council could spend £262,000 under this heading, but the amount will fall to £163,000 next year. Burnley's reduction of 38 per cent. is by no means the highest in Britain.

I could go into great detail about how local authorities use section 137 money, but suffice it to say that the two main purposes in Burnley are attracting jobs and industry and helping voluntary organisations. They are both worthy objectives, but many local authorities like Burnley will not be able to fulfil them. The Government's proposals are wrong. It is time that they put the rate situation right once and for all and enabled local authorities to get on with the job for which they were elected.

8.16 pm

Mr. Charles Morrison (Devizes)

I am glad that my hon. Friend the Member for Burnley (Mr. Pike) mentioned capital investment because not only does capital investment now give rise to revenue expenditure later, but in recent years the pressure imposed on my county by inadequate RSG has meant that whereas, a few years ago, the county financed up to £3 million of capital per annum from revenue, the figure now is virtually nil. This means that, after a few years, the county will be paying out as much in increased interest charges as it was paying out in capital through the revenue account only a few years ago.

From a standstill budget, the increase in the Wiltshire county council rate for 1986–87 will be 28 per cent. In the event, a majority alliance/Labour coalition opposed by Conservative councillors has voted for increases in expenditure which bring the true proposed rate increases up to 32.2 per cent. As a result of creative accountancy and calling on balances, it should be possible to pull that figure back to about 26 per cent. If there had been no increases in expenditure, that figure would have been about 22 per cent. Even that level of rate increase is unacceptably high. It is a direct consequence of the RSG proposals.

I am not prepared to support proposals that can only bring about cuts in public services or huge rate increases, or both. Therefore, sadly, I shall vote against the Government. I should like to add that, within the Wiltshire county council budget exercise, the county treasurer has already taken account of the extra grant which was mentioned by my right hon. Friend the Secretary of State. In this year's desperate circumstances, I think that Wiltshire Conservative councillors were right to vote against any increase in expenditure, but reality about the state of provision of services cannot be avoided. Wiltshire is one of the four lowest-spending education authorities. I am, therefore, constantly bombarded by parents, teachers and school governors concerned about the low level of capitation allowances and the poor state of school maintenance. That is understandable, as the new schools of the 1960s have now suffered 20 or more years of wear and tear. Likewise, it is self-evident to the most casual observer that the quality of county roads has deteriorated steadily over the past 10 years.

Personal services, police, fire and other services in Wiltshire are at, or below, the average level of expenditure. Therefore, in no way can it be claimed that Wiltshire county council is, or has been, extravagant. Indeed, the Audit Commission confirms that it is one of the classic low-spending shire counties.

The Government seem to forget that local government exists to provide services. It does not exist simply as a minor or even a major irritant instituted to interrupt and interfere in the otherwise smooth running of the mind of my right hon. Friend the Chancellor of the Exchequer. He appears to forget that, even if local government did not exist, the services would still have to be provided and, given the relative inefficiency of central Government compared with local government, setting aside any other considerations, centrally provided services would almost certainly be more expensive.

The question that ratepayers will wish to ask my right hon. Friend the Chancellor of the Exchequer are numerous, but I shall draw the attention of the House to a few. For example, if the economy is on course and doing as well as my right hon. Friend claims, why is it that the rate support grant has been cut? Why is it that he believes that our services can be further cut? Why is it that he is adding to inflationary pressures by instituting such huge increases in rates? How on earth can businesses, small or large, prosper in these conditions? What was the reaction of my right hon. Friends the Secretaries of State for Trade and Industry and for Employment to the proposed size of the rate support grant? Did they not put in a good word for an increase in it? What is the point of even talking about tax cuts when any financial benefit that might accrue from them will be exceeded by rate increases?

It is slightly surprising that we have not had a Treasury Minister sitting on the Front Bench for the debate, as the Treasury is the main source of blame in this matter. But the Department of the Environment, too, has to face the wrath of ratepayers. I do not complain about the desire of my right hon. Friend the Secretary of State to give extra help to inner cities, taking account of their problems. However, having done so within the rate support grant, which takes little or no account of the real world, why add insult to the injury felt by shire counties by pretending, as my right hon. Friend the Secretary of State did when making his announcement on 18 December, that rate increases can be similar to last year and, if they are not, it must be because shire counties are run by nincompoops who are led astray by county treasurers putting forward dishonest prospectuses? That said, I was glad to note my right hon. Friend's compliment to councillors today.

The truth is that the rate support grant settlement assumes an increase in total expenditure which, politely, can only be described as a figment of the imagination. Aggregate Exchequer grant is set at only 46.4 per cent.—the sixth successive year in which the grant percentage has fallen. That reduction alone equates to a 7.8p rate nationally. As well as that, shire counties have been given the lowest share of block grant and have suffered the largest year-on-year fall since block grant began. The shift in grant alone implies a 5.7p rate increase.

The figure of £200 million has been mentioned several times in the debate as the amount that is being taken away from counties. I believe that a more accurate figure is £224 million. That is not an insignificant amount of money, but it is relatively small in comparison with some of the talk, at least before Christmas, about what might be available to my right hon. Friend the Chancellor of the Exchequer for tax cuts. At that time we did not realise what my right hon. Friend the Secretary of State for the Environment meant when he told my right hon. Friend the Member for Cambridgeshire, North-East (Mr. Pym) on 18 December: Low spenders … will get their rewards."—[Official Report, 18 December 1985; Vol. 89, c. 312.] To cap it all, the penalty system abolished with such a fanfare has been replaced by one with a different name, but which for some counties, and certainly mine, is far more vicious in its effects than its predecessors. What a muddle.

Year after year many of us have experienced doubts and opposition to the system of financing local government and to the treatment of shire counties in particular. Year after year, we have been told first that we are wrong and secondly, in contradiction, that it will be better next year. Year after year we are let down. We have been again, and therefore there is no alternative but to vote against the Government again tonight.

8.25 pm

Mr. John Fraser (Norwood)

When I heard the Secretary of State speak about a Green Paper on rate reform, I felt that I was hearing the first cuckoo of spring. It is a sign that the Government are contemplating the results of the next general election when we start hearing about rating reform. The rating dance of the seven veils has begun, although one never sees the final veil come off before the election, and the matter is then left.

If the Government are to have a fair reform of the rating system they must look at the basis upon which property is valued. The Government were guilty of the grossest possible act of irresponsibility in putting off the rating reassessment about five years ago. In my constituency, there has been a price explosion in privately owned accommodation, but there are also many estates that are hard to let. One frequently finds that properties changing hands at £100,000 a time have the same rateable value as a flat in a hard-to-let council estate. That cannot be right.

This factor is equally true of commercial properties. There are places that used to be the most popular shopping areas, but which for one reason or another have since declined, possibly because of the decline in purchasing power or because property development has taken place elsewhere and shifted shopping from one part of London to another. Despite that, the high rateable values on shops and commercial premises remain. There are gross injustices between the resources of one borough and another, which are made worse the longer that revaluation is delayed.

It is wrong that for the Government have not been more flexible over what are called disregards. If Governments impose on a local authority additional statutory duties—custodianship is one example, but there are others—it is wrong that the local authority is penalised, as some are, because they have taken up such duties. Equally, it is wrong that for penalty purposes there should not be a disregard under the inner city partnership on those urban aid schemes that are accepted by a local authority when the scheme has become time-expired.

If the Government do not disregard these matters, all that a local authority is doing in supporting 25 per cent. of an inner city partnership scheme is to store up trouble and penalties when the scheme becomes time-expired, even if it has been a success. After all, the inner city scheme is partly intended to experiment with projects in the community that can become a permanent feature in the life of that community. I hope that the Government will look at this point again.

The right hon. Member for Castle Point (Sir B. Braille) spoke about the irreducible level of services and the necessity to curb cuts. I felt that some of his phraseology was similar to that used by the leader of my local council, Councillor Ted Knight. I say that without diparagement to either gentleman. The only difference between their logic is that in Lambeth we expect the rate capping exercise to result in a substantial reduction in the rates that are charged. This council has been called "the lunatic Left" and has been accused of being irresponsible. The result of the settlement means that we shall be paying less in rates in the coming year while Essex will be paying more in rates. In case the House thinks that the Government have deliberately shifted resources in favour of the inner cities, may I point out that that is not so. The shire counties are suffering from, and to some extent the London boroughs are benefiting from, the Government's incompetence over the dissolution of the Greater London council. When the GLC's expenditure approached £1 billion a year it found that it received no rate support grant and that it was being penalised heavily for its activities.

The GLC's expenditure is to be redistributed among the boroughs, residual bodies and joint boards, so the Government cannot logically impose the same penalties or the same holdback of rate support grant upon the individual London boroughs as they imposed upon the Greater London council. Almost by accident, therefore, additional money is to be given to the London boroughs. One cannot say that thereby resources are being directed to the inner city boroughs. It is simply the consequence of the Government's incompetence in abolishing the GLC. However, it does not follow that because Lambeth has a lower rate and more resources may be directed to it in terms of rate support grant, anything extra will be done for the inner city boroughs. The Government have pegged the level of expenditure in Lambeth to expenditure in the current year. This means that there will be a cut in real terms. The level of expenditure is pegged in cash terms, not in real terms.

We are faced with the extraordinary phenomenon that at first sight it seems that the shift in resources to the inner city boroughs means that more will be done there. However, that is an optical illusion. It is like one of those drawings in which one thinks that there is a box above the surface, but when one looks at it more closely one finds that there is a hole below the surface. Although, therefore, we shall receive additional resources we shall do less. We shall suffer a cut of 5 per cent. on the rate-capping exercise because of the way in which our expenditure has been fixed. We shall have less money to spend on voluntary organisations. Many of them will be gravely disappointed after the abolition of the GLC.

We shall have less money to spend upon the maintenance of local authority properties, yet a great deal of money needs to be spent upon them. This goes hand in hand with a cut of £5 million in the housing investment programme for Lambeth. This is happening at a time when we need to spend more money upon improving, repairing and upgrading our council properties. A little more money may be coming our way through the rate support grant, but there will be less expenditure and less activity.

Unemployment is increasing by leaps and bounds. Unemployment in some of the wards in my constituency is running at about 40 per cent. of the insured population. That is a disgracefully high figure. However, the result of this settlement, coupled with rate capping, means that less money will be available for local government services.

At the beginning of last year's rating exercise Lambeth was told, as a rate-capped borough, that its expenditure limit would be £116 million. However, in December 1985, following the issue of a writ by Lambeth council against the Department of the Environment and following also a few telephone calls, the Department of the Environment increased Lambeth's permitted expenditure for 1985–86 from £116 million to £124 million. Lambeth council was libelled and defamed for a year by this Government. The council was told that it was spending too much and that it was a lunatic council with a high expenditure record. However, without any great fanfare, at the end of the year the permitted expenditure level was raised from £116 million to £124 million, an expenditure level that will set the pattern of expenditure for the next financial year.

My advice to Conservative Members is that they should not be afraid to issue a writ against the Department of the Environment. It does not do any harm. They should not be afraid to keep up the battle throughout the rating year. They may have some success, as we have had in Lambeth.

The majority of Labour councillors in Lambeth are suffering in the High Court because of surcharging by the district auditor, yet all the assumptions that the Government put before them at the beginning of the rating year were disproved towards the end of it by the reassessment of expenditure at £124 million. After a year of incompetence, mismanagement and wrong calculations about expenditure in my borough, the very least that the Government ought to do is to swear an affidavit about their own incompetence and lodge it before a judge in the High Court in order to get rid of the case against Lambeth councillors who, at the end of the day, have been proved to be correct in their assumptions of expenditure levels.

8.35 pm

Mr. Michael Carttiss (Great Yarmouth)

Not a single Conservative Member has risen to say a good word about the rate support grant settlement for 1986–87. That may be a matter of some amusement to the hon. Member for Newham, North-West (Mr. Banks), but the fact remains that it is a sad day for the Conservative party. There have been repeated assurances by Ministers, and successive Secretaries of State believed that they had carried out those assurances. However, that is not the perception in the shire counties.

A number of right hon. and hon. Members have demonstrated the iniquities of the rate support grant. My right hon. Friend the Secretary of State for the Environment has said, as have previous Secretaries of State, that, to say the least, the rate support grant system is unsatisfactory. My right hon. Friend the Member for Henley (Mr. Heseltine) said it in this House in 1980. He did not carry the Cabinet with him on that occasion, and other Secretaries of State did not carry the Cabinet with them when a new system was produced that would have resulted in equity.

The reaction of the Great Yarmouth borough council has been fairly helpful. I have discussed these matters on many occasions with my hon. Friend the Parliamentary Under-Secretary of State, my hon. Friend the Member for Mitcham and Morden (Mrs. Rumbold). I am always grateful for the careful attention that she gives to them. However, my right hon. Friend the Secretary of State, my hon. Friend the Minister for Environment, Countryside and Local Government and my hon. Friend the Parliamentary Under-Secretary of State are victims of this system and of the failure by previous Secretaries of State to persuade the Government that this is a serious matter and that something must be done about it.

It is a fact that when, at the end of July, my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) announced his proposals concerning the major elements of the 1986–87 rate support grant settlement, they were welcomed. The abolition of targets and penalties and the initial settlement for Norfolk seemed to be reasonably good. The grant-related expenditure for Norfolk of £266 million for 1986–87 showed an increase over the 1985–86 GRE of 5.6 per cent. For shire counties the average increase has been 5.8 per cent. The increase for the metropolitan areas is 8 per cent. and for London it is 9.2 per cent. The overall increase nationally is 7.3 per cent. Norfolk has a long history of strict economy when budgeting and it has every reason tonight to expect as many of its parliamentary representatives as possible to impress upon the Government, as have other right hon. and hon. Members, that enough is enough.

I was the deputy leader of Norfolk county council when the last Labour Government were in office. Before this Government came to office with their determined effort to restrain public expenditure, Norfolk county council had already adopted a stringent approach towards its expenditure. We were criticised by our Labour opponents for being too ready to respond to the then Labour Government's demands to limit spending. During the past six years, Norfolk county council has continued to exercise a stringent approach to its budget.

Mr. John Powley (Norwich, South)

With his wealth of local government experience, does my hon. Friend agree that what we have wanted for the past six or seven years has been not a tinkering with the present system, which I believe has been tinkered with, but a major overhaul of the whole concept of the rate support grant to ensure a fairer distribution?

Mr. Carttiss

I agree with my hon. Friend the Member for Norwich, South (Mr. Powley). However, for the time being all that I ask is that the Secretary of State and my right hon. and learned Friends on the Front Bench should carry out the promise of the then Secretary of State, my right hon. Friend the Member for Wanstead and Woodford. On 25 July 1985 he stated: Norfolk has been a sensible, moderate, low-spending authority—the type of authority that should benefit from my announcement today."—[Official Report, 25 July 1985; Vol. 83, c. 1331.] Norfolk has not benefited from that announcement.

As a former teacher and former chairman of Norfolk education committee, I was pleased to see my hon. Friend the Under-Secretary of State for Education and Science look in briefly on the debate. Education takes up much of county council expenditure. Inevitably, education is where the demerits of the rate support grant settlement have the worst effect. The settlement hits the people who can least bear the effects of the RSG, such as the children in our schools. I commend the Government Front Bench to consult the Secretary of State for Education and Science on this matter.

Education in Norfolk has a GRE of £157 million. That is the Government's estimate of the money that a local authority, such as Norfolk, should be spending. In fact, the local authority spent only 97.2 per cent. of that amount. A 2 per cent. gap does not sound much, but it represents £4.5 million. With £1 million more devoted to education in Norfolk, we could create a system that would be more acceptable to my constituents. The hon. Member for Newham, North-West complains about the abolition of the GLC, which spends £13 million on supporting lesbians. In Norfolk there has been an unsavoury reaction to that because the result of the RSG is to switch money away from the shire counties to the metropolitan authorities. Nothing grieves me more than to be critical of my right hon. Friend the Secretary of State.

I was delighted to serve for more than 200 hours on the Committee that succeeded in playing its part in the abolition of the metropolitan authorities.

Mr. Simon Hughes

The hon. Gentleman made a great contribution!

Mr. Carttiss

I made the contribution of being present. What little I said was more to the point than all the words of the hon. Gentleman.

The disastrous reorganisation of local government under the administration of my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) has much to do with the problems of the shire counties in 1986–87. I was pleased to see my right hon. Friend the Secretary of State play such an effective role in abolishing those metropolitan authorities.

Hon. Members, including the hon. Member for Southwark and Bermondsey (Mr. Hughes), will enjoy the irony of the fact that my enjoyment in undoing the mistakes of previous Conservative Administrations in respect of local government has had to be paid for by my constituents.

On the admission of the Department of Education and Science, Norfolk has been in the forefront of economy-conscious LEAs, notably in school meals and in the removal of surplus school places. A letter from the Department of Education and Science shows that Norfolk has reduced the cost of the school meals service since 1979 by 43 per cent. That is more than double the average saving on the school meals service made by shire counties and it is four times the national average saving. The letter states: This is an excellent record". Between 1980 and 1984 Norfolk closed 46 primary schools. That number of closures was not exceeded by any other shire county. About 3,000 surplus secondary school places were removed between 1980 and 1983. For much of that period I was chairman of the education committee.

Mr. Henry Bellingham (Norfolk, North-West)

Is my hon. Friend aware that, as a result of several commitments made by the Secretary of State during the past two years, I have been campaigning for improvements in the education service in my constituency and for the retention of several primary schools? How can I support the Government tonight and still face the county education officer, the divisional surveyor and the county surveyor?

Mr. Carttiss

Any hon. Member representing Norfolk is in a difficult position, bearing in mind the enormous economies that the county council has had to make, for which Conservative councillors paid a heavy price when they lost their seats in the 1984 election.

Mr. Patrick Thompson

My hon. Friend constantly refers to county councils. Does he agree that district councils are just as important? Norwich city council and Broadland district council are in my constituency. It is easy for me to see the unfairness in the treatment of a low-spending, careful-budgeting district council such as Broadland. What my hon. Friend says applies as much to low-spending district councils as to low-spending county councils.

Mr. Carttiss

The expenditure of a district council is a small part of, for example, sub-committee expenditure in an education authority.

In Norfolk, six secondary schools were closed between 1980 and 1983. Four of those schools were in my constituency. I reveal those facts to illustrate to the House that no one has been more determined in 19 years service in local government to ensure strict economies in local public spending. I wish that there was the same determination at a national level to achieve the type of cuts that local services have had. My right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) called it a Charlie Chaplin system. Norfolk will have to find £6 million this year to avoid penalty. There must be something wrong with the Department of the Environment's GRE figure of £266 million, because the authority has engaged in heavy cutting. Other Departments have recognised that.

Although my right hon. Friend has abolished targets, the Government's new figures are based on assumed levels of spending. We no longer ask local authorities to worry about targets, but the Government still have in mind a figure for each authority, which they call its assumed level of spending.

I rarely address the House, Mr. Deputy Speaker, and it is most unfortunate that tonight I have almost lost my voice when I am attacking a Government that I admire and respect so much in every other way. It is an illustration of the depth of emotion that I feel when I think that successive Conservative Administrations have repeatedly said that they are willing to recognise and to reward low-spending authorities, yet they are still unable to do so.

In Norfolk, there is a gap of £36 million between the GREA and the assumed level of spending. For every pound spent over that assumed level, Norfolk loses 57p of Government grant. Yet, on last year's system of distributing RSG, the Minister knows that for every pound spent below GRE, grant would have been gained. The problem for a loyal supporter of the Government who is 100 per cent. committed to the aims and objectives of his right hon. and hon. Friends on the Treasury Bench is at what point he says, "I must oppose the Government, not just in words but in deed."

I remind the House that I made my maiden speech on this subject two years ago. I concluded my remarks then by saying that next year's settlement would be better. This year, the average ratepayer in my constituency who owns a house with a rateable value of £175 will pay £5 a week in county council rates. As a result of this rate support grant settlement, he will pay £6 a week. I should be grateful if my right hon. Friend the Secretary of State—in his absence I expressed enormous admiration for him—will accompany me round the villages in my constituency and round Great Yarmouth to explain to each ratepayer in 40 seconds why this has happened to a Conservative-controlled local authority. Socialists and Liberals have never controlled Norfolk county council, and they never will, because I am confident that, recognising the strength of feeling among Conservative Members, the Government will introduce a more equitable system next year.

To encourage my right hon. and hon. Friends, I should tell them that, although I voted with them last year on the understanding that low-spending authorities such as Norfolk would get a better deal this year, that has not been the result of this year's settlement. Therefore, it would be dishonourable, after 19 years in local government service in Norfolk, to do anything other than join the Opposition in their Lobby tonight, confident, however, that the Government will produce a better system within the next two years to ensure that they will remain in office for a further five years.

8.56 pm

Mr. Clive Soley (Hammersmith)

I never cease to be amazed by the audacity of the Government. They believe that they can fool all the people all the time. During his opening speech the Minister did what I have heard him do on several occasions: he berated local authorities for their high expenditure and he blamed them for the ills of the country's economic condition. Yet he has known for many years that Government public expenditure has been increasing year after year, while local authority expenditure has been forced down. As my hon. Friend the Member for Copeland (Dr. Cunningham) said, the Minister is continuing to tell local authorities. "Do not do as we do, do as we tell you."

To some extent, I sympathise with those who live in the shire counties, because I would be the first to recognise the problem of rural poverty. But I have little sympathy with Conservative Members who represent shire counties because, since 1979, they have given full support to their Government in terms of cutting local authority expenditure. Suddenly the shire county Members discover that they are being hurt. They do not like it, and they complain about it. It is a bit late now. They should have thought of that a few years ago.

The Secretary of State said that his RSG settlement was designed to obtain a balance between rural and inner-city needs. It will not do that at all. Conservative Members and my hon. Friend the Member for Norwood (Mr. Fraser) pointed out that much of what is happening today is a consequence of the abolition of the GLC and the metropolitan counties. Another cause is that the Government have recognised that the crisis in the inner cities is becoming profoundly dangerous to the fabric of society. We have had riots and crime in our inner cities of a nature and intensity that have not been seen in Britain for more than 100 years. That frightened the Government, so after years of cutting expenditure they are trying to direct a little more money back into the inner cities. The message from that, as some Conservative Members recognise, is that if the riots and inner city troubles are sufficiently great, those areas will receive a little extra money. That is the mess that the Government have got themselves into on this issue.

I sat with the Secretary of State throughout the Committee stage of the Local Government Bill. He was always looking forward to the money that he would save through the abolition of the GLC and metropolitan county councils. Now, both he and his hon. Friends are sadder and wiser. They are making no significant savings, and in March and April many good voluntary and part statutory bodies will either lose money dramatically or go to the wall completely because no one will pick up the bill and ensure that they function. That will apply both in inner city areas and outside them.

There is a desperate crisis in inner city areas, and it affects constituencies such as mine. In Hammersmith and Fulham there has been an appalling loss of services, and there is a dire need for expansion of basic services, such as housing. While talking about Hammersmith and Fulham it is right and appropriate for me to say a word about the late hon. Member for Fulham, Mr. Martin Stevens, who died at the untimely and young age of 56. He and I had strong basic disagreements about political philosophy. However, he spent a great deal of time in his constituency and was frequently seen there taking up people's problems. He will be a loss to the Conservative party, and many people in Fulham will miss him. It is right for the House to pay its respects to him. We knew that we were representing inner city areas with profound problems.

Hammersmith and Fulham council is run by a coalition of Conservative and Liberals who have a strong ideological commitment to privatisation and, above all, to dramatic cuts in public expenditure. We have a housing waiting list of 10,000 people, yet the Government, with the full, active support and encouragement of the Liberal-Tory council, are busy selling eight or nine blocks of flats in Fulham court. In doing so, they are decanting council tenants from those flats, and are even talking about taking eviction powers to remove people who have lived there, often all their lives, from the flats. That is a wholly unacceptable policy, and it does not merely affect those people, but others.

Today I received a not untypical letter from Hammersmith and Fulham council about Mr. and Mrs. Conlon in my constituency. It states: There is no possibility of a transfer as Mr. and Mrs. Conlon have no transfer points. In other words, the council and the Government by cutting the housing budget for building, renovation and repairs are creating a housing crisis in our inner cities which makes the underlying problems far worse for people at every level.

Hammersmith and Fulham has the fourth highest public sector rents in London, yet we have the second highest rate of single-parent families, and many people on low incomes. Despite that, we wonder why more and more people get into debt, why their electricity and gas supplies are cut off, and why the rent is unpaid.

The social services were under the control of a Liberal councillor who is now the chairman of finance. During his period as chairman of the social services committee children on the at risk register, which was set up by the Government, were not being supervised by social workers because of cuts. Eventually they were given a social worker, but only after I, the press and others had exerted pressure. The chairman also tried to interfere with court decisions affecting care proceedings which the committee had set in hand, and had to be warned off by the clerk of the court. The director of social services, who was a good one, was driven from his job and the job was left unfilled for more than 18 months. That is how bad the position became.

We shall now see the full results of that. On Wednesday a report will go to the social services committee which is now under a conservative chairman. It will show that under the financing for the next 12 months it will be necessary to decrease the number of nursery places which have existed since 1984 by 13 per cent. The nursery provision is not keeping pace with the projected increase in the number of children aged up to four years.

Eleven of the children on that waiting list are in priority category 2. That means that there is a danger to the child's health and of serious neglect by the parent. However, there is no place for such children in a nursery school. There are another 86 children in priority category 4. It is considered in that category that there is a serious risk to a child's normal development. For example, the parents might be mentally handicapped or something of that nature. Again there is no possibility in the near future of nursery places for such children. There is a total of 756 children in the top five categories.

There has been a clash between the Government and their own Tory-Liberal council because the council submitted a financial package to the Department of the Environment. The Department rejected that package and the council is now going to have to drop some of its projects as a result.

To cope with that situation the social services committee is proposing, first, to close and sell three children's homes and one home for the elderly, although we all know that the problems of children and the elderly are among the most acute in the area. The social services committee is also proposing to close the student unit. I intend to discover in due course whether that closure will affect training for social workers caring for children on the at risk register. In view of the many recent cases, the last thing we ought to do is cut back on training for social workers. The committee is also to close a luncheon club. That is a measure of the crisis that is hitting the inner cities. The report ends with the words: The Services most affected will be the Area Teams, the Homes for the Elderly and the Day Nurseries where budgets will not be sufficient to maintain full staffing.

The social services committee also proposes to close Riverpoint hostel. Even The London Standard reported a few days ago that that hostel was taking homeless people not just from the London borough of Hammersmith and Fulham but from all over London and from outside London. Hon. Members may forget that the inner cities have to pick up some of the problems from the outer London and shire areas.

The Riverside studios, the well-known arts theatre in the borough, will have to close because the council is rejecting a grant that was initially put forward by the Arts Council as long as the council was prepared to pay something as well. The Liberal chairman of the social services committee, Councillor Knott, said: There is no way we are going to fund the Riverside. We are off the hook and do not intend to get back on.

Finally, there is the problem of crime in inner city areas. A week or so ago the Secretary of State for the Home Department boasted of his Downing street seminar. Many of the things in that seminar involving crime prevention cost money. The Secretary of State mentioned 1.3 million houses needing basic improvements in their locks, doors and windows. The rate of grant necessary—which is something in the region of £400 per house or flat for the older properties that need more repairs—represents an overall cost of £500 million. Where will that money come from? Will it come from the shire areas or the inner city areas? Where will the money come from to pay for the caretakers who prevent vandalism and who help clear up graffiti? Where will the money come from for the other social problems that exist in the inner cities and shire areas?

I welcome those Conservative hon. Members who say that they will join Opposition Members in the Lobby tonight. By God, those hon. Members are six years too late. The damage that has been done to the fabric of the country is almost irreversible and will take years to put right. I must tell Conservative Members that it is not an answer simply to shift money from the shires to the inner cities. It must be recognised that at the same time as the Government are putting a greater burden on the inner cities and a greater burden on the shire areas through rates, they are actually giving more back in tax handouts to the rich than ever before.

Social Trends, the booklet published only a few weeks ago, shows that, without any doubt, the rich in Britain, and particularly the very rich, are getting very much richer and the poor are getting very much poorer. At the same time the low income groups in the inner cities and in the shire counties are having to pick up the bill. That is a recipe for disaster and if Conservative Members will carry their logic to its conclusion they will not only vote against the report tonight, but will make sure that the Minister never tries to get away with it again and reverse the policy.

9.10 pm

Mr. Anthony Nelson (Chichester)

It is difficult at this late stage of the debate, and somewhat invidious, to try to encapsulate all the issues that have been raised. It is rather like trying to squeeze a three-year pure science degree course into the space of five minutes. However, as I am charged with the responsibility of speaking for my constituency and on behalf of a number of colleagues who represent west Sussex constituencies, and who are in their places this evening, I shall do my best in a short time to put a few compelling and persuasive facts on the record.

As I said on 18 December, there is a widespread feeling of betrayal in the shire counties following the rate support grant settlement. I feel that there has been a gross breach of faith with statements made by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), the previous Secretary of State for the Environment, and with previously expressed intentions. Time and time again we have been told that the most prudent and lowest spending authorities would be rewarded with fairer allocations, but time and time again our best hopes have been thwarted. On this occasion the time is up and we are prepared no longer to put up with promises of jam tomorrow.

As my hon. Friend the Member for Horsham (Sir P. Hordern) said, the position of the West Sussex county council is especially difficult. The national rate support grant has fallen by about 2.5 per cent., but it has fallen by 11.3 per cent.—from £54.4 million to £48.3 million—for the West Sussex county council. However, it is the lowest spending shire county in the country per head of population. At 141p, it has the lowest rate in the pound in the country. Its expenditure this year is £203.1 million, which is £20 million, or 9.1 per cent., below its grant-related expenditure assessment.

The council is planning next year to spend about 7.5 per cent. more, of which only 0.7 per cent. will be expenditure on real growth in services. The remainder will compensate for the inflation that we are experiencing. It was stated at a meeting today of the county council that the rate increase will be 19 per cent. This is well above the rate of inflation, yet, as I have said, I am talking about the lowest spending authority in the country.

The increase in spending of 0.7 per cent. on services, which amounts to an extra £1.3 million, includes essential expenditure on education to provide more teachers, books and equipment. The authority has managed to keep well below the average county expenditure per head on primary and secondary pupils. It includes expenditure on social services, including more home care and expenditure on the elderly. These are essential items of expenditure in widespread rural constituencies such as the one which I represent. Last but not least, there will be some modest improvement in the provision for the police to bring the Sussex police authority up to establishment and to meet new legislative requirements.

It was to be hoped that in rate support grant terms Chichester district council would mitigate the position of the county. However, the Chichester district council is faced with a block grant loss of about £200,000, even after reducing spending in volume terms. The rate may rise to 16p, an increase of nearly 20 per cent. on last year, and 45 per cent. over the past three years. If anyone doubts the authority's credentials for prudence, it should be said that it was able to peg its rate at 11p for five years. It is a prudent authority. There have been major reviews of staff and organisation by the county and district councils. When I am written to by the chairman of the district council and told that the council is being penalised persistently by remaining a low-spending authority, I realise that the time has come for me to do more than merely implore my colleagues to come up with a fairer deal. It is clear that the time has come to vote accordingly.

There is widespread concern on both sides of the House about the inequitable distribution of the total pool of rate support grant that is available and about variations year on year. If the total amount of cake for distribution to local authorities has fallen by only 2.5 per cent., there should not be such massive fluctuations in what county councils receive year on year. The circumstances of and the demands upon local authorities do not change so radically from year to year, and yet there have to be exaggerated changes to our rate setting because increases in expenditure have a disproportionate impact on the rates that have to be levied.

I consider that my right hon. Friend the Secretary of State could have done more to keep faith with the stated intention of looking after the lowest spending authorities more fairly, possibly by having a graduated scale, which would mean that authorities whose expenditure proved to be well below their grant-related expenditure assessment would be able to benefit from redistribution of close ending to a greater extent and would be able to spend nearer to the level of grant-related expenditure without having to incur such large and increasing reductions in their grants. It does seem inequitable to me.

I very much regret my decision, for it is one that nobody takes lightly, not least myself, having supported the Government consistently during my 11 years in the House. I know that my right hon. Friends the Members for Shoreham (Mr. Luce) and for Worthing (Mr. Higgins), and my hon Friends the Members for Horsham, for Crawley (Mr. Soames) and for Arundel (Mr. Marshall), are with me in the Chamber tonight, and that some of us will find it difficult to support the Government. I for my part will be voting against these reports. I do so in the firm conviction that we must stand up for the interests of our constituents. A shot must be fired across the bows of the Government if we are to have a fairer solution next year.

9.15 pm

Mr. Simon Hughes (Southwark and Bermondsey)

What a score: for the Government, 1; against 16—and half of those from their own Benches. The only speech so far in favour of these reports has been that of the Secretary of State for the Environment. This is the report that the right hon. Member for Castle Point (Sir B. Braine) reminded us follows the promise given in the House on 25 July 1985 by the right hon. Gentleman's predecessor, the right hon. Member for Wanstead and Woodford (Mr. Jenkin). This is what we were told we would see: 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 the killer line: If local government responds sensibly, average rate increases next year should be in low single figures."—[Official Report, 25 July 1985; Vol. 83, c. 1317.]

What is the view of the experts? The Association of County Councils has written to every hon. Member. It takes, firstly, the unprecedented step of asking all hon. Members to vote against the Government's report and to request the Government to produce revised proposals which are not as damaging as those contained in the present report. Secondly, it says that the Government should be asked to make it clear that for the first time ever in local government finance history the shires are being asked to pay for the cities to such a large extent. It also asks that the Government should make it clear that this is a shift in policy and that they should not continue to maintain that low rate rises in the shire counties are still possible when the shift in grant alone requires a 5.7p rate increase.

The hon. Member for Chichester (Mr. Nelson), speaking for a Conservative-controlled authority, has just told us that in his authority, which is one of the traditionally low spenders, the figure is 19 per cent. So there has been no addition to make a political point, an accusation which might be levelled at other authorities. That is the reality, and that is what the Association of County Councils has predicted from the moment the announcement was made in December.

Thirdly, as the association has said, what is clear above all is that, instead of a simple system, this year's rate support grant settlement is by far the most complex there has ever been. It is well beyond the grasp of elected members and most officers to understand exactly why their authorities have gained or lost money.

The litany that we have heard from the hon. Members on the Government Benches has been what can only be described as devastating. For the Secretary of State to think that his first announcement of rate support grant is a success would be a travesty of the truth. The right hon. Member for Cambridgeshire, South-East (Mr. Pym) said that the Government's machine was out of control: it will produce unacceptable rate rises, it is unfair, it penalises authorities, it is in breach of undertakings and it is a contradiction in policy terms. The hon. Member for Eastleigh (Sir D. Price) said that the reports were bad news for the counties and assumed no element of real growth. The right hon. Member for Chesham and Amersham (Sir I. Gilmour) said that, in economic terms, this was sheer moonshine and that Ministers would not do themselves what they were asking the counties to do.

From Devon the hon. Member for Tiverton (Mr. Maxwell-Hyslop) said that this was madness, wholly deficient of logic or reason. From Essex the right hon. Member for Castle Point said that there is no justice. From Wiltshire the hon. Member for Devizes (Mr. Morrison) said that it is a muddle and that we shall either have cuts or huge increases, or both.

Two other devastating points have been made. The right hon. Member for Castle Point said that for six years he and his colleagues had been banging on the doors of the Government to try to get them to change the system. The only conclusion that could be drawn was that instead of there being any sign of a listening Government the Government had been stone deaf to their friends as well as their opponents on the question of need.

The other devastating criticism was from the hon. Member for Devizes. In Wiltshire, where there is an authority under alliance control, the Government appear to have forgotten the principle that local government exists to provide services and services need money. That money has to come, at least in part, from the Government and from the Government's system as it is imposed on the ratepayers and the county councils.

In one of his rare interventions the hon. Member for Great Yarmouth (Mr. Carttiss) said, not surprisingly, that enough is enough and that it is a sad day for the Conservative party. The hon. Gentleman is living proof of the Government's failures because he was a county councillor in Norfolk until his defeat by the alliance in May.

The strongest words came from the hon. Member for Chichester, although he may not have intended them to be stronger than those of his colleagues. He said that there has been a gross breach of faith; a betrayal of what Conservative Members have said.

There have been many interventions from other Conservative Members who have made it clear that if they do what they say, if they are to practise what they preach, they will come into the Lobby with the alliance and the Labour parties tonight. We challenge them to do so because power lies in the hands of Conservative Members. If they do not defeat the report, as they could, the rate increases of 20 per cent., 23 per cent., 26 per cent., 29 per cent., or 32 per cent. that will take place in shire counties throughout England in April and May this year will be their fault. They will not be the fault of the new incoming councils, largely alliance, now that the blue tide has rolled back from over the counties of England. They will not be the fault of the councils that have inherited often a low-spending budget with, as many Conservative Members have admitted, often substantially inadequate provision in school buildings, education, road building, social services and the like. Those increases will be the fault of Conservative Members who will have supported their Government and allowed them yet again to get away with a system that is grossly inequitable.

Mr. Powley

rose—

Mr. Hughes

No, I shall not give way. The hon. Gentleman has already intervened.

The remedy lies in the hands of the House tonight. The Secretary of State has said that next week we shall have the latest Green Paper. If the Secretary of State were a man of such vision, clarity of thought and understanding, he could have brought forward a reform. He could have ensured that what was proposed could have been done by now. He could have brought in a new system and he could have been fair to the inner cities as well as to the shire counties.

But we know the electoral realities. We know that two years ago there was a massive protest about the system from the Secretary of State's right hon. and hon. Friends. So a year ago the Government eased the burden a bit. They suggested that things would get better. Why then? Because county elections were just around the corner. The elections have happened and the Government realise that this year the electoral test is elsewhere, above all in London. So what have they done? They are making the shires, which do not have elections, pay for London, which does.

There would not have been this massive extra cost without the abolition of the GLC and the metropolitan counties. There would not have been all the transitional costs that the boroughs have to bear, that the Greater London council used to bear. The figures bear that out. Even with the compensation for boroughs there will still be a deficit. In my borough of Southwark there will be a deficit of about £6 million on the cost of transition. Even with the manipulation of the residuary body, its budget and, as the hon. Member for Copeland (Dr. Cunningham) pointed out, the variations, which mean that it does not have capital controls while everybody else does, there would have been a discrepancy.

The Government caused the bills that are now being charged to the shires to pay for what they believe will be electoral success in London in May. However, that will be misspent, as it was in 1985. They spent to buy the votes of the shires last year but they lost. They will spend to buy the votes in the boroughs and the districts this year and that will be lost, too.

The Sunday Times recently described today's events as the "great electoral see-saw". It has opened the system that the Government have sustained for six years to gross manipulation by the Secretary of State, the Cabinet and the Prime Minister. The results of that manipulation do not make their supporters happy. I say to the Government, when the whole world, their own supporters, the Audit Commission and the Public Accounts Committee are saying that the system will not do, why not take away the reports and produce a Green Paper next week? If the Government are really concerned about doing something to reform local government finance and to ensure that people pay according to ability for the services according to need, they still have time to do it. They still have time to come up with something that will be acceptable. There would not then be a rebellion on the Government Back Benches.

The case has been proven. The electors have been betrayed and the shires have been deserted. The Government should be ashamed. Their economic management is a disgrace. It is up to the Tory Members to decide whether they share that responsibility or refuse to take it. We shall see who is on the side of the ratepayers. The alliance is on the side of the ratepayers and it will continue to fight for local government and the services that ratepayers need.

9.27 pm

Mr. Douglas Hogg (Grantham)

We are dealing with an extremely complex system of reports. I acquit the Government of introducing a complicated system of calculation in order to make parliamentary scrutiny of their measures more difficult. I do not think that it was their intention to introduce an extremely complicated report, but one of the consequences of our difficulty in understanding the precise nature of the calculations and considerations built into it is that it makes parliamentary scrutiny of these matters exceptionally difficult.

There are, however, at least three aspects of the policy which are easy to detect and upon which we should comment. The policy of squeezing local government spending is continuing, and this has two aspects. The Government are assuming that the 1986–87 expenditure by local authorities will increase by only 3.4 per cent., and the Government's contribution to local government expenditure, at 46.4 per cent., is, I think. the lowest ever. It is certainly lower than in 1985–86, when it stood at 487 per cent. Therefore, we see a policy of the Government continuing to squeeze local government spending.

There is a shift in resources from the shire counties to the cities. We are told that that shift is about £220 million. The Association of County Councils tells us that that implies a rate increase in the shire counties of 5.7 per cent. No indulgence is shown to the local authorities which are spending substantially below GREA.

The cumulative effect of the policies that I have just mentioned means that it will be impossible for those local authorities which wish to increase their spending towards the GREA to do so without suffering substantial holdbacks.

I believe that the authorities will not be able to maintain their present level of services without increasing rates by substantially more than the 7.5 or 8 per cent. that was mentioned by my right hon. Friend the Secretary of State in December when he made his statement.

Those are four aspects of policy which I believe the House may well grasp even if, like me, some hon. Members have difficulty in understanding the more arcane aspects of the rate support grant.

Having, as it were, summarised the main features, one might be entitled to express one's anxieties. My first, and it is the central one, is that I believe that the Government are seeking to pursue a number of policies, most of which I support when pursued separately, but which are not inherently compatible one with the other. That is the great difficulty that the Government face.

First, there is the assumption about local government spending. I find it difficult to believe that the Government are entitled to assume that 1986–87 local government expenditure will increase by only 3.4 per cent. over 1985–86 levels, when one bears in mind a rate of inflation of 5.5 per cent., the 6.9 per cent. offer to teachers, and pay awards to the police and firemen which are essentially out of the control of the local authorities. If that spending assumption is too low, the grant is too low, because the matters are inextricably linked. I am worried about the low assumption that the Government have made.

My second point is that I am very much in favour of the broad policy of saying that those who spend money should raise more of it. I entirely agree with the policy of reducing the Exchequer contribution. In principle I do not object to it being limited to 46.4 per cent., but I question whether we can do that at the same time as making unduly low assumptions about local government spending and seeking to transfer about £200 million from the shires to the cities.

That takes me to my next point—the transfer of resources. I am prepared to accept as an assumption that there is a compelling argument in favour of spending more money in the cities, but what I find difficult to accept is that I and my constituents as shire ratepayers should finance that transfer.

If there is a public need to carry through that policy, it is an Exchequer-taxpayer obligation, and not the obligation of the shire ratepayers. It is wrong in principle for the Government to go to the shire ratepayers and say, "Look, there is a problem in the cities. You finance it." Although the problems of the shires are not so apparent—they do not give rise to riots—and the symptoms are less acute, it is wrong to suppose that rural areas do not have problems. They do. They are just different. Even if I were wrong about that—I do not think that I am—one matter is wholly clear, and that is that the shires do not have the financial latitude that will enable them to lose the kind of assessment about which we are talking without suffering significant problems.

I shall deal swiftly with the subject of Lincolnshire county council. The Government are assuming an increase in spending of 3.4 per cent. over 1985–86. That is a spending level of £201.6 million. For that, Lincolnshire will receive a grant of £101.6 million—0.5 per cent. more than in 1985–86. We have done better than many of the counties represented by my right hon. and hon. Friends, because at least we have not suffered a positive cut under Government spending plans, but it is too low a figure. A grant increase of 0.5 per cent. will not enable authorities to maintain existing services without their being obliged to increase rates by substantially more than the 8 per cent. mentioned by my right hon. Friend the Secretary of State.

There is a twist to this. The county council has planned to increase spending to £210 million, which is an increase of 7.5 per cent. over 1985–86. If that were done, the grant would be cut to £98.6 million, which in cash terms would be 2 per cent. below what the county received in 1985–86.

I hear my right hon. Friend the Secretary of State saying that I am proposing an increase in public spending and I should not do that. I wonder whether that is right. Lincolnshire county council's GREA is £222 million. We are currently planning to spend £210 million. Even if the council's planned expenditure goes through and it spends £210 million, it will still be £12 million below the GREA expenditure. Why should the county council not plan slowly to nudge its expenditure up to GREA? If GREA has any meaning at all—I have come to the conclusion that it has not—it must be intended as a measure of need.

As I have my right hon. Friend under my eye, may I develop the point further. He need not be coy. I am not violent. On this occasion he will have to listen.

We are spending substantially below GREA. Lincolnshire's GREA for 1986–87 is an increase of 6.5 per cent., which contrasts with the average for the shire counties of 5.9 per cent. Why should a county such as Lincolnshire not move gradually towards meeting its GREA? My right hon. Friend the Secretary of State spoke eloquently of public spending and said that his Department had run through a model which showed an increase of £1.1 billion in public spending, but that increase assumed that every authority would try to increase its spending to GREA, and I do not believe that will happen. Local authorities would have to finance the greater proportion of increased spending out of rates. My right hon. Friend should not increase the grant for those authorities spending under GREA to enable them to increase spending up to GREA, but he should not take grant away. In other words.. I strongly favour the policy of GREA exemption.

Whether one looks at it broadly or narrowly, I believe that the Government have made a mistake—not out of malice or intentionally. What they have tried to do is to pursue a number of policies that are not compatible. The Government must face the fact that more money must be put into local government spending by the Exchequer if moneys are to be spent in the city centres. It is wrong to ask the rural ratepayers to carry the taxpayers' obligation. For that reason, and unless I hear things that I do not expect from the Minister tonight, I shall not support the Government in the Lobby tonight. [Interruption.] If hon. Members will have a little more patience, I shall probably vote against the Government.

Mr. Tony Banks

On a point of order, Mr. Speaker. In the interests of balanced debate, do you think that before we continue you could ascertain whether any Tory Back Bencher supports the Government?

Mrs. Kellett-Bowman

Yes, I do.

Mr. Speaker

Order. That is a helpful comment, but I now call Mr. Benyon.

9.39 pm

Mr. W. Benyon (Milton Keynes)

I approach this settlement with a note of desperation because we have been all around this course so many times before.

Two things are utterly wrong with the present system of local government finance. The first is that it is massively redistributive. My right hon. Friend the Secretary of State made that point. Ratepayers in Buckinghamshire have to pay a large increase in rates this year to finance inner cities and deprived areas. I am all for such extra expenditure in those areas, but it should be borne by the taxpayer, not the ratepayer.

The second defect is the fact that the settlement is angled on expenditure, not on the rate precept, and it is the rate precept that is important as people are worried about the rates that they pay.

Of course, I am pleased that the penalty system has been abolished, and it is right that there should be an inducement to spend below GREA. GREA means what it says—it is an assessment of the expenditure needed to finance the needs of a local authority. We can argue about how it is produced, but the principle is good. If an authority spends less than its GREA, because of good management, it should be rewarded. The weakness lies in the fact that the expenditure is concerned with the gross, not the net, figure, yet the net figure determines the rate precept.

The initial estimates of expenditure in Buckinghamshire for the current year are £249 million, with a figure for GREA of £236 million. We have balances that we could use, but we are not allowed to, for the assessment of block grant. We are allowed to use the interest but not the balances themselves. However, those balances have been provided by the ratepayer and the taxpayer and they should be used in these difficult circumstances.

I shall now consider the GREA. It works well for an area where the population is static or falling, but it is hopelessly inadequate for an authority such as mine in whose area the population is growing phenomenally. The population increase for the whole of England between mid-1979 and mid-1984 was 1.2 per cent., but in Buckinghamshire it was 11 per cent.

The figures used for GREA are always two years out of date, and the effect on Buckinghamshire has been catastrophic. The Audit Commission profiles show that the majority of spending areas in Buckinghamshire are at or below the national average. It is obvious that the new city of Milton Keynes plays an enormous part in that process as it is on a green field site and requires an entirely new infrastructure which must be provided by the local authorities. The county has to provide its share in advance of the population explosion. The old burden payment helped towards that, but it has been stopped for four years. I hope that my right hon. Friend the Secretary of State will reconsider that decision.

Recycling moneys from recalcitrant authorities cannot be the answer, because no treasurer can consider fixing a rate on that basis. Indeed, there is some doubt as to whether the process is legal, so planning on that basis is just not on.

I intervened in the speech of my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) to point out my experience on Friday when I went to three different, modest houses in my constituency and asked the occupants what their rateable value was so that I could calculate the extra rate. In nearly every case it was about £150 on the figures produced to date. I said to the occupants, "Are you prepared to tell me your gross income?" In every case they did, and 2p off income tax would be required to pick up the sort of penalty that they will face unless something is done. Like many hon. Members who represent shire counties that have run a good organisation and kept their house in order and will now find themselves penalised, I am totally unable to support this settlement.

9.46 pm

Dr. Oonagh McDonald (Thurrock)

I shall detain the House for only a few minutes to complain about the absurd position in which the Government's decision about rates has placed Essex county council. Essex is one of the low-spending authorities. Indeed, hon. Members earlier heard me say that its spending is too low. That is because, especially at my end of the county, social and education services are not adequate to meet the needs of the people I represent. In spite of that, the Government are inflicting further cuts on the county.

Essex county council decided that, in order to meet its present commitments, it would need next year to increase its current spending from £500 million to £548 million. If it does that just to meet its present commitments, the county rates will have to go up by 18 per cent. and the grant which Essex receives will go down from £132 million to £115 million. Even worse than that is the sheer absurdity of the Government's assessment of what Essex should be spending and the consequent reduction in the grant and the increase in rates. The Government's assessment of providing a standard level of services for Essex would mean spending in the next financial year of £552 millon above what Essex already plans to spend. Increasing spending to that level will mean a rate increase of 20 per cent. and the grant will go down to £105 million.

That is nonsense, and the Government have done that to what is largely a Tory county council. I am the only Labour representative on that council. I am astonished that the right hon. Member for Castle Point (Sir B. Braine) is the only Essex Member who has taken part in the debate. Many of the other Essex Members are not even present. That can only mean that they do not care about the cuts being imposed on the services provided by Essex county council and about the rate increases that their constituents can expect to pay in the next financial year.

Essex county council—which is no longer Tory-controlled, but is a hung council on which Labour is one of the dominant forces—would like to provide increased residential and community care for the elderly and the handicapped, especially as a large hospital for the mentally handicapped and mentally disabled will be run down over the next 10 years, releasing 600 patients into the community. They will require warden accommodation.

We should like to improve the schools in Essex, particularly in my constituency, because they are sadly in need of repair, and books and equipment should urgently be provided, especially in educational priority areas. The council also wants to restore the library book fund and to allow children to go to school before their fifth birthday.

Those are the sort of services that Essex wants to provide and that my constituents desperately need. They are also the services that the Government are absolutely determined to cut.

9.49 pm

Mr. Michael Shersby (Uxbridge)

The outcome of the rate support grant for Hillingdon this year is perhaps the most extraordinary in the history of this bizarre affair, because it seems likely that Hillingdon will go out of grant altogether. I think that I can say with confidence that it is the only London borough that will be treated in that way. Although I sympathise with the great difficulties of my hon. Friends from shire counties, I do not think that I heard any hon. Member indicate that his local authority was likely to go out of grant altogether. I hope that my hon. Friend the Minister for Environment, Countryside and Local Government will tell the House why that will happen.

The position is complicated by the transitional cost of the abolition of the GLC and its transferred services and, above all, by the uncertainties that arise from the way in which the expenditure of the London Residuary Body is calculated. That will result in great difficulty for London local authorities, because they do not know how much the LRB will cost or what impact it will have on their financial position. I am, however, grateful for the information that I have received on this topic in the past week or two from my hon. Friend the Minister for Environment, Countryside and Local Government. I hope that he will comment on the possibility of permitting the LRB to operate in a way that will result in the maximum benefit to London ratepayers. I hope that my hon. Friend will also reveal how the LRB will operate in succeeding years. I hope especially that he will guarantee that the proposed reduction this year will take place. I say that because I have not yet made up my mind how I shall vote. Much will depend on the assurances that I receive.

I hope that my hon. Friend will give an assurance that he will permit the LRB to act with all possible flexibility in connection with the application of receipts. Many of my borough's problems stem from the fact that it is a so-called high-resource authority. I therefore look forward to the publication of the Green Paper in a few days' time. I hope that it will contain a paragraph that recognises that the treatment of high-resource authorities and the equalisation of the process that is applied to them have gone too far.

I hope that my hon. Friend will say something about the incredible situation in the borough of Hove, which many hon. Members have mentioned. I am anxious to learn why Hove is unable to levy any rates at all.

The only good news I have is the example set by my borough councillors. They have not only reduced expenditure on services by the maximum amount that the community can support—a reduction of 14 per cent. in real terms since 1978—but they have reduced manpower, by 2,346 non-manual and manual posts in the past eight years. That reduction has been achieved despite an increase of 107 posts resulting from central Government policies. I hope that my hon. Friend will take account of those figures, if nothing else.

Mr. Dicks

Does my hon. Friend agree that it is a disgrace that, despite the achievements by Hillingdon borough council, during the past three years the grant has fallen from £21.2 million to zero? That is not only a disgrace but an insult to Hillingdon ratepayers. It is an affront to my constituents.

Mr. Shersby

I agree that it places honest, hardworking borough councillors and the officers who serve them in the greatest difficulties in discharging their obligations to the people they represent.

Will my hon. Friend the Minister give me the guarantees for which I have asked on the reduction in the LRB contribution? That is very important to my borough. What is the likely decision next year? Will my hon. Friend say something about the excellent report by the Select Committee on Public Accounts, of which I have the honour to be a member, which has made 21 recommendations to the House for urgent action? Any hon. Member who has not read the report of the PAC, published in November, should do so. It makes the point that, whatever changes Parliament may approve as a result of the Green Paper that we are to see at the end of the month, the system that operates is in such a bad state that urgent action is needed now, in advance of any decisions that may be taken as a result of the Green Paper.

We all know that new taxes such as residence tax will need much discussion and consultation. Therefore, we are unlikely to see legislation enacted in this Parliament. The PAC makes the point that legislation should be enacted as quickly as possible. I ask my hon. Friend the Minister to give some assurances that the Department of the Environment will endeavour to bring forward legislative proposals before the end of this Parliament.

9.55 pm

Mr. Bowen Wells (Hertford and Stortford)

The only issue that the Conservative party was campaigning on before 1979 was that high-spending authorities should be curbed and their spending reduced from the profligate amounts being spent on unnecessary items in local government. Tonight, the House is being asked to award those overspenders, particularly in the inner cities, with additional grants, in some cases to the ludicrous extent of the example of Hove, to which my hon. Friend the Member for Uxbridge (Mr. Shersby) has been referring, and to other cities such as Exeter and Bournemouth.

The settlement is illogical. We are rewarding overspenders and giving extra money to authorities that do not need it. This is brought about by the methodology of the calculation of the grant-related expenditure assessment being used throughout the country. In spite of the many Bills and orders that we have been asked to pass since 1979, a deaf ear has been turned to our pleas that that methodology should be altered.

The principal problem in that methodology is the equation made between high rate income authorities—those with high-rated property—and GREA, which wrongly shows that we have low needs. As a result, over the past seven or eight years, the system has taken away money from low-spending, efficient authorities in the shire counties.

My county of Hertfordshire is the second worst disadvantaged county by this method. It is second only to Bedfordshire, and I am delighted that you managed to find space in the busy programme for me to speak, Mr. Speaker. The basic factor that is wrong in the settlement is that it does not reflect the needs of the authority. The rateable value of a standard house in Hertfordshire is 29 per cent. above the shire county average, but we are to be disadvantaged by the settlement. Hertfordshire has the highest rate bills for a house of standard size and amenities of any of the shire counties— £464 in 1985–86, which is 41 per cent. above the average. That shows how wrong is the methodology.

Average male earnings in Hertfordshire are only 13 per cent. above the average. No recognition has been given by the Government to the problems of high rateable values. Rateable value is a poor measure of the ability to pay rates. This is recognised for London, and if the London discount system were extended to Hertfordshire. we would receive a substantial extra grant. Even if local earnings were used as a measure of the ability to pay, there would still be a significant increase in grant.

Mr. Robert B. Jones

Does my hon. Friend agree with the proposition that although it is right to redistribute wealth away from the more prosperous counties to the less prosperous counties, if Hertfordshire gets only a 13 per cent. rate support grant compared with a national average of 46 per cent. it cannot be truly said that our incomes are four times the national average?

Mr. Wells

That is a useful intervention in that it exhibits the point that I was trying to make to the House, despite its lack of attention. Nobody in Hertfordshire wishes the inner cities to be disadvantaged. We want them to be given additional money. It ought to be given to them not, as so many of my right hon. and hon. Friends have said, from the rates of my taxpayers, but from income tax paid by the whole nation.

The inner cities need to be imaginatively regenerated. However, money ought not to be given to the inner London authorities. They have shown themselves to be completely incapable of spending this money in a way that will regenerate their areas. They have received large sums of money but they have not made adequate or proper use of it to ensure that their areas are regenerated. Therefore, the money that is transferred from the shire counties will not result in the economic development that is so desperately needed in those areas. It is a political misjudgment, therefore, to transfer this money from the shire counties to inner London and to the other inner city areas. May I remind my right hon. Friend the Secretary of State for the Environment that Abraham Lincoln said that one cannot make the poor richer by making the rich poorer.

I am very grateful that my right hon. Friend and my hon. Friend the Minister for Environment, Countryside and Local Government accept the argument that high rateable values should not be the basis upon which such needs are assessed. However, this system will continue for the next few years until legislation is on the statute book. Had it been introduced in 1980 we should be able to benefit from it now. It will take three years to get legislation on to the statute book. In the meantime I want my right hon. Friend the Secretary of State to give a copper-bottomed undertaking that he will introduce a system that will protect my ratepayers from the depredations of the methodology that is used in grant-related expenditure assessments.

I thank my right hon. Friend the Secretary of State for referring to the grant recycling exercise. He believes that £9 million will come back to Hertfordshire from this exercise, and we are grateful for that. However, even if the Conservative majority gets its way on the county council the rate increase precept will probably fall by no more than 2 per cent. My ratepayers will be faced with a rate demand of between 16 and 20 per cent. A 2 per cent. decrease is welcome, but it does not address the problem.

The Government have made a political misjudgment and I very much regret it. Despite our representations, which were made in good time, I am sad to say that my constituents will suffer further reductions in expenditure on education. That expenditure is vital for curricula development and for repairing the buildings in which the children are being educated. It is needed for the young people in my constituency. They are the future builders of this nation, but they are being disadvantaged by an ill-judged settlement. I have to inform my right hon. Friend the Secretary of State, with great reluctance, that I, too, will join those of my right hon. and hon. Friends who cannot support the Government over the rate support grant report.

10.4 pm

Mr. Allen McKay (Barnsley, West and Penistone)

I wish to put a constituency point to the Minister for Environment, Countryside and Local Government and I hope that he will answer it. I do not intend to go over the ground that has already been covered by other right hon. and hon. Members—[Interruption.]

Mr. Speaker

Order. As the House knows, this debate can continue for a little longer.

Mr. McKay

Only one voice on the Government Benches has been supportive of the Government. If the Government have alienated their supporters, they must have done something really wrong. Their action has shown not only political mismanagement, but political misjudgment. If the Government did not have their huge majority, they would not attempt such action at this time.

The Secretary of State should consider that the mining areas have been affected in a way that no other areas have been affected. Other costs, on top of the £12 million for the abolition of the metropolitan counties, will affect Barnsley council. Barnsley council will lose £1.2 million because of the way in which the rate support grant operates. In mining areas the rate is paid on production, not on plant. That comes on top of a loss of £316,000 because of the work to rule of the year before. The abolition of the metropolitan counties will cost £12 million, lack of rate support grant for mining areas will mean a loss of £1.2 million, and on top of that will come a loss of £316,000.

I know that the Minister could say that that amount will be equalised the following year, but that is not good enough. The loss occurs this year. Barnsley council faces a rate increase of 29.2 oer cent., which is unbelievable. We do not wish to challenge such a rate because there is 20 per cent. unemployment in the area and we do not wish to cause any more. We ask the Minister to meet the council and to consider its problem favourably. We ask him to state that the equalisation will be not next year, which is too late, but this year. If he would bring forward the payment for that year, he would ease the burden on Barnsley council.

Mr. David Madel (Bedfordshire, South-West)

Bedfordshire has been mentioned several times during the debate, so I am glad to have the opportunity to say a few words on behalf of the county. Bedfordshire has been treated badly by this rate support settlement. I shall deal with some of the points that worry the Department of the Environment about the way in which Bedfordshire spends its money.

In the early 1980s Bedfordshire spent above its expenditure target, but so did other counties. That overexpenditure has been steadily reduced by Bedfordshire county council. This year, it is not spending above target.

The growth of spending has been mentioned many times during the debate. An audit profile compiled by the Audit Commission on comparisons of expenditure, taking 1981–82 as the base year and the RPI as 100 that year, shows that Bedfordshire's increase in spending has been below the rate of inflation since that year. Bedfordshire had the highest county precept in England in 1980. However, that has now changed. The range of county precepts is now from 139p to 210p. Bedfordshire is at 161.1p, with something like 10 county councils levying a higher county precept than Bedfordshire.

In terms of the general worries of the Department of the Environment, the increases in rates in Bedfordshire have been 2 per cent., 0 per cent. and 7.3 per cent. during the past three years.

There has been criticism about specific items on which Bedfordshire has spent money. Bedfordshire has a higher than average number of pupils now going through the secondary education system. We have a three-tier education system, which is expensive. However, that system was agreed by a Conservative Government in 1970. When criticisms are made of what Bedfordshire spends on education, it must be accepted that a three-tier system brings with it more spending, especially in terms of debt charges for new schools, on heating and lighting. The sparsity factor is also important. The size and design of schools in the three-tier system were agreed with the Department of Education and Science.

Most importantly, housing development in Bedfordshire went on at a tremendous pace the late 1960s and early 1970s. That was agreed by central Government. It has not only been housing for our own people, but, as I interupted several times today to say, for a fair share of the London overspill. We have helped an inner city and we are continuing to do so.

On education spending, all that I would say is that at a time when the curriculum is being improved and extended, and when expensive resources are going into schools under the technical and vocational education initiative, which bear continuing revenue costs, we cannot expect Bedfordshire now to change its three-tier education system and go through a tremendous upheaval. It is asking the county to do too much. There may be criticisms of Bedfordshire's education spending, and I agree that there may be room for improvement, but the general trend has been in the right direction.

The second item is highway maintenance. The Department of the Environment gets excited and says that Bedfordshire spends too much on highway maintenance. Is it any wonder, given our geographical position? We have the west to east routes and many roads leading to the east coast ports. We are short of bypasses. Above all, cars and trucks from local industry are generating more vehicles on the roads. My goodness, the Government are glad that we employ the people we do in the car and truck industry in Bedfordshire. The Government should be pleased that Vauxhall, a local company, has signed a two-year wage agreement, which is proof positive of management and unions working together. If the Government want more people to be employed in Bedfordshire and want our local economy to grow, they should not hand us a rate support grant settlement the likes of which we are now debating.

My right hon. Friend the Secretary of State has made seven changes in the method of constructing individual local authority GREAs for 1986–87. Six of those changes have a detrimental effect on Bedforshire's GRE. As a consequence, Bedfordshire's GRE will increase by only 3.4 per cent. in 1986–87, which is less than one half of the national average. Even the shire county average is about 70 per cent. higher, while the next lowest county increase is more than 26 per cent. greater than Bedfordshire's The changes which affect Bedfordshire most unfavourably are those relating to education pre-1981 debt charges and the sparsity factor. Our spending on education, much of which is unavoidable, is a result of central Government policy to allow the population of Bedfordshire to increase quickly.

A close consideration of Bedfordshire's spending and rates policies during the past few years shows a significant movement towards financial prudence and realism as to what business and domestic ratepayers can reasonably be expected to pay. That is due to the strong and sensible Conservative influence at county hall in Bedford. I say "influence" because not since 1981 have Conservatives had an overall majority. Indeed, in 1982, the Opposition parties plunged Bedfordshire into the arena of big spending and financial recklessness by forcing through a supplementary rate, which was subsequently cancelled by the Government.

I have listed the areas where Conservative influence at county hall is helping the ratepayer, helping the Government and helping businesses. But this rate support grant settlement does not help Bedfordshire. Therefore, I cannot possibly support the Government.