§ Motion made and Question proposed, That this House do now adjourn.—[Mr. Sainsbury.]1.34 pm
§ Mr. Neil Macfarlane (Sutton and Cheam)
I am grateful for the opportunity to raise a subject which is of great importance to my constituents—the rate support grant settlement and the London borough of Sutton. It is interesting—I hope it will be an illuminating experience—to be on this end of an Adjournment debate, having sat for many hours on the Front Bench over the past six years.
I am encouraged and honoured by the excessive presence of the worthies from the Department of the Environment who have just joined us in the Box. I have great admiration and a lot of affection for them after my years with them, so I am glad that they are here today and I am sure that they will be able to assist us in many ways.
The rate support grant settlement was debated fully on 20 January, but, with hindsight, it seemed to many of us, not only in the House but outside in the wider world through the media, that there was a tendency for my right hon. Friend the Secretary of State, and indeed others, to concentrate on the problems facing the shire counties. I do not make that for one moment as an accusation against my right hon. and hon. Friends at the Department of the Environment. That is the way that it was largely presented. It absorbed much of the media's attention throughout those few days, as it tended to in December when my right hon. Friend the Secretary of State made his announcement on 18 December about the settlement for 1986–87.
That is why many of us who represent outer London boroughs feel that the problem is just as acute there as it is in the shire counties and it is to that to which I wish to turn my attention. I have every confidence that my hon. Friend the Member for Mitcham and Morden (Mrs. Rumbold), the Under-Secretary of State who is to reply, is well in tune with outer London politics and equally well in tune with outer London Government finance. I am sure that my hon. Friend the Member for Carshalton and Wallington (Mr. Forman), who is anxious to have a few moments in which to speak in this debate and hopes to catch your eye Mr. Deputy Speaker, when I have sat down — with the full recognition of my hon. Friend the Minister — has just the same problems. We both represent the London borough of Sutton. I want to express my warm thanks to my hon. Friend the Minister for the way in which she received a large delegation from both of us a fortnight ago, including various officials of the London borough of Sutton. That provided an opportunity for a detailed survey on Sutton's finances.
Sutton's financial control has been well in accordance with prudence and has reflected the Government's demands since 1979. Sutton has for many years complied with Government guidelines and target requirements. It has also given the fullest support to Government policies in connection with the abolition of the GLC and has cooperated more than fully in setting up the consortium arrangements to handle waste disposal in south London in spite of receiving a transfer station far larger than required. That is an important dimension for us in the overall assessment.
No charges of profligacy can be laid at Sutton's door, as opposed to the other inner London authorities which 1251 have for many years been locked in battle. I need not enumerate those except to say that we all know where they are and we all know what they have done to the ratepayers of Greater London. Indeed, many of the inner London boroughs and the outer London boroughs that make up the metropolis are in an identical position.
I did not support the Government's proposal on Monday 20 January, because the whole settlement is inequitable. I ask my hon. Friend to give urgent consideration to our problem with my right hon. Friend so that we may achieve a more equitable distribution. I am heartened by the comments made by my right hon. Friend the Secretary of State who received a delegation of outer London Members of Parliament in the same week, and for that we are grateful. But I hope that there will be more to come from some of the comments and observations that he made.
A feature of the 1986–87 settlement is that it is supposed technically to benefit metropolitan areas, but the increased benefit for London is concentrated almost exclusively on the inner London boroughs. Having worked for some years in the Department of the Environment I am well aware of the problems in the inner cities, but we must ensure that our programme is not to the detriment and exclusion of the outer London boroughs which, in many respects, are facing problems similar to any other capital city.
It must be said that most of the metropolitan areas receive, justifiably, all forms of other additional Government support through the inner city partnership, urban development grants and derelict land grants. There is a whole series of additional sources of funding which we tend not to see in the outer London borough of Sutton.
I want first to look at grant-related expenditure assessments. That has assumed a far greater importance in 1986–87 because previously rate support grant penalties commenced for expenditure in excess of target. Now, withdrawal commences in relation to GRE level. Thus the more GRE received, the higher is the grant. Indeed, an analysis of the total percentage GRE change in London, excluding GRE related to services transferred from the Greater London Council shows that inner London receives an increase of about 15.4 per cent. Outer London, on average, receives an increase of 8.2 per cent., but in Sutton the increase is only 6.4 per cent. The figures including transferred services are: for inner London an increase of 51.7 per cent., outer London 21.8 per cent., on average, and for Sutton merely 20.5 per cent.
Officials in Sutton are concerned that details of individual GREA components for existing services were not made available to Sutton until after the debate on the settlement in the House of Commons. I know the reasons for that policy over the years, but the timing is difficult. Without access to data, any conclusions drawn fom the information available so far can be based only on assumption. That places us in all sorts of difficulties at this critical time with just a few months to go before the end of the financial year.
Pre and post-abolition GREs have been provided for former GLC services and one area where Sutton seems to have suffered is in the post-abolition highways maintenance GRE. I hope that my hon. Friend the Parliamentary Under-Secretary will say something about that when she winds up because that is just one of several features that concern my hon. Friend the Member for Carshalton and Wallington and myself.
1252 I must make it clear to my hon. Friend the Parliamentary Under-Secretary that we understand that we cannot expect detailed and specific answers to all the points we might hope to make during the debate, but I hope that in the immediate future it may be possible to have some follow-up guidance so that we can relate it to our colleagues in the London borough of Sutton.
I also want to make it clear that the electorate wholeheartedly approves the Government programme to reduce expenditure. We also applaud the containment of inflation, which is a key factor in all of this. It is also worth pointing out to hon. Friend that, on all services, Sutton had the lowest net cost per capita in 1984–85. Sutton is an efficient local authority. It had the third lowest rate rises in outer London and between 1981 and 1985 rate rises were contained at just over 10 per cent. when the RPI increase was 28 per cent. for the corresponding period. That speaks volumes for Sutton's financial management. Indeed, I venture to suggest that many other local authorities should follow that. So far, we have had some recognition from my right hon. Friend the Secretary of State towards our problem, but I should like some answer. Can my hon. Friend say whether the reduced budget for the London Residuary Body helps Sutton and by how much can it help?
From the correspondence I have received in recent months it seems surprising to ratepayers that the benefits derived from abolition do not seem to be followed by a good grant distribution. Accordingly, we need specific details. I expected, as a firm supporter and believer of the abolition of the top tiers of Government in this country —the seven metropolitan authorities—that there would be such a distribution.
During his speech on 20 January my right hon. Friend used the phrase "grant recycling". I do not think that I would have chosen that phrase myself, but I know what he means and it is a graphic description. He spoke about grant recycling for low-spending authorities, meaning that those that have been in penalty will be required to help low-spending authorities. My hon. Friend the Member for Carshalton and Wallington and I are curious to know, as will other outer London borough Members who are in similar positions, how that will help the boroughs and, more specifically, how it will help Sutton. Can my hon. Friend be specific on that?
Third, is the all-important question of GLC balances — which my hon. Friend the Member for Carshalton and Wallington and I discussed before, when we went to see my hon. Friend the Parliamentary Under-Secretary and her officials at the Department — and their future distribution, based on the population of each borough? It is important for us to know precisely what that means. It is an important concession that the distribution of GLC balances might be on a fairly equal basis throughout the population of each borough. Have any studies been pursued by my hon. Friend's officials? If not, can they get in touch with officials in the London borough of Sutton? We need to know what the help will be. Again, the timing is crucial, bearing in mind the fact that it is only a couple of months until the year end.
Those are critical points for my constituents in Sutton and Cheam, Belmont and Worcester Park. Sutton's problems are not unique, but we are talking about specifics in this debate. I fully understand that my hon. Friend might not be able to reply to all the points that I have raised, but 1253 I should be grateful if, in the fullness of time—within a couple of weeks, I hope—she will provide answers to the more detailed points that I have raised.
§ Mr. Nigel Forman (Carshalton and Wallington)
I associate myself wholeheartedly with the well-expressed arguments of my hon. Friend the Member for Sutton and Cheam (Mr. Macfarlane), with whom, over the past few weeks and months, I have been engaged in an extensive lobbying exercise of Ministers. I should like to place on record my gratitude to the Secretary of State and the Under-Secretary, my hon. Friend the Member for Mitcham and Morden (Mrs. Rumbold), for their courtesy and the helpful way in which they listened to our representations and sought to respond to them.
As my hon. Friend the Member for Sutton and Cheam said, we cannot expect definitive and detailed answers this afternoon. None the less, the debate gives us yet another opportunity to emphasise, if emphasis be necessary, the importance of the issues to our constituents throughout the London borough of Sutton.
My hon. Friend referred to the three concessions resulting to some extent from the representations that we have made. We are grateful for that. However, it is important—indeed, vital—that numbers be attached to those concessions as soon as possible so that the ratepayers and councillors of the London borough of Sutton know exactly where they stand at the earliest possible date, and so that they can then come forward with the low rate increase that I know they would like.
The three concessions that my hon. Friend mentioned are equally important in the long run. There is a distinction between the concession on the London Residuary Body budget and the concession on the GLC's balances and their distribution, on the one hand, and the concession on grant recycling, on the other hand. The distinction is that, in the third category of grant recycling, we are talking about something that is dependent upon the best estimates that the Department can make of the overspending that might occur. There is a certain logical problem because that overspending is something which the Government are dedicated to contain and if possible avoid through the various machanisms to deal with the overspenders. It is ironic — this has not escaped my constituents in the London borough of Sutton — that to some extent the benefit that we expect to derive as a low-spending and responsible authority has to flow inexorably from the misbehaviour of local authorities elsewhere — mainly Labour-controlled—whose action we deplore.
In the short term, my hon. Friend the Member for Sutton and Cheam and I need the best possible settlement for the London borough of Sutton, to take account of its exemplary financial record, but wider issues arise than those of local government finance narrowly defined. If we can get a satisfactory settlement on those key issues, it will enable the people of Sutton to continue to enjoy living in a local authority which, over many years. has benefited from low rates, and which has attracted much new industry and activity to the borough.
A local authority with an exemplary education policy in terms of results would be put at risk if the arguments about local government finance went awry. The borough 1254 has one of the lowest unemployment rates in London and the south-east. We are naturally pleased about that because of the tragically high unemployment rate nationwide.
My hon. Friend the Minister must understand that there is more at stake than the simple technicalities of local government finance and arrangements for RSG. Broader issues are involved to do with the future quality of life for our constituents. I hope that the Minister and her colleagues in the Department of the Environment will give a high priority to what we regard as our convincing arguments.
§ The Parliamentary Under-Secretary of State for the Environment (Mrs. Angela Rumbold)
I thank my hon. Friends the Members for Sutton and Cheam (Mr. Macfarlane) and for Carshalton and Wallington (Mr. Forman) for the kind words with which they began their contributions. I am also grateful to them on behalf of the civil servants who worked in Marsham street for many a long year with my hon. Friend the Member for Sutton and Cheam.
I do fully understand my hon. Friend's arguments about the manner in which the London borough of Sutton has conducted its affairs over a number of years. My hon. Friend the Member for Carshalton and Wallington paid tribute to the local authority's good management and spoke of how such good management affects people who live and work in that outer London borough. I sympathise and I do not want anything that we do to be to the detriment of such boroughs.
My hon. Friends will accept that the rate support grant system is at the best of times undeniably complex. This settlement has been more complex because of the additional task of accommodating the abolition of the Greater London council and the metropolitan authorities. I welcome the opportunity to try to reassure my hon. Friends and their constituents about the borough's position.
First, I shall deal with how the 1986–87 rate support grant settlement might have affected Sutton if we had not made any changes to the grant system. Like all other outer Londer authorities the borough would have lost block grant because we have reduced the proportion of overall spending which is met by the Exchequer grant, of which block grant is a part. We have followed that policy because we wanted to reduce the Exchequer support to local government in an attempt to improve local accountability. My hon. Friend the Member for Sutton and Cheam accepted that. The loss of grant for this reason amounted to over £1.5 million. Sutton would have lost a further £333,000 due to increased rateable values. It would have gained about £800,000 because we have moved resources between various services.
With some other smaller losses and gains, overall Sutton would have received about £900,000 less in grant than in 1985–86 if we had simply rolled the old system forward to 1986–87.
However, we could not leave the basic grant system alone. The most important feature of the settlement next year is that we have removed targets and holdback. At the same time, we have increased the effects of the existing mechanism so as to continue the constraints on spending. Sutton gained £1 million in grant from that move.
We have also continued the development of grant-related expenditure as an objective measure of spending 1255 need. Sutton gains a further £1.2 million in grant from those changes which mainly affect its education and concessionary fares provision. As I said, we have abolished the GLC, which means that Sutton has gained a further £1.5 million of grant towards the services that it has taken on as a consequence of abolition.
The net result of all the changes to which I have referred is that if Sutton were to spend at a level equal to its own 1985–86 spending and include its share of the GLC's 1985–86 spending — increased by 3.4 per cent. — its block grant would increase by £2.8 million to £27.8 million—an increase of 11.3 per cent.
Many outer London boroughs have claimed that profligate inner London boroughs have been rewarded rather than penalised, as the outer boroughs would wish. However, many inner London boroughs are subject to lower expenditure limits next year. For example, Greenwich is being required to reduce its expenditure by 10 per cent. in real terms, Hackney by over 12 per cent. and Lewisham by 14 per cent., all as a direct consequence of rate capping.
Such demands are difficult to achieve, as I know to my cost. It is hard for a local authority to achieve much more than a 3 per cent. direct cut in expenditure during the rollover of one financial year. However, we are required to operate the block grant system on general principles which have to be consistent. We have no power to single out authorities for favourable or unfavourable treatment. The rate support grant system is based on the principles of need and resources equalisation. The aim is for authorities to provide similar services at broadly the same rate poundage cost to their ratepayers, regardless of differences in their needs and rateable resources.
Although we are not here today to decide the future of the local government finance system, it would be appropriate for me to mention that my right hon. Friend the Secretary of State has just launched a major Green Paper which addresses the fundamental issues of equalisation and the extent to which it should continue under a new financial system for local government. We shall certainly welcome all thoughts and contributions from local authorities in the coming months. I hope that my hon. Friends will take that message back to their local authority.
The abolition of the GLC is particularly important to the London borough of Sutton. My hon. Friends will recall that we intended that the financial effects of abolition would be neutral—there would be neither gainers nor losers arising out of the abolition. We have not built into the rate support grant settlement any assumption about what savings can be made by the successor authorities.
Our aim has been that, taken as a whole, London will receive the same level of grant to which it would have been entitled if the GLC had continued to exist and to spend at the level assumed in the settlement. We have done that by allocating the GLC's grant-related expenditure and its 1985–86 budget to the successor authorities on the most objective assumptions that we could find, after a full process of consultation with the local authority associations.
We have also extended the London rate equalisation scheme to replace the equalising effect of the GLC precept. That was necessary to avoid windfall gains to the central boroughs at the expense of ratepayers outside London.
1256 It is important to understand that not only do authorities inherit expenditure obligations from the GLC, and the grant-related expenditure to go with them, but they inherit an obligation to raise some of the resources to meet those needs from their own ratepayers, just as the GLC did by precepting. That means that there is no uniform relationship between GRE increases and grant increases due to abolition.
However, in Sutton's case the grant entitlement on our spending assumption of an increase of 3.4 per cent. would suggest a rate rise of only 2.5 per cent. If Sutton could repeat last year's use of balances, the rise could be even lower—perhaps even zero.
My hon. Friends asked me to touch on Sutton's grant related expenditure. I know that Sutton is unhappy about several aspects of that. It lost about £500,000 from figures provisionally announced in October 1985, mainly due to new data on traffic flows affecting the highway maintenance grant-related expenditure. We made it clear that such changes were possible. The concessionary fare GRE does not match what Sutton believes it will be required to spend according to the statutory scheme, although the new GRE methodology is better for Sutton than the old one. I assume my hon. Friends that we are, looking at whether we can help on this aspect for future years. We are acutely aware of the problems that arise from continually looking at the grant-related expenditure assessment. That throws up problems not only for Sutton, but for other authorities, and one has to be careful about how one changes the assessments.
I know that Sutton has been worried about the costs associated with the abolition of the GLC. The ikely reduction of the proposed London Residuary Body levy from £180 million to around £60 million, to which my right hon. Friend the Secretary of State referred in the RSG debate on 20 January, represents a saving to Sutton of over £3 million.
My hon. Friends may also know that no less than £200 million of the provisional charges, London-wide, circulated by the LRB in November, related to housing debt that the boroughs already pay for. To add this as a new expense due to abolition would be mistaken. It would result in double counting, and this may help to explain some of the figures for rate increases put about by boroughs generally, although I know that Sutton has not made that mistake.
Furthermore, my right hon. Friend announced that the GLC's balances will now be distributed on a population basis. Sutton will get £250,000 instead of £150,000 for every £10 million of balances distributed. I hope that takes care of that point.
I should like to refer to a mistake that has occurred in the split of the GLC's highway maintenance expenditure to the boroughs when the RSG settlement was being prepared. I recognise how difficult it is for anyone not immersed in this system, which is known for its Byzantine complexity, not to become confused, but this error is different from the changes of highway maintenance and other GREs between provisional announcement and settlement which I talked about earlier. It has to do with the calculation of the expenditure to be taken on by each borough from the GLC, which is necessary so that limits are set on the gains and losses of grant as a result. These limits—safety nets—were needed to achieve the neutral effect that I mentioned before. The grant loss to Sutton is almost £800,000. 1257 I am urgently considering how this can be corrected within the grant year. There are various ways in which we might do this. I am committed to consulting the local authority associations with a view to producing a solution which will correct this error before boroughs have to make a rate.
I know that the council's latest forecast for next year's expenditure, taking account of some of these changes, is now about £1.5 million less than when I met my hon. Friends with a deputation from the borough of Sutton. But at £71 million, it is still almost £2 million above our settlement assumption. It would be about 9 per cent. up on last year — a far bigger increase than can be accounted for by inflation. On these figures Sutton could lose about £3 million of grant overall. I hope Sutton can find ways of reducing that forecast.
My right hon. Friend the Secretary of State used the phrase "grant recycling." Last year, penalties incurred by overspending authorities went back to the Treasury. This year, grant lost by those spending above the settlement assumptions will be recycled to all by the traditional process of close ending. My right hon. Friend showed to the House in the RSG debate the effects of distributing a 1258 pool of £400 million. Sutton would have received nearly £1.25 million as a result. How much of this is a grant gain will depend upon how much Sutton contributed to the pool by spending above the assumptions we have made. If it can keep its own spending down, it will maximise the benefits for ratepayers.
I think it is fair to say that Sutton has not had a bad settlement. I would be fairer to say that Sutton had rather a good settlement. If its overall spending goes up in line with inflation—4.5 per cent.—we estimate that its rates need only go up by 5.2 per cent. That will be as little as 2.7 per cent. if Sutton can repeat last year's use of balances. If it can get its spending below that figure, rates rises could be even lower.
I hope that I have provided additional information which I am sure my hon. Friends can take back to help mitigate some of the differences between the borough's estimate of expenditure next year and our own. Therefore, the message I should leave with my hon. Friends is to urge the council to keep up its record of exemplary housekeeping. The rewards for its ratepayers will be great.
§ Question put and agreed to.
§ Adjourned accordingly at five minutes past Two o'clock.