§ The Secretary of State for Scotland (Mr. Malcolm Rifkind)
With permission. Mr. Speaker, I wish to make a statement on local authority budgets and rates for 1987–88.
Local authorities in Scotland have budgeted to spend £122.1 million or 3.7 per cent. over guidelines in 1987–88 and have determined rates which will, on average, increase domestic rate bills by 15 per cent. For ratepayers in some areas, the increase is much higher. This is disappointing and unsatisfactory. The rate support grant settlement was a very generous one, intended to allow local authorities generally to maintain real levels of spending without substantial rate increases. However, too many authorities have planned for quite unacceptable levels of growth.
After consultation with the Convention of Scottish Local Authorities, I have therefore decided that, to encourage those authorities with planned overspends to reconsider their budgets, there will be grant penalties for overspending on a tariff which starts at grant loss of 70 per cent. of overspend, rising to 120 per cent. for a 2.5 per cent. overspend. Above 2.5 per cent. the rate of penalty increases to 140 per cent. for a 3 per cent. overspend, and then to 175 per cent. for a 3.5 per cent. overspend or above. The rate of increase between each of these points is even. On the basis of planned expenditure, the total penalty will be £202 million, though penalties will subsequently be adjusted in the light of actual expenditure, and it is therefore open to authorities to reduce their liability to penalty, or to recover penalties completely, by reducing their expenditure. I hope that many authorities will do so, and it is to assist them in doing so that I am making this announcement of our intentions.
I am pleased to note that, for 1986–87, 40 authorities have provisional outturns within guidelines, and a number of authorities which planned to spend over guidelines have reduced their expenditure on outturn. As a result, some £28 million in grant penalties levied in 1986–87 will be returned to the authorities concerned.
I am today laying the necessary rate support grant order in respect of grant reductions in 1987–88, and repayments for 1986–87. A circular is being sent to all local authorities giving them the details.
Grant penalties will apply to all authorities planning to overspend. I have also considered the special problems facing ratepayers in the areas of those authorities which are planning the most substantial expenditure excesses over guideline. As a result I have decided to initiate action in terms of section 5 of the Local Government (Scotland) Act 1966 in respect of Lothian regional council, Clackmannan district council and the city of Edinburgh district council on the ground that their planned expenditure for 1987–88 is excessive and unreasonable. Letters have today been sent to the three councils proposing rate reductions of 3.9p, 2.8p and 2.8p respectively, and inviting each to make representations about the proposed reduction. If implemented, my proposals would result in a reduction in the average domestic rate bill of £50.77 in Edinburgh, 08.59 in other parts of Lothian region, and £16.61 in Clackmannan.
§ Mr. Donald Dewar (Glasgow, Garscadden)
I cannot congratulate the Secretary of State on his timing, but I 24 suspect that it is not fortuitous. I doubt whether the fact that this statement is coming two months earlier than normal is a measure of increasing efficiency in the Scottish Office. However, it may have a great deal to do with coming events.
s The penalty that has been announced is unashamedly linked to guidelines. I can remember—no doubt the Secretary of State can also—the happy days when we talked about indicative guidelines. That adjective seems peculiarly inappropriate now that the guideline is a simple straightforward benchmark for punitive action by the Government against any council that meets with their displeasure.
Will the Secretary of State confirm that last year Scottish local authorities were 3.9 per cent. over guidelines and attracted a penalty of £125 million, and that this year they are 3.7 per cent. over guidelines but are attracting a penalty of £202 million? In other words, the excess over guidelines is down, but the penalty has been increased by 62 per cent. Will the Secretary of State explain why this particularly vindictive line has been taken on this occasion? Will he confirm that, in effect, we are nearly returning to the penalty range of 1985–86 with the small exception that the peak is now 175 per cent. penalty while the worst that was managed in the past was 170 per cent.?
Does the Secretary of State accept that three councils are being picked out for special, and some would say vindictive, treatment? Is it not true that Edinburgh will be left with no rate support grant settlement and that its loss will be £12.5 million, that Clackmannan will be left with no rate support grant money this year and that Lothian will lose £51 million? If the councils cut their budgets and planned expenditure as the Secretary of State is instructing, will he be prepared to adjust their general penalty at that point, or will they be left to wait for a long time for the repayment which would then be due to them?
Will the Secretary of State explain why Lothian, for example, is being hit in this way when the norm for the calculation over guidelines is budget plus 3.75 per cent. and Lothian's guidelines are budget plus 2 per cent.? To put the matter into perspective, will he comment on the fact that, while Lothian is 7.4 per cent. over guidelines, last year's budget of a Tory administration was 6.6 per cent. over guidelines in itself? Since then Lothian council has inherited substantial difficulties from that Conservative administration which cynically raided balances in a way which would be strenuously criticised if that policy had been followed by other councils.
Are we not seeing a further cut in Government support for local services? If the penalties are exacted in full, will that not bring down the rate support grant percentage from 55.6 per cent. to a new low of about 50 per cent.? Is not this part of a long and dreary process which since 1979–80 has caused the RSG per head to fall by 11 per cent. in Scotland, by 50.9 per cent. in Clackmannan and by 18.3 per cent. in Lothian, according to the Secretary of State's figures in a parliamentary answer?
Will the Secretary of State now accept, as his right hon. Friend the Secretary of State for the Environment south of the border accepted at Question Time on 1 April, that there has been a deliberate Government policy to shift the burden of local services from the Exchequer to ratepayers, that Scottish ratepayers have been damagingly hit by that policy, and that Ministers have been reluctant to accept that fact?
§ Mr. Rifkind
Listening to the hon. Gentleman's protestations, one could be forgiven for not realising that this year we had the most generous RSG provision, with no change in the grant percentage, compared with many previous years. Precisely because local authorities, instead of passing on that benefit to their ratepayers, have chosen excessive growth in expenditure, it is necessary for me to come to the Dispatch Box today.
The hon. Gentleman spoke about the timing of the statement. He must know perfectly well that local authorities have often pressed for such statements to be made at the earliest possible date. For him to complain because we are able to make a statement at an early date shows that it is difficult to please him whatever one seeks to do.
The hon. Gentleman compared the penalties proposed this year with those for last year. However, he does not draw attention to the fact that this year we have increased public expenditure provision for local authorities by no less than 9.5 per cent. and that the guidelines for local authorities took account of their budgets last year which were then increased to take account of inflation, the teachers' pay settlement and other matters. For local authorities to respond with excessive expenditure in the light of that provision justifies a severe response. It is sad to reflect that when we imposed a heavy tariff there were reductions in excessive expenditure, but when, over the last year, we adopted a more gentle approach, followed by a generous RSG provision, the response from a number of local authorities was as we have described.
As for the individual authorities to which the hon. Member for Glasgow, Garscadden (Mr. Dewar) referred, I remind him that Edinburgh district council is proposing expenditure which is no less than 24.7 per cent. in excess of its guidelines. Likewise, Clackmannan is 21 per cent. in excess of its guideline. which is by far the largest excess for district councils.
The hon. Member for Garscadden asked whether the penalty would be adjusted if authorities responded to what is being proposed and reduced their budgets. I am prepared to give consideration to that possibility.
The hon. Gentleman protested on behalf of Lothian regional council and implied that its proposals for a rates increase which verges on 30 per cent. is reasonable and not excessive. I remind the hon. Gentleman that Lothian regional council, despite improvements in its guideline, is £29.3 million in excess of its guideline. Its excess over assessed need is £61.5 million or 16.9 per cent. Perhaps the hon. Gentleman should reflect on the fact that if he lived in Edinburgh or Lothian he might not be so friendly towards Lothian as he presently feels able to be.
§ Sir Alex Fletcher (Edinburgh, Central)
Is my right hon. and learned Friend aware that his statement will be warmly welcomed in Edinburgh, particularly by the many ratepayers who are suffering severe hardship because of the imposition of a 30 per cent. rates increase by the Labour authorities? My right hon. and learned Friend said that, following these measures, the average domestic ratepayer will benefit by about £50. What benefits will accrue to small businesses in Edinburgh, such as shopkeepers, as a result of this action?
§ Mr. Rifkind
It is difficult to give an exact figure because the range of businesses varies. For example, a Princes street store may experience a reduction of as much as £60,000. Clearly that will have a significant impact for the good of the economy of the city, with corresponding benefits for employment in many stores. Other shops and businesses will benefit significantly, but the size of the benefit will depend on the size of the present rates demands.
§ Sir Russell Johnston (Inverness, Nairn and Lochaber)
Let me be more direct than the hon. Member for Glasgow, Garscadden (Mr. Dewar). This announcement, which has been made on the day that the election has been announced, will be seen as blatant bribery which is designed to save the seats of Ministers and ex-Ministers in Edinburgh. If that is not true, it is designed to force Edinburgh city to give tip the pensioners' free travel concession. What else is it for?
Is the Secretary of State aware that, despite what he said in the earlier part of his statement, the rate support grant settlement in the named rate-capped authorities was not generous? The right hon. Gentleman should have renegotiated the rate support grant levels with the authorities in question because what he is doing in mid-budgetary term will cause chaos and lead to drastic cuts in services.
§ Mr. Rifkind
The hon. Gentleman does not have the slightest basis for his final comment. He should know perfectly well that, when selective action has been taken in the past, not only has it not led to the predicted chaos—such predictions are always made on such occasions—but the ratepayers have benefited from repayments and the local authorities, which have made great protestations about the enormous hardship to the local community, have ended up with egg on their face.
Local authorities will have, as is normal, an opportunity to comment and make representations to the Scottish Office on these proposals. The Government have made it abundantly clear that they are prepared to take action to assist ratepayers and to deal with excessive and unreasonable expenditure. This is not the first year in which we have used or applied such powers. For the hon. Gentleman to impute other motives is unworthy of him.
§ Mr. Albert McQuarrie (Banff and Buchan)
The generous RSG settlement that my right hon. and learned Friend announced earlier this year is appreciated, but is he aware that constituencies and district councils such as mine in Banff and Buchan find considerable difficulty in meeting the guidelines? Will my right hon. and learned Friend say that, if the district council in Banff and Buchan can get itself back into guideline during the course of this year, its ratepayers will benefit considerably from a repayment in the next year?
§ Mr. Rifkind
As I have announced today, we are repaying £20 million worth of rate support grant because in the course of the previous year some authorities were able to reduce their excess spending. In the case of my hon. Friend's district council, the excess over guideline is only 1.52 per cent., or about £81,000, so I very much hope that it will be able to recover any grant loss arising from that.
§ Mr. Norman Hogg (Cumbernauld and Kilsyth)
The Secretary of State is fond of saying that he has been generous to local government in rate support grant 27 settlement, but he has been directly challenged by my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) about whether his statement will in fact reduce overall rate support grant for the current financial year. Will the right hon. Gentleman now answer that point?
Secondly, as the Government have little mandate in the constituencies in which the authorities concerned operate and could not even field a full complement of candidates for those authorities, one wonders what authority the Secretary of State has for his excessive attack on them.
§ Mr. Rifkind
I am not clear what mandate the ruling councils in Edinburgh, Lothian or Clackmannan had for rates increases of the kind proposed. I do not recall those proposals being put to the electorate at the relevant time. As for the implications for rate support grant, I have today proposed reductions in grant for certain individual authorities, but whether they lose grant will depend entirely on how they respond. If they reduce their expenditure, there will be no reduction in grant. If they refuse to do so, they will have only themselves to blame.
§ Mr. Barry Henderson (Fife, North-East)
Will my right hon. and learned Friend confirm that the Government provide more than half the cost of local government expenditure and that the provision was increased this year by more than double the increase in prices generally? Does he agree that his statement about the overspending authorities shows that so long as there is a rating system the Labour party will abuse it? Is that not an urgent reason to ensure that proceedings on the Abolition of Domestic Rates Etc. (Scotland) Bill are completed before this Parliament ends?
§ Mr. Rifkind
I agree, of course, with my hon. Friend's final comment. With regard to his earlier remarks, I must point out that last year some 40 authorities were able to keep their expenditure within guidelines and suffered no loss through grant penalty. If about two thirds of the authorities could achieve that in a year in which the rate support grant settlement was less generous than this year, there is no excuse for those which have declined to move in the same direction.
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
Will the Secretary of State confirm that what he calls excess expenditure is adequate fire cover, a decent level of policing, a good staff-pupil ratio in schools, proper provision for the elderly and other vital services? Does he agree that his guidelines are entirely arbitrary and discriminatory and that there are no objective bases whatever for them, and does he admit that his announcement today picking on certain authorities has more to do with the sweaty palms that he and his hon. Friend the Under-Secretary of State, the hon. Member for Edinburgh, South (Mr. Ancram), and his hon. Friend the Member for Edinburgh, Central (Sir A. Fletcher) have because they know that they are about to be replaced by Mark Lazarowicz, Nigel Griffiths and Alastair Darling respectively and that the House and the country will be better places as a result?
§ Mr. Rifkind
The hon. Gentleman will forgive me for reminding him of the time when he predicted that he would replace me as Member for Edinburgh, Pentlands. After an unsuccessful attempt to achieve that, the hon. Gentleman 28 fled to his present constituency and was never seen again in the Scottish capital. If the hon. Gentleman is as confident as he claims to be, I am sure that my Labour opponent, Mr. Lazarowicz, will be happy to change places with him so that the hon. Gentleman himself can stand against me in my constituency.
§ Mr. Bill Walker (Tayside, North)
My right hon. and learned Friend will be aware that in the past couple of weeks rate demands have been popping through the letter boxes in Tayside. Does he agree that if the Conservatives had remained in office the increase would have been about 2p but that it is substantially greater because the Labour party and the Scottish National party know only how to spend other people's money? Does my right hon. and learned Friend agree that this makes it essential to change the way in which we fund local government and to keep control of profligate authorities?
§ Mr. Rifkind
My hon. Friend is correct. Until we have a system of local authority finance in which all who benefit from local services make a contribution towards them through funds raised locally, we cannot expect to have genuine accountability. That is why we hope that the community charge legislation will be enacted in the course of this week, and why comparable proposals for England and Wales are being put forward by my right hon. Friend the Secretary of State for the Environment.
§ Mr. Ernie Ross (Dundee, West)
The Secretary of State should know that the hon. Member for Tayside, North (Mr. Walker) got it wrong. The SNP had nothing to do with rate levels in Tayside.
§ Mr. Ross
If the budget that was put forward before the election by the Tory administration on Tayside had been implemented, there would have been a massive reduction in services for which the council had not budgeted. Rather than announcing penalties today, would it not have made more sense for the Secertary of State to make a more positive response to Tayside regional council's request for £5 million for the water front project, which the Secretary of State claimed to support, so that it could have proceeded?
§ Mr. Rifkind
The way in which Tayside regional council uses the resources available to it and that council's priorites are a matter for it. Like other local authorities in Scotland, Tayside was the beneficiary of a generous rate support grant settlement, and of guidelines that were considerably in excess of its budget last year. I said earlier that overall provision to local authorities was 9.5 per cent. more than last year's. The hon. Gentleman should appreciate that local authorities that insist on overspending have only themselves to blame if they forfeit grant as a consequence.
§ Mr. Michael Hirst (Strathkelvin and Bearsden)
Will my right hon. and learned Friend remind the Opposition that, in spite of constant exhortations to restraint, local government spending in volume terms is higher today than in 1979? All my constituents are facing substantial rates increases because of Strathclyde council's continuing failure to live within its means and to apply Government guidelines to its expenditure.
29 Is it not true that Labour authorities mean high rates, and it is only when the community charge is introduced that we shall have the accountability that will stop that?
§ Mr. Rifkind
My hon. Friend is entirely correct. Last year, local authority volume expenditure was, for the first time, below 1979 levels.
§ Mr. Rifkind
He is not wrong. This year, as a response to the generous provision of rate support grant settlement, volume expenditure is now back again above 1979 levels, thereby illustrating that the high rates increases were not because of the inadequacy of Government support but because local authorities have chosen to go for growth in expenditure as a consequence of central Government support.
§ Mr. Martin J. O'Neill (Clackmannan)
Is the right hon. and learned Gentleman aware that the cut in the rate support grant for Clackmannan comes at a time when it has been clawing its way into a position that is comparable with other authorities of similar size? It is the smallest authority in Scotland and suffers from the problems of diseconomies of scale. The bludgeon that the Minister is applying to that small authority this year will result in a massive cut in services at a time when the authority is trying to compensate for the follies of the Government's policies elsewhere in the economy.
§ Mr. Rifkind
I might have more sympathy for what the hon. Gentleman has said if I did not know that the Clackmannan district council was proposing growth in its leisure and recreation expenditure of no less that 75.5 per cent.
§ Mr. Rifkind
The hon. Gentleman will be aware that there are other authorities in Scotland and elsewhere in the United Kingdom that have unemployment problems, but a proposed expenditure increase of that kind and in that area seems extraordinary. It is, of course, for Clackmannan to decide, within an overall total, what its priorities are, but I use that as an illustration of the difficulties that Clackmannan's ratepayers and others are facing.