HC Deb 08 December 1988 vol 143 cc449-56 4.17 pm
The Secretary of State for Wales (Mr. Peter Walker)

With permission, Mr. Speaker, I should like to make a statement about the Welsh rate support grant report 1989–90 and the supplementary reports for 1986–87, 1987–88 and 1988–89, which I have today laid before the House.

I am today announcing the details of the 1989–90 settlement to the Welsh Consultative Council on Local Government Finance. Copies of the text of my statement to the consultative council, together with a number of key statistical tables, have been placed in the Library of the House.

As required by the Rate Support Grants Act 1988, in each report total expenditure—a crucial factor in determining entitlement to block grant—has been treated for each authority as equal to a "relevant amount" determined according to specific rules, and based on information with me by 6 July 1988.

The supplementary reports for 1986–87, 1987–88 and 1988–89 update grant entitlements and are intended to be the final reports for those years. Authorities have been notified of the total expenditure figures on which the reports are based, and it has been open to them—and remains open to them—to make representations about the figures that I have used. If, under the rules, I am able to agree that an authority's expenditure figure should be changed, that authority's grant entitlement will be recalculated accordingly.

My hon. Friend the Minister of State announced my proposals for 1989–90 to the House in July, and these have since been the subject of consultations with the local authorities and their associations. In making the report, I have taken account of the views that they have expressed.

The main elements of the 1989–90 settlement are as follows. Provision for relevant expenditure will be set at £2,057.8 million, some £124£7 million or 6.5 per cent above 1988–89 budgets and 8.6 per cent. above relevant provision. Provision for current expenditure is set at £1,785 million, an increase of £86.6 million or 5.1 per cent above 1988–89 budgets and 8.8 per cent. above current provision. Aggregate exchequer grant is set at £1,316 million, an increase of £63 million or 5 per cent. above the amount made available for 1988–89, and £68.6 million or 5.5 per cent. over the amount to be paid out in respect of 1988–89. Specific and supplementary grants total £267 million. Domestic rate relief grant remains unchanged at 18.5 p in the pound, and in aggregate is £27 million. Block grant totals £1,021.9 million, an increase of £50.7 million or 5.2 per cent. over the amount paid in respect of 1988–89. It is fixed at this level.

The final year of the rate support grant system will be 1989–90, and in the interests of stability—and with the full agreement of the local authority associations—I have decided to retain the same block grant mechanisms as those used in the present year. Certain minor changes in methodology have, however, been made at the request of the associations.

The settlement provides stability and it also provides a firm indication of grant entitlement. Authorities will know when they are setting their budgets what they will receive in the way of grant support. It is a realistic settlement which enables councils in Wales to contribute to the accelerating economic and social regeneration of the Principality. I am sure that they will do so in a responsible manner by keeping control of spending, budgeting for the low rate rises that are clearly attainable and continuing their encouraging progress towards greater efficiency. They know that this is in the interests of their ratepayers and their electors. I fully expect them to grasp the opportunity.

Mr. Barry Jones (Alyn and Deeside)

The Secretary of State mentioned 5 per cent., but 10 per cent. is more like the real figure. The statement is a clever sleight of hand. Its flaw is that it ignores the rise in inflation and interest rates. Current expenditure is £37 million short and districts will find that they are £7 million down on block grant. Worse, block grant declines as a proportion of the aggregate Exchequer grant. The Government still dictate on specific grant, and the casualties will be housing benefit administration, schools services, environmental health, recreation and leisure services and the crucial local authority efforts in economic development to create jobs. It will be hard to keep rate rises down to reasonable levels.

Is the Secretary of State aware that the settlement is very unsatisfactory and that much has changed since the July statement? The Government say that a settlement based on a GDP deflator at 4 per cent., RPI at a similar 4 per cent. level and interest rates at 9.5 per cent. is still sufficient to meet the needs of local government. However, the GDP deflator is now an estimated 5 per cent., inflation is 6.4 per cent., and forecast to rise to 8 per cent. next spring, and interest rates are 13 per cent. Is that not a definition of strain on local authority budgets?

I remind the right hon. Gentleman that the Secretary of State for Education and Science has proposed a 5.1 per cent. pay settlement for teachers next year. Does the right hon. Gentleman understand that, as teachers' pay constitutes more than a quarter of most county budgets, the difference between the provisional 4 per cent. and 5.1 per cent. is very significant? The Secretary of State said just now that, if under the rules he was able to agree that an authority's expenditure figure should be changed, that authority's grant entitlement will be recalculated accordingly. I know that the Secretary of State is aware of the concern in Cardiff. The city council met every requirement—and better—yet it stood to lose £2.3 million as a result of the retrospective arrangements that were announced on 7 July, which were then legalised in the recent Rate Support Grants Act 1988. I must also report to the House that Torfaen borough was a major victim and lost more than £300,000.

Is the Secretary of State aware that the aggregate figures will not be sufficient to cover the increasing cost of preparing for the implementation of the poll tax and meeting the requirements of homelessness? I want to make a plea to the Secretary of State for a rethink by the Welsh Office on this defective settlement, on the ground that, with inflation at 6.4 per cent. now and estimates that in 1989 it will be 7 per cent. or even 8 per cent., inflation will push spending well above the Government's proposed figures. I understand that even the Chancellor of the Exchequer thinks that inflation may rise as high as 9 per cent. in August 1989. This is the last rate support grant settlement and, like all of them since 1980, it is unsatisfactory, to say the least.

Mr. Walker

I admire the courage of the hon. Member for Alyn and Deeside (Mr. Jones) in putting those views because the rate support grants for which I have been responsible have been very different from those that were drawn up before this Administration came to power—[Interruption] Here we go. During the last three years of the Labour Government, at the time when the hon. Member for Alyn and Deeside was at the Welsh Office—

Mr. Ron Davies (Caerphilly)

On a point of order, Mr. Speaker. Will you confirm that the subject that we are now discussing is, specifically, the statement that the Secretary of State made to the House? You would restrict us to questions on the statement, so surely the rules of the House and the rules that govern you require the Secretary of State to restrict his remarks to the precise terms of the statement.

Mr. Speaker

That is correct, but the right hon. Gentleman is answering questions that have been put to him.

Mr. Walker

I intend to make the comparison between our record and that of the Labour Government. I understand why Opposition Members want to do anything to stop that comparison being made. The comparison is simply that, in the last three years of the Labour Government, rate support grant fell by 16 per cent. in real terms. Had that trend continued, the rate support grant today would be £640 million, not £1,049 million. Therefore, if we had followed their example, Wales would receive £409 million less than it is receiving. Opposition Members have no right to ignore those comparisons.

To summarise, as a result of this year's and last year's rate support grants, the 8.8 per cent. increase in current provision for 1988–89 has to be considered alongside the 8.2 per cent. increase in gross capital provision, giving a combined increase of 8.7 per cent. over 1988–89 and no less than 15.4 per cent.—or £298 million—over the two years in which I have been responsible for the settlement. By any standards, this is a reasonable and sensible settlement.

I hope that it will also be recognised throughout the Principality that, as a result of the settlement, 67 per cent. of the cost of local authority expenditure in Wales comes from central Government and 19 per cent. from non-domestic rates in the form of business rates. Only 14 per cent. of all local government expenditure in Wales comes from domestic ratepayers. There are other parts of the United Kingdom that would like to be in that position.

Sir Anthony Meyer (Clwyd, North-West)

Is it not clear that, as expected, my right hon. Friend has managed the best settlement possible for Wales? Is it not also clear that the question whether there have to be substantial rate rises will largely depend on the ability of local authorities to concentrate on doing the jobs that they were elected to do and in standing up to claims from public sector unions?

Mr. Walker

That is certainly true. There is scope for that. I am grateful to the local authorities in Wales for looking into the Audit Commission's proposals. It pointed to a potential saving of £40 million. I know that good work is being done in that direction. The increase in interest rates does not necessarily result in a similar increase in costs for local authorities. The 3 per cent. increase so far in interest rates has resulted in a 0.91 per cent. increase in the pool rate for local authorities. Much of their borrowing is on fixed terms. We believe that this is a reasonable and sensible settlement. Prudent and sensible local authorities will have perfectly reasonable rate levels.

Mr. Richard Livsey (Brecon and Radnor)

Does the Secretary of State not realise that the economic goal posts have moved since last July to nearly 6.5 per cent.? That must surely have an effect on local authority budgets in Wales. What allowance has he made for the poll tax set-up costs? We understand that only 50 per cent. of those costs are to be allocated to councils, which I regard as completely inadequate. What is the Secretary of State doing about Tai Cymru's budget, now that the district councils have practically no housing functions left to them? When does he expect to make an announcement? Capital expenditure in some of the rural counties is very tight indeed, particularly because of bridge repairs, such as those in Powys where half the bridges need attention. Is the Secretary of State making any allowance for that and for sparsity factors?

Mr. Walker

I repeat that, taking the two years for which I have been responsible, the total increase has been substantial. It will provide important assistance for all the tasks that need to be done. The inflation of 6.4 per cent. in recent months is mainly due to the increase in the mortgage interest rate. That does not have an effect on the retail prices index as it affects local authorities. Therefore, it is not a fair comparison.

Mr. Gwilym Jones (Cardiff, North)

I congratulate my right hon. Friend on his statement, which I am sure will be widely welcomed in Wales. Once again he has achieved for Wales a far better settlement than has been achieved for England. May I take it that his reference to the revision of local council entitlement strongly suggests that at last a common sense response has been made to Cardiff's plea for grant entitlement for the last financial year rather than the bureaucratic response that has greeted it so far? What steps does my right hon. Friend intend to take to ensure that more of the capital receipts are used to repay the debts that have been incurred rather than spent, which would result in extra expense for Welsh ratepayers?

Mr. Walker

New proposals will be made next year about the treatment of receipts and the repayment of existing debt. They will have an important impact. The change that took place in Cardiff and the manner in which the present system was broken off was a disadvantage to Cardiff. However, it has been to the advantage of a whole range of district and county councils. Some were advantaged while others were disadvantaged. My hon. Friend will be pleased to know that the total rate support grant for Cardiff is to be increased from £15.8 million this year to £19.8 million next year.

Mr. Roy Hughes (Newport, East)

Does the Secretary of State appreciate that Newport borough council is worried about the amount allocated for preparatory work in connection with the introduction of the poll tax? If that fear is well founded, will the Secretary of State ensure that our local authorities are suitably reimbursed?

Mr. Walker

The figures suggested by local authorities for capital costs have been met in our assessments. As for revenue costs, local authorities submitted figures that we recognised were wrong. We went back to them and said that they needed a lot more than they were asking for; we more or less doubled that figure. However, they consider that they should have still more. There is a difference of opinion between us about current costs. However, the majority of the expenditure—the capital cost figures—has been agreed.

Dr. Dafydd Elis Thomas (Meirionnydd Nant Conwy)

We welcome the Sectretary of State's statement that local authorities can still make representations to his Department about the calculation of the settlement. We shall encourage local authorities to do so. However, will he confirm that this percentage increase in the block grant is not enough to meet the manual workers' settlement of 8.7 per cent.? That is a low-paid sector of the Welsh economy. Pay settlements will put pressure on local authorities.

Will the Secretary of State also confirm that the settlement falls short of the needs that were set out by the sub-group of the Welsh Consultative Council on Local Government Finance? The demands that were made to him by that group are £30 million more than has been granted. The Secretary of State is aware of my personal interest in the level of supplementary grant to the national parks. That is an important though minor part of the environmental protection of the Welsh countryside. Will he confirm that the settlement will put pressure on local authorities? Would he not be a more honest Secretary of State if he were to accept that fact?

Mr. Walker

In the 27 years that I have been a Member of Parliament, under both Labour and Conservative Governments and Lib-Lab pacts, I have never known local authorities to say that the settlement was just what they wanted, that they had been given just the right amount of money and what a super Government they were. Nevertheless, they are rather nearer to saying that this time round than was the case under certain other Administrations.

I shall write to the hon. Gentleman about the national parks and give him specific figures.

Of course there is pressure because of wage increases. If wage increases are given at 8.2 per cent.—well above the rate of inflation—they will have an impact on local authority expenditure, but I do not believe that all those increases should be met by direct Government grant. Local authorities must constantly continue to look for improved efficiency.

Mr. Donald Coleman (Neath)

Reference has been made to the upward movement of interest rates and inflation since the original statement in July. Will the right hon. Gentleman tell the House—so that we can plainly understand it—what, in money terms, is the effect of the settlement? Furthermore, what recompense can local authorities expect to receive?

Mr. Walker

I have just explained that to date the effect of the increase in interest rates is far less on local authorities, because much of their borrowing is at fixed interest rates over the long term. Therefore, the pool rate is important. At the moment it is running at about one third of the increase in interest rates. There have been periods recently when interest rates went down, but local authorities did not suggest that there should be a cut in the grants that were being made because interest rates were lower. Such fluctuations have an impact—sometimes to the benefit of local authorities and sometimes against them.

Mr. Win Griffiths (Bridgend)

Bearing in mind the controversy over exactly how interest rates will affect local authorities and what is the real effect of the retail prices index on local authority costs, what indicator does the Welsh Office use when assessing the effect of inflation on local government? The housing waiting lists in Wales are growing. How does the Secretary of State intend to meet that challenge? Will it be through the local authorities or through Tai Cymru? There is a huge waiting list in my local authority, Ogwr, for central heating conversions. Many of the people on the waiting list are sick and elderly. Does the Secretary of State recognise that, despite the fact that he believes that he has been generous over this settlement, many needs in Wales are still not being met?

Mr. Walker

Of course many needs are still not being met. The hon. Gentleman specifically mentioned housing. He knows that the total expenditure on local authority housing repairs and improvements in recent years has been at record levels. This Conservative Government have spent over £700 million on both private and public housing. Of considerable advantage in the coming year will be the use of receipts for council house repairs. Those receipts have risen quite sharply this year, and they are likely to rise again during the coming year.

Mr. Donald Anderson (Swansea, East)

Are not those receipts destined to fall because of the natural limit at which housing sales will proceed? In view of the inadequate provision both for inflation and for wage settlements, is the Secretary of State deliberately forcing local authorities to increase rates in a way that will make them even more unpopular, thereby paving the way for the poll tax?

Further to what my hon. Friend the Member for Newport, East (Mr. Hughes) said about the preparatory costs for the poll tax, is it correct that the Welsh Office estimated the costs for the two years 1988–89 and 1989–90 to be about £9 million—of which £5 million is being provided by the Welsh Office through grants—but that actual expenditure will be nearer £14 million? Will the right hon. Gentleman accordingly revise the grant in line with the actual rather than the estimated expenditure by Welsh local authorities?

Mr. Walker

There is a difference between us on current expenditure and assessment of costs, but there are similar figures for capital expenditure. I do not accept the figures given by the hon. Gentleman. If, as is the hon. Gentleman's theory, I had wanted to introduce a rate support grant increase designed to put up rates in preparation for the poll tax, I could have followed the example set by the previous Labour Government during their last three years and introduced a rate support grant nowhere near the rate of inflation. That is what the Labour Government did, and it resulted in a reduction of 16 per cent. over three years. I have not done that. An increase in both current and capital provision of 15.4 per cent. over two years is not doing what the hon. Gentleman suggested.

Mr. Gareth Wardell (Gower)

Is the Secretary of State suggesting that he will fully meet the costs of administering the poll tax?

Mr. Walker

I am not saying that I will send local authorities a cheque to cover whatever they might want to spend on administering the poll tax. I shall make a genuine assessment of what it should cost if it is carried out efficiently.

Mr. Dafydd Wigley (Caernarfon)

Will the Secretary of State answer the question put to him by my hon. Friend the Member for Meirionnydd Nant Conwy (Dr. Thomas), and confirm whether, earlier this year, he received a report from the expenditure sub-group of the Welsh Consultative Council on Local Government Finance, which established a figure for the needs of Wales £13 million above what the right hon. Gentleman has announced today? Has he told that sub-group that he disagrees with its analysis, or does he accept that there will be either a reduction in services or an increase in rates?

Mr. Walker

There is bound to be a group that suggests that everything that it can think of should be paid for. As I have said, during the 27 years that I have been in this House that has happened with every rate support grant, and it is likely to continue to happen. That sub-group did not include in its calculations the potential for improved efficiency. It did not, for example, suggest, as the Audit Commission has said, that there was potential for improvements in efficiency worth £40 million. There is a balance between the two.

Mr. Ron Davies (Caerphilly)

The Secretary of State has already acknowledged that the settlemant will be much less than that asked for by the local authority associations. Does he also acknowledge that it is, in fact, less than they need? That is the vital question. It is only a 5 per cent. settlement. The Secretary of State has deliberately evaded all questions about inflation and interest rates. Will he now say unequivocally on what rate of inflation and what rate of interest the settlement was predicated? Has he made any contingency arrangements for increasing the settlement in the likely event of further increases in interest rates next year?

Mr. Walker

I should be interested to know whether the Opposition are, for the first time, saying that the rate support grant should give an exact increase in line with the prediction for inflation—

Mr. Davies

I did not say that.

Mr. Walker

It is what the hon. Gentleman is suggesting should happen. As we know from my right hon. Friend the Chancellor's recent statement, the reality is that, apart from the effect of mortgage interest rates, the current rate of inflation is about 5 per cent.

Mr. Rhodri Morgan (Cardiff, West)

I wish to press the Secretary of State on the question about Cardiff and the missing £2.3 million. He has already been questioned by my hon. Friend the Member for Alyn and Deeside (Mr. Jones) and by his hon. Friend and my neighbour the hon. Member for Cardiff, North (Mr. Jones). The right hon. Gentleman appeared to be offering half an olive branch to Cardiff when he said that authorities' grant entitlement could be recalculated. Does he recognise that cross-party representatives, including his colleagues on Cardiff city council, are firm in their view of what happened to that £2.3 million? Will Cardiff get back that missing £2.3 million in the forthcoming rate support grant entitlement?

Mr. Walker

I am sure that the hon. Gentleman has studied the matter in great detail and will know that we decided to draw a line, on a particular date, to end the present system, based upon the budgets received. It so happens that Cardiff considered that that settlement, compared with the budget that it was putting in thereafter, left it disadvantaged. We now have figures from all the districts in Wales, of which 11—including Cardiff—are disadvantaged and 15 are advantaged, some of them by very small amounts. We had to draw a line to end the present system, and some councils benefited and others did not.

Mr. Barry Jones

For the last time, I ask the right hon. Gentleman whether he will do the decent thing by Cardiff city council and say that it can have its £2.3 million?

Mr. Walker

We made it perfectly clear that the line had to be drawn. Does the hon. Gentleman want those councils that have been advantaged to have their money clawed back? Cardiff city council's rate support grant in this settlement is going up substantially, as is shown in the figures that I have given to the House. That will be of great benefit to Cardiff in the coming year. Indeed, based on the grant figure that it will receive, I do not expect its rates to rise by very much.