§ The Minister of State, Welsh Office (Mr. Wyn Roberts)
With permission, Mr. Speaker, I wish to make a statement about local government finance in Wales in the period leading up to April 1990.
My right hon. Friend the Secretary of State for the Environment has already announced that he and the Secretary of State for Wales are today issuing a consultation paper on our proposals to revise the arrangements for controlling local authority capital. The paper has been placed in the Library and is available in the Vote Office. It is being sent to local authorities in Wales and to their local authority associations today. The new system will operate in Wales as in England. It will control borrowing and all forms of credit rather than expenditure.
Local authorities have made representations over several years about the use of their capital receipts. Under the new system we now propose, a proportion of accumulated and future cash-backed receipts will be applied to debt redemption or set aside to meet future capital commitments. Councils will be able to spend the balance of their receipts in whichever year they choose. Local authorities will also be free to finance capital expenditure from revenue contributions, subject only to the enhanced accountability that they face following the introduction of the community charge. The system meets the needs of both central and local government. I believe that local authorities in Wales will welcome it.
I turn now to rate support grant and the local government finance system. My right hon. Friend has decided that it is appropriate to pave the way towards the introduction of the new local government finance system in 1990 by making changes to the present system which will give local authorities certainty about their grant entitlements for the coming financial year. We propose to achieve this by introducing a fixed grant for 1989–90.
As in England, legislation will be introduced during the next Session to alter the basis on which grant will be paid. It is proposed that grant payments for 1989–90 should be calculated, not on authorities' reported total expenditure, but on a figure derived for each authority based on information about their present level of total expenditure and projected forward. Appropriate adjustments will be made for changes in functions. It is also envisaged that in making such assumptions we shall use only that information about total expenditure which was with the Department by midnight last night.
Once the report has been approved, and subject to Parliament approving the new legislation, grant will be paid on the new basis and will not depend upon authorities' spending decisions in 1989–90. That contrasts with 1987–88 and this year, when local councils have budgeted to forfeit about £20 million in grant.
Final supplementary reports for the current year and for the two previous years have not yet been made. We envisage that for these three years authorities' grant entitlements should be calculated in general using total expenditure information which was with the Department by midnight last night.
Our proposals provide a basis for orderly transition to the new system and for bringing the existing system to a close. Without the proposed legislation, it would have been necessary to seek the approval of the House to 1215 recalculate grant under the present system at least until 1991–92. It should now be possible under these proposals to make the last supplementary report under the present system during 1989–90. I am sure that hon. Members will be relieved to hear that.
I refer now to next year's rate support grant settlement for Wales. Local authorities in Wales are beginning to consider their budgets for next year, and to assist this process I am today announcing our proposals for the key elements of the settlement. We shall be discussing them in the usual way with the local authority associations, and the Secretary of State will take account of their representations in reaching his decisions. In due course, more detailed information will be circulated, as usual, to Welsh councils. Copies of this additional material will he placed in the Library and in the Vote Office.
We propose to set the level of provision for current expenditure at £1,785 million. This is 5.1 per cent. or £87 million more than authorities are budgeting to spend in 1988–89. This increase is above the level of inflation and is close to the forecast of spending made by the expenditure sub-group. It should allow authorities to keep their spending in line with our plans and broadly level in real terms. It includes full provision for the current costs which will be incurred next year in preparing for the introduction of the community charge.
We propose that aggregate Exchequer grant should be set at £1,316 million. This increase of 5 per cent. is ahead of inflation, is £63 million more than we provided in the settlement for 1988–89 and about £77 million more than the amount being paid to local authorities for the current year. We will he discussing all these proposals with the Welsh consultative council on local government finance on 13 July.
This is a generous proposal. It gives local authorities certainty and offers a smooth path to the new system. Both grant and expenditure provisions have been increased by more than the level of inflation. Ratepayers should therefore expect their councils to safeguard their interests by setting their budgets in line with the settlement. They will know that in doing so rate increases can be kept below the rate of inflation. I hope that all councils will ensure that rate increases are kept low. I hope, too, that they will continue to improve their efficiency and effectiveness to ensure that they use available resources for the full benefit of the communities.
§ Mr. Alan Williams (Swansea, West)
I thank the Minister for his statement. Naturally, we welcome generally the greater predictability that the announcement will give to councils. That is a gain in method, but whether it proves to be a gain in substance depends on the ceilings, which we do not know yet. In that context, will the Minister confirm that, despite his protestations about a generous announcement, the Government stand by the White Paper prediction, which shows that local council spending in Wales will fall? If the Minister's announcement is in keeping with that, the standards of service will also continue to fall. In future, control will be exercised by borrowing rather than through expenditure. Will the Minister confirm that that is a return to the system that operated before his Government started meddling with the 1216 system of local authority finance—the system that operated before 1980? Is it a rather belated confession of error?
The fixed grant may be good or bad depending on the level at which it is fixed—which we do not know. We shall have to wait and see. I welcome, as a general proposition, the idea that local authorities will be free to finance capital expenditure from revenue. However, that proposition must be seen in the context of the financial environment in which it is intended to operate. The cruel sting in the tail is that it will be subject to the disciplines of the community charge. That is the same as giving someone the freedom of the straitjacket. Local authorities will be limited by the ratchet effect. To the extent that there is a 6:1 magnification in the poll tax impact of any expenditure decision, that is a meaningless freedom. It is a freedom to pace the cell.
I welcome the fact that councils will be able to spend the balance of capital receipts in whatever way they choose, but the impact of that depends on what the balance is. The Government intend that a proportion of receipts must—not may; this is an enforced decision by the council—be set aside. The Minister has not told us the amount for debt redemption or for future commitments. That means that most of the resources that the councils have received from the sale of their assets will not be available for the replacement of facilities or for new facilities for the communities that they serve. If anything, the overall effect will be that councils will lose freedom rather than gain it.
The Minister referred in glowing terms to the increase of 5.1 per cent. As he admits, it is a standstill figure. Inflation is running at 4.5 per cent. and, as hon. Members know, local authority expenditure—like National Health Service expenditure—is not directly related to the cost of living index, which is based on personal spending patterns. Inflation in local authority expenditure is always higher, because of the way in which local government costs are made up. The Minister gave this away inadvertently when he said that the announcement willallow authorities to keep their spending … broadly level in real terms.That is the key statement. Their spending will he level in real terms. There will be no expansion of services and no provision to meet the cost of GERBIL—the Education Reform Bill. That is an additional cost that councils have not had to meet before.
The provision will remain constant in real terms. It will include the cost of meeting the introduction of the community charge, yet expenditure will be level in real terms. In other words, when one deducts the cost of education and the cost of the community charge, constant expenditure in real terms becomes cuts in real terms. Will the Minister give us the precise estimates of the cost of introducing GERBIL and the community charge in Wales? I suspect that the ultimate figure will not even match the cost of living index and the normal inflation figure that the Government use.
Where is the extra provision to finance the councils' part in the valleys initiative? We eventually wrung the information out of the Treasury that there is not a single penny of Government money for this. What is available in this constant funding to help the valleys meet their part of the cost of the valleys initiative? Not a penny again, it would seem.
Will the Minister confirm that, since the Government came to office, Wales has lost £829 million in support for 1217 local government expenditure from Government compared to 1978–79? Those figures were given by the Secretary of State to one of his hon. Friends on Friday. Will the Minister confirm that the figure for the valleys is £250 million and that the announcement will do nothing to refund any of that money to the valleys or to Wales? Will he also confirm that—
§ Mr. Williams
It was a long statement.
Will the Minister also bear in mind that as interest charges are a major part of council costs—
§ Mr. Williams
The hon. Gentleman may be bored; the people of Wales are interested and concerned. We do not need a tame poodle Parliamentary Private Secretary coming here from England to tell us what we can ask about Wales.
As interest charges are a major cost in local government administration and as these figures were settled before the latest increase, will the Minister confirm that there is another erosion of the real spending power of the councils? We need far more detail before we can assess the real impact of the announcement. It appears to be utterly inadequate to sustain existing services, and certainly inadequate to meet the extra costs that are being imposed by the Government's policies.
§ Mr. Roberts
The right hon. Member for Swansea, West (Mr. Williams) welcomed parts of the statement and I thank him for that. He quickly went on to talk about the consultative paper. Of course, there will be considerable discussions on the contents of that paper in the months ahead. However, I was rather surprised to hear the right hon. Gentleman object to the limitation that would be put on local authority spending by the community charge, as the Government are introducing the community charge to make local authorities more accountable to their electors for what they spend.
The right hon. Gentleman mentioned debt redemption. My right hon. Friend the Secretary of State for the Environment said that local authorities in England were indebted to the tune of £45 billion, and the figure for Wales is £2.5 billion. That is a significant sum and the majority of hon. Members would regard the redemption of debt and the devotion of some part of captial receipts to that purpose as worth while. As the right hon. Gentleman acknowledged, there is a debt interest charge to be borne by those who contribute to the expenditure.
We are talking about the overall spending figures for both provision and grant, and we shall be discussing the detailed implications. We expect that local authorities will have adequate resources under the settlement to meet all their commitments. I remind the right hon. Gentleman that under this Government rate support grant for current expenditure has increased by 15 per cent. in real terms, whereas under the previous Labour Government, between 1974 and 1979–80, RSG expenditure remained unchanged in real terms.
§ Mr. Speaker
Order. I again remind hon. Members that there is a heavy day ahead. I ask for brief questions, to which I hope brief answers will be given.
§ Sir Anthony Meyer (Clwyd, North-West)
Is my hon. Friend aware that councillors in Wales will give a warm and unreserved welcome to the removal of the restrictions on capital expenditure which have irked them for a considerable period? Does it not clearly emerge from the figures quoted by the right hon. Member for Swansea, West (Mr. Williams) that, during the final three years of the Labour Government, because of their mismanagement of the economy, the amounts in real terms devoted to rate support grant dropped steadily year by year, whereas under this Government in the past three years they have steadily increased?
§ Mr. Roberts
My hon. Friend is right. One must remind the Opposition that, had the trend in rate support grant between 1976–77 and 1979–80 continued, the level of RSG this year would have been £620 million, not the £1 billion that the Government have made available.
§ Mr. Richard Livsey (Brecon and Radnor)
I welcome what has been said about councils spending the balance of their capital receipts in the year they choose. None the less, on this pre-poll tax statement, I should like to ask the Minister to enlighten us as to the mechanisms that will be deployed for controlled borrowing and credit. Will the hon. Gentleman consider relaxing council house receipts controls in Wales, just as the Secretary of State for the Environment said would happen in England? Has provision been made in the coming year for school building repairs in Wales, as were announced for England by the Secretary of State for Education and Science?
§ Mr. Roberts
I again emphasise that we have issued a consultative paper which contains various proposals. In the next three months we shall receive representations on them, so we have not made firm decisions. As for other details of the settlement, I again emphasise that today we are dealing with overall figures.
§ Mr. Keith Raffan (Delyn)
I warmly welcome my hon. Friends statement, which will allow councillors to budget more efficiently and effectively, and in particular the Government's proposals on capital expenditure. Does my hon. Friend agree that next year's settlement should lead not only to low rate increases—if any—but to an improvement in the services, provided local authorities concentrate on their statutory obligations? Does my hon. Friend recall the statement last year by my right hon. Friend the Secretary of State that not enough was being done to ensure the rapid and effective dissemination of improvements in efficiency? What has been achieved in that direction?
§ Mr. Roberts
My hon. Friend may be aware that my right hon. Friend the Secretary of State has had discussions about efficiency with local authority associations in Wales. The Audit Commission has pointed out that it is possible to make savings of £40 million per annum in local authority spending. Only about one third of the savings suggested by the Audit Commission have been achieved. I agree that there is considerable scope for savings, but even as things are, if local authorities keep to this settlement there should not be significant rate increases. Such increases should be below the rate of inflation.
§ Mr. Donald Coleman (Neath)
If the statement means that local authorities will be freed from the meddling of 1219 Ministers, it can be welcomed. How is the completion of local authority schemes, such as road building, affected by the statement? Will it mean that local authorities can still make bids for grant aid to complete those schemes, or will they have to find the money from their own resources?
§ Mr. Roberts
I have announced local authority provision as being some 8.8 per cent., or £145 million, over provision this year. That is some 5.1 per cent., or £87 million, over this year's budget. The authorities are reasonably well provided for, and I am being very restrained about the provision for next year. Local authorities will also receive grant of 5 per cent., or £63 million, more than this year, which in turn is 6.2 per cent. or £77 million more than claimed this year. In short, the authorities are in a good position to carry on with their existing plans.
§ Mr. Gwilym Jones (Cardiff, North)
In joining the general warm welcome for my hon. Friend's generous statement, I urge him to stress as forcefully as possible that his abolition of spending controls should not be taken as a green light for local council spending again to go out of control. My hon. Friend knows as well as I do that next year is local election year in Wales and that, for electoral purposes, the Labour-controlled councils will operate a cynical cycle, producing low or no rate increases next year.
§ Mr. Roberts
Up until the coming year, local authorities that overspent had their grant reduced. That will no longer happen. I should have thought that it will be clear to local authorities and their electors that any heavy spending that attracts huge rate increases will be due solely to the decisions of their local councillors.
§ Mr. Dafydd Wigley (Caernarfon)
I should like to press the Minister further on capital controls. In view of his comment that there will be controls on borrowing and other forms of credit rather than on expenditure, can the hon. Gentleman clarify the position in relation to European grants, for example, for the counties of Gwynedd, Powys and Dyfed, where the integrated operations scheme is making available millions of pounds of capital? Can we take it that that scheme is outside the capital control system which he proposes and that the new system will provide for additionality, so that these councils will not miss out because of a reduction in capital allowance from the Government because capital is available from the EEC?
§ Mr. Roberts
The hon. Gentleman will find that that matter is referred to in the consultation paper. I cannot give him the precise page, but he will find that there is a complete paragraph discussing various ways of dealing with his point.
§ Mr. Nicholas Bennett
Does my hon. Friend agree that it is clear from the fact that only one third of Welsh Labour Members are present that they are satisfied with his statement? Will he draw attention to those local authorities that believe that their expenditure can continue to rise and that they do not have to grasp the nettle, for instance, on the number of surplus school places in Dyfed? Is my hon. Friend aware that the Audit Commission has 1220 repeatedly pointed out that it is a matter not of milking the ratepayers for more money but of local authorities getting their house in order?
§ Mr. Roberts
My hon. Friend is right to say that there is tremendous scope for local authorities to make savings. Of course there is scope for local education authorities to make savings, as they are well aware, by getting rid of surplus places in primary and secondary schools. I am glad to say that local education authorities are fully apprised of the need to get rid of surplus places and thereby devote the resulting savings to other educational purposes.
§ Mr. Alun Michael (Cardiff, South and Penarth)
It is clear that we will know what the Minister is really up to only when we have the figures and percentages. Capital expenditure is important for employment in local authority areas. Will the Minister be genuinely generous in his decisions on capital expenditure?
The Minister should be subject to the maximum penalties of the Trade Descriptions Act when he uses the word "generous" about revenue, because he knows that that signals yet another round of imposed cuts. How is it that the Secretary of State for the Environment can calculate the cost of introducing the poll tax and refer to it in his statement, yet there is none in the statement for Wales? If the Department of the Environment's figure of £110 million is correct, that suggests that between £7 million and £10 million is appropriate for Wales, although I have reservations about that figure.
In addition, it will cost some £10 million a year to collect the tax. That calculation is based on the £1 million extra required for collection for the city of Cardiff. What are the Minister's calculations? In view of those figures, will he undertake to fund the effects of bringing in this crazy tax and not allow it to eat still further into the inadequate provision for inflation in the figures he has announced today?
§ Mr. Roberts
The hon. Gentleman is right: we have not made our announcement about capital spending for next year. My right hon. Friend the Secretary of State for the Environment was able to give a figure for the community charge in his statement. I cannot because the matter will be discussed by my right hon. Friend at a meeting next Wednesday with the local authority associations, but the cost is estimated at between £4.5 million and £7.5 million.
§ Mrs. Ann Clwyd (Cynon Valley)
Surely even the Minister is aware that this statement is a completely inadequate response to the problems of deprivation in the valleys, as my right hon. Friend the Member for Swansea, West (Mr. Williams) said. It cannot deal with the problems of bad housing, high unemployment, poor infrastructure and the heavy demand on social services in those areas. It will enable local authorities simply to stand still. It will not allow them to develop those essential services.
I remind the Minister that earlier this week the United Kingdom came bottom of the pile of European countries providing child care. That has happened in a week when we have heard much about the Government's concern for children. The settlement will not enable local authorities to develop child care and nursery education in Wales or in any other part of the United Kingdom.
§ Mr. Roberts
As usual, the hon. Lady is painting an excessively black picture. We in Wales are very fortunate, because 70 per cent. of our children aged under five are in some form of nursery education, as compared with some 40 per cent. in England. I think that she is painting far too dark a picture.
My right hon. Friend has announced his valleys initiative. I know that Opposition Members do not like it, but the people of the valleys do. It involves a tremendous concentration of expenditure and is a real attack on the social, housing and other problems of the valley communities. The settlement is generous in terms of the grant to Wales. The current expenditure provision is perfectly adequate and maintains expenditure for next year at the same level in real terms as for this year.
§ Mr. Gareth Wardell (Gower)
Will the Minister help me in two ways? First, will he explain and clarify the difference between the statement that he has read out today and the copy of the statement that I received on the board a few minutes ago? There are two differences between them. According to the copy of the statement that I have, he is meeting local authority associations on 12 July, but he read "13 July". Secondly, he completely omitted an important sentence in the first paragraph on page 3, which says:There will be no grant reduction if authorities spend more than planned.As that was not read out, should it be included in or excluded from the statement?
When statements appear on the annunciator concerning Scottish rate support grant settlements, "Scotland" is put after "rate support grant," and the same applies for England. Why can Wales not receive the same treatment?
§ Mr. Roberts
I do not think that the last matter is one for me. The hon. Gentleman is among those privileged to receive a copy of a statement as a matter of courtesy, but of course the actual statement is the one that I delivered to the House.
§ Mr. Win Griffiths (Bridgend)
Having explained to us that the settlement is generous and that 5 per cent. is better than the level of inflation, will the Minister now say that he does not expect inflation to rise above 5 per cent. during the coming year? Will he further say that he does not expect interest rates to rise during the coming year? Both have a crucial effect on local authority expenditure. Is the Welsh Office keeping a sum of money in reserve to cover those contingencies? If so, how much does it have available?
1222 The Minister laid great stress on the fact that local authorities would be consulted about the overall package and about what might eventually happen. Will he confirm that, if there is an overwhelming majority view in favour of some significant changes to the package, the Welsh Office will meet the local authorities' demands?
§ Mr. Roberts
It is not for me to forecast the level of inflation, but I can urge local authorities, which are after all major spenders in the United Kingdom, to play their part in helping to keep down inflation. They can do that by keeping to the expenditure levels anticipated in the settlement.
§ Mr. Alan W. Williams (Carmarthen)
Where is the generosity in the statement? The last paragraph begins:This is a generous proposal.Where is that generosity when what is being suggested is a 5 per cent. increase and inflation is 4.5 per cent. and rising? At best, that is a standstill budget.
The settlement highlights what is wrong with the whole of the Government's economic policy, which is that throughout the public sector we are at a standstill. What growth there is is in the private sector, and being let rip, it is causing serious balance of payments problems. The settlement is not just bad for local government in Wales—it is bad for the economy of Britain. How can the Minister describe a standstill budget as generous? It is double-talk.
§ Mr. Roberts
I am afraid that I have to remind the hon. Gentleman of what I said earlier about what happened to rate support grant current expenditure under the Labour Government—it remained unchanged in real terms. Since 1979, however, under this Government. it has increased by some 15 per cent. in real terms.
§ Mr. Paul Flynn (Newport, West)
When one includes the cost of introducing the community charge in Wales, one sees that the increase over the last year is not 5.1 per cent. but 4.4 per cent., which is below the level of inflation. In spite of our entreaties, we have yet to hear what the cost of introducing GERBIL to Wales will be. We can summarise today's statement in simple terms—it is a cut.
§ Mr. Roberts
The hon. Gentleman would be wrong to do so. With regard to the cost of introducing the community charge, I believe that the £4.5 million estimate is that of the local authorities themselves. The £7.5 million estimate is that of Price Waterhouse.