Rate Support Grant (Scotland) (Hansard, 11 July 1989)

§ The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton)
I beg to move, That the Rate Support Grant (Scotland) Order 1989, dated 24th May 1989, a copy of which was laid before this House on 25th May, be approved. I appear before the House for the first time with my new responsibility for local government finance in Scotland. It is an opportunity to present good news. The purpose of this order is to adjust grant entitlements for Scottish local authorities for previous years, in the light of more up-to-date information on expenditure during those years. The main point of note is that, in the year just ended, 1988–89, authorities reduced their expenditure, as against their original budget figures, by £48 million, as a result of which, if the House approves this order, we will return to them about £70 million in rate support grant. There are also minor adjustments of grant for 1987–88 and for 1986–87. The Convention of Scottish Local Authorities has of course been fully consulted about the contents of the order, and welcomes it.
Authorities' budgets for 1988–89 were £3,742 million—£136.5 million above guidelines. As a result, the House approved a year ago the Rate Support Grant (Scotland) Order 1988, under which the grant apportionments were reduced of those authorities budgeting above guideline. Of the total excess over guideline of £136.5 million, £116 million, or 85 per cent., was accounted for by Strathclyde and Lothian regions alone. The tariff of grant penalties imposed last July was, when compared with the huge budgeted overspending and also when compared with tariffs in some earlier years, moderate. It imposed modest penalties on authorities which were budgeting slightly over guideline, and which might most easily be persuaded to reduce their spending during the year. The penalty tariff increased substantially for authorities budgeting at 4 per cent. or more over guideline, because it was on those authorities that the greatest pressure needed to be exercised.
The judiciousness of this penalty tariff is well demonstrated by local authorities' response, as evidenced in their provisional outturn figures for this year. Overall spending has been reduced by £48 million by comparison with the original budget figures, and, among authorities that have reduced their expenditure most significantly, Strathclyde has secured reductions of £17 million and Lothian of £20 million. Those two authorities are therefore the major beneficiaries of this evening's order, under which, and subject to the House's approval, they will have returned to them £48.1 million and £23.8 million respectively. Other notable beneficiaries of tonight's order are Fife region and Edinburgh and Glasgow districts. Some authorities—notably Central region and Stirling and Cunninghame districts—have regrettably increased their spending at outturn, and so their penalties are increased.
By comparison, the grant adjustments in respect of 1987–88 and 1986–87 are minor indeed, and reflect simply minor adjustments to those authorities' accounts in the light of the most up-to-date information on their spending in the relevant financial years.
929 I should now like to turn briefly to details of the order. It makes adjustments to grant penalties for the last three years of rate support grant, using the penalty tariffs previously applied to each of those years.
First, the order increases rate support grant for 1988–89 to take account of reductions in spending at provisional outturn stage. As a result, rate support grant will increase from £1,897.8 million to £1,967.5 million. Strathclyde region has reduced its spending excess over guideline from 5.1 per cent. at the time of the 1988 order to 3.97 per cent. and will recover £48.1 million in grant. Similarly, Lothian has reduced its excess from 9.71 per cent. to 4.85 per cent. It will recover grant of £23.8 million. Details of the original 1988–89 penalties and of how they are now being revised are given in appendix 2 of the report, the revised penalties being shown in column 6 of the table to appendix 2 to the report with adjustments to grant payments set out in column 9.
For 1987–88, final or near final outturns show a small decrease in spending. The effect of this is to reduce penalties by £0.2 million. Details of the adjustments to penalties are shown in column 6 of table II of appendix 3 to the report.
For 1986–87, final or near final outturns show a small increase in spending, which has the effect of increasing grant penalties by £0.03 million. Details of the adjustments to penalties are shown in column 8 of table II of appendix 4 to the report. There will be a continuing need to adjust grant for each of those years in the light of up-to-date information.
As for next year—1990–91—representatives of COSLA met my right hon. and learned Friend the Secretary of State last Monday, 3 July, and discussed the prospects for spending next year. They said that they expected their spending to go up by at least 7 per cent. —although this was on the basis of simply accepting this year's budget levels and adding their estimate of inflation. I would hope they can do better than that by looking at scope for economies and for greater efficiency and value for money. COSLA recognised that there might be something in this and it is encouraging—though in all the circumstances no more than mildly encouraging—that COSLA now proposes to open discussions with the accounts commission about the commission's future programme of value-for-money studies. I very much hope that that dialogue will he productive.
In the meantime, my right hon. and learned Friend will be reflecting on the discussions with COSLA last Monday and will take them into account when reaching conclusions on a revenue support grant settlement for 1990–91. It is hoped to make a statement on this before the House rises.
It is tempting to say more and to range wider on the subject of local government spending in Scotland, but I shall resist that temptation until I have had the chance to meet representatives of local authorities. For our immediate purposes, the order is good news for local authorities, it has been strongly welcomed by COSLA, and I commend it to the House.

§ Mr. John Maxton (Glasgow, Cathcart)
I welcome the Minister to his new role as poll tax spokesman, although I must tell him that Edinburgh Members of Parliament with small majorities do not do too well as poll tax spokesmen. The last one lost his seat, and the Minister 930 may have the same problem at the next election. His new responsibilities are due to a shift in the power structure of the Scottish Tory party. I am delighted to see the new deputy leader of the Tory party in Scotland in his place, even though the new leader is not in his.
We welcome any money that the Government give local authorities, although the Minister's argument that this is some act of generosity on his part is laughable. This is money that local authorities should have had in the first place. It should never have been lost under a penalty scheme that should never have existed.
We welcome the end of the grant penalties. The system ended in Scotland only on 31 March this year, when it also ended in England and Wales. So poll tax levels in Scotland have been affected by the clawback, but England and Wales will enjoy a whole year without penalties, which means that the poll tax there next year will not be affected as it was in Scotland.
This order does not return all the money due to the local authorities. It represents only the partial return of clawback money, and a small number of authorities have lost out.
We welcome this money, however meagre it is and however late in the coming. Our local authorities need it to spend on the services that they provide.
This rather late and short debate may be an historic moment for the House. This may be the last rate support grant order for Scotland. When we return to power and introduce a new local taxation system, we shall not call it the rate support grant system.

§ Sir Hector Monro (Dumfries)
I welcome the order, which will greatly help local authorities. Will my hon. Friend answer two questions, or write to me with the information if that proves inconvenient?
Why have only four out of all the authorities received penalties? Why has not Annandale and Eskdale been penalised? It has clearly been overspending, and it would be interesting to know why, and by how much. Has my hon. Friend the Minister brought it home to that authority that that is no way to proceed with prudent housekeeping? [Interruption.] It has been the result of a Democrat majority in Annandale and Eskdale.
Secondly, will my hon. Friend either respond tonight or write to me about the arrangements for the UBR, which are so important in Scotland and which my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Lang) mentioned recently? They appear to be more satisfactory than any self-employed person or small business man could have anticipated, which is good news.

§ Lord James Douglas-Hamilton
The Annandale and Eskdale district's overspend against guidelines in 1987–88 increased on the basis of further adjustments to the accounts for that year. Those figures will have been produced by the council's auditors. It is a great pity that the authority, which is normally noted for its prudence, should find itself in that position.
Local authorities knew when budgeting last year that there would be penalties. They were also given early warning of the exact penalty tariff on 19 May 1988 and a similar procedure was adopted for earlier years. Therefore, they had plenty of opportunity during the year to reduce 931 their planned expenditure and thereby to avoid penalties. However, I hasten to confirm that, as the hon. Member for Glasgow, Cathcart (Mr. Maxton) said, the penalty system is coming to an end. The hon. Gentleman referred to the closing down of the English system this year. That was undertaken for reasons that did not apply in Scotland. There are many differences between the Scottish and English systems. After the close down, English authorities were unable to recover grant already lost last year or in previous years. Our arrangements in Scotland are well understood and local authorities were well able to respond.
The essence of the order is to return £70 million to local authorities. The funds are being returned to local authorities that budgeted to overspend last year, but were then able during the year to reduce their spending. The order will assist local authorities' cash flows now and assist them in keeping budgets. Secondly, it will keep down the base level of their spending for all future years.
The order has been welcomed by COSLA and I detect, despite the slightly grudging remarks of the hon. Member for Cathcart, that, none the less, on the whole the Opposition welcome the order, although it is difficult for him to say so. We have now embarked on a new grant system, and grant penalties are something of the past, except to the extent that we are repaying them in part. It is the accountability of the community charge that allows us to end grant penalties, and for that reason alone the Opposition should join us in welcoming the new community charge. I commend the order to the House.