TREASURY CONSENT (LOCAL GOVERNMENT EXPENDITURE AND COUNCIL TAX) (Hansard, 2 March 1998)

§ Mr. Jenkin
I beg to move, That the clause be read a Second time.
798 In an effort to ensure that everyone gets a chance to speak, I shall be as brief as possible. It was interesting to note in the previous debate that the Liberal Democrat spokesman, the hon. Member for Montgomeryshire (Mr. Öpik), spoke for longer than the hon. Member for Cardiff, North (Ms Morgan), who moved the original motion.
Paragraph 3.8 of the White Paper made it clear that the assembly would assume responsibility for funding Welsh local authorities, and that was to be put into effect by clause 22 and schedule 2 which, taken together, require the Secretary of State to transfer functions relating to local government in Wales.
The amount of revenue support grant awarded to a council is not specified in law and will be totally at the assembly's discretion. Furthermore, the Government are committed, as paragraph 3.9 of the White Paper says, to removing "crude and universal capping". Indeed, the Secretary of State said: Certainly I want to get away from the capping regime. I think that it is unhealthy … as a Government we are opposed to the crude and universal system of capping, introduced by the last Government, which we have inherited."—[Official Report, 11 February 1998; Vol. 305, c. 385–87.] As we have consistently said, the assembly could introduce its own tax-raising power through the back door, by deliberately holding back funds from the unitary authorities, safe in the knowledge that they would then raise council tax. The new clause would stop the assembly forcing local authorities to raise their council tax without Treasury approval.
We have consistently warned that the assembly will effectively possess an indirect tax-raising power. The new clause is designed to prevent that.

§ Mr. Win Griffiths
The hon. Member for North Essex (Mr. Jenkin) displays entirely unnecessary caution and fear, as I hope to be able to show. It must be realised that funding for local government—the hon. Gentleman specifically referred to that point—represents nearly half of the total Welsh block. New clause 31 would fundamentally affect the way in which the assembly would discharge its responsibilities for funding local government in Wales.
We must be clear about the effect of the new clause. It would provide for a Government Department in Whitehall to second-guess decisions of an elected assembly based in Wales. The assembly will be directly accountable to the people of Wales for its decisions, but that is not to say that, under devolution, the United Kingdom Government will have no interest in the level of local government expenditure in Wales. The block principles that my right hon. Friend the Chief Secretary published before Christmas made it clear that financial arrangements would be made to safeguard the United Kingdom taxpayer from the effects of decisions taken by the assembly. That is why, for example, the cost of council tax benefit in Wales is to be brought within the block. The assembly will not be able to pass on the benefit costs of its decisions to the Department of Social Security.
We have also recognised that, at the moment, local authority self-financed expenditure, including council tax income, forms part of the Government's control total. Council tax levels are controlled by capping. As the hon. Member for North Essex rightly pointed out, the 799 Government are committed to abolishing crude, universal capping, but we are reviewing the capping powers as part of our review of local government finance. Consultation on those issues will be carried out later this year in England and Wales. We shall decide, in the light of the review, what powers the assembly should have. The block principles cater for that.
If local authority self-financed expenditure in Wales grows more rapidly than the equivalent expenditure in England and in such a way as to threaten targets set for public expenditure as part of the management of the UK economy, it will be open to the Government to take the excess into account when considering the level of the Welsh block. That safety provision is written in. Therefore, appropriate safeguards will be put in place to protect the UK taxpayer. The Government's view is that those safeguards are best delivered through the flexible administrative arrangements in the block rules, instead of the straitjacket that would be introduced by new clause 31.
Under the new clause, a decision to give £1,000 more to local government would require the assembly to go, cap in hand, to the Treasury for permission. That cannot be an appropriate way to treat a mature, elected body. I hope that the hon. Member for North Essex will accept that protection for the UK taxpayer is provided in the block principles that we have already set out. A serious side effect of the new clause would be to make it impossible for the assembly to make even small changes in the provision for local government in Wales. Therefore, I hope that he will withdraw the motion.

§ Mr. Jenkin
I am grateful to the Minister for that reply. He gave the answer that I expected. Will it be less inflammatory for the future relations between the Treasury and the assembly for a behind-the-scenes, arm-twisting policy to be the way in which the Treasury controls the withdrawal of grant from local authorities, instead of clear and unequivocal consents being required by the Bill? I ask that question as a warning. We believe that misunderstandings on that issue are likely to lead to friction between the Westminster Parliament and the Welsh assembly in the future.

§ Mr. Win Griffiths
There is nothing behindclosed-doors about this. I have explained clearly how the principle will work, and it is open for everyone to see.

§ Mr. Jenkin
The hon. Gentleman may say that, but there will be private discussions between representatives of the Welsh assembly and the Treasury, behind closed doors, where the issue of how much revenue support grant settlement is doled out to local authorities will have to be agreed, so that the assembly should know that what it is agreeing will not result in a withdrawal of grant by the Treasury.
That is the use of Executive power, instead of the use of simple expedients in the Bill, to try to control local authority spending. I can appreciate why, sitting in his position, the Minister would prefer everything to be done at the discretion of Ministers, but that approach carries with it dangers. The dangers are that, when the arm twisting becomes serious, the assembly will feel that its legitimate rights are being thwarted because no restriction that would otherwise contain its action has been put in the Bill.
800 To achieve what we should prefer to achieve by legislation, the Minister will have to rely on back-room pressure, and back-room pressure is less satisfactory than an open agreement set down in the Bill. However, I beg to ask leave to withdraw the motion.