LOCAL GOVERNMENT (FINANCIAL PROVISIONS) BILL. (Hansard, 15 March 1937)

VISCOUNT GAGE

My Lords, this is a Bill of many technicalities but one of great importance as it deals with the distribution of some £46,000,000 of Exchequer money. It arises in the natural course of events from the passing of the Local Government Act, 1929. Your Lordships may remember that there were many important reforms introduced at that time; for instance, there was the derating of trade premises and the transfer of certain services from the district councils to the county councils; and those reforms alone would have necessitated some alteration in the financial machinery of local government. But, at the same time, it was also decided to abolish the percentage grant system. It was felt that the handing over by the Exchequer of large sums of money to the local authorities in exact proportion to their expenditure was unfair, because it obviously resulted in the richer authorities receiving more than the poorer authorities, although the needs of those poorer authorities were obviously much greater. It also resulted in a good deal of unnecessary interference by State Departments with the local authorities. It was, therefore, decided to replace this system by another whereby grants should be made on a scientific basis, taking into consideration the needs of each authority.

Therefore the Government were obviously confronted with two questions— 657 firstly, what was the total sum to be divided up? and, secondly, how was this distribution to be carried out? To answer the first question a calculation was made of the total losses which would result from the derating of trade premises and from the loss of these percentage grants, and to that was added some new money which represented in part what it is estimated would have been the contribution from the Exchequer had the old system been in force for the period of years under consideration, and, in addition, some new money towards future expenditure. These three sums constituted the total pool to be divided. Then, as to the question how this money should be distributed on the new scientific basis, use was made of a formula which allowed for various factors such as unemployment, number of children under five, rateables value and so forth. But it was found that had this new system been put into force straight away the change would have been so abrupt that the finances of local authorities would have been rather dislocated. It was therefore decided to bring in the new system gradually by laying down in advance certain dates on which successively larger proportions of the pool should be distributed on the new formula. These dates were 1933, 1937, 1942, and 1947. The intervening periods were known as the first, second, third, fourth and fifth grant periods. In the first and second periods the grant was one-third on the formula basis and two-thirds on the old basis; in the third period two-thirds on the formula basis and one-third on the old basis; in the fourth period three-quarters on the new basis and one quarter on the old basis, and at the end of twenty years the whole would be distributed on the new formula basis.

Then there was a further provision made which is of importance because it has materially affected the Bill which is before your Lordships' House. It was held that as this system of formula grants was new and untried it was only right that there should be a review made at some appropriate time during this interim period to see how the scheme was actually working out in practice. It was decided that this review should be made towards the end of the second grant period, which is the time at which we have now arrived. We are therefore starting the third grant period with the results before us of a very careful investigation carried out by the 658 Ministry of Health in consultation with the local authorities, and I perhaps might now say a word about the results of that inquiry. In the first place I think I can claim that the system on the whole was found to be working successfully. Some people at the outset of the scheme were, naturally I think, somewhat alarmed at the rather formidable appearance of the formula. They were somewhat doubtful as to whether a system which seemed to have strayed from a treatise on the higher mathematics was really a suitable medium for dealing with human problems that were always changing and were very often distressing. But, on the whole, I am glad to say they have been proved to have been mistaken. Indeed, several of those who were most critical at the beginning have since confessed that they have been converted, and that, moreover, after the experience of a very testing period during which the scheme has been operating.

Some very remarkable changes have taken place since 1929. There have been a very great slump and a partial recovery. There have been great movements of the population, and there have been two quinquennial valuations. It can be readily understood, I think, that as a result of that investigation the Committee found it necessary to make some minor recommendations in regard to some suggested alterations. These recommendations have been embodied in the Bill. In addition new money to the extent of some £5,000,000 has been added from the Exchequer in accordance with the arrangements made at the time of the passing of the original Act. I should like to explain that this is the total of the new money although it does not appear to be so. The figure in the Bill is the result of some readjustments made following the passing of some other legislation. Your Lordships will see that the poorer districts gain not only by reason of the larger pool on which they can claim, but also because their proportionate share of this pool will be greater. There are, as we all know, schools of thought that believe that some of the local burdens should be shared on a national basis. We have gone so far in meeting this point of view that under our arrangements no less than 65 per cent. of the expenditure of some authorities will come from the Exchequer. My right 659 honourable friend maintains, and I think justifiably, that there must be some limit to the extent to which local authorities can draw on national funds and that a degree of local responsibility must he preserved.

I should like to be allowed to give one or two examples of the results of differentiation under the formula between the richer and the poorer authorities. In the case of Bournemouth the amount of Exchequer money distributed represents 94d. per head of population, whereas in the case of Merthyr it represents 558d. and in the case of Cumberland 582d. Calculations have been made as to the proportions in a large number of boroughs and counties and the results have been published in the Report of the investigation. There is not a full list in that Report, but I know that my right honourable friend is very anxious that the fullest information should be available and calculations are in the process of being made for all boroughs and counties.

So far I have been discussing the system of distribution as between the counties and the county boroughs. I think I ought to add a word to explain how within the counties the Exchequer money is divided between the county council and the districts. The principle is that of a simple capitation basis. Half the grand total of the county apportionment is allotted to the districts on the basis of a fixed sum per head of their populations, the balance going to the county councils on the formula basis. But, again, had this principle been carried out at once there would have been dislocation in the finances of the districts, because the loss incurred by the derating of trade premises would have affected the districts very unevenly and would not have been balanced by these capitation grants. Therefore special arrangements were made to assist the districts which were shown to lose by the scheme and for the period of fifteen years contributions are being made to the local authorities, made up partly from the funds of the gaining districts within the county and in part by the Exchequer. These contributions diminish from year to year until at the end of fifteen years they cease altogether. This period of fifteen years is long enough to allow for readjustments to be made in the majority of cases. One of the changes in the Bill is, however, that in certain of 660 the very poorest districts, where it was found that even the annual addition to their expenditure of one-fifteenth was bearing very hardly, the Minister has taken power at his discretion to spread this burden over thirty years—that is to say, twenty-six years from now.

That concludes the rough outline of the Bill. I have not gone into the clauses in great detail, for the simple reason that I think that any Amendment on points of detail would be very likely to raise questions of Privilege. I do not claim for this Bill that it is a kind of universal panacea for all the troubles of local government. I do not claim that it will cure the distress in the distressed areas. But I do claim for it that it is a reform of the first magnitude which has acted and is acting as a great amelioration in these cases. What we are doing in this Bill is to bring it up to date. I think it is customary to conclude by offering to explain any points that may be put. I must confess that I do so in the case of this Bill with some feelings of reserve, but I nevertheless commend the Bill to your Lordships for a Second Reading.