LOCAL GOVERNMENT FINANCE (Hansard, 19 May 1977)

§ The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)
My Lords, with the leave of the House, I will now repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for the Environment. The Statement is as follows:
"The Government's response to the Layfield Committee's Report on Local Government Finance is published this 911 afternoon as a Green Paper. Copies of the Green Paper are available in the Vote Office.
"As the House will recognise, there are no quick or simple solutions to the problems of local government finance. We have, however, come to firm conclusions on a number of the many issues raised in the Layfield Report; conclusions which will nevertheless need further detailed consideration. On other matters raised by Layfield we have narrowed the choices and made provisional proposals which will need further public discussion before we can determine what is the right course to follow.
"Our main conclusions are as follows.
"First—and after much thought—we reject the Layfield Committee's basic argument that an improved relationship between central and local government can be achieved only by adopting either a system of strong central intervention, or a system under which local authorities would be permitted a substantial increase in the scale of local taxation and thus to manage their own affairs with less control from central Government. The Government see central/local relations in a different light, neither centralist nor localist. They consider the responsibilities involved in the provision of local services are inevitably shared. Local autonomy must be preserved and encouraged but at the same time central Government must fulfil its economic responsibilities and ensure that its policy interests in locally provided services are safeguarded. The Government intend therefore to strengthen the present financial machinery to enable central and local government to fulfil their roles more effectively.
"Second, we are not convinced that it would be right, as the Layfield Committee suggested, to add local income tax to existing rates as an additional source of local revenue. But we agree with the Layfield Committee that the various other local taxes which have been suggested to supplement local rates (including local sales tax, local motor vehicle fuel, duties and local payroll tax) have serious disadvantages, and we do not 912 propose to pursue them. We also agree with the Committee that it would be wrong to abolish domestic rates. We consider that to do so would be to impose unacceptable burdens on national taxation; it would mean increasing the basic rate of income tax by 4½p in the £ or increasing the standard rate of VAT from the present 8 per cent. to 14 per cent.
"Our third conclusion is, however, that the rating system needs substantial reform. We propose therefore to end the current rental basis for domestic properties. In its place we propose to adopt capital valuation. The impact of the change will be tempered by transitional measures and there may be a need for more permanent modifications. Agricultural land and buildings will remain de-rated. Changes will be made to some other parts of the rating system to help small businesses in particular, and to bring the system more into line with present-day circumstances.
"Our fourth conclusion is that local authorities should be freer to determine their own priorities for capital expenditure. We, therefore, propose to discuss with the local authority associations a new system whereby. within general policy guidelines laid down by central Government, approvals would be given for capital expenditure on programmes rather than on projects.
"Our fifth conclusion is that we should strengthen the machinery for helping local authorities and their electorates to obtain greater efficiency and value for money. Efficiency is a matter primarily for local authorities, but the Government will see that more comparative and other value for money studies are undertaken. An independent advisory body will be set up to consider general audit matters.
"Our sixth conclusion is that Exchequer grant should continue to be the most important source of revenue for local government and it should be distributed mainly as a block grant. But the form and method of distribution of the grant is the most important of those matters on which we believe there should he further and wider public debate.
"We all would, I think, acknowledge that the present rate support grant 913 system has defects and the Layfield Committee did discuss a new system—the unitary grant—which seems to us to go a long way to removing those defects. But the local authority associations have all told me that they are opposed to unitary grant, which seems to them to have grave defects. The question of unitary grant or alternatively of amendments to the present rate support grant system needs further discussion. Until these consultations have been concluded, the Government will not come to firm conclusions about the form and method of distribution of Exchequer grant.
"In framing the Green Paper we have had four aims in mind. First, we seek to maintain and enhance the independence of local government; secondly, we seek to improve and encourage greater accountability of local government to its electorate; third, we seek to establish an effective and proper degree of Government control over the total of local government expenditure. Last but not least, we seek to make fairer and more equitable the methods of local taxation.
"We now propose to hold detailed and urgent consultations with the local authority associations on those matters on which we have reached general conclusions. We are also anxious to discuss with them, and to hear the views—by the end of September—of other interested organisations and individuals on the other important matters in the Green Paper.
"This Statement relates only to England and Wales. The detailed application to Wales will need to be considered in the light of the implementation of Government policy on devolution and the need to consult the Welsh Assembly. My right honourable friend the Secretary of State for Scotland is making a separate announcement about these issues as they affect Scotland.
"Finally, I regret to say that owing to an industrial dispute at HMSO, printed copies of the Green Paper are not yet available, but typescripts are of course available for Members in the Vote Office. I hope that printed copies will be available from the middle of next week".

§ Baroness YOUNG
My Lords, I should like to thank the noble Baroness for repeating that Statement. In the middle of an important debate such as we have today, this is not the time to embark on a debate concerning local government finance. There are, however, three points that should like to make. The first is that it seems ironic that the Government declined to have the five-year revaluation which should have been held in 1978 because the Layfield Committee were sitting and might propose the abolition of the rating system. We now see that the Government are not going to consider any form of alternative local taxes. We are still left with the revaluation position as it was in 1973, and the present injustices remain. We seem to have achieved the worst of all possible worlds.
Secondly, on the proposal to change to capital taxation, I have just had the opportunity to glance quickly through the Green Paper and it seems to suggest that the result of capital taxation is that those at the highest and the lowest ends of the property market will have to pay more. I should have thought that will therefore he disadvantageous to people in the inner cities, to council tenants and first-time home buyers in particular. I find it difficult to believe that that was the intention of the Government.
On the third point, concerning the unitary grant, no one who cares for local government can be anything but greatly concerned by the fact that the local authority associations are against the unitary grant. I imagine this to be because they realise it would involve a far greater scrutiny and control of their capital programmes and, by having an equalising effect, will undoubtedly have an inflationary effect in other authorities.

§ Baroness ROBSON of KIDDINGTON
My Lords, we on these Benches would also like to thank the noble Baroness for repeating the Statement made in another place this afternoon. I suppose it would be surprising if we on these Benches did not express our regret that the Layfield Committee themselves, and therefore, also, now the Government, did not give detailed consideration to the merits of site-value rating. However, we sympathise 915 with the Governments dilemma. There are no simple solutions to the problems as they face us today, and of necessity more than one solution is necessary. We on these Benches welcome the change from rental valuation to capital valuation. This is something that we have been advocating for some years and we see this as going some way towards solving the problems of local rates.
Where we disagree with the Government in their Statement is on the balance between local and central government control of finance. The Statement specifically says that the Government … seek to maintain and enhance the independence of local government and … to improve and encourage greater accountability of local government to its electorate;". It is our view that, in order to do that, it is highly necessary to give greater autonomy and, therefore, greater responsibility to local government in financial matters. We would welcome the introduction of some form of local income tax.
At the end of the Statement it is mentioned that this relates to England and Wales and that, The detailed application to Wales will need to be considered in the light of the implementation of Government policy on devolution …". One cannot help feeling that some of our problems, at least, have been created in England, because we undertook local government reorganisation without looking at local government finance. We dealt with the egg before the hen, or the hen before the egg, and I believe that if we look carefully at the problem we might avoid the same mistakes in Wales.

§ Baroness BIRK
My Lords, I am very grateful to the noble Baronesses for keeping their comments brief, because the Statement was a very long one and raised many issues. Perhaps I might deal very briefly with the points that were raised. The noble Baroness, Lady Young, mentioned the five-year revaluation. I think it would have been quite wrong, quite absurd and wasteful to have embarked on that while Layfield was going on. In any case, if there was to be a change to capital valuation, it will take some time to work its way through and would have meant yet another change. So I cannot accept that this is the worst of all possible worlds.
916 On the question of capital values, it is true that there will be differences; there will be increases, relatively, in some regions, and decreases in others. It is also true, as the noble Baroness said, that possibly the rateable values of expensive houses at one end, and of very cheap houses at the other end, will rise, but the rateable values of the middle-prices houses will fall. However, the Government will keep a very close watch on the situation. But we believe that there is no other practical and reasonable alternative, and change is necessary because there is insufficient evidence available of free market domestic rents to support a further revaluation on the present basis. I would remind the noble Baroness of something which I am sure she is very much aware; that is, that the rate rebate scheme would still continue, which would be a help at the lower end of the housing market. On the unitary grant, we are hopeful that the discussions with the local authority associations and local authorities will mean that there is a meeting of minds. But it is a large subject, in itself, to go into now.
If I may now turn briefly to the comments of the noble Baroness, Lady Robson, I am pleased with her welcome for the change to capital valuation. She mentioned her disappointment that we are not proposing a site valuation rating, but the Layfield Committee themselves went into this and rejected it as being impractical. On the question of local income tax, as I pointed out in the Statement, this would mean a much greater increase in direct income tax, which in the last Budget the Chancellor of the Exchequer was moving away from. Also, it would be extremely expensive to implement. So far as local government reorganisation is concerned, I certainly agree with the noble Baroness that the 1972 Act was a disaster.