HL Deb 22 April 1982 vol 429 cc626-42

3.15 p.m.

Lord Bellwin

My Lords, I beg to move that this Bill be now read a second time. The Bill has three purposes. First, it abolishes supplementary rates and precepts. Local authorities will therefore have to set their rates or precepts for complete financial years. Secondly, it enables the Secretary of State to protect from any general loss of grant local authorities which meet their individual spending targets. Thirdly, it sets up an audit commission to be responsible for the audit of local authorities in England and Wales.

Part I of the Bill abolishes supplementary rates and precepts and ensures that local authorities cover their estimated expenditure needs for each complete financial year by making a single rate or precept, beginning with the financial year 1982–83. Let there be no sorrow over the demise of supplementary rates. The power to levy supplementary rates or precepts has existed for a long time in England and Wales but there has never been a similar power in Scotland. And in England and Wales successive generations of local authorities have taken the view that supplementary and unexpected rate demands part way through the year are highly undesirable. Domestic ratepayers expect that the rate demand they receive at the beginning of the year tells them their total liability for that year. They budget accordingly. And unbudgeted, unexpected supplementary demands can only cause quite unreasonable confusion and financial difficulties, especially for those on low incomes. Until recently, local authorities of all political persuasions have recognised this and made every effort to avoid such unfortunate and unpopular demands.

Equally, for non-domestic ratepayers who have no local voice by which they can protest, the effects can be extremely harsh. Industry and commerce cannot plan their budgets efficiently and effectively if they are suddenly called upon to meet unpredictable supplementary rate demands. We really cannot and must not turn a deaf ear to the cries of firms who see such unexpected drains on their resources as a real danger to their continued existence, let alone growth. We are talking about the potential effect on employment as well as individual firms' prosperity. We should not forget that. All ratepayers are entitled to expect financial stability from their local authorities.

The majority of local authorities are still able and determined to manage their financial affairs prudently, effectively and responsibly. They still feel that the last thing they wish to impose on their ratepayers is a demand for a supplementary payment on top of the one budgeted for and announced at the beginning of the financial year. So it is a power that has rarely been used—that is, until recently.

The financial year 1981–82 saw a sudden flurry of supplementary rates and precepts, not from the vast majority of local authorities by any means. But a significant number of local authorities raised supplementary rates or precepts on their own account, often following changes of political control. The unfortu- nate effects of these unexpected rate demands on local ratepayers are clear. But there was also a more wide-ranging defect. A large proportion were levied—and I have to say nearly all—by Labour authorities to finance increases in expenditure plans in direct defiance of the Government's request for reduced expenditure. As a result, many millions of pounds were added to the total local government overspend in 1981–82.

Traditionally, local government, regardless of political colour, has respected central Government's right to set national targets for expenditure and has cooperated voluntarily to enable those targets to be achieved. The current irresponsibility has put this traditional relationship at risk because no central Government could allow such a position to continue. But this Bill does not set a limit for local government expenditure. It does not limit the rate which a local authority may levy.

Clauses 1 and 2 simply ensure that each local authority plans its expenditure for the whole year, sets its single rate accordingly, and then lives within the means it has planned. This is the practice of the vast majority of prudent, responsible authorities already. So let us have no tears for supplementary rating; it is a power which the majority of local authorities have never wished nor needed to use—even in times of crisis—but which a minority have now made clear they will abuse.

Turning to Clause 3, it is of course important to ensure that no doubt arises as to the credit-worthiness of English and Welsh local authorities in the new circumstances. This is essential for the lenders, the authorities, and their employees. The Government also recognise that there may be times when a local authority will face a quite sudden and unexpected demand on its resources (for example, following a natural disaster) which cannot be met by its contingency funds. In such circumstances special temporary borrowing approval may be sought from the Secretary of State under Schedule 13 to the Local Government Act 1972. But, since this provision does not apply to the Greater London Council, although it applies to all other English and Welsh authorities, Clause 3 ensures that similar provision is made for the GLC. As for all other authorities, such consent will be given only where it is absolutely essential for the expenditure to take place to meet unavoidable commitments. A condition of any borrowing approved in this way will be that it should be repaid out of revenue income within the first quarter of the following year.

Before I move on to Part II of the Bill, your Lordships may be aware of the commitment made by the Government during the course of the Bill's Committee stage in another place to bring forward amendments to clarify the position of rating and precepting authorities, and of ratepayers, in the light of the complicated rating issues which were raised by this House's ruling in the GLC/Bromley case. In particular, provisions will be needed to cover powers and duties to reduce a rate and to make refunds where a precept or rate is found to be unlawful. I am sure your Lordships will wish to know that local authority associations are being consulted on the best means of achieving our objective of clarifying and protecting the position of both rating authorities and ratepayers. I will be tabling the necessary amendments in good time for our discussion in Committee of Part I of the Bill.

Part II of the Bill is necessary because some local authorities have been unwilling to work voluntarily within the Government's public expenditure guidelines. The aggregate overspend in 1980–81 was such that we decided we had to take action. We therefore reduced the total amount of grant available for distribution by £200 million. This was necessarily indiscriminate and affected authorities that had reduced their expenditure just as much as it did those authorities that were in fact responsible for the overspend. Under the legislation then in force, there was no way of it being otherwise. But Section 59 of the Local Government, Planning and Land Act 1980 provided a way of adjusting the grant payable to an individual authority. We therefore proposed as early as January 1981 to use this means of protecting the grant entitlements of authorities that individually met their targets if there had to be a general reduction of grant because of aggregate overspending in 1981–82.

In December 1981 my right honourable friend announced the principles on which a similar scheme would, if necessary, operate in 1982–83. In view of the importance of these proposals, we have taken the opportunity presented by this Bill to seek specific statutory authority for the grant adjustment they involve: in essence, that is what Part II of the Bill is about. There was some concern expressed when the Bill was introduced in another place, but the powers provided for in the Bill went beyond those suggested by our present proposals and could be used in conjunction with those contained in Part I of the Bill to reduce the amount of grant payable to an authority after it had made its rate for the year. My right honourable friend the Minister for Local Government and Environmental Services therefore made it clear that this was not our intention and introduced amendments which will, for future years, require the principles on which a differential grant holdback scheme is operated to be spelled out in advance in the Rate Support Grant Report for the year in question. He gave an assurance that for 1981–82 and 1982–83 we do not intend to implement differential holdback schemes more severe than those already announced. I hope that those assurances have gone some way towards allaying the fears felt by some local authorities.

I should perhaps warn your Lordships that the Government may find it necessary to introduce further amendments in Committee—not, I must make it clear, so that we can change the proposals we have already made, but in order to make sure that the safeguards we have built in already at the request of local authority associations do not prevent us from carrying out our existing policy; in particular, the exclusion of certain categories of expenditure from the calculation of performance against target. None of these amendments will affect the central purpose of Part II, which is to make express provision for adjustments to the grant entitlements of individual authorities for the purpose of encouraging those reductions in the overall level of local government expenditure that the Government think necessary, having regard to general economic conditions.

Part III of the Bill provides for the setting up of an audit commission. Noble Lords may ask why we should change the existing audit arrangements. We have done so for three reasons: to make audit more independent, to enhance the audit function, and to provide for greater public accountability. Audit must be an independent process and must be seen to be independent from central and local government. I would therefore argue without apology that it is right and proper to set up the audit commission as a separate, independent body responsible for local government audit. One of the duties of the commission will be to appoint the auditors to each local authority. This represents a change from the present system whereby local authorities appoint their own auditors, and I know that this change has attracted adverse comment. I would reply, firmly, that independent appointment is an important part of the audit process, especially for bodies where so much public money is involved. The principle of independent appointment is widely observed elsewhere in the public sector. Nationalised industries, the National Health Service and many other public bodies have their auditors appointed by the sponsoring Minister. Central Government departments are themselves audited by the Comptroller and Auditor-General, who is quite independent of the departmental Ministers. It seems to me to be quite right that auditors for local government also should be independently appointed.

I wish to stress that the Government intend local government itself to be well represented on the membership of the commission, together, we hope, with a range of other interests. Indeed, one of the aspects of the Bill that I would especially commend to your Lordships is that in future local government will be able to play an important and central part in the policy direction of the audit system—a role for which the present arrangements do not provide. So nobody can say that we are in some way cutting local government out of decisions about its audit system—quite the contrary, in fact.

Independence from central Government is just as important. At present the district audit service is staffed by civil servants and organised as part of the Department of the Environment. We believe that there should be a clearer separation of audit from central Government, which establishing the commission will achieve. However, Parliament has a legitimate interest in statutory bodies of this kind. It is for that reason that the Bill provides for the Secretary of State to be given certain powers in respect of the commission—for example, to appoint members and to give directions. Such powers are well precedented. We regard these powers as constitutionally necessary to ensure a proper degree of ministerial answerability to Parliament.

I should like to turn now to the enhanced role of audit, particularly in the field of value-for-money auditing. Value-for-money auditing is not new, but it is an area where practice is developing. Under the Bill, the auditor will for the first time be given an explicit duty to consider value-for-money matters. Closely linked with the value-for-money element in the audits of individual authorities will be the commission's statutory responsibility to carry out more general studies across a range of local authorities. These will help identify best practice in the provision of local authority services, and will be an important tool for individual auditors. And, of course, they should prove valuable to local authorities themselves.

I am in no doubt that this greater emphasis on value-for-money audit represents a thoroughly worthwhile advance for local government. I know there has been concern that, in his value-for-money work, the auditor may trespass on what are essentially matters of political policy rather than audit matters as such. I should like to assure your Lordships that this is neither the intention, nor, in the Government's view, the effect of this Bill. The Bill has been amended in another place to make this point even more clear. And my right honourable friend the Minister made a statement in the other place to confirm the position.

In the context of value-for-money audit, it would be appropriate for me to say that the Government envisage greater use of the private sector in local government audit under the commission. We consider that the private sector has a great deal of valuable experience to offer, especially in the field of value-for-money work. We do not say, of course, that the private sector will have nothing to learn from existing local government audit practice; on the contrary, we recognise the special expertise of the district audit service. But we think the two can complement each other, to the benefit of local government as a whole.

This brings me to our third objective—that is, improved accountability of local authorities to their electorates. The Bill achieves this improved accountability by requiring the auditor to consider whether a report should, in the public interest, be made immediately rather than at the end of the audit. It gives local government electors wider rights of objection. In future, local electors will be able to object about an matter on which the auditor can make a report rather than just issues of illegal or improper expenditure, as at present. And a strengthened audit function as a whole can only improve the quality of financial information available to ratepayers, and, for that matter, to elected members.

I have so far dwelt on the changes which are envisaged for local government audit. But I should stress that the independent position of the auditors themselves will not be changed by the Bill. There is no question of auditors coming under the control of the commission. At present, auditors are answerable to the courts for the way in which they discharge their statutory functions. That will continue to be the case.

I should touch briefly on an amendment which the Government envisage to Part III of the Bill. It arises from an amendment tabled in another place by, among others, the chairman of the Public Accounts Committee, and the chairman of the Treasury and Civil Service Committee. As many noble Lords will know, it would have required the commission to carry out studies of the effect which actions by central Government have on the economy, efficiency and effectiveness of local government services. It would have been for the Comptroller and Auditor-General to consider these studies, and to report to Parliament. This amendment was withdrawn in another place, but only after a commitment to table an amendment in your Lordships' House, after full discussion with interested parties. All I wish to do for the present is to reaffirm the Government's intention to table such an amendment. Its precise form has yet to be decided, because the promised consultations are still to be completed. But we do intend that your Lordships' House and another place should be enabled to have a proper debate on the important issues involved.

With that, I also conclude my comments on the Bill as a whole. I look forward, as always, to hearing your Lordships' views in debate. I commend the Bill to your Lordships as a measure which will encourage responsible and effective local government. I suggest that the Bill is worthy of your Lordships' support, and I beg to move.

Moved, That the Bill be now read a second time—(Lord Bellwin.]

3.35 p.m.

Baroness Birk

My Lords, may I first thank the Minister for his full exposition of this Bill and, if I may, apologise if I cannot be here at the end of the proceedings, depending on the time, as I have a longstanding engagement which I have explained to the Minister. I hope we will finish in time because I would very much like to hear the winding-up speeches.

This Bill comes to us from another place having seen many changes in its passage. Indeed, I think that calling it a No. 2 Bill could be said almost to display lamentable numeracy; with the demise of the No. 1 Bill and the changes in Committee, this version has evolved as a fourth or fifth version in the Government's latest attempt to shackle local authorities to their monetarist theory of reducing public expenditure. The Minister's fine and eloquent words will not really cloak what is one of the major points underlying the Bill.

That said, there have been some important changes made during the passage of the Bill in another place, and this Bill is now a rather less disastrous attack on local government than the Government's earlier efforts. The Government have listened to the case being made by the local authority associations and have in some areas responded in a positive manner. For this, it is only fair to say, credit is due. Let us hope that the same good sense is continued in your Lordships' House while we are considering this Bill, and that the Government will then agree—when they are in the process of rewriting parts of the Bill with the amendments they are themselves to bring forward—to change it further so that it is improved rather more, as it is still a very highly unpalatable piece of legislation.

Like other interested noble Lords, I have received comments on this Bill from all three major local authority associations: the metropolitan authorities, the county councils and the district councils. The interesting thing about it is this, that all three of them—one is under Labour control and two under Conservative control—remain opposed to this Bill. It takes a great deal to unite local government in this country in this way, particularly when the associations we are talking about cross party lines. So let us see how the Government have managed to achieve this feat with this particular Local Government Finance Bill that we have here.

As the Minister has explained, Clauses 1 and 2 take away from local authorities the right to levy supplementary rates. This, do not let us forget, is a con- stitutional shift away from the partnership that has always existed between central and local government. It has often been said that people pay their taxes in sorrow and their rates in anger. Supplementary rates must then be paid in a great rage. Clearly, supplementary rates are unpopular, and not least for the 32 English local authorities which levied them in 1981–82.

My Lords, those councils did not undertake the exercise lightly. The supplementary rates were levied to finance grant reductions the Secretary of State had made—unlawfully, as it turned out—and which he is now seeking to legalise retrospectively in this Bill. They were levied to protect essential local services; they were levied to protect schools, housing, social services, from the ravages of inflation that the Government's economic policies have inflicted upon local government. And they were levied to finance changes in policy for which newly elected Labour authorities had a clear electoral mandate.

Local authorities have had the power to levy supplementary rates since at least 1601—that is, going right back to the beginning of the 17th century. It is true, as I think the Minister said, that this power has rarely been used, and even in the exceptional circumstances of 1981–82 only 32 out of 412 English local authorities levied them. The Government have made out no real case for this power to be abolished. Whatever they might say, the real answer is that it gets them off two hooks. First, it disingenuously confuses the issue of supplementary rates defined in the traditional manner—that is, the local authority coming back for another bite of the cherry during the year—with the Government's earlier attempt to impose referenda on local authorities. Supplementary rates for referendum purposes were defined as "supplementary" to the Government's limit. Secondly, it gets them off the hook of what to do about rates in the long term. All of the local authority associations have been concerned about the lack of flexibility which will result from this. They are concerned as to what they are going to do if there are riots in their areas, if there are emergencies, like flooding and snow. This runs through the comments and anxieties of all the local authority associations.

While sitting listening to the noble Lord recommending this Bill to the House, I was wondering what different tack he would be on if he were not the Minister in the Department of the Environment, but still the leader of Leeds Council. I think that, with his very great experience, ability and success as a local government man, he would have been hammering on those doors so hard objecting to most of what is in the Bill.

The Government's Green Paper on rates provides no firm answer as to what is going to happen and what the Government will do about rates, although the Prime Minister did make a rash electoral promise to abolish rates. It was also said that this is an interim Bill which will be in action while it is decided how to reform the rating system. If that is really so, then why is this not being promoted for a limited period? Perhaps the Minister can tell us about that. Again, the local authority associations think that this should be the procedure; but it is not. At the moment it is down for ever, for as long as the Government last— unless of course, the Government feel that they are only in government for a very short interim period themselves, in which case we can do something about this legislation when we return to power.

Let us now look at the Bill again. Not only are Clauses 1 and 2 unnecessary, but they are retrospective, which is generally considered in this country as legislative anathema. The Government will have to make out a very good case for retrospection if this House is to approve the Bill. I am talking not only about my noble friends behind me, but about people in various other parts of the House. The ratepayers of Bedfordshire and the councillors of Bedfordshire County Council also await the Government's statements on this part of the Bill with interest. It is true that the Minister for Local Government said, in Standing Committee on 2nd March, that the Bill will invalidate retrospectively supplementary rates or precepts for 1981–83, including those made prior to 1st April, and amendments will be brought forward in this House.

However, it is not quite as simple as that. Doubts still remain, and other legal opinions are not anything like as certain as the opinion upon which the Minister for local government is acting, and their opinion is that the legality is extremely questionable. I think that these points will be raised by noble Lords in this House and can be pressed quite substantially.

Clause 3 appears innocuous enough on the surface. It is to make sure that interest payable on money borrowed by local authorities shall be the first charge on the local authorities' revenue. But it is only necessary because, for the first time, local authorities are to lose some of their revenue raising powers—that is to say, the supplementary rates. Thus, two possibilities result from this, both of which are extremely serious and cannot be skated over. Either local authorities start borrowing to finance revenue expenditure—a very slippery path that New York went down a few years ago—or they could become insolvent. In that case the Government are trying to protect the money brokers in the City at the expense of local authority employees, who will be less well protected than the private sector employees in the event of their employer becoming insolvent, because the private sector employees' wages will still continue to be a first charge on revenue.

Clause 4 is extremely complex and likely to become more complex as it receives further consideration in Committee. Part I of the Bill changes the law that dates back to 1601. Part II of the Bill, consisting of just Clause 4, changes the law that dates back to 1980—the Local Government, Planning and Land Act. That Act introduced the frightfully complicated and mind-blowing block grant system. Now, after only one year of operation—no, during its first year of operation, because the Bill is retrospective and changes the law for the financial year ended 31st March 1982—the Government seek to change the system yet again. The clause talks about "expenditure guidance" being given by the Secretary of State to individual local authorities. That is just a euphemism for the Secretary of State setting an expenditure target for each local authority. And if local authorities do not obey those targets, they will lose grant. So do not let us have any misunderstanding about this.

How will the Secretary of State set those targets? If the 1982–83 process is anything to go by, only a few cognoscente will understand. In setting targets for 1982–83, by order, in anticipation of the enactment of this Bill, the Secretary of State fell foul of the Select Committee on Statutory Instruments, and quite right it was, too. I cannot imagine many people understanding the process or the Secretary of State's description of "skewing" and "iterative processes". "Skewing" evidently means where the target consists of two components: GRE and 1981–82 performance against target. The "iterative processes are that the total of targets has to equal total expenditure—I do not even understand it myself and I cannot read my writing. Whatever effect this Bill has on local government, those words and some of the language certainly have a very destructive effect on the English language. But will the Secretary of State and his officials be in a better position with their skewing and iterative processes to assess how much each local authority need to spend or how much the electorate want them to spend?—of course not.

Furthermore, the action of the Government, in setting restrictive targets for the very inner city areas which they were so concerned about last year, means that the cuts in the RSG hit them harder, and so less money in real terms will go to those areas than, in fact, has done this year; and this, at a time when the Secretary of State is personally taking such an interest, particularly in Liverpool, does not really seem to make very much sense, and certainly is socially disastrous.

We understand that further fundamental amendments will have to be made to this clause to legalise the targets already set for 1981–82 and 1982–83. If that is so, this House will have to examine them very carefully indeed. But it would, of course, be very much better if the Government were to drop the whole idea of trying to set targets for individual local authorities. Each time they try it, they step into a legal minefield of their own creation. Local government finance, it seems, is providing a growth industry to the legal profession and for the paper-makers. Each time we have a new copy of this Bill the price increases. This will continue through the Committee stage. Therefore there are two groups of people who will probably make something out of it, but not the ratepayers and the general public.

Part III of the Bill sets up the audit commission. The local authority associations have all expressed very grave concern about this. Not only does it take away the local authorities' right to choose their own auditor, but it will result in auditors being imposed upon them. At present local authorities can either use the district auditor or go to firms themselves. They have the opportunity to go to outside firms, and many of them do so. Therefore, the private sector is certainly not totally neglected in this way. Moreover, it replaces the present arrangements for auditing local authorities with a quango appointed by the Secretary of State.

In the past, since they came to office, the Government have shown themselves to be very adept at cutting quangoes. In fact, they played a sort of numbers game. I remember with great sorrow that a small committee attached to the Department of the Environment was cut immediately and saved no money. It was concerned with bird life in the royal parks and comprised a group of four or five dedicated people who cost not a penny to the department but who gave us some knowledge, which we would not otherwise have had, of the rare birds of the parks. The committee which I set up for sculpture in the royal parks, which also cost nothing and which had the services of very distinguished art historians and sculptors, was also done away with.

Should not the Department of the Environment remember that it is also concerned with the quality of life and not just with all this financial miasma which does not seem to result in any increased quality of life but in a great deal of sorrow and complication? According to the Bill, the Secretary of State may have to "consult" the local authorities and other bodies about the audit commission, but in the final analysis it is he who appoints people to the commission. If he will not mind my saying so, the Minister had the gall to stand there and say that this is a body which would be more independent. It will not be independent at all. It will be boxed in in every way. It will be boxed in in its constitution and in what it does; the local authorities will be boxed in as to what sort of choice they will have or will not have. Therefore, to call it independent seems to me to be interpreting the word in a rather extraordinary way.

As time is going on, I should briefly like to quote some of the views of the Association of County Councils. They are rather good. They say that they, regret the refusal of the Government to accept at Committee stage an amendment which would have permitted local authorities to retain the right to appoint their auditor". The Association of District Councils—and this too is a Tory body—says: There is no evidence that the present arrangement has been inadequate or in any way detrimental to the independence and effectiveness of external audit of local authorities' accounts". The Association of Metropolitan Authorities says this: It takes away from local authorities the right to appoint their own auditor". This view has been expressed accross the board. I think and hope that a number of Conservatives in this House will be as concerned as a number were in the other place who spoke up during the stages of the Bill in that place. There is a very real danger that this commission will be the financial handmaiden of the Secretary of State. He will have the power to direct it to undertake extraordinary audits of individual local authorities. In Clause 20 the commission will have the duty to undertake efficiency studies of local services. This extends the audit into what could be very dangerous and emotive areas, areas which local authorities now deal with through LAMSAC. It is ironic that, at the moment when the Government intend to set up an audit commission to undertake this work, they are to withdraw £500 million from LAMSAC.

The really basic danger is that this commission is under the direction of the Secretary of State, and this applies from whichever party he might come. It is this that deeply concerns and worries local authorities and the local authority associations. It is not a party political point; it is a question of the increasing dominance of central Government at the expense of local democracy. It reduces financing powers for local authorities; it means direct interference in the grant and expenditure of local authorities and the imposition of the Secretary of State's "hit squads" from the audit commission looking at the local decisions of local communities. This is really what this Bill is about.

In the guise of complicated financial changes, it is the Secretary of State in Marsham Street who is, once again, imposing his will on local councils. The grip of more and more central control over local government is now almost reaching strangling point. Local authorities are becoming more and more the impotent agents of central Government. This is very demoralising people of high quality and ability from taking on local councillors. One certain way of eroding local government to the point of feebleness is by discouraging people of high quality and ability from taking on the job of councillors, and thereby losing the indispensable experience of local knowledge and sensitive contact. If they are to be reduced to puppets of this sort, it will be very difficult to find men and women of sufficient calibre to come forward.

This, as I think I have made clear, is a bad Bill in what it seeks to do, in its retrospection and even in its drafting. We shall oppose it and endeavour to make substantial changes to this unhappy piece of legislation.

3.56 p.m.

Lord Evans of Claughton

My Lords, I should like to join the noble Baroness, Lady Birk, in congratulating the noble Lord the Minister on the clear way in which he defended the indefensible, but he did it very capably and we wish him well. I, too, may conceivably, if we make this debate drag on long enough, have to leave before the end, but I trust that that will not be the case.

From these Benches we have over the years consistently opposed the erosion of local democracy and freedom represented by the legislation that this Government have introduced ever since they took office in 1979. It is hardly surprising that one should have this difference because, as I think I have said before in your Lordships' House, the Secretary of State's philosophy and attitude to local government is totally different from that of my party and myself; in that financially at least, and, I think, on a broader basis, the Secretary of State, as the noble Baroness has suggested, seems to want to reduce local government to being purely a local agency of central Government. As she has rightly said, there will be nothing like the attraction for people of ability to come in and be part of a mere agency with no independence or power of their own.

Very clearly this Bill, even as amended so far, makes fundamental changes in the constitutional and financial relationship between local and central Government. On Clauses 1 and 2, in my opinion the Government have taken an extremely serious step in eroding the autonomy of local government. As the noble Lord the Minister suggested, knowing who the Secretary of State was, I agree that it may have been tactless for so many local authorities to impose supplementary rates this year. But, broadly speaking, over the years supplementary rates have been used only in ertremis. I very much regret that this power is being taken away. As far as I can see, powers to levy supplementary rates and precepts have been totally abolished without any concessions of any kind whatever being made. So local authorities which are fire and police authorities have, for instance, no flexibility at all to meet index-linked increases in salaries and wages granted by central Government. They have no flexibility to deal with totally unpredictable occurrences, such as riots and floods, and no ability to deal perhaps with more predictable economic factors, such as hyper-inflation.

I hope that the Government will introduce amendments to clarify—as I think the noble Lord the Minister indicated they probably would—whether supplementary rates or precepts made before 1st April this year but relating to 1982–83 will be rendered unlawful retrospectively by this Bill. I must say and underline—and it is the view probably held very broadly in your Lordships' House—that to act retrospectively in this field would be totally wrong and contrary to the spit it of the constitution of this country. My hope is that the Minister will be able firmly to reassure us during the Committee stage.

I understand that during the Report stage in another place the announcement was made that amendments of some kind would be tabled here. We shall obviously have to look at them very carefully. I hope that the Minister will also clarify statements by his right honourable friend that these provisions are temporary. As the noble Baroness, Lady Birk, said, we should like to know how long is "temporary" and how "temporary" is to be enshrined in legislation. Is it to be imposed for one year, or is it to be brought in by order? These are the kinds of things that it is important to establish.

Part II, the block grant, is the linchpin of the whole Bill, and the part of the Bill that has given the most trouble and continues, as has been said, to give the most trouble. What local authorities need more than anything in budgeting is reasonable certainty as to the level of the revenue they can expect to receive. This clause, as originally drawn, included a system of differential holdback—if I may use the appalling jargon—of grant, which meant that local authorities would not have known the amount or the basis on which money was being withheld from them for failing to reach the "target" set for them by the Government until after the start of their financial year. I think we all welcome the fact that this appalling proposal has now been withdrawn.

As the Bill stands, I now understand that local authorities in future will know how much grant they stand to lose before they complete their budget and so can fix a rate taking any loss of grant into account. Since they will no longer be able to levy a supplementary rate because of the first part of the Bill, they will presumably levy a higher rate to make sure that the unexpected occurrences, to which we have referred, are taken into account. So it may be that the very legislation that the Government are introducing will create a position where budgets and rates are at a higher level than they would otherwise have been to cover the problems brought about by the absence of supplementary rating.

On this clause, we all on this side are left with many doubts and uncertainties. The legislation will be retrospective for the financial year 1982–83. There are still legal doubts about the validity of some parts of the 1982–83 and 1981–82 targets which will mean, I believe, further redrafting. In particular the amendment to Clause 4 by the addition of subsection (5) is unsatisfactory. The alteration was, I believe—if I could believe that anything was well intentioned—well intentioned to protect local authorities from the prospect of being forced into a level of expenditure determined by the Secretary of State. This alteration however could now bear extremely hardly on classes of local authorities. There does not now seem any way in which the Secretary of State can apply differential standards to, say, metropolitan counties, with their particular problems—for instance, police, inner urban problems and transport—without applying the same changes, the same standards to, say, shire counties, which have entirely different problems and whose biggest expenditure item is in the field of education. What must be made clear—and I hope will be—is that the multiplier will apply to all local authorities of a class and not to individual local authorities or to all local authorities.

The complexity and uncertainty that I and the noble Baroness have mentioned underline two principles. First, I believe that Governments will always get into difficulties, and will deserve to, when they interfere with the affairs of democratically elected and constituted local authorities. Secondly—and this is very important—there is the need to carry out a root and branch reform of local government finance to enable local authorities to raise far more of their own money through new and their own resources, and perhaps a reformed rating system, so that local authorities are no longer so unhealthily dependent on central Government grants.

I hope that what I regard as the disappointing Green Paper, Alternatives to Domestic Rates, will produce much more imaginative legislation in due course so that the rate support grant will become purely an instrument for equalisation, which should therefore reduce the grant element from the present over 60 per cent. of a local authority's resources to perhaps under 25 per cent., provided we can raise finances in other and newer ways like the local income tax and other systems which have been discussed in the Green Paper.

Coming now to the last part, Part III, covering accounts and audit, I oppose this totally. I could not believe what I heard the noble Lord the Minister say in defending this particular part. In my experience from 25 years in local government—and the noble Lord the Minister and many other noble Lords will perhaps have had longer experience than I—the district audit service was a great success. It was widely respected. It was totally independent and disinterested, and it did a first-class job.

The Secretary of State has given the sop to the local authorities of a form of consultation, but basically he has retained power to himself, as the noble Baroness has said, to run the audit commission as a quasi Government quango. He can give it directions which it must obey. The commission is wholly appointed by the Secretary of State, and the appointment of its chief officer must be approved by the Secretary of State. Local authorities, and several Members of your Lordships' House, are going to be somewhat cynical about the Secretary of State's and the Minister's claim that it will be an independent body. If that is independence, I wonder what bondage is?

Finally, the refusal of the Government to allow local authorities to choose their own auditor from an approved Government list strikes me as a petty inter- ference with the liberty of local government. I warmly hope that the Government will change their mind on this. They have had universal disapprobation of this proposal from all the local authority associations. I understand that in another place there were, as the noble Lord the Minister mentioned, suggestions that the examination of local authority accounts should come under the aegis of the Comptroller and Auditor-General, and therefore under the direct scrutiny of a Select Committee. I gather from what the noble Lord the Minister has said that he is bringing in amendments to this, but at this point I would have certain strong reservations about that, too, as a further interference with the sovereignty and freedom of local government.

When we discussed the Local Government, Planning and Land Bill, I condemned large parts of it but said that there were some good parts to it. But I am afraid I cannot even give that crumb of sympathy for this totally misconceived, totally wrong and totally illiberal piece of legislation. We shall oppose it all the way through.

4.8 p.m.

Baroness Stedman

My Lords, as the noble Lord, Lord Bellwin, has said in his courteous introduction to the Bill, Part I provides for the abolition of the supplementary rates and precepts and requires local authorities to make their rates and precepts for a complete financial year. I believe that most noble Lords in the House would accept the Government's right to control the overall spending of local authorities, but frankly this second attempt at legislation, though different from the No. 1 Bill, is really no better than the first.

At present, early in the year the Secretary of State issues to each local authority the grant settlement which supposedly gives to each authority enough information for them to calculate what grant it can expect to receive for the coming year, given certain spending levels. The local authorities then set about preparing their budgets. They levy a rate to make up the difference between the total expenditure and their probable grant income. In normal circumstances, this has worked, but, in practice in the last three years, most authorities have spent most of their time revising their budget to suit the whims of the Secretary of State. Given normal circumstances, the difficulties only came if there was anything which could not be foreseen at the beginning of the year and which caused a local authority to overspend—for example, the uncertainty of interest rates caused by a change in the national or even the world economic climate, or climatic conditions of floods and snow and perhaps damage to sea defences.

It is true that the Secretary of State has allowed an escape clause to let him give his personal sanction to an authority to undertake temporary borrowing and to repay the loan out of their next year's rate. But surely what will really happen is that local authorities will build in a cushion to their budgets to allow for those unforeseen circumstances, and their ratepayers will be asked to pay much more because there is no guarantee that the Secretary of State will not change his mind as to grant levels or that interest rates might increase or that some major disaster might occur.

In addition to those reasons there are other factors outside Government control: inflation can outstrip Government assumptions on pay and prices, assumptions which have been properly followed in computing the initial budget of the authorities; changes by Government in the powers and duties of local authorities during the year; a Government reduction of an authority's level of grant after the start of the year; the rates of national insurance and other imposts that can flow from Government budgets; following local authority elections, they may need to finance some new policies or higher standards on which they have been elected by the voters in their area; and there could also be a much lower than expected income from fees and grants as a consequence of running into a recession.

In the event of the revenue raised by the main rate and precept proving insufficient due to unforeseen circumstances, Part I represents a break in the fundamental tradition of local authorities that revenue expenditure is financed in the year in which it has occurred. The power to go cap in hand to the Secretary of State for permission to borrow for revenue expenditure must surely damage the credit-worthiness of local authorities. Authorities should have the power to borrow without the consent of the Secretary of State when the need to borrow arises from circumstances outside their control or, at the very least, when the need to borrow arises directly from the actions of central Government.

We are talking about a period of 15 months between the announcement of a grant settlement and the end of the financial year to which it relates. There is no assurance as to grant levels and I believe a clause should be included which would absolutely prevent a Secretary of State from reducing grant levels during a financial year in order to give local authorities some degree of security and stability. The Government really should take more time to think through the real effects of this legislation and not rush into it simply because they wish to impose it immediately.

Way back in November, the Secretary of State was reported as saying that he would accept a clause in the Bill limiting its life to two or three years, as the proposals were designed, as the noble Lord told us, solely as a temporary measure. Like the noble Baroness, Lady Birk, and the noble Lord, Lord Evans, I am interested: do the Government intend to honour that commitment and introduce their own new clause?

We do not like Clause 4 because it changes the whole emphasis of the way in which the grant mechanisms can be used. The powers given to the Secretary of State put him in the potential position of direct conflict with individual councils which choose not to reduce their expenditure. If the Secretary of State reduces the grant and then refuses to allow a local authority to borrow temporarily, the expenditure of that authority will have to be reduced. And if the councillors failed to agree on the reduction and the council decided that it would finance the expenditure by temporary borrowing, that temporary borrowing would be illegal and the councillors would be liable to a surcharge and possibly to disqualification. Such a decision would also put the treasurers of local authorities in a very invidious position because they must refuse to borrow where the borrowing is illegal, so they could not carry out the wishes of their councils.

The practical consequences of this legislation are also important. If, after considering the initial budget, the Secretary of State decides that the expenditure of a local authority should be reduced, information about changes in grant are unlikely to be available before June. By June a local authority's options to curtail expenditure are very much limited. For example, if those cuts were to be made in what is perhaps the biggest single item of local authority expenditure, teachers' salaries, by June it would not be possible to reduce the numbers until the following Christmas because of the teachers' conditions of service.

Thus, to achieve the reduction in expenditure, four times as many teachers would have to go at Christmas as would have been necessary if the expenditure cut required had been known when the rate settlement was originally announced. All that that would do would be to unbalance the teaching labour force, cost a lot of redundancy pay and involve local authorities in re-employing most of the teachers the following April because the full year financial effect would be far greater than was needed. No right-minded authority would do that, but instead would make excessive cuts in text books, library and class materials and in the maintenance of buildings and grounds.

I am also concerned about the Government's use of grant-related expenditure assessments. They were originally intended for use in block grant distribution only. Now they are used for Government spending targets for individual authorities. Even for block grant purposes their use was very suspect and unreliable. If the Secretary of State really intends to use them, then those assessments must be made more stable and much more acceptable to the local authorities. Thus, Clauses 1, 2 and 4 taken together put the local authorities, I believe, in a position of subordination to the Secretary of State in Marsham Street.

Neither have we been persuaded that the proposed audit commission is such a tremendous extra safeguard for local democracy. The present statutory independence of district auditors from central and local government is and has been a reasonable safeguard for the ratepayers. The proposed commission is a very different animal with its chairman, vice-chairman and members all appointed by the Secretary of State, who will be able to fix the fees, to require an extraordinary audit and to direct the commission in the discharge of its functions. That is not a formula for an independent watchdog on behalf of the ratepayers. It is more a lapdog of the Secretary of State. We are not opposed to the idea of a commission, but we would want to see that such a body was really independent, with no overtones of central control and with generous representation for local government; "well represented"—as referred to by the noble Lord, Lord Bellwin—is not sufficiently reassuring. The Bill tries once again to make local government accountable to Whitehall, whereas we see democratic decisions and control working downwards to the local people and not upwards to the Secretary of State in Marsham Street.

The noble Lord, Lord Bellwin, will recall that for some months he has been considering how best to assist parish councils in expenditure on concurrent services, and I regret there still appears to be nothing in the Bill that will help parish councils. It should not be an impossible task to sort out how district councils pass on that part of their rate support grant to parish councils where they provide the services.

The precepts of the parish, town and community services—and there are over 8,000 of them—which are met wholly by rates levied on the ratepayers of those councils, are taken into account when the size of the block grant payable to district councils is determined. But none of that relevant grant has to be paid to parish councils, and neither is it credited in such a way that the parish ratepayers gain some benefit. Instead it goes to the district ratepayers, even though it was the parishes which bore the initial expenditure. That is grossly unfair, and all the ministerial sympathy in the world does not help us solve the problem.

It was over a year ago that I suggested that the Secretary of State could make regulations as to how RSG attracted to district councils for parish council expenditure could and should be passed on to the parish council. The noble Lord then said that he would look into it, but we have heard no more, we have seen no action, and there is nothing about it in the Bill. Is the noble Lord intending to introduce a new clause, or to make a statement about making enabling regulations?

During the Secretary of State's period at Marsham Street he has changed the grant position four times, and the present formula makes the old RSG and regression analysis look like a child's game of ludo. The whole of the Secretary of State's three-year tenure seems to have been spent in one assault and attack after another, causing grievious and actual bodily harm to local government. This is still a bad Bill, and a dangerous Bill, and we shall join with the noble Baroness on the Opposition Front Bench, and the noble Lord, Lord Evans of Claughton, in trying to make it more acceptable before it leaves our House.