§ 4.3 p.m.
§ Lord Bellwin
My Lords, with your Lordships permission, I should like to read a Statement which has been made by my right honourable friend the Secretary of State for the Environment in another place. The Statement reads as follows:
"With permission, Mr. Speaker, I should like to make a Statement on the rate support grant settlement in England. In my Statement to the 729 House on 27th July I set out proposals for the main elements of the rate support grant settlement for 1983–84. I have today tabled the main RSG Report. I am placing in the Library copies of the detailed material being sent to local authorities today.
"The Government have three main objectives. The overriding one is to achieve further real reductions in local authorities' current expenditure. We need also to recognise the efforts that most authorities have made to find economies, and we must increase the incentive for all authorities to spend at target, by increasing the grant pressure on the high spenders.
"As well as the main report for 1983–84, I have also tabled today the first supplementary report for 1982–83. The main effect of this report is to reduce block grant for authorities budgeting to overspend both their target and grant related expenditure assessment.
"The holdback for 1982–83 amounts to £308 million. Authorities were warned about the holdback scheme before they drew up their budgets, and they took their decisions in that knowledge. This report implements the scheme. It also adjusts relevant expenditure, and grant, to reflect a number of changes, mainly in the usual variable items caused by interest rate changes.
"I turn now to the main report for 1983–84. The current expenditure provision is £19.7 billion. It is about 3 per cent. more than the equivalent figure in authorities' budgets this year. The aggregate Exchequer grant is £11.8 billion. Although the percentage is lower, the grant is some £300 million higher in cash (almost 3 per cent.) than in last year's settlement.
"There are no major changes to the methodology of grant-related expenditure assessment. Some useful improvements have been made, including 1981 census data, in consultation with local government. There are no changes in the main grant distribution mechanisms. The distribution of block grant between classes of authority is similar to that last year.
"I am now confirming the expenditure targets for all authorities. Since July inflation has fallen and interest rates have dropped, but I have not reduced the targets I announced then to reflect that. A few targets have been raised following minor changes to the methodology. None has been reduced.
"Most low-spending authorities and those that have complied with this year's guidelines are given targets which allow a 4 per cent. cash increase over their budget this year. Usually, authorities spend less than they budget for. In these cases the new target will be a small increase beyond 4 per cent. over actual spending this year. In the light of the current economic trends' it is fair, and it rewards efforts to economise. By contrast, the target for most over-spenders represents a 1 per cent. cash cut from their budget this year. That is tough, but rightly so; because these are authorities which have made no real effort to reduce spending so far, and where the scope for reductions is greatest.
730 "I believe that most local authorities will act responsibly, and will plan to hit their targets. This year and last, two-thirds of authorities budgeted to avoid grant holdback. But we also know that a less responsible minority exists. Pressure must therefore be increased on the highest spenders. The grant holdback scheme achieves this. For each of the first two percentage points of spending above target, there will be a loss of grant worth a 1p rate at ratepayer level. For each subsequent percentage point of overspending, there will be a loss of grant worth a 5p rate. This will help authorities which narrowly fail, but it becomes increasingly severe for overspending at all levels above 2 per cent.
"For the first time since 1945, current expenditure by local government has been shifted to a downward trend. This settlement builds on that. We have not yet achieved the rate of reduction we originally asked for when we took Office. We have made a start, especially with manpower. Local authorities have now reduced manpower by about 5 per cent. since 1979. The Manpower Watch figures, also published today, show that we are back to the level of 1972. We have eliminated the growth in manpower that followed reorganisation. The issue here is not the creation of unemployment: it is the reverse. The fact is that high rates have forced the wealth-creators in our society to reduce staff in order to maintain jobs in local government.
"Any objective survey of a proper cross-section of authorities will show that as a result of this settlement, rate increases next year should, for most authorities, be nil or in low single figures. If authorities spend at target, in many cases rates could actually be reduced. That is the prize offered by this settlement. There is no excuse for overspending this year. Authorities have had more notice than ever before. In the overwhelming majority of cases ratepayers will know that excessive rate increases are the result of excessive spending by their authority."
My Lords, that is the end of the Statement.
§ 4.10 p.m.
§ Baroness Birk
My Lords, may I, first, thank the Minister for his Statement, and say it is a great pity that the material of the Statements he has to make do not equal the tone in which he gives them. The tone is very good; the material is awful and unfortunate. When the present Secretary of State took office, the rate support grant was 61 per cent; in other words, there was a 61 per cent. grant from central Government to local government. It will now be 53 per cent. as set out in this Statement, but it could be even less than 50 per cent. after the penalties for overspending which have been spelled out to us.
As to these penalties, they are dramatically punitive. For example, if an authority like Sheffield continues at its present spending level it could cost £20 million, which is £40 per week per person. That would be the penalty. That is for spending at this year's level by a sober Yorkshire authority—as I am sure the Minister will appreciate—which is not given to exotic financial eccentricities. But it is not only the Labour councils that are feeling the pinch. Anybody listening to the "Today" programme this morning would have heard 731 what the councillors from Surrey and other Tory areas thought; and, also, the Association of County Councils, which is not a Labour-controlled body, refers to the targets as being arbitrary, unnecessary and unfair. These penalties are for exceeding the targets which were first set out in the 1982 Act on local government and they have been built on ever since. Many inner city authorities, with their hard-pressed social problems, will be faced with a 1 per cent. cash reduction in their 1983–84 budgets, as compared with 1982–83.
In the Statement, the Secretary of State said, "This is tough, but rightly so". I would say, "This is tough, but not rightly so, and quite wrongly so", when we are talking about these very hard-pressed areas. Even the good boys, like Leeds—I am sorry to keep coming back to Yorkshire, but that seems to be a good example—and the shire counties get only a 4 per cent. cash increase on expenditure. Just to show how this is quite out of tone with expenditure in the country today, the CBI is reported in today's Financial Times as stating that pay increases are coming out at 6 per cent. in the present round, which they consider is very good, as it is 1 per cent. lower than last year. Yet the cash increase at the top rate is only 4 per cent., which immediately leaves a gap.
So the consequence of these targets is that there will be more hidden cuts in expenditure. For example, there will be cuts in education, in old people's services, in other social services, in the police—and we hear so much from the Government about law and order—in fire services, in cultural services and in community activities. Almost anything that one can name will suffer cuts through the targets that have been set for this year, and also through the penalties. This will also be at the expense of the already low-paid workers, and in a period of incredibly high unemployment these cuts must add to the problem.
The Statement shows how phoney is the Government's encouragement to spend on capital projects in this financial year. How on earth can they spend on capital projects, even if they have the time to plan them before the end of March, when they will not be able to bear the revenue consequences? The Government are heaping more and more on to the ratepayer—on to both the domestic ratepayer and the hard-pressed industrialist. It really is the height of absolute cheek to say, as this Statement does,The fact is that high rates have forced the wealth-creators in our society to reduce staff in order to maintain jobs in local government".If authorities which are trying to keep down their expenditure are to retain even the most minimal standard of services—and many of them are unable to do that today—the rates must go up. It is because of this that industry and commerce find it difficult to continue.
They are doing this in the prolonged absence of any policy statement on the future of rates. Is this a continued, covert attempt to discredit the rating system and to hasten its demise? It will be interesting to know whether this is so. What local government needs is a healthy financial base. The cumulative onslaught of the Secretary of State's policies must 732 mean a withering away of local government and its services, since local government is becoming more and more the disenchanted pawn of central Government. This is having a disastrous effect on the morale of elected representatives and of officials. What a Christmas present, not only for local government, but also for those millions who used in the past to benefit from it services, and who are paying higher and higher rates for less and less!
§ Lord Hooson
My Lords, may I also thank the noble Lord for his amiable delivery of what is, obviously, bad news for the ratepayers. I want to concentrate my questions on one very short section of his Statement, which adverts to the suggestion that there should be no rate increases in the coming year and that there could even be a fall in the rates. How can the Government possibly reconcile that expectation with the fact, related in the Statement, that manpower levels are now down to those of 1972? There is a 3.1 per cent. decrease in the central Government contribution, leaving aside the measures to deal with high spenders. There are further duties and responsibilities being put on local authorities. There is the rate of inflation which, though it has fallen, is nevertheless considerable. How can they, therefore, expect no increase, or even a very small increase, in rates without vicious cutting of the services, which would be to the great detriment of the social fabric of this country?
§ 4.17 p.m.
§ Lord Bellwin
My Lords, the noble Baroness, Lady Birk, made her fairly predictable response and may I, at once, remind her, when she talks about the drastic reduction from a 61 per cent. contribution when we took office, that the record will show that it was the Government which she supported which made in one year, 1976, the largest single reduction ever, when the rate came down by 4.5 per cent. I am sure that the noble Baroness will find that interesting. She said that not only Labour councils but Conservative councils would be hard-pressed and would have to put up the rates. I would only say that the record shows that last year the Labour-controlled councils put up their rates by 31 per cent., while the Conservative-controlled councils put up theirs by 12 per cent. I am quite sure that this year we shall see something not dissimilar. The noble Baroness said——
§ Baroness Birk
My Lords, before the Minister leaves that point. I should like to say that, on the whole, the Tory-controlled councils are in far less deprived areas, need to make far less expenditure and can tolerate cuts far better than the great majority of Labour councils.
§ Lord Bellwin
My Lords, it is the graduated expenditure assessment basis that decides what are the levels of need. That feeds through to the grant, so it is not good enough to say that. The noble Baroness said that, whereas the Statement says. "This is tough, but rightly so", she says "This is tough, but not rightly so". We shall have to see about that. She would not expect me to agree with her. She talked about Leeds being good boys. Leeds used to be good boys. Today they are better than some, but a lot worse than they were at one time. I will not say when that time was. The fact is that 733 I predicted that, if Labour took control of Leeds, within two years the rates would be up 100 per cent. In fact, they were up 88 per cent. So I was out, but not that far out.
The noble Baroness said that the 4 per cent. cash increase was not good and asked how we equated it with the CBI's 6 per cent. reference to pay settlements this year. We are talking about a settlement which will pertain next year. It is not anticipated that settlements will be 6 per cent. next year. They will be less than 6 per cent. next year.
The noble Baroness reeled off—as she always does so well—education and the other items which will have to be cut. But she never mentions the opportunities which exist for local government to provide services at the same or, dare I say it? even higher levels, by means of money which they could save through doing things better. Let me give the noble Baroness just one example, because we do not want a long debate on a Statement of this kind. It is a very dramatic example. The Birmingham workforce, under pressure to contract out the refuse collection service, offered a saving to ratepayers of £3¼ million per year by reducing, at their own suggestion, their workforce of 715 by 263. That is a very massive saving in a very large authority. The same opportunity does not exist in every authority, but in terms of comparatives there are such opportunities and it is up to local government, as I am sure they will and as many do—let me repeat that, as many do—to take advantage of this kind of opportunity. That is why, despite what the noble Baroness said, we shall see at the next round of rate-making many rates established either with no increase or with increases in very low, single figures.
When the noble Lord, Lord Hooson, said that this was bad news for ratepayers, he would not have expected me to agree with him; nor do I. What the ratepayers have to do is to put pressure on the authorities to look at the kind of opportunities which I mentioned a moment ago, because many others also exist. The fact is that some two-thirds of local authorities are managing to work within the targets. That goes right across the spectrum. Why should they be able to achieve them, while other authorities cannot? The simple answer is that the will has to be there. If the will is there the opportunities are there. The Government hope that this will become more and more widespread.
The noble Lord, Lord Hooson, spoke also about the further duties on authorities. I absolutely agree. There always are duties on authorities. That is why we take account of the duties which are imposed when making grants. As we go along I hope that we shall reduce some of the obligations upon authorities. The record will show that this has been done. The noble Lord asked me how I can say that there will be little or no increase, in view of what is said in the Statement regarding a settlement. I believe I covered that point in my observations on what the noble Baroness, Lady Birk, said. I would gladly elaborate upon it, but perhaps today is not the time. I suggest that it is also not the time to go into chapter and verse, tempted though I am, on some of the other observations which the noble Baroness made.
§ 4.22 p.m.
§ Lord Kennet
My Lords, I believe it was on 27th July that we said we would watch with interest the continuing development of this titanic struggle between the two great traditional parties, one entrenched at central level and the other entrenched in some of the most powerful local authorities in the country. Today's instalment has been a breathtaking one. May I ask the noble Lord the Minister to give the House a few more details of how many authorities are going to suffer from the holdback at the higher rate, at the 5p rate equivalent? Can he tell us what kind of authorities they are? It would also be instructive for the House if we could be told what political colour those authorities belong to: how many Labour, how many Conservative, and so on.
§ Lord Bellwin
My Lords, the answer lies not with me but with the authorities themselves. I cannot tell the noble Lord what they will decide to do. That is a decision they will have to take based upon what has been said today. I cannot anticipate, other than from the budgets which we have received which give certain indications. It is now up to the authorities to see exactly how the settlement affects them, how the targets affect them, what the targets will then be and what decisions they will have to take with regard to their spending. At the end of the day what decides the issue is how much they spend, because that affects also the grant and the total rate-making ability. I am not prepared today to try to anticipate that. I hope the message will go home and that they will recognise they have a responsibility to everybody whom they represent.
§ Lord Kennet
My Lords, if that is so. how does the Minister know that the holdback is going to be £308 million?
§ Lord Bellwin
My Lords, the holdback refers to the previous year, not to the current year. The settlement covers both the holdback for the previous year and the settlement for the coming year.
§ Lord Sandford
My Lords, I doubt whether my noble friend expects a great whoop of joy from either the ratepayers or the councillors at today's announcement of this settlement. There will be gratitude for the recognition which the Secretary of State expresses of the efforts of the more thrifty authorities to keep within his targets, but those efforts have to be very considerable to earn any reward, and there is no guarantee under the system that the rewards, when earned, will be achieved. But it is the extravagance of the minority of authorities—most, though not all, belonging to the party opposite—which has made it not only feasible for the Secretary of State to take the kind of measures he has been taking over the past years, but politically essential for him to take those measures. I believe that they have to be accepted. However, we must get out of this situation as soon as we can and restore to local government some of the autonomy which the constitution requires for them.
§ Lord Bellwin
My Lords, I am grateful to my noble friend for what he has said. He is quite right in saying that the efforts have to be considerable to earn the 735 rewards. I accept that entirely. There has been no attempt to say other than that. I hope I did not give the impression that it is easy to do this, particularly in the case of those authorities which have—as many have—for so long run what they call a tight ship and conducted their affairs responsibly. My noble friend is so right in saying that very many of the problems throughout local government are caused by the minority who increase their spending in blatant disregard of. and cocking a snook at, the Government's public spending requirements. They simply could not care less. This is so sad when one considers the proud record that pertained for so long in local government, which never exceeded by more than 1 per cent. over many years the parameters set down by central Government, of whatever colour. This is what should make us so sad when we contemplate a scene where the totality of local government overspends by as much as it does, whereas so many within it spend within the parameters laid down. I am grateful, therefore, to my noble friend for bringing out that point.
The Marquess of Aberdeen and Temair
My Lords, may I ask the noble Lord a question for information. I am not trying to get at anybody. Is any part of local government expenditure on the proper maintenance and repair of rural roads and back streets in urban areas subject to grant, or is that expenditure entirely a charge on the local rates?
§ Lord Bellwin
My Lords, the make-up of the grant takes into account the type of expenditure to which the noble Lord referred. It is allowed for in the totality of spending.
§ Lord Kilmarnock
My Lords, the noble Lord referred to the wealth-creators in our society who were having to reduce staff to maintain local authority manpower. Can he seriously sustain that statement? Would he not agree that the reduction in manufacturing employment has been largely due to previous overmanning, to new technology, to the exchange rate and to various factors of that nature? Is he seriously trying to blame local authorities for unemployment in manufacturing industry? If so, I am sure that it is greatly unfair.
§ Lord Bellwin
My Lords, the points which the noble Lord makes are major factors in the effect upon unemployment, and there are others which he did not mention. It would be doing less than justice if we were not to recognise that there are many manufacturers and retailers too who have moved out of areas because they could not afford the rates, and who have closed down because they could not afford the extra burden imposed upon them. When rates are increased by 30, 40, 50 or 60 per cent. in one year, when one is trying to operate on the margin in difficult times, it is surely wrong not to recognise that this is a factor in increasing unemployment.
My Lords, does my noble friend not agree that the substance of the Statement he has just made, and the reaction of Her Majesty's Opposition to that Statement, is nothing other than recognition by 736 Her Majesty's Government of the fact that there is no such thing as Government money; there is only one kind of money and that is the taxpayers' and ratepayers' money? It is extremely refreshing for noble Lords on this side of the House to see that recognition reflected in the attitude of Her Majesty's Government to the rate support grant.
§ Lord Bellwin
My Lords, I am grateful to my noble friend and entirely agree with him. I see this settlement as offering a great opportunity to local government, and I am sure that the vast majority of those in it will take advantage of that opportunity.