§ 4 p.m.
§ The Minister of State, Foreign and Commonwealth Office (Baroness Young)
My Lords, with the leave of the House, I will now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Wales.
"Mr. Speaker, with permission I wish to make a Statement about the Welsh rate support grant settlement for 1984–85. I have this afternoon announced to the Welsh Consultative Council on Local Government Finance the details of the 1984–85 rate support grant settlement. Copies of the text of my statement to the consultative council 609 will be placed in the Library of the House. The rate support grant report will be laid before the House after the recess and will be debated in the usual way.
"The main features of the 1984–85 settlement confirm the intentions I announced in November. They must be seen in the context of the Government's continuing commitment to secure reductions in public expenditure. The total of relevant expenditure provision accepted for grants is £1,440 million. This comprises £1,253 million for current expenditure and £187 million for non current items. Aggregate exchequer grant will be £996 million, comprising £138.8 million for specific grants, £31 million for transport supplementary grant. £1.9 million for national parks supplementary grant and £824.3 million for the rate support grants, Domestic rate relief is unchanged at 18½ pence in the pound which costs £25.3 million, leaving £799 million for distribution as block grant.
"The settlement is a fair one. Current expenditure provision, after allowing for the 1½ per cent. reduction in authorities' national insurance surcharge from next April and the way in which housing benefit administration costs are now counted for rate support grant purposes, is £57 million or 4.8 per cent. more than the provision underlying the 1983–84 settlement.
"Aggregate exchequer grant at £996 million is £21 million or 2.2 per cent. more than the aggregate exchequer grant provision in the main rate support grant settlement for the current year. More importantly for rating purposes, it is £36 million or 3.8 per cent. higher than the amount authorities have included in their budgets for the present year.
"As in the present year and preceding one, I have set individual authority expenditure targets. Experience has shown that these are helpful to authorities in providing a degree of certainty of grant entitlement for spending at target and clearly exert a significant influence on expenditure decisions. In the light of the views expressed by the two Welsh local authority associations I have retained the same method for determining next year's expenditure targets as that used in the current year. This enables me to withhold grant in an equitable way by ensuring that the amount of grant withheld from an authority is directly related to its own overspending and not to the expenditure decisions of other authorities.
"The targets I have set are very tough for some authorities—but are reasonable for all. Every authority's target gives a cash increase in its current expenditure: the minimum increase is 11 per cent. and the maximum 6 per cent., after making allowance for the reduction in the national insurance surcharge next year and a modest amount of budget drift.
"The grant withholding penalty for spending in excess of targets has been strengthened. As in the present year the amount of grant withheld for excess expenditure up to 1 per cent. above target is 40 per cent. of that excess but above that level the rate of holdback increases progressively with a maximum rate of 90 per cent. for authorities spending 5 per cent. or more above target: this compares with a 610 maximum rate of grant withholding in the current year of 75 per cent. at 6 per cent. spending above target. I am retaining the grant protection arrangements already adopted whereby any authority spending at or below target will be exempted from both grant holdback and close-ending. Similarly the limitation of grant holdback for low rateable resource authorities set in the present year will be retained for 1984–85.
"Block grant will be distributed in accordance with the grant related expenditure formulae agreed by the Welsh local authority associations. I have decided to retain the existing block grant mechanisms which determine the distribution of block grant before holdback and the same safety net for limiting grant losses associated with changes in GRE—a maximum 4 pence loss at the county level and 1 pence loss at the district level.
"There is a continuing need for restraint in local government expenditure. Some progress has been made on this front but there is still some way to go. Since 1978–79 local government current expenditure in Wales has risen by about 2 per cent. more than the increase in costs for the economy as a whole. We must reverse this trend. The realistic increases in expenditure provision and aggregate exchequer grant for 1984–85 should enable authorities to maintain reasonable service standards provided pay settlements are kept down and authorities continue and reinforce their efforts to secure greater efficiency and economy and better value for money. In this respect I note that the latest joint manpower watch figures, which are being released today, confirm that staff numbers in Wales have risen by about 1,000 over the 12 months to last September. This alone must have cost ratepayers about £15 million in the current year, after making allowance for the effect of a grant holdback. Clearly if authorities are to meet their targets for next year this growth of manpower must he reversed. I appreciate of course that authorities have difficult choices of priority to make but that applies in all areas of public expenditure, including my own programmes.
"What happens to rates next year will of course depend on the decisions of authorities themselves. Here I will simply make two points. Authorities can on average increase their net revenue expenditure next year by nearly 4 per cent. and still spend in line with targets. And if authorities spend at this level and apply only half of the balances they have applied in the present year, rate increases would average only 1 per cent. Indeed, rates could fall if authorities applied balances to the same extent as in the current year.
"These figures are a very far cry from some of those which have been bandied about: for example the average rate increase of 17 per cent. reported in the press. I regard this figure as wildly exaggerated and simply do not believe it. It would imply about a 7 per cent. increase in net revenue expenditure which I am sure authorities in general will not seek to impose on their ratepayers. Furthermore, rates this year on average rose by less than 1 per cent. despite earlier local authority forecasts—and forecasts by Opposition Members in this 611 House—that average rate levels in Wales would be into double figures.
"I conclude by repeating that the settlement is a fair and reasonable one. I am confident that local authorities. like the Government, want to keep rate increases down to the absolute minimum. Low rate increases benefit all sectors of the community: industry, commerce and domestic ratepayers alike. It is now for each local authority to take its own spending decisions in the light of the settlement provision and of the effect of their decisions on ratepayers as a whole."
My Lords, that concludes the Statement.
§ Lord Cledwyn of Penrhos
My Lords, may I first thank the noble Baroness for repeating the Statement. This is another complex Statement which we shall need to study very carefully. I hope that there will be opportunities in due course to debate this Statement as well as the English and Scottish Statements on the rate support grants.
Is the noble Baroness aware that because of the very high unemployment figures in Wales, local authorities occupy a position of special importance both as employers of labour and as providers of services—for example, home help and other social assistance in communities where poverty is. unfortunately. only too evident at this time? May I point out to the noble Baroness that in aggregate the spending of Welsh local authorities has in fact been economical and very close to the totals allowed for in RSG settlements? Yet the Statement says that the targets are very tough for some authorities. Could the noble Baroness be a little more explicit and say which authorities the Government are going to be tough with and why; what is the reason for this toughness? Does it follow that in some areas the increases in the ratepayers' share of the total will mean rate bills going up substantially?
The Statement seems to me to give the impression—although here I must make plain that I have not yet had an opportunity to digest it as I should wish—that there are going to be no cuts. Could the noble Baroness say what will be the position in real terms if inflation goes up by 4.5 per cent., which I think is the Government's estimate, although there are many who think that inflation will go up by 6 per cent. or more? But even if the figure is 4.5 per cent., does not that mean that in real terms local authorities are going to suffer a cut?
Furthermore, the Government say that the local authorities can save by increased efficiency and economy. Does not the noble Baroness realise that the local authorities are in fact bearing extra costs as a direct result of Government policy? For example, direct labour organisation legislation, publication of information, response to MSC initiatives, sale of council houses—all these are the result of Government policies. Furthermore, there is the transfer of work from the Civil Service offices into the town halls throughout the country and throughout Wales; for example, in regard to unified housing benefits, statutory sick pay schemes, proposals for the alteration of valuation lists, and so on.
612 The noble Baroness has repeated the Statement indicating that staff numbers in local authorities in Wales have risen—I am quoting now—by about 1,000 over the 12 months to last September, and this alone must have cost ratepayers about £15 million in the current year. Is the noble Baroness aware that these increases are the result of Government policy? This is not a deliberate step by the local authorities, although, frankly, as one who lives in Wales and sympathises with unemployment there, I would sympathise with local authorities for increasing jobs in order to find work for people. Is the noble Baroness aware that the increases to which she has referred are the result of the Government policies to which I have referred?
Is she further aware that the Government's policies must result in real cuts in the standards of services in many areas? Is she aware that the standards of service and efficiency of Welsh local authorities are recognised to be of high quality and that the grant holdback represents a significant increase in the severity of that scheme? Is it not inequitable and harsh that relatively minor variations should result in severe grant penalties of up to 90 per cent? Is the noble Baroness aware that the task of councillors and officials in Welsh local authorities in communities which are suffering more and more as a result of Government policy is going to be virtually impossible and this really is a matter which must be criticised severely? Can the noble Baroness therefore give the House an undertaking that this matter will be looked at very carefully before damaging cuts are inflicted on local authorities with splendid records of public service?
§ Baroness Stedman
My Lords, I, too, should like to express from these Benches our thanks to the noble Baroness for repeating the Statement. I share almost entirely the sentiments expressed by the noble Lord, Lord Cledwyn. Is the Minister aware that many of the Welsh local authorities believe that their rate bills will have to rise by at least twice the rate of inflation, since the total cash available for local authority services, according to the Statement, is only up by 2.2 per cent. on the £996 million available? That means that there has been a cut from 70.4 per cent. to 69 per cent. in the RSG.
Is the Minister also aware that the Welsh local authority treasurers, after the Secretary of State had had initial consultations with them, did not accept the view of the Secretary of State for Wales, who believed that the average rate rises for Wales would be below inflation? The district councils in Wales believe that their average rate rises will be at least twice the rate of inflation; that is, between 8 and 12 per cent. The only way for them to ease that rate burden, apart from severe cuts in services, is by imposing huge rises in council house rents. Can the noble Baroness tell us how much of the £138.8 million for specific grants is to help to meet the costs of the 60,000 home improvement grant applications already in the pipeline, which the Welsh authorities were hoping they would have some assistance with in the block grant? Is the Minister aware that we shall be watching the results of the RSG settlements, both for Wales and for the rest of the United Kingdom, with considerable interest in the future? I trust that we are not going to be able to say later that the rate support grant this year 613 was deliberately engineered to produce higher than average rate rises in order to get public support for Government measures to come for rate capping.
§ Baroness Young
My Lords, I should like to thank both noble Lords for their reception of this Statement. I entirely agree with the noble Lord, Lord Cledwyn, that this is a very complicated subject. As to the question of a debate on this subject as on the English rate support grant, that would, of course, be a matter for the usual channels, who I am sure have taken note of what the noble Lord has said. The noble Lord, Lord Cledwyn, asked a great many questions, and, if I may, I will try to deal with them in turn. He first of all asked about the increase in numbers of local authority employees in Wales and said that some of these were due to the Government's putting on to Welsh local authorities services which they would not otherwise have had. I would confirm that all the increase in manpower, the 1,000 increase in manpower over this last year, is in the county tier authorities, which have not been affected by the transferred functions that the noble Lord mentioned.
The noble Lord asked me which authorities would be affected, when I said that the effect would be tough on some authorities. In a sense, the answer was given by the noble Baroness, Lady Stedman. The targets will be very much affected by the element of the rate fund contribution to the housing revenue account. As the noble Lord, Lord Cledwyn, will understand, the changeable element in the targets set, which can be tough on some authorities and less tough on others, is determined by the rate fund contribution to the housing revenue account. This reflects the exercise of local discretion in setting increases in rents. If authorities decide not to increase their rents in line with the increase in the local contribution assumed by central Government when setting housing subsidy levels, then, of course, the rate fund contribution to the housing revenue account will he higher than that component of the authorities' targets. So an authority ought not to be surprised at the way that this is worked and the results that it will have.
As far as the increase in the severity on the holdback is concerned, here the rate of grant withholding is exactly the same as in the current year for authorities spending up to 1 per cent. over their targets, but the penalties increase on a sliding scale rapidly over that percentage. The intention is, of course, to squeeze the overspenders in this particular way in order to keep down the total level of expenditure. The noble Baroness, Lady Stedman, said that many Welsh local authorities think that their rate bills will rise by very considerable amounts. The noble Baroness will understand from the answer I have already given to the noble Lord, Lord Cledwyn of Penrhos, that this will depend very largely on the amount of rate fund contribution that is made to the housing revenue account. We do not believe that the sort of figures that have been talked of will in fact be necessary if local authorities are prepared to consider their costs, which is a very important matter, and are also prepared to use some of their balances. Some authorities did that this year, with some success in keeping down the rate fund contribution.
614 On the point raised by the noble Baroness concerning consultation with the Welsh authorities I am of course aware of the view that they have taken about the rate support grant and that they are opposed in principle to the expenditure targets, and have said so. But 1 understand that the Welsh authorities pressed my right honourable friend the Secretary of State for Wales to retain the same methodology for constructing the targets for this coming year as that used in the current year, and that has in fact been done.
The last question raised by the noble Baroness related to home improvement grants. I understand that the proportion out of the £138.8 million is about £40 million.
§ Lord Elwyn-Jones
My Lords, will the noble Baroness say whether the Government can take steps to compensate Welsh towns such as Llanelly, which has suffered grievously through the closure of factories like Duport Steel and the Carmarthen Bay power station, by making special provision for a new infrastructure in these greatly suffering communities to enable industrial enterprise to be recreated in towns which, I am sorry to say, by reason of Government policy, at any rate to a considerable degree, have become rather derelict in the course of the past four years?
§ Baroness Young
My Lords, I fully appreciate the point made by the noble and learned Lord about Welsh towns. My understanding of the position is that Welsh local authorities have discretion within their spending targets to determine how they spend their money. I would not be in a position to comment on particular capital spending in any particular authority, at least not without notice, but my understanding is that where there are these cases it is possible for the town to use some if its money in that way.
§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that while the noble and learned Lord's question was very pertinent and should be taken into account, the Government must look at it in a wider sphere? People are unemployed in other parts of the country because the rate burden, on top of other tax burdens, is making it impossible for firms to give the high level of employment that they could if greater efficiency and more stringency on spending came about. It is not only a matter of local councils, and the effect on certain authorities, but the fact that the overall effect of high rates and high taxes is interfering with any attempt which can be made to reduce the high unemployment figures.
§ Baroness Young
My Lords, I thank my noble friend for that intervention. I think I am right in saying that overall about 60 per cent. of the rate bill is paid by industry and this affects their ability to employ more people.
§ Lord Hooson
My Lords, does not the noble Baroness agree that the Statement, allied to the Statements in relation to Scotland and England, and the Bill published today, bring into high relief the whole future of democratic local government in this country? If, for example, in an economic depression 615 local authorities are forbidden, in reality, to do some relief work which the Government refuses to do, what is to be the future?
§ Baroness Young
No, my Lords, I cannot accept that. I accept this is a tough settlement, but we believe that it is achievable. It is worth remembering that last year 32 out of the 45 Welsh authorities achieved their targets and have shown that it is possible to do so. I am sure that the noble Lord will appreciate that it is the duty of the Government to fix total expenditure levels, for all the reasons we have given, and that it is central to our economic policy.
§ Lord Cledwyn of Penrhos
My Lords, will the noble Baroness deal with one short question? Will she confirm that if inflation runs at the Government's predicted figure of 4½per cent. there will be a cut in the grant in real terms?
§ Baroness Young
My Lords, I think the general estimate for the future rate of inflation is 4.8 per cent., as it is now, or perhaps lower. We believe it is important that when fixing their wages local authorities must take account of the 3 per cent. increase that the Government have given as a guideline on wage settlements. Furthermore, we believe that local authorities must continue to ensure that they are getting value for money and look for good housekeeping in the way that they spend their money. Given those aspects and the other points I have made, we believe that it is possible for authorities to keep within the targets which have been set.
§ Lord Mackie of Benshie
My Lords, coming back to my noble friend's point, does not the noble Baroness accept that if the Government fix all spending, and force the local authorities so to do, there will be no incentive for the ratepayers and the electors in a district to get rid of their authority or its members?
§ Baroness Young
My Lords, the Government have fixed expenditure levels, but within those there is wide variation between authorities on what they choose to do. Some authorities have got themselves into difficulties because, for example, they have not increased rents by the amounts suggested and on the basis of which the grant will be calculated. There is discretion for local authorities, and it is therefore within the right of the electors to choose, if they so wish, to change the council at local elections.