HL Deb 26 October 1983 vol 444 cc253-75

3.5 p.m.

Lord Beloff rose to call attention to the relations between central and local government with particular reference to financial matters including the burden of rates; and to move for Papers.

The noble Lord said: My Lords, in rising to move the Motion standing in my name on the Order Paper, I am well aware that there are many of your Lordships who, unlike myself, have the advantage of long service in local government and who will no doubt be giving the House the benefit of that experience later this afternoon. Therefore, in opening the debate, I propose to suggest—perhaps in a somewhat academic fashion —some of the general principles that in my view should govern consideration of the issues with which we are confronted, and in particular the two White Papers upon which discussion will no doubt focus.

First, despite what is often said, the issues before us in these two White Papers are not constitutional. The machinery of local government and the arrangements for its financing are not part of the country's constitution; they are the products of legislation and can be changed by legislation. What the Lords and Commons have given the Lords and Commons can take away.

The elected councils, which are local government as we see it today, are not by the standards of this country particularly old institutions—a century and a half in the boroughs, not quite a century in the counties. When people talk, as they frequently do, of rating powers having been granted to localities centuries ago, they omit to point out that these powers were in the hands of unelected justices of the peace and of tightly knit municipal corporations. Do they really wish to go back to the era of "turtle soup" municipal affairs?

Secondly, no one could argue that the existing system can be analysed in any logical terms whatever as to the areas, the structures, the functions or the finance. For instance, for an historian it is not too difficult to explain why education in this country should be a function of local government and health a responsibility of central Government, but the reverse would be equally justifiable and, did time permit, I should explain why.

Thirdly—and this is connected with the illogical, arbitary and accidental nature of our local government system—there is among the general public no great interest in, still less affection for, its organs. There may be, and often is, a sense of belonging to an historic town or county, but there is no necessary link between such sentiments and the idea that these are appropriate areas for the exercise of governmental powers. As many inquiries have shown, one reason is that very few citizens, except those professionally interested, actually know what at the moment are the powers and responsibilities of the various levels of local government or how they interact with the central state.

One result of this, which will be familiar to noble Lords, is the persistently low level of participation in local elections, never rising much above 45 per cent. on average of those entitled to vote and often, particularly in municipal by-elections, falling very much below that level. When electors vote, as again it is not difficult to demonstrate, the thing which is in their minds is whether or not they approve of the Government in power in Westminster, and not the opinion they hold of their local council.

Fourthly, what in fact concerns the citizen is not his right to vote for local councillors, or their right to set targets of expenditure or rating, but the quality of the services he gets and the economy with which those services are provided; and when Parliament considers these matters it is these questions, and these questions alone, which should concern it. All the rest of the talk represents the indignation of interested parties—those actually engaged in local government, whether as councillors or as officials, many of whom have banded together against the present suggestions and spent, one might add, a good deal of public money in doing so.

Fifthly, if there are to be services that locally-elected bodies provide—and it is arguable, indeed, that there should be—then it is certainly helpful that they should be responsible for raising at least part of the funds locally. Furthermore—and on this I agree with the present and preceding Governments—if there is to be a local tax there is no alternative to rates, to taxing immovable property. The reason is the simple one that we live in a highly mobile society in which people work in one place, live in another and seek recreation or shopping in a third, and, therefore, any allocation of an income tax or any other form of tax locally is difficult except in a hugely arbitrary fashion.

Why, then, in the light of these considerations, do we in fact talk, as the Motion does, of "the burden of rates"? As regards domestic rates, there are, I think, two main reasons. First of all, there is public uncertainty about how rates are spent. It is a pity that in the Government's proposals to abolish one tier of local government we are not, we are told, to get rid of precepting, because the precepting system is, and remains, a cause of confusion in people's minds. Secondly, there is the fact that many adults are not householders and not ratepayers; and because of rate relief and the meeting of rate bills out of social security payments, there is at present, whatever there may have been in the past, a total disjunction between voting rights and the payment of rates. Everyone gets services; only some people pay extra for them. It has indeed been reckoned that only 35 per cent, of those who are eligible to vote in local government elections pay full rates. Therefore, for those who oppose the intervention of central Government to talk about "no taxation without representation" is really a bit much.

The second main reason for talking of the burden is that 57 per cent. of rates are paid for by businesses, which have no votes at all. It is perfectly true that businesses are important consumers of local services and therefore ought to contribute to them. But a system ought to be devised which would not fall with undue harshness on businesses which at a particular moment may be making no profits out of which to pay for them, so that they become wholly a cost of business.

It is indeed extraordinary to find the Association of District Councils arguing that there is no evidence of a connection between the burden of business rates and the provision of employment. I wonder whether those who drew up the document of that association have looked at the evidence collected by the London Chamber of Commerce and by the Association of British Chambers of Commerce, by the Confederation of British Industry. But these are technical matters which perhaps we need not deal with this evening. What we are dealing with is something rather more specific; that is to say, with action on the part of a limited number of local authorities in which the normal rules of good husbandry are willingly and indeed wilfully defied and in which some local authorities are taking upon themselves to do what is the business of central Government, not local government; that is to say, to use the power to tax to redistribute wealth and income.

It is the view in some quarters that the measures proposed to be taken by Her Majesty's Government are more radical than this problem demands, and that there may be others that would go at least some of the way to meet it. But it is no good pretending that the problem does not exist. I hope that in the course of this debate we shall not have remarks made from the point of view of local authorities—for instance, the shire counties—where the particular set of abuses which the Government have had to tackle are hardly felt at all. It is only those who live in inner London or in South Yorkshire, or in similar areas, or who have studied what those people have to put up with, who are really in a position to discuss these matters.

Let us look not at the domestic ratepayer, because for many noble Lords the position of London's domestic ratepayers is very familiar: let us look at business, which bears the heavier burden. In Camden, one of the London boroughs with the greatest record of profligacy, domestic ratepayers pay only just over 14 per cent. of the rate bill, so it is hard to say that their voting rights are much of a democratic safeguard. As I said, there are a great many figures which show the effect on employment in London and in other such areas of excessive business rates. In part, this arises from expenditure by local authorities which goes well beyond the main purposes with which they have for decades been entrusted by legislation. They have used in a reckless and often careless fashion their powers under Section 137 of the Local Government Act. If one could adapt some famous words from the proceedings of the other place, Section 137 has been abused, is being abused, and ought to be repealed.

The Government must be right, then, to tackle local authorities whose spending is irresponsible. There are of course varying degrees of irresponsibility. Some are activities which in themselves are perfectly legitimate but which are carried out with great extravagance. There is Camden's housing programme, for instance, where to build a council flat appears to be more expensive than to furnish a maisonette in Park Lane; or the transport subsidies which have enabled fares to be stable in South Yorkshire for a decade of continuous, or almost continuous, inflation.

In London, councils have spent money on grants to various voluntary groups. Many of these groups no doubt do genuinely good work. No-one would wish to decry co-operation between local government and voluntary bodies. Others are, if you like, faintly absurd but relatively innocuous, like "Babies against the bomb", and that kind of thing. Others, however, plainly damage the community, and are perhaps intended to damage the community. For instance, there are the various organisations that are subsidised for so-called monitoring of the police, whose main effect seems to be to damage the serious efforts that have been made on all sides since the Scarman Report to improve relations between the police and the communities, especially the ethnic minorities.

But there are other actions by councils that clearly flout the intentions of Parliament if not the letter of the law. For instance, the distribution under the guise of free council newspapers of what are indeed only party propaganda tracts; or the spending of great sums of ratepayers' money, as Strathclyde has done, in printing and distributing propaganda on behalf of CND. There are many forms of direct campaigning against Government policies, in some cases, in foreign affairs, and in relation to Northern Ireland against what one might call the national policy. On the other hand, there are duties that Parliament clearly intended local government to fulfil—in the field of civil defence, for example—which are being neglected.

However, there is one other reason which is again perhaps not fully grasped by those whose experience is in more rural areas. In some urban areas elected councils have ceased to be representatives of the people at large but are part of an organised effort to provide an ever-increasing number of individuals of the right political persuasion—by which I mean the left political persuasion—of well-paid jobs at public expense. It is for too easy for persons in employment under one local authority to become elected members of another.

Lord Mishcon

My Lords, I wonder whether the noble Lord will give way, because he just made a remark about left-wing local authorities who have —if I may paraphrase him—given jobs to the boys. This is a very dangerous subject—extremely dangerous. No doubt when the noble Lord resumes he will be more careful and will remember the result of his own party's activities in the Greater London Council, which—unfortunately for local government especially—had to be investigated so carefully with such dire results.

Lord Beloff

My Lords, may I perhaps meet that point made by the noble Lord, Lord Mishcon, with a few figures. In the borough of Camden 40 per cent. of councillors hold public service appointments. In Islington—my unhappy birthplace twinned with Grenada—50 per cent. of councillors are employed in the public service. In the GLC 61 per cent. of councillors are employed in the public service. Public servants in the service of local government or other public authorities have a clear right to be represented like other citizens; but it is difficult to believe that councils in their treatment of some subjects are not affected by the preponderance of this single interest.

Lord Mishcon

My Lords, if the noble Lord will forgive me, I am afraid that he cannot deal with one aspect which he wishes to criticise. If he wants to deal with the integrity of local government, would he kindly remember that those jobs are at least honestly held? The accusations made in the GLC were of corrupt, dishonest conduct.

Lord Beloff

My Lords, I am not talking about corrupt conduct. I am talking about the tendency in local government which tends towards an exaggerated degree of local expenditure. That seems to me to be quite a different thing. The interchangeability of local government posts with paid employment under other local authorities is a feature of this kind. I would not wish to keep the House longer since I have twice been interrupted; but if time permitted I would give other examples from outside London of similar features.

But economy ought not to be the only object of Government policy when dealing with local government. It should also be concerned with the quality of the services. One of my doubts about the remedies in these two White Papers is whether sufficient consideration has been given to quality as against expense. I am afraid that time only permits me to give a single example, but to me it is by far the most important example. That is the proposal to replace the present Inner London Education Authority, which has an appalling record of bad management, of poor education, of interference with good schools, of political partisanship. The proposal is to replace it with an elected board, nominated by the boroughs. That might well produce not even a better ILEA, but perhaps even a worse one because the system might mean that fewer people genuinely concerned with education would serve upon it, and that does not seem to me to be a reform. If the GLC is to be swept away, which is the Government's intention, I should like to urge on the Government the view that is held by Conservative members of the present ILEA and many people concerned with the welfare and education of London's children that it should be replaced not by a quango or by a joint board, but by a directly elected authority for that purpose and that purpose only. That would enable the parents of London's children to decide the kind of education they would like their children to have and not have their electoral desires confused by the fact that they would be voting at one and the same time for other subjects, all of them of less importance in my view and the view of many of my friends.

My Lords, I beg to move for Papers.

3.27 p.m.

Baroness Birk

My Lords, I am sure we are all grateful to the noble Lord, Lord Beloff, for asking us today to address ourselves to the present state of relations between central and local government. Unfortunately the relations, particularly in some areas, are achieving the status of a broken marriage. We hope that it will not end in a complete divorce, which would be very bad for the country. The interest shown in this subject can be gauged by the number of speakers who have put their names down today. I am delighted that my noble friend Lord Graham of Edmonton will be making his maiden speech later on this subject.

During the parliamentary recess the Government published two White Papers which marked a dramatic shift in the balance of power in this country, a shift away from elected local government to non-accountable joint boards or to the Secretary of State for the Environment. I found the comments of the noble Lord, Lord Beloff, on education in London rather intriguing, because he does not want a quango or a board. It seems to me that he wants the same sort of thing as the ILEA but he wants a straight election. Directly one starts along this path one can see the problems and confusions that can arise. In practice what this changeover means is that the decisions will rest with the Secretary of State's officials and their computers located in the tower blocks of Marsham Street.

There are strong political points to be made today and the noble Lord quite rightly made many from his side. But I hope that in this Chamber we shall look very closely to our important role, which transcends party politics—the role of watchdogs of our constitution. It is clear that the Government's proposals for rate-capping and for the abolition of one tier of government in our major conurbations are not just about rate demands nor which group of councillors is responsible for which service. They are about, violence to the amorphous parcel of law and custom which serves the United Kingdom as a constitution", as The Times first leader of 16th September put it.

To understand the Government's arrival at their present policies for the abolition of representative and vigorous local government—towards which they have rapidly been moving for some time—we have to go back in history, perhaps more recent history. I must confess that I had been going to throw in 1601, but the noble Lord, Lord Beloff, pipped me to that point. I think that he would agree that we should not go as far back as to the Secretary of State calling in aid the Revolutionary Settlement of 1688. I do not think that as an historian he could possibly agree with that as a pre-requisite to understanding government in 1983. This is a view not shared by certain other academics. But the Government are prepared to do away with a tradition of 150 years of an elected local authority for the whole of London.

In regard to what the Government now propose, we need go back only as far as 1974, which was the first year of the operation of the new structure of local government outside London created by Mr. Peter Walker, the Minister at the time. Local government in London had been reorganised under Conservative legislation of 1963 by Sir Keith Joseph. Both these reorganisations followed Royal Commissions—in marked contrast to the present hasty manifesto pledge. In 1974 the rates shot up, partly due to the reorganisation, but the major factor was inflation of over 25 per cent; yet rates were a problem, and when the Labour Government were elected they set up the Layfield Committee.

The Conservative Party at that time, when the present Prime Minister was the opposition spokesperson for the Environment, did not wait for the results in the Layfield Report but said that if rates were a problem then the Tories would abolish them. So the second Tory manifesto of 1974 contained the pledge to abolish domestic rates within the normal lifetime of a Parliament,—a promise that, quite frankly, has been an embarrassment to many Conservatives since. May I remind many noble Lords that the next sentence of that same manifesto was: Local authorities must continue to have some independent source of finance". Because both promises looked like being broken in one measure, and in any case they are largely incompatible, the 1979 manifesto qualified the original, unrealistic commitment by giving lower income tax priority over abolition of the domestic rating sytem.

So we saw income tax on the higher paid reduced and the rate support grant reduced from 61 per cent, of expenditure in 1979–80 to a little over 50 per cent. in 1983–84. That added some 25p in the pound to rate bills, the equivalent of about 3p in the pound on the basic rate of income tax. The Government have used domestic and commercial rates to keep income tax down. This is the origin of the noble Lord's calling attention to the burden of taxes. Of course, every tax is a burden whether it is a rate or income tax. Nobody welcomes it, nobody applauds it. For the average person rates are around 2 per cent. of personal disposable income. Rates in the non-domestic sector are less than 1 per cent. of total manufacturing costs. In both cases, rates are highly visible taxes, which is why they are so unpopular. But it is also how local authorities are able to demonstrate accountability.

Now we bring it up to date and find that the Secretary of State is seeking power to restrict expenditure of an arbitrary selection of authorites and, further, reserve powers to apply the limits to all authorities. Members from the county councils will be speaking today—and they speak for themselves—but when the noble Lord, Lord Beloff, says, as I understood it, that they really should keep out of this, that really this is just to do with the Labour metropolitan counties, then I think he is rather going beyond the brief that he set himself. I have here a letter from the leader of the Kent County Council, which is cetainly not a Labour council, which expresses great concern about applying rate limits to all authorities. While they say that they do not mind them being applied to some of the selected authorities, the Labour big spenders, they are very concerned about the second half of the powers that the Secretary of State is taking; so that it cannot be dealt with in quite the narrow way that the noble Lord tried to deal with it.

The White Paper, Rates, is not, of course, just about rate bills. What the Government are doing is taking away from elected local authorities the right to levy a local tax to fulfil the powers and duties that Parliament gave them. On a formal legalistic level, local authorities are, as the noble Lord said, creatures of Parliament since they exist within a defined legal framework. In our constitution, what Parliament has created it can destroy. Although local authorites are the creation of Parliament, their legitimacy goes further. They are a means of diffusing power within society, a power that carries responsibility and accountability. For local authorities that accountability is clear: it is to their electorate; and it is made very clear each May as many local authorities face annual elections of some of their members.

I accept that local accountability is not perfect, but it is a system which ensures that 24,000 elected councillors in England and Wales are responsible and accountable for the provision of major public services. I think that the noble Lord, Lord Beloff, rather dismissed the electoral rights of citizens when he made his comment on what people were interested in and were not interested in. I also think, as an educationist, that it is very dangerous to denigrate the rights of people voting; because what we are surely trying to do is to encourage our young people to take more and more interest in civic matters, and in fact to increase the number of people who vote. In a democracy the electorate can change the representation on their council if the spending of that council does not accord with their own views. In fact, they have done so in recent times and have effected a change in the composition of councils. This is a valuable means of ensuring participation in our society.

I think that, in spite of what I thought was the extremely clear and praiseworthy intervention of my noble friend Lord Mishcon, the noble Lord, Lord Beloff, still seemed to me to insist on something which I found extremely unpleasant and, if I may say so, rather offensive on his point about people working in one authority and then becoming councillors. If they have a right to become councillors, there is no reason why they should not do so. Civil servants now have the right to stand for local elections. I wonder whether the noble Lord thinks that that is entirely wrong. The participation of people in our society seems to me to be something which should be encouraged. As my noble friend pointed out, if there is any misuse of powers then action must be taken. I would be the first to say so and I know he would agree with it.

It is no accident that the local authorities are the only bodies outside Parliament with tax-raising powers since taxation and representation go hand in hand. I am sure that the noble Lord, Lord Beloff, has not forgotten that we lost the American colonies—which seems to have been a great pity—in 1776 because they would not accept taxation without representation.

In spite of what he said, I would say that representation without taxation is a sham; and that would be the outcome of rate-capping. In his reorganisation proposals, to which I shall return, the Secretary of State is proposing quangos, joint boards and small statutory bodies, each having some rating powers. The Secretary of State for Transport would levy a transport rate on London—and here we are getting very close to the tyranny of taxation without representation. In a democracy it is absolutely essential that these things should be kept balanced. Professor Hayek, the economist who is credited with being behind much of the Government's economic thinking, has said: There are strong reasons why action by local authorities generally offers the next best solution where private initiative cannot be relied upon to provide certain services and some sort of collective action is needed; for it has many of the advantages of private enterprise and few of the dangers of the coercive action of governments". That was in his book. Liberty and Constitution, in 1960.

What are the advantages to which Professor Hayek referred? They are responsiveness to local needs and wishes and the ability to innovate. These two functions depend upon local authorities being able to raise their own taxes. What then are the dangers of coercive action which concern Professor Hayek? They are writ large in the White Paper itself. The bureaucratic reliance upon the grant-related expenditures puts more power in the hands of officials and their computers, increases centralisation and increases the possibility of something going wrong—and going wrong on a far greater scale, with dire effects for everybody.

In the last Parliament we endured a string of legislation increasing the power of a Secretary of State: Acts on housing, local government, the Planning and Land Act, the Mental Health Act, the Local Government Finance Act and many more. All these spawn subordinate legislation, each clipping away at the rights of the elected local authorities. We fought very hard in this House, not only on these Benches but across the House, and we achieved some success in preserving some of the autonomy of local government.

The rates White Paper does not address itself at all to the consequences of the reductions which would follow from rate capping. What would happen if authorities had to spend at the level of GRE? What would be the effect on social services in Inner London, when London boroughs on average are overspending by nearly 40 per cent. when compared with their grant-related expenditure? It is really not good enough for the noble Lord to reject these authorities because be believes so many of them are Labour authorities. The people in them have the same needs, the same wants and the same deprivations whether they are voting Conservative or Labour and wherever they happen to live. Both Conservative and Labour authorities will be hit by this. What will happen to old people when more old people's homes have to be shut or when meals on wheels disappear? Day centres will be reduced when they ought to be increased for financial as well as humane reasons. How many children will suffer? What will the aids be for the disabled? Translated into social terms, the cost is horrendous. Financially, all the evidence indicates that not only will there be no saving but the cost will probably be higher.

We look to the rates White Paper for the long and detailed explanations that such a constitutional change requires; but we are disappointed. The White Paper is very thin indeed on argument. The reasoning is wrapped up in one bold assertion: we live in a unitary and not a federal state. But again, as The Times of 16th September pointed out: It does not follow from that observation that the exercise of all public authority belongs as of right to the central government and its apparatus extending from Whitehall.". The Government perceive a major economic problem because local government as a whole continues to spend more than the Government believe the country can afford. That is in the White Paper, and that is the nub of it. Are the Government really saying that an alleged over-spend of £770 million, or 0.6 per cent. of total public expenditure, matters in macro-economic terms? The truth is that local spending financed from the rates has no macro-economic effect. Indeed, local authority expenditure has gone down while Government expenditure has gone up.

The argument boils down to the Government's taking a different view from local authorities of what level of local services is needed. It is not basically an economic problem, but a political and social judgment—and a political judgment based on prejudice against the public sector. That prejudice shows itself even more in the context of public expenditure policies. Take a current example. To reduce housing improvement grants by £220 million, as the Government have said they are going to do, while housing stock is crying out for attention is cruelly short-sighted. To add 30,000 more construction workers to the 400,000 already on the dole is a human tragedy, and highly wasteful when each extra unemployed worker costs around £6,000 to the Exchequer. This is just one example and I will not detain the House by giving more, but I am sure that many of them will be mentioned.

The rates White Paper is a major attack on all local government and not just the few authorities which are big spenders—and it is interesting that the same few authorities are mentioned time after time. Although many others have views about this and do not always support this amount of spending, the amounts that are spent, from some of the examples given by the noble Lord, are in fact a very small proportion of what the rates amount to. It is interesting that all the local authority associations, the county councils, the district councils and the Association of Metropolitan Authorities recognise this fact and are speaking with one voice, irrespective of their political complexion. Today, the presidents of the three associations are speaking in this debate.

The second White Paper on streamlining is even more unsubtle. Take its title: Streamlining the Cities. This is either Orwellian newspeak or heavy irony by civil servants. Far from "streamlining", the proposals return to the era before the creation of coherent local government areas and councils. Again, if I may, I shall quote from The Times leader of 8th October: The White Paper seems to make the entire system of urban administration in London and the metropolitan counties more opaque, less reachable. This retrograde step would jeopardise many services only viable when provided on a country-wide basis. The heritage and the arts are an outstanding example, and there are many more.

I want, today, not to point out the many glaring inaccuracies of that document—I am sure that other speakers will do that—but the tragedy is that the Government are embarking upon a reorganisation of local government in a breathlessly half-baked and reckless manner. The Government are planning to abolish the GLC and the metropolitan counties as a smokescreen for their inability to reform local government finance. I would hastily say, before the Minister reminds me, that this has been a problem for all Governments. I recognise that and accept it. They are raising that smokescreen in a brazen political manner with no regard for the cost savings and benefits. Chapter 6 of the White Paper is headed "Savings and Transitional Costs", yet the only figure in that chapter is three years. There is no costing: just the time of the transitional period. It ill behoves a Government committed to a businesslike approach to present such an appallingly uncosted plan.

Our present structure of local government is certainly not perfect and there is a need for reappraisal, possibly in the direction of unitary authorities; but it requires to be properly and carefully thought out and it requires an independent financial study to be commissioned. The Government have refused to do this and so the Association of Metropolitan Counties have asked Coopers and Lybrand to undertake such a study. But, more generally, a Royal Commission or committee of inquiry is needed to review the present arrangements and make recommendations. Changes of this magnitude should not be flesh put on a hasty election manifesto commitment—a commitment which was based, fairly enough, on political ends and a commitment which will leave London as the only capital city in Western Europe without an elected local authority. It is a commitment that will reduce services, many of which are inadequate already, to an even greater state of inadequacy.

This, alas! is the present unhappy state of relations between central and local government: a massive attack on local government by a central Government nominally committed to freedom of choice. Where is that freedom of choice for local electors? What sort of local government are the present Government trying to create? The model is unfortunately clear: puppets answerable to the Secretary of State, like the health districts and the water authorities. Who then will want to become or remain a councillor within such a wretched straitjacket? In doing this, what they are doing is denigrating the quality of councillors.

With great respect, this is very much more important than the point made about councillors by the noble Lord. If we allow these proposals to be enacted, local democracy will wither and another part of the nation's social fabric will be destroyed. Local government must be a living organism and not an unpreserved ancient monument. If this House is to demonstrate its constitutional role and the wealth of its wide experience and individual expertise for the benefit of the nation, we must sink our party differences and give a clear message to central Government that we will not be a party to the emasculation of local government.

3.50 p.m.

The Minister of State, Department of the Environment (Lord Bellwin)

My Lords, I am grateful to my noble friend Lord Beloff for tabling this Motion for debate today. He has focused on some of the immediate and pressing problems which face local government. I am delighted that he has done so, and as a Government Minister I welcome the timely opportunity which he has given to me to set out our policies. By leave of the House, I shall try towards the end of the debate to pick up and comment specifically upon some of the concerns expressed, and on other points made.

Every Government, regardless of political colour, have the fundamental right to set the national framework within which local government operates. The Government are answerable to Parliament, to the electorate of the country as a whole; not to particular geographical sections of it. Within the national framework, each local authority is answerable, within its area, on matters for which it is responsible under the law. The vast majority of authorities understand this relationship; in the past, it was a convention that was always respected. It is a positive disservice to local government when a minority arrogate to themselves misplaced constitutional presumptions.

The national framework set by the Government cannot be fixed, rigid or permanent. It has to take account, in the first place, of the national economic situation. The capital resources which we make available to local authorities, our support for their revenue expenditure and the planned national level of that revenue expenditure necessarily depend on the prospects which we foresee for public spending as a whole.

The national framework is also conditioned by the actions of local authorities themselves, in two ways. First, there is the response of authorities, whether of co-operation or obstruction, to national policy objectives. Secondly, the national framework must depend on how local authorities discharge their own responsibilities. My noble friend Lord Beloff has cited some examples of mischief and irresponsibility. I deplore the cases he has described. The harm they do to the standing and the reputation of the whole of local government is immense. If I do not follow my noble friend along his path of asking for some Government action, it is because I still want to believe that local government can rid itself of such cankers—if the will is there—through the associations and other influences, local government has the ability to set its own house in order. It must fulfil that ability, because for too long it has been silent on this matter of the abuse of Section 137.

This will be a wide-ranging debate. As I said, I look forward to responding later, by leave of the House, to the general concerns. But in my opening remarks I should like to concentrate on two main areas against the background which I have outlined. They are the areas touched upon by the noble Baroness, Lady Birk; namely, our proposals for the abolition of the Greater London Council and the English metropolitan counties, and restraints on local government expenditure.

On financial aspects, local authorities' current spending, as a proportion of total domestic expenditure, is now almost double what it was in the 1960s, and that expenditure continues to rise. Between 1978–79 and 1983– 84, when this Government asked for real savings, current expenditure actually rose. Expenditure in England this year is no less than 12 per cent. higher, in real terms, than planned for in the 1980 Public Expenditure White Paper— —

Lord McIntosh of Haringey

My Lords, I wonder whether the Minister would give the comparable figures for central government expenditure, so that we can have a true appreciation of the meaning of his figures.

Lord Bellwin

My Lords, if the noble Lord will contain himself a little, I shall come to that, and much more, in due course. Between April, 1979, and April, 1983, domestic rates rose by 91 per cent., compared with a 55 per cent. increase in the retail price index. The average increase in domestic rates was 72p in the pound, with a range from 40p to a staggering 160p. Against this background of rising expenditure, rising rates, and now the threat of rising levels of manpower, the Government's concern is easy to understand.

It has to be said that the great majority of authorities have made the effort to spend within, or close to, their expenditure targets. But for others, targets and grant holdback have not proved a sufficient deterrent. A significant minority of authorities put our national objectives at risk. At the same time, they have placed intolerable burdens on their ratepayers. Let there be no fudging of the issue: it is their actions which have led to the proposals in our White Paper on rates.

The basis for our proposals has been challenged in three ways. First, some have questioned whether the Government have a role at all in relation to local government expenditure. They are wrong. The noble

Baroness quoted certain sayings that were put out previously by other Governments. I would quote Labour's 1977 Green Paper responding to the Lay field Committee, which said: Because of their responsibilities for the management of the economy, central government must concern themselves with total local government expenditure and taxation.". The Government cannot allow their anti-inflation policy to be put at risk by overspending in so substantial a sector of the economy.

Secondly, others have tried to suggest that local authority overspending is not sufficiently significant to worry about. But they, too, are wrong. We are talking this year of an overspend now of over £850 million. It is precisely such amounts which cause so much difficulty in terms of economic management. We have had to increase provision for 1984–85 by £500 million in view of overspending in 1983–84. Since the Government intend to stay on course, this £500 million has to be found from somewhere. Other programmes risk suffering because of local government overspending.

Thirdly, there is the so-called constitutional concern. We hear the never-ceasing cry, "The end of local democracy." I can claim to know a little about that, and I say that it is nothing of the kind. My noble friend Lord Beloff has already illustrated far greater dangers to local democracy. I shall be interested to hear how other speakers view these. I shall want to respond to their points later and give one or two examples.

We need to be quite clear about the constitutional position. The Times may well have said it and the noble Baroness may have said it, but we live in a unitary state. Parliament is supreme, and has granted local government its powers. I reject entirely the idea that local mandates override national policy. It was never so in the past, and the notion has certainly not suddenly become valid now.

The new dimension today is not constitutional. It concerns the post-war consensus about the relationship between central and local government. Local authorities have, up till now, accepted that they should live and work within the overall parameters laid down by central government. The notorious Clay Cross affair is the only exception which comes to mind. But that consensus has now broken down. I say again: let there be no doubt or equivocation about it, the blame for that breakdown rests squarely with that minority of high-spending local authorities who have chosen, deliberately, to flout and disregard the economic policies of national government. We now have no alternative but to act, through Parliament, to safeguard our policy and those directly affected, and that is what we are doing. It is, after all, a policy on which we were elected. Our manifesto promised to curb excessive and irresponsible rate increases. We owe it to the national electorate, who so overwhelmingly endorsed us in June, to honour that pledge.

It is not only the objectives of national policy which are at issue. It is also, as I mentioned earlier, the protection of ratepayers. Let me deal first with non-domestic rates. Some have tried to argue—and we shall very likely hear it again today—that high rates have no adverse effect on industry and commerce; that high rates do not destroy jobs. This is patently untrue and wrong. Non-domestic ratepayers contribute nearly 60 per cent. of rates. Non-domestic rates total some £6 billion this year. They are the largest single tax on business. When they are forced up, costs rise with them, growth is stifled and jobs are lost. Yet, as has been said, those affected have no votes.

It is worth looking at just two of the scores of examples—and I repeat "scores of examples"—of what this means in practice in the real world. The noble Baroness quoted extracts and comments from The Times. Let me quote to her a letter from a Camden business ratepayer which appeared in The Times on 3rd October. He said: In Camden, domestic ratepayers provide only 14.4 per cent. of the Council's total income. No wonder there is growing 'demand' for the services, so inexpensive for the recipients; that the rates paid on our office here, have multiplied 13 times, in the 12 years since we moved; that our rates became £2,000 per annum for every person employed in the building; that we vacated one-third of the space by moving departments out of London, where we could no longer remain and be competitive; and that we are having great difficulty in reletting this space". My second example (of the many I could give) is the Sheffield Chamber of Trade who have found that almost 70 per cent. of their members would be forced into reducing their workforces in the event of rates increasing by a greater percentage than their prices. Over 30 per cent. are contemplating a move to a lower rates area. And who can blame them?

Ask the elected members, ask the business community, ask all those who actually pay rates, ask those living in Sheffield, Brent, Islington, Southwark, Lambeth, Haringey, Camden and the other big spending and high rating authorities what they think about the Government's rate limitation proposals. Ask industrialists in those places about their costs. Ask why so many want to move elsewhere. You will not get arguments about constitutional niceties from people who know the tightness of their operating margins. The message is loud and clear. If a Conservative Government will not protect them from punitive rates, to whom can they turn? Well, this Government will protect them. I put it to those who seek to prevent us from carrying out our firm manifesto commitment that there can be no compromising the undertaking we have given.

In our manifesto and in our White Paper we have in mind the domestic as well as the non-domestic ratepayer. It is a minority of authorities which heap heavier and heavier burdens on their backs. The time has passed when we could expect those authorities to have thought for the people they are supposed to serve. Since those locally elected members will not fulfil that duty, then we must do so.

I cannot stress too strongly that three-quarters of this year's overspend is accounted for by just 16 authorities. The selective rate limitation scheme will apply only to the highest spenders—probably only to between a dozen and 20 authorities altogether. Authorities with small budgets and those spending below GRE will be expressly excluded. I am confident that the selective scheme will suffice. We have no wish to activate a general limitation scheme. That is why we are keeping general limitation as a reserve power. I say again that I very much hope we shall not have to use that power. But the decision rests with local government. If authorities respond to the selective scheme and to the continuing operation of the present constraints of the grant system in such a way as to bring their spending more closely in line with our overall plans, then no further action will ever be needed. And that is what we should like to happen.

Baroness Birk

My Lords, the Minister has made his point about the selective scheme, with which I do not happen to agree, although I can see the Secretary of State's point. But in that case, why is the Secretary of State going ahead with taking the other reserve power which is causing so much trouble all round?

Lord Bellwin

My Lords, as I said to the noble Lord, Lord Mcintosh of Haringey, I wonder whether the noble Baroness will allow me to deal with that point in the later part of the debate. I promise her that I shall do so.

Our second proposal for change is to deal with the structural weaknesses which I identified earlier. As the noble Baroness said, we intend to reform local government in London and the two metropolitan counties. The GLC and the metropolitan county councils are, quite simply, unnecessary. Their major functions can be perfectly well performed without a completely separate tier of local government. That the GLC and the MCCs are not needed is clearly demonstrated by their continued and largely unsuccessful attempts to find an adequate role for themselves. These authorities undertake functions in parallel with the lower tier; there is overlap and friction with the lower tier; there is conflict with central Government as they seek to influence national policies through the use of general powers that were never meant to extend so far. Will someone tell me what these people, and the GLC in particular, are doing dabbling in foreign policy?

Your Lordships will have seen from our White Paper what we propose. The existing strong tier of elected local government in these areas, the borough and district councils, can now look forward to being the genuine primary tier. They will be directly responsible for most functions. In the very few cases where the needs of a service point to a wider area, the borough and district councils will appoint members to joint boards to exercise these functions jointly. The result will be simpler, more intelligible and better local government. It will indeed be making local government local. We remember well the campaign that was run for us to do that.

Of course the GLC and the metropolitan counties are opposed to abolition. As someone else might have said, "Well, they would be, wouldn't they?" In recent weeks we have seen their organised campaigning get under way: advertisements, leaflets, full-time staff in county halls, professional lobbying. These authorities claim they have not sufficient money to provide essential services, yet they are prepared to spend millions—and I do mean millions—on their campaigns. Where is the money coming from? Who is paying? It is not coming out of the members' pockets. No wonder that their ratepayers are clamouring for abolition as soon as possible.

These vested interests assiduously foster misapprehensions—not to say distortions—about our proposals. They say, "We will not save money; it will cost more because we will be losing the benefits of scale". But we did not have those benefits of scale in the metropolitan counties before reorganisation. I have not noticed any reduction in costs since and because the metropolitan counties were created.

We are criticised for not spelling out the savings in detail. The noble Baroness, Lady Birk, did so. You can imagine the uproar if we denied authorities the opportunity of consultation. But if you want consultation and the chance to talk about the implications of the proposals in detail, not least about the staffing structures, you must not complain if the final calculations are not spelt out beforehand. You cannot have it both ways.

We have already seen the results of studies purporting to show that the new system will cost more. Of course it could cost more if you set it up that way, but it does not have to cost more and we intend to make sure that it will cost less. The scope for savings is there. The removal of a tier of government must eliminate activities that do not need replacing. Your Lordships will no doubt point to the experience of 1974, and I am only too well aware of what happened then. But the climate is different. Authorities are much more aware of the need to secure value for money. The boroughs and districts will be under strong pressure to provide their new services economically. Our intention to control the budgets of the joint boards for the critical first three years will enable us to ensure that these new bodies are set up with the absolute minimum bureaucracy; and savings there will be.

Possibly the most serious distortion is that these structural changes somehow undermine local democracy; that we are creating, they say, scores of quangos with unlimited power to raise rates and taking whole areas of local government under the control of central Government. This is simply not so. The fact is that there are one and a half new quangos proposed in the White Paper. I shall not use the remark I made elsewhere recently, that it takes two to quango. I shall not say it again, although it went down well there. It is not doing so well here, apparently! But never mind; I live in hope.

The fact is that the one and a half quangos include the body to deal with residual functions, such as management of existing debt in London, and the London Planning Commission. I regard the latter as half a quango because it will be a non-statutory advisory body, with non-executive functions. Joint boards are not quangos. The members will be appointed by the authorities in the area and, apart from the magistrates on the police boards, they will be elected members of those authorities. Joint boards are a well precedented device for local authorities to join together to operate over wider areas.

The single tier system will clearly require authorities to work together, both in joint boards and on other services. I have seen suggestions that this will not happen. I just do not believe it. Local authorities are well used to providing services jointly—formally and informally. To allege that the need for co-operation is an objection to our proposals shows a startling lack of faith in the good sense of borough and district members and officers.

When I speak again, by leave of your Lordships' House, I will respond to the case made by my noble friend Lord Beloff for a directly elected education authority for Inner London. The Government are firmly committed to these changes. We have just begun a period of consultation with our White Paper and this is a very welcome opportunity to hear your Lordships' views on these topics. I look forward to responding later in the debate.

Baroness Birk

My Lords, when the noble Lord, Lord Bellwin, replies can he be rather more specific about the savings in transitional costs? Chapter 6 of the White Paper Streamlining the Cities states: It is not possible to put a figure on the savings arising from abolition, or the transitional costs". How is it that there has not been any costing of what the Government intend to do? Any businessman who set out to do something of this sort must be able to show whether it would be cost-effective and what line it is going to take. Will the noble Lord the Minister deal with that point later?

Lord Bellwin

My Lords, the noble Baroness, with respect, was not listening when I referred to these points about savings. I specifically made the very point that, although there must be some consideration of these matters, to try to respond in detail at a period when one is going into consultation and discussion is wrong. I will not reply in detail but I will return to that point when I speak again later.

4.11 p.m.

Baroness Stedman

My Lords, I, too, should like to thank the noble Lord, Lord Beloff, for giving us this timely opportunity for the discussion we are having this afternoon. I should also like to welcome in advance the speech we shall hear shortly from the noble Lord, Lord Graham of Edmonton. He and I worked together very closely on the Local Government Planning and Land Bill, and while our paths have diverged somewhat since then, it has not lessened my respect or admiration for his knowledge and for the way in which he has dealt with local government over many years, and for his service in another place. I am sure he will be an acquisition to this House.

Because of the economic and social changes we have seen over the past century, the state has acquired for itself a whole range of new functions which, with hindsight, might have been better devolved to lower levels. The result has been that local government is too dependent upon central Government and central Government are much too apt to interfere with local government. The division of powers has constantly shifted over the years—dependent, more often than not, on temporary political expediency rather than on what should or should not be done by central Government.

Even in the fields for which it has responsibility, local government is financially dependent on the centre. As other speakers have said, more than 50 per cent. of local government expenditure is covered by Government grant; and that grant is determined by what central Government consider is a right assessment of local needs. All this has eroded local government independence over the years. This Government, more than all others, have made a quite unprecedented intrusion into what has hitherto been regarded as an agreed division of power between the Government and local authorities. The overload at the centre and the enfeeblement of the base which has followed go hand in hand with a very dangerous lack of accountability in between.

Local government must be made stronger. It must be made more independent of central Government —and it must be more accountable to the electorate. By that I mean, more accountable downwards, to the people, and not upwards to civil servants in Whitehall. It is the key to that independence which lies in local government finance. And the key to accountability lies in the structure of local government. It is because local government depends on central Government for more than half its revenue that its freedom of action is so narrowly circumscribed; and it is because its structure is so excessively complex and inadequately understood that the public do not know who does what and cannot properly call them to account.

We on these Benches believe that at every level of government no function should be exercised which can with equal effectiveness be performed by an elected body at a lower level, closer to the people. It is the enterprising and vigorous councils which can do more for their citizens than remote centralised Government control. But just so long as dependence on grants from central Government remains so high, it will be impossible to restore any real degree of financial autonomy to local authorities.

We believe that in any form of local government finance the percentage ought to be reduced to something around 30 per cent. This figure ought to be sufficient to equalise standards of local authority services. We could also argue that the criterion for determining the amount of grants should be the equalisation of resources on the basis of average incomes—which is the best test of the area on how to pay the rates.

On the non-domestic rates, we agree that there is no easy solution as to the question of whether non-domestic rates should remain part of the local government finance package. There is an argument that their abolition would break a valuable link between businesses and the local authorities in their area. On the other hand—as the noble Lord, Lord Beloff, implied—the power of local authorities to raise general revenue from ratepayers who have no votes in local government elections is an anomaly and one which could be capable of abuse.

We should like to see the balance at present raised by non-domestic rates covered by central Government in the wider context of a national programme for some form of industrial taxation and by the local authorities by way of realistic charges for their services. We believe that most businesses would regard any increase in the charge for their services a price worth paying for complete abolition of the arbitary system of non-domestic rates—even more so since we would expect organisations concerned with industry and commerce to be involved in determining the charges made in the system. If non-domestic rates were transferred to the centre, then national Government would be able to plan their fiscal policies towards industry much more effectively, by reducing the non-domestic rate burden in the most needy areas and encouraging businesses to relocate where they are most needed.

Governments have a responsibility for the overall health of the economy, which necessarily involves them in regulating such matters as the amount of borrowing in which the public sector—and I include in that local government—engages and the total level of taxation and pay settlements. Although these factors of themselves involve central Government in general decisions about local government finance, they do not justify, and neither should they be used as a pretext for, detailed involvement by central Government in what are essentially local decisions about the use of resources and the cost of services of the kind in which this Government have been engaged.

To remove key local decisions about the use of resources from local democratic control is to destroy the whole basis of accountability in local government. In the White Paper, the Government are using quite spurious economic arguments to justify cuts in local spending—purely, one might think, for dogmatic and ideological reasons. They are dealing with local government finance in isolation from local government structure and electoral reform, and are thereby adding to the confusion about the accountability of local authorities to their electorates rather than trying to enhance it. They are puttng forward arguments against the introduction of a local income tax in substitution for rates which I do not believe stand up to examination. And they are too nervous of their own supporters to initiate a revaluation of the rate base during the lifetime of this Parliament—and are thus compounding the unfairness of the present rating system.

The Alliance is a constructive Opposition and we are willing to be persuaded by argument that changes in policy are needed. But the only possible conclusion to be drawn from the White Paper on finance is that reason and tradition have been abandoned in favour of the present Government's prejudice against local government. The Government have given up any attempt to improve local accountability. With these proposals to take the general power to limit rate increases for all authorities, the Government are in danger of removing local accountability entirely. It is Whitehall which will decide the levels of individual local authorities' spending and local taxation levels, thus reducing local authorities to mere management boards of the Department of the Environment. Central Government officials will have the power to make the decisions for every local authority, and even the parish council activities are not ruled out because they are left for "further consideration".

I have argued in this Chamber before that central Government have sufficient powers to make local government spending compatible with national economic management by controlling only two variables, borrowing for capital expenditure and the level of the central grant given to local authorities. Local taxation, if it is made properly accountable to the electors by the introduction of proportional representation into local elections, and by local income tax, has no effect on public borrowing, and local people should be free to decide on the relative merits of spending on local services or on personal consumption.

Local spending is not out of control. The White Paper admits that 80 per cent. of local authorities have not increased their real expenditure over the past four years. Unlike central Government, local authorities cannot go in for deficit financing, but local councillors can and do scrutinise estimates in a detailed way, which is impossible in the expenditure of central Government departments. Local government spending has fallen as a proportion of all public spending from 29 per cent. in 1977–78 to 25 per cent. in 1982–83. It has also taken a gradually falling proportion of the GDP since 1977. It is central Government expenditure which needs to be made more open to scrutiny and more accountable.

The Government admit that only a small minority of local authorities are overspending in their terms. Yet they are willing to throw away the fundamental principle of our local government system because of the alleged perverse behaviour of these few authorities. Mr. Patrick Jenkin is reported as saying that half of this year's overspend was down to the GLC and the six metropolitan authorities. So at a stroke half the problem will disappear if legislation does go forward to abolish them. If 50 per cent, of the problem is to be dealt with in another Bill, then is there any need to be quite so dogmatic over the rate capping issue?

We in the Alliance would argue that the correct way to deal with unrepresentative local authorities who spend on activities which the majority of their electorate oppose is to introduce proportional representation into local elections. We believe in vibrant and accountable local government, free to innovate to meet the needs of its own area and its own local problems and with a buoyant local tax which can raise the bulk of local spending needs and provide a direct link between expenditure and revenue decisions. We should prefer a single tier of all-purpose authorities and for such authorities a local income tax in the long term would be the best replacement for rates. So long as local councils depend on central Government for over half their revenue, their freedom of action is bound to be constrained. While local authorities raise a substantial part of their revenue from business there will remain the temptation to extravagance which cannot properly be called to account, which is why we say that non-domestic rates should be transferred to the centre by industrial taxation. Many of the services which local authorities provide for industry and commerce could be more extensively charged for directly. In this way, businesses would be able to influence the quality of the services provided.

The detailed schemes show that local councils are going to lose their power to determine their own expenditure levels. It will be the Government which will decide what they can spend, it will be the Government which will decide what revenue they can raise, and it will even be the Government which will decide how large their balances should be. This is going to make medium and long-term planning impossible, as the Government will decide on a year-to-year basis and local authorities will not be notified of their rate levels before December. This is going to make it all extremely difficult for cuts to be made in any reasonable way, and if staff cuts prove to be necessary the cost in redundancy payments could well mean that authorities fail to meet the Government's required spending limits.

Lord Bellwin

My Lords, I wonder whether I may put this to the noble Baroness. She said that local authorities will not be notified of their grants before December. Would she tell me when have they ever been notified of their grants before December?

Baroness Stedman

My Lords, that is what makes it so difficult for local authorities to work out what their rates will be and what services they can provide. Why will the Government not revalue domestic properties? It is long overdue and the longer it is left the worse the situation becomes. Can it be that they dare not revalue now because they are not carrying out their election pledges to abolish domestic rates? Domestic rates have to be reformed. Why not look at changing from rental to capital valuation? Capital valuation would be seen to be fairer. It would relate more clearly to the ability to pay, and regular revaluations could be carried out at much shorter intervals—say, every three or four years. This would make domestic rates, while we have them, a buoyant and a realistic tax.

The Alliance will support the Government's proposals to introduce a requirement that separate notices be sent out from rating and precepting authorities to each ratepayer, because this will clarify for ratepayers which authority is responsible for which service and for the level of each authority's spending. We would also support the proposals for extended rights to pay by instalments to more ratepayers. But we are entirely against the major centralist solution proposed because we believe it will destroy the long-standing tradition of local government in this country. We need a decentralisation of power from the centre, thus giving greater democracy and accountability to local government.

As the noble Baroness, Lady Birk, has said, all the local authority associations are against these proposals, as are NALGO and the Society of Chief Executives. John Lovill, the chairman of the Association of County Councils, has said, Whitehall is not the place for running local services and making local decisions. These proposals are a further intrusion into the great tradition of local independence, and, as an association whose members represent 30 million people, we shall and must resist them". And the ACC in its response to the Government has said that too much too quickly has been asked of local government. The ADC view the Government's rate capping proposals as the most serious threat ever to local democracy. They think that the proposals are a fundamental breach of local democracy and will be unworkable. They go so far as to suggest that the question on the White Paper proposals which should be posted to every person in the country is, "Do you wish your local affairs to be determined by remote civil servants and computers in Whitehall, rather than by your democratically elected councillors, who are directly answerable to their local electorate?"

My Lords, this White Paper has few friends, and I urge the Members of this House who participate in and who believe in local government to forget their party loyalties and to stand up and be counted now in defence of local democracy. The only group to profit from the White Paper, should it become law, will be the legal profession, because, if rate capping becomes a reality, then confrontation through the courts becomes a certainty.

The noble Lord, Lord Beloff, began on an historical note and I want to end on one, prefacing that by reminding the noble Lord, Lord Bellwin, that on 9th October 1980 I told the House that a parish council had met with him and had quoted a passage from Magna Carta to him: To no one will we sell, to no one will we deny or delay, right or justice. May I remind the Government of another passage in Magna Carta: And the City of London shall have all its ancient liberties and free custom both by land and by water. Furthermore we will and grant that all other cities, boroughs, towns and ports shall all have their liberties and free customs". What is a free custom if it is not the right to levy by the elected will of local people the rates to sustain those services which the people want and to spend some of their money collectively instead of individually? Is it not as much a limitation of personal, if collectively expressed, freedom for the state to impose a fixed ceiling on rates as to limit a person's income?

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