HL Deb 11 December 1984 vol 458 cc139-46
The Parliamentary Under-Secretary of State, Department of the Environment (The Earl of Avon)

My Lords, with the leave of the House I shall now repeat a Statement on the rate support grant settlement 1985–86, being made by my right honourable friend the Secretary of State for the Environment in another place. The Statement reads as follows:

"With permission, Mr. Speaker, I wish to make a Statement on the rate support grant settlement in England for 1985–86.

"In my Statement to the House on 24th July I set out my proposals for the main elements of the rate support grant settlement for next year and listed the 18 authorities which I was designating for rate limitation. I have today laid before the House the main RSG report for 1985–86 and I am sending rate-capped authorities notices advising them of the rate or precept limit proposed for them. Copies of all the material being sent to local authorities today are available in the Library and the Vote Office.

"I have also laid today two RSG supplementary reports. The third supplementary report for 1983–84 adjusts authorities' grant entitlements in the light of the latest information on outturn expenditure for the year. The second supplementary report for 1984–85 implements grant abatement for Liverpool City Council, whose budget was received too late to be taken into account when I implemented grant abatement for all other authorities in July. Both reports also contain other technical adjustments to grant.

"I now turn to the main report for next year. For 1985–86 for the first time the Rates Act enables me to influence directly the spending levels of the worst overspenders by imposing limits on their rates. As we promised throughout the passage of the Rates Bill in Parliament, this means that rate limitation will not only benefit the ratepayers of the selected authorities. It will also benefit low-spending authorities, since I am no longer obliged to ask them to make cuts because of the excesses of the high-spending minority.

"I have decided to confirm the targets I proposed in July with two important changes. The first allows most low spending authorities an increase over this year's budgets of 4½ per cent, instead of the 4½ per cent. I previously announced. This reflects the slight increase in the forecast inflation rate over the period. For the first time targets for the lowest spenders imply spending increases in line with inflation, or in other words, no further real terms cuts. The second change relates to a particular group amongst those low spenders—namely, authorities such as Berkshire budgeting this year to spend not only below GRE, but also at or very close to target. They will be allowed a further relaxation of targets so that they may increase spending by up to 4.625 per cent.—a little more than inflation—without incurring penalties. With these changes, the targets for low spending authorities fulfil to the letter the undertakings which I gave to the House last January.

"I have decided to confirm the stringent holdback tariff which I announced in July at the rate of 7 pence in the pound for the first percentage point of overspend, 8 pence for the second, and 9 pence for each point thereafter. I believe that it is only fair to match realistic targets with a strong incentive that they should be met. I propose, however, to continue to exempt from penalty increases in certain urban programme and civil defence expenditure, and increases in expenditure on schemes jointly financed with health authorities. Aggregate exchequer grant will be £11.764 billion. That is slightly higher than the figure which I proposed in July. The grant percentage is 48.7 per cent.

"I turn now to grant distribution. Following consultation with local government, I have decided on some limited but important changes to GRE assessments, affecting primarily the GREs for passenger transport support, highway maintenance, rate fund contributions to council housing, and recreation. I have also increased the slope of the block grant poundage schedule. This increases the importance of spending in relation to GRE as a factor in grant entitlements, and increases the marginal cost of spending above GRE for all authorities. Again, this helps low-spending authorities, since it gives more of the available grant to authorities spending at or below GRE.

"In the light of this RSG settlement, I am issuing maximum rate or precept limits for the 18 selected authorities. Since July, when I announced expenditure levels for these authorities, it has been open to each of these authorities to apply for a redetermination of their expenditure level at a higher level, but none has done so.

"Rate or precept limits for 1985–86 are therefore based on the July expenditure levels. I am today sending out statutory notices informing each authority of the limit that is proposed for it. A list of these limits has been placed in the Library and is available in the Vote Office. In calculating the rate or precept limits I have taken account of the expenditure levels set and the authorities' block grant entitlements next year. I have also had regard to the level of financial reserves available to each authority, making assumptions as necessary.

"Authorities now have until 15th January to comment on the rate or precept limits proposed, and to draw my attention to any relevant information of which I may not be currently aware. Unless I have comments by 15th January, it will, in the absence of agreement, be necessary to move on to the next stage of asking the House to confirm the rate limits by affirmative order.

"The proposed rate and precept limits I am announcing today will be warmly welcomed by ratepayers in the areas concerned. For 13 of the 18 authorities I have set rate or precept limits which are lower than the rates or precepts being charged this year. In the five remaining cases, however, the rate or precept will be lower than it would have been without rate-capping.

"Mr. Speaker, this year's average rate increase was the lowest for 10 years. If authorities budget to meet their targets next year, the average rate increase next year should be even lower. The first stage of rate limitation will at long last bring relief to ratepayers in the rate-capped areas. Moreover, rate-capping has allowed me to set much fairer targets for low-spending authorities. This settlement has meant increasing the provision for local authority current spending next year by £820 million above the provision in the public expenditure White Paper. In present economic circumstances, this is a reasonable and fair settlement, and I commend it to the House".

My Lords, that concludes the Statement.

Baroness Birk

My Lords, I should like to thank the noble Earl the Minister for reading the Statement so beautifully. As it is the first rate settlement Statement that he has read, perhaps I may congratulate him on the fact that he made it sound very much better than, in truth, it is. I should like to ask the Minister some questions. First, is he aware that the Government have taken away £9,000 million in the rate support grant and that, as the Association of County Councils pointed out last January, it is for this reason that rates have doubled? Is it not the case that by reducing the rate support grant, with an increasing burden on ratepayers, services will shrink even further? There has been a 5 per cent, cut in real terms, so the effect of these very seductive words is entirely cosmetic. The figures disguise the fact that the cut is 5 per cent, below what is required to maintain existing services throughout the country as a whole.

In their relaxation, the Government have tried to buy off the shire counties by increasing spending from 4½per cent, to 42 per cent. They are trying to help their friends by giving increased targets. Then there is the increased slope. This has the effect of discouraging further spending above GRE. The increased effect of spending above GRE helps those spending at or below GRE, which includes 29 out of 39 shire counties. However, I am afraid that this is a big con, because the aggregate Exchequer grant of £110 million in cash is at least £600 million less in real terms.

Will the Minister confirm that every council spending at target this year will receive less grant in real terms than it did in 1984–85? I stress that I am speaking in real terms. Will the Minister say how many councils spending at target this year will receive less grant, taking into account the transport supplementary grant? Is it not the case that major spending councils will receive less in real terms? When will the Minister's right honourable friend be making an announcement, which I understand has been held up, on housing investment and other capital investment programmes?

On the question of rate-capping, the Secretary of State has evidently chosen the path of confrontation, because on 24th July he said: Rate-capping does not therefore mean that services must be slashed. The spending limits that I am setting are reasonable and should be perfectly attainable". How does this square with the rate limits announced today, which are based on expenditure limit cuts ranging from 6 per cent, to 28 per cent.? It really is quite impossible. The Secretary of State went on to say that: authorities could use the redetermination option". But in practice it is a closed door, as it involves a lower limit and becomes a Catch-22 situation. Councillor Gibson, the Conservative leader of Portsmouth Council, said in an article published in the Municipal Journal of 3rd August: It is too early to say whether we should go for a redetermination. It is obviously an area that we must consider, and consider very seriously. The thing about redetermination is that it could come with strings attached that my council could not possibly accept". Those are the words of a Conservative councillor.

In July the Secretary of State set expenditure limits for authorities. He set a cash freeze—an average cut of 11.9 per cent, in real terms. For some authorities it was much more. In fact, the cuts range from 17.8 per cent, for Merseyside to 12.5 per cent. for Sheffield. Today he will set these in concrete by setting the maximum rates for the 18 rate-capped authorities. The system is really quite mad as, if rate-capping works and can reduce expenditure in the rate-capped areas, there will be less grant at higher rates in Conservative areas. In fact, paradoxically, the money goes to the Treasury and, therefore, the Treasury has a vested interest in fining local authorities, as local authorities can now be fined up to £10 for every £1 they spend.

In the past, the level of grant support has always been up to the Government to decide and the expenditure side has always been left to local authorities. But now the total expenditure of local authorities is being decided by the Government. This is a new, unpleasant innovation by this Government, and once again it is taking away from locally-elected councillors, from elected authorities, the right to make decisions for their own areas.

4 p.m.

Baroness Stedman

My Lords, I, too, should like to thank the Minister for repeating the Statement in this House. Like the noble Baroness, I can see in it no tidings of comfort and joy for local authorities. This has been another sad day for local authorities. Throughout the time this Government have been in office local authorities' powers have been whittled away, their finances have been cut, and now their rates are to be controlled by Government and in some cases even fixed by Government.

The Minister says that rate limitation will benefit not only the ratepayers of selected authorities, but also the low spending authorities. But how can this be so when there is a lower percentage of grant than ever before to be shared out among the authorities, when the Secretary of State has given an assurance to the shire counties that they will get more, when in fact the lowest spenders will get increases of only 4½ per cent., supposedly in line with inflation? The low spenders will get that little.

The rate-capped authorities, because they are rate-capped, will probably get more grant than they might otherwise have done. What about those in the middle? Are they the ones who are going to pay for the extras for the shire counties and the others? Such an increase is unlikely to benefit the good housekeeping shire counties (such as mine, Cambridgeshire) which, by just standing still in service provisions, are spending over target, though well below their GRE, and so are penalised.

Eighteen authorities are to be issued with maximum rate limits. How many authorities, in addition to those, have intimated that they may be considering levying illegal rates? We live in difficult times. We have greater pressures than ever on the social and humanitarian services provided by local government. Cutting the RSG without giving local authorities any alternative means of raising additional finance, with targeting, with penalties, with rate fixing, does nothing to help those in these hard times.

Surely over the years it has been proved that patchwork policies in regard to local government do not work. This Government continually go for quick, piecemeal remedies and solutions when what is needed, and what we have been arguing for from this side of the House for many years, is a long-term strategy for local government. I believe that we are well on the way to destroying the financial stability of local government, and the Government are now demanding cuts in services that authorities just cannot achieve.

On the penultimate page of the Statement the Minister refers to the level of financial reserves. Surely this is an arbitrary exercise of ministerial discretion in regard to the rate-capped authorities when assumptions only are being made as necessary. It is going to be a miserly Christmas present for local authorities and for those who need and depend on their services. One can only hope that one day even this Government might manage to dispense a little Christmas cheer.

The Earl of Avon

My Lords, I am grateful to both noble Baronesses for their personal welcome to me, if not to the Statement. May I say to the noble Baroness, Lady Birk, that all authorities budgeting this year to spend three-quarters per cent, or more below GRE are getting targets for next year which will allow spending to increase in line with inflation by 4½ per cent. Even the lowest spenders' targets this year implied real-term cuts of about 2 per cent. That comparison shows clearly how it has been possible to discharge to the letter the undertaking given to the House last January. On top of that we have given a modest extra improvement to targets to those authorities spending at or very close to target as well as below GRE. These are allowed up to a 4.625 per cent. increase in spending.

My right honourable friend felt it was right to increase the weight given to GREs in grant distribution, but this benefits all authorities whose spending is at or below GRE. I do not think that inner-city authorities as a group should have cause for complaint. Many of them will do well out of the GRE changes in this year's settlement.

While we are on the subject of the quantum grant and the expenditure groups who were worried about the uplift of the £1.7 billion which they wanted, I should point out that, after the necessary classification changes and using the Government's inflation estimate, the local authority bid of £1.7 billion is, we take it, equivalent to £1.4 billion, and the uplift of over £800 million which was announced today goes more than half way to meet this. I believe that this is a sizeable step in the right direction, and I do not believe that it is unreasonable to ask local government to come the rest of the way to meet us.

The noble Baroness, Lady Birk, mentioned in particular a figure of £9 billion off the RSG. She mentioned restoring the AEG to the 61 per cent. level pertaining when the Conservatives took office. It is our contention that only £3 billion extra grant would be paid. In any case I am led to understand that the ACC favour cuts in grant to increase accountability. I understand also that the ACC wanted inreased slope of the schedule to put more emphasis on GREs as a basis for distribution.

I was asked about an assurance of grant reductions in terms of real cuts. I do not think it is possible to say that, as it depends on authories' budget decisions. But there is no cap on the gains in grants due to grant mechanisms. I am sure here that the message is to spend to target and to avoid penalty.

The noble Baroness, Lady Stedman, mentioned the lowest spenders getting a 4⅓ per cent. cash increase. The high spenders have of course to reduce in real terms by 1½ per cent., which is a cash cut of about 6 per cent., and that I believe is as much as we can reasonably ask anybody to do in a year. I am sure that the noble Baroness will agree.

The noble Baroness, Lady Birk, asked about the capital allocations, and I appreciate that authorities are anxious to know where they stand on capital, so that they can make their plans for next year. I am sorry that we have not managed to make announcements to coincide with the announcement today as usual. I cannot give a precise date or any details at present. We are still trying to sort out the position on the final decisions on public expenditure. I hope I have covered a number of the points raised by the noble Baronesses.

Lord Sandford

My Lords, may I ask my noble friend two questions arising out of that Statement? First, may I thank him for repeating it and welcome a good deal of what is in it. It must be a good thing to reduce aggregate Exchequer grant and thereby take a step towards the position where more of local services are financed by taxes raised from local electors. To the extent that the Statement indicates a further step in that direction and a further step towards more accountability it must be welcomed.

However, two questions arise from that. First, may I have my noble friend's assurance that in the spring local government will have the help of central government in dealing with their critics, because at that time when rates are set there will be a general increase in rates of some 10 per cent. This is as a direct result of meeting the reduction in the aggregate Exchequer grant and in competing with continuing inflation. At that time we shall undoubtedly get criticisms from ignorant people who are not fully au fait with local government finance, from some mischievous critics, and from some critics who ought to know better. The first question, therefore, is: can we count on central government support in rebutting those criticisms when that happens?

I come to my second question. There must be a point in this process—which is itself welcome—at which the rating system in the unreformed condition in which it is, and unsupported by any other way of raising finance locally, will not be able to take the strain imposed on it by this process. In that connection I think that the House would be glad to hear—I certainly would—that the review of local government finance (for which we have all been asking for so long, and which at long last the Secretary of State announced, in ringing terms at the Conservative Party Conference this autumn) has now begun and is proceeding constructively to a satisfactory conclusion.

The Earl of Avon

My Lords, I am grateful to my noble friend for his welcome of this Statement. Of course the Government will take their own responsibilities for any increases necessary in the spring. May I say at the beginning that I hope it will not be necessary for 10 per cent. to be the level of increase, but we shall certainly take our share of responsibility.

The inquiry is progressing. I know that progress is being made, and I am sure my noble friend will be pleased to hear that it is going as fast as it can.

Baroness Birk

My Lords, I should like to remind the Minister that there were two or three questions that he did not answer. I thank him for the answer to the question on the announcement to be made on capital grants, although it does not seem to be in sight. I asked him whether he would confirm that every council spending at target this year will receive less grant in real terms in 1984–85. I assume, as he did not mention it, that that is so. That is the way it works out from the figures. I asked him to tell us how many councils spending at target this year will receive less grant, taking into account TSG. I also put it to him that major spending councils will receive less in real terms. I think that was a point that was also made in a slightly different way by the noble Baroness, Lady Stedman. All these will add up to fewer services for the elderly, fewer services all round and difficulties for local authorities maintaining what they have been trying so hard to maintain for all these years in the face of the difficult criteria set down by the Government.

The Earl of Avon

My Lords, it is difficult for me to answer the specific questions which the noble Baroness has asked without the figures we all need to have in front of us. So far as the future increased expenditure is concerned, the figure I mentioned—I believe the noble Baroness mentioned it as well—of £600 million we believe to be a step in the right direction. It should not lead to cuts in expenditure on the social and other resources of the counties. Until we have seen the figures in more detail I cannot answer the noble Baroness more clearly.

Lord Renton

My Lords, I welcome the statement that my noble friend made about civil defence expenditure, which will mean that local authorities will no longer have a financial excuse for not carrying out their statutory and humanitarian duties with regard to civil defence. But to clarify the matter, will he confirm that the exemption applies to all civil defence expenditure on both capital and current account?

The Earl of Avon

My Lords, I can confirm that it applies to all civil defence expenditure on capital and current account.