HL Deb 18 December 1984 vol 458 cc554-9

4 p.m.

The Earl of Avon

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for the Environment on local authority capital expenditure. The Statement reads as follows:

"With permission, Mr. Speaker, I will make a Statement about local authority capital expenditure in England in the coming financial year. My right honourable friend the Secretary of State for Wales will be making a Statement later.

"Since 1979, local authorities in England have sold over 600,000 homes to their tenants. The success of this policy, coupled with sales of other assets, has generated very substantial capital receipts which local authorities have been able to spend over a period of time. This Statement is about the consequences for next year's capital spending programme.

"On the 18th July I explained to the House that in 1983–84 there had been an overspend of £368 million on the main local authority cash limit for capital expenditure. I warned that we could be heading for a much larger overspend this year. That was why I had to ask local authorities to exercise restraint.

"Most authorities have complied with my request, and I am grateful to them, but some have chosen to ignore it. So although the amount of the overspend this year has certainly been reduced, it is still likely to be higher than in 1983–84, and I must therefore maintain my appeal for restraint for the rest of the financial year.

"Consequent upon the Government's decisions published by my right honourable friend the Chancellor in his Autumn Statement, I have to announce that plans for local authority capital spending in England for next year will be just over £4 billion. Receipts are expected to be about £2.1 billion, and the cash limit on net expenditure is therefore being set at £1.95 billion. This net figure forms part of the Government's public expenditure planning total for next year. Any excess would be a potential charge on the contingency reserve.

"Unless corrective action is taken, local authorities could well breach the cash limit next year, as happened in 1983–84 and is happening this year. The problem arises because the accumulated reserves of capital receipts are now estimated at some £5 billion.

"These reserves belong to the local authorities. What is at issue is the pace at which they may be spent. To reduce the risk of overspending next year we have to reduce the proportion of receipts which an authority may spend in any one year. For housing receipts, the prescribed proportion will be reduced from 40 per cent. to 20 per cent. from next April. For other receipts—for example, from the sale of land—the proportion will be 30 per cent. Local authorities will continue to have the right to use the balance of their receipts, but spread over a longer period. Without these changes there is little doubt there would have been substantial overspending next year. This in turn would be bound to lead to disruptive mid-year corrective action. It is clearly in the interests of local authorities to reduce this risk.

"We shall be notifying individual authorities of their allocations shortly. I am honouring the assurance I gave last year that housing allocations would be at least 80 per cent. of those for the present year.

"Authorities that have complied in full with my request for restraint this year will receive an extra allocation next year amounting to an extra 5 per cent. across all service blocks. I estimate that this may add about £100 million to the total of allocations.

"To help local authorities to plan their capital programme, we are increasing from 2 per cent. to 5 per cent. the right to carry forward an underspend of the national cash limit from one year to the next. There will also be a margin of 5 per cent. above the cash limit, up to which no corrective action within the year will be sought.

"Mr. Speaker, subject to the same sort of provisos as last year, I can repeat last year's assurance that for the housing and other services blocks, allocations for 1986–87 will be at least 70 per cent. of those for the current year. For 1987–88, authorities can count on receiving at least 80 per cent. of 1985–86 allocations.

"Apart from these assurances, the decisions I have announced today relate only to 1985–86. I am consulting the local authority associations about possible changes to the system for the longer term".

My Lords, that concludes the Statement.

Baroness Birk

My Lords, I should like to thank the noble Earl the Minister for repeating that Statement. It is, however, just another tragic example of the Government's harsh policies towards those least able to sustain them or to fight back. The Government intend to reduce the money available to local authorities—which are already in desperate straits—by what will amount to £1.6 billion in capital expenditure across the board. The prescribed proportion from housing receipts will be reduced from 40 per cent. to 20 per cent., which represents a cut of £400 million. This again means that the Government do not appear to be taking into account the housing conditions in this country, the plight of the homeless, the number of unemployed, and the community who benefit from a healthy infrastructure. The number of families accepted as homeless by local authorities continues to rise; it is now more than 80,000 annually. How will this new measure help those people?

In the debate last Friday in another place, the Minister of Housing drew particular attention to the question of bed and breakfast accommodation and acknowledged that this was a very unsatisfactory and extremely expensive way of rehousing people. But if, as this Statement indicates, the number of houses which can be built is to be cut, then housing starts in the public sector will probably be down to something of the order of 30,000 in the coming year, which will be lower than any figure since the 1920s. This means that council house waiting lists will grow longer.

The construction industry has been trying to persuade the Government to take into account its need and desire to build houses as well as the number of people who could be employed if such cuts were not made. Indeed, there are 450,000 construction workers without employment. The Government are by such measures adding an additional 150,000 potential construction workers to the dole queue. What assistance is to be given to the building industry, and how are the Government planning to respond to the demands of the employers' associations that the construction industry must be revitalised?

The country is being made to suffer, but for what reason? We seem to go through these almost incomprehensible exercises week after week. All that happens is that everything which matters in the country is left to deteriorate and to become more and more impoverished. The Government are pinning most of these actions on their macro-economic policy. Yet there is a wide range of opinion in which not only academics, but also people in business and commerce and in various business schools take precisely the contrary view to that taken by the Government.

The irony is that not one single local authority overspent its legitimate capital resources in either 1983–84 or the current year. The authorities have simply been doing what they have been told to do. Indeed, in November 1982 the Prime Minister wrote to the then chairman of the Association of Metropolitan Authorities complaining about underspending by many local authorities. She wrote: The fact remains, however, that some authorities made full use of both their allocations and their receipts last year, and there is clearly no insuperable difficulty to others doing likewise". Are local authorities not now being penalised under new expenditure controls which seem to represent an abuse of ministerial power?

The Government have undertaken a very sure means of damaging the infrastructure of this country upon which our economy depends. This is becoming more and more visible. It is impossible to expect the people in the decaying inner city areas to live and work there while everything around them keeps being run down. One cannot help feeling that one of the reasons for these constant cut-backs in public expenditure is to enable the Chancellor to reduce taxes in the next Budget.

Baroness Stedman

My Lords, I, too, should like to thank the Minister for repeating the Statement, but I am afraid that it will make life even more difficult for local authorities. The Minister referred to the fact that last year there was an over-spending of £368 million by local authorities over and above their cash limits for capital expenditure. Can the Minister tell the House what is the excess of Government spending as a whole this year and what percentage of that amount is present local authority over-spend?

The Statement refers to a lowering of the percentage of the proportion of housing receipts that an authority may spend from 40 per cent. to 20 per cent. and other receipts from sales of land to 30 per cent. Housing allocations are to be at least 80 per cent. of those for the present year. The Minister boasts that over 600,000 council houses have been sold. Local authorities had 40 per cent. of the proceeds. That is now to be reduced to 20 per cent. How does the Minister expect housing authorities to help stop the rot in Britain's housing stock, to modernise and convert homes, and to build new rented accommodation for the poor, the elderly, the handicapped and the homeless if they are allowed to keep such a paltry amount from the sale of properties? As we have said continually from these Benches, at this time we should be putting capital resources into the infrastructure to help create employment.

Does this further cut-back in capital expenditure mean that the amount saved will be directly re-allocated to those authorities which have the least amount of money to spend on houses—for example, those who sold the fewest council houses? It is estimated that this country needs about 800,000 houses to be built by local authorities, not to mention the money that they ought to be spending on roads and sewers. Can the Minister tell the House whether he really believes that new jobs will be created by this sort of cutback? Is not the granting of lower capital receipts, and restraints on using the balance of receipts, leading to a greater erosion of the basis for local authority spending as written into the 1980 Act?

The local authorities who toed the line are to get a 5 per cent. increase across the service blocks, but that will only meet inflation. In the final part of the Statement the Minister says that he is consulting local authorities about possible changes in the system for the longer term. How long is longer term, since this Statement also refers to 1986–87 and 1987–88? When may we expect to have a proper review of local authority expenditure, revenue and capital?

I regret that today's Statement is yet another example of there being insufficient resources and a lack of continuity and commitment by this Government.

The Earl of Avon

My Lords, I am interested in the responses to the Statement from the two noble Baronesses. First, may I say that as regards the effect on the construction industry, I believe it will be much less than is claimed in some quarters. The recovery seen in the construction industry is being led by the private sector. Output in the first three-quarters of this year, in constant prices, is around £0.75 billion up on the same period a year ago—an increase of nearly 5 per cent.

The latest figures for new orders show a 6 per cent. increase in the 12 months to the end of October, as compared with the previous 12 months, again led by the private sector. For example, comparing these two periods, private industrial orders are up by nearly 30 per cent. and private commercial orders by 11 per cent. The industry benefited this year from public sector overspend, but only in a short-term sense. Its long-term success rests upon the achievement of the Government's overall economic policies.

As regards the housing stock, in setting the HIP allocations for individual authorities we are taking into account their problems with defective stock. A new defective dwellings indicator has been introduced into the generalised needs index which is used to distribute resources to local authories. Greater weight is being given within the index to disrepair in the public sector stock. Particular problems faced by individual local authorities are, as in previous years, being taken into account in the local discretionary element.

So far as capital receipts are concerned, local authorities will still have every incentive to generate capital receipts and the cash from those receipts is, of course, available for use in full. Most receipts come from the sale of council houses, and the right-to-buy will ensure that these sales continue. I remind the noble Baroness, Lady Stedman, that this money is still available to the authorities. What is happening is that the spread is being put over more years.

As regards corrective action, I sincerely hope that the measures which have been announced today will bring spending into line with our plans, or at least within the acceptable margin. The return which we sought from authorities last May, indicating their spending plans for this year, proved very informative. Officials will shortly be discussing with the local authorities our view that for next year the exercise should be repeated at an earlier stage, with authorities being asked to report on their spending plans and the extent of their commitments before the start of the year. This will provide a check on prospects much earlier than this year. I assure the noble Baroness, Lady Stedman, that the inquiries and the discussions will take place at once and should they produce any immediate reaction, we shall not be slow to bring it forward.

Lord Dean of Beswick

My Lords, is the Minister aware that when the Bill to force local authorities to sell council houses was in another place I was the Whip on the Committee? One of the main excuses given by the Government at that time for the forced sale of council houses was the revenue which that would raise to enable local authorities to conduct their own policies and it was said that they could use the money to build new council houses and refurbish their stock. Will the Minister now tell us why the Government have so disgracefully and outrageously reneged on that promise?

The Earl of Avon

My Lords, I am fully supportive of the right-to-buy and believe that it was one of the best actions taken by the Conservative Party. I am delighted that we have done it. The fact that we now have such a lot of cash flowing—in fact, some £5 billion—is partly the reason for this Statement. I remind the noble Lord that this money is still available to the councils, hut they can spend only 20 per cent. next year, whereas they can spend 40 per cent. this year. However, they still have that money to use as they think fit.

Lord Dean of Beswick

My Lords, does the Minister not agree that that is like having money in the bank and the bank manager refusing to honour any cheques?

The Earl of Avon

My Lords, the money is there and the local authorities can use it to repay debt. They can invest it, or they could, for example, use it against an overdraft.

Lord Sefton of Garston

My Lords, I am amazed at the noble Earl's grasp of all these public spending figures. Can he tell the House how the overspending of local government compares with the overspending of central Government in the last two years?

The Earl of Avon

My Lords, I do not have the central Government figure in front of me, being, of course, responsible only for the other.