HL Deb 18 July 1984 vol 454 cc1508-16

4.48 p.m.

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

My Lords, with the leave of the House, I should like to repeat a Statement made in another place by my right honourable friend the Secretary of State for the Environment. The Statement reads as follows:

"With permission, Mr. Speaker, I should like to make a Statement on local authority capital expenditure in England. My honourable friend the Parliamentary Under-Secretary of State for Wales will make a separate statement afterwards.

"Local authority capital expenditure, like capital spending by central Government departments, is subject to a national cash limit. For last year, 1983–84, local authority returns suggest that the cash limit was overspent by around 13 per cent.; that is, about £368 million.

"Normally, an excess over the cash limit would be deducted from the resources available in the following year. Rather than do that, in this case the 1983–84 overspend will be taken into account when setting the limit for 1985–86. Although we are only three and a half months into this financial year, returns from local authorities suggest that the overspend will be at least as high as last year's, and it could well be higher.

"The anticipated overspending arises because each local authority is free to spend for capital purposes in any year the sum of its allocations plus the prescribed proportion of the capital receipts arising in the current year or in previous years. Many authorities have substantial unspent capital receipts from previous years. The House will remember that in 1981–82 and in 1982–83 local authorities underspent the resources available to them. The ability to spend receipts accumulated from previous years, and other elements of flexibility in the capital control system, mean that the aggregate of all authorities' capital expenditure can exceed the national cash limit allowed for in the Public Expenditure White Paper without any individual authority exceeding its own capital provision.

"Local authority capital spending makes a valuable contribution to the development of the country's infrastructure. It is an important part of the workload of the construction industry.

"Nevertheless the Government must take steps to deal with the prospective overspend. On the basis of present information I believe that it would be wrong to ask for a complete halt to all new capital spending commitments this year. Instead, after discussions with the local authority associations yesterday I am asking authorities to co-operate by restraining their capital spending this year to the level of the capital allocations made to them for this year plus the prescribed proportion of new capital receipts arising this year. If they are already committed by contract to expenditure higher than that, they ought to enter into no further commitments at this stage.

"This arrangement leaves every authority with the incentive to continue to make sales and so to add to the prescribed proportion of receipts which they will be free to spend. In this way they can spend without adding to net public expenditure. Provided we have the co-operation of local authorities, this will be an effective means of restraining expenditure with the minimum of disruption. Capital spending will be monitored in the coming months; I shall be keeping the position under close review.

"The arrangements which I have announced rest on the voluntary co-operation of local authorities. However, for 1985/86, I shall have regard to the extent to which authorities have responded to my request. If necessary I shall use my statutory powers to reduce the total expenditure which local authorities collectively or individually may incur in that year. I hope that this will not be necessary.

"Mr. Speaker, the Government is committed to firm control of public expenditure, lower public sector borrowing and a proper monetary discipline. Cash limits are part of that discipline. My proposals are intended to hold expenditure in line with the cash limit, while allowing authorities, particularly if they can increase their sales of assets, a measure of flexibility this year".

My Lords, that concludes the Statement.

Lord Graham of Edmonton

My Lords, I thank the noble Lord the Minister for repeating the Statement made in another place. Does the Minister recall that it is less than two years since the then Secretary of State was criticising councils for not planning ahead and spending on capital projects and was urging capital commitments which must be serviced and provided for? Will the Minister acknowledge that, overwhelmingly, local government has conformed with government control of capital expenditure? Will the Minister comment on and contrast the record of local government in keeping to its budget and targets and confirm that it has a far better record than central government—especially this one?

Is the Minister aware that this action is a further body blow to the construction industry, and that these measures will increase urban decay and will arrest vitally needed road, sewerage and transport arrangements? I remind the Minister that the Prime Minister wrote to the AMA in November 1982 as follows: I feel sure you will agree that much investment is needed to plan for future economic recovery, and that the present time, when the construction industry has spare capacity, is the moment to be making provision for those future needs". Has the Minister not understood that taking such panic short-term measures is no way to solve long term problems? I remind the Minister also that the Prime Minister concluded that letter by stating: I would ask you, therefore, to urge your members to do all they can to respond to the Government's offer and increase worthwhile investment in the present financial year". Does the Minister not understand that his determination to rigidly control every aspect of local government is storing up a harvest of bitterness and resentment among councils of all political persuasion? Is he not aware that it is souring and poisoning the atmosphere and is damaging the morale of councillors, employees, and constituents throughout the land?

In paragraph 8 of the Statement the Minister alluded to consultations and discussions. He then produced a savage blow at hardworking councillors. Does he not realise that by so doing he brings the whole of the consultative process with local government into contempt and ridicule? How does the Minister justify the stop-go policy which punishes councils, which are the victims of an unpredictable system of capital control dependent upon variable assumptions which have proved to be impossible to forecast accurately?

I remind your Lordships also that the most devastating damage will be done in the area of housing, where there is the most appalling crisis. There are 70,000 homeless families, 1½ million families on waiting lists, and 4 million homes needing major attention. The Government are responsible for this dreadful mess, which has been brought about primarily by the Government's own boost to improvement grants under wildly inaccurate assumptions concerning capital receipts. In paragraph 7 of the Statement the Minister said: Local authority capital spending makes a valuable contribution to the development of the country's infrastructure. It is an important part of the workload of the construction industry. In the light of the actions now proposed, does the Minister appreciate that those words will be deeply offensive to more than 400,000 construction workers who are now on the dole and whose chances of getting a job are receding?

I ask the Minister the following questions. First, as the overspend on the 1983–84 housing element of the cash limit will be related to the level of renovation grants, why cannot this overspend be met by the provision of additional resources, rather than by a clawback from 1984–85 allocations? And as more than £1,000 million has been saved by the Treasury from earlier years' underspend, why cannot a proportion of that be ploughed back to finance overspending in 1983–84 and 1984–85?

When the Government arbitrarily change the rules one-third of the way through the year and arrogantly break promises they made concerning the use of capital receipts, is it any wonder that there is contempt for those who treat local government so shabbily? This Statement continues the vendetta by this Government against local government and councils in England and Wales. It is an appalling situation when those in need, those who are sick, those who are old, those who are young and those who are disadvantaged are all made to pay for the mismanagement of the economy by this Government.

Finally, when will Government Ministers learn the lessons from their own mistakes of the past five years, which have led to the worst relationships between central and local government in living memory?

Lord Diamond

My Lords, I, too, want to assure the noble Lord the Minister of our appreciation of his repeating the Statement, and of the sympathy we have for him in being required to carry out yet again a most unpleasant task. The Statement, however it has been worded, and however complex it is intended to he, simply means that the Government, and particularly the noble Lord's department and his right honourable friend, totally failed last year to carry out their responsibilities for maintaining, monitoring, supervising and controlling capital expenditure by local authorities.

There is no evidence whatever in the Statement of any individual local authority having exceeded its proper expenditure on capital payments during the course of last year. All that has gone wrong is that the Government did not do their sums and were not aware of the effect that situation would have. What has further gone wrong, as we see from today's issue of The Times and other newspapers, is that the national borrowing requirement is well above target and so the Treasury has been compelled to tell all departments that they must cut down on capital expenditure and every other kind of expenditure for the rest of this year. If one cannot control revenue expenditure then naturally the axe falls on capital expenditure. The rules are being changed in mid-stream.

It is correct, as the Statement says, that capital expenditure is of vital importance to the building industry—that is in addition to all the other points that have been made. In that respect I will ask for two clear assurances from the Minister, because the Statement does not make the matters concerned absolutely clear. The first assurance we are entitled to ask for is that in no case will a single worker be withdrawn from a building site or other job who has started the job in a local authority.

Secondly, may I have the Minister's assurance that where a contract has been entered into within the local authority's proper expenditure commitment and permission, then that contract will be completed in the normal way and in the normal time, without withdrawing men and so on at a later stage, and as was contemplated when the contract was entered into? There is nothing more wasteful than attempting to cut capital expenditure once it has been committed and once the men are engaged. I want to give the noble Lord the Minister an opportunity to provide us with assurances on those two important points.

Lord Bellwin

My Lords, perhaps I may first answer the noble Lord. Lord Diamond, because I appreciated the constructive way in which he made his observations, which I must contrast with the intemperate way in which the noble Lord, Lord Graham, felt it necessary to make his observations while asking his questions.

I am able to confirm that where contracts have been entered into there is no suggestion that they will be in any way affected adversely by the Statement. That applies also to the point about withdrawing labour. What we have said is that where authorities have entered into commitments then, if those commitments are up to their level of allocation plus their current receipts, we ask them not to go further with more. They can only go further with more if they then accumulate more receipts within the current year. But, as I say, there is no problem with contracts that have been committed, let alone started. If they are committed, the same applies; they have no adverse effect.

The noble Lord referred to evidence of any authority actually exceeding its expenditure. With his great knowledge and experience he knows full well how the system works. We are only three and a half months into the year. The concern is that there are already indications that on top of the £368 million last year there will be at least the same this year, if not more overall. So while it is quite right that it is not referring to individual authorities at all, we are asking local government as a whole to show some restraint in the light of the position.

So in that respect I would not say at all that the rules are being changed in midstream—and here I come also to the point raised by the noble Lord, Lord Graham. What we are asking here is not for local government to cut back in any way at all. What we are asking is for local government to stay within the limits already set and known by them. That is why so many of the observations made by the noble Lord, Lord Graham, were extremely unfair and were simply to make political points. He talked about body blows and panic short-term measures. I do not see how it can be a short-term measure if you seek to ensure that the limits set and known are adhered to. It is nothing of the kind.

Here we have an attempt to work together with local government to try to have them ensure at this stage that they conform to the limits which they already know. I do not see that that is in any way worthy, I say again, of the type of intemperate language that the noble Lord, Lord Graham, felt it necessary to use. Certainly there are no arbitrary changes to rules at all; it is merely a request for there to be adherence to them. I am quite sure that local government, following the discussions which took place yesterday, will try their very best to show some restraint. If we can see later that the figures are getting into line, then hopefully there need be nothing further than that. That is my very great hope.

The noble Lord, Lord Graham, referred to what the Prime Minister had said. May I say this about it. Our aim throughout has been to optimise the use of available resources, with the emphasis on the word "available". It is vital to public expenditure planning that resources are fully used, but not over-used. Underspending, below planned levels, means that the necessary investment in the future is not taking place and that there will be greater pressure in the future. It is arguable that some of the present problems would not have arisen if authorities had made full use of resources when the capital control system started. But the economy cannot take massive overspending, either. We are bound to adapt to circumstances. The basic strategy is unchanged.

5.3 p.m.

Lord McIntosh of Haringey

My Lords, the Government's statement is couched as if it represented concessions to local authorities, as if the fact that the requirement for the overspend to be put right for next year were actually a concession. Will the Minister not agree that what we are now seeing is the inevitable result of the uncertainty which has been placed on local authorities by the combination of short-term capital objectives and the requirement that capital disposals be part of the allocation, even though a substantial part of the receipts from capital disposals goes to central Government rather than to local authorities? Will the Minister cast his mind back to his own period in local government and the problems that I am sure he must have faced in Leeds in forecasting capital expenditure? Will he not recognise that local authority treasurers, finance committees and chairmen have been put under an intolerable burden of uncertainty, which not only makes it difficult for them to forecast, but causes them to make bad capital expenditure decisions? Will the Minister acknowledge that the changes which are annnounced today do nothing to make any better that uncertainty and that bad management?

Lord Bellwin

No, my Lords. I well remember how we used to try to manage our capital affairs. When I was doing that in Leeds we were one of the few authorities which had capital receipts, because we were pursuing policies which involved taking derelict land and so on and selling it, and we were selling council houses, too. So we had very substantial capital receipts. We had learned how to forecast and anticipate and how to plan ahead.

What I will readily concede is that the system which involves having to work within a year is extremely difficult. I have always said that this is a problem. That is why I welcome the chance to say that I believe that the whole degree of control over capital spending has always been a problem. Unlike the noble Lord, Lord Graham, I am not going to make political points here, though I could very easily do so by referring to the moratorium that took place under circular 45/76. I am not going into that. I think it is more important to acknowledge that there is room for something better than the general control system which we have at the moment. That is why we have said to the local authority associations, which want to make certain suggestions for change, that we welcome that, and we will gladly sit down and talk to them about it to see whether we can get a better system that works.

Lord Diamond

My Lords, may I ask the Minister whether he will be good enough to reconsider the answer he gave me and the noble Lord, Lord Graham, with regard to there being no change in the rules? Perhaps I may say to him again that there is clear change in the rules in midstream. May I ask him to look at the statement which he has just made? From that he will see that until now, prior to making the statement, the position was that local authorities were allowed to spend money on capital expenditure derived from three sources; I emphasise, three sources. The first one was the allocation, the second was the proportion of the sales in that year, and the third one was the amount accumulated from savings through sales in previous years. There were three sources. It is really very elementary.

Now the statement makes it clear that the expenditure is going to be allowed out of two sources: the allocation, plus a proportion of the money coming in from sales in the current year. But there is no—I repeat no—allowance in respect of previous accumulated savings, which only a short time ago every local authority not only thought it was free to spend, but was being urged to spend. There is therefore clearly a change in the rules in midstream, and every local authority is entitled to complain when this kind of thing happens to it.

Lord Bellwin

My Lords, the noble Lord is quite right in his analysis. Those are exactly the rules. However, when one talks about the changing of them, what I was really saying when I said that they were not being changed is this. We have a situation which the noble Lord, with his experience and background, will appreciate probably more than most people in the House. In this situation the totality of the overspending is such that what we are saying to local authorities as a whole—and not to individual ones at all—is, "We want you to look at the totality of spending". There are many authorities who have not overspent at all, who have not even committed themselves up to the levels which they are permitted to do, even under what we are now proposing. We are asking them to show some restraint, at least until such time as we can see precisely what the figures are going to show; and it has to be said that that is something we do not know.

What I think I am also intitled to mention is this. There is flexibility in this system, and that will remain. There is flexibility by way of the use at the end of the year of a percentage of overspend of the original allocation, and so on. What we are asking for, no more and no less, is that, given the size of the overspend, there should be a pause at the moment within this year, so that we can get the total level back on course. That is all that we are asking. We are asking that it should be done voluntarily in this way now. We can argue as to the extent to which this is a change in the rules, but I think that a request made this way is not unreasonable. There could have been much worse things upon our heads, as there have been in the past. We are hoping that this will, if you like, do the trick. I have confidence that, given this challenge, local authorities will measure up to it.

Lord McIntosh of Haringey

My Lords, may I seek the leave of the House to ask a single question that I neglected to put when I rose previously? May I ask the Minister how he reconciles the continuing pressure for disposal of capital assets with Amendment No. 38 carried to the Local Government (Interim Provisions) Bill on Monday which makes it necessary to have the Secretary of State's approval for even very small disposals of land? It seems that the two types of pressure are totally in conflict one with another.

Lord Bellwin

My Lords, I see no conflict whatever. In the first place, the amendment, as the noble Lord knows, refers only to seven authorities. Here we are dealing with the totality of local government. I have been at some pains to stress that we are not singling out any individual authorities. In any case, the circumstances surrounding the requirements under Amendment No. 38 are quite different to what we are talking about now.

Lord Underhill

My Lords, can I ask the Minister one simple question? There is reference in paragraph 8 to discussions yesterday with the local authority associations. The noble Lord the Minister has referred to them in replying to other questions. Can he say what was the reaction yesterday of the local authority associations?

Lord Bellwin

My Lords, I was not actually present but the report to me was that the ADC and the ACC welcomed the fact that there was not a moratorium. Nevertheless, to say that they were happy about it would be quite wrong. The noble Lord knows that I would not say that because it was not so. But at least they welcomed the chance to go away and look at the situation. The AMA were not happy. They would much prefer that the levels be raised. They wanted validation of any increased spending.

Lord Graham of Edmonton

My Lords, the Minister has, very properly, been reminded that the language that he used in respect of no change was certainly sufficent to be effectively challenged by the noble Lord, Lord Diamond. I should like to remind the noble Lord of what the Prime Minister wrote in a letter to the AMA less than two years ago. She wrote: That is why local authorities have been enabled, and indeed encouraged, to increase their capital expenditure by using capital receipts to supplement their capital allocations". The letter could have stated in brackets, subject only, from time to time, to that right or encouragement being withdrawn". The AMA talk about a promise. They were enabled to do it. They consider that that promise has been broken. The Minister quite fairly rationalises the periodic review in anticipation of what is likely to happen at the year end and taking action now. However, the Minister should take fully on board the disappointment—I use a mild word—of authorities which, having been encouraged to expand, particularly, as other parts of the Prime Minister's letter state, in support of the construction industry, now feel that they have been let down.

I can tell the Minister that the AMA yesterday wrote immediately after the meeting to the Secretary of State and spoke in very bleak terms about the consequences for their various projects. It would not be appropriate or timely for me to read the entire letter. The final paragraph sums it up. It states: I must stress, therefore, that local authorities have simply complied with Government policies and increased capital expenditure by use of capital receipts; responded to the Government's initiative on improvement grants; and, in so doing, have kept within our permitted expenditure levels. In conclusion I can only say that the only corrective action which is acceptable to us, is for you to adjust cash limits if, indeed, this proves to be necessary". In other words, they are saying that it may be necessary at the end of the period. This is far too soon to take what I repeat is a panic measure. Capital expenditure is about long-term planning. What the Minister has announced is contrary to that.

Lord Bellwin

My Lords, I am sure that the noble Lord does not expect me to accept what he says. The noble Lord mentions the construction industry. I repeat and emphasise two things. The industry will be able to rely on just as much work as was implied in this year's public expenditure White Paper—no more but, we are hoping, certainly no less. The other point which should perhaps be brought out rather more is that any work on urban programme projects and derelict land reclamation can continue unabated. That is outside anything that may have been stated now.