Rate Support Grant (Hansard, 18 December 1985)

§ The Minister of State, Department of the Environment (Lord Elton)
My Lords, with the leave of your Lordships I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for the Environment. The Statement is as follows:
"With permission, Mr. Speaker, I will make a Statement about the 1986–87 rate support grant settlement and selective rate limitation for local authorities in England.
"I have laid before the House today the Rate Support Grant Report for 1986–87, together with Supplementary Reports adjusting grant for 1984–85 and 1985–86. Copies of the reports, the rate limits and other explanatory material being sent to local authorities today are available in the Library and the Vote Office.
"The main feature of the settlement is the abolition of expenditure targets and the associated grant penalties. This decision has been warmly welcomed by the great majority of local authorities. It is a major simplification of the grant system.
"Our aim is still to bring local authority current spending down to a level the economy can afford. Though we have a system which gives low spenders a fairer share of grant, we are maintaining strong pressure, even on them, not to take advantage of the abolition of targets to increase spending in real terms.
"The aggregate of Exchequer grant will be the same cash sum—£11,764 million—as the figure originally provided for this year. But it is about £400 million more than the amount of grant now being paid for this year, because local authorities are forfeiting £400 million through holdback. The grant which central Government will pay to local government next year will be about 46½ per cent. which is about the same as the figure for this year after allowing for holdback.
"Provision for local authority current expenditure has been set at £22½ thousand million. This figure takes no account of the additional provision of £1,250 million over four years which has been offered if satisfactory agreement can be reached on school teachers' duties and salary structure. My right honourable friend the Secretary of State for Education and Science has already indicated that, subject to the passage of the Education (Amendment) Bill, he is ready to bring forward £37 million from that sum in 1986–87 in order to secure the supervision of schools at midday.
"I announced provisional grant related expenditure assessments—GREAs—on 28th October. These incorporated various technical adjustments. The cities will benefit from changes in the concessionary fares and social work GREAs. The remote shires will gain from changes in the education GREA.
"I have considered carefully the many representations made to me since that announcement, but have decided that my original proposals should stand. Individual authorities' GREAs will however 824 differ somewhat from the figures issued in October as a result of more up to date information.
"I am also changing the grant system so that the impact on the rates of every extra pound an authority spends or saves will be much sharper than before. As in past years, the pressure will become more severe if the authority's expenditure exceeds a threshold set at an average of 10 per cent. above GREA.
"The important message is that, for all but a handful of authorities, more spending will result in less grant and less spending will result in more grant.
"As usual, there are arrangements to limit the impact of distributional changes on individual authorities' grant entitlements. I have, too, ensured that the changes to the grant system required by the abolition of the Greater London Council and the metropolitan county councils are broadly neutral in their overall effects. If successor authorities carry out their inherited tasks more efficiently, their ratepayers will benefit significantly.
"I now turn to rate limitation. In July my predecessor announced the list of 12 authorities selected for rate limitation in 1986–87, together with expenditure levels. In most cases these represented a cash freeze on 1985–86 budgets.
"Seven of the 12 authorities have now applied to me for a redetermination of their expenditure levels—Camden, Greenwich, Hackney, Lewisham, Lambeth, Liverpool and Newcastle. I have considered their applications carefully and in each case have increased the expenditure level somewhat, though overall by substantially less than they themselves had sought.
"I am today proposing rate limits for these authorities. They have until January to make representations to me about a higher limit if they think it appropriate. Again, I shall of course consider carefully any representations they make.
"In five of the authorities, ratepayers should see a cut in their rate bills next year. In all 12 the rates will be lower than they would have been without capping. In 1985–86, rate capping has saved ratepayers in these areas hundreds of millions of pounds. They will have good cause to thank us again in 1986–87.
"My right honourable friends the Home Secretary, the Secretary of State for Education and Science, and the Secretary of State for Transport are to make separate announcements about precept limitation for the new joint authorities in the metropolitan areas and London.
"If local authorities budget sensibly and economically, the average rate increase next year should be no higher than this year, and it could be lower. Higher spending will mean sharply higher rates. That is why local government must stand firm in their wage negotiations, and must implement the many savings identified by the Audit Commission.
"Mr. Speaker, my proposals for 1986–87 represent a major advance. I have abolished targets. I have improved GREs. I have established a clearer relationship between what councils get and what 825 they spend. And I have built on the success of rate limitation in 1985–86. I commend them to the House."
That completes the Statement, my Lords.

§ Baroness David
My Lords, I should like to thank the Minister for repeating the Statement. The Government congratulate themselves on the abolition of targets and penalties, but we must remember that local authorities can still be penalised very heavily if they go over the grant related expenditure. Grant related expenditure was not intended for such a purpose. Its purpose was to provide a level of central Government support to local services, to compensate authorities for the differences in rateable resources and the need to spend and to influence, not to control, expenditure decisions of local authorities.
What are the facts for this coming year? There will be an increase of 4½ per cent. in cash on last year's settlement figure for current expenditure, but there will be a £1¼ billion gap between local authorities' present policies and forward programmes and what has been put forward by the Government. The Government figure assumes a 5.9 per cent. increase in teachers' pay, I understand, and if the settlement is higher what are the Government going to do? The £1,250 million figure mentioned in the Statement over four years may turn out to be quite inadequate. The percentage of grant for 1986–87 is to be 46½ per cent., down from 48 per cent. this year. I think we have to remember that it was 61.6 per cent. in 1979–80. That has meant the withdrawal of £16.1 billion from local authorities' finances over that period.
Is it true that the Secretary of State has given figures and claims for individual authorities' grant claims to the press that have not been given to the House? That means that the real effect of changes from targets and penalties cannot be assessed properly by us at the moment. The statement refers to bringing spending down to a level that the economy can afford. What should be happening is that local authorities can have the freedom to decide to spend what is necessary for the needs of their area. As for the cities benefiting, the Statement the Secretary of State made on 28th October meant that half a per cent. of the national total of grant related expenditure shifted to the cities, £105 million of GRE, which is meaningless when one considers that the amount taken from the most deprived areas between 1981–82 and 1985–86 has been £427 million lost in block grant in real terms. The abolition of the GLC and the metropolitan counties has complicated the whole situation and we still do not know the true costs and financial consequences of abolition. How soon shall we know?
On rate capping we welcome the redetermination of expenditure levels so far as it goes for the seven authorities that applied; that is albeit at a lower level than they asked for. We hope that the Government will be generous in reconsidering the rate limits in January. We do not agree with the continuing fragmentation of the announcement of separate precepts for education, transport, the police, etc. All these are local government responsibilities.
826 The Statement ends by referring to the savings identified by the Audit Commission and asks local government to stand firm in their wage negotiations. We all want efficiency in local government, but not at the cost of penalising the low paid. We must remember that one-third of manual workers are below the poverty line according to the Low Pay Unit.

§ Baroness Stedman
My Lords, from these Benches I too should like to thank the Minister for repeating the Statement to us today but I cannot refrain from commenting that it is once again very late. The Government do not seem to appreciate that local authorities start their budget procedure about September and aim to get it finished and finalised by the end of February or the beginning of March. Not to know what the rate support grant is until the Christmas vacation is pushing it a bit fine. It shows a reduced amount of money available and has ignored inflation. Those two parts we would deplore. But it may have switched a little more money to the inner cities and that we support.
But in spite of the Minister's optimism, I believe that all this leaves a massive shortfall and probably large or very large rate increases may have to come to maintain the services. I note the action regarding the 12 authorities and I am glad that seven of them have at last applied for redetermination. But when will the announcements be made about the precept limitation for the new joint authorities for transport in the metropolitan areas and London? They will also be working to a deadline as are the established local authorities.
The total grant is to be held at the same level in cash terms, but this represents a lower percentage. Does the Minister accept that if the percentage had been held at the same level the cash total would have been £400 million higher, which is just about the sum that the Treasury clawed back in penalties this year? With the new grant level the same as the old grant level after hold-back, it really demonstrates that what the Treasury has it hangs on to.
The targets have now been removed, but the effects of exceeding GREA are greater. Will the Minister confirm that if local authorities have to spend over the national amount to maintain their services then for every £1 they spend it will cost them £1.30 under the clawback arrangements? The Secretary of State in another place said that he would be introducing a system to ensure a smooth transition from the existing system to the new one. Does the Minister not understand that it is no good paying tribute to prudent authorities and then effectively reducing their grant? Many shire counties may well feel that this is exactly what is being proposed.
Many local authorities have overspent this year. Those which have overspent the least may benefit from some clawback from the very high spenders. However, it still leaves local authorities clutching at figures from thin air. Local authorities cannot operate by hazarding guesses on how much they may have before the year is out. The budget processes in local government become more and more like star-gazing exercises. The sooner the Government get to grips with the rating system and local government structure and finance, then the better it will be for all concerned. 827 What we need is a financial reform to make the local councils less dependent on central Government and more directly accountable to their local ratepayers, together with a structural reform in the context of decentralisation of power from Whitehall to the regions and the creation of more simple, one-tier, all-purpose authorities.

§ Lord Elton
My Lords, perhaps I may start by breaking tradition in referring first to something that the noble Baroness, Lady Stedman, said. As she well knows, we are wrestling with the question of local government finance at this moment and expect to come forward with proposals in the new year. However, what we are looking at now is the immediate present and the recent past.
I have to say to the noble Baroness, Lady David, that the overall effect which we have achieved is to increase the needs assessment affecting the inner cities, which will, as a result, gain grant. Perhaps I may illustrate that by saying that in inner London the average needs assessment is £803 per head, compared with only £438 in the shires. In Islington, the GRE per head is £883; in Barnet it is £494; and in Mole Valley it is £378. Thus these bases from which our calculations are made are moved to fit the need of the areas in question; and this is something to which noble Lords have constantly been directing their attention over the last six months. We are increasing grant in London by £227 million, and in the metropolitan areas by £84 million.
I have to say that there remains huge scope for savings in badly-run councils. Perhaps I may illustrate that by saying that there are at present £23 million of rent arrears in Southwark. Most inner London boroughs have failed to improve productivity in refuse collection. A few have shown the way, and they have been able to make 40 per cent. staff savings. Therefore, the result of what we are doing is to direct resources to where we believe they are most needed—and we believe your Lordships agree with that—but leaving scope for savings which would materially increase the benefits, not only to the ratepayers but also to those in receipt of the savings.
The noble Baroness, Lady Stedman, referred to "clawback", which I think is probably a hangover from an earlier vocabulary. The system we now have is that 1.1 pence per £1 of spending per head, up to a threshold of 10 per cent. above the national average GRE, is the lower slope. At the threshold (as we used to call it) of 10 per cent. above the national average, the net marginal cost per £1 becomes 1.5 pence. The effect of this is that up to 10 per cent. above the national average GRE the marginal cost of each extra £1 per head of expenditure is 1.1 pence on the rates, and above that threshold it becomes 1.5 pence on the rates. That is the evidence, which ratepayers see, of the effect in financial terms of the policies of their authorities.
The noble Baroness asked me about further announcements. The precept limits as regards the Home Office will be announced today and those for transport as soon as possible. I think I was asked whether there was further to come for the teachers' pay in the current year. There is no more for 1985–86 828 grant, but in 1986–87, as the Secretary of State said in his substantive Statement, there will be more available if there is a satisfactory agreement on restructuring.
I accept that it is late in the day for the local authorities. It usually is, I regret. In this case it is largely due to a case which your Lordships cannot have failed to have noticed was brought in your Lordships' House by Nottinghamshire and Bradford. It was from our point of view successfully resolved, but it was resolved at a time which meant that we could do nothing until it was already very late in the day.

§ Lord Sandford
My Lords, nothing in any Christmas pantomime can match the wonderland of horror and hilarity which now characterises the absurd, arbitrary and totally opaque system of arrangements known as local government finance; and this Statement only adds to it. I suggest that any of your Lordships who believe that I might be exaggerating could usefully spend an hour talking to the treasurer of your local council during the Recess and hear about multiple base positions, composite multipliers and gain caps, all three more pieces of jargon which have been added to the vocabulary in this Statement. I say that without seeing the actual details. This is what we already know about.
Perhaps I may illustrate the perversity of the whole matter by referring to what is now emerging as perhaps the worst case, and that is the urban programme grant. This is not properly reflected in the grant-related expenditure assessments. It is a grant designed to stimulate new programmes, new projects, in the urban programme cities. The effect is that after that grant has run for three years it is then removed and the cost of whatever has been stimulated by it is then borne on the rates; so that is an addition. That addition represents an increase in rate expenditure, and therefore attracts a loss of rate support grant. Thus, quite automatically, at the end of the three years of the urban programme grant the authority that has been receiving it is docked twice the amount. That is something which, with remarkable perspicacity, was commented on and heavily criticised, with good reason, by the Archbishop's Commission on Faith in the Cities.
Without any formal ministerial announcement, I think it is now true to say that block grant has totally lost its original purpose, which was an equalising function, and has now become a crude and entirely unfair system of rewarding reductions in expenditure and punishing increases in expenditure It is far too crude and unfair for that.
I entirely agree with what the noble Baroness, Lady Stedman, has said, and I was glad to hear my noble friend say that at some time in the new year some of the wraps will be taken off the proposals for a reform of local government finance. I would put it to him that that is nothing like enough. We must have an assurance that by this time next year we will have either a new system in force or a new system clearly set out and ready to come into force in the year thereafter. We cannot go on as we are.

§ Lord Elton
My Lords, my noble friend would not expect me to stand up to defend the system which we are earnestly seeking to change.

§ Lord Sandford
Good!

§ Lord Elton
If I were to do so, my Lords, I suppose I would be carrying out the role in the pantomime which he feels would be appropriate to me at this season. I will not ask him which role that is, and I would ask him not to tell me. I would say that we are actually getting back, in a direction which he prefers, towards greater equalisation by dropping targets. I think he has already said "Thank goodness for that!" in the discussion on an earlier Statement, so I do not upbraid him for not saying it again.
I have already said as much as I properly can about the review of local government finance. I share, as do many people, the eagerness of my noble friend to get this thing out into the open. He, from his study of local government finance, will realise that it is a particularly complex position. We would not wish to be where we are. To get out of where we are and get to the right place needs very careful thought. That thought is now being given and will bear fruit in the Paper when it comes forward.

§ Baroness David
My Lords, the Minister said that the inner cities will be getting £205 million more this year. Where will that he coming from, and who will suffer?

§ Lord Elton
My Lords, the effect of our provisions, as I have said, is to give an advantage to the inner cities, and naturally, therefore, it must come from the remainder. We have had to cap the gains, which would help—I am sorry, my Lords; I am reading from the wrong paper. The point is that we have a finite sum and, as in all budgeting, one has to accept priorities. The first thing is to set the finite total of the budget, and that I have stated. I stated it in percentage terms, which are roughly very closely equivalent to the percentage terms of last year's settlement after holdback.
The next thing one has to do is to identify priorities. I think that my right honourable friend was absolutely right to detect a concern for the inner cities in both Houses of Parliament and in the country generally. It follows, therefore, that that is where the priority lies.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that, whatever the complexities and difficulties of the system of control, most responsible opinion feels that, given the scale of current local goverment expenditure, it is essential to the proper management of the British economy that that expenditure should be firmly and definitely limited lest the whole of economic policy be undermined by it? Is my noble friend also aware that some of us listened almost with horror to the observation of the noble Baroness opposite that it was not the amount that the national economy could afford but the needs of local authorities that should determine the total amount? Is he aware that it is that kind of irresponsibility which produces regular financial crises under Labour Governments?

§ Baroness David
My Lords—

§ Lord Elton
My Lords, it is the tradition of the House that I answer questions and that the noble Baroness puts them. To put her resentment into interrogative form must take a moment or two. I will provide her with that by thanking my noble friend for reminding me that I left out of my answer a very trenchant passage to the effect that it is the duty of central Government to control the borrowing of the public sector generally, and that if they do not do so the economy goes out of control. I would also say that the grant-related expenditure assessments, which, of course, is what GREA are, are an essential tool in achieving this. I think the noble Baroness was wrong to rebuke us for using them for that purpose.

§ Baroness David
My Lords, may I make myself clear as a result of what the noble Lord, Lord Boyd-Carpenter, has said? What I certainly meant to say was that it was for the elected members of local authorities to decide what to spend on the needs of their area.

§ Lord Elton
My Lords, I am not sure whether I ought to intervene in these exchanges, but it is clear that central Government have a role, and the role they have is to sharpen the perception of the local electorate about the decisions taken by local government. That is exactly the effect of what we have announced.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that the noble Baroness has fully amplified and confirmed my own earlier observation that it is the policy of the party opposite to allow unlimited expenditure to be undertaken by local authorities—

§ Baroness David
My Lords—

§ Lord Boyd-Carpenter
My Lords, I listened to the noble Baroness very carefully; I hope that she will show me a similar courtesy—to allow unlimited expenditure by local authorities to be undertaken regardless of the effect on the national economy? Is my noble friend aware that it is that attitude which explains the financial failures of successive Labour Governments?

§ Lord Elton
My Lords, my noble friend appears to me to be right, but if he is wrong, in the light of the cries of rejection and alarm from the Front Bench opposite, I am very glad of the conversion of the Front Bench opposite by my noble friend's powerful arguments.

§ Lord Barnett
My Lords, would the noble Lord the Minister care to tell his noble friend now what is the level of public expenditure as a percentage of the GDP by comparison with what it was in 1979?

§ Lord Elton
My Lords, not without notice. I think that the noble Lord behind him has been anxious to get his word in for some time.

§ Lord Graham of Edmonton
My Lords, the Minister used the phrase from his Statement that the greater the spending by a local authority the less grant that authority would receive. This is germane to the exchange. Surely, local people, elected people, whatever their political complexion, are in a far better 831 position to judge the needs of local people than the Government. If in actual fact what the Government are saying to local councils is, "We decide centrally not merely the global total but also, by the adjustments that have been made, what it is that you can spend", then this surely makes a nonsense of the phrase "local democracy".
Would the Minister care to tell the House precisely where the rents and the voids lie in the national Government sector? He has carefully drawn attention to a large amount of rent arrears in Southwark. Is it not a fact that local authorities have a far better record than the private sector, and that both of them have a far better record than the nationally-controlled sector, in housing? Is it not about time that the Minister discussed meaningfully with councils in great distress, who have great problems, particularly in London, and the inner cities, and paid more attention to what they are saying that their local people need?

§ Lord Elton
My Lords, the control that central Government exercise on local authority expenditure is implemented by the slope arrangements which I described a minute ago. This means that the cost of the provision of services by a local authority is converted into a cost per head of its grant-related expenditure. Central Government take an average of what all local authorities achieve in this. That is what they at present wish it to be. We then add a 10 per cent. threshold above that, and do not go into the steeper slope, the 1.5 pence marginal cost, until they have gone above the national average by 10 per cent. That is a very comfortable form of control compared with the absolute targeting which we have had in the past.
If you have to have a maximum of local authority expenditure for reasons which my noble friend has made amply clear, then this is the way to do it and to retain a strong element of local democracy, because the local authority makes its choice against that pattern of percentage of grant. It actually knows what the effect of its decisions will be, and they are reflected in the amount of rates which they have to charge to the ratepayers, who are their electors. You cannot describe that as being in any way remote from democracy.

§ Lord Sandford
My Lords, would not my noble friend nevertheless agree that the fundamental flaw in the whole system, which no Government for ages have tackled, is that far too many people are in a position to vote for things without having to pay any part of their cost?

§ Lord Elton
Absolutely, my Lords.

§ Lord Graham of Edmonton
My Lords, will the Minister also agree that it is right and proper for a local council, if it wishes to increase its services, to recognise that that will be reflected in increased rates and allow the local ratepayers to decide at election time, and not for central Government to decide by curtailing the amount of rates which the council wishes to spend?

§ Lord Elton
Absolutely, my Lords, and that is what we do. But, because so much of the money comes not from the ratepayers but from central Government, we have to be certain that the decisions are reflected in the 832 level of rates. If it is just a straightforward ratio of one to one, the effect is concealed by the level of central Government contribution and other sources of income to the local authorities. That is why we have this somewhat arcane system. It is in order to improve the reflectivity in the level of rates of the decisions taken by local government.
My noble friend has put his finger right on the point. At present, even when you have done that, so many people either are not affected, or think they are not affected, that it does not have sufficient effect. We believe, with the noble Lord opposite, that the proper control of local government is democratic and local control, and that is why we are looking at the system again.

§ The Earl of Swinton
My Lords, I am sorry to say this, but we are going on at some length. May I read from Standing Orders, which state: Ministerial statements are made for the information of the House, and, although brief comments and questions for clarification are allowed, such statements should not be made the occasion for an immediate debate". I have the feeling that this is turning into an immediate debate. If your Lordships do not think much of my ruling, perhaps you would like to have mercy on the poor Doorkeepers, whose dinner it is tonight, and who look after us so well throughout the year. The fact is that we have one-and-a-half debates still to go, and perhaps we can return to the debate on education. But before the debate is resumed, I should inform your Lordships that the revised time by which the debate must end is six o'clock.