Rate Support Grant

HL Deb 25 July 1985 vol 466 cc1384-94

4.22 p.m.

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

My Lords, with your Lordships' leave, 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 shall make a statement about local government finance for 1986–87. It contains my proposals for the Rate support grant settlement in England, and my decisions on selective rate limitation.

"First, rate limitation. This year's round has gone well. It has saved ratepayers over £300 million. We have begun to curb the worst overspending of the most profligate authorities. Despite the disgraceful scenes of violence and intimidation in several town halls, there were majorities in every rate-capped council for complying with the law and the will of this House.

"I am today laying before the House a report setting out how authorities will be selected for rate limitation next year. For authorities not previously selected, I am proposing the same criteria as I used this year: I am selecting authorities whose budgets this year are more than 20 per cent. above GRE and more than 4 per cent. above target. For authorities which were selected this year, I am re-selecting them if their budgeted expenditure is more than 20 per cent. above GRE and either more than 1 per cent. above target or more than 30 per cent. over their expenditure in 1981–82.

"On these criteria, two authorities, Liverpool and Newcastle, are selected for the first time; and 10 authorities are re-selected: Basildon, Camden, Greenwich, Hackney, Haringey, Islington, Lambeth, Lewisham, Southwark and Thamesdown. Next year new authorities will come into existence under the Local Government Act 1985 and will be affected by the automatic precept control provided by that Act. Under that provision the Government will set expenditure levels and precept limits for three years. In all, the Government will next year be limiting the rates or precepts of 32 authorities with expenditure totalling some £3½ billion. This demonstrates the Government's continued determination to rein back the profligacy of the largest overspenders and to prevent extravagance in the initial years of the new authorities.

"I am setting expenditure levels for the 12 rate-capped authorities. In most cases there will again be a cash standstill on budgeted total expenditure in the current year. In three cases where budgets this year show an exceptionally sharp increase in spending, I am setting lower spending levels.

"I am open to representations for redetermination of expenditure levels. Where an existing authority applies mainly because it considers we have made inadequate allowance for functions inherited from the GLC and metropolitan counties, or mainly because special accounting arrangements in its view imply unachievable economies. I will not use my powers to reduce expenditure levels or impose conditions. My right honourable friends the Education, Home and Transport Secretaries of State will be making separate announcements about expenditure levels for ILEA and the new joint authorities.

"The success of rate-capping in curbing the worst excesses of the highest spenders means that for the generality of authorities we can now do without targets and penalties next year. This brings me to the rate support grant settlement as a whole. I am today issuing to local authorities proposals for the main features of the settlement for next year. Copies are in the Library and the Vote Office.

"The target system has operated since 1981–82 to put pressure on councils to restrain spending. Many of my honourable and right honourable friends have in the past made the point that the system operates unfairly on low-spending councils, especially those spending below their GRE. Last January, in the RSG debate, I expressed the hope that for 1986–87 we could do without targets if there was a satisfactory alternative means of restraining spending. I believe that the block grant system can be modified to provide a sufficient deterrent to overspending, and accordingly I can tell the House today that the system of targets and penalties will not apply next year.

"Instead, expenditure restraint will be achieved by much stronger block grant pressures. I am proposing sharply to increase the rate at which a council's grant will be reduced as its spending rises in relation to GRE. The system will thus put more weight on the comparison of a council's spending with its GRE, which is what my honourable friends have sought. Powerful pressures will remain on those councils which spend well above GRE. I am consulting local government on the details.

"I am proposing that aggregate exchequer grant should be the same cash sum as in this year's settlement, £11.8 billion, which is likely to be just under 47 per cent. of relevant expenditure next year. 1 am proposing to increase the sum provided for local authority current expenditure for 1986–87, as shown in this year's pubic expenditure White Paper, by £500 million, to £22,250 billion. This is less than local authorities would like but the Audit Commission's reports are showing how councils could save hundreds of millions of pounds without reducing services, simply by getting better value for money.

"Mr. Speaker, the RSG settlement which I am proposing will be less complex than in past years; it will be fairer to responsible, low-spending authorities; it will maintain pressure on higher-spending authorities to find savings, and it will place firm control on the most extravagant authorities. If local government responds sensibly, average rate increases next year should be in low single figures."

My Lords, that concludes the Statement.

4.30 p.m.

Baroness Birk

My Lords, in making some response to the Statement, I must point out, although I am sure that it is no fault of the Minister here, that I did not receive a copy of the Statement until much later than usual. It is a very difficult one. I have also not had a chance, as he will appreciate, to go through the consultation paper. I shall of course give a qualified welcome to doing away with targets; but I certainly take issue with the noble Lord about this being a very much simpler way of putting things. I find it just as complicated as these Statements always have been and no doubt always will be. One just changes one bit of gobbledegook for another, but it does not make things any clearer, especially for those who prefer to speak simple, plain English.

The Statement on the rate support grant certainly does not come to terms with the amount of basic expenditure required by local authorities, and, as I shall explain, it limits the amount of grant money that authorities will receive. As regards the criteria which are set out at the beginning of the Statement, the Secretary of State refers to two authorities which are selected for the first time. I am very surprised that Newcastle should be one of those authorities. It is a great pity, since it has always been an extremely well-managed authority and, as has been pointed out, since 1979 the city's net expenditure has fallen in real terms from £88 million in 1979–80 to £85.4 million in 1985–86, at 1979–80 prices. Secondly, if there had been no penalties in 1984–85, Newcastle would have been declaring a rate increase in line with inflation, instead of the 23 per cent. increase forced on it because of the penalty system and in order to be able to keep its basic services going.

The Statement refers to the new authorities that come into existence under the Local Government Act. These will be the joint authorities which are set up under that Act. These will involve 20 million people and a very considerable amount of money; I think it is almost the same amount of money. As the Statement says, 32 authorities—the new authorities and the other rate-capped authorities—with expenditure totalling some £3½ billion a year will be subject to decisions by the Secretary of State.

The Statement says, This demonstrates the Government's continued determination to rein back the profligacy of the largest overspenders. What it also does is to increase the massive centralisation which many of us, not only in this House but all over the country, have been resisting on the part of local government. This is what is happening yet again. When the Statement refers to the authorities and the over-spenders, I wonder how the Government will be able to fiddle the safety-nets, in order to get the many Tory boroughs which are also over-spenders off the hook. The worst is the City of London, which is 250 per cent. above GREA, and then there is Brent, Harrow, Enfield and Barnet. That is just a selection of a few of them.

So far as GREA itself is concerned, we seem to have come a long way from when Mr. Tom King, who at the time was the Minister for Local Government, said in Standing Committee on 22nd March 1980: My department will not be in the business of saying how much each authority should spend, where it should or should not make cuts or on what it should spend money. Local authorities are autonomous. They fix their rate systems. I think that that has now gone into history and, nowadays, we are in a quite different set-up.

The Statement also says that the Secretary of State is open to representations, Where an existing authority applies mainly because it considers we have made inadequate allowance for functions inherited … or mainly because special accounting arrangements in its view imply unachievable economies. Since this was one of the very severe worries that went around the whole House as to how boroughs and districts would be able to cope with the expenditure for the extra functions that were being thrust on them through the Local Government Act, I should like to ask the Minister for a categorical assurance that the Goverment will not set a lower limit or impose conditions, and that these "mainlys" are not conditional but will be firm, so far as local authorities are concerned. The effect of proposing sharply to increase the rate at which a council's grant will be reduced in relation to GREA, will be, so far as I can tell, that if almost all authorities spend £1 above GREA, they will then lose £1 in grant. Therefore, this is another penalty system by another name.

The cash sum of £ 11.8 billion is in fact a cut in real terms of 7 per cent. This is a reduction from 48–7 per cent., which has been the rate support grant this year, and which has been reduced year after year since 1979, when the present Government came into power and when the rate support grant was 61 per cent. The increase to which the Statement refers is indeed an increase of 4.45 per cent., leaving a shortfall of £1 billion. The gap that is left there will inevitably increase if the settlement of the teachers' dispute exceeds 5 per cent., as it certainly must because that is what they have been offered, and also because of what local authorities are likely to spend next year.

The reference to savings is, it seems to me, a double-edged one, because the Audit Commission has already pointed out that spending more in one area means savings in another. This applies whether the spending is on absolutely essential functions and services in a borough—which it is in the majority of cases—or on some of the frivolous things which occur in only a very small minority of cases. In whatever language this has been put, it is still another attack on local government, which the Government appear to be practically torturing into death and oblivion.

Baroness Stedman

My Lords, I, too, should like to thank the noble Lord for repeating the Statement. I should also like to say that we had a copy of the Statement rather earlier than usual, so I do not know what happened to the one for the Labour Front Bench. I am sure that this Statement will not receive a very enthusiastic welcome in local government service.

Following abolition and the new authorities coming into being, for which the Government are to set the expenditure levels and the precept limits for the next three-and-a-half years to a limit of some £3½ billion, we are seeing rate capping for the first time in Liverpool and Newcastle; we are seeing 10 authorities being rate-capped for the second time and in three of those lower spending levels will be set. It seems to me that in part of the Statement there is some gloating about the success in curbing the high-spender, and I wonder when the Government will realise that local government is about communities, is about relationships, is about accountability and democracy; and, above all, is about people, and their needs. One cannot continue with rate capping and financial cutbacks in many of our poorer boroughs, without greater problems and without compounding their hardships and difficulties.

I note that that aggregate Exchequer grant is for the same cash sum as in previous years, under 47 per cent. and, as the noble Baroness said, in real terms it is a cut of 7 per cent. There is no extra allowance for inflation and rising costs in salaries, materials and services. The Minister said that he is consulting local government on the details of the proposed block grant procedure. I hope that that will be real consultation and that the Government will listen and be willing to be flexible. The proposals for next year will have to be considered in greater detail than we are able to consider them this afternoon, when we have the full settlement report before us.

However, I am glad that the Government have at last realised that the present system, is to say the least, complex. Many of us argued at the time and since that the whole system of GREA, of targets, or penalties and of multipliers was too complex and too bureaucratic. Apparently, we were right at that time, since the Government are now back-peddling from their own schemes. These have been sad days for local government and we have seen almost permanent revolution and rebellion in many town halls, engendered to a great extent by the Minister's inflexibility and his inability to understand today's problems in local government, and central Government's interminable interference in local affairs. How will the Government be policing the expenditure in local government? How will they manipulate the block grant? If the Government are sticking to the PESC figures then GREA will have to be reduced to find money for the additional duties being imposed on the London boroughs and the metropolitan districts by the abolition.

The shire counties have generally been lower-spending authorities and the penalty system has worked very unfairly for most of them. The shire counties have normally had targets way below their GREA and they put themselves in a penalty situation if they spend up to GREA. Now they may be able to maintain their services and indeed spend up the GREA if they need to, and, more importantly, if they can afford to do so. But how will the Government assert control over the cities that are spending above GREA? I think that they are being overoptimistic in expecting rate rises in single figures next year. If they stick to the PESC figures and if they abolish the targets and the penalties, this is bound to mean higher rate rises in the metropolitan and London areas and big rate rises in the shires; and if GREA is reduced it could mean even more severe rises in the shires in the next few years. The boroughs and the districts which already spend over their GREA could not possibly come down to it without decimating some of their services.

I have no sympathy at all for the Government. They have brought it all on themselves. But I am sorry that those who are working in and for local government have to face more problems and more bureaucratic interference and can see no prospect of improvements in the foreseeable future.

Lord Elton

My Lords, I am glad we have managed to strike an average in one thing, anyway; and that is the time of the arrival of the Statement. In fact, I believe that we sent the Statement to the noble Baroness at the correct time, but like me she probably found it impossible to absorb the amount of information required in the time available. But if it is any fault of ours I unreservedly apologise for the unintended difficulty I placed in front of her in completing a difficult task.

The noble Baroness was good enough to give a welcome, if a tepid one, to the disappearance of targets. But that in fact has without doubt been the most criticised aspect of the RSG system to date and cannot therefore be taken as yet another attack upon local government, as the noble Baroness has sought to suggest that it might be. The noble Baroness says that the system is not simpler than it was before. I think that it is simpler than it was before, but it is still very difficult to comprehend as an entirety. The removal of one stratum of complexity at the top does not necessarily mean that all of us can reach through to the bottom bedrock.

Both noble Baronesses raised their eyebrows at the choice of Newcastle. The additional knowledge that I have about Newcastle, apart from the fact that it actually fits the criteria which have to be applied uniformly to all authorities, is that its rates have risen between 1981–82 and 1985–86 by 66 per cent., whereas general prices have risen by 23 per cent.; it has overspent its target in each year from 1982–83 to 1985–86; that it is overspending its target by 7 per cent. in 1985–86; it is overspending GREA by 31 per cent. in 1985–86; its expenditure was up by 18 per cent. between 1981–82 and 1985–86; and that expenditure per head in 1984–85 was 23 per cent. higher than the class average. Therefore I do not think that it is altogether a surprising choice.

4.45 p.m.

This is not a measure of centralisation. Certainly central Government have a responsibility to control the whole of public expenditure, for reasons with which your Lordships are familiar. Therefore they have a duty to control local government expenditure which at present creates roughly 25 per cent. of that expenditure. We are choosing to do so not by applying targets, which means an arbitrary and sudden clawback of what has been given, but by a graduated but very much steeper slope; and that I think will be welcomed in the town halls when it is understood.

We shall not fiddle the safety net, as the noble Baroness put it in a musical mixed metaphor, to the advantage of authorities of any political colour to get them off the hook or indeed on to it. The noble Baroness referred to a statement by my right honourable friend in another place which she said must now be consigned to history. In fact, what my right honourable friend said was that we would not use GREA as a substitute for targets—that is, to prescribe levels of expenditure. What we are doing is what we have done from the start—that is, to use them to apply increasing discouragement to high expenditure and increasing encouragement to low expenditure. The words with which my right honourable friend referred to the way in which he will treat applications for redetermination were carefully drawn. I think that the noble Baroness will see that they contain a reassurance qualified only to meet the exceptional; and such qualifications must always be left in commitments which are otherwise open-ended.

Targets are not with us any more, but if I read that part of my brief I am repeating something which I have already said to the noble Baroness, Lady Birk, and to the noble Baroness, Lady Stedman; and assuming that both have been listening, that would be superfluous. I think I made the point clearly enough. There is obviously concern as to whether or not £500 million uplift is sufficient for the purposes of the tasks that face local government. It was not our intention to produce a figure which would lead to a universal sigh of relief and satisfaction in every town hall, because we are in the business of securing tighter and less expensive administration. If local authorities had been spending in line with the 1985–86 public expenditure survey plans instead of overspending them by about £900 million in current expenditure terms, the figures to which I have just spoken would in fact allow cash increases on the 1985–86 budgets of more than 4 per cent. That is necessary knowledge to put into perspective the comments which your Lordships might otherwise make.

I am tempted to go on, because many points of criticism were made, but I think that the broad-brush consideration is the important one. We have changed from a system where there is the brutal intervention of the target and clawback to a system where there is a graduated alteration of pressure according to where a local authority now is in expenditure terms, and, almost more important, where it plans to go. We have in past years through the system saved about £330 million of ratepayers' money. That is no small achievement. We are halting the growth in expenditure. It really is necessary to consider reducing it where it is excessive, and that is what we are doing.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that many of us do not share the very uncharitable lack of sympathy with the Government of the noble Baroness on the Liberal Benches, but on the contrary very much sympathise with them in being forced into this difficult operation by the excessive and continuing overspending of quite a number of local authorities? Is my noble friend aware that the Government would have been subject to very serious criticism if they had not acted to control this large volume of public expenditure, with its inevitable effects on the whole operation of the national economy and of the Government's financial policy?

Is my noble friend further aware of the fact that many of us can see a direct connection between the high rates being imposed in certain areas and the consequent unemployment arising from those rates, making for lack of incentive for industrialists and businessmen to set up businesses in areas where they would be so heavily charged?

Finally, is my noble friend aware that many of us welcome the relative simplification of what is obviously, and always will be, a complex operation, but one which many of us believe is essential to the operation of the national economy, and which no responsible Government of any party could fail to make?

Lord Elton

My Lords, my noble friend most helpfully reminds the House that for every £4 of public expenditure, £1 is generated by local authorities. He also pointed out—and I did not remind your Lordships of this—that where there is profligate expenditure by local authorities, even where there are social difficulties and high unemployment, that expenditure—which may be thought of as being aimed at ameliorating those conditions—very often makes matters worse by driving up the rates on the business community.

Lord Sandford

My Lords, I thank my noble friend for repeating the Statement. I commiserate with him and congratulate him. I commiserate with him because after dallying with the simplicities of the Local Government Bill for the past few weeks he has now at last had to immerse himself in the horrors of local government finance. I congratulate him because he reappears in your Lordships' House looking so fit, to tell us all about it.

The abandonment of targets will indeed be enormously welcome throughout the whole of local government, but only as a first step to dismantling the appalling edifice which we have been calling local government finance for the past few years. I fear that my noble friend and his colleagues may have to brace themselves for the discovery that to rely on GREA is to rely on something only slightly less unsatisfactory than target. Nevertheless, it is a welcome step in the right direction.

However, all this has come about because of the continued failure of successive Governments to grasp effectively the nettle of the reform of local government finance. My right honourable friend the Secretary of State for the Environment announced last October that he was at last embarking on that task, and there will be no satisfactory control of local government finance until most electors have to pay for most of the services for which they vote; that is to say, until we have a proper system of local accountability. Can my noble friend say when we may expect his right honourable friend to take the wraps off the reforms of local government finance which I hope he is now devising?

Lord Elton

My Lords, I am grateful to my noble friend for the kind things he said about me personally. He has wrestled with this problem for much longer than I have and so understands the difficulty. The difficulty is that this is a complex but necessary system. It is one that we have under review. My noble friend asked when we are likely to take a further step in the direction of reform. We hope to publish a consultation paper before the end of the year, which I hope will be helpful to him.

Lord Mulley

My Lords, apart from those considerations which the noble Lord the Minister may dispute, does he not at least agree that a major factor in the increase in the level of rates over the last six years has been that the Government's contribution to the rate support grant has fallen from 61 per cent. to 47 per cent? That is a factor that cannot be denied.

Lord Elton

My Lords, all things are relative, and particularly so in rate support grant. The comparison between the aggregate Exchequer grant proposed for this year and that for the previous year as a percentage of total relevant expenditure is not what it seems, because of the hold-backs which were applied to last year's figure. The difference becomes a very narrow one once one has applied that figure.

Lord Mulley

My Lords, I was talking about six years ago, when the figure was 61 per cent.

Lord Sandford

My Lords, does my noble friend not agree that the shift from 61 per cent. to 47 per cent. aggregate Exchequer grant must be a move in the right direction because it increases local accountability?

Lord Graham of Edmonton

And expenses, my Lords.

Lord Elton

My Lords, I should add that the saving of £300 million to which I referred in an earlier supplementary answer resulted from rate capping only in 1985–86. The effect of expenditure restraints since 1979 has been to reduce the real annual rate of growth from more than 3 per cent. in the early 1960s and 1970s, to which period the noble Lord, Lord Mulley, was referring, to half of 1 per cent. since 1979. That is progress.

Baroness Fisher of Rednal

My Lords, will the noble Lord the Minister tell the House what position the inner city authorities will find themselves in after the introduction of the new rate support grant? I listened very attentively when noble Lords spoke of "profligate" local authorities. I do not accept that the large industrial cities, including that which I know particuarly well, are under the control of profligate local authorities. Neither do I accept that the high rates levied last year have done anything at all to affect industry in the West Midlands. The large manufacturing industries in the West Midlands have not closed down because of high rates. They have closed down for a variety of reasons. If the Government close down steel works, then obviously the revenue from them is lost. It has nothing to do with high rates.

I take exception to mention being made of "profligate" local authorities. More often than not, they are the authorities which are battling hardest on behalf of the people living within their areas against high unemployment and the real problem of inner city deprivation.

In conclusion, I repeat the question I put at the beginning: how will the inner city areas fare under the new rating system?

Lord Elton

My Lords, I believe your Lordships are sufficiently familiar with recent local government history to know that some local authorities are indeed profligate. If the noble Baroness wants chapter and verse on how one might turn that situation around, she may care to study the half a dozen or more reports on value for money in local government produced by the Audit Commission. The proposals they contain offer savings in one way or another of between £435 million and £800 million. Money is there to be saved.

I believe that the noble Baroness is more concerned with Birmingham and the West Midlands than with London, with which I am more familiar.

Baroness Fisher of Rednal

My Lords, I am concerned also with Liverpool and Manchester—they are all in the same predicament.

Lord Elton

My Lords, I can tell the noble Baroness that Birmingham, which spends below GRE, should be better off under the new arrangements.

Lord Lloyd of Kilgerran

My Lords, I apologise for not being in my place to hear the whole of the Statement being repeated by the noble Lord the Minister, but can he say whether the rate support grant for Wales—and particularly for Dyfed and North Pembrokeshire—will be far more generous than it has been in the past?

Lord Elton

My Lords, I understand that the Welsh authorities have spent a sum far nearer that suggested by the Government programme than the English authorities. For chapter and verse, I would refer the noble Lord to the Statement being made by my right honourable friend the Secretary of State for Wales—I . believe, later today.

Lord Graham of Edmonton

My Lords, when will the Government cease their vendetta against local government? Why does the Minister not make it quite plain that the purpose of reducing the rate support grant from 61 per cent. to 47 per cent. is simply to shift the burden of paying for local services from the central Exchequer on to local ratepayers? When the Minister pleads in aid the Audit Commission's proposals for saving money, why does he not reveal to the House that the commission stated that Sheffield was providing a refuse collection service cheaper through the council than was Southend, which was providing a refuse collection service by privatised means?

Also, why does the Minister not say something about the care and concern which he and his colleagues ought to express when it simply rests upon GREA as the basis for supporting local services? Why not say something about the Minister's care and concern as to whether the moneys which are given by the centre to the councils are sufficient to enable inner cities, such as those mentioned by my noble friend Lady Fisher, to provide properly in the areas of housing and social services? When will the Government cease treating local authorities with contempt, when many of the burdens which local authorities are carrying have been visited upon them by the policies of this Government?

Lord Elton

My Lords, the Government are not conducting a vendetta against local authorities.

Lord Graham of Edmonton

They could have fooled me, my Lords…

Lord Elton

My Lords, there are times when it might suit politicians of a different colour from mine that the Government appeared to be doing so, and they try to make it look as though we are. We are trying to see that the citizens of this country are decently served for the money that they provide, and that they get value for money in the process. We believe that that is in their interest in two ways: first, because it costs them less; and secondly, because it benefits them more. The noble Lord himself does not want central Government to interfere at the kind of level that he has just been describing.

It is right that the Audit Commission should give examples of good and bad practice in both the private and the public sectors, and I take no offence at that. But the fact remains that, if local government is to be responsive to democratic pressure, then there must be a clear linkage between the decisions taken by local government and the cost which those decisions impose on the people who elect them. The process of increasing the proportion of local expenditure which is borne by people who live and vote locally in fact makes local government more and not less democratic; it reduces the control of central Government and does not increase it.