§ 4.21 p.m.
§ The Minister of State, Department of the Environment (Lord Elton)My Lords, with your Lordships' 325 permission, I will now repeat a Statement being made by my right honourable friend the Minister for the Environment, Countryside and Local Government in another place. The Statement is as follows:
"With permission, Mr. Speaker, I shall make a Statement about a complex technical matter to do with the operation of the block grant system established by the Local Government, Planning and Land Act 1980. I hope the House will bear with me.
"Generally, block grant is paid to compensate authorities for differences in their expenditure needs and in their rateable resources. But, in addition, subsection (6)(a) of Section 59 of the 1980 Act gives the Secretary of State a power to determine block grant multipliers to limit changes in the grant entitlements of individual authorities from year to year. In every year since 1981 my right honourable friend and his predecessors have used this power to set safety nets to protect local authorities against undesirable losses in any one settlement. In two years it has also been used to set caps on increases, to prevent undesirable gains by some authorities at the expense of all other authorities.
"Each year since 1981 my right honourable friend and his predecessors have used the power to "safety-net" grant losses arising from particular features of successive settlements. In 1981–82 a cap was also applied to grant gains resulting from the introduction of the new grant system.
As far as 1986–87 is concerned, my right honourable friend the Secretary of State made it clear in his provisional announcement to the House in July last year that he proposed to use these powers to restrict windfall gains resulting from the decision to dispense with expenditure targets. We also stated on many occasions our intention that the grant effects of abolishing the GLC and the metropolitan county councils should be neutral at ratepayer level. We gave effect to these intentions in the multipliers set out in the rate support grant report which the House approved in January.
"Thus, in each year since 1981 the Secretary of State interpreted the powers in subsection (6) (a) of Section 59 of the 1980 Act in such a way as to limit certain factors affecting grant entitlements, but not others. For example, we have made changes to the way grant related expenditure assessments are calculated, often as a result of representations made by local government. In every year successive Secretaries of State have proposed that the effect of these changes should be mitigated by the setting of safety nets. What we have never sought or agreed to do is to protect authorities from the grant effects of their own expenditure decisions. It would have run counter to one central purpose of government policy in this area to do so.
"This approach had the general support of the local authority associations. It has been embodied in the rate support grant reports for each of the six years 1981–82 to 1986–87, all of which have been approved by this House. It has not previously been challenged. However, this year for the first time a handful of authorities have questioned whether subsection (6)(a) of Section 59 can be used to achieve the objective I have just described. They 326 maintain that the Secretary of State's power is restricted to limiting changes in the overall amount of grant payable to an authority for one year, compared with the previous year. One authority has already taken court action on this, and I understand that a number of other authorities are considering similar action.
"I must make it clear that I do not believe that the powers could be used in any sensible, practicable fashion under this alternative interpretation. For example, it would require the Secretary of State to include within any safety net the effect of grant reductions arising solely because authorities' own rateable resources had increased. It would also require the Secretary of State to take account of grant which authorities had lost solely as a result of their own expenditure decisions. That would be a nonsense. No reasonable authority would expect the Secretary of State to operate the powers in this way.
"Such an interpretation would cast doubt on the grant entitlement for every local authority for 1986–87 and for every previous year back to 1981–82, under the rate support grant settlements which this House has approved. It would clearly be most unsatisfactory if a procedure which has been followed since 1981–82 were to be overturned, particularly since throughout this period there has been a broad measure of agreement on what the subsection meant between the department and the local authority associations, many of those members would face wholly unmanageable losses of grant if any other interpretation of the 1980 Act were to become accepted. The Government are not prepared to allow that to happen and believe we must take action to preserve the status quo.
"Obviously the position must be clarified. The Government will therefore be bringing forward a short Bill during this Session of Parliament to remove any doubts about the interpretation of the Secretary of State's powers in relation to multipliers for past years and for the future."
My Lords, that concludes the Statement.
§ Lord Dean of BeswickMy Lords, I am extremely grateful to the Minister for repeating in this House the Statement made in another place by the Secretary of State. May I ask: is it not a fact that this particular measure has been triggered by the fact that the city of Birmingham has chosen to challenge the Government in the courts? I understand the case is to be heard as early as next week. Does it not indicate that the Government may have been acting illegally for six years? It appears that they are breaking with precedent by using their majority in Parliament in a somewhat hurried way because they fear the possibility that they may lose the case against Birmingham in the courts.
Perhaps I may ask the Minister what effect the proposals, as outlined in the Statement, will have on rate support grant assessments already made for the current year. Will the provisions in the forthcoming Bill allow for retrospection in order to right any wrongs that may have been inflicted on local authorities over the past six years? We have consistently been reminded both in this House and in another place that when an issue is before the courts the sub judice rule applies. Do I take it, as a layman, that the Government 327 are absolved from the sub judice rule in this particular case?
The Minister made the point that practice over the past six years had had the support of the local authority associations. Would the Minister understand if I informed him that my information (and I believe it to be correct) is that the Association of County Councils and the Association of Metropolitan Authorities are submitting affidavits to the court in support of the Birmingham case?
Finally, does the Minister recall that some weeks ago when he made a Statement on the rates more than one Member of your Lordships' House pressed the point as to when the Government might return to the simplicity of a rate support grant system that was understood by most people, instead of these perpetual announcements which seem to be forthcoming at regular intervals? Bearing that in mind, it is a sad day when a government can act for six years and then suddenly have to bring in a Bill as an emergency measure to right a wrong that they may have been doing to local authorities over the past six years.
§ Baroness StedmanMy Lords, we on these Benches are also grateful to the Minister for repeating the Statement, which seems to be trying to establish the Secretary of State's legal position in setting the multipliers and to spell out, as it were, the Government's legal position in an attempt to prevent a legal challenge by Birmingham and a few shire counties. In a very simplistic way, as I understand it, the multipliers are set so that where an authority has increased resources it receives less grant and where it has reduced resources it gets more grant.
The 1986–87 grant movements, as a result of abolishing targets and the safety net, and so on, were implemented through the multipliers. I believe that the Government were at fault because they did not take the actual base position for 1985–86 but fixed a notional one which would exceed the grant level. Some authorities lost grant—my own in Cambridgeshire did—in the period of transition to a notional basis. When the grant was capped to help with abolition costs, some authorities then lost more grant. In effect, they were "done" twice over.
Is the Minister aware that following Birmingham's action the Association of County Councils took legal advice? It was advised that the consultation procedure had been carried out within the law, but its advice drew attention to four shire counties which in its counsel's opinion may have been improperly penalised within the procedure laid down. I understand that the Birmingham court hearing has not yet been concluded, and I would question whether we ought even to be discussing it in our House and whether it is not sub judice. If Birmingham succeeds, will the Secretary of State have to re-open the whole question of grant and start all over again, or will he remedy the situation only in Birmingham and the four shire counties? If so, how will he do it, and at whose expense?
Can the Minister also confirm that there is a similar muddle in the new transport set-up in the London boroughs, where the multipliers have been used and the safety net removed so that boroughs have been 328 deemed to have acquired extra or less expenditure and have therefore had less or more grant than was taken into account when they were fixing their budgets and levying their rates? It now appears that some of the boroughs may well have received too much and may have to pay it back. As the rate is now fixed, the Government will have to re-introduce the safety net in order to allow the grant to be repaid over a period.
This is a very sorry muddle, and it only goes to show how absurd the present system is, with a block grant and multipliers which arbitrarily allow any Secretary of State to manipulate the grant. It is a messy way of doing it. It is arbitrary, and it is unfair. I suspect that the powers were being used more extensively than was wise, which is why the local authorities are being provoked into challenging the reasonableness of the Secretary of State's powers.
I cannot say with hand on heart that we welcome the proposal of yet another local government Bill in this Session, albeit a short one. I hope that at the end of that next run the formula will be clarified and that the Secretary of State, the Members of your Lordships' House, laymen, councillors and officers will all be able to understand and interpret it fairly.
§ Lord EltonMy Lords, the noble Lord, Lord Dean of Beswick, asked a number of questions. He is right, of course, to say that the bringing of the case by Birmingham was an important factor, but this is a matter which is of concern to local authorities other than Birmingham. The Statement does not cover any court case specifically, and is not therefore sub judice. I can tell the noble Lord that no rule has been broken.
If the case were to be lost—here I do not wish to break the sub judice rule—if the principle that it is sought to establish as being a valid interpretation of the law were established in place of the existing interpretation, the effect would be damaging to local authorities up and down the country on a totally unpredictable basis, because until I st April there were 414 of them and there are now 426. Every rate settlement for every authority for six years would have to be calculated—that is 2,496 calculations—before it was known how the money would be shuffled around among the local authorities. That is clearly unacceptable.
If the law is in doubt in that way, it clearly should be clarified. That does not affect the Government's position on the undertaking as to grant re-cycling, which is what I think the noble Lord was referring to. He might be interested to know that the indications are that the amount is above the £500 million guarantee by something more than £100 million already.
I do not doubt that having seen the action brought by Birmingham the local authority associations have turned their attention to the same issue. But until, I think, the middle of February, when this case was brought to court, there was a general agreement as to what the law was. None of your Lordships opposite has suggested, as I had expected it might be suggested, that we were moving the goalposts during the game. We are putting the goalposts exactly where they belong and where everybody thought they were since kick-off.
329 The noble Baroness asked a question about the transport grant, I think specifically in London. I shall have to have leave to answer that by correspondence. I shall put a copy of the letter in the Library. I have two things in common with the noble Baroness. The first is that I do not welcome the prospect of another local government Bill, and, secondly, I am not here to defend the present system. She will, I hope, look with renewed interest at the Green Paper.