HL Deb 16 December 1986 vol 483 cc114-21

3.40 p.m.

Lord Skelmersdale

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for the Environment about the calculation of expenditure for rate support grant purposes. Do I assume that I have the leave of the House?

Lord Graham of Edmonton

My Lords, I think that there is some misunderstanding. We on this side thought that the Statement would be taken after the present business had been concluded. I am sure that the House will be tolerant. There has been a misunderstanding, which of course can be put right. I am sure that the Minister would wish to continue.

Lord Skelmersdale

My Lords, in that case, I am perfectly prepared not to repeat the Statement. I am totally in the hands of the House.

Lord Graham of Edmonton

My Lords, it would be appreciated on these Benches if the next speaker inscribed on the list could speak. If that were done, the noble Baroness, Lady David, could then be in her place.

Lord Skelmersdale

My Lords, I think we are now in a position to have the Statement. I apologise to the House.

The Statement is as follows:

"With permission, Mr. Speaker, I should like to make a Statement about the calculation of expenditure for rate support grant purposes.

"Relevant and total expenditure are two key concepts which are basic to the local government finance system in England and Wales. Since 1981 relevant and total expenditure have been calculated on the basis of the expenditure charged to a local authority's rate fund revenue account. This expenditure includes contributions from that account to, for instance, the housing revenue account and other special funds. Contributions from such funds and accounts to the rate fund revenue account have been regarded as income reducing relevant and total expenditure. This approach was adopted in 1981 in response to the views of the local authority associations.

"I have looked closely at the definitions of relevant and total expenditure because of some anomalies in the returns of expenditure received from a number of authorities. I was concerned that the accepted approach, despite the local authority associations desire for it, did not seem to correspond to the statute, and I sought legal advice about this. That advice made it clear that the department's treatment of expenditure was incorrect in law. Transfers between funds and accounts within the rate fund are not expenditure: expenditure only takes place when an authority has liabilities in the outside world and meets these from the general rate fund. A second opinion confirmed the advice.

"I must accept that advice. It means that past decisions which involved the concepts of total or relevant expenditure are put in doubt, and that it would be quite improper for me or my right honourable friend the Secretary of State for Wales to ask the House to take further decisions on the present basis. Until this matter is put right, we cannot therefore make any further RSG reports, including the main report for 1987–88, or complete the rate limitation process.

"To deal with this highly technical problem, the Government will therefore be bringing urgent legislation before Parliament which will validate for England and Wales all past decisions involving the use of relevant or total expenditure and allow decisions to be properly taken for the remainder of the present rate support grant system in line with the practice which has hitherto been adopted. Because the Bill is unlikely to receive Royal Assent in time to allow for the normal timetable on rate limitation, I propose to include in it provisions to set rate and precept limits for designated authorities by formula. The Bill is designed to make no changes in policy but as far as possible to apply existing policy within a tight timetable.

"My right honourable friend the Secretary of State for Scotland administers the Scottish rate support grant under separate legislation and the same problem does not arise. Some more minor difficulties in Scottish practice which have come to light will, however, also be remedied in the proposed legislation.

"Authorities will be concerned, in the light of my Statement, about the immediate position for 1987–88 and on outstanding supplementary reports. When the House returns in January I hope to announce my firm intentions for the 1987–88 settlement for England and the supplementary reports for 1986–87 and 1985–86. The Bill is designed to fulfil those intentions. I shall make the relevant reports immediately on Royal Assent to the validating Bill. Authorities will therefore be able to plan their budgets and rates for 1987–88 with confidence on the basis of my Statement in January. Also in January my right honourable friends and I will inform designated authorities of the exact rate and precept limits which will be set for them in accordance with the provisions of the Bill.

"My department is today writing to all authorities and their associations to explain the position."

My Lords, that concludes the Statement.

Baroness David

My Lords, I thank the Minister for repeating the Statement made by his right honourable friend, but I cannot think that it has given either of them very much satisfaction to make, as it shows up the political ineptitude of a succession of Secretaries of State. This is the fourth Statement on rate support grant in five months, and it shows the shambles that Ministers have caused for local government. One can only feel sympathy for the officers and the members of local authorities when they are trying to prepare their budgets for next year.

May I ask the Minister how long his department has been aware of this legal difficulty? When was the advice mentioned in the fifth paragraph of the Statement received, and how does that explain the failure to make an RSG Statement in November, as was promised by Ministers? Indeed, it was promised by the noble Lord, Lord Elton, in this House when I particularly asked him about it.

Why was the Secretary of State not frank when my honourable friend Dr. Cunningham asked his Private Notice Question on 3rd December? The Secretary of State must have known of the difficulties then. Was there not a circular letter dated 13th February 1981 which made it clear that total expenditure for the calculation of block grant should include contributions from the rate fund to the housing revenue account and other trading accounts, and that it was only interest receipts on the rate fund revenue account which should be taken into account to adjust relevant expenditure to total expenditure? Is the Minister aware that there have been five Acts of Parliament since 1980 affecting these matters? Does he recall that the Bill to overturn the court's decision on Birmingham on that issue gained Royal Assent only in October this year?

The Minister, Mr. Waldegrave, said in another place on the occasion of that Bill leaving the Commons last July: We are about to pass a Bill which will clarify the law and make it what it was thought to be in a number of important technical respects in relation to rate support grant settlements".—[Official Report, Commons, 21/7/86; col. 150–151.] Now we are going to have to do the same thing again and go through a similar exercise. It will of course be the duty of this House to examine the Bill with very great care.

Baroness Stedman

My Lords, from these Benches we also thank the noble Lord for repeating the Statement and we share many of the views of the noble Baroness who has just spoken. The complications of the system are entirely the fault of the Government, who have changed the relevant items of expenditure so often that they have left all the problems to be faced by the local authorities. Whereas prudent authorities have been cut back even further under the present formula, the spendthrift authorities seem to have benefited.

Can we be assured that the definitions in the new Act will be in good, plain English, which even the layman can understand? Is the Minister aware that with the present set-up the bible for all of us interested in local authority affairs has been the Association of County Councils list of definitions on understanding block grant? This is the clearest definition that I have been able to find on total expenditure: 'Total' expenditure is the expenditure definition around which the block grant system functions. Confusingly, it is not actually the total of expenditure at all, but is defined as 'relevant' expenditure minus expenditure supported by a specific or supplementary grants, and certain minor items such as student grants. It is an authority's total expenditure on which its block grant receipt is based". That is the clearest exposition that we have to date. I hope that, if we are to have new legislation at least the definitions will be much easier to understand than that.

The announcement is now to be made in January. I remember berating the noble Lord, Lord Bellwin, when he sat where the Minister now sits, on the lateness of the announcement of the rate support grant. We had a go at the late Lord Avon and we had a go at the noble Lord, Lord Elton. I am sure that the Minister himself has been told from time to time that local authorities cannot effectively budget and set their rate if they do not know well before November what they are likely to get in the way of government receipts.

The announcement is not now to be made until January. Many of the shire counties will have had their quarterly meeting in December and will not have another due until March, which would be their rate fixing meeting. That means extra meetings to be called for members of local authorities in order to meet the department's deadline.

It is quite disgraceful that this sort of thing can happen and can go on happening. If I were still a local councillor, or if I were the officer in authority, I should be extremely angry. I should also wonder where we had lost out in the previous settlements which this retrospective legislation is hoping to put right. It is one further instance of the sheer incompetency of this Government in their handling of local authorities.

Lord Skelmersdale

My Lords, in answer to the two noble Baronesses, clearly no one can be pleased that there is a further need to legislate in this highly complex and technical area. I am sure the House will agree, however, that once the Government had been advised that the basis on which they had operated was incorrect in law, it would have been quite improper to continue without putting matters right. I should make the point that the existing system, although we are advised that it is incorrect in law, was adopted to meet the wishes of local government itself. This legislation is therefore validatory and will enable the existing system to continue.

The noble Baroness, Lady David, asked me when my right honourable friend received legal advice on this matter, to which the answer is, in late October. My right honourable friend, having received that advice—I say this before the noble Baroness gets too excited on this matter—considered it wrong to come to the House until he had clear proposals for handling the problem in view of the considerable uncertainty that could otherwise have been caused. The way that my right honourable friend has chosen to handle the problem will not cause uncertainty because, as I explained both just now and in my repetition of the Statement, what we are doing is maintaining the status quo. There is no change to what the authorities thought was legal—and, indeed, what we thought was legal—and the system that has been operating heretofore.

The noble Baroness, Lady Stedman, got at me—she did not use the phrase "got at", but that is what she meant—in the same way as she has got at all previous holders of my post. On this occasion it is here. But what she conveniently forgot is that this year my right honourable friend made his rate support grant proposals Statement earlier than we have ever had it. In the meantime, the local authorities produced new information, which they are perfectly entitled to do, and as a result of that, my right honourable friend made another Statement of his proposals; and I have said that the final announcement and decision will be made in January. I regret just as much as the noble Baroness that new information came to light, but that is the sort of thing with which this very complicated system is designed to cope.

Lord Dean of Beswick

My Lords, does the Minister not recall when his predecessor, the noble Lord, Lord Elton, earlier this year made a Statement on the rates? Members of your Lordships' House from every quarter—even from the Government's own Benches—were critical of the chopping and changing of the rate system in which the Government were indulging. Quite a lot of us wondered how local government managed to cope with these changes when they had to make financial predictions and charge accordingly.

The Minister said that this Bill is necessary because the law is not what the Government thought it was, and so they are putting it right. We had the same situation some time ago, because the Government were about to lose a case to Birmingham city council on this very fact. How can we be sure, bearing in mind that this is the second Bill in a matter of months to correct anomalies in the rating system, that the Government have it right now? Is there any possibility that they will be coming back later for another correction, or is this just a case once more of government in Blunderland?

Lord Skelmersdale

My Lords, the noble Lord knows as well as I do that the only way that the House and the country can be 100 per cent. certain of any piece of legislation, whether it is in the rates field or any other, is when it has been tested in the courts and, in some cases, has reached ultimately what I might refer to as the judicial arm of your Lordships' House. But what I can tell the noble Lord is that there is absolutely no change proposed in this legislation to the system which has been operating ever since the Local Government, Planning and Land Act—which my noble friend Lord Bellwin took through this House on the Government's behalf—became operative.

Lord Bellwin

My Lords, as my name has now been mentioned twice, let me comment briefly on just two aspects of the matter? The noble Baroness, Lady Stedman, was at great pains to stress how complicated the matter is and how difficult it is to understand. I remind her that when we switched in 1980 to the block grant system we were told that what we were proposing was so obscure that no one would understand it. At that point I asked noble Lords who were present in the House which of them would care to stand up to explain the system which had operated under a Labour Administration for several years.

That was the multiple regression analysis formula for the distribution of rate support grant, with its complicated calculation, which meant that the final calculation had to go by satellite to a computer in Ohio, as we did not then have one sufficiently able to work out the final figures. I asked noble Lords to explain how that system worked, and when no one stood up to give an explanation I asked how they could criticise as obscure what we were proposing when no one understood how the system had worked anyhow.

Let us have no illusions about this. It has always been a very complicated matter. If you think about it and try to find a formula to distribute £12 billion or £13 billion among 430 or so authorities in a manner which is fair and which will assess their respective needs and requirements, it will always be very difficult, no matter what you do.

The noble Baroness was at great pains to say how iniquitous it is that the decisions will not come out till January. She said that she had always berated me and others when we were in the position that my noble friend Lord Skelmersdale is in today. But I remind her that when I used to sit on the other side of the Table, on behalf of local government and of my own authority of Leeds for years and years I used to plead for the decision to be far earlier. In fact it has been coming out in the last years earlier than we have ever had it.

Let us all keep the matter in perspective. It is unfortunate that it requires the legal confirmation that my noble friend has said will be brought about. Let us get on with it; let it be done. The authorities will be no worse off at all when it is done.

Lord Skelmersdale

My Lords, I am extremely grateful to my noble friend. He trained me well when I was aiding and supporting him and he taught me, as it were, to know myself. Since then my theory has been that if I cannot understand a matter I cannot possibly help your Lordships understand it. That reminds me to answer a question of the noble Baroness, Lady Stedman, which was what expenditure we are talking about. Relevant expenditure is the amount met by rates, block grant and specific and supplementary grants and any use of reserves. Total expenditure is the amount met by rates and block grant and any use of the reserves. I hope that that helps her.

Lord Cledwyn of Penrhos

My Lords, one matter needs careful clarification. When the Secretary of State made his RSG proposal Statement in November (I have a recollection he may have made two Statements, one of which was revision in favour of the Conservative-held shires) he had been advised that there was a doubt about the legality of the position. Why, at that stage, did he not make it plain to Parliament, the local authorities and indeed to the country generally that that doubt existed? Ought he not to have made that reservation in all honesty?

Lord Skelmersdale

My Lords, as I explained earlier, the rate support grant proposals are announced by my right honourable friend the Secretary of State for the Environment. It is perfectly true that there were two Statements this year, which I also referred to earlier. The Statement in July was the original proposal; since then, as I explained, new information came to my right honourable friend and he made another Statement in December. As I have said, the confirmation, once consultation has again taken place, will be made in January.

The noble Lord can rest assured that the implications for rate support grant—in other words, either extra or less money from central government—will not be effected as a result of the Statement I have made or the Bill which my right honourable friend intends to introduce very shortly.

Lord Cledwyn of Penrhos

My Lords, that does not deal with the core of my question; namely, he knew when he made the November Statement that there was doubt about the legality of the procedure: what prevented him at that time from saying that the matter was being reviewed and he was taking further legal opinion?

Lord Skelmersdale

My Lords, nothing. But I have already explained to the House that my right honourable friend considered it wrong at that point to come to the House until he had clear proposals for tackling the problem. That was my right honourable friend's decision.

Lord Stoddart of Swindon

My Lords, perhaps I may be excused for asking a third question from a Member of the Front Bench on this important item. In paragraph 7 of the Statement the last part of the penultimate sentence reads: I propose to include in it"— that is, the Bill— provisions to set rate and precept limits for designated authorities by formula". Can the Minister explain exactly what is meant by that and whether or not there will be, or have been, discussions with the local authority associations for doing that precise act?

Lord Skelmersdale

My Lords, because total expenditure is relevant to the calculations on rate and precept limitation and the Bill is likely still to be going through Parliament, we cannot operate the normal Rates Act timetable. New rate and precept limitation procedures for 1987–88 only will be included in the Bill as a temporary phenomenon. I do not know whether discussions have already been held with local authorities. I suspect that it is unlikely, but I can assure noble Lords that they will be held.