HL Deb 28 January 1986 vol 470 cc557-68

3.51 p.m.

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

My Lords, by leave of your Lordships, I will 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 should like to make a Statement. Together with my right honourable friends the Secretaries of State for Wales and Scotland I have today presented to Parliament a Green Paper entitled, Paying for Local Government. It makes major proposals for the future financing of local government in Great Britain.

"The central theme is the need to bolster local democratic accountability. To do so, we need a way of paying for local government which narrows the gap which exists between those who use, those who vote for and those who pay for local government services.

"The three fundamental weaknesses in our present arrangements are: the complex and uncertain effect of government grants to local authorities; the way in which businesses can be heavily taxed to pay for excessive local spending; and the unfair burden on householders of the domestic rates.

"Non-domestic rates: Business and commercial ratepayers foot 60 per cent. of the local tax bill but have no vote to influence local decisions. For businesses, rates are uncontrollable overhead costs which can and do vary from year to year very significantly. Increased business rates lead to higher costs, to lower pay or job prospects or to reduced investment. Those who are ultimately affected are quite unaware of how these extra burdens arise. For all these reasons, non-domestic rates should not be a local tax. We propose therefore that a uniform non-domestic rate poundage should be set centrally. Businesses will be protected by indexing the poundages to inflation, so that they can predict their liability with confidence.

"All of the yield of non-domestic rates will continue to support local government expenditure but it will be pooled and redistributed as an equal amount per adult in all authorities. Transitional arrangements will be required in each of the three countries to allow for an orderly move to the new system. We are setting in hand a revaluation of all non-domestic properties, so that new rateable values will be available from April 1990.

"Government grants: The present grant arrangements are unstable and complex. They obscure the link between what people pay for local services and what they get for their money. But the clarity of that link is essential to local accountability. We therefore propose a new two-part grant structure; first, a needs grant to compensate authorities for their different needs; Secondly, a standard grant, to reduce local tax bills by a standard amount per adult. Both grants would be fixed in cash, in advance, for the year in question. Local authorities will know where they stand. We would remove the whole paraphernalia of schedules, tapers, multipliers and close ending.

"Taken together with our proposals on the non-domestic rate, these grant arrangements will produce the clearest possible relationship between changes in spending and changes in tax bills. Every extra pound spent will be met in full by local domestic taxpayers. Every pound saved would benefit them in full. And that would be true in every authority in the country.

"Domestic taxes: At present in England, around 35 million adults are eligible to vote in local elections. Only 18 million are directly liable as ratepayers. Of these, 3 million have their bill met in full by housing benefit. In many authorities well over 50 per cent. of the voters pay no local rates and therefore have little interest in restraining spending by the local authority; indeed, they have a clear interest that it should spend more.

"Under the new social security proposals, every ratepayer will have to pay part of their rate bill. That still leaves 17 million adults with no liability to pay for the local services they use. It still means that the single pensioner or the single parent will face the same bill for local services as the house next door with four earners.

"Rates are a tax on property. They are unpopular because the rates burden is carried on too few shoulders and needs to be spread more widely. There are broadly three alternatives: a sales tax, local income tax or a flat-rate community charge. The Green Paper sets out the many difficulties we see both in a sales tax and in local income tax, and the reasons why we prefer a community charge. It would be more closely linked to use of local services and would give all adults a stake in local spending decisions. As with rates, there would have to be assistance for those on low incomes.

"Each local authority would set its own charge and there would have to be registers of all adults. The registers would be entirely separate from the electoral register. This proposal would lead to the same local tax bill for the same standard of service in all areas. That would lead to significant changes in the distribution of local tax burdens between authorities. There would have to be transitional and safety net arrangements.

"In England and Wales the community charge would start at a low level, with a corresponding cut in rates. The whole burden of any increased spending would fall on the community charge from the start, so that a clear link would exist between higher spending and higher community charges. In subsequent years there would be further transfers from rates to the community charge. In some areas rates would disappear within three years and they would be eliminated in all areas within 10 years.

"Under these proposals some people would be paying local taxes who presently pay nothing. But those living on their own who presently pay more than their fair share, including many of the poorest households, would be better off.

4 p.m.

"The Green Paper illustrates the effects of the proposals had they been in force in 1984–85. The illustrations show that the changes would be modest for most people, and that the shift to the new tax would be both gradual and manageable in terms of household incomes.

"There are also proposals in the Green Paper to reform the capital control system, on which I am inviting comments.

"Consultation: these proposals amount to the most thorough reform of local government finance this century. It is right that there should be a substantial period of consultation.

"We have asked for comments by 31st July. My right honourable friend the Secretary of State for Scotland will make a Statement tomorrow. The pace of further developments in England and Wales will depend on the outcome of the consultation process.

"Summary: the message from our studies is clear; the way we now pay for local government undermines local accountability. This is no basis on which to run democratic local government. It has drawn central government deeper into conflict with local government. The alternatives are clear. We can continue down the present path. That is, the road to closer central involvement in local affairs and increased central control. Or we can face up to the weaknesses in our present arrangements and provide local government with a financial system to bolster local democracy. The Government prefer that course and I commend it to the House".

My Lords, that concludes the Statement.

Baroness David

My Lords, I thank the Minister for repeating this very important Statement. It is interesting that after seven years of Conservative Government there is no promise of legislation during this Parliament; although there was a commitment 10 years ago, and again in Tory manifestoes, to abolish domestic rates. In a letter from the Secretary of State to Conservative councillors in January, Mr. Kenneth Baker said: I think we are all agreed that the present Local Government Finance System is unfair, and stifles accountability, and is at the heart of many of the conflicts between Local and Central Government over the years". I shall start with the poll tax. I believe there was a revolt in 1381 when it was tried before. No other Western democracy uses this system. Do the Government really think that it will work? Will it be means tested? If not, it will be a very regressive tax. I am interested to know why the Government have changed their mind as a proposal for a poll tax was rejected in the 1983 White Paper. I quote: A new register would … probably be needed. But this would make the tax expensive to run and complicated; particularly if it incorporated a rebate scheme. Without a rebate scheme a poll tax would bear harshly on people with low incomes". Therefore, I hope there will be clarification of whether or not there will be a means test with rebates.

The Government say the poll tax would be fairer because more people would be contributing. I think that we on this side of the House would have people contributing as they can afford and provided with the services they need.

As regards the uniform business rate, I should like to know whether it is expected that this will result in higher rates for businesses in low-rated Tory areas. I think that it will mean a huge centralisation and will undermine local accountability and democracy. It is taking still more powers from local authorities.

So far as distribution goes, paragraph 16 states: That would lead to significant changes in the distribution of local tax burdens between authorities". I should like to know what will be the effects by area and by types of payer. Can the Minister say what data have been used and whether they can be published? A very elaborate mechanism will be set up by the new plans. Will improvements and changes have to be made because of the immediate effects and to minimise the effects for the time being?

On capital expenditure controls, Ministers will have more powers than they do now to prevent local authorities spending their own money. Again it is a case of more central control. I understand, although the Statement does not say so, that the consultation period is to be less; that it will not run until July but end in April. That is not a very long time and perhaps the Minister can answer that point.

As regards paragraph 13, which refers to social security proposals and states that every ratepayer will have to pay part of his rate bill, is it still the plan that every ratepayer should pay 20 per cent. of rates, even those receiving housing benefit? When is this to come about?

Baroness Stedman

My Lords, we too thank the Minister for repeating the Statement. I also congratulate him on at least the look of the document, which I collected only a few moments ago. It certainly looks readable and well illustrated, and I hope that it is something we can easily understand.

However, we are going only one more step along the road to rating reforms this afternoon. As the noble Baroness, Lady David, said, this has been in the air for some time now. The Conservative Party promised to abolish the rates in their manifestoes of 1974 and 1979. In 1981 we had the Green Paper which showed that there is no way to do away with rates. The abolition promise was not kept. Indeed, it was dropped from the 1983 manifesto.

However, everyone accepts that there are problems in local government finance. The controller of the Audit Commission himself has complained about the fundamental underlying problems, the cost of local government services and the complexity of the grant system. We all know that they have become worse with every change and I sincerely hope that these proposals will turn out to be an improvement.

For the non-domestic ratepayers, how will a uniform business rate, set nationally and redistributed to the local authorities, be achieved? Will it come as, say, a part of what is now the block grant? As an alternative to the Government proposals, would it not perhaps be better to consider a national property tax to be levied on non-domestic properties which would be collected by the Government? If that were done it would leave the local authorities freedom to charge for the actual services which they give to the non-domestic ratepayer; and that might be much fairer in the long run.

The community charge, poll tax or residents' tax—by whatever name it goes—is a regressive tax in that it hits and hurts the poor and the larger familes on lower incomes much more than it does the rich. Basing it on the electoral roll, where it might be seen as a tax on voting, obviously has not found favour with the Government. However, if it is to be based on a new register of everyone in the area, how is that register to be compiled to ensure that everyone is on it? How can it be enforced? What will be the cost of running the two methods of rate and community charge during the transitional period?

Everyone accepts that there are a great many difficulties to be overcome and we all hope that there will be the widest possible consultation over as long a period as is necessary—longer than until 31st July if that is possible—since, even with a real consensus of agreement, any legislation obviously has to wait until after the next general election.

Meantime, the crisis in local government finance is growing. Does the Minister not accept that there is now a lot more concern about how the money is spent after it is raised rather than whether we should have a poll tax, community tax or property tax, and whether non-domestic rates should be assessed and collected locally or nationally? Rates as such do have something to commend them. They are visible. They are fairly cheap and easy to collect and they are difficult to evade; but it is the anomalies and the distortions which have been built into the system by successive governments—I do not blame only this Government—that have made the system unjust.

The rating system needs modernising and I welcome the announcement of the revaluation of non-domestic properties. It is long overdue. Can the Minister tell the House when ordinary domestic properties will be revalued? On these Benches we are at present inclined to favour an element of rating with an extra revenue source such as local income tax which would be progressive in its incidence, would produce a broader base and could be collected through the Pay-As-You-Earn system. But I look forward to reading the comments in the Green Paper, where the Minister says they are set out, on the lines of the various alternatives to what is now proposed.

We need to study in much more detail the proposals for changes in government funding of local councils. I welcome the removal of the schedules, the tapers and the multipliers and so on, which at least might make an explanation of government grants much more intelligible to the ratepayer and indeed to the Members of this House. How will the needs element be decided between authorities? Will there be clear guidelines on how those needs are to be assessed? What will be the level of assistance for those on low incomes, and who will qualify? If the press today are right and those who are unemployed or in receipt of state benefits will only pay 20 per cent., will that include ordinary old-age pensioners if they are not on supplementary benefit, and if so, what help is likely to be given to those who have a private pension but do not have a state pension? Moreover, since the number of people of pensionable age is increasing as the years go by, what effect will that sort of arrangement have on other households?

A document of 133 pages cannot be read in a few minutes, but as I said it does look readable and well illustrated. I collected my copy of it at 3.30 p.m. and I have only glanced through it, but I hope that the Leader of the House will be able to arrange through the usual channels for a debate in this House in the coming months. I also hope that all of us who are concerned with this subject will approach the consultative document cautiously and that whatever the outcome we shall seriously try to improve democratic local government and accountability.

Lord Elton

My Lords, I am grateful to both the noble Baronesses for the way in which they have welcomed this Statement, and I am particularly impressed by the amount of information that the noble Baroness, Lady Stedman, seems to have absorbed in the last 42 minutes.

Baroness Stedman

My Lords, I am accustomed to skipping pages while taking in something.

Lord Elton

My Lords, if the noble Baroness would allow me to draw her aside later for a quick lesson, I should be most grateful.

Both the noble Baronesses referred to the length of time that it has taken to bring forward this important document and to an earlier document which was withdrawn. I make no apology for the lengthy gestation period of what is a fundamental reappraisal of local authority financing. Indeed, when the noble Baroness, Lady David, points out that the last time that anything like this was done it led to the Peasants' Revolt of 1381, she makes me feel confident that we are right to be prudent. However, unlike the noble Baroness, we believe that an arrangement along the lines that we propose will work. Before I apologise for not answering every question that I have been asked, I must point out that this is a Green Paper for discussion and it is impossible to say what will be the impact of the eventual arrangements since no doubt some of them will be adjusted as a result of the discussion.

The length of the discussion period was of interest to both the noble Baronesses. I would say that, though the discussion on the main document is scheduled to finish on 31st July, my right honourable friend is very well disposed toward an extension of time, if it appears that there are matters of substance still outstanding on which important information or views are to be gathered. As to the shorter period, which is up to 14th April, for discussion of the proposals for the capital grant, the reason for the short period proposed is simply the hope—not the expectation, but the hope—that a consensus may be revealed. If there were a consensus revealed by 14th April, it would be possible to go forward to legislation rather more quickly than if we had the extended period which may be necessary if there is no consensus.

4.15 p.m.

The noble Baroness, Lady David, asked me a number of questions, including what would be the impact of the proposals on the non-domestic rate. The largest immediate benefit would be to older industrial and warehouse properties, particularly in the North-West, the North and the Midlands, which would benefit from revaluation and reduction in rate poundage, and these are often areas of high unemployment. The noble Baroness asked about the largest increases which would take place—and let us not be misled by the word "large"—and these are likely to be in the South-East, by a combination with rateable value increases, particularly in the retail sector. I give that information with some relish, because it is exactly the opposite of what I think the noble Baroness was suggesting might be the case.

The noble Baroness asked when the 20 per cent. rule would be brought in. The answer is that it is not brought in under the Green Paper but on the passage of the Social Security Bill. It is dependent on the parliamentary timetable, and no doubt to some extent on the conduct of the noble Baroness and her friends—though I hope not too much.

The noble Baroness, Lady Stedman, was good enough to recognise something of which I think we all, over recent weeks, have become acutely aware, which is that the present system is no good; it is leading us into confrontation between central and local government, and it is exceedingly difficult to understand. The noble Baroness wants something which is more easily understood by ratepayers and members of your Lordships' House. I should be glad of something which is easier for Ministers to understand. We have a very elaborate system, and what we propose is a very considerable improvement.

The national non-domestic rate would be set first of all by a national revaluation, and that is of non-domestic property only because, if the proposals are accepted, the need for the domestic rate will disappear and therefore there will be no purpose in a national domestic revaluation. On the domestic rate, after the revaluation central government would set a total which would bear a relationship with the existing total of the non-domestic rate and divide that by the new national non-domestic rateable value total, and that will produce a national poundage. I have now exhibited how difficult it is, even in attempting to simplify things, to make things simple, but if your Lordships would wait and look at that in Hansard, or better still in the Green Paper itself, it will be easier to understand.

I detect from both the noble Baronesses a feeling that because this is a fixed charge for all ratepayers it is either unfair or regressive. The changes in the impact per household will be marginal. I have the figures here, but I recall that for over 80 per cent. of households—or over 83 per cent. I think—the change in the first year will be less than £1 a week.

As to the function of protecting the poor, or alternatively of redistributing wealth—and these are the two concepts in the minds of the noble Baronesses when they talk of regression, I think—here we are firmly of the view that this is the function of central government and of the central taxation system, and, where it is a question of protecting the poor, of the social security system. It is not a function of local government and local bureaucracy.

I come back to the essential, central point of what we propose. At present there is no perceived direct link between the consumption of services and those who vote for those services when for a very large proportion of the electorate to vote for more costs no more, and they cannot see the hidden impact of rates through the non-domestic rate system. If local government is to be responsible it is essential that the local electorate shall see what it is voting for and be closely involved in it. That will enable central government to draw back from the centralist position to which divergent local authority policies otherwise will force it, whichever government is in power in Westminster.

Baroness Gardner of Parkes

My Lords, I welcome the Green Paper Paying for Local Government and, like the noble Baroness, Lady Stedman, have just collected my copy and managed to read quickly through it. There are a number of points in this Green Paper which I think give rise to concern.

I agree with the Minister's remark that it is important to have some relationship between those who are voting and those who are using and paying for the services, because there is no doubt that if you have no obligation to meet any form of rates, then it is very easy to vote for the candidate who is suggesting the most profligate policies. So I think that there is merit in having some relationship there.

But it falls down here. The Green Paper suggests on page 27 that the community charge would improve the relationship between the use of and payment for services, but my experience as chairman of social services on Westminster council is that the use of services is not spread evenly throughout the area. Eighty per cent. of social services, for example, were used by only 10 per cent. of the residents. The balance never made any call whatsoever on them. It is difficult to relate the costs to the use of the services.

Also, there seems to be no provision for a home in foreign ownership. The nearest thing appears to be the suggestion about people owning second homes. It is suggested that overseas people will register, but it is extremely difficult to see how people will register if they do not live in the country. In the centre of London are many expensive and highly rated homes occupied for only a short time each year. Those people may not use the waste collection service when they are not resident, but the street-cleaning services and the parking regulations remain in force and cost money. To be fair to people who are permanently resident, there must be provision to deal with that type of property. The document is 130 pages long and there could be a hidden remark about that which I have not noticed.

It is clear that it is to be a completely new community register and the electoral register will not be used and it will not be a poll tax. But it will be difficult to ensure that every adult is on the register. The cost of compiling, checking and enforcing registration will be for the local authority, which in itself gives cause for concern. I know that the Green Paper says that the Government will take that into consideration in the grant calculations, but again my experience shows me that no local authority is ever satisfied with what the Government give them. There is regularly a lot of fuss about that.

It is important that there should be thorough consultation. I am delighted that non-domestic ratepayers will get assistance. The most important phrase in the document is that the Government will enter into detailed discussions with local government and other interested parties about the practical issues. That appears on page 108. Whether the principle is sound or not, there will be many practical issues to be discussed. The Green Paper opens up the issues for debate, and it is welcome to see something in print after the constant speculation in the newspapers. I look forward to further debate.

Lord Elton

My Lords, I am grateful to my noble friend for her welcome of the principle of a link between the expenditure of a local authority and the votes of its electorate. She is right to say that different residents within a community consume different services at a different rate. We are not proposing that every charge should be different for each member of the community. She is right about that.

As to the foreigners who consume services, it is proposed that if they are absentee owners their houses will be treated as though they are a second home, so that there will be a charge there. If the foreigners are actually resident in an area, they will be liable for the charge in just the same way as anybody else.

As to the implementation of the register, procedures are already available for forming registers, and there will be savings with the disappearance of the old system. But it is far too early to say what the balance of cost advantage or disadvantage will be. Whatever the cost, I think that it will be welcome and worth while if it has the results that we seek. Checking the register will be easy, because qualification for services is to be on the register and the local authority has a constant stream of information across its desks about who uses its services.

Lord Mackie of Benshie

My Lords, is there any substantial difference in principle between the system proposed for Scotland and for England? I know that there are big differences. However the Statement says that it is on behalf of the Secretaries of State for Scotland and for Wales, but at the end it says that the Secretary of State for Scotland will make a Statement tomorrow. Will there be separate Bills, or is the principle the same?

We of course welcome any system which will stop the Government interfering and put real responsibility on to local government at all stages. But, for example, will the needs grant mentioned in paragraph 10 be the only subject for negotiation with the Government about which the local authority could possibily complain, with all the other grants being standard?

Lord Elton

My Lords, if I may take the last point first, anybody who says that any system will provide only one thing for local authorities to complain about is either a fool or a genius; and I am neither, I hope. However, the proposal will vastly reduce the area of negotiation and therefore of difference. I hope that noble Lords will recognise that this is the Conservative Government genuinely trying to disengage themselves from directing local authorities on how to conduct their affairs and transferring that responsibility to the electors of those authorities.

As to tomorrow's Statement, I think that the noble Lord will discover a different pace of proceedings. My right honourable friend may wish to deal with the subject, which, after all, is smaller in Scotland, at a slightly different pace. I do not want to prejudice anything that he says, but the principles of what we are all driving at are identical.

Lord Underhill

My Lords, may I ask just two questions, although I have had no opportunity at all to read the Green Paper? Dealing with compensation for authorities with different needs, does that mean that the present GREA machinery, with which there is general dissatisfaction throughout local government, will still be used to determine the different needs of the various authorities? Secondly, the question of the register has been raised. What is the reasoning for a separate register of all adults, bearing in mind that the present electoral register is for all people of 18 years and above? The Home Office will agree that the present register is unsatisfactory and there are complaints all over the country that many people are left off it.

Lord Elton

My Lords, as to the noble Lord's first and fundamental question, we are well aware of the difficulty of assessing needs simply. The present calculations are elaborate. We shall still need calculations to assess the genuine difference in need among different areas. But it is our hope, and work will be put in hand on this, that we arrive at a much simpler formula than we now have. I cannot be more precise because the proposals were published only this afternoon.

As for the current register of electors, I am not at all certain that it includes every adult within an area. I do not believe that it includes foreigners, but I could well be mistaken. I come back to a point which my noble friend raised and which echoed what the noble Baroness said, talking about a poll tax. I think that it is important to see that the proposal is entirely different from the electoral machinery. It is not paying to vote, and that in itself requires exemplification; it is paying for the use of the services provided by a local authority. I have heard it suggested that it should be called a local service charge and not a local community charge at all.

Lord Maude of Stratford-upon-Avon

My Lords, I presume that the Green Paper deals with the question of county precepts, which are a substantial part of the burden. Can my noble friend confirm that about 70 per cent., on average, of county precepts represents the cost of education? Has consideration been given to the suggestion that teachers' salaries at least should be taken out of the county precept and centralised, to be paid for directly by local government, since in the last resort very often teachers' salaries are negotiated and settled centrally?

Lord Elton

My Lords, my noble friend is correct in his estimate of 70 per cent., but the Green Paper does not extend to the question of centralising the whole of education direction or expenditure, although I would not put it past my noble friend to suggest such a matter during the consultation period.

4.30 p.m.

Lord Graham of Edmonton

My Lords, the Minister pointed out in the Statement that the three fundamental weaknesses in our present arrangements are distasteful in a number of ways. In view of the fact that the present arrangements are the creatures of this Government, what faith can the country have that the new arrangements will be any better, bearing in mind that the present mess results from this Government's means of tackling local rates?

Can I draw the Minister's attention to paragraph 6 which points out that business ratepayers are unrepresented but that they are ultimately affected and are quite unaware of how the extra burdens arise? Can I draw the Minister's attention to the useful initiatives taken by the Government in arranging that business people should be fully consulted in advance of the present rates being created? Is the Minister really saying that the present arrangements are so unsatisfactory as to merit change? I can tell the Minister that in my area of Enfield the local business community is very well satisfied, not necessarily with the rates that are set but with the fact that they are fully consulted.

Does the Minister really believe that local industrialists are only concerned with the rate being as low as possible? Is he not aware that many local industrialists take a great interest in the quality of housing, education, leisure and libraries? If they are good industrialists, they want to provide an environment not based on the lowest rate possible but on the best rate possible. Can the Minister also state what categories of people fall within the ambit of paragraph 18 which states: Under these proposals some people would be paying local taxes who presently pay nothing".

Lord Elton

My Lords, the people who fall into that category are adults resident within the area of a local authority who do not at present pay rates—

Lord Graham of Edmonton

My Lords—

Lord Elton

My Lords, I have been asked a question and I have given a statement of fact in reply. If the noble Lord feels that we should have a debate on the subject—many of your Lordships may wish to do that—there could be an occasion. He can write to me, or he can put down a Question. I believe, however, that the little red book to be found somewhere on the Table before me suggests that we should not enter into a debate at this stage. If I give way it is inviting a debate.

There will be new people paying. They will be adults who do not pay at present but who are consuming services for which they do not pay. As to the business interest in the way in which local authorities conduct themselves and finance their activities, the noble Lord is right. They look at many other things. The rates are only a component. In the Statement, my right honourable friend made clear that the impact of the non-domestic rate is almost always concealed from the people who eventually bear it. The noble Lord is right in saying that we have introduced consultation with business. We do not think that this is anything like a close enough link between expenditure and vote. I would remind the noble Lord that we must look at this historically. It is no good attributing to this Government the whole of the mess in local authority finance. It has evolved over a long time. It was, in fact, the Socialist Government of Mr. Callaghan which abolished the business vote in 1969.

Baroness David

My Lords, may I ask one question? It is a question that I asked previously to which I do not think the Minister responded. It concerns paragraph 16 which states: This proposal would lead to the same local tax bill for the same standard of service in all areas. That would lead to significant changes in the distribution of local tax burdens between authorities". I asked what would be the effect by area and types of payer, and what data had been used, and whether this could be published.

Lord Elton

My Lords, I attempted in a pastiche of a reply simply to tell the noble Baroness what were the principal results of what her question led me to suppose she was interested in. As to the data, I should have to get advice on that. I shall write to the noble Baroness if I can.