§ 3.49 p.m.
§ The Minister of State, Department of the Environ-ment (Lord Elton)
My Lords, it may be for the convenience of your Lordships if I now repeat a Statement which is being made by my right honourable friend the Secretary of State for the Environment in the other place. The Statement is as follows: "With permission Mr. Speaker, I would like to make a Statement about Local Government Finance for 1987–88.
"The Government believe that for 1987–88 there should be a rate support grant settlement which allows no increases or very low increases in rate bills if authorities budget responsibly; which provides greater certainty for all authorities about their grant entitlements; and which provides tough pressures on authorities who persist in overspending. I want to make it clear that this settlement means that high rate bills, or poor standards of service, or both, will be entirely the fault of the authorities concerned. Under the present rating system the link between the governed and the governors is being increasingly weakened. Our proposals for the future will certainly restore that link. Meanwhile, this settlement is designed to secure the greatest possible democratic accountability that the present system can yield.
132 "My proposals are as follows. For local authority current expenditure, I propose to set provision at £25.2 billion. This is a cash increase of £2.9 billion over provision for 1987-88 published in January's public expenditure White Paper and is equivalent to an increase of 3¼ per cent. over local authorities' budgets for 1986–87. This level of provision represents a reasonable assessment of what local authorities will spend, given the level of inflation and their past pattern of spending. But it does not follow that I believe local authorities need to spend at this level: there is widespread scope for carrying out services more efficiently and for cutting out extravagant provision.
"I am therefore reviewing—and I want to consult local authorities as usual about—the aggregate of grant-related expenditures with the aim of keeping them broadly steady in real terms.
"I propose to provide authorities with about £12.85 billion in aggregate Exchequer grant. This will maintain the grant percentage at 46.4 per cent. of relevant expenditure, the same as in 1986–87. This is a cash increase from 1986–87 of over £1 billion. This will mean that if authorities spend in line with the generous provision we have made, there should on average be no need for rate bills to increase at all. Ratepayers will have the certainty that the blame for high rate increases lies fairly and squarely at the door of their local authority.
"These are very substantial increases which I am sure will be welcome. They make it fair for me to propose a change which will both provide authorities with greater certainty as to their grant entitlement and increase the penalties for the reckless, putting greater pressure on authorities to spend less.
"Hitherto, overspending authorities have contributed grant to a pool of money which was then recycled to all authorities on the basis of a common rate poundage. Individual authorities had no certainty as to their grant entitlements, which depended not only on their own expenditure decisions but on those of all other authorities. Of necessity, authorities could only be informed of the estimated level of recycled grant to a late stage, when it was difficult for them to take it into account in setting their rate or precept. More paradoxically, even those authorities who chose to overspend regained some recycled grant.
"I therefore intend to introduce legislation in the autumn, after consultation, to abolish grant recycling. As a result, authorities will be able to plan their budgets and rates with much greater assurance. Their grant entitlement will depend solely on their own expenditure decisions. It also means a tougher regime for high spenders. They will continue to lose grant if they overspend, but will not then gain on the roundabouts by getting recycled grant, part of what they lost on the swings.
"I turn to the incorrigible, for whom we have rate limitation. I am today laying before the House a report setting out how authorities will be selected next year. I am selecting authorities not selected in 1986–87 whose budgets are more than 12½ per cent. above GRE and show growth of more than 4 per 133 cent. since 1985–86. I am reselecting those authorities which were selected in the current year whose budgets are more than 12½ per cent. above GRE and show growth either of more than 4 per cent. since 1985–86 or more than 20 per cent. since 1982–83.
"On these criteria, nine authorities not selected in 1986–87—Brent, Brighton, Gateshead, Hounslow, Middlesbrough, Newham, North Tyneside, Sheffield and Tower Hamlets—are selected. Eleven authorities are reselected— Basildon, Camden, Greenwich, Hackney, Haringey, Islington, Lambeth, Lewisham, Newcastle, Southwark and Thamesdown. Together with the authorities subject to automatic precept control under the Local Government Act 1985, this will mean that, in all, the Government will next year be limiting the rates or precepts of 40 authorities with expenditure totalling some £4½ billion.
"I am today also setting the expenditure levels for the 20 rate-capped authorities. For reselected authorities, there will be a cash standstill on expenditure levels for 1986–87. All but one of the nine newly selected authorities have budgeted in 1986–87 for a significant increase in spending. I am therefore setting their expenditure levels at the lower of their cash budget this year and a 6 per cent. increase over their 1985–86 budget. I am, of course, open to representations for redetermination of expenditure levels. As last year, where an authority applies for redetermination because it considers that special accounting arrangements imply unachievable economies in 1987–88, I will not use my powers to reduce expenditure levels or impose conditions.
"My right honourable friends the Secretaries of State for the Home Department, Education and Science and Transport will be making separate announcements about expenditure levels for ILEA and the joint authorities subject to precept limitation under the Local Government Act 1985.
"In the field of capital expenditure, I have to tell the House that, from authorities' own forecasts, we expect the main national cash limit in England to be overspent in 1986–87 by about £700 million.
"The Green Paper Paying for Local Government set out proposals for a better capital control system, both for the benefit of the national economy and to give local government greater stability. I am urgently considering what steps to take in the light of the responses. I shall make a further announcement later.
"I am acting now however to end an abuse relating to advance and deferred purchase schemes. These are borrowing schemes masquerading as expenditure. They make use of a bank or other intermediary to transfer expenditure from the year when work is done to an earlier or later year. On the scale that some authorities have indulged in recently, these devices store up massive problems for their ratepayers in the future.
"I shall therefore introduce legislation to ensure that prescribed expenditure is incurred in the proper year regardless of when the authority pays. This will apply to all advance and deferred purchase arrange- 134 ments, and other arrangements with similar effect, entered into after midnight tonight. It will apply to England and Wales. Officials are writing to local authorities today with the details.
"I am considering an exemption, so that authorities which genuinely need to use the device for its proper purpose for an occasional project are not disadvantaged. Any such exemption would take effect from a date to be announced.
"My proposals for this settlement—decision on abolition of recycling, rate limitation, advance and deferred purchase—increase the pressure on high spending authorities. On the other hand authorities which spend sensibly and prudently will have a clear opportunity to keep rate increases low. They will have greater certainty and will not have to gamble their budgets and rates on the unpredictable proceeds of recycling. Where authorities spend up, they will forfeit grant. Where spending exceeds all reasonable limits in flagrant disregard of the interest of ratepayers and local businesses, authorities will be subject to rate limitation.
"With a realistic spending provision and a generous grant level that keeps the percentage of grant aid unchanged, I believe this is a settlement which the whole House should welcome."
My Lords, that concludes the Statement.
§ 4 p.m.
§ Baroness David
My Lords, I should like to thank the Minister for repeating the Statement which, I may say, is a very long, complicated Statement and difficult to digest thoroughly in the short space of time there has been since we were handed it. It is superficially fairly attractive, but I can see a number of snags masked by jargon.
In paragraph 4 the Statement refers to the need to spend, but it does not follow that there is a need to spend at this level. I think that it is for local authorities and their electors to decide about their need to spend, and perhaps the results of the May elections this year will show that local electors have a view about whether their authorities should spend or not.
The Statement speaks of 3¾ per cent. increase over budget for 1986–87. I should like to point out that the police have recently been given an increase of 7½ per cent.; the low paid manual workers are still very much needing an increase, and we still have a teachers' bill looming up. So there will be much pressure on local authorities which they cannot help.
So far as greater efficiency is concerned, I am aware that the Audit Commission said that there is considerable scope for savings in the local authorities up to £1 billion. But the fact is that the joint groups of civil servants and officials could agree efficiency savings of only £200 million which has been taken into account in quantifying the £3 billion gap.
In paragraph 6 of the Statement there is a mention of a cash increase from 1986–87 of over£l billion, but [ think when we consider this we have to remember:hat the local authorities have lost £17 billion in grant since 1979 because of the grant being reduced from 61 ser cent. to 46.4 per cent. We are glad that this will not be reduced any further this year.
135 The last sentence of that paragraph reads:Ratepayers will have the certainty that the blame for high rate increases lies fairly and squarely at the door of their local authority".I think we have to remember that in the Social Security Bill we managed to reverse the fact that 20 per cent. of rates will be paid by people who have not paid them before. We do not yet know whether the Government will force that to be reversed in another place tomorrow, but some people will have to pay quite a high increase through no fault of their own.
With reference to paragraph 5 and paragraph 8 about grant-related expenditure and grant recycling, we understand that there is to be a review of GREs, and that may have quite an effect on what local authorities can spend. We now know definitely though from paragraph 8 that grant recycling is to be abolished. That may mean again a considerable reduction in what local authorities have to spend. I think the amount of grant recycling was £680 million last year, though I am not sure whether that figure is correct.
Rate capping is to go on. In paragraph 11 we are told that 40 authorities will be rate capped; and that is £4½ billion of expenditure which will be under central government control. That again is removing the powers from local authorities to decide what they want to do.
So far as capital expenditure is concerned, I suppose what was called creative accounting will be stopped; but again we have to remember that it was only because local authorities were in such dire need to spend that they took upon themselves this method of finding ready money. We know how the infrastructure and so on desperately needs money to be spent upon it.
It seems to us as a general comment that central Government are putting local government in a straightjacket, as they have been doing in the past. As I said at the beginning of my remarks, although it may appear that there are some superficial attractions in this year's rate support grant, we are worried about what the final effect may be.
§ Baroness Stedman
My Lords, from these Benches we should also like to thank the Minister for repeating the Statement which he thinks ought to be welcome on all sides of the House. We do not quite take that view, and I doubt whether many local authorities will agree with the Minister. I should also like to join the noble Baroness in complaining about the length of the Statement and the short time we have had to consider it. I know that that is no fault of the Minister, but it is something that might be taken account of.
There is talk in the Statement of a more generous increase in public expenditure and more generous grants to local authorities. But the flow-back has been abolished. At present the rate support grant total is worked out and in tandem the local authorities prepare their budgets. This year the two totals did not tally and some £630 million RSG was unclaimed. That was recycled a few months ago—and in many cases, certainly in the case of the shire counties, after the local authorities had fixed their rates. Therefore it did not help them in reducing their rate demands.
136 If there is a future under-claim and the flow-back is abolished, the Exchequer (presumably the Consoli-dated Fund) will receive that extra grant back. The uncharitable might be persuaded to say that the Government can afford to be more generous in the knowledge that local authorities will not be able to claim it all. If there was a £630 million flow-back this year and it had gone to the Exchequer, I am advised that it could have produced a halfpenny tax cut. If underclaim is on the same scale in 1987–88, what would a similar amount be? If it is not to be recycled, what might it produce towards tax cuts? Is this really just a backdoor method of building up a surplus to meet tax cuts in the future? I think it smacks of creative accounting as bad as or worse than local authorities have been using in the advance and deferred purchase scheme.
The Government can argue that if local government increases are in line with inflation, no rate rises will be necessary. But in the real world local authorities find this quite impossible. Therefore some will lose grant which will not be recycled; but the Government will be able to point to those wicked local authorities which will have to bear all the blame.
We have had public expenditure totals; we have had aggregate Exchequer grants which include block grants; we have had flow-back; we have had rate capping; we have had grant recycling. When will we get local government finance on a proper scale? When rate capping first came into being we were told that not more than 10 or 12 authorities would be caught or involved. Now we have reached 20 rate capped, and 20 others have an automatic precept control. Many of these are in areas of great need, high unemployment and poor housing, with much greater demands on their social services. But the Government accept that this practice is necessary and now needs to be extended. At least they have left in a provision for applying for redetermination. I hope that if any of these authorities apply for redetermination, their applications will be sympathetically received.
On Thursday next week we are to consider a Bill that is intended to improve the recycling provisions of the RSG as it is at the moment. Yet there is to be further legislation this autumn to enshrine today's proposals in statute. I regret very much that yet another local goverment Bill is to come before this House before we have made an attempt to settle the question of local government finance and the functions and structure of local government.
Finally, if the Government can find this £1 billion plus of pump-back, why do they choose to do it in this way? Why not put it into capital expenditure; and even better still, since local authorities are overspent on capital, why not allow those local authorities to spend their own capital receipts in helping them to reflate the economy?
§ Lord Elton
My Lords, I am grateful to both noble Baronesses for their response to the Statement that I have repeated in this House. As to its length, of course I always regret detaining your Lordships for a minute longer than necessary, but had it been shorter, the noble Baroness could rightly have said that it was so condensed that it did not tell us what was in it. I understand that the Statement was available to both 137 Front Benches promptly at 3 o'clock, which is what convention lays upon me. While I sympathise, on this occasion I do not apologise.
To the noble Baroness, Lady David, I would say that electors are free to decide under this settlement whether the local authority shall spend, and how. But what the Government have said is that if local authorities spend beyond what 1 think is generally accepted to be a very generous allowance, they must face the consequences which will be known to them in advance. Certainly, pay is a considerable factor in local authority expenditure; but with inflation now at 2.5 per cent. on the retail prices index, there can be no justification for high settlements. The local authority employers will bear the responsibility for any excessive pay deals in terms of higher rates and the unions in terms of job losses; and one or the other must be the result. Central government have no intention of providing more money simply to make high settlements above the rate of inflation. The noble Baroness, Lady David, would like us to return to the days of 61 per cent. GRE. I understand that the cost of that would be—
§ Lord Elton
My Lords, if she did not, then I need not counter what she said and thus I shall save a little more of your Lordships' time. Rate capping does not tell local authorities what to spend their money on. It only tells them how much they can spend in total; so this is not a direction (as I think the noble Baroness will find that she did say) to local authorities as to how to spend their money; it is a direction on how much money to spend.
The question of advanced and deferred purchase agreements was raised. I would only say by way of illustration that I understand that in the current year Manchester has entered into an agreement worth £100 million—and that is a year in which it has a capital allocation of only £44½ million for the whole year; so your Lordships can see that this is not something which the Government can simply leave for future generations to pick up the tab without any protection from those who know what is going on.
The noble Baroness, Lady Stedman, is quite right to say that the recycling figure this year is between £630 million and £650 million and not £680 million. The Exchequer will get the money back if it is overspent, but the greater part of the lengthy Statement was spent in explaining why overspending should not now be necessary because we have taken into consideration all the factors which hitherto have led to it which can be regarded as reasonably prudent housekeeping. In the long term, it is the taxpayer's and the ratepayer's money that is in question, and if it returns to the taxpayer's pocket via the Treasury that is no bad thing.
The noble Baroness, Lady Stedman, I think sought to say that the pressures for expenditure were greater than reflected even in the generous terms of the Statement, which I may say is made in the wake of consultation with the Consultative Committee for Local Government Finance and reflects closely what the Secretary of State was there told. I can only say that the Audit Commission has identified potential 138 savings of up to £1,000 million per annum from its studies, and I am sure that local authorities that wish to spend even more can find ways of saving money therefrom.
The noble Baroness, Lady Stedman, finally asked me when we could look to a settled system of rates. My goodness, she is not alone in looking forward to that! The noble Baroness will know that we circulated a Green Paper; that the proposals in it were a package and we do not intend to introduce the results piecemeal. The closing date for comments on capital was 14th April, but the closing date on the proposals for the comments on the proposals for current expenditure is 31st October. It will be in the light of those comments altogether that my right honourable friend and his colleagues will conclude the best way forward.
§ 4.15 p.m.
§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that many people will very much welcome his announcement of the abolition of recycling? It has always seemed to many of us quite illogical that where money is withheld because of overspending it should be redistributed to other local authorities. This seems a welcome if belated step. Will my noble friend also explain, particularly to the two noble Baronesses who do not appear fully to understand it, that local government expenditure on the scale of recent years is of very considerable significance to the management of the national economy for which the national government are responsible?
§ Lord Elton
My Lord, I am grateful to my noble friend for his intervention. I would point out that recycling was even more illogical than he suggested because the recipients of the recycled money were not only the non-overspending authorities, but they were the overspending authorities themselves. As to the depth of understanding of the noble Baronesses opposite of what I regard as a formidable system, I would not altogether under-estimate it. Nonetheless, they ought to understand better than they do that this is a vital matter for the national as well as for the local economy.
§ Lord Dean of Beswick
My Lords, I too welcome the Statement although I have some dubiety about some of the assumptions that are contained within it. May I ask the Minister what he meant when he said, in paragraph 9:I therefore intend to introduce legislation in the autumn after consultation"?What does the word "consultation" mean? I assume that it means consultation with the local authority organisations. Will it be before a decision is taken or after? Very often consultation with this particular Government means consultation about what they have arrived at and not an attempt to get an acceptable solution.
Is it not a fact that of the nine authorities that have been added to the rate-capping list, certainly eight are in areas of the greatest need by any criteria that are set. Report after report highlights this type of authority as being very seriously short of cash and of government support. Is it not also a fact that these authorities, 139 when this exercise which is contained in the Statement is carried out, will either be faced once again with reducing services that are already at a dangerously unacceptable level or facing rate capping once again?
Also, if the GRE formula—and we have not been given any indication today of what the Secretary of State means when he refers to it—and the GRE criteria are lowered considerably, there will be other authorities who will suffer financial penalties by the lowering of the GRE. So far as the so-called £1 billion extra that has been found is concerned, it is only one-seventeenth of what local authorities had lost in government support since 1979. I am not suggesting that we go back to the 1979 formula; but the facts are that the local authorities where money is badly needed have lost £17 billion in central government support since this Government came into office.
Those are some of the queries that will be worrying people. If we get to the situation where GREs are lowered considerably, may we not be in a situation where the penalties which the Government collect will exceed the £1 billion which they are distributing, bearing in mind that the last recycling exercise involved £650 million?
May I close on this point? The Minister of State will recall that in March when he made the last Statement on the recycling of the surpluses, I think it was the noble Lord, Lord Diamond (who I believe has just left the Chamber) and me who put to him the question of when we were going to have a system of simplified accounting so that local authorities in the long term could know where they were going. I do not think for one moment that this particular formula which has been put before your Lordships today helps us in that exercise one iota. I look forward to what the local authorities themselves will say about the Statement when they have digested it.
§ Lord Elton
My Lords, the noble Lord suggests that rate capping—and he is right—falls in areas where there are many poor people. It has now been in existence for some time and it is not readily apparent that the poor people suffer as a result but that on the whole administration is made more efficient—not all that much more efficient yet, though, which is why we are going on with it.
As to the desirability of doing away with recycling, I would refer the noble Lord to his honourable friend the Member for Blackburn, who, on 5th March, referred to the financial uncertainty caused by the recycling arrangements in Labour and Conservative authorities alike. He, in common with many others, made it quite clear that this was a change which would be welcome. I am afraid that I could not follow the noble Lord in his constant references to GRE having gone down, because it has in fact gone up.
§ Lord Dean of Beswick
My Lords, is it not a fact that the Secretary of State, in setting the GRE levels, which I do not think are being set here, has power to move them downwards and depress them? Is it not a fact that if you depress them below a certain point you could be in a net gain position with the clawback you would get by people being drawn in because they have exceeded their GREs?
§ Lord Elton
My Lords, the question is hypothetical, because it has not been depressed. It has gone up 3¾ per cent. since last year, which is in line with inflation. I join the noble Lord and the noble Baroness, Lady Stedman, in eagerly awaiting the day when we will have a clearer and simple system which people can follow with greater ease. It would be much more fun at the Dispatch Box, I can tell your Lordships; but I doubt whether we shall get there until after we have had the consultation on the Green Paper.
§ Lord Harmar-Nicholls
My Lords, may I just ask a procedural question concerning the noble Lord, Lord Dean? Both noble Baronesses said that this was an intricate Statement and they found it difficult to comment on it even when they had the Statement in front of them. I understand that. However, it looks as though the noble Lord, Lord Dean, who sits on the Back Benches, has got a copy of the Statement. Is it fair that the Back-Benchers on one side should have a Statement when Back-Benchers on the other side do not?
We are all interested in the possible outcome of this matter. Why is there this disproportionate allocation of the printed Statement? Ought we not all to be treated the same? How do we account for this? We all want to do our duty but we cannot do it unless we have the equipment and the ammunition. The noble Lord, Lord Dean, appears to have it.
§ Lord Elton
No, my Lords; I do not think the noble Lord can actually answer a question during this procedure, I regret to say. I am not certain whether the reproach my noble friend is implying is directed towards the Front Bench opposite for being too generous or towards my own Front Bench for being too mean; but I think there should be a certain amount of equity in this matter and I shall ask my noble friends to look into it through the usual channels.
§ Lord Dean of Beswick
My Lords, may I just ask the Minister to respond to what I think was an important point I made on the question of consultation? May I also tell my noble friend Lord Harmar-Nicholls that the difference between us is probably that I got to a photocopier quicker than he did?
§ Lord Elton
My Lords, we will indeed publish a consultation paper and consult with all the interested local authorities on it. We will do so before we come to a final conclusion on how to do what we have decided to do.
§ Lord Sefton of Garston
My Lords, I was rather intrigued by the use in the Minister's statement of the words "democratic accountability". I should like to ask him to elaborate on that, because democratic accountability means different things to different people, depending on where you sit in the spectrum of the political life of the nation. What would be the attitude of the Minister to democratic accountability regarding a mandate the Government are claiming was taken almost four years ago, in view of the fact that the last recent by-election and the results in many 141 local authorities have proved that democratic accountability, so called, is now indicating that the local authority electors want more spent in certain areas of this country? The noble Lord, Lord Young, shakes his head. I do not know whether that is to keep the sawdust level or whether he is indicating something. If he wants to indicate something, I will sit down. Evidently he does not: he just wants to shake his head, and that does not mean a thing in politics. If he had a little more experience in political life, he would never do that in a meeting.
On the point about recycling, would the Minister agree that, generally speaking, over the years when any recycling has taken place—now he is performing—the money that was recycled went to those areas which were hardest hit by problems? In this particular era, the areas with those problems have those problems because, as the noble Lord said, they are problems arising out of government policy. While I do not disagree at all that the central government shall be in charge with national finance, would he not agree that those areas such as Merseyside, the North-East and many other areas which up to now have benefited from recycling will now be denied that? They are the areas which have to tackle the problems that directly arise from a government policy which leaves us with 4 million of our citizens without work.
§ Lord Elton
My Lords, the noble Lord wishes me to respond to a general policy initiative. I think what he is saying is that the way in which we distribute the aggregate exchequer grant towards local authority expenditure should reflect criteria regionally in a way in which it does not. The noble Lord should know that there is already a component in the calculations for rate support grant closely affecting the needs of the different areas when we arrive at the basic figures. I would also draw his attention to the panoply of other methods which we use for assisting disadvantaged areas: urban development grant, development land grant, enterprise zones, development corporations and so on.
I do not think the Statement itself is, or should be, the forum for a debate on general policies—that is not the procedure of this House—but I would draw the noble Lord's attention to all those considerations, which he may wish to discuss at length on another occasion.
§ Lord Sefton of Garston
My Lords, I think that the Minister does not pay much attention to the democratically-expressed will of local authority electors.
§ Lord Elton
My Lords, I was not going to respond to that point because I thought your Lordships would prefer to keep the debate short and sweet. I would, however, say that the constitution of this country provides for a central government to be elected at no more than five-yearly intervals and gives it the power to do what this Government are doing. The electorate will have a chance to comment on that sooner or later, but not more than five years after the last election; and I think the noble Lord opposite is in for a nasty surprise when it does.
§ Baroness David
My Lords, may I just clear up one point? The Minister responded to my earlier remarks about the Audit Commission, saying that there was considerable scope for savings of up to a billion. In fact, I referred to that in my remarks and I said that the joint groups of civil servants and officials, who I think are an official group, went into this and agreed efficiency savings of £200 million and not £1 billion. It was the £200 million that was taken into account in quantifying the £3 billion gap; so I think the £1 billion has been a little discredited.
§ Lord Elton
My Lords, I am quite happy for the noble Baroness to illustrate with greater clarity what she said to start with. I should like to conclude by saying that this is an exceptionally generous settlement. It takes account of all the points put to us by representatives of all three political parties. It gives local authorities an opportunity to maintain services at present levels without large rate increases, and indeed to improve them if they are more efficient. That seems to me to be something which we all earnestly ought to applaud.