Rate Support Grant Recycling (Hansard, 5 March 1986)

§ The Minister of State, Department of the Environment (Lord Elton)
My Lords, by your Lordships' leave, I shall repeat a Statement being made in another 198 place by my honourable friend the Parliamentary Under-Secretary of State at the Department of the Environment.
"With permission, Mr. Speaker, I shall make a. Statement.
"The House will be pleased to know that my right honourable friend the Secretary of State for the Environment was yesterday able to tell the local authority associations that he would guarantee that £500 million of grant would be available to be recycled in 1986–87 and that authorities would be able to take this into account in fixing lower precepts and rates.
"As the House will recall, in the RSG debate on 20th January my right honourable friend explained that if local authorities budget to spend more next year than we allowed for in the RSG settlement, the grant forfeited by overspenders would go into a pool which would then be recycled to all authorities. He illustrated the grant gains to authorities if the pool were to be £400 million. Those figures could only be illustrative at that stage, because they depend on authorities' budget decisions.
"This week, in the light of the latest figures available, we are now in a position to go much firmer than that. It is clear that the pool of grant to be recycled is going to be some £500 million. That means the grant gains will be bigger than those illustrated in January and that authorities will get more grant than they have assumed. Moreover, to avoid all doubts, the Government are prepared formally to guarantee that £500 million of grant will be recycled. My department has written to all authorities telling them the amount of extra grant they will receive from that amount of recycling, in addition to their grant entitlement under the RSG settlement announced in December. I am placing a copy of the table in the Library.
"Councils will now know the size of their grant entitlement more clearly and this will allow them to make a lower call on their ratepayers. Where the rate making has not been completed, I hope that honourable Members will urge their local authorities to revise their rating plans in the light of these figures.
"My right honourable friend wrote to the local authorities' associations as soon as he was in a position to confirm the level of recycled grant that would be available. Local authorities are now making their rating and precepting decisions and it was essential to provide them with this information immediately. I am sure that all honourable Members will agree that rate increases should be no higher than is absolutely necessary."
My Lords, that concludes the Statement.

§ Baroness David
My Lords, I am grateful to the Minister for repeating the Statement even if we look on it a trifle cynically. I have a number of questions to ask. Have not a great many of the local authorities already fixed their precepts and rates? There was a list of recommended and approved precepts published in the Local Government Chronicle just the other day. Paragraph 4 of the Statement referred to those authorities not having completed their rate making. 199 Have not most authorities already gone through that exercise? How many block grant claim forms have been received from local authorities? May I ask what expenditure assumptions have been made for the remainder of the authorities to lead the Government to believe that £500 million will be available from overspend to redistribute? May I ask which local authorities will benefit from that redistribution? Will it be the shire counties, where there has been a great deal of anxiety and feeling expressed by Conservative Members of Parliament? My Lords, those are the questions that I wish to ask.

§ Baroness Stedman
My Lords, I am grateful to the Minister for repeating the Statement, to which we give a rather cautious welcome now, having in mind that the original rate support grant settlement was a bad one, especially with regard to the shire counties which had a reduction in grant because of the switch to the metropolitan boroughs, the London districts and the inner cities. I hasten to say that we are not against more resources going to the inner cities but we think that that should have been a national charge and not done at the expense of the shire counties. The recycling that is proposed today does not seem to be affecting that.
What is offered is welcomed. Councils will have some firm guarantee of what they will receive even if it is still within the framework of that original bad settlement. Is the Minister aware, as the noble Baroness, Lady David, said, that most of the shire rate precepts have now been fixed—some of them on the optimistic basis that they might receive a share of the £400 million that was originally talked about, and others on a pessimistic basis because of the state of local government finance generally? My own county fixed its very high rate optimistically on the basis that it was likely to receive about £5 million on the original estimate. It is now, I understand, to receive some £6.4 million. The difference is small compared with its total budget.
Other authorities may find that they have a windfall if they fix their rate more pessimistically; but as 21 days' notice must be given for a special council meeting to reconsider the precept, that will be difficult. I believe that few, if any, rates are likely to be reduced as a result of the recycling. Does the Minister accept that this points once again to the general muddle and confusion that surrounds local government finance? It is imperative that the problem is tackled because local authorities cannot continue to flounder from one financial crisis to another. The uncertainty about local authority finance must be removed. The good thing about the Statement is that authorities seem to have a guarantee about the sums that they will receive. The notice says that they are formally prepared to agree the amounts. May we have the Minister's assurance that that is so? The Government's press statement yesterday detailed the amounts that would be available. What happens if those supposedly high-spending authorities do not eventually overspend and less money is available? Is the Statement really implying that the Treasury will underwrite the amount promised today whatever happens?

§ Lord Elton
My Lords, I am grateful to the noble Baronesses, Lady David and Lady Stedman, for their reception of the Statement—one of them cynical and the other cautious.
Both noble Baronesses said that they felt that many authorities had already fixed their rates. It is true that a number have. First, those which have not are in a position to take advantage forthwith of this new information for the benefit of their ratepayers. Secondly, in some cases it is possible to reconvene meetings and refix the budget before it has to be set, which in the shires is earlier than it is in the boroughs and districts. I accept that. But there is a route there for a number of authorities. The noble Baroness, Lady Stedman, suggested that the system was not perfect, and she will remember the vigorous debate that we had on the Green Paper with which we seek to come one step closer to a very distant perfection. It is the case that the Secretary of State could not give his Statement until he knew what were the intentions of most local authorities, and I have to say that information as to that has been coming in on a day-to-day basis. As to what will happen if the £500 million overspend does not take place, it was the purpose of the Statement to say that the £500 million will nevertheless be available. But your Lordships will readily understand that that undertaking would not have been given had we not been pretty sure that at least that amount of money would come to hand, and that is indeed the position.
As to the basis of the assumptions and calculations that we made, the answer to that is the one I have already given—that we have had a steady stream of information. Some of it relates to budgets already made, some of it to information about budgets in view, and it was sufficient for us to make the Statement in the terms in which I have made it. As to the purpose of recycling, I am not sure that the noble Baroness, Lady Stedman, is altogether fair even in the terms of her own philosophy of rate support, because the effect of recycling is to take money that has been forfeited by overspenders and to redistribute it to all spenders. It will be subject to the effects of being out of grant, so the very highest spenders will not benefit whereas the lowest spenders will benefit, so it has a redistributive effect. As to which particular authorities will benefit I commend to the noble Baroness, Lady David, the table which is now in the Library and which sets out both the gross amounts and the effect on actual rate levels.

§ Lord Boyd-Carpenter
My Lords, being neither cynical nor cautious, may I ask my noble friend a couple of questions on his interesting and, in many ways, welcome Statement? Can he first amplify what he has just said about the likely beneficiaries from this Statement? Are the shire counties, which, understandably, thought they had rather a raw deal under the original arrangements, among the substantial beneficiaries? Secondly, can he explain to your Lordships what happens in cases where the rate has been fixed and it is technically impossible to alter it? Will it be the result that ratepayers will be called upon to pay more by way of rates than, in the outcome, there is any financial justification for?
201 Thirdly, is my noble friend aware of the fact that, however welcome the Statement, it really indicates a good deal of confusion over the rate support grant? Can he hold out hopes to us that in future this will be determined on a more businesslike and efficient basis?

§ Lord Elton
My Lords, as to my noble friend's first question, I have to say that the shire counties will be beneficiaries under this scheme—some of them substantially so. Where an authority has already arrived at its budget and cannot, for one reason or another, revise it, the ratepayers will not lose but the money will go to balances and be available for effect against the following year's rates. So the benefit will be there. As to the question of confusion, I can do little beyond repeat what I said to the noble Baroness, Lady Stedman: that we are aware of the imperfections of the system and that is why we have brought in the Green Paper which your Lordships have already looked at with great interest. As to the local authorities which have not yet fixed their rates, I should say that there are very many of them in the urban areas which warmly welcome this and will be able to make immediate use of the information, as well as many in the shires. I believe that was the full tally of the questions that my noble friend asked me.

§ Lord Dean of Beswick
My Lords, naturally I, too, am grateful that more money is being found than the Secretary of State mentioned in his original Statement on the rate support grant. The Minister has indicated, in answer to a question by the noble Lord, Lord Boyd-Carpenter, that the shire counties, possibly quite genuinely, grumbled earlier and they will now benefit. But is it not a fact that there will be a difference in the degree of benefit even to those shire counties? Can the Minister tell us what the shire counties originally contributed towards the £500 million surplus that has been found?
It is not often that I find myself in agreement with the noble Lord, Lord Boyd-Carpenter, but does the Minister not understand that those of us with a local government background know that those authorities which have not yet fixed their rates will find it extremely hard work to start recalculating the funds that are available? In the tight budgetary situation in which local authorities find themselves, even with the redistribution of this £500 million, does he not understand the chaos and the confusion over this type of policy, which is being pursued by the Government in regard to rate support grant, caused by making one Statement a few weeks ago and then altering it now? Does he not understand the difficulty in which that places local authorities in their forward planning schemes?

§ Lord Elton
My Lords, I am most reluctant to do anything to disturb the new found accord between the noble Lord, Lord Dean of Beswick, and my noble friend Lord Boyd-Carpenter. But I must tell the noble Lord, Lord Dean of Beswick, that we are not talking about a surplus and nor are we talking about an alteration to a recent Statement. We are talking about an exemplification of a recent Statement. The money in question is all money that was originally provided in aggregate Exchequer grant, and local authorities who 202 spend above their rateable provision on a sliding scale get less and less out of grant in proportion to what they spend. The result of that is that less money comes out of the Exchequer for the local authorities. That money is recycled. Under the old system, and under targets, the money was taken out of the system and there was a marginal amount of recycling.
We now have a simpler system where this amount can be predicted with a certain amount of security at the beginning of the system, and we are making things more efficient and simple by telling local authorities that they will get at least x, and x is a named figure. It is not a matter of chaos and confusion. It is a simple piece of arithmetic for the executive of the local authority to convert that into the equivalent of the rate. It is helpful, it is efficient, it is an advance, it is widely welcomed by local authorities and it is of benefit to the ratepayers.

§ Lord Dean of Beswick
My Lords, so what the Minister is saying is that some of the local authorities that have already had financial penalties inflicted on to them under the previous Statement will get some of it back under this Statement, but they will not get all of it back? They will receive financial penalties under the original Statement.

§ Lord Elton
No, my Lords. I am saying nothing of the sort. The previous Statement described the system as I have just described it. This Statement says how it will work.

§ Lord Diamond
My Lords, in view of the anxiety which has clearly been expressed from both sides of the Chamber, can we have the Minister's assurance that this will not happen again next year?

§ Lord Elton
No, my Lords. I am afraid that I cannot predict anything about next year. I have already said that the only way this information can be obtained is from the local authorities themselves. As soon as it is available, the Secretary of State has made the position clear to them with the greatest speed and efficiency. If the alternative is not to tell them at all, I think the noble Lord would not like that.

§ Lord Diamond
My Lords, the alternative is to have a system which does not lead to chaos.

§ Lord Elton
My Lords, I am mindful of the strictures of my noble friend the Deputy Chief Whip on the last Statement that we had, that it should not turn into a debate. I am not in the business of defending the present system. We have not yet described the future system. I know that I shall have all your Lordships' eager assistance in trying to make the future system better than the present, so perhaps I had better leave it at that.

§ Baroness David
My Lords, I have one question to ask out of regrettable ignorance. I believe that I am correct in thinking that local authorities cannot now raise a supplementary rate. I understand that the Minister agrees that some authorities have already fixed their rate. If they are now to receive some form of benefit from this handout, then can they raise—I do not know what one might call it—a reduced rate?

§ Lord Stoddart of Swindon
Perhaps, my Lords, a supplementary rebate?

§ Baroness David
Yes, my Lords; perhaps a supplementary rebate would be the correct phrase. I will be very interested if the Minister can tell me about that aspect.

§ Lord Elton
My Lords, if a local authority has passed the point at which, for technical reasons, it is not possible to have another budget, then as I understand it the money will go to balances. It will then be very welcome indeed next year for this process, and the local authority will have had 13 months to think about the matter.