Rate Support Grant 1987–88 (Hansard, 13 January 1987)

§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Skelmersdale)
My Lords, with the leave of the House, I shall now repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for the Environment about the rate support grant settlement for 1987–88 and selective rate limitation for local authorities in England. The Statement is as follows:
"With permission, Mr. Speaker, I would like to make a Statement about the rate support grant settlement for 1987–88 and selective rate limitation for local authorities in England.
495 "When I made my announcement about relevant and total expenditure on 16th December, I said that no further rate support grant reports could be made until validating legislation had been approved by Parliament to allow decisions to be taken in line with the practice which had hitherto been adopted. I also said that I would make a further announcement about rate support grant when the House returned in January. I am today announcing my firm intentions for the 1987–88 settlement for England and for the supplementary reports for 1986–87 and 1985–86. These intentions are based on the powers I am taking in the Local Government Finance Bill. Copies of the explanatory material and the rate limits proposed in that Bill are being sent to local authorities today and are available in the Library and Vote Office. Authorities will be able to plan their budgets and rates for 1987–88 with confidence. I shall make the relevant reports, and designated authorities will be notified of their rate and precept limits immediately the Local Government Finance Bill receives Royal Assent.
"The consulation which has preceded the 1987–88 settlement has been much more extensive than in previous years. I have considered very carefully the comments which the local authority associations have made to me and the many representatons received from individual local authorities. I do not intend to make any major changes to my proposals of 3rd December.
"I deal first with the main features of the 1987–88 settlement. Since 3rd December I have received further information on capital allocations for 1987–88 and about some authorities' budgets for 1986–87. This information has been taken into account in the figures I am announcing today. The figures also take into account expected higher spending by some rate and precept limited authorities to reflect the provisions of the Local Government Finance Bill. The consequence of these changes is to increase slightly the grant entitlements of most local authorities.
"The aggregate of Exchequer grant to authorities will be set at the level I announced in July—£ 12,842 million, which is an increase of over £1 billion or 9 per cent. over the level included in the settlement for the current financial year.
"My estimate of aggregate total expenditure in 1987–88 is £24,703 million. Provision for local authority current expenditure will be set at £25,251 million; this is 13 per cent. more than at settlement last year and £40 million higher than previously proposed to take account of the later information. In addition, the Goverment will, as the House knows, make available additional provision and grant when there is a settlement on teachers' pay which meets our requirements on cost, pay structure and duties.
"There are plenty of opportunities for authorities to reduce their expenditure; for example, by putting out services to competitive tendering or by implementing the many savings identified by the Audit Commission. I intend therefore that the aggregate of authorities' grant-related expenditure assessments should not be uplifted by the full 496 increase in expenditure provision but should be held broadly steady in real terms.
"I intend to specify the same principles for GREs as were proposed in the 3rd December consultation paper: the most significant change from 1986–87 is that the police GRE will be distributed on the basis of police establishments.
"I intend that the slope of the grant related poundage schedule will stay the same as this year. This will provide an incentive for authorities to restrain their expenditure.
"As usual there will be arrangements to limit the impact of year on year changes on individual authorities grant entitlements. It is my intention that there should be a limit on block grant losses of 7p at ratepayer level and a limit of 12p on gains.
"In July I announced my intention to introduce legislation which would provide local authorities with greater certainty about their grant entitlement. A Bill will be introduced shortly to abolish the arrangements known as grant recycling whereby grant not claimed is redistributed to all authorities. In future an authority's grant will depend on its own expenditure and not on the expenditure of all other authorities. At the same time, the abolition of grant recycling will mean a tougher regime for high spending authorities which will no longer receive a paradoxical and uncovenanted benefit through recycling.
"Local authorities can claim the full amount of grant if they spend in line with the settlement spending assumption. We have increased the amount of Exchequer grant by over £1 billion for next year, and authorities have a very clear choice about whether to be prudent and claim their entitlement or to spend up and lose grant.
"I shall make the third supplementary report for 1985–86 and the first supplementary report for 1986–87 when I make the main rate support grant report. It is my intention that the supplementary report for 1985–86 will adjust grant to take account of provisional outturn expenditure and certain changes in education pool contributions. Most authorities have brought their spending closer to target, and as a result £385 million of grant so far withheld for 1985–86 will be paid out. The supplementary report for 1986–87 will distribute the block grant underclaim of some £618 million consequent upon the estimates of total expenditure received from authorities on or before 19th December. My predecessor guaranteed that at least £500 million of grant would be recycled in the first supplementary report for 1986–87. This report will therefore honour that guarantee.
"I now turn to the authorities selected for rate limitation in 1987–88. The House will know from my Statement on 16th December and from yesterday's debate on the Second Reading of the Local Government Finance Bill that rate limitation is to be dealt with—for 1987–88 only—in accordance with the terms of the proposed legislation.
"The department is today writing to the 20 high spending authorities selected for rate limitation, informing them individually of the rate limit figure 497 which flows from the Local Government Finance Bill and my intention for rate support grant. Each of these councils will therefore be able to set its rate in good time before 1st April within the figure being notified to it.
"In the case of the 20 joint authorities which are automatically selected for precept limitation under the Local Government Act 1985, departments with responsibility for those authorities will be writing to them with similar information about the precept limits produced by the formulae in the Bill.
"The present system of local government finance is short on accountability and long on complexity. Our Green Paper proposals will replace it. While the present system lasts, I commend this settlement to the House as the best that can be achieved. Prudent and responsible local authorities which contain their expenditure can keep rate increases low. The Government are providing more than an extra £1 billion in grant. How much rates will rise is for local authorities; they have the opportunity to keep the rates low this year. If authorities choose to spend high it will be their fault that the rates go up. In the profligate high spending authorities ratepayers will benefit considerably from the important protections provided by rate limitation."
My Lords, that concludes the Statement.

§ Baroness David
My Lords, I should like to thank the Minister for repeating the Secretary of State's Statement, the fourth Statement that he has made on rate support grant since the begining of last autumn and now. It is only because of the Government's incompetence and ineptitude that this rate support grant Statement is arriving in January, which is so late, and that the Statement cannot be given effect to until the present Local Government Finance Bill becomes an Act.
Although the Statement says that authorities will be able to plan their budgets and rates with confidence, one wonders a little about that statement. We in this House will have to look carefully at the Local Government Finance Bill when it comes to us because we must hope that no further bad and incompetent legislation gets through.
I understand that the grant that the Government will provide to local authorities will remain at about 46.4 per cent. As there is no further cut, I hope that that means that the Government realise the validity of what we have all been saying about the need for local authority expenditure and services.
Of the extra £1 billion in cash which I think is mentioned about three times, is it not the case that almost half that a a[...]ditional £1 billion will go to the Treasury and not to the local authorities because of the abolition of grant recycling? When Mr. Baker was Secretary of State he praised grant recycling and thought it good. It now seems that it is bad. A Bill is to be brought in to abolish it. I should like to ask the Minister when that Bill will appear and whether it will be entirely about grant recycling or whether it will contain anything else.
From paragraph 17 it seems that the Secretary of State accepts that rates will rise. He says that how 498 much rates will rise is a matter for local authorities. That seems to assume that they probably will rise. I hope it means that he at last recognises the needs of the recipients of local authorities services.
There are even more rate-limited authorities than before. One can only feel sympathy for them. At the beginning of the last paragraph the Statement says: The present system of local government finance is short on accountability and long on complexity". We can agree about that, but I must say that it is this Government who have produced the present system. It was the 1980 Act which started the system. There have been Rates Acts since which have made the system even more complex. The Government alone must take the blame for the complexity of the present system which has caused so many troubles. We can only hope that they may be resolved.

§ Baroness Stedman
My Lords, from these Benches we also should like to thank the Minister for repeating the Statement. We accept that what he is doing and has done is illegal until the new Act is on the statute book and that he told us in the Statement in December that he would be giving early notification to the authorities for the next financial year. We were told in the summer that we were going to have an earlier RSG settlement; yet this is the third lot of proposals that have come forward and the actual settlement is going to come later than ever.
As the noble Baroness said, the Minister himself admitted in the Statement that the local government finance system is short on accountability and long on complexity; but the frequency and the complexity of these Statements do not allow one to give a thoughtful response off the cuff at such short notice as this.
The Statement says that the consequence of the changes is to increase slightly the grant entitlements to most local authorities. The Minister's colleague in another place has been under pressure from MPs of his own party from the shire counties. Do these proposals now ameliorate the effect on some of those shire counties? If so, is it just that the cake has been cut into rather differently shaped slices? Again, if so, at whose expense is that? Who is paying for any increase that other people may get? Whatever the answers, the uncertainty still means that the shire counties will have to levy higher rates than other authorities simply because they are the first to have to set the rate.
I regret that the Minister is abolishing grant recycling, which means the money being returned to the Treasury instead of being spent on the local government services for which it was originally intended. However, I am pleased to note that the Government are honouring their earlier guarantee that at least £500 million of grant would be recycled for 1986–87 and indeed that that total is now £618 million.
I am sad that the Minister has gone ahead with imposing rate limitation on 20 authorities. Twelve of them are London boroughs with many problems, and others including Gateshead, Newcastle, North Tyneside and Middlesbrough, are all areas of very high unemployment and in special need of help from their local authority services.
499 Finally, can the Minister, hand on heart, say that this new Bill which is just starting its progress through another place really has got the sums right this time and that until local government finance is reorganised properly we shall be able to proceed with some steady progress?

§ Lord Skelmersdale
My Lords, I am grateful to both noble Baronesses for their rather cool reception of this Statement, which, as both have noted, is the fourth we have had on this subject since the end of October. I think it would be fair to point out that the intentions of my right honourable friend were strictly honourable and the first Statement was indeed considerably earlier than it has been in any previous year. The fact that new information came in made the Statement of 3rd December necessary.

§ Baroness David
My Lords, may I interrupt the Minister for a moment? Is it not the case that it was not only changes of information that came in but that there was a slight switch to make his friends in the Conservative authorities slightly happier?

§ Lord Skelmersdale
No, my Lords; I do not think I can accept that. What my right honourable friend did, as the chairman of Hertfordshire County Council made clear in early December, was listen to the views of local authorities and local authority associations, which of course the 1980 Act fully expected him to do. That is why it contained proposals for him so to do. The Local Government Finance Bill had its Second Reading in another place yesterday and we will get on to it in due course. I have no doubt that your Lordships will have a certain amount to say on it then. However, I just make the point that I made in a Statement shortly before we rose for the Christmas Recess. The whole objective of that Bill is to validate the status quo and to put back the law to what everybody, including the local authorities themselves, thought it was.
The noble Baroness, Lady David, made the surprising assertion that most of the £1 billion extra money which the Exchequer has found for local government finance this year will go to the Treasury because of the abolition of grant recycling. There is absolutely no need for that money to go anywhere. If local authorities spend responsibly there will be no need for them to lose any grant.
The noble Baroness also suggested that the Statement made it clear that rates would rise. It is inevitable that in a period of inflation, albeit the very low rate of inflation that we are enjoying at the moment, if local authorities decide to inflate by the standard rate of inflation then rates will rise slightly. But taking a council at random—Cheshire County Council, for example—the settlement spending assumption on which this Statement is based is a rise of 5¼per cent., whereas a possible basis for spending in line with inflation may well be 3¾per cent. for the next financial year.
If Cheshire spends at the level of the settlement spending assumption it would be entitled to block grant at £f 112÷6 million. If, on the other hand, it spent in line with the inflation assumption it would receive block grant off 116÷9 million. The precept increase for 500 Cheshire on those two figures would be 5÷6 per cent. and 1÷5 per cent. respectively. So, as noble friends, right honourable friends and honourable friends have said countless times before me, the amount of rate increase is entirely in the hands of the local authority concerned.
I am grateful to the noble Baroness, Lady Stedman, who recognised that the Statement fulfils the pledges given in the earlier Statement of 3rd December. She is of course quite right. However, she suggested that the capping, for example, of some of the London boroughs and some of the inner-city areas was necessary only because they have particular great problems with the homeless, unemployment and so on. But that is exactly the reason why grant-related expenditure assessments are made, and the grant-related expenditure assessments take account of those particular and peculiar problems. What those local authorities are saying is that in their view the GRE assessments are not adequate for their particular problem. That is an argument they could well have with the department, but it is not a sufficient reason for being high spenders because also very often they are bad financial managers.

§ Lord Boyd-Carpenter
My Lords, in view of what has been said as to the cool reception, might it not be appropriate to the climate if I added a somewhat warmer note? Is my noble friend aware that some of us are delighted to hear about the end of grant recycling? It has always seemed wholly illogical that some local authorities should benefit simply as a result of the misbehaviour of others, and where money has been forfeited by a particular local authority it is surely common sense that it should not be distributed to others but should, as is now proposed, revert to the Treasury. Is my noble friend aware that some of us regret that even half the previous rate of grant recycling is to be allowed to continue even for one year? The whole thing is a nonsense and the sooner it ends the better.
Has my noble friend any objection to giving the list of the authorities who are being rate capped this year? It is perhaps a little unsatisfactory to leave it with the noble Baroness opposite saying—I am sure rightly—that a number of London boroughs are involved. This is an area where uncertainty would be unfortunate. Perhaps my noble friend could give us the list.
On rate capping, is he aware of the fact that many people realise the reason why some of these authorities which are rate capped are areas of very difficult conditions is simply that they have been raising the rates over the years to a point that has discouraged enterprise and has discouraged people from setting up businesses in these high-rated areas, and thereby have aggravated their problem? Is my noble friend aware that there is a sensible view that only by restraining the level of their rates can an effective attack be made on their very real problems?

§ Lord Skelmersdale
My Lords, not for the first time I am extremely grateful to my noble friend Lord Boyd-Carpenter for his support of the abolition of grant recycling. Yes, quite clearly it is an absolute nonsense if, on the one hand, a particular local authority can 501 lose grant because of overspending and then receive some of that loss back as a kind of windfall gain later in the year, or indeed the following year.
My noble friend asked me for a list of the rate-capped authorities. They are as follows: Newcastle upon Tyne, Camden, Greenwich, Hackney, Islington, Lambeth, Lewisham, Southwark, Haringey, Basildon, and Thamesdown. The new selected authorities are: Sheffield, Gateshead, North Tyneside, Tower Hamlets, Brent, Hounslow, Newham, Middlesbrough, and Brighton.
Finally, yes, I agree with the last point that my noble friend made—namely, that rate capping will help very hard-pressed ratepayers in these areas and will also help to encourage local authorities to have better financial management of their affairs.

§ Lord Taylor of Blackburn
My Lords, I appreciate that within the Statement there is provision for additional moneys that will be made available for the teachers' pay settlement when the teachers' remuneration Bill has gone through this House. That is anticipating that it will go through this House in its present form. However, may I ask the Minister regarding the 1986 education Act what additional moneys have been made available to implement the provisions within that Act, which demand quite a lot of additional expenditure by local authorities?

§ Lord Skelmersdale
My Lords, the Government will make available substantially more provision and grant for a settlement on teachers' pay which meets our requirements on pay structure and duties whenever that may occur. My right honourable friend the Secretary of State for Education's announcement of 30th October said that £183 million grant in respect of £460 million expenditure would be available for 1987–88. For 1986–87 the respective figures were £51 million grant and £101 million provision. The House will therefore see clearly that it is expected that this current settlement will mean a substantial increase in funding.

§ Lord Taylor of Blackburn
My Lords, may I go on to ask: what about the 1986 Act?

§ Lord Skelmersdale
My Lords, at a quick glance at the noble Lord's question I am not aware of any additional expenditure due to the passing of that Act. However, I shall have clearly to look into this further and write to the noble Lord.

§ Lord Taylor of Blackburn
My Lords, thank you.

§ Lord Dean of Beswick
My Lords, may I raise one brief point with the Minister? It is not a criticism of what he has said so far. Is it not a fact that the present prolonged severely inclement weather that we are suffering can blow sky-high the financial predictions of local authorities' expenditure in the current financial year and in the preparations for their budget next year? While I know that there at present are some statutory provisions for them to raise funds to deal with this problem, bearing in mind that the predictions from the weather people are that this will be a very 502 prolonged spell the sums of money involved could well be astronomical. May I ask the Minister whether he will urge the Secretary of State, when the local authorities have to come to him regarding this matter, to deal with it in as sympathetic a manner as he possibly can?

§ Lord Skelmersdale
My Lords, as far as I am aware, such severe weather payments, to which I think the noble Lord is referring, are paid for from the centre and not through the grant entitlement. My honourable friend the Minister for Social Security has just announced in another place, that for this week only the payments will be made to all in the qualifying groups—that is, those over 65 years old or families with a child or children under two years. This is not dependent on what happens to the weather this week.
There has been a certain amount of speculation in the press. But of course what should be said is that what used to be a discretionary payment is now a statutory right and the procedures for claiming this have been simplified.

§ Lord Cledwyn of Penrhos
My Lords, may I briefly draw attention to the second sentence in paragraph 17 of the Statement which needs clarification and probably also qualification? Dealing with the present system of local government finance, the Statement says: Our Green Paper proposals will replace it. However, it is the case, is it not? that a Green Paper is a consultative document whereas a White Paper is a statement of proposed Government policy. It would not normally—unless there is a change—be possible for Green Paper proposals to replace the present system.
Will the noble Lord make plain what is intended? Is it intended that the Green Paper proposals, after due consultation, will replace it? That seems to me to be the right way to put it.

§ Lord Skelmersdale
My Lords, the House will know that the Green Paper proposes—and I use the noble Lord's word—to make the grant system much simpler. Once the proposed reforms are implemented the new system will ensure that every pound increase in spending means a £1 increase in local domestic taxation. Grant entitlements will no longer depend on spending—whether of that authority or any other. However, I take the point that primary legislation will be needed for this and there will be no doubt an enormous amount of discussion in both Houses, and indeed outside them, before such an Act can reach the statute book.

§ Lord Cledwyn of Penrhos
My Lords, all the noble Lord needs to do is to confirm that Green Paper proposals have no finality and therefore this sentence is wrong. Will he therefore say that the proposals in the Green Paper, as they are, will not be implemented but that proposals after the Green Paper has been discussed will be implemented?

§ Lord Skelmersdale
My Lords, all I can do is to confirm that what are in the Green Paper are proposals, and proposals they will remain until they get on to the statute book.

§ Baroness David
My Lords, may I correct something that the Minister said when he was responding to what I had said? He said that I suggested that more than half of the £1 billion extra would go to the Treasury. I did not say that. I said that almost half might, and I was using a paper which was produced by Brian Tanner, the principal negotiator for English rate support grant for local authorities, in which he said: If there were a general 3 per cent. overspend (as has been suggested by the local authority side on Grants Working Group) because of demographic pressures, pay inflation and increases in capital financing costs, an estimated £400 million of grant would be withdrawn". The figure of £400 million is getting on for half a billion. If there were not any grant moneys to be recycled there would be no need to abolish the grant recycling in a new Bill. Is the Minister not expecting that some amount of that £1 billion will go to the Treasury?

§ Lord Skelmersdale
My Lords, the point is that if any of that money goes to the Treasury, it will be the local authority's own fault. If local authorities spend at the generous level provided by the Government, they can claim the full amount of grant. This is what I would hope they would find themselves able to do.

§ Lord Stallard
My Lords, I apologise to the Minister for not hearing the first couple of sentences of his Statement. Can he confirm that local authorities will not get the cash to which they are entitled under the rate support grant proposals until the Bill currently going through the other place has gone through its procedures there and here? If that is so, is it not an arrogant assumption on which to base the rate support grant settlement, when that Bill includes many matters other than the immediate issue about the illegality of the previous rate system which will be contentious when they come here? Can the Minister confirm that that is what he is saying and allow us to draw our own conclusions from that?

§ Lord Skelmersdale
My Lords, the Statement which I have just read out is not the rate support grant report for 1987–88; it is a statement of my right honourable friend's firm intentions. One of the points in the Bill is that my right honourable friend should not be allowed to take any further considerations into account after, I think, 16th December 1986. It may well be that there will be considerable discussion on this point both in another place and in your Lordships' House. However, the auguries—if I may put it like that—make the intentions in the Statement as positive as they currently can be.

§ Lord Taylor of Blackburn
My Lords, may I then ask the Minister whether this is not a settlement but a statement of intent?

§ Lord Skelmersdale
It is, my Lords, in my right honourable friend's own words, his firm intentions, yes.