§ 3.27 p.m.
§ Lord Hesketh
My Lords, I beg to move that the Bill be now read a second time.
This Bill deals with modifications to the arrangements by which grant entitlements for local authorities are to be calculated for the remaining years of the present rate support grant system. It has been certified in another place as a Money Bill. It nevertheless requires your Lordships' consent, and the House will therefore wish me to explain both the reasons for it and the way in which it will work.
The Bill was announced by my right honourable friend the Secretary of State for the Environment and my right honourable friend the Minister of State for Wales in statements about local government finance made on 7th July which were repeated in this House. The Opposition spokesman in the other place recognised that:the Secretary of State's scheme…would not have worked if it had not been a secret".The primary purpose of this Bill is to provide the basis for an orderly closedown to the present RSG system, and thereby pave the way for an orderly transition from the existing system of grants to local authorities to the new community charge system which will operate from April 1990. In the present system grant depends on an authority's need to spend and on its actual spending. In the new system an authority's grant entitlement will depend only on its need to spend. This will be an important simplification. It will enable the grant arrangements to he simpler and, I hope, more comprehensible both to authorities and to Parliament.
The move to this new system does, however, mean that there is a need to make sensible transitional arrangements to bring the existing system to an orderly close. This is what this Bill does.
There are two fundamental reasons for legislating in the way proposed in this Bill. First, in the present system, local authorities do not know their grant entitlements for a year with certainty until many years after the financial year has been concluded. We have not yet, for example, finished with 1985–86. There is clearly a need to be finished with the old system before the new community charge system comes into effect. I think it is generally recognised that something would need to be done along the lines 738 of this Bill in order to achieve this. Although there may be differing views about the best way to achieve this, I hope there will be agreement about the underlying principle. This legislation will allow us to make all the final adjustments to grant under the old system before the end of 1989–90.
Secondly, the Bill also removes the risk that some less than scrupulous authorities might seek to obtain an unjustified grant gain in remaining years of the present system. At present, any device which reduces an authority's total expenditure up to 1989–90, even at the expense of higher expenditure later, will produce a once and for all grant benefit at the expense of the Exchequer. Some authorities are known to have been considering the use of various creative accounting mechanisms in order to exploit the present system.
Let me explain why. In the present system, grant entitlements depend on total expenditure, which is a technical, accounting concept. The figure for total expenditure for any year may be higher or lower than what might be called its "real" expenditure on services, depending on the accounting manoeuvres which an authority might engage in. In the normal course of events, this does not matter greatly, because eventually any artificial devices have to be paid for. A gain in grant in one year is counteracted by a reduction in some later year.
Your Lordships will appreciate, however, that a reduction in expenditure in 1989–90, or in one of the other years for which grant adjustments are still possible, will result in a grant advantage without any offset in later years under the new system when grant no longer depends on spending. In short, it would be a one-way bet at the expense of the Exchequer. I understand that a number of City institutions were offering authorities arrangements designed to produce precisely this effect. They would have enabled some authorities to transfer the burden for their services away from their ratepayers and onto the national taxpayer. This would clearly run counter to the Government's objectives as regards encouraging local accountability. If local authorities want to enter into complex financial deals, that is a matter for them, but there is no reason why the national taxpayer should be expected to pay a grant bonus as a result.
To bring the old system to a close and to remove the incentive for further creative accounting, the Bill provides that any authority's grant for the remaining years of the present system—that is, 1985–86 to 1989–90—should be based on information with the department at the time the new arrangements were announced on 7th July.
Clauses 1 and 2 deal with grant calculations for the years 1985–86 to 1988–89 in England and 1986–87 to 1988–89 in Wales. They provide that instead of using final outturn spending information we should instead use an expenditure figure—termed the relevant amount—which is derived from the rules set out in Schedule 1. The principles by which this relevant amount will be calculated are applicable to all local authorities. We believe they are fair. They produce clear, unambiguous figures which are accepted by local authorities. A clear line must be drawn under 739 the old system; and we believe the information we held on 7th July makes that an appropriate date.
Clause 3 deals with 1989–90. Each year the RSG settlement makes an assumption about authorities' spending in the next financial year. Such an assumption is necessary in order to calculate authorities' initial grant entitlement. Clause 3 and Schedule 2 set out the rules for determining authorities' total expenditure in 1989–90 against which grant will be paid. Next year grant payments will be based on authorities' budgets for 1988–89 projected forward. This is the normal way in which the expenditure projection is made. What will be different is that grant entitlements will not subsequently be revised in the light of what authorities actually spend. This is important because it will give authorities certainty about their grant entitlement before the start of the financial year.
This forward projection will be subject to special adjustments: first, to take account of the transfer of higher education establishments which from April next year will no longer be the responsibility of local authorities but of the new Polytechnics and Colleges Fund Council; and, secondly, for community charge preparation costs for which extra provision is made available.
To assist local authorities in preparing for the introduction of the new system my right honourable friend the Secretary of State has announced that next year's settlement will include £110 million for the extra costs authorities will incur on preparing for the community charge. Half of this expenditure will be met by a new specific grant (£55 million) which will be payable next year to all charging authorities. The remainder will be supported by block grant in the usual way. Capital allocations for 1989–90 will include a specific allocation of £135 million in addition to £25 million already announced for this year. There will therefore be no excuse for authorities which do not make adequate and timely arrangements for the community charge.
Clause 4 will enable consultation on next year's settlement to begin before Royal Assent. This will enable authorities to have details of their grant entitlements for next year in good time for their budget-making.
During the debate on this Bill in another place, alternative rules were suggested to those set out in Schedule 1. They were debated at considerable length. But I have to say that these alternatives would fail to meet our objectives in this Bill. They would not enable us to bring about an early close down of the present RSG system because they would require the collection of new informaton from authorities which had been certified by the auditor. Authorities whose total expenditure would be higher under the alternative rules would of course lose grant. Such authorities would be in no hurry to provide further information to the department. There would be a real risk that the system could not be closed down until after 1990.
The alternative rules would also present considerable operational difficulties. They are most unlikely to produce a single unambiguous figure for total expenditure for each authority for each year. 740 There would be major difficulties of interpretation. We have considered very carefully the alternatives that have been put forward by local government, but I have to tell your Lordships that none commends itself.
This Bill will enable us to meet our three main objectives. First, it will close down the present RSG system in an orderly manner. Without it we would need to continue with supplementary reports under the present legislation until 1992 or 1993. Secondly, it will break the link between expenditure and grant in the present system and thereby provide for a smooth transition to the new system in which grant will be fixed. It will provide authorities with certainty about their grant entitlements for 1989–90 and for earlier years. Thirdly, without it there is a considerable risk that some less than scrupulous authorities would use creative accounting in the remaining years of the present RSG system to manipulate their expenditure and so extract additional grant from the national taxpayer. This Bill therefore provides important protection for the Exchequer. Without it hundreds of millions of pounds would have been at risk.
Your Lordships, and local government, should not judge this Bill solely in terms of its effects on grant for this year and last. They should also take into account next year's settlement. For 1989–90 we have proposed aggregate Exchequer grant of £13,575 million. That is a generous amount. It is a substantial increase of £1.1 billion—about 9 per cent.—on grant payments this year. As a result of this Bill the full £13,575 million will be paid to authorities. I therefore commend the Bill to your Lordships.
§ Moved, That the Bill be now read a second time.—(Lord Hesketh.)
§ 3.35 p.m.
§ Lord McIntosh of Haringey
My Lords, I do not in any way wish to go against constitutional proprieties which restrict the powers of this House in relation to Bills which have been certified in another place as money Bills, but that does not mean we have to like this Bill. Certainly it does not mean that we have to let such a Bill go through without at least discussing the issues raised.
It is particularly objectionable that a Bill of this kind should be introduced during the spill-over period at this stage in the Session. We have looked at precedents for Bills being introduced at this time. There are precedents but they do not in any way justify the introduction of such a controversial measure at this late stage in the life of a Session.
The precedents of which I am aware are the Cinematograph Films Act 1975, which was supported by the then Conservative Opposition and which was not a party political matter, and the Imprisonment (Temporary Provisions) Act 1980, which was subject to some attempts at amendment in Committee in another place but was not opposed here at Second Reading by the Labour Opposition and was not a party political matter.
This Bill is a party political matter. It is yet another attack on local government. Whatever the noble Lord says about the administrative nicety of closing down the accounts on the old system of local 741 authority finance before we start on the new one only makes me even more suspicious. It strikes me that this is a civil servant's Bill, an official's Bill, and that the Government have jumped on the political bandwagon because they see it as an opportunity to impose further financial penalties on local authorities.
There is no doubt that the effect of this Bill, particularly for last year and the current year, will be to impose financial penalties on local authorities as a whole. It will also have the effect of course of bringing windfall profits for the accounting periods back to 1985–86 to a large number of local authorities and unexpected losses to local authorities. In a moment I shall come to creative accounting, which forms so much of the justification for this Bill.
We have in this Bill an early end to the resource equalisation system which has been the basis of local authority expenditure for many years. The Government, having succeeded in persuading Parliament that it would be right to have a completely new system, the poll tax, are now in effect retrospectively taking advantage of the fact that the old system has to be phased out. That is being done substantially to the financial detriment of local authorities. The calculations which we can make based on returns to the Treasury by the local authority associations are that the grant holdback— in other words, the loss to local authorities under this system—in 1987–88 is about £265 million and that the grant hold-back for 1988–89 is about £511 million.
My honourable friend John Cunningham, MP, obtained from the Secretary of State, in answer to a Written Question at the end of October, a complete list of how individual local authorities are affected by this loss of £511 million. It is not what one might expect. It is not that Labour authorities alone will lose and Conservative authorities gain relatively. The losses are very heavy for many of the shire counties. I am somewhat surprised that noble Lords who commonly speak with a knowledge of the affairs, for example, of Kent County Council are not present. Kent County Council is losing well over £10 million as a result of this taking away of £511 million grant which would otherwise have been allocated under the old system.
In effect we are having retrospective legislation. We are changing the rules of the old system in order to close it down, and changing the rules involves taking away money. Our objections would be less strong, though they would still exist, if the result was neutral and if the effect was that some local authorities gained and others lost. The fact that local authorities as a whole will lose and that the Treasury will gain £.75 billion simply is not acceptable. It is certainly not acceptable in a Bill introduced at the very end of October and at the very end of the Session. There is no good reason whatever why this legislation should not have been introduced early in the new Session. There was no such action taken at the end of the last Session though Scotland was going into the poll tax regime a year earlier. Why should this legislation be introduced now? It is simply not acceptable.
742 A large part of the noble Lord's speech was taken up with claims of creative accounting that we have heard so often. I believe he described it as a one-way bet at the expense of the Exchequer. I believe I have made it clear that this is a one-way bet at the expense of local authorities and that the Exchequer will gain. The noble Lord is quite wrong about the claim of creative accounting in any event. These are simply accusations about City institutions being prepared to lend. The evidence produced to the department is very well known to it. Moreover, it was rehearsed at some length when the Bill was debated in another place. The reason for these measures is not creative accounting; there are many local authorities, by no means all of them Labour, that will lose very badly as a result of this Bill because they have been prudent in their expenditure rather than the reverse.
They will lose because though they may expect savings they do not include their savings in their claims to the department until they are absolutely sure that they will materialise. That is sensible and prudent accounting and made possible by the existing system which provides that the final settlement is based upon actual expenditure as finally agreed. In practice there are many authorities that will lose very badly as a result of the Bill—authorities that have not in any way been creative, but authorities that have been prudent. As an example let us consider the Conservative London Borough of Merton. The final accounts incorporate the expenditure reductions of £15 million for which no additional grant will be forthcoming.
Perhaps I may also give further examples as regards superannuation funds. Any noble Lords who have involvement with them as I have in private industry, will be aware that superannuation funds are not funds that are changed and valued in each year on the year. It takes a long time to make a final evaluation of superannuation funds. As regards the West Midlands' superannuation fund, which represents the West Midlands metropolitan districts, there will be a block grant loss of about £25 million as a result of the revaluation of the superannuation fund. No action by them is required: it is the professionals who do the revaluation. They have been prudent in not taking those reductions in expenditure into account in their accounts and because they did not get the figures to the Secretary of State by the right time they will lose £25 million.
The same situation is true of the London borough of Lewisham which will lose £3 million for exactly the same reason. The borough of Wolverhampton will lose £2 million of additional grant because it has made expenditure reductions in the years 1987–89 which could not be reported to the Secretary of State by 6th July. The borough of Dudley has made economies of £5 million and it was expecting to receive an increased grant of £3 million, but it will no longer receive it.
Police and fire authorities—not just local authorities—that have made reductions in expenditure as they have been urged to do are not receiving the benefit of those reductions. In other words, and to put it more crudely, they are being penalised for over-spending which they have not undertaken. They are losing out in every possible 743 way. I do not believe that it will be in the tradition of the Government party normally and publicly to penalise police authorities, but that is what it is doing over and over again.
If the Government were to argue that the main cause and justification for these measures was creative accounting, they could have paid attention to the amendments that were put down by my honourable and right honourable friends in another place. Those amendments did not in any way seek to condone creative accounting; they sought to take account of the realities of local authority budgeting and auditing procedures. The amendments said, first, that where an authority had, by 7th July, already approved its accounts for 1987–88 that expenditure information should be taken into account in determining grant entitlement. Local authorities had approved their accounts and they could not change them any more. There was no scope for creative accounting but the accounts were not with the Secretary of State by 7th July and therefore many of these bodies will lose out.
The second amendment stated: that where an authority had not approved its accounts by 7th July grant entitlement should be based on final expenditure as certified by the authority's auditor. Again, there was no scope for creative accounting but there was scope for a realistic assessment of the likely actual expenditure of the local authority by professionals and not by politicians.
The third amendment stated that where an authority had not approved its final accounts, but had by 7th July formally taken decisions which would affect the final reported total expenditure, those decisions should be allowed in determining total expenditure for grant purposes. Again, decisions had already been taken before the statement was made by the Secretary of State on 7th July. There was no possibility of subsequent creative accounting, but there was the possibility of the recognition of the true position of the authority under the existing rules as far as it was aware.
The Government's response was not to agree to these amendments. They could not shelter behind the creative accountancy argument because that argument is irrelevant to these amendments. The Government just ignored them and gave no adequate replies, it must be said, in another place to the arguments and they were simply rejected by the Minister.
This is a classic case of shifting the goalposts while the game is still in progress. It would not be so serious if it were not so much more than a game. A great deal of money is involved. The Treasury is taking a windfall profit by changing the rules in the middle and we are expected to acquiesce in these measures. Constitutionally we have to do so, but we do so with a heavy heart.
§ 3.48 p.m.
§ Lord Callaghan of Cardiff
My Lords, I confess that I have never understood the fiendish complexities of the rate support grant. I am filled with admiration for those like my noble friend Lord McIntosh who are able to give us such a powerful 744 speech as he has done this afternoon. I want to approach the subject in a much simpler way by putting to your Lordships what I have been asked to say by the City of Cardiff as regards the impact of the Bill—a Bill which my noble friend certainly convinces me should not have been put forward at this stage and there certainly should have been more consultation than there has been.
The Bill's impact on the City of Cardiff is to involve the ratepayers improperly in an extra bill of some £2,300,000 because Ministers have failed to keep their word. That is a harsh thing to say but I intend to prove it and I shall do so quite shortly. I will trouble the House with a series of dates. On 19th March 1987 a report was placed by Ministers before another place which said that the grant paid to a local authority by the Government in respect of the year 1987–8 will depend on what the authority actually spends. The grant was to depend not on the budget that the local authority prepared or on the estimates as they seemed to be working out during the year; it was to depend on what the authority actually spent. If that is not a firm undertaking I have never heard one. It is that undertaking that Ministers break in this Bill.
In the light of that statement the city of Cardiff set about making reductions in its budget in order to keep within the Government's guidelines. It published estimates which showed that it intended to reduce its expenditure. The financial year began a month after the statement in April 1987. Events proceeded with Cardiff city council, and the county as well, working at these reductions, which clearly could not be achieved by a stroke of the pen. They have to be achieved by cutting services over a period, by making people redundant and by inviting people to take early retirement. All these sums accumulate during the year.
In February of this year the Secretary of State for Wales asked local authorities how they were getting on. He said that the year would shortly be coming to an end and though he could not expect an exact figure because part of the year was still to come, he would like an estimate. That is a free paraphrase. His exact words were:It is recognised that in compiling figures there may be a need to balance speed of reporting against the time required to refine the estimates".He went on:I would be grateful to receive the best estimates that can be made in the time available as an informed approximation".In other words, the Secretary of State was saying, "I know that you cannot tell me before the end of the financial year the exact outcome on which I shall be paying you a block grant, but give me the best idea you can so that I have some figures to go on". That was the position in February 1988.
The council complied. However, our treasurer—and normally this would be a compliment—is a cautious and prudent man, as all treasurers should be. There were some savings he had not achieved which he hoped to achieve before the end of the financial year. They had not fructified by February although he expected them to do so by the end of the financial year in April. They were not in his hand so 745 he did not include them in his estimate when he returned the ministry's form to the Welsh Office. Indeed, when he wrote to the Welsh Office and enclosed the form he said that his figures were,no more than a prudent estimate".I emphasise again that during the whole of this period services were being cut and therefore savings were being garnered in the whole time. Staff were being made redundant and people were taking early retirement. These were not creative accounting measures. They were measures of real substance which affected both men and services in the city of Cardiff.
The estimate was made in February. The financial accounts for the year ending April finally closed in June. That is when the treasurer was able to set out the position. He was able to report to the finance committee of the city council that he had done better than he had estimated in the previous February. In other words, his prudence was justified. The city treasurer was delighted. He made his formal report to the finance committee on 16th June. Note the date. The accounts had closed. The council had kept within the Government's guidelines. It had done better than the situation set out in all the figures it had given to the Government when asked for them. He was able to add the good news that, on the basis of the undertaking laid before the House of Commons by Ministers, the city of Cardiff would be entitled to an extra £2,300,000 because its grant would depend on "what the authority actually spends". Those are the words.
So far so good. On 29th June another important date—around about a fortnight after he had reported to the finance committee (all was well and the accounts were closed) the Secretary of State for Wales asked the council for its final figures, something it had been expecting. The form was headed "Block Grant Claim Form". Nothing could be clearer than that. It was not asking for an estimate, as the previous form had done. It was asking for a form to be duly certified and signed by the financial officers of the city council. They did so. The Secretary of State asked, "Please return this form to me by 1st August". All this was in accordance with normal practice. The council had complied in every respect with the Government's wishes. It had reduced its expenditure. It had given the Secretary of State the approximate estimates he had asked for of what it hoped it could do. It actually improved on the estimate in the final result. The council was soon disillusioned if it thought that the block grant claim formon which it sent in its figures would be accepted.
Only eight days after he had sent the council this form—this is a very material point—a Statement was made in another place, on 7th July saying that the grant would be based not on actual expenditure, which had been the basis on which the whole thing had been worked out during the previous 15 or 16 months, but on,information which was with the department by midnight last night".That is to say, the information that had been contained in the estimates made before the year was ended.
746 No one can tell me that on the 29th June when the form was issued, asking for it to be returned by 1st August, Ministers were not already pretty well making up their minds that they were about to change the basis. Every fair-minded person who studies this matter will regard Ministers as having grossly misled Cardiff city council and all the other city councils and county councils which were taking Ministers at their words. The form was sent out on 29th June, asking for it to be returned by 1st August. On 7th July the rules were changed. If the form was in by 5th July the council was all right. As my noble friend Lord Cledwyn of Penrhos knows, if only the form had said midday on the day we would have whipped round from the city treasurer's office to the Welsh Office—it is only five minutes walk—and would have had the form in.
It is not right that these financial matters should depend upon a lottery of this kind. If we in this House had the power, I would undoubtedly ask your Lordships to send the Bill back in order for it to be looked at again. What has happened is grossly unfair. When the city fathers heard this they were dumbfounded. Indeed, it is an understatement to say that they were dumbfounded. They were incredulous. They went to the Welsh Office and said, "You can't mean it". When it was confirmed, this incredulity turned to anger—anger on all sides and among all parties. I speak for them all this afternoon. They felt, and I agree with them, that the Minister has cheated. Remember the dates: 29th June, 7th July and 31st August. Ministers have behaved in a most shabby manner over this matter.
I have one other point. The district auditor had already received the accounts before the Minister's announcement. There could have been no question of fiddling them afterwards with so me creative accounting—the phrase my noble friend used—in order to adjust them and get them right. The district auditor had those accounts which had been finally cleared in every way. The Minister had not asked for them to be delivered to him until 31st August. I do not know what your Lordships make of this behaviour. I have a strong feeling that you will agree with the city of Cardiff that the Government's good faith is in question and that Ministers have gone back on their word and on the understandings on which they based this matter for a very long time. The council feels that it has behaved responsibly, that it has co-operated in every degree with the Government's policy, unpalatable though it was, that it has been misled and that its financial relations with the Welsh Office have been harmed as a result. Above all, it is the view of the city of Cardiff, the capital city of Wales, that this shabby behaviour is damaging to the integrity of public administration.
I ask Ministers to take serious note of these people who did all that they could. It was the Conservative council which first cut; it was the Labour council after an election which carried it on and indeed made further reductions. Both sides are united on this issue.
I wrote to the Secretary of State, Mr. Peter Walker, and received a letter in return. I did not believe it myself when I read it, but I wrote to him and asked him to look into the matter because I thought at the time that perhaps Cardiff was alone and that 747 something had gone wrong; I did not realise that this was a general affair that affected all of the cities. I hope that my noble friends will not mind me spending so much time on this because I think that it is a clear illustration of what has apparently happened in so many local authorities up and down the country. The letter said:I fully appreciate the concerns which you have expressed. It remains a fundamental principle"—that is his defence, and as noble Lords can see from the letter it is not much of a defence—of the Bill that closedown of the existing rate support grant system should be based on simple rules equally applicable to all authorities".All right—administrative convenience. If it does not mean that, then I do not know what else it means. I must tell the right honourable gentleman that there is another fundamental principle in my book, and I think in the book of many noble Lords on both sides of the House; that is, when Ministers have given their word, they should stick to it.
I do not overblame Mr. Walker. I do not think that he is the real villain of the piece. Indeed, he has built up quite a good reputation for himself in Wales since he was sent there as a viceroy and I can tell him that his exile there has certainly not done him any harm. No, as I say, I do not blame him. The voice may be the voice of Jacob; but the hand is the hand of Esau. I think that Mr. Ridley is the villain of this piece and Mr. Walker is just being dragged, humbled and chained at the wheels of his chariot.
I am sorry to have taken so much time but I feel that this is a most important and serious matter in which local authorities up and down the country have been mulcted by something which is very difficult to understand. It has taken me a long time in which to master all these details and if the example I gave is repeated throughout other local authorities, I can only say that the Bill should not have been passed and I very much regret that it has been.
§ Lord Rippon of Hexham
My Lords, before the noble Lord sits down perhaps I may put something to him. I should like to assure him that I am certain there are many noble Lords on this side of the House who, having listened to what he has said, will accept that the good faith of the Government is clearly in question and that a question has been raised as to the integrity of public administration.
May I also say to him that many people in local government who are most concerned about the relationship at present between central and local government will be very disturbed by what he has said.
§ Lord Callaghan of Cardiff
My Lords, I am much obliged to the noble Lord for what he has said. I believe that this is a matter where party differences should be put to one side. As I said, in my city there are no party differences over the matter. Putting party differences to one side, there should be a certain relationship between the actions of Government, their word and what happens afterwards.
I understand—no doubt the Minister will be able to comment on this—that as a result of the Bill Ministers will have no discretion to put the matter 748 right; when the Bill becomes law nothing can be done. Indeed, we cannot send it back.
I have no doubt that every fair-minded person will agree that the Government should find some way to recompense the cities and the counties for what they have been unfairly mulcted of and that there should be some specific provision made to ensure that the Government do not gain this windfall which has been not only unfairly, but also unjustly, garnered by them.
§ 4.3 p.m.
§ Lord Hesketh
My Lords, we have had a more than interesting debate this afternoon on the Bill. However, before I comment on the various points made by your Lordships, perhaps it would be helpful if I were to reiterate the three key objectives of the Bill. First, it will enable the present rate support grants system to be closed down in an orderly manner—without it we should be still calculating grant entitlements, under the present system, well into the 1990s. Secondly, the Bill will provide local authorities with certainty about their grant entitlement for 1989–90, and for earlier years. Thirdly, it will remove the incentive for authorities to indulge in creative accounting. I know that the noble Lord, Lord McIntosh, was rather dismissive about that, but I shall return to the matter later.
Perhaps I may now try to answer some of the questions raised by the noble Lords, Lord McIntosh and Lord Callaghan. I should like to take the opportunity to thank the noble Lord, Lord Callaghan, for writing to me before the debate, for which I am extremely grateful.
The noble Lord, Lord McIntosh, was unhappy with the timing of the Bill. I can only say that the Government decided to close down in July and announced that decision immediately. They could not have given a warning because, as the Opposition noted in another place, it would have entitled authorities to indulge in creative accounting. If the Bill had been delayed until the next Session, local authorities would not have known their position for grant for 1989–90. Further, the rate support grants settlement, which is usually presented before Christmas, would have either been delayed until the Spring or would have had to come forward under considerable uncertainty while the Bill was before Parliament.
The noble Lord, Lord McIntosh, drew our attention to the £500 million. This year local authorities have overspent the provision available by about £1.2 billion, as a consequence of which they had forgone around £500 million in grant. I find it difficult to accept, as some have argued, that local authorities might reasonably have been expected during the course of this year to reduce their budgeted expenditure by £1.2 billion and so take up the additional grant which was on offer.
§ Lord McIntosh of Haringey
My Lords, I am most grateful to the noble Lord for giving way. However, when he said that authorities have "overspent", what he means is that their budget and their provisional estimates involve overspending; he does not mean 749 what over-spending has meant in every previous year when it has been the final accounts which have mattered so far as grant is concerned.
§ Lord Hesketh
My Lords, such a reduction is purely hypothetical and would have been unprecedented in local government finance.
§ Lord McIntosh of Haringey
My Lords, how can it be said to be "hypothetical" when it has taken place every year in which the system has been enforced? It is not hypothetical; it is real money.
§ Lord Hesketh
My Lords, I feel that we shall have to agree to differ on that point. The noble Lord, Lord McIntosh, drew your Lordships' attention to superannuation. It has been suggested that those authorities which did not reflect their reduced employers' superannuation contributions in the expenditure information returned to the department should now be allowed to make that adjustment and thereby gain grant advantage. But local authorities are requested to revalue their superannuation funds every five years.
Because of the buoyant state of their funds some authorities obtained interim revaluations. They did so on the basis of actuarial advice and, in good faith, made reductions in their contributions. The department has subsequently advised that reductions in superannuation contributions between the five-yearly revaluations were ultra vires. We could not therefore allow interim revaluations to continue and so had to call a halt. It would have been quite wrong to penalise those authorities which had made the interim reductions. They have gained accidentally because of a combination of circumstances.
The noble Lord, Lord McIntosh was dismissive of creative accounting. We could go into the matter at some length but I feel that I should just draw his attention to the fact that no one, even today, is entirely clear about who owns Camden's lamp-posts, let alone its library books or its municipal art collection, although we know that a French bank is reported to have bought its parking meters. It is the book-keeping transactions or financial deals which are unrelated to true spending and which alter the level of reported total expenditure but which gain government grant that we seek to prevent in our proposals.
The noble Lord, Lord McIntosh, was also unhappy about what he described as the "moving of the goal-posts".
§ Lord McIntosh of Haringey
My Lords, I am sorry to interrupt the noble Lord yet again, but he seems to be going on to another part of his speech without actually dealing with the real issue concerning creative accountancy. The point I was making—which he has not answered, and which Ministers in another place did not answer—is this. What is wrong with the amendments put down by the Opposition in another place which did not involve treating one local authority differently from another; which did not involve creative accounting but which provided for recompense for those authorities which 750 had been prudent and not reflected their reductions in expenditure until they were sure of it. I gave three examples of those amendments which, as I said, were not answered in another place. Will the Minister answer those charges now, before he moves on to another issue?
§ Lord Hesketh
My Lords, the noble Lord, Lord McIntosh, is, I believe, referring to what I described in my speech as the alternative rules. I felt that I covered that point in my speech but I shall repeat the basis. The alternative rules would require the submission of new information and that would not enable us therefore to bring an early close to the present rate support grant system. Authorities with increased spending would be reluctant to submit further information because by doing so they would make themselves worse off. The alternative rules are complicated; they do not produce clear, unambiguous figures for each authority, and they would present considerable operational difficulties. I feel that these alternative rules will be a recipe for confusion. I hope that I have answered the question which the noble Lord felt had not been answered.
§ Lord Callaghan of Cardiff
My Lords, if the noble Lord will permit me to intervene, I fear that I do not know what the alternative rules are. I wish to suggest yet another way out if these are not the alternative rules. When a local authority has closed its accounts, and has even sent them to the district auditor but because of the requirements of Ministers up to 7th July it had not forwarded them to the ministry, why should that authority not be recompensed? Why should not the Government accept that? Ministers will need no more information. The information is there, has been there and was there at the time. The fact was merely that it had not been received by the Ministers who had asked for it by a later date. What is wrong with a simple solution of that sort? We know that there are councils in that position. Why can the Government not play fair?
§ Lord Hesketh
My Lords, in a second I am hoping very much to come to the points which the noble Lord raised earlier. I shall go on to the points concerning Cardiff. Perhaps I may once again say how grateful I was for the letter that I received from the noble Lord. Of course there will be disappointment on the part of authorities such as Cardiff. I fully understand their position. On the other hand, other authorities have benefited, although they have naturally been rather more reticent in announcing this. One of the key objectives of the closedown proposals was to arrive at a set of simple rules equally applicable to all authorities. I regard a clean break on 6th July, with no exceptions, as the mot equitable and straightforward way of achieving that objective.
My right honourable friend the Secretary of State for Wales informed all Welsh councils on 15th September of the total expenditure figures which he proposes to determine under the provisions of the Bill. Nevertheless, I assure noble Lords that in calculating grant entitlement he will take account of all the information which is admissible under the 751 rules in the Bill. If an authority can demonstrate that the figure given to it on 15th September is not the relevant amount, under the rules and legislation my right honourable friend will be able to make a determination accordingly.
§ Lord Callaghan of Cardiff
My Lords, I am sorry. With respect, it does nothing of the sort. The rules contained in the Bill are precisely those under which the city of Cardiff loses £2.3 million. The legal experts in Cardiff have examined this, everybody has looked at it and that is the maximum amount to which they are entitled. I say this to the noble Lord in great friendship: all he is offering me is soft soap; there is nothing in it.
§ Lord Rippon of Hexham
My Lords, to use the noble Lord's phrase, the feeling is not one of disappointment but of outrage. A very clear, specific and so far unchallenged attack has been made upon the good faith of the Government by the noble Lord, Lord Callaghan, speaking with all the authority and dignity of a former Prime Minister. If I may say so, he has put his case very fairly. I believe that the Government must answer it properly.
§ Lord Hesketh
My Lords, I can only add that at closedown on 7th July no authority had made even its unaudited outturn expenditure return to the department. Even if we had waited until 1st August 1988, there would still have been fewer than 40 such returns with the department. One of them was audited. I feel that I cannot go further than what I have said this afternoon. I commend the Bill to the House.
§ Lord McIntosh of Haringey
My Lords, before the Motion is formally decided, a very serious charge, which has been supported on both sides of the House, has been made, by my noble friend Lord Callaghan, backed up by the noble Lord, Lord Rippon. We appreciate the constitutional position of a money Bill, but I ask the Minister in all seriousness whether he would not be well advised not to press the Second Reading today but to put it off until Monday. Then he could go back to his right honourable friend the Secretary of State and put to him the matters which have been raised this afternoon, not so much from the Opposition Front Bench but from Privy Council Benches. The noble Lord would not risk losing the Bill: we shall not break the constitutional rules. Would he not be well advised to give the Bill three more days?
§ Lord Diamond
My Lords, before the Motion is formally dealt with, perhaps I may raise a point. I hope that the Minister realises the only reason why there have been two speeches against the proposals in this Bill. All those who have been concerned, as I was privileged to be concerned, when the noble Lord, Lord Callaghan, was Chancellor of the 752 Exchequer—and one must not forget that he speaks in a dual capacity with all his experience—and those on these Benches regret very much that the Government have been guilty of creative legislation.
§ On Question, Bill read a second time; Committee negatived.
§ Then, Standing Order No. 44 having been suspended (pursuant to Resolution of 7th November), Bill read a third time, and passed.