Local Government Finance (Hansard, 11 October 1989)

§ Lord Hesketh
My Lords, with the leave of the House, I should like to make a Statement concerning transitional arrangements for the introduction of the community charge. The Statement is as follows.
The introduction of the community charge is one of the major reforms of this Parliament. It is going to sweep away the discredited domestic rating system and establish a new, fairer and more accountable basis for paying for local government services. Most local authorities in England are well advanced in preparing for implementation of the community charge, and the Government are confident that it will come successfully into operation on 1st April 1990.
Provisional details of the 1990–91 revenue support grant settlement for England were announced by my right honourable friend the former Secretary of State for the Environment on 19th July. Under these proposals the aggregate amount of support from government grants and business rates will be £23.1 billion in all. This is £1.8 billion more than in the present year—an increase of 8.5 per cent. Given this generous amount of support, the average community charge in England if authorities collectively spend in line with the Government's assumptions will be about £275. This is broadly in line with the average rate bill per adult for the country this year.
Nevertheless, the structural change from domestic rates to the community charge will mean that some areas would face significant changes An the amount to be raised from their residents. It is for this reason that we have proposed a transitional safety net to protect these areas. The adjustments to grant will mean that if authorities spend in line with the Government's assumptions no area will need to raise in real terms more than an extra £25 per adult from the domestic sector.
The Government understand the concern which some have expressed about the arrangements for the safety net whereby charge payers in gaining areas contribute up to £75 to ease the losses for losing areas. But those contributions all come from areas 343 that are gaining substantial amounts of additional Exchequer support from the change to the community charge. Some areas will be gaining over £200 a head from the change. I do not think it unreasonable therefore for a proportion of the overall gain to be contributed in the first year towards alleviating losses elsewhere. Every gaining area will still retain about half of its gains in the first year, which should enable authorities to make significant reductions in the average burden on the domestic sector in those areas.
We are today announcing the arrangements for later years. The Government now propose that the safety net should be abolished from 1st April 1991. This will mean that the remaining half of their prospective gains will flow through to gaining areas in 1991–92.
For losing areas the Government propose instead to pay specific grant from 1991–92 to protect them against their losses during the transitional period. The grant will be phased out over the following three years, as had previously been envisaged for the safety net. The cost to the Exchequer of this specific grant is estimated to be about £400 million in 1991–92, about £200 million in 1992–93 and about £85 million in 1993–94.
In the new system community charge benefits, which will provide rebates of up to 80 per cent. of the community charge, will be available for those who are on low incomes. For 1990–91 the Government have already made available about £2 billion in Great Britain as a whole on community charge benefits and an additional £½ billion through income related benefits—some £2½ billion in all. Additionally, certain groups of people who cannot be expected to pay the charge will be exempt from liability, and I am able to announce that we are extending the exemption for people who are severely mentally impaired so that it will include people who suffer from degenerative conditions such as Alzheimer's disease. There have been practical difficulties up to now which prevented our doing so; but we believe that we have overcome those difficulties, and the necessary regulations will be made as soon as possible.
Under the community charge system more than half of households will be better off than they would have been under the present system. However, there will inevitably be individuals or households who will face significant increases from the changeover to the community charge.
In the light of that concern, the Government propose to seek enabling powers by means of amendments to the Local Government and Housing Bill to set up a transitional scheme of relief for individuals. Full details will be set out in a statutory scheme, subject to approval by Parliament, which my right honourable friend the Secretary of State for the Environment intends to lay before Parliament early in the new Session.
The scheme of transitional relief for individuals will be primarily designed to assist former ratepayers and their partners whose community charges for a defined level of spending would otherwise be substantially higher than their previous rate bills. It 344 will also provide help to pensioners and disabled persons who have not previously paid rates.
I should make clear that it is not the Government's intention that the scheme of relief should apply to whatever level of community charge authorities set. It will be based on the assumption that they spend in line with the Government's proposals for total standard spending for local authorities as announced on 19th July. That means that if an authority chooses to spend more than the Government assumptions, the full amount of the excess will fall to be met by chargepayers.
The basis of the scheme will be to provide relief to ensure that ratepayers and ratepayer couples need pay in community charges no more than £3 a week extra over their 1989–90 rate bills, provided that authorities spend in line with the Government's assumptions. For households with more than two adults, the scheme will not normally take account of more than two community charges. But, for pensioners and disabled people who are not ratepayers or partners of ratepayers and who have not previously paid rates, the amount of relief will be the difference between their community charge bill on the same spending assumptions and the threshold of £3 per week.
I am depositing in the Library a document setting out full details of the proposals, copies of which are being sent to the local authority associations, individual authorities and other interested groups.
The Government are asking local authorities to undertake the operation of the scheme. The Government fully recognise that that will be a substantial extra task for them to undertake at a time when they are already busy preparing for the introduction of the community charge next April. We shall be discussing operational aspects of the scheme with authorities urgently and making arrangements to meet in full a reasonable level of administrative costs.
We estimate that about £300 million in relief will be distributed in 1990–91 in England. Transitional relief will be phased out over a three-year period. My right honourable friends the Secretaries of State for Scotland and for Wales will make announcements separately about arrangements in Scotland and Wales.
The introduction of the community charge will redistribute the burden of paying for local community services significantly from the present class of domestic ratepayers to the broader base of community chargepayers. The Government believe and Parliament has accepted that that uniform basis of paying for local services (with community charge benefit to help poorer people) will prove to be much fairer and more stable once the system is fully in operation. The changeover will however have a significant immediate effect on some individuals. The proposals that I have announced today for abolishing the safety net in future years, replacing it with a new specific grant and for establishing a new scheme of transitional relief for individuals will ensure that the changeover is kept to manageable proportions for those affected, and that the community charge can be phased in smoothly.
My Lord, that concludes the Statement.

§ Lord McIntosh of Haringey
My Lords, the House will be grateful to the Minister for making the Statement. He made it with admirable sang-froid considering that it is a Statement that is not only revolutionary in terms of the conditions under which the poll tax is to be levied, but also humiliating for the Government in that in the Statement they are recognising the justice of the criticisms that we made at the time of the Local Government Finance Bill and subsequently. If the late Lord Chelwood were still with us, he would rejoice in some of the things that have just been said from his Front Bench and would demand apologies for some of the things that were said from that Bench 18 months ago.
The fundamental difference now recognised by the Government for the first time is that the charge that we made—namely, that the poll tax would make the poor poorer and the rich richer, and that that applied to individuals and households rather than just to local authority areas—has now been recognised. In addition to the safety net which applies to different areas of the country, the Government now propose a completely new, unprecedented series of transitional reliefs for individuals and households in order to deal with the problem which we pointed out and which the Government consistently denied; namely, that it was individuals and households—particularly the poorest individuals and households in our society—who would suffer from the poll tax. The Government are now introducing a completely new system of relief for those individuals in order to ensure that there will not be an increase of more than £3 a head in the first year of operation.
The truth of the matter is that the Government are scared to introduce the poll tax in its full horror before the next election. They are making sure that the country will not experience the effect of the poll tax until they have been—as they hope—re-elected. On behalf of my noble friends here, I should say that this means that we will have an opportunity to sweep away the poll tax in 1991 or 1992 before it has reached its full depths of injustice.
The proposals made here have many grave defects, despite what I have said about them. First, although they recognise the justice of our case in the short term, they still leave a deeply unjust, unfair and disliked tax on the British people at the end of the transitional period. If it is right that there should be the relief that is now proposed for 1990–91 and 1991–92, then surely it is right thereafter. The people who are poor in 1990 will still be poor in 1993, and the case for relieving them of this unjust, additional impost will be as strong then as it is now.
Secondly, the tax is unfair because it not only retains but extends government control over all parts of local authority expenditure. Already, under the proposals of the Local Government Finance Act 1988, three-quarters of local authority expenditure—a half of which comes from central government grant and a quarter from the uniform business rate—is to be controlled directly by the Government. The Government are now saying that, having recognised that the remaining 25 per cent. 346 will not work, they will provide the relief only for those local authorities which live within government assumptions.
The Government have been in discussion with local authorities and local authority associations for months about those assumptions. The range of assumptions which are available to the Government and which the Government have put forward for the control of local authority expenditure are so wide that, for example, on one assumption, Hackney could have a poll tax of £48, and on another—also a government assumption—it could have a poll tax of £606. In other words, even for that part of local authority expenditure which is supposed to be in the hands of local authorities, there will still be the arbitrary imposition of the assumptions made by government in Marsham Street. The effect of that on the relief that is now proposed will be overwhelming. It means that local authorities will be bound hand and foot in almost every aspect of their expenditure by the whims of government and of the Secretary of State.
The proposals are defective in a very practical way. They are defective because it is now proposed—paragraph 15 of the Statement recognises it—that, less than six months before the introduction of the poll tax on 1st April 1990, the department will now seek urgent discussions with the local authority associations about how to implement it at a time when they are already fully stretched with the difficulties of implementing the poll tax as already defined. The Government have not made any systematic inquiries since the spring about how local authorities are faring in introducing the poll tax. They do not know which computer systems are being installed. They do not know about the whole complex problem of the link with the housing benefit system. They just do not know and they are now imposing an additional burden on local authorities with regulations to be laid in the first part of the new Session—in other words, presumably in early December—for implementation by 1st April. It is simply not possible to do that.
As I said, this is a humiliating climb-down for the Government. They have had to recognise the justice of the criticisms made from these Benches and by my honourable and right honourable friends in another place as well as the criticisms of those concerned with these issues throughout the country.
Is it too late to ask the Government whether they would be wiser simply to abandon the poll tax precedure which, it is clear, will not work? Would that not be more consistent with their own intended and desperate attempt to secure re-election in two or three year's time?

§ Lord Ross of Newport
My Lords, I also thank the Minister for coming to the House to make this Statement. Does he agree that even the most fair-minded observer will undoubtedly comment that the Government have a distinct attack of the jitters? They must be regretting that they ever embarked on this stupid policy of the poll tax which will prove to be a most bureaucratic and costly nightmare.
347 From these Benches I welcome the further concessions to the disabled. However, the proposals now before the House do nothing whatever to improve the already disastrous relationship between central and local government. I hope that in time these Benches will be able to play a part in restoring to local government the role that it rightly ought to play in this country. It has been castrated by this Government and I bitterly regret that that has happened.
The sum of £3 a week is obviously acceptable although the three examples shown on the last page still seem to show very substantial increases for people who for the first time will be liable to pay the community charge.
Finally, there is the direct grant, which we shall return to in a year's time and which can be classified as nothing but an electoral bribe. That is obvious. On these Benches even now we can pick out the constituencies to which that money will go. It is a great pity that we have had to reach this stage with the community charge. Further amendments will presumably be put forward at Report stage and no doubt we can deal with the matter more fully then.

§ Lord Hesketh
My Lords, the one thing of which I can assure your Lordships' House is that coming to this Chamber this afternoon for this Statement has nothing to do with electoral advantage. We always recognised that the introduction of the community charge would mean that some households would gain and others lose and that the area safety net will reduce difficulties for areas which have to raise more than they raised in total from their residents previously.
We took a second look at the problems which might arise for individuals and decided it would help to have a smooth transition. This is no humiliating climb-down. It shows that we are a flexible Government that are prepared to listen.
I can give the House examples. Sadly the noble Lord, Lord McIntosh, was not with us in our deliberations late last night. His noble friend Lord Carter asked me why the Government could not consider introducing arrangements for the orderly transfer to the community charge for the disabled. That is one of the components of what has happened today. We have listened and we hope that we are making a better system even better.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that many people will welcome the adaptations and adjustments that the Government have made to this system in response to the representations which they received from all quarters? In particular I welcome the cutting down of the safety net provisions to one year. As my noble friend knows, they were deeply criticised as going against the whole spirit of the community charge proposals.
None the less perhaps my noble friend can tell the House what will be the maximum extra amount, in the one year in which the safety net will operate, that its existence will impose on the community charge payments of people in the low expenditure 348 boroughs. It would be interesting to know whether any substantial addition to the individual payments is being made in those boroughs that follow the Government's advice of restraining expenditure.
Finally, I hope that my noble friend is aware that we are grateful to him for the clear exposition of this immensely important matter that he has given to noble Lords this afternoon. We wish him and his department all good fortune in implementing it.

§ Lord Hesketh
My Lords, I am grateful for the remarks of my noble friend Lord Boyd-Carpenter. If the entire sum had gone through to low spending authorities, the sum of money involved would have been some £1,200 million. We are in fact seeing some £600 million going through in the first year.

§ Lord Taylor of Gryfe
My Lords, like other noble Lords I too, from these Benches, should like to thank the Minister for the Statement. I appreciate in particular the concession that has been made for individuals who suffer from alzheimer's disease and dementia. It will be very much welcomed by all the organisations which pressed their case over the past year.
Reference was made by the noble Lord, Lord McIntosh, to the criticisms offered by the late Lord Chelwood. I tried to visualise what could have been the devastating criticism of the late Lord Ross of Marnock because we discussed these difficulties not last year but two years ago before the implementation in Scotland of this Act. I note that there are Scottish Ministers present on the Front Bench. I should appreciate some reference to the arrangements that might be made in Scotland regarding the safety net. Apparently the safety net appears only when England is affected. However, there are vast discrepancies between the arrangements for the Strathclyde region and the less favoured areas of the Borders and the Highlands. I wonder whether the Minister will confirm that pro rata arrangements will be made in Scotland to cover the same kind of difficulties as are now coming to light—but which emerged a year ago—in the operation of the Act in Scotland.
I suspect that this will not be the last Statement on the poll tax by a Minister. I understand that 20 per cent. of the population of Scotland has not yet paid a penny of the poll tax which became operative in April this year. That amounts to around 700,000 non-payers. This has happened not only because of the obvious injustice of the poll tax but also because of its complications which have emerged from the point of view of the people who operate it. Arrangements are being made for a further £25 million, I notice, to assist in administration costs. The changing circumstances day in and day out of people who are subject to the poll tax which affects their liability as well as their movement around the country are such that the administrative costs are now seen to be much more than twice the present cost of collection of the same amount of money by local government.
When the Act was passed it was estimated that it would cost twice as much to collect the same amount. In the experience of the administration in Scotland 349 the sum goes much beyond that. I ask the Minister whether the £25 million which has now been allocated and which might well be spent on other useful purposes in this country will be adequate to cover the costs concerned.
The tax was justified on the basis that it would create greater accountability between the individual and his local authority. However, as has been pointed out by the noble Lord, Lord McIntosh, the relationship between the local authority and the Government is affected by these new financial provisions to an extent that the degree of accountability of the local authority to the individual is substantially diminished by the Statement that we have heard today.
I therefore ask the Minister whether I can have an assurance that there will be pro rata arrangements for Scotland. Will he look again at the Scottish experience of the administrative costs of this abominable tax, in particular the cost of collection? Can he give any assurance to this House that the same difficulties involving non-payment of tax, which is affecting over 700,000 people in Scotland today—20 per cent. of the ratepayers—will not be repeated in the implementation of this Act in England?

§ Lord Hesketh
My Lords, I am sure that the noble Lord, Lord Taylor of Gryfe, knows that matters concerning Scotland are for the Secretary of State for Scotland. Towards the end of my Statement I clearly said that the Secretary of State for Scotland and the Secretary of State for Wales will be making announcements separately about the arrangements in Scotland and Wales, and of course those will be repeated in your Lordships' House.

§ Lord Jenkin of Roding
My Lords, perhaps I may add my voice to those thanking the Government and my noble friend for the Statement and the change which he has anounced. I hope that the House will not take too seriously the strictures of the noble Lord, Lord McIntosh, who always seeks to have it both ways. If the Government listen carefully but decide to do nothing, it is called stiff-necked obstinacy. If the Government listen carefully and decide that a case requires some amendment, then it is called a humiliating climb-down. It seems to me that the noble Lord, Lord McIntosh, is engaging in a customary role of the Opposition in trying to have it both ways.
One feature of this announcement which is particularly welcome is that this transitional aid to individuals will not wholly shelter individuals from extravagant councils. The safety net—if such it is—that is provided does not include the total amount of the community charge but only the amount which is considered a normal expenditure by the local authority. That is welcome.
Towards the end of his Statement my noble friend said that this will impose additional costs on local authorities and that these costs will be met in full up to a reasonable amount. Perhaps I may express 350 the hope that the word "reasonable" will be interpreted fairly generously. There is a relatively short time now for local authorities to undertake the necessary administration. It would greatly smooth the introduction if there were not too much argument about the costs that they will incur in Implementing the Statement that he has made.

§ Lord Hesketh
My Lords, I am always grateful for the intervention of my noble friend Lord Jenkin of Roding. I can assure him that I shall bring his very relevant remarks directly to the attention of my right honourable friend the Secretary of State.

§ Lord Harris of Greenwich
My Lords, perhaps I may follow up the point made by the noble Lord, Lord Jenkin of Roding. The noble Lord, Lord Hesketh, admitted in the Statement that a substantial extra task will be imposed on the local authorities. They are struggling at the moment to implement the extremely ill-conceived scheme. The Government have accepted that there will be a substantial additional financial burder. placed upon them. How much money is involved? If the Government had accepted some of the amendments moved in this House and elsewhere, this additional money would not have had to be spent.

§ Lord Hesketh
My Lords, at this very moment we are entering discussions with the local authorities on this very point. Of course the conclusions that are reached there will no doubt become a matter of public knowledge in the near future.

§ Lord Mason of Barnsley
My Lords, it would be churlish of course if we opposed this change in the imposition of the poll tax and the reliefs that the noble Lord has announced. It would have been better if abandonment had been the core of his Statement. However, on this occasion suffice it to say that the Statement is a result of a Tory Back Bench revolt combined with opinion poll pressure. Who says now that the lady is not for turning? She is now turning to survive and, although the Minister will not publicly agree, his denial, as the laughter in the House has already shown, will sound very hollow indeed. Silence will be acquiescence.

§ Lord Hesketh
My Lords, silence is not acquiescence. It will not surprise the noble Lord that I disagree with his statement in its entirety. However, I can assure the noble Lord that we conduct a flexible policy, and that what I have stated this afternoon shows flexibility.

§ Lord Somers
My Lords, will the noble Lord make this extremely complex Statement a little clearer on the position of the pensionable and disabled?

§ Lord Hesketh
My Lords, I could go into this at some length. Perhaps I may suggest to the noble Lord that in the Library there is a copy of the Statement with some illustrative examples of different effects. He will probably find them very helpful. Of course there are very different situations. We have produced a series of those in order to be of elucidation to your Lordships' House.

§ Lord Stoddart of Swindon
My Lords, for many of us the experience of a listening Tory Government will be grand to perceive. However, is he aware that we would have wished that the Government had listened during the passage of the Bill through this House and another place and had not merely responded to Tory Members of Parliament who were in danger of losing their seats if nothing had been done? That is what listening really means. I hope that the noble Lord can assure us that in future they will listen while issues are being debated in this House and in another place. Will he also tell the House what steps are being taken to remove the bewilderment among ordinary ratepayers and potential poll tax payers who quite frankly do not understand what this is all about? They have no idea what they will be called upon to pay. They do not know whether they will be bankrupted or what will happen. Although I sympathise with the local authorities which will be put to extra expense and possibly extra manpower requirements, I feel also for all those millions of people up and down the country who were previously bewildered and have now had their bewilderment even more confounded.

§ Lord Hesketh
My Lords, essentially we are talking about an addition to the rebate scheme. The basis will be that a community charge demand will be sent out. Then those who wish the new regulations that will come out of what I have said today to apply to them will be able to take advantage of the scheme that we have proffered today.
On the first remarks of the noble Lord, I must resist the temptation of his argument. We are talking here about flexibility to provide improvement.

§ Lord Cledwyn of Penrhos
My Lords, the noble Lord has said that Statements will be made next week by the Secretary of State for Scotland and the Secretary of State for Wales. That is not satisfactory. It is not right that Wales and Scotland should be kept in suspense for another few days. Will he at least give some indication of what steps the Government have in mind for Scotland and Wales? In particular, can he give an assurance that the reliefs which are now in mind for England will be applicable to Scotland and Wales?

§ Lord Hesketh
My Lords, at this moment I cannot go beyond what I said at the end of the Statement. The Secretary of State for Scotland and the Secretary of State for Wales will be making separate Statements.

§ Lord Cledwyn of Penrhos
My Lords, in that event I must protest to the noble Lord. He could at least indicate whether the same principles will apply to Scotland and Wales as are being applied to England under the new dispensation that he has announced.

§ Lord Hesketh
My Lords, in Scotland and Wales there are special considerations. That is why the Secretaries of Scotland and Wales will make separate Statements.

§ Lord Cledwyn of Penrhos
My Lords, I must come back again, which I regret and I must apologise to 352 the House for doing so. It has been said time and time again from the Bench opposite that when Ministers speak from the Dispatch Box they speak for the Government as a whole. In those circumstances, the noble Lord should be able to give some indication of what is proposed for Scotland and Wales on behalf of his two right honourable friends.

§ Lord Hesketh
My Lords, there are different circumstances extant in the Principality and in the Kingdom. It is for that reason that there will be separate Statements. I really cannot go beyond what I have already said.

§ Lord Kirkhill
My Lords, I accept with regret that the Minister cannot say more this afternoon about the position in Scotland. But can he give an assurance to the House that he will convey to his right honourable friend the Secretary of State for Scotland this thought: that those who are resident in Scotland and who have been paying the poll tax have already been paying a higher average level than will now be the case in England if the increased rebate arrangements are carried through here?

§ Lord Hesketh
My Lords, I can certainly give that assurance to the noble Lord, Lord Kirkhill.

§ Lord McIntosh of Haringey
My Lords, I think the Minister will agree that the crux of the Statement he has made is the proposal for a new system of transitional relief for individuals and households who face significant increases in the community charge. Will he not now come clean and agree that none of this would have been necessary if the Government had accepted, when the Bill was going through the House, the proposal that the community charge should be based on the ability to pay?

§ Lord Hesketh
My Lords, certainly not, I am afraid, is my simple and straightforward reply to the noble Lord, Lord McIntosh.

§ Lord Hatch of Lusby
That is just not good enough, my Lords. The noble Lord has studiously ignored a whole series of questions from this side of the House. If he is so naive as to believe, as he said, that his Statement has nothing to do with electoral considerations, will he tell the House why he would not listen, nor would his right honourable friend in another place listen, to the criticisms made during the debates and which now have been admitted by the Government to be valid? Why did he not listen then, instead of having to come back, when there has been public outcry against it, to alter that Bill after Parliament has passed it?

§ Lord Hesketh
My Lords, I am sure that this was not the first Bill, nor will it be the last, the results of which have been altered as time progresses. I can assure your Lordships that the Government respond. The Government responded and I came here today.