HL Deb 23 July 1991 vol 531 cc680-90

4.53 p.m.

Baroness Blatch

My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for the Environment. The Statement is as follows:

"With permission, Mr. Speaker, I should like to make a Statement about the Government's proposals for the local authority finance settlement for England for 1992–93 and about our proposals for local government in the years ahead.

"Two years ago, local authorities in England spent £32.3 billion. This year they have budgeted to spend £39.9 billion. That is an increase of 23.5 per cent. in just two years. In anyone's terms it is a very substantial increase.

"Over the same period, the external support distributed by Government to local authorities has increased by even more: this year alone, it has increased by one-third. We are paying an extra grant to enable councils to cut their community charges by £140. We are also providing over £2.5 billion of support this year to individual chargepayers through the community charge reduction and community charge benefit schemes. Overall, the net contribution from local people to local expenditure now stands at just 15 per cent.

"Mr. Speaker, we have made it possible for councils to provide decent levels of service at lower community charges. The councils have to play their part too. Local government is not immune from the pressures and restraints faced by everyone else. Central government, businesses and individuals must all plan to spend only what they can afford. Local government must do the same.

"Against this background, the Government believe that local authorities in England together ought to spend no more in 1992–93 than £41.8 billion. That would be 7.2 per cent. more than the corresponding figure for total standard spending this year. With inflation falling even before next year to 4 per cent., this is a realistic increase: it takes account of the pressures on local authority budgets, and it also takes account of the opportunities which the', have to improve the efficiency and value for money of the services which they provide.

"I propose to set the level of external support distributed by the Government to councils next year at £33.1 billion. That also is 7.2 per cent. more than this year, including the extra amount which we paid to cut the community charge by £140. This should ensure that next year, overall, local people will again not have to contribute more than 15 per cent. of council spending through the community charge. As in previous years, I shall announce our proposals for distribution of the Government grant in the autumn.

"Mr. Speaker, there are still too many authorities which budget each year to increase their spending regardless of the consequences for chargepayers. We have protected many community chargepayers by capping, and many councils were persuaded this year to moderate their increases so as to avoid being capped. Next year, if authorities budget excessively or for an excessive increase in their budget, I intend, as this year, to use my capping powers to ensure that the extra grants from government are translated into lower community charges and not frittered away in extravagant spending.

"As I did last year, I intend to announce provisional capping criteria for 1992–n the autumn, so that local authorities can take them into account in their budgets. And my intention is that these criteria should be expressed in the same sort of format as those adopted for 1991–92. Authorities will thus know what to expect well in advance. We hope that all authorities will choose to budget sensibly. But if they do not we shall not hesitate to cap them.

"Mr. Speaker, the settlement I have proposed is fair and realistic. The community charge for standard spending next year will be about £256. The actual charges set by authorities will depend on the budgets which they make and their determination to collect the charge. Millions of people will, of course, pay substantially less than £256 because of rebates and the community charge reduction scheme.

"1 now turn to our proposals for years after 1992–93. In April the Government published a consultation paper, A New Tax for Local Government. We have received over 800 responses. The great majority have welcomed our proposals to replace the community charge with a new council tax.

"The consultation process has, of course, produced a great number of useful comments, which we are still considering and will take into account in framing the new legislation. There is one matter which I must, however, deal with now.

"I am glad to confirm to the House that the Government intend to proceed with legislation along the lines proposed, with a view to bringing the council tax into operation by 1st April 1993, the earliest feasible date. Subject to enactment of the Local Government Finance and Valuation Bill, the task of putting properties into bands will start in the autumn. We will introduce legislation next session to set up the new council tax regime.

"However, many responses have queried whether the seven council tax bands we proposed in April extend far enough up the range of house prices. We have considered this carefully, and we have concluded that there should be one additional band, taking in properties worth more than £320,000 in England. Houses in this new band H will be subject to a council tax of twice the amount for a dwelling in band D.

"The response to the consultation paper The Structure of Local Government in England has been very positive. Nearly 1,900 individuals and organisations have written in with their views, overwhelmingly in support of our proposals. There have been some useful suggestions for minor improvements. We intend therefore to introduce legislation in the autumn to set up a new Local Government Commission to review the structure of local government in England area by area.

"I shall publish a consultation paper on the internal management of local authorities next week. It will invite comments by the end of November.

"Mr. Speaker, I believe that my proposals represent the right way forward for local government in 1992ߝ93 and in the years ahead". My Lords, that concludes the Statement.

4.59 p.m.

Lord McIntosh of Haringey

My Lords, the House will be grateful to the Minister for repeating the Statement made in another place. This is the season for Statements. It is the time when Government seek to take advantage of the imminent Recess in the hope that debate will be stilled and consultation papers can flow out while our backs are turned. This Statement is no exception. We understand from the end of the Statement that the consultation paper on the internal management of local authorities will be published next week when we are not here. I congratulate the Government on keeping to their determination to keep Parliament in the dark as far as possible.

The bulk of the Statement is concerned with the 1992–93 settlement. It will not surprise noble Lords to learn that we consider that settlement to be quite inadequate. The Statement purports to show that there is an increase of 7.2 per cent. in local authority expenditure. That is the usual trick of comparing the Budget with the previous Budget rather than looking at the actual expenditure. As the Statement rightly says, actual expenditure was £39.9 billion. A provision for spending of £41.8 billion is an increase of 4.8 per cent. and not, as the Statement says, 7.2 per cent.

There are two major reasons why such a settlement is quite inadequate. Both of them are largely out of the hands of local authorities. The first relates to pay. Just this week we have learnt that police pay is to rise by 8.5 per cent. We know already that teachers' pay is to rise by 8.6 per cent. When one adds to that the full year effect of the phased award which has already been made, it is likely that the cost of teachers' pay will go up by approximately 10 per cent. next year. Even though administrative, professional and technical grades as well as manual staff have settled for lower amounts, the best calculation that we can make is that the average increase in pay costs for local authorities will be approximately 7.3 per cent. From that point of view a 4.8 per cent. settlement is quite inadequate.

There is a substantial list, many pages of calculations, made by the local authority associations of additional pressures on local government from legislation. I have only time to cite a few: the implications of the Children Act, which rightly occupied many hours in your Lordships' House; the implications for the staffing of residential homes—the qualifications of those manning residential homes—as a result of the inquiries into the pin-down affair in Staffordshire, also concern staff in other parts of the country; preparations for care in the community—care in the community is now to be introduced in April 1993 but that means that local authorities will have to incur considerable expenditure on preparations in 1992-93; the implications of the food safety legislation; the implications of environmental protection and in particular the code of practice on litter which comes into force next year and involves a very significant sum; the cost implications of local management of schools and, as I already said, of discretionary pay awards to teachers; the implications from the New Roads and Street Works Act of the computerised street works register; and, to continue with legislation that has occupied a considerable amount of time in your Lordships' House, the cost implications for local authorities of the new legislation on dogs.

The best assessment that can be made, and I understand that it has not been seriously challenged at meetings between local authority associations and the department, is that those additional legislative requirements on local government will cost £1.7 billion in 1992–93. That is only the legislation. If we were to take seriously the Citizen's Charter announced yesterday—I confess that I find it difficult to take seriously—it is fantasy to think that such a programme can be carried out, with the obligations of local authorities that it implies, without any additional local authority expenditure. I forbear to suggest that the cost of name badges for local authority staff might be thought to be an additional consideration.

No, if one takes together the inevitable consequences for local authorities of pay awards which have already been made and of the legislation which has already been passed, let alone that which may be passed in the future, it is quite clear that local authority budgets will have to rise substantially more than the Government estimate. It is quite clear that the Government's estimates of the average level of poll tax at standard spending are quite inaccurate.

Another reason why they are inaccurate and inadequate is that they assume 100 per cent. collection. The Government have resolutely refused to deal with the scandal of the 20 per cent. minimum payment from those who otherwise would receive rebates. It is clear from all the evidence that local authorities will spend more in collecting that 20 per cent. than they receive from it. That too will add to local authority expenditure, increase the risk of less than 100 per cent. collection—it is not a risk but a certainty—and ensure that, as in previous years, the Government's proclamations about the average level of poll tax will be proved quite inadequate.

I turn to the proposals for the council tax next year. I recall that only six days ago the Minister rose from the same Bench on which she now sits to proclaim that the seven band system was irrevocable, that nothing could be changed and that it would be enormously expensive to increase the number of bands. Clearly any movement in the direction that we have been advocating for many months is welcome. But I point out to the Minister that it is not just the number of bands that is critical. The ratios between the bands in liability is the critical point.

I remind the House that the ratios between the top level of house prices is approximately eight to one, whereas even under this proposed amendment with eight bands the difference between the top and the bottom levels of liability for council tax will only be three to one. In other words, when the poll tax is abolished we shall not return to a fair system of local authority finance but to a system which very much protects the better off at the expense of the worse off.

Finally, as I said, the Statement refers to a consultation paper next week on the internal management of local authorities. I remind the House that, when the consultation process was set up in January this year, it was proposed that the order of decision should be, first, to settle the functions of local authorities; then, in the light of the functions, to look at the structure of local authorities; and, finally, in the light of the functions and structure, to consider what best arrangements should be made for the finance of local authorities. Exactly the reverse has happened. Everything has been done in the wrong order. All the decisions are being made about the finance before decisions are made about the structure, which decisions in turn will be made before any proper investigation of the functions.

A consultation paper on internal management is another even more extreme example of working the wrong way round. How can we assess what should be the internal management system for local authorities until we have given proper consideration to the functions? I suspect that the consultation process on this consultation paper will be particularly sterile.

The Statement claims that this is a sound way forward for 1992–93 and for years to come in local government. I fear that it is nothing of the kind but that it is simply another of the rather sordid attempts to limit the damage done to the Conservative Party's electoral prospects as a result of the poll tax.

Lord Tordoff

My Lords, I too thank the noble Baroness for repeating the Statement. I emphasise the word "repeating" because I believe that the tone of the Statement is not one which she herself would wish to use in this House.

The Statement seems to me to be yet another quite savage attack on local authorities. Assumptions are made that local authorities are anxious to waste the resources of the taxpayer and the local community charge payer. Frankly I do not believe that in most cases they are capable of vast increases in efficiency. I do rot know whether there is inefficiency in local government but I do not believe that it is as widespread as the Government suggest as the basis on which they put forward such statements.

The noble Lord, Lord McIntosh, has more than adequately dealt with the inadequacy and inaccuracy of the figures. However, the statement that inflation will fall to 4 per cent. "even before next year" tests the credibility of your Lordships' House. As we know, the underlying measure of inflation—that is to say, the index with mortgage payments taken out—rose last month from 6.6 per cent. to 6.9 per cent. The Statement refers to: inflation falling even before next year to 4 per cent.". Presumably we are referring to levels of inflation relating to local government and not simply the headline rate.

The Statement is riddled with numerical inaccuracies so far as I can see: we shall cap a lot more people; we shall be as draconian as we possibly can. However, the truth is that because the Government are not allowing local authorities to fund themselves properly we shall have further cuts in services. In my county of Somerset, control passed from the Liberal Democrats to a Conservative council some time ago. We are now seeing the way in which Conservative promises are falling by the wayside daily.

It is a dreary business. I wish that the Government would recognise that local authorities are being put under incredible pressure by restraints and by the increased responsibilities that are constantly placed on them by this Parliament. The noble Lord, Lord McIntosh, referred to an increase in teachers' salaries and other matters which are way above the level of items referred to in the Statement.

On the council tax, the Statement says that the Government have received over 800 responses: The great majority have welcomed our proposals to replace the community charge with a new council tax". I have to tell the Government that a large proportion of people would welcome anything rather than the community charge, even if it is as bad as the new council tax, the horrors of which have yet to be repealed to a waiting public. I do not believe that the waiting public are entirely aware that the community charge will continue until 1st April 1993. That is a long time for people who remain unable to pay. It is a long time for councils suffering from the lack of ability to collect money from people who do not have it.

We welcome the increased tax band. We have been pressing for it. We are about to give a Third Reading to a Bill which does not contain that provision. But we face a moving target with regard to local government. We would prefer to have seen more bands which were more realistic in terms of people's ability to pay. However, one recognises the Government's problem. If they introduce too many tax bands, they will find themselves very close to a local income tax. We know that that is not what they wish to do, although that is of course the way forward.

I am glad that the response to the consultation paper, The Structure of Local Government in England, has been positive. I hope that we can get that right. I believe that there will be a general welcome for the intention to introduce legislation to set up a new local government commission to review the structure of local government. It is long overdue.

It is a dismal Statement. I do not hold the noble Baroness responsible for it, but I wish that she did not have to read such a Statement to the House.

5.15 p.m.

Baroness Blatch

My Lords, I am not sure that I can thank the noble Lords for a cautious welcome for the Statement because I know that both of them have philosophical objections to what the Government are seeking to do. However, I wish to pick up some of the individual points raised by them.

The noble Lord, Lord McIntosh, was concerned about pay. He referred to two settlements having been made. I remind him that they have not been made. We talk of a settlement for 1992–93. The pay settlement for teachers will not be known until early 1992–93. With inflation coming down, we would expect the effect of pay settlements to be lower than the 7.3 per cent. that he suggested. Indeed, the same can be said for the police pay award.

At no time throughout the passage of the Local Government Finance and Valuation Bill have I stated that we have said the last word on the number of bands. On every possible occasion that I have referred to the issue, I have said that consultation was continuing and that we would announce our final determination about the number of bands as and when we have made that consideration. We have now done so. I have come before the House as quickly as possible with our definitive view.

There is a big gulf between the noble Lords opposite and the Government. They advocate local authority spending with absolutely no limits. The implication of that is that macro-economics would simply go out of the window. As a percentage of the whole, local authority expenditure is considerable. I do not believe that any responsible government should turn their face against being concerned about the overall level of expenditure. However, as the noble Lord rightly pointed out, that view will be tested at the polls.

The noble Lord referred to my figure of 7.2 per cent. as opposed to his figure of 4.8 per cent. It is wrong to start from actual spending, which is what he did. He would always include the overspending of local authorities and make that a starting point. That is not what we have done. We have given a genuine increase on last year's grants of 7.2 per cent., and that is what we intend to stand by.

Lord McIntosh of Haringey

My Lords, perhaps the Minister will allow me to intervene to ask a genuine question. If it is wrong to use the actual figures, why does the Statement use the figure of £39.9 billion as the budgeted spend in order to make the point about the increase over the past two years? The noble Baroness cannot have it both ways.

Baroness Blatch

My Lords, no; that is the point that I made. The actual spend increase over the past two years has been at that level, which we believe is too high. It is not as high in the current year as in the previous year. However, with regard to the TSS increase year on year we still stand by the 7.2 per cent.

The noble Lord also referred to the cost of collection of the community charge. Again we believe that the provision of £41.8 billion that we propose is adequate for local authority services, including the cost of the efficient and effective collection of the community charge.

The noble Lord, Lord Tordoff, raised the point about whether efficiency savings could be made. First, I wish to join with him in what he said about the incredibly good job being done by the majority of local councils. They are doing a very good job. Nevertheless we know that in aggregate there is a difficulty. We also know from Audit Commission assertions that savings of £280 million can be made by local authorities in just one year. Therefore there is scope for savings. It is also worth repeating time and again that there is a discernible downward trend in both inflation and interest rates. Interest rates have come down from 15 per cent. to 11 per cent. We predict that inflation will come down too. Local authorities simply cannot be immune from the responsibility of controlling public expenditure. They must be part of the fight against inflation.

The noble Lord, Lord Tordoff, was straightforward in saying that the council tax would not have been the choice of the Liberal Democrats. I accept that there is a genuine difference between us. Nevertheless, he welcomed the extra band which has been introduced in genuine response to public consultation. I also thank him for his positive response to the consultation on the structure of local government. At some time he will be able to see those responses.

The noble Lord also said that there was only limited scope for authorities to make efficiency savings. I have made the point that the Audit Commission has stated that efficiency savings can be made.

I must rest my case on the fact that there is a genuine difference between the Government Benches and those of noble Lords opposite. We believe that there must be a concern for macro economics. We do not believe that local authorities should be divorced from that responsibility. That is an important and rather substantial difference between us.

Baroness Hollis of Heigham

My Lords, I am sure that the Minister recognises that we on this side of the House find this a deeply disappointing document. As regards the size of the overall settlement, even Mr. Roy Thomason, Conservative chairman of the Conservative-led ADC, has said that it needs to be £44 billion and not £41.8 billion as declared in the Statement. It must be higher in order to meet not only the increased pay and responsibilities facing local government next year but the continuing costs of the poll tax, which, as the Audit Commission reminds us and which is confirmed by independent studies, is now costing local government between £800 million and £1,200 million every year that it continues.

Secondly, I wish to query the Minister's comment in paragraph 3 of the Statement about the net contribution from local people to local expenditure now standing at just 15 per cent. That excludes, as government have consistently excluded in the past couple of years, the contribution coming from the business rate. That rate now contributes approximately 32.5 per cent. to total local expenditure, which is almost one-third. That local tax raised by local people has been centrally hijacked by this Government and redistributed by national criteria. But if one does as one should and groups the UBR with the rates, the money raised by local people is nearer 45 or 50 per cent. of local expenditure. It would well become the Minister occasionally to recognise that. Indeed, many noble Lords continue to be baffled about why the Government should break the link between the local community, local expenditure and the local economy that business rates have always represented. We would have expected the Minister to reforge that link rather than continue to see it severed.

Thirdly, the Minister commented on valuation. It would be grudging not to welcome the eighth band. It is a marginal but welcome improvement in the right direction. How much warmer the welcome would have been if the Minister had stretched the number of bands to 12 or 14 as would have been appropriate. How many properties does she expect to fall into that band? Can she give the number for each region? We should love to be wrong but we fear that, nonetheless, it will in almost every region of the country remain a four-band tax.

It appears from the figures that in the East and West Midlands, the North, Yorkshire, the North West and East Anglia it will remain the case that four-fifths of all properties will fall into the bottom four bands, with only one-fifth in the top four bands. However, in London and to a lesser extent in the South East approximately 55 per cent. of properties will be included in the top four bands. In other words, because the Government have resolutely refused the proposal put forward my noble friend Lord McIntosh to have 14 bands and that put forward by the Liberal Democrats to opt for regional positioning, most households will fall within one of four bands. The tax will remain deeply unfair because it compresses the differentials.

Fourthly, in response to my noble friend Lord McIntosh and the noble Lord, Lord Tordoff, the Minister reiterated a comment which she has frequently made and on which we have tried to challenge her. She has said that we on this side of the House believe in unlimited local government spending. That is not the case. We believe in value for money and in spending that is indeed controlled and limited. The philosophic difference between us is not whether expenditure should be unlimited but who should do the limiting. The Government's position is that central government should limit expenditure but our view is that it should be the ballot box and the democratic accountability of councils to their local people. We believe in limiting expenditure to what local people are willing to support, vote for and pay. That is the philosophic difference between us, and until the Minister can bring herself to support that position she will not be supporting democratic local government.

Baroness Blatch

My Lords, I shall first deal with the fourth point which the noble Baroness made. We have all seen what happens to local authorities when expenditure is left only to the ballot box and when the Government have no view; spending goes through the roof Even predecessors of the Labour Party when in Government had to say at the end of the day that the party was over and that local authority spending must be curbed. One of the reasons for that is that the split of 8:5 per cent. and 15 per cent. means that national moneys put into local authority expenditure almost inevitably require some national concern about the overall level of spending.

I am pleased that the noble Baroness welcomed the eighth band and I am sorry that we disappointed her by not increasing the number.

As regards the uniform business rate, I have some painful memories. During my time in local government I put myself in the shoes of local business and commerce. I was not proud when in one fell swoop my authority in one year increased the rates by 33 per cent. and took out of the pockets of business and commerce £20 million. That money could have been used to expand businesses and companies and save jobs. Some local authorities across the country went as far as putting up the rates to local business and commerce by 60 per cent. I believe that the health and wealth of business and commerce are too important to national government and to the country as a whole to be left to the vagaries of local authorities' unlimited whirls when it comes to levying rates on local business and commerce—

Baroness Hollis of Heigham

My Lords, I thank the Minister for giving way. Will she comment on the recent statements issued by the Institute of Directors and the chambers of commerce that they precisely favour the return of the business rate to local authorities?

Baroness Blatch

My Lords, I am speaking for the Government and I am also injecting a heartfelt feeling of my own. I believe that when business rates were with local government businesses were dealt a severe blow. We saw cities emptying of business and commerce because they could not face up to the swingeing increases that were levied on them by local authorities.

The noble Baroness referred to the judgment that local authorities need to spend £44 billion. Such a settlement is the equivalent of an additional £100 per charge payer. The Government's judgment is that that is too high and they do not wish to go down that road.

The noble Baroness asked for a breakdown of the figures in the final hand; that is band H. One per cent. of all properties will fall into that band. Those people will pay £132 more for a standard level of service than in the 23rd April figures. Band D bill for standard spending will remain unchanged at £400—that is to the nearest pound. Sixty per cent. of band H properties are in London or the South East, with the highest proportion—3 per cent.—in London. I do not have the breakdown of all regional bands but no doubt as the story unfolds the noble Baroness will return to that debate.

I re-emphasise that the business rate is not a locally-set tax. It is a contribution of business to local expenditure determined centrally and on a common basis. We believe that that is how it should be.