HL Deb 26 November 1992 vol 540 cc1076-87

4.50 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde)

My Lords, with the leave of the House it may be appropriate if I repeat a Statement being made in another place. The Statement is as follows: With permission, Madam Speaker, I should like to make a Statement about the Local Authority Finance Settlement for England for 1993–94.

"Next year is the first year of the council tax. As honourable Members will know, the tax will reflect both the value of the property and the number of people who live in it. The lowest value properties are in band A; the highest in band H. The occupants of a band H property will pay no more than three times as much in local tax as the occupants of a band A property in the same area, thus preventing a return to the excessive variations in household bills which occurred under the rates. All six million single adult households will receive a 25 per cent. discount. Almost all full-time students will be exempt. Three million households on income support will pay nothing. There will be transitional protection for those households facing higher bills. The new tax will be cheaper and easier to collect than the community charge because there will be only one bill per household and no need to keep a register.

"The council tax will place local government on a strong financial footing. I believe that it has considerable support not only among members of the public but also among local authorities. They have worked hard with us to ensure a smooth and successful introduction of the new tax. I am grateful to them and the local authority associations for the constructive role they have played.

"In considering the details of the settlement, I have taken into account the representations made to me by local authorities and their associations, the responsibilities which local authorities face and the scope for further improvements in value for money. I have had in mind our intention that public sector pay settlements should fall within the range 0 to 1.5 per cent.

"I have also considered very carefully what the country as a whole can afford. Local government expenditure accounts for 26 per cent. of general government expenditure. It has increased by 3.6 per cent. per annum in real terms over the past two years. In present economic circumstances it is unreasonable to expect such growth to continue. The Government must keep a tight grip on public spending and within the total we must give as much priority as we can to capital spending. Local government must play its part too.

"Authorities will be able to spend considerably more on capital projects next year since they will have full use of nearly all the capital receipts they receive from 13th November to the end of December 1993. I expect this change to make an extra £1.75 billion available to local authorities for capital expenditure. As an additional incentive, I have already announced a range of capital partnership programmes which offer authorities extra support from my department to make these receipts go even further and to encourage projects of lasting benefit to local communities and industries.

"It was against this background that, on 12th November, I announced the aggregate figures for the local government settlement for the coming year. Those figures have now been increased by £26 million, as announced by my right honourable friend the Secretary of State for Health today in the light of changes to the Independent Living Fund. Taking account of this additional sum, the Government's view is that the appropriate level of spending for local authorities in England in 1993–94 will be £41.168 billion. Central government funding in support of that expenditure will be £33.545 billion.

"These figures reflect a number of changes in local authorities' functions next year. They include £565 million which we intend to set aside as a special grant to help authorities as they take on their important new responsibilities for community care. On the other hand, they make no provision for functions—principally further education—for which local authorities will no longer be responsible next year and for which about £2.5 billion was provided in the current year.

"Making full allowance for these changes, the year-on-year increases underlying my proposals are 3.1 per cent. (about £1.2 billion) in the appropriate level of spending, and 3.7 per cent. (which is also about £1.2 billion) in government funding. These increases should enable local authorities to maintain service provision. Overall, local authorities should need to raise no more next year through the council tax than they have budgeted to raise this year from the community charge.

"I am today issuing a consultation paper setting out how we propose to distribute that funding. Copies have been placed in the Vote Office and the Library and are being sent to every local authority.

"In the Statement I made on 12th November I proposed that the non-domestic rate poundage for 1993–94 should increase by 3.5 per cent. to 41.6 pence in line with the rate of inflation. This will ensure that businesses continue to benefit from the Government's success in reducing inflation. In addition, under the changes announced by my right honourable friend the Chancellor in his Budget Statement earlier this year, business ratepayers who stood to benefit from the introduction of the unified business rate or from the 1990 revaluation will receive the whole of their benefit next year. Transitional protection will continue to be available for those who stood to lose and the shortfall will be made good by the Exchequer.

"I now propose to set the distributable amount of non-domestic rates at £11.559 billion. This represents a reduction of £747 million from 1992–93, largely as a result of repayments following appeals. I am today publishing details of the full calculation. All receipts from non-domestic rates continue to be distributed in full to local authorities.

"I propose that the total of revenue support grant for 1993–94 will be £17.052 billion. In addition, some £4 billion of specific grants will be available.

"My detailed proposals for the way in which standard spending assessments will be calculated for 1993–94 are set out in the consultation paper. I have also provided the provisional figure for each authority's standard spending assessment. I am proposing some modifications to the way in which SSAs are calculated.

"The main changes are inevitable as they result either from changes in local authorities' responsibilities or from the new basis of local taxation. The main change of functions is in relation to further education, which will become the responsibility of the Further Education Funding Council from April 1993. This means that a simple comparison of proposed SSAs for 1993–94 with those for 1992–93 will, for all education authorities, show a decrease.

"Expenditure on authorities' new community care responsibilities will be funded by the special transitional grant and so there is no allowance for this expenditure in the SSA element for personal social services.

"Other changes to the calculation of SSAs result from the use of more up-to-date information. In particular, we now have estimates of resident population for mid-1991 based on the 1991 census. I propose to include these in SSAs for 1993–94 as they clearly represent a better basis than the previous figures based on the 1981 census. But I realise that for some authorities there will be changes, either up or down, between these better estimates, only very recently available, and those previously used. I therefore propose to pay a special grant to those authorities whose SSA in 1993–94 will be reduced by 5 per cent. or more as a direct result of incorporating the population estimates based on 1991 census results rather than those based on 1981 census results.

"Council taxes will be set locally by individual councils. They will depend on how much councils decide to spend and how much they provide for non-collection, community charge arrears and successful appeals. There are 366 billing authorities and eight separate valuation bands. So tax levels will inevitably vary widely.

"At the level of the individual household, the variation in bills will be even wider because of single person discounts, income support exemption, council tax benefits and transitional relief. Against this background, any figure for average taxes needs to be treated with great caution. What matters is the individual tax bill for the individual taxpayer.

"But in order to distribute grant fairly to each council, we have to allow for different levels of taxable resources in each authority. This means that for each of the eight valuation bands we have identified a notional council tax for standard spending which can be derived from the figures. For example, for band C—and two-thirds of all properties fall in bands A to C—the CTSS is £439. I emphasise that these figures are part of the grant calculation. They are not predictions or averages.

"Many households, particularly those living in properties in the lower bands, will gain from the council tax. On the other hand, those living in properties in the higher bands should expect to make a relatively larger contribution to the cost of local services. But I am determined that any year-on-year increases in bills between the community charge and the council tax should be held down to affordable levels.

"I am therefore proposing a scheme of transitional relief which will ensure that no household faces an excessive increase in liability next year as a result of the introduction of the council tax. Relief will be provided against increases above a specified amount, which will be different for each of the eight valuation bands. For properties in band A, relief will be provided against increases above £1.75 a week. For each higher band the starting point for relief will rise by an additional 25 pence. So for properties in band B it will be £2 a week and for properties in band H it will be £3.50 a week.

"I expect that in most cases the calculation of relief under this scheme will be based on authorities' actual budgets and not assumed budgets. The scheme will last for at least two years, and we shall review the arrangements for later years in the light of experience of the operation of the scheme in 1993–94. I will set aside resources from the total of government support to meet the cost of the scheme, which I expect to be about £340 million in the first year.

"My department has written to local authorities today with details of the scheme. Copies of the letter have been placed in the Vote Office and the Library.

"I have consistently made clear to the House that I am determined to protect local taxpayers against unreasonable demands by their local authority. I have no doubt that most authorities will wish to play their part in setting reasonable budgets and reasonable levels of council tax. But where councils propose excessive budgets or excessive increases in budgets, I shall not hesitate to use my powers to protect council tax payers from the consequences and to ensure that local government spending does not rise above affordable levels.

"I am today announcing my provisional capping criteria which authorities will need to take into account when they set their budgets over the next few months. I am also issuing my proposals for exercising my statutory powers to specify for each authority a base position—known as a notional amount—by reference to which I intend to measure budget increases for the purposes of applying capping criteria. I have placed papers in the Library and Vote Office setting out in detail my provisional criteria and my proposals for notional amounts. Copies have been sent to local authorities.

"No authority which sets a budget at or below its SSA can or will be capped. Only those which budget above their SSA are potentially liable to capping. I intend to allow larger increases for authorities with budgets close to their SSAs than for those whose budgets are higher. Where budgets are very substantially above SSA, I intend to seek budget reductions. But in all cases I intend the reductions to be manageable.

"I am proposing that each authority's notional amount is to be its 1992–93 budget adjusted to reflect changes in boundaries and functions, and that under the new council tax system interest on collection fund cash flow will for the first time fall within the authority's budget.

"My intended criteria are therefore that any increase of more than 2½ per cent. over the 1992–93 notional amount will be considered an excessive increase if it gives rise to a budget requirement over the authority's SSA; that any increase of more than 1¾ per cent. over the 1992–93 notional amount will be considered an excessive increase if it gives rise to a budget requirement over 1 per cent. above the authority's SSA; that any increase of more than 1 per cent. over the 1992–93 notional amount will be considered an excessive increase if it gives rise to a budget requirement over 5 per cent. above the authority's SSA; and that any increase of more than ½ per cent. over the 1992–93 notional amount will be considered an excessive increase if it gives rise to a budget requirement over 10 per cent. above the authority's SSA.

"In addition I intend that any budget requirement more than 12½ per cent. above the SSA will be considered excessive save that an authority will not be designated if it fulfils certain conditions equivalent to the conditions which I applied this year.

"This year I adopted a de minimis proviso allowing authorities budgeting by no more than £1.50 per adult above the criteria for excessiveness not to be designated. I told the House at that time that it should not be assumed that in any future year we would judge such a de minimis provision to be appropriate. Local authorities should not assume that there will be any such proviso or principle for 1993–94.

"My proposals allow for the particular circumstances of the inner London boroughs, which still bear the cost of overspending inherited from the Inner London Education Authority, and of the City of London.

"These criteria are necessarily provisional. When I come to make my decisions on capping I will, of course, take into account all appropriate considerations.

"My proposals for local authority spending and for external support are realistic and manageable in the current economic circumstances and, in particular, in the light of the Government's policy on public sector pay. We expect pay settlements for local government employees within a range of 0 to 1.5 per cent. over the coming year. Given my proposed increases of 3.1 per cent. in total spending and 3.7 per cent. in external support, provided that local authorities manage their resources efficiently they should be able to maintain the full range of services they provide.

"This settlement also means that authorities will not need overall to raise from their tax payers next year any more than they did under the community charge this year. For individual taxpayers, my proposals will provide additional protection in two ways: through capping, which will restrain unreasonable levels of spending, and through the transitional relief scheme.

"I am confident that this settlement will provide local authorities with the resources they need to deliver the wide range of local services of the quality people expect and deserve and at a level of tax which they can afford. My Lords, that concludes the Statement.

5.7 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Lord the Minister for repeating what is an extremely difficult and complex Statement. I must say at the outset that this is one of a succession of Statements that we have heard which tend to erode the basis of local democracy. I shall come back to that.

The Statement says that the council tax will place local government on a strong financial footing. What is the justification for that statement? As I understand it, the council tax is going to be the last resort for councils who wish to provide services for the needy. If they have to do that and the revenue support grant, under the standard spending assessment, will not allow them to do so, then the only means they have at their disposal is to raise the council tax. There is a gearing factor in the council tax which I believe will become fundamentally unpopular.

The Statement goes on to say that the Government must keep a tight grip on public spending and that, within the total we must give as much priority as we can to capital spending". It goes on to say that the Minister expects the change in allowing capital receipts to be used by local authorities to make available an extra £1,750,000 to local authorities for capital expenditure. What is the basis for that calculation? Is this going to be a question of "fire sales" of council houses in order to get that money? What is the basis?

The Statement says: These increases should enable local authorities to maintain service provision". Does the Minister not acknowledge that local authorities will be £200 million short in cash, if we compare this year's budget with next year's settlement? Given that, how on earth can they maintain service provision?

Can the Minister indicate how the non-domestic rate will be distributed among local authorities? Will it be, as now, per head of population? Or will it be by need? If it is by head of population then clearly the method proposed is not the right way to go about it. If it is on the basis of need, then we shall certainly look at that with some favour.

The Statement says a good deal in regard to the council tax and how it will operate. However, all predictions on the poll tax turned out to be wrong. The poll tax was always higher than the Government estimated. We have had estimates for the council tax starting at £356 and going to £439. I strongly expect from the information I have been given that even that figure is low and we should be talking of something nearer £500.

Transitional relief is welcome for those who are rich and able to afford to pay their just obligations towards local authority services. Can the noble Lord say what will be the effect of the transitional relief scheme in the London borough of Wandsworth? As I understand it, the transitional relief scheme there will be such as to ensure that Conservative voters continue to vote Conservative come what may.

As to the capping provisions, we must wait and see what the criteria really mean. As the noble Lord said in repeating the Statement, criteria are necessarily provisional. The Statement says: These criteria are necessarily provisional. When I come to make my decisions on capping I will, of course, take into account all appropriate considerations". What appropriate considerations is the Secretary of State going to take into account when he decides on his final criteria?

Finally, there is a philosophical point. As I said when I started, this is another Statement the effect of which is to destroy local democracy. Those who look carefully at the documents supporting the Autumn Statement may wish to note that the planning total previously used as the main figure to be controlled by government has been superseded by a new controlled total. The new controlled total includes local authority self-financed expenditure, whereas the planning total excluded it. The Treasury's reason for bringing forward that new definition is that the total cannot sensibly be allowed to vary without any requirement for offsetting adjustments. In other words, the Treasury must control the whole of local authority expenditure. Therefore, the total of council expenditure is now planned for each year up to 1995–96. However, there is no plan at all—the noble Lord will correct me if I am wrong—for detailed service-by-service local government requirements. In short, the Government have taken stronger powers to plan the total of council spending while avoiding responsibility for detailed programmes. If ever there was an example of power without responsibility, that is it.

I do not believe that the central control—consciously adopted—of local authority expenditure will work. If and when growth ever returns to our economy—goodness knows, that may be a long time —council spending will have to resume its upward path. If control is centralised in the way the Autumn Statement and this Statement provide for, then 24,000 elected councillors in England will be effectively redundant. That is the price that the Government are asking us to pay for what is now still conceived as local democracy.

Baroness Hamwee

My Lords, perhaps I should declare an interest as a local councillor who is certainly feeling semi-redundant, if not completely so, having heard the Statement. I thank the Minister for making it and echo his thanks to the local authorities and the local authority associations for the work that they have put in over the past few months in an attempt to make this extremely difficult tax have a prayer of becoming workable. The following question was put to me this morning, and though I repeat it I do not seriously expect the Minister to respond to it. Do the Government intend to bleed local government to death or to administer a swift death blow? The contents of the Statement confirm the underlying anxieties of that question.

We have heard a good deal about capital receipts and their use by local authorities both today and in the Autumn Statement. Does the Minister not agree that unless the market improves the capital receipts will simply not be there to be spent? He says, and I do not disagree, that priority must be given to capital expenditure. I do not disagree because capital expenditure has its benefits in assisting the economy. But does the Minister not agree that if the capital receipts do not become available then credit approvals for local authorities will need to be given in order to replace those moneys?

Perhaps I may ask specific questions with regard to the comment in the Statement on population changes. While I agree that it must be good practice to use the latest available figures, we are told that if those figures mean that the SSA is reduced by 5 per cent. or more, then a special grant will be made. Five per cent. is an extremely large sum. Can the Minister say how many local authorities will be eligible to receive that grant and how that will affect the capping arrangements? if the capping arrangements relate to SSA, which they do, will the grant be of any use to the local authority, bearing in mind that its expenditure is capped?

We are told that the reductions brought about by capping are to be manageable and the first of the criteria given is an increase of more than 2.5 per cent. over the current notional amount. In order that your Lordships may assess the equivalent and the considerably tightened rules that are to apply, perhaps the Minister will confirm that the figure for the current year is 6.5 per cent. I believe that those criteria are similar to the Scottish criteria which apply. Comments have been made to me by those running well organised authorities, not extravagant ones, who fear that there may be such tight criteria that massive and unmanageable reductions will be required. Will the Minister confirm that if the local authorities which are required to apply the reductions are able to demonstrate quite genuinely that they are massive and unmanageable reductions, they will be among the appropriate considerations to be taken into account?

The transitional relief is welcomed. But is it not the case that those in properties in the higher bands who are said to be required, appropriately, to make relatively larger contributions, do not necessarily have an income which matches the value of the property? We have spent a good deal of time in this House discussing the council tax and considering the plight of those who have large properties which, particularly in the current market, they cannot easily sell at the expected price. They do not have the income to maintain the lifestyle which, from a swift and unquestioning assessment, might appear to be relative to the property.

We have had long debates and knowing the further business to come in the House this evening, it would not be appropriate to repeat all those points now as regards the council tax. I wonder whether we would not all agree that to call it the council tax is a misnomer and that this Statement confirms that this is a central tax locally collected.

Lord Strathclyde

My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, and to the noble Baroness, Lady Hamwee, for their responses to the Statement. Perhaps I may begin by offering my congratulations to the noble Lord, Lord Williams of Elvel, who, I believe, is representing his party for the first time on this particular portfolio dealing with the Department of the Environment. I believe that he will find it as interesting and stimulating as I do.

The noble Lord began by saying that the Statement was difficult and complex and he is absolutely right. It deals with issues which go to the core of our local government structure and the money it can raise and spend. I said in the Statement that these provisions would put local authorities on a strong financial footing. Clearly they will do so. Support for local government spending is up by 3.7 per cent. or £1.2 billion this year. We have a special grant of £565 million for community care and to help meet the needs of the severely disabled on top of that.

Of course we want to keep a tight grip on public spending. That is why we have kept the spending totals as low as possible. But we respect that there is a community in this country with special needs and which requires particular kinds of services from local authorities. Therefore, I say to the noble Lord, Lord Williams, that although we want to keep that tight grip on public spending, we want to make sure that people are well catered for.

Perhaps I may talk about capital receipts which both the noble Baroness and the noble Lord raised. There is an important change for the coming year. Local authorities are allowed to spend 100 per cent. of their capital receipts. I hope that it will not lead to fire sales. The provision allows local authorities to take a measured look at all their available assets and to seek to sell them. We believe that over the course of the next 12 months, as the economy grows, people will be looking to expand into various assets. We have made our calculation of £1.75 billion based on what we understand is possible and on what has happened in the past.

In a characteristic way the noble Lord, Lord Williams, put his finger on the button by saying that all our estimates could well be wrong: after all, they were on the poll tax. There was a clear reason for that. That was the extravagance and profligacy of local authorities, particularly the socialist ones, which took the opportunity between the end of the rates and the introduction of the community charge to make an increase in overall spending of about 30 per cent. I sincerely hope that local authorities will not take that opportunity; in fact I do not believe that they will be able to because of the structure of the council tax.

Both the noble Baroness and the noble Lord talked about the philosophy of local government and its democratic basis. The noble Baroness, Lady Hamwee, said that we are allowing local authorities to bleed to death. We believe strongly in local democracy and in having strong and powerful local authorities which can make decisions to provide for the needs of their local communities. Generally speaking, I believe that in this country we have a strong tradition of civic pride. But sometimes, over the course of the past few years, we have seen local authorities behave in a wasteful and extravagant way. What we have announced today as regards the arrangements for government spending and the introduction of the council tax, will mitigate those tendencies and provide for a good and viable future for local authorities to continue doing their good work.

5.25 p.m.

Lord Stoddart of Swindon

My Lords, the Statement is very long and complicated. However, one thing is absolutely certain—the Government are centralising local government even more than before. The Government might just as well send down to local authorities gauleiters or commissars to carry out their work because the local people who are supposed to be running affairs will have so little discretion that they will feel that what they do is not worthwhile. That is unfortunate for local government.

The noble Lord said that it should be relatively easy for local government to meet its targets bearing in mind government expenditure. Has the Minister made an estimate of how many additional people will become unemployed as a result of this Statement, particularly if local authorities are unable to enforce the 1.5 per cent. limit on wage and salary increases? Does he realise, and has he borne in mind, that the people on whom this limit is to be imposed are some of the worst paid in the country and are unable to bear the imposition that the Government are putting on them? Will the Minister say how many of those people are likely to be made redundant as a result of this Statement?

As regards local authorities being able to spend their capital receipts, that depends on their ability to sell their assets. Does the Minister not agree that as regards council houses, the best have already been sold? The reason so many remain is because their tenants do not believe that they are worth buying at the asking price. Therefore, how are local authorities to get the £1.75 billion estimated by the Government to help to resuscitate our economy by the expenditure of capital receipts? Do not the Minister and the Government realise that one way or the other the expenditure of capital implies further and additional expenditure on the revenue account? Anyone who has ever served on a local authority knows that. Yet the revenue account, which is going to bear the extra cost, is being squeezed by the Government. So it is all really sleight of hand and local authorities are being squeezed as never before.

As far as I am concerned the Statement is a very bad one. It will make things extremely difficult for local authorities; in particular for the people who work for them and who run our great public services.

Lord Strathclyde

My Lords, I say to the noble Lord, Lord Stoddart of Swindon, that we have no intention of sending commissars to local authorities to help them run their affairs which are quite properly their own business. We have to make sure that local authorities do not stretch the resources of their local communities in the way they sometimes did in the past; and to make sure that the growth of public spending as a whole is kept to a minimum.

The noble Lord asked a specific question about unemployment. The whole point of this Statement, the Autumn Statement and the decision that we made on capital spending was to make sure that we had a minimum effect on the increase in unemployment and to ensure that people could keep their jobs, particularly in that most vital sector, the construction industry, where local authorities have such an important input into the provision (or at least the refurbishment) of housing.

We have set a government total of an increase in pay of between 0 and 1.5 per cent. and we have done that for very good reasons. Rather than local authorities not being able to keep their planned increases down to that level, it would be far more helpful if all sides of the House could agree that that was a reasonable increase in pay and could encourage acceptance of it. Perhaps the noble Lord, with his influence in certain quarters in local authorities and unions, should use that influence to get people to see sense and, for this year, keep their pay levels down to ensure that people are not put out of work.

That is the issue at stake over the course of the next 12 months. We want to keep people in jobs. We want to keep capital spending up. We want to continue construction projects, and we want to keep the increase in pay as low as possible. That will ensure that we have an effective local authority network.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that many of us feel that the Government have no option but to seek to control the growth of local government expenditure? Local government expenditure is now so substantial a figure and so substantial a proportion of national expenditure that any government, with their responsibility for the management of the economy as a whole, would be in default if they did not seek to control this very large element of expenditure. Therefore, although many of us who have had some experience in this area appreciate the enormous difficulty of controlling local government expenditure, is my noble friend aware that we realise that a government who did not attempt to do that—this Government seem to be attempting successfully to do so—would be failing in their duty?

Lord Strathclyde

My Lords, my noble friend is quite right and puts his point eloquently. There is a clear responsibility on the part of the Government and on behalf of the whole electorate to keep the overall spending limits of the Government and local authorities down as much as possible. Given the vast amount of money—over £40 billion—that will be spent this year, we believe that local authorities will be able to spend the kind of resources that they need in order to provide local services. That is the most important thing.