RATE SUPPORT GRANT: 1981 SETTLEMENT (Hansard, 2 December 1981)

§ Lord Bellwin

My right honourable friend the Secretary of State for the Environment has today sent the local authority associations his proposals for some of the main elements of the rate support grant settlement for England for 1982–83, and some proposed adjustments to the grants for 1980–81 and 1981–82.

For 1982–83 he is proposing a figure of £18 billion for local authorities current expenditure. This is 2 per cent. more in cash than the local authorities budgeted to spend in 1981–82. The Government have already announced cash factors of 4 per cent. and 9 per cent. for pay and prices respectively in the public sector. It implies a continuing need for significant reductions in 1117WA their plans for current expenditure. He is proposing a number of specific measures to that end.

The proposed allocation of the £18 billion between services is as follows:

	£m cash
Education	8,865
School Meals and Milk	325
Libraries, Museums and Art Galleries	302
Personal Social Services	1,857
Port Health	3
Police	2,031
Fire	449
Other Home Office Services	278
Local Transport	1,423
Consumer Protection	48
Local Environmental Services	2,262
Employment	64
Other Housing	93
Total current expenditure	18,000

With the addition of revenue contributions to capital outlay, loan charges, rate fund contributions to housing revenue accounts and interest receipts, the total of relevant expenditure would be some £20.4 billion. The Government propose to reduce the rate of Exchequer grant from 59.1 per cent. to 56 per cent. Aggregate Exchequer grant for 1982–83 would thus be some £11.4 billion.

I envisage giving each authority individual expenditure guidance for 1982–83, in the form of a target figure for the total expenditure falling on the rates. Targets would be calculated as follows. Each authority's expenditure in 1981–82, starting from its original or revised budget whichever is the lower, would be scaled up to 1982–83 levels, using an appropriate factor for each class of authority, and then adjusted according to performance in 1981–82. For each 1 per cent. by which an authority's resealed 1981–82 expenditure figure is below its 1982–83 GRE, that figure would be increased (or reduced) by 0.2 percentage points. For each 1 per cent. by which its 1981–82 current expenditure figure is below (or exceeds) its volume target for 1981–82, that figure will again be increased (or reduced) by 0.2 percentage points. The resulting targets would, however, be subject to a ceiling and a floor: no authority would be asked for more than a 7 per cent. real terms reduction; the average real terms reduction would be 4 per cent. and no authority would be expected to increase real terms expenditure from the 1981–82 level.

I propose that in addition to the normal operation of the block grant system, there should be a scheme of grant abatement for authorities above GRE whose expenditure exceeds their targets, (as defined in the paragraph above). Such authorities would be subject to a progressive reduction of grant up to a maximum reduction; that maximum would be a loss of grant equivalent to a 15p rate divided between tiers for those spending 5 per cent. or more above target (or above GREs, whichever is the higher).

My right honourable friend is proposing that GREs should in general be calculated in accordance with the methodology already discussed with local authority associations. Housing expenditure, however, would 1118WA be treated differently. The calculations are based provisionally on an average rent increase of £2.50 per dwelling per week, but where the resulting increase contributes to an assessed surplus on the housing revenue account, the GRE component for housing would be set at zero. There would therefore be no negative housing GREs in 1982–83, and no authority would have its overall GRE reduced because of an assessed surplus on its housing revenue account. My right honourable friend shall, however, explore with the local authority associations how to secure that any potential surplus is so applied for housing purposes as to meet our public expenditure objectives.

For 1981–82, he is proposing to make a number of changes in a supplementary report. Relevant expenditure for 1981–82 would be increased by £45 million to take account of the pay settlement for the police; the effect of this would be to increase Exchequer grant by £27 million. A further increase in grant of £122 million would be made to take account of cost variations that are outside the cash limit. My right honourable friend is also proposing some minor modifications to the distribution of block grant, which have been discussed with the local authority associations.

For 1980–81, my right honourable friend is proposing a second increase order to make two changes for authorities in England and Wales. £85 million grant would be paid outside the cash limit to take account of variable items. A deduction of £1 million would be made in respect of payments in 1980–81 under the special scheme to compensate authorities affected by sharp losses of rate income as a result of steel plant closures. In September 1980 my right honourable friend announced a proposal to withhold £200 million grant until outturn figures for 1980–81 became available. Returns from most authorities now indicate that the volume of current expenditure in 1980–81 was some 2½ per cent. above the settlement provision. On that basis he now proposes not to pay any of the £200 million.

In making these proposals my right honourable friend recognises that many local authorities have made a start in reducing current expenditure in line with Government policy. But further reductions are still required, and the proposals will continue to give local authorities an incentive to restrain spending. My right honourable friend is arranging for next week a meeting of the Consultative Council on Local Government Finance to discuss them. He envisages publishing before Christmas more detailed proposals for individual authorities' GREs and targets, and an indication of the proposed poundage schedules for the calculation of grant.