Before I call upon the hon. Member for Derby, North (Mr. Whitehead) to move his motion, I should say that I have not selected the amendment, but of course the matters contained in the amendment may be discussed under the motion. The amendment is to leave out from 'House' to end and add:
'regrets the failure of the previous administration to implement the quinquennial revaluation due in 1968; recognises the need for such a revaluation to ensure that local rates are shared as fairly as possible between one ratepayer and another; welcomes the steps so far taken by Her Majesty's Government to increase Exchequer support to local authorities and, in particular, to give relief to domestic ratepayers by a larger sum than ever before; and calls upon Her Majesty's Government to give urgent consideration to further measures to alleviate the domestic ratepayers' burden.'
I beg to move,
That this House regrets that the Government has failed to take adequate measures to relieve the increasing burden on domestic ratepayers consequent upon rating revaluation and the present unprecedented degree of inflation.
The debate falls neatly between the meeting last Friday which the right hon. Gentleman the Prime Minister had with the leaders of the six largest local authorities and his confrontation tomorrow with the Association of Municipal Corporations. The shadow of the rating crisis which hangs over our larger and older cities looms over those talks. Even more threatening, looming over that rating crisis, is the inflation which has affected the country over the last few years.
Before I look at the effects of devaluation, it is necessary for the House to consider the present rate of inflation, what it has done and the extent to which It has affected not merely the living style, habits and patterns of expenditure but also the very expectations of every working man and woman. A Committee of this House is now considering the Counter-Inflation Bill. Our constituents are being told that their wages are to be pegged for a long time to come, yet simultaneously they see staggering increases in the very staples of life, and it is against the background of increases that we have to consider the present rating revaluation. We have seen increases, which the Government say they cannot check, in the price of basic food stuffs. The Grocer magazine's price index has risen by 6½ per cent. in the last three months—an annual rate of 28½ per cent., if it continues—yet the Government have imposed no freeze on essential foods as the Swedes, for example, have done.
House prices have risen by an average of 47 per cent. in the last year, as my right hon. Friend the Member for Grimsby (Mr. Crosland) reminded the House last Tuesday. Other hon. Members like myself have tried to make the Secretary of State take action on flagrant gazumping, notice of which has been given by our constituents, but to no avail.
House rents have also risen under the infamous Housing Finance Act 1972, the latest IMTA figure being 24 per cent. in the current financial year for unrebated rates. That was the figure put by my right hon. Friend the Member for Grimsby during the debate last Tuesday, and it was not challenged by the Government.
That is the background. It is one of rising prices of food, land, houses and rents facing the ordinary citizen at precisely the time when he is being asked to exercise restraint, to peg his wages and to acquiesce in the Government's policy of a compulsory freeze. It is at this moment that he is confronted, particularly if he lives in one of the larger cities which has suffered because of the imbalance of rating revaluation, with rate increases which will be as severe for him as rent and food increases in recent years.
All in all it adds up to disaster for the wage earner. The Government's tardy conversion to a Counter-Inflation Bill will not alleviate that disaster. In the Chinese calendar, last year was the year of the rat. I shall not say that that description necessarily applies to this Government. It was not the year of the rat, but the year of the sinking ship, and one cannot right a sinking ship by turning the tiller through 180 degrees. The Government's conversion to a prices and income policy will not convince the average wage earner if he is confronted right across the board with costs increases which he cannot contain. The Government are finding the hard way that all these factors interact and that inflation cannot be combated in one area unless it is combated in all.
That brings me to the effects of the current rating revaluation and the Government's stern exhortation to local authorities to limit rate increases to 5 per cent. in the coming financial year. That, and the vague phrases in the White Paper about monitoring rate increases in phase 2, have to be seen against the background of inflation facing the ordinary wage earner.
The revaluation itself has been influenced by staggering inflation in property values due to speculation and to the high levels of rent being demanded under the new Act. On 31st January my hon. Friend the Member for Birmingham, Aston (Mr. Julius Silverman) challenged the Minister when he was in full flight about the alleged fairness of the revaluation. My hon. Friend asked whether it was not a fact that the imbalance in the revaluation was due to domestic properties having been revalued in the light of the current inflation of house and property prices. The Minister said that he was coming to inflation, but he never did in that debate, and the Government never do. It is the local authorities who have had to come to inflation and attempt to deal with it and curtail expenditure in the face of an unprecedented level of inflation in peacetime.
The situation of the local authorities was well summed up by the Association of Municipal Corporations which said on 18th January:
local authorities are faced with cost of inflation up to November 1972 in that year alone at the rate was £410 million of which local authorities would have to find 42 per cent., namely, £172 million. Thus even though assisted by the Government's raising of their proportion of the rate support grant to 60 per cent. instead of 58 per cent., there remains a heavy burden for local authorities.
It went on to say that those figures were averages and that some authorities do not do as well as others proportionately in the grant.
The statement went on:
It is to be recognised that some local authorities will have estimated for a degree of inflation when they made their rates early in 1972 but there is no reason to think that those who did so will have allowed for more than 5 per cent. (or a figure of that order) and it is clear that the balances in the hands
costs in recent years, are extremely limited." of urban authorities, faced with these heavy
That is a mild statement of the position.
The fact is that the burden for 1972–73 is heavy despite the increase in the grant. I accept that there was an increase in the allowance for the domestic ratepayer from something in excess of 10p on the rate burden to 15p for 1972–73, but local authorities faced an enormous wage interest bill. At this time of high interest rates and unprecedented inflation, that inflation can run away with estimates, and they would be in deep trouble even without revaluation. The services they provide are mostly statutory obligations. They are not local extravaganza which can be cut by a simple exhortation for financial stringency and economies by the Secretary of State.
All the talk in the world about increases in the proportion of the rate support grant to 60 per cent. for the next financial year overlooked the cutting of the rate increase from 1 per cent, to ½ per cent. for 1971–72 and 1972–73. We look as though on that basis we are back where we were, but in fact the money denied by the cutting of the rate of increase in those years will not be made up by allocating now, so great has been the rate of inflation.
Has the revaluation itself been fair? The Government have been at pains to say so, but for most of the larger cities and for many Midlands boroughs such as Derby, which my hon. Friend the Member for Derby, South (Mr. Walter Johnson) and I have the honour to represent, there has been a major shift of burden on to domestic property from other types of property. The domestic ratepayer will be hardest hit in precisely the areas where the local authority has the heaviest burden in paying for community services, and he will be hit by what is always the most inequitable and most regressive of the taxes that he has to pay.
I think it is accepted by both sides of the House that the burden of rates as it falls upon the domestic ratepayer is regressive and will continue to be until we look fundamentally at the very basis of the rating system. That regression, of its nature, increases the unfairness of what has happened under the present revaluation.
Is my hon. Friend aware that in some of the areas to which he has referred, and in particular in the stress areas of inner London, the burden falls particularly heavily on constituencies such as mine where there is little industry, impoverished property and working-class people who are hard hit by the Government's policies? These areas require special support by the Government who have been totally unimaginative and unconstructive in dealing with the problem.
My hon. Friend has made the point well. It is in the city centres where working-class people have to bear this burden almost alone and where the Government have done nothing to alleviate the burden. It is they who will be most affected.
The problem was succinctly stated by the Institute of Municipal Treasurers and Accountants on 2nd February. It concedes, as the Government will no doubt say in reply to the debate, that the average works both ways and that some local authorities are going to do better out of the revaluation just as others have done worse. The Institute said:
However, for a proportion of local authorities the increase in the proportion of domestic rateable value to total rateable value is much higher than the national average and therefore such local authorities face the prospect of either increasing the level of domestic rates very substantially indeed, or of making what it would be correct to describe as very drastic cuts in services.
The statement went on to say:
In some quarters, it is believed that local government could avoid increasing rates by cutting out waste. The pursuit of 'efficiency' and value for money—important all the time—is particularly important this year, but it is totally unrealistic to believe that the rate of increase in local government expenditure can be substantially altered in 1973–74 by administrative savings and technical improvements The scale of local government expenditure is now so large that a significant reduction in expenditure levels in the immediate year ahead is only possible if the Government specially directs, through Parliament, reductions in identified services and of public servants, and the abandonment of the start of a wide range of projects and new developments.
I do not know whether the Government will say today that they are prepared to delineate those cuts saying which services affecting our constituents will be slashed and which projects are not to be started. I do not think they will. I hope they will not. The fact is that something of the sort will happen unless we get assistance of the kind that my hon.
Friends and I will be calling for in this debate.
What is happening in these cities and towns which are now being told that they must slash services or put up the domestic rate is that the percentage increase of the domestic rate payable for 1973–74 over the previous year is so large that these areas which have declining populations and industry being let off comparatively lightly are bound to put upon their domestic ratepayers a heavy and insupportable burden.
Recently, the Financial Times quoted what some of the figures would be in terms of revaluation. For Wolverhampton, for example, it estimated a percentage increase in the rate burden for the domestic ratepayer of 19·3 per cent., for Birmingham 16 per cent., for Sheffield 15·4 per cent., for Dudley 13·7 per cent., for Basildon 13·3 per cent., for Coventry 9 per cent., and for Derby, where the average multiple for revaluation is 2·46 per cent. and the domestic multiple 2·65 per cent., an 8 per cent. shift in the rating burden to the domestic ratepayer.
The effect of revaluation has been aggravated by the shift in the rate burden to the domestic ratepayer at a time when he is being exhorted from on high to curb his demands, to moderate his wage demands, to live within his means and to have his income pegged by those who know better than he does how to tackle inflation. For some householders there will be an unpleasant surprise when the rate is fixed for the coming year.
The shift of the burden in Derby, for example, is as follows. In respect of a post-war private house there will be an increase of approximately 13 per cent. of the rate burden. On a modern private house it will be 17 per cent. On a private flat it will be 23 per cent. On a private bungalow it will be 27 per cent. On a pre-war council flat it will be 89 per cent. On a post-war council flat it will be 54 per cent. On a modern council flat it will be 25 per cent. The people who live in those council flats are not eligible for the rebates about which I have no doubt we shall hear. They are wage earners. They are those who are told to moderate their wage demands. They are those who will have to pay the new rate in full. Yet they are being told that their incomes must be pegged and that the Government will look after the problem of inflation for them. In Derby we are anxious to know how to find a 10 per cent. increase in the domestic rate without slashing services which are essential and not ephemeral.
The IMTA estimates that three authorities expect increases of more than 20 per cent., that seven expect increases of between 16 and 20 per cent., that eight expect increases of between 11 and 15 per cent., and that another eight expect increases of between 6 and 10 per cent. In case hon. Members opposite ask about those below the average, may I remind them that the IMTA estimates that six out of 73 authorities expect reductions.
On Friday last the big six local authorities saw the Prime Minister and, I assume, told him what was on their minds and what would happen to cities like Birmingham, Leeds and Manchester without direct Government assistance. I have made a point of not going beyond the Conservative Press and its reports of how this meeting went and what was thought of the local authorities demands.
An article in the Sunday Times of 21st January entitled "Why rates will soar", discussing what it called a totally outmoded grant system which gives too little help to city areas with the greatest problems, quoted the leader of the Manchester Council as saying:
Rate bills will go straight through the roof unless the Government acts in what amounts to a state of complete crisis.
Only today the Daily Express, which almost no one could accuse of being a radical newsheet, quotes statements of what is likely to happen to the domestic rate, according to the local authorities, if they are to maintain essential services, continue to employ those who work for them, and meet the effects of the rating revaluation.
Birmingham, as was mentioned by my hon. Friend the Member for Birmingham, Small Heath (Mr. Denis Howell) in a debate just before Christmas, has been talking about a 20 per cent. increase in rates or, alternatively, if it is not allowed to do that and the Government's monitoring services work in a mandatory way, of having to sack more than 2,500 public servants. Cities like Bristol and Birmingham have already cut their budgets for next year by more than £3½ million.
Leeds officials have estimated that its rates for both private and council tenants will go up between 15 and 20 per cent. under revaluation, and Alderman Sir Ronald Ironmonger said in Sheffield:
It is ridiculous that the domestic ratepayer must in effect subsidise industry. People have every right to feel angry about this".
In Sheffield industry will pay 25 per cent. less and domestic ratepayers 13 per cent. more, a situation described by Alderman Ironmonger as "ludicrous".
We are beginning to hear as we learn more of the effect of the rating revaluation not merely of the rate that local authorities feel that they must charge for the year 1973–74 but also some of the savings and therefore, the subsidy which the private and domestic ratepayer will give, to industry. Over the next few days we shall hear some staggering stories of the diminished rateable values for industry in areas where the domestic rate is hit severely.
What services will be slashed? If the Government say that rate increases are to be contained to 25 per cent., what services will go? Why should the older cities with declining populations and rating resources, which have by that token increasing social needs, be worst hit by this inequitable revaluation? I do not think there are many right hon. and hon. Members on the Government benches who wish to see services slashed, especially when taking into account what Conservative hon. Members have said about Birmingham in the local papers. They have called for a postponement of the revaluation. They have called for Government action and for some kind of direct assistance.
The hon. Member for Birmingham, Selly Oak (Mr. Gurden) will know that his constituency passed a resolution unanimously recognising the fervent desire of the substantial majority of electors for:
… drastic reform of the present unjust method of financing local government through the rating system.
The resolution called for urgent legislation for a fair alternative in time for the reorganisation of local government in 1974.
The hon. Member for Birmingham, Handsworth (Mr. Sydney Chapman) is quoted as saying that he was confident that the Government would take action over any imbalance resulting from revaluation. I hope that right hon. and hon. Members opposite will tell us that they do not wish to see essential services cut. If that is their view and they wish to see some credibility remaining to the Government's prices and incomes policy, they must be in favour of special assistance, given the rate of inflation and its effect on the local authorities.
The Government have given no indication of the basis of their proposed reform of local government finance. We heard in the Gracious Speech that it was to come and that a Bill would be put before us this year. So far we have not had so much as a White Paper. We have had no evidence of the Government's thinking on this subject. About revaluation and the basis of domestic rating, the Government remain silent.
In the longer term—though I hope that the Government will give us some indication of their thinking today, so serious is the crisis which affects the larger cities—we should perhaps be thinking of income-related rates which would be less regressive and which would not involve a locally-administered means test as a local income tax would do. We should also be thinking in terms of supplementary revenue raised from local sales taxes, fuel taxes and so on.
I turn to the immediate crisis and ask why we cannot postpone or phase the introduction of revaluation in the present inflationary situation. This is a point which Labour Members, particularly my hon. Friend the Member for Birmingham, Aston (Mr. Julius Silverman), have constantly urged on the Government and we have had nothing but stalling from the Government Front Bench in each debate—notably those on 20th December last and 31st January this year—on the subject. If the Government are not willing to postpone or phase the revaluation, surely they can provide something by way of Treasury assistance to the boroughs which are adversely affected and can ensure that assistance should increase by such an extent as fully to counter current inflation.
In the debate on 20th December last, my hon. Friend the Member for Birmingham, Small Heath asked the hon. Member for Bury St. Edmunds (Mr. Eldon
Griffiths)—who was his usual ebullient and evasive self—whether the Government would avail themselves of one practical solution which was provided in 1963 under a Conservative Government when there was last a revaluation. My hon. Friend then quoted paragraph 15 of Cmnd. Paper 1663 issued in that year:
It is within the Minister's powers to make an Order derating houses solely in those few areas where the increase in the householder's share is greatest.
My hon. Friend's point was that if that provision could have been made in 1963, as it was, then surely it can be made in 1973 because the rate of inflation this year is very much worse.
Although my hon. Friend made that point on 20th December last, I have searched HANSARD with a toothcomb but can find no response from the Under-Secretary of State when he replied to that debate. I put it again to the Government today: why can we not reactivate that provision in terms of the present unprecedented level of inflation? The Government can take measures now, in advance of the major reform which we are told they contemplate on local government finance, to alleviate the present problem.
I take my last text today from another Conservative newspaper, the Financial Times which says today:
In the special circumstances of the freeze, the Government could well decide to anticipate these reforms by giving a once-for-all grant on a highly selective basis. It would also be reasonable to mitigate a defect in the present revaluation which arises from the failure to bring into line with today's costs the repairs allowance used in the valuation process. Because of the way the present scale of deductions was fixed in 1963, the failure has meant that the lower-valued domestic properties have been over-valued.
This means that the imbalance is exaggerated. It is the previously low-value domestic properties which will bear the brunt of the burden in terms of domestic revaluation of rates. The Financial Times continued:
The trouble with these proposals of course is that they require additional public expenditure. But the Government has a straightforward choice between paying additional grant or frustrating the purposes of revaluation—and, on the wider plane, between public economy and the objectives of its counter-inflation policies.
The Financial Times no doubt wishes the Government well and wants it to succeed in its counter-inflation policy. I cannot claim the same bias, but I say to the Government that if they want to retain any credibility for their counter-inflation policies they must look again at the burden they are placing on the large and old cities by rate revaluations. The Government have now wasted half of their calendar time, and all of their election mandate, in pursuing free-for-all policies which have benefited the better-off and they have exacerbated industrial conflict. They say that they believe in an incomes policy which is fair to all, but the little man, with his wages pegged and no windfalls from land speculation or tax relief round the corner, might not be disposed to see any incomes policy as fair. He has already seen that the Government will not help his food bill or his rents. And now come rates. The choice for him is between poorer services and higher bills—perhaps both in 1973 and 1974.
If the Government wish to retain any kind of credibility for their counter-inflation policies, they must intervene either to postpone revaluation or to mitigate its consequences in the cities. It is the least we can ask. It is certainly the least the Government can do.
I am sure that the hon. Member for Derby, North (Mr. Whitehead) is quite right to say that we must look at the problem in relation to the prices and incomes policy, and any suggestion I make for reform will have this in mind. The hon. Gentleman was right to draw attention to the difficulties in regard to low-value domestic properties in terms of the Inland Revenue.
I do not want to see essential services cut in the cities, but I want to see that we get value for money. I hope that the hon. Gentleman will not misinterpret what I say if I point out that this matter always comes up in debates on rating. It is like a red rag to a bull to me when I see glossy magazines coming from the city of Liverpool saying what it is going to do. It is those kind of documents which tend to get away from the sort of fairness one wants to see in debates of this kind.
I welcome any motion which draws attention to the deficiencies of the rating system, and I congratulate the hon. Gentleman on drawing our attention to this problem. Over the last 10 years I have tabled three private Member's motions on exactly this subject, but, alas, up to now I have had little response from both Labour and Conservative Governments to my pleas for reform of local government finance. I must not boast, but would point out that over a period of five years I have foreseen in those motions many of the problems which the hon. Gentleman mentioned. It is no good looking back and saying, "I told you so", but I feel very much like the countryman who, when asked the way, stated bluntly "The difficulty is I would not have started from here."
It is good to hear the hon. Member for Hackney, Central (Mr. Clinton Davis) intervening in debates of this sort, because it is obvious that he finds in Hackney the same problems as those which I have faced in my constituency for 19 years. In areas where there is little industry, the elderly population have not the resources to meet many of the demands which the ratepayers have to bear, and those same elderly ratepayers certainly cannot afford to bear the burdens which affects the larger cities.
We face an unprecedented bill for local government spending. As a result of national policies, particularly the increase in educational spending, the total of expenditure which attracted Government grant in the year 1973–74 was £5,216 million. In previous debates on the rate support grant the figure for 1969–70 was £2,976 million; in 1970–71 the figure was £3,128 million. One cannot help being disturbed by this vast increase in expenditure of over £2,000 million in a few years—a sum equivalent to nearly the whole of our defence expenditure annually in the 1960s.
On 10th March last year, in my third private Members' motion on local government finance, I pointed out that over the year I estimated that local industrial commercial and domestic ratepayers paid out about £2,000 million, whereas five years ago the amount was £1,300 million. Nineteen years ago when I first entered this House the amount was £400 million. A large part of this has been due to the increase in the cost of education which was £400 million in 1954 and £1,500 million in 1967, but nearly £3,000 million today. The education bill has doubled in the last five years.
I advocated that the domestic ratepayer should be relieved of having to pay this huge burden for education. Every day I am more convinced that this should be done. I know that of the £5,216 million attracting Government grant the Government will find 60 per cent. in subsidy and domestic ratepayers will be helped, not by 10·5p in the £1 as they were in 1972, but by 15·4p in the £, which is an increase of 46 per cent. But in the long term—this is what essentially we as a House have to examine—this is only nibbling at the problem. In fact it is making it worse as, alas, all subsidies do, because it puts off the evil day of reckoning and disguises reality.
Rather than this subsidy, why do we not face the reality of what the education bill is costing? That is why I advocated a separate education tax when I spoke last March. If necessary it could be supplemented by a value added tax. I am glad to see that a leader in the Daily Express today supports this idea. I am disappointed that we have not tackled local government finance earlier and faced squarely those charges that are national and not local so that we could get a proper balance between the two. Then we could see that responsibility is once again put into the hands of local government.
I am certain that we have to face the reality of national expenditure falling on local government, however unpleasant it may be and even if it means increasing taxation—that is, if we are in earnest in our effort to conquer inflation. That is the answer which I give to many of the points made by the hon. Member for Derby, North about the present inflationary situation. It is caused not by immediate wage increases but by the vast increases we have had in Government spending quite often falling on people who are not able to bear them, and that is particularly true of the education charge to which I have referred. I am sure that present Labour policies to increase Government expenditure would only add to the problem of inflation and would increase the burden on the tax- payer and the ratepayer far more seriously.
The amendment suggested by my hon. Friends, which you, Mr. Speaker, have not called, contains ideas in the nature of a holding operation but they do not tackle the problem which faces the country. I do not believe in subsidies; they disguise too much the unpleasant facts which we have to face. That will not help the country in the long term nor in the present serious problem. I therefore hope that we shall not flinch from further measures to alleviate the domestic ratepayers of their burden, but in asking for this I hope that we shall tackle the problem at its roots and face the country with the reality of the kind of bill we have to face for education and see that we get value for money. We are now spending £3,000 million on education, which is more than we spend on defence. Would we ever dream of putting the defence bill on to property owners and domestic ratepayers? Yet we put this huge sum for education on to the rates.
The Government have to act in this sphere. Bearing in mind that, quite rightly, we have brought in a prices and incomes policy, I realise that the Government have to temper their policy on local government finance to that policy. I should have liked them to act much earlier in reforming local government finance, but if at the moment that has to be tempered with policy on prices and incomes, I ask the Government to look seriously at the kind of costs of education which are forced on the domestic ratepayer. Let them as soon as possible relieve the ratepayer of that far too onerous a burden.
I add my thanks to those expressed by my hon. Friend the Member for Harwich (Mr. Ridsdale) to the hon. Member for Derby, North (Mr. Whitehead) for raising the subject of the rating system. The views of my hon. Friend are well known in his wish to see the education budget shifted from local to central government expenditure to a far greater degree. He and I have discussed this on many occasions. There would certainly be some disadvantage, as I think we would lose a great deal of local interest in education if that course were followed. Nevertheless, I agree with my hon. Friend that we must look urgently at the question of local government finance, and we cannot do that too soon.
I wish to refer briefly to the context of the problem with which the country and locally-elected representatives are faced this year with their budgets for 1973–74. The expenditure levels for this year used in the rate support grant negotiation were about 14 per cent. higher than the expenditure trends at the time when the rates were levied in the previous year. In preparing their rate estimates, local authorities will be taking into account what they consider to be the inflationary circumstances and other charges between November 1972 and March 1974, which were not taken into account in the rate support grant negotiations. Here local authorities will be exercising their judgment.
We have yet to see the effects of Government policy in phase 2 of their prices and incomes proposals. The Government, I am happy to see, are determined on their course and I believe they have the support of the country in their efforts to contain inflation. The guidelines in the context of phase 2 are between 4 per cent. and 5 per cent., but individual local authorities may be taking a different view and drawing their budget estimates accordingly. There is, I think, little in dispute between central and local government on the prospective increase in local government expenditure which will occur next year. I take the point made by the hon. Member for Derby, North that local government services ought not to be reduced and that their improvement should not be curtailed. I think there is little difference between local government opinion and central government opinion in that respect.
Expenditure prospects for 1973–74 would have been much higher if phase 2 had not been introduced by the Government as local authorities would have been forced to assume very high rates of inflation for the forthcoming year in preparing their budgets. To this extent I am confident that Government policy will have had the effect of reducing the estimates to some degree.
In his motion, the hon. Member for Derby, North calls attention
to deficiencies in the rating system.
He made no reference at all to the fact that the Rating and Valuation Act 1925 calls for a quinquennial revaluation. It is no use having a system of rates requiring a periodic revaluation if it is not operated properly. The hon. Gentleman will know that the previous Socialist Administration failed to carry out the revaluation which was due in 1968. This cannot be attributed to other than a neglect of that administration's duty and their statutory duty.
The hon. Gentleman is, perhaps, about to tell the House that that was the only postponement between 1925 and the present day. If he looks at the figures he will find that it was not and that there were many such postponements as well as the 1968 one. The 1968 one was governed largely by considerations other than the rate of inflation, which rate of inflation was much less severe than the present rate of inflation.
The quotations I shall make will make no reference to the rate of inflation. In a Written Question tabled in December 1965 the hon. Member for Cleveland (Mr. Tinn) asked the then Minister for Housing and Local Government
whether he intends to postpone the rating revaluation due in 1968.
The then Minister, the right hon. Member for Coventry, East (Mr. Crossman) replied:
The Government have decided with regret that, in view of the shortage of valuers and the increasing commitments of the Valuation Office, it will be necessary to abandon the quinquennial revaluation due in 1968…. At the same time the House will be asked, in the interests of fairness among ratepayers, to give statutory recognition to the established practice whereby new or amended assessments made during the currency of a valuation list are on the basis of `tone of the list'."—[OFFICIAL REPORT, 2nd December 1965; Vol. 721, c. 246.]
On Second Reading of the Local Government Bill in June 1946 the then Minister said this:
Even if the valuation were always fair and intelligible, which it very often is not, rates are a tax which starts getting out of date the very moment the valuation is over. No wonder local authority treasurers rely on the quinquennial revaluation, and no wonder they were upset when I announced that the revaluation due next year would not take place. The reason for the postponement is the shortage of valuers which has been intensified by other
commitments such as the establishment of the Land Commission.
I do not accept that that could be a logical and fair reason for the postponement of the 1968 revaluation. However, I know that the right hon. Member for Coventry, East still holds that view. I sat opposite him for the Guildhall centenary celebrations of the Association of Municipal Corporations when a reference was made to the postponement during the Prime Minister's speech. I heard the right hon. Gentleman say, "And very sensible, too." It was not sensible. It was an evasion of the statutory obligation which lay upon the Government of the day. The existing circumstances are greatly exaggerated by the fact that we are now making good a 10-year period of revaluation whereas there should have been an interim step in 1968.
In that same debate my right hon. and learned Friend the present Secretary of State for the Environment said this:
It is particularly regrettable that he
—that is referring to the right hon. Member for Coventry, East—
has abandoned the 1968 revaluation simply by inserting '1973'…".—[OFFICIAL REPORT, 14th June, 1966; Vol 729, c. 1265–92.]
Before the hon. Gentleman continues to drag in that red herring, in imitation of the Prime Minister, who first introduced this factor into our discussions on the present rating system, may I ask whether he is aware that the only time that a quinquennial review was undertaken was the first one following the 1925 Act? At no time since then has a quinquennial review been adhered to by any Government, Tory or Labour. Therefore, the hon. Gentleman and the Prime Minister are drawing a gigantic red herring across the path. It has little relevance to this issue.
I am surprised that the hon. Gentleman should make the point in those terms. The Conservative administration of 1963 undertook that revaluation in the correct year. I am not going back to 1925 because I would not hope to follow the sequence of revaluations right through from 1925 to 1963.
There was an obligation to revalue in 1968. That is inescapable. The right hon. Gentleman who was Minister at the time admits that this is so. The hon. Gentle- man was not critical of the fact that we are now engaged on a revaluation in accordance with the obligation that rests upon him. I am sorry that he referred to my reference as a red herring, because it is material to the situation.
I will not give way again. I have allowed the hon. Gentleman to make his point.
It is one thing to refer to the deficiencies in a rating system. It is quite another to deny an essential ingredient, namely, a periodic revaluation. Rates are non-buoyant. They rest heavily on lower-rated properties. Failure to revalue denies increased resources to local government through the rates and creates inequalities between ratepayers in both relative and actual terms. Clearly the Socialists did not give a damn one way or the other, either for local authorities or for the ratepayers, in denying them an opportunity for a revaluation in 1968.
The present revaluation has resulted in a further shift of the proportion of the total rate to the domestic ratepayer. This is only marginal on a national scale—I understand 1·8 per cent. There is, however, a wide range of differences throughout the country applying to various local authorities and to domestic ratepayers within those authorities. To some extent this is attributable to the statutory deductions from the gross values which take into account repairs, insurance and other expenses to maintain properties in a state to command the rent upon which valuations are placed. These statutory deductions have not been amended in applying the new values, with the consequence that the increase in rateable values for smaller domestic property has increased proportionately greater than other domestic and non-domestic property. Some 88 per cent. of domestic properties fall within this category.
The failure to review the "bandings" for statutory deductions has had the effect of a substantial shift in burden towards the lower-rated property. For example, a house with a rateable value in the new list of £100 is over-stated by 27 per cent., whereas for a property with a new rateable value of £300 it is only 7 per cent. Not to have made this adjustment for the revaluations is a reflection on the professional advice given to the Government. I am sure that the matter was looked at. It must have been looked at some years ago, possibly in about 1970. I think that the Department was wrong not to have seen the effect of the statutory reductions which would inevitably flow from the increased rateable values.
I turn to consider the important effects that revaluation has for local authorities. The incidence of the distribution of the rate support grant is altered, some authorities gaining substantially in grant and others coming off much less favourably. Many domestic ratepayers receiving high rate demand notices will fail to understand why the Government's monitoring proposals have not effected a safeguard for them. I hope that this is a point to which my right hon. Friend will address himself later. I hope that an announcement will be made—today, if possible—to ensure help to the domestic ratepayer on a transitional basis.
However, to deal with deficiencies in the rating system is a long-term proposition and does not help in the present emergency situation. Certainly we need to look at the levels of statutory reductions, whether it is preferable to assess properties on a capital value basis rather than hypothetical annual rental, whether there should be differential rating between the different type of occupation. These are all questions which need to be considered in the reform of local government finance.
We have had the Government's Green Paper setting out the options, and I hope that my right hon. and learned Friend will shortly be presenting a White Paper outlining the Government's proposals for reform. Its early appearance is essential if there is to be time for adequate discussion prior to the introduction of legislation, which needs to be effective from 1st April next year.
While recognising the limited options which are open to the Government, the need to provide a third source of revenue for local authorities is imperative. It is a decision which must be taken and it is best taken as quickly as possible and announced to the House. In carrying out their statutory obligations the Government have faced up to the necessity of revaluation for the essential fairness of local government finance and are to be congratulated on having done so, having at the same time had regard to the impact of local government expenditure and the increased demands to be levied against the domestic ratepayer.
During the debate on the rate support grant on 20th December the Minister for Local Government and Development announced the largest ever Government contribution, increased by £400 million to £3,130 million, in rate support grant aid to local authorities. Of this sum about £250 million was in respect of specific grants, more than half of which will go to expenditure on police services. In addition, in the domestic element, an increase of no less than 46 per cent. above the 1972–73 contribution is to be made. That is equal to a reduction in the domestic ratepayers' share of the rate burden of 15·4p in the pound in 1973–74, compared with 10·5p in the pound for 1972–73 on present rateable values. In new valuation terms it is equal to an increase in domestic relief of from 4p to 6p in the pound. The third measure to help the domestic ratepayer was announced for domestic households with low incomes which are entitled to rebates for rate demands. The Government have laid an order increasing the income limits used in determining the extent of this help. It will be £16·50 for a married couple, £13·50 for a single person, and £2·75 for each dependent child.
It is easy to recognise the almost infinite variety of subjects involved in local government questions and the differing performance of local authorities is explained to some extent in financial terms by the rate support grant calculations. Figures produced by the Institute of Municipal Treasurers and Accountants, show that of the county boroughs, two are looking for increases in their budgets of between 26 per cent. and 30 per cent.; three county boroughs are seeking increases of between 21 per cent, and 25 per cent.; and four of between 16 per cent. and 20 per cent. Five county boroughs are showing reductions of between 1 per cent. and 15 per cent. in their budgets for next year compared with budgets in the current year.
The figures for the outer London boroughs show that one is proposing an increase of between 26 per cent. and 30 per cent.; two are proposing increases of 21 per cent. and 25 per cent.; and two increases of between 16 per cent. and 20 per cent. Of the county councils, one is seeking an increase of between 26 per cent. and 30 per cent.; two are seeking increases of 22 per cent. to 25 per cent.; and three increases of 16 per cent, to 20 per cent. Five county councils are proposing a reduction in the rate of between 1 per cent. and 15 per cent.
This is to some extent a confirmation of what the hon. Member for Derby, North said, that it is the cities with great problems which are hardest hit. However, that may not necessarily be the case and that is the danger of applying aid overall and not on a selective basis. The rate support grant arrangements, distribute resources, but I agree with the hon. Member that they need refining to ensure that those in greater need get the largest share of Government support. The figures produced by the IMTA are indicative of the great variations. We must not, therefore, protect the spendthrift authorities, because high rates may not necessarily result from the solving of difficult problems. They may arise for other reasons.
I turn in conclusion to the domestic element and the problems which face the domestic ratepayer. Here again, I hope that a method will be devised by which relief can be selective. At the last revaluation, which became effective on 1st April 1964, we had the benefit of the Rating (Interim Relief) Act. That provided that a rating authority in England and Wales could grant relief to a householder whose rates increased between 1962–63 and 1964–65 by more than a quarter or £5, whichever was the greater. The Act appears to have been little used generally, but by 1st September 1964, Bournemouth, which had at that time 32,000 persons over the age of 65, had granted relief to about 2,320 ratepayers. From a reply to a Question I had on the Order Paper for Written Answer last week, I learned that this power had expired and that the Government now have no power to limit rate levels or to enable authorities to vary rates levied on individual ratepayers.
I am confident, however, that the Government must look for ways and means to protect the domestic ratepayer from the inequalities arising from revaluation, from the penal incidence of the statutory reductions, and from the change in the incidence of the rate, to which the hon. Member for Derby, North referred, from the non-domestic to the domestic ratepayer. The Government do not have many options open to them, but I shall be interested to hear whether my right hon. Friend is prepared to consider ways and means by which we can offset the exceptionally high rises in domestic rate levels. Will they consider giving a grant to a local authority if the percentage of its total domestic rateable value for 1973–74 is higher than in 1972–73? This is where the shift of responsibility has moved from the non-domestic to the domestic ratepayer. Will they consider a grant calculated on the basis of taking the net rate-borne expenditure for 1972–73 and perhaps adding to it 5 per cent., which is an acceptable increase in the rate demand. They would then take account of the percentage of domestic rateable value of total rateable value for 1972–73—from the old list—and compare it with the percentage of domestic rateable value of total rateable value for 1973–74—the new list. If it were possible to make an adjustment on that basis it would ensure that domestic ratepayers were protected from abnormal increases. I hope that an arrangement of that sort would not mean too great an additional burden on central Government funds, and some of it certainly could be funded from the local rates. We should obviously need to look at the extent to which this was an added burden on the commercial and industrial ratepayer.
My hon. Friend is clearly advocating a shift back to the situation where a greater burden is placed on commercial and industrial premises. Is he satisfied that the nationalised industries are contributing sufficiently to local government finance through the rating system?
I do not want to get enmeshed in that involved and difficult question, in which I know my hon. Friend the Member for the City of Chester (Mr. Temple) is well versed. I view the proportion of rates which the industrial and commercial ratepayers meet as a trading expense, and I know that increased rate demands mean higher business costs. But, from the other point of view, the domestic ratepayer is having to meet his rates out of his net income. There are substantial areas in which we should introduce differential rating and require the industrial and commercial hereditament to pay a higher share of the total rate demand than the domestic ratepayer. That can be justified on a number of grounds, which the House will not wish me to go into now.
Within the context of the prices and incomes policy we must ensure fairness to the domestic ratepayer. There is an obligation on the Government to give a measure of relief, and I hope that my right hon. Friend the Minister for Local Government and Development will give the House an assurance about that.
I congratulate my hon. Friend the Member for Derby, North (Mr. Whitehead) on having enabled the House to debate the subject of the rating system today. The debate could not have come at a better time, in that the Prime Minister will be continuing his discussions tomorrow with the Association of Municipal Corporations and the London Boroughs Associations. For that reason, I do not suppose that we shall receive a very helpful reply from the Minister for Local Government and Development. He will probably say that we must wait and see. But there is not much time. Virtually regardless of their political colour, local authorities are deeply concerned about the present situation, as are many hon. Members on both sides of the House. We wonder what the Government propose to do. Time is running out, and they must make their decision clear within a matter of days.
The hon. Member for Northants, South (Mr. Arthur Jones) referred to spendthrift authorities, but did not define what he meant. In his general observations he tended to castigate certain unspecified local authorities as being spendthrift. It is not enough to make such generalisations. I often found during my period in office as a Labour local councillor that we were referred to by Conservative colleagues as spendthrift—[Interruption.]—The hon. Member for Hampstead (Mr. Geoffrey Finsberg) says "Hear, hear." I have special regard for the hon. Gentleman, because he is my pair. I refer to him sometimes as Hampstead's Heath. But I do not think the hon. Gentleman knows a great deal about Hackney.
Areas like Hackney, with specific and special problems, require substantially increased expenditure, and any proposition that they should hold to the present levels or stay within an increase of 5 per cent. is outrageous and cannot be entertained. There are many areas like Hackney in the inner cities, particularly in the stress areas of inner London, which require special treatment. I have made that point on a number of occasions. Ministers have seemed to assent to the general proposition, but they do not suggest the special attention they will give to those areas which are declining fast. Time is not on their side.
Notwithstanding the wide variations throughout the country, it seems quite clear that the main effect of revaluation will be a general shift in the rate burden towards householders. The hon. Member for Northants, South seemed to accept that.
From what we know now it also appears that local authority tenants will be harder hit than anyone. That was one of the themes of my hon. Friend the Member for Derby, North in the statistics which he cited. This will happen particularly in post-war developments, as to both local authority flats and houses.
That effect is coming at precisely the moment when local authority tenants are also having to pay the surcharge under the Housing Finance Act, a rent increase which is not being remitted as part of the Government's counter-inflationary policy.
That is quite right. In my borough one gentleman has embarked upon a certain course of conduct which some people have depicted as a vendetta against council tenants. He has picked certain areas within the local authority to cause an inquiry into the rating values given by the valuation officer. He has been partially successful, which has meant an increased burden on certain local authority tenants in Hackney.
It also appears that small houses, small flats and bungalows occupied by the elderly have had their valuations increased by more than average. I understand that that is especially so in rural areas.
Within the non-domestic sector, office valuations have risen by more than average, while those of industrial premises have risen by a small percentage. But householders in council estates in industrial areas and the inner cities seem likely to suffer most.
The present revaluation comes at a time when the Shelter neighbourhood action project undertaken in an area of Liverpool, called "Another Chance for Cities", has made it clear that a vast new urban programme is required. If that programme is not undertaken, there will be an inevitable and possibly irreversible decline in the inner city areas.
My own borough is an example, perhaps almost a prime example, of the problem that such areas face. It is an area of massive deprivation. Hackney has more than its fair share of housing problems, of over-crowding, of all the difficulties that confront such areas. We were castigated by Shelter quite recently, I think somewhat unfairly, for not having dealt with the problem of homelessness by providing more accommodation for the homeless immediately. But it just is not possible without immediate Government help. Because Hackney has adopted perhaps one of the most liberal policies in London for dealing with the homeless, people have drifted there to take advantage of that policy. They expect to be rehoused, but there is not the accommodation available. The local authority cannot acquire enough to deal with the situation.
We find that more children have to be taken into care and more bed and breakfast accommodation has to be provided. The local authority is utterly bewildered about what it can do next without immediate Government assistance, which, unhappily, has not been forthcoming. We need a vast programme of increased expenditure if we are to cope with the problem of increasing homelessness alone. The problem is attributable to a whole variety of reasons, not least the difficulty confronted by furnished tenants who are deprived of security, and there is a growing incidence of homelessness because of the conduct of irresponsible landlords.
Hackney is an area where welfare and social expenditure needs to be increased and not held constant. People in that area are deprived of basic amenities. There is little industry and the average wage is less than in most other areas of London. There are more adults who, faced by the difficulties of overcrowding and all the other housing problems to which I have referred, suffer from mental ill-health, and more children who are classified as educationally subnormal than in many other areas of London. There are more physically handicapped people in the East End of London, and in Hackney, than in many other parts of London. That is why some sociologists have used the term "multiple deprivation" when describing such areas.
These problems lead directly to a poor educational background being provided for people who grow up in these areas—for example, the "sink" schools, and the rest, that have demanded the attention of councillors and London hon. Members. Unhappily, when people find that their problems cannot be resolved, when they have been on housing lists for years, and when people, who are relatively new to the housing lists become homeless and get accommodation more rapidly than those who have been on the lists for a number of years, there is bred, unfortunately, and perhaps unfairly, an enormous amount of cynicism about democratic institutions within our society, about Parliament and local government. That is a dangerous situation which must be grappled with by the Government. It makes it imperative that the Government should increase their scale of spending in areas such as mine.
The situation has not been helped by the three years during which the Labour Party lost control of Hackney. There was unquestionable neglect—I am not trying to make a party point—in many vital spheres of the social services that had been built up. That neglect has accentuated the problems that we face. The increased burdens which the White Paper recommends should be met by improvements in the social services and in the environment, which are in themselves desirable, involve extra expenditure by local authorities—and this is something of an understatement. However, the burdens that are being accepted are being increased as a result of the present Government's policies.
Mention has been made of the impact of the Housing Finance Act and rent rebates in the furnished and unfurnished sectors, which may be desirable in themselves—I will not argue that point now—but which will increase the tasks of local authorities. More people will be required to administer the schemes. How will that be done within the limited scope, which is provided in the White Paper, of increasing the rates. Of course, the Government say that they have increased the rate support grant from 58 per cent. to 60 per cent. That is woefully inadequate in the present circumstances.
This is a time when, speaking from the point of view of a stress area within inner London, we must not curtail essential expenditure. We must embark upon a substantially increased scale of expenditure. Hackney and many other areas of a similar character within inner London need special help and need it now. So far that call has gone unanswered. One can only hope that the Minister, and in particular the Prime Minister in the discussions which he will be having tomorrow, will recognise that need and will ensure that some help is brought to those areas where hope is declining in the same way as the economic situation is deteriorating.
I shall not follow the hon. Member for Hackney, Central (Mr. Clinton Davis), except to say that we are all much impressed with his extremely good constituency tour de force. He has shown that he understands, as do the rest of us who have been in local government and in this House, the real problem of the inter-relationship between local government and national politics.
I chide the hon. Gentleman on one point. He mentioned that there had been an interruption for three years when Hackney was under Conservative control and when things had not gone so well. It is right to say, if he is talking of the three years, there had been more than 30 years of Labour control. There was massive deprivation during that period, even allowing for the fact that a war had intervened.
I cannot agree, but I shall not go into a detailed discussion as it might bore the House. The problems of Hackney are well left in the hon. Gentleman's hands so long as he speaks from the Opposition side of the Chamber.
The hon. Member for Derby, North (Mr. Whitehead), in one of his interjections, spoke of the extra burden being placed on council tenants as a result of the Housing Finance Act. I hope that he will not omit, as do so many of his hon. Friends, to point out that those in real need will get an increase in the needs allowance of £3·50. That is an important point. The hon. Gentleman is usually so fair that I am sure he would not wish that to go by.
It is worth noting that the party of involvement in community politics, the Liberal Party, is noteworthy by its absence. I hope that the country will take note of this when it has the sham fçcade put forward by the Liberals at by-elections. When there is a vital debate on a matter concerning the localities the Liberal Party does not bother to attend.
Is the hon. Gentleman aware that when we debated London housing the Liberal spokesman on housing was not present? When we debated housing only the other day the Liberal spokesman for housing was not present. Is it not remarkable that there should be a silent spokesman for the Liberal Party?
I am sure that on occasions spokesmen who do not speak are welcomed.
I cannot be as charitable as some of my hon. Friends about the motion which we are debating. It is an opportunist motion which is designed to try to make political capital out of the problems that people will face as a result of rate increases this year. It seeks to lay the blame—wrongly, in my judgment—upon the Government, and ignores the basic responsibility for this problem of the last Labour Government. It will not do for the hon. Member for Willesden, East (Mr. Freeson) to say that other Governments have postponed revaluations. No one has denied that. However, the last Labour Government did it for two reasons: first, because they wished to plough on with their ill-fated Land Commission, which did nothing to solve the housing problem, and, secondly, for blatant political advantage. The hon. Gentleman knows that full well in spite of all the quotations he might draw together from Transport House documents.
It is because of the postponement of the quinquennial on the last occasion that people will suffer double this time. That happens every time the decision is put off.
The hon. Member for Willesden, East says "childish". Doubtless we shall judge his contribution later. Judging by what has been said so far, it seems, when examining the burden that will fall upon local government expenditure this year, that people are tending to forget all too easily the massive wage settlements which are now beginning to work themselves through into the pounds and pence which have to be met by the ratepayer. Those massive settlements were warmly supported by the Opposition, however massive and unreasonable they were.
Now the bill is coming home, and we are told that the Government must give more help. The Opposition have supported every unreasonable wage demand, and when it comes to paying the bill they are the first to scream that something must be done to help out. I hope the House will recognise that once the piper has played the tune someone else has to pay the bill. It is to live in cloud-cuckoo-land to suggest that these increases can be paid by the local authorities without their having to be met by the long-suffering ratepayers in the end.
I will. Over the past two years, a mass of wage demands have had to be met by the local authorities, and many of them held local government to ransom. The public know them full well. It is right to place on record that the bills are now having to be met.
What can be and is being done to try to contain unreasonable expenditure? Last year the Conservative Greater London Council was able to hold its rate steady. But the ratepayers did not appreciate it because the Inner London Education Authority, that non-elected body, put up its rate by over 20 per cent. Whatever ILEA wants, no one can say "No" to it because it is a precepting authority over which there is no control. It will be interesting to note what happens this year, because, if there is any rate increase in London by the GLC, it will almost certainly be overwhelmingly the result of higher demands from ILEA, over which, as I have said, there is no democratic control.
I agree, and I am grateful to the hon. Gentleman for saying that there should be. I hope that at some stage in future the Government will decide to make ILEA either a committee of the GLC or give education powers to the inner London boroughs, as has been done elsewhere.
It is right to look at what would happen if there were to be any Government grant to specific, selected local authorities. Would this be fair in the context, let us say, of the GLC, which has managed to hold its growth in rate fund expenditure within a limit consistent with the policy for control of inflation? If other local authorities have not kept within that growth rate and are asking for help from the Government, is it fair to the ratepayers of Greater London, having an authority which has kept down its expenditure, that they should be deprived of assistance whereas other areas which have done nothing to help reduce the growth get Government help? This should be borne in mind if conversations take place with the Government about extra help.
We have heard about the rate support grant negotiations. As one of the few hon. Members who have taken part in such negotiations, I can say that no local authority association ever goes away from them satisfied, whatever Government are in office. On that if nothing else I am sure the hon. Member for Willesden, East will agree. But I believe that on this occasion an attempt was made to meet the justifiable needs and requests of the associations.
It is not unfair to say, although it will not happen this year, that, if there were to be the catastrophe of a Labour win of the GLC, the cost of implementing Labour's election manifesto would increase the rates not by pence but by tens of pence. I hope the London electors realise this.
One question which perhaps has not been looked at is that of value added tax and the local authorities. I want to read two paragraphs from a report from the borough treasurer of Camden on the financial implications of VAT. They are significant. He says:
It is not possible to calculate the indirect benefit that the Council will obtain by the ending of Selective Employment Tax. The saving on purchase tax can be roughly gauged at £75,000 per annum.
It has been estimated that the amount of input tax which the Council will be able to reclaim is in the region of £440,000. Against this must be offset the amount due to Customs and Excise in respect of activities of the Council which, for the purpose of VAT, are regarded as business activities. This figure is estimated at £36,500.
It seems to be that Camden, which in terms of current rateable value is the fourth wealthiest local authority in England and Wales, will be able to have an input credit of approximately £400,000. This is more than a penny rate. Can we be given any information about the sort of input credits to be received as a result of VAT by the six major cities whose leaders saw my right hon. Friend the Prime Minister last week? How much will they save on purchase tax? These are important figures which the House is entitled to have if we are told that these major cities are presenting problems to my right hon. Friend, as is the Association of Municipal Corporations. What credits are they getting as a result of VAT and the ending of purchase tax?
I agree with what my hon. Friend the Member for Northamptonshire, South (Mr. Arthur Jones) said about the need for higher deductions from gross values for ratepayers. This is something which will penalise house owners, in particular the owners of small and in many cases older houses. Although it may not be possible to do anything about this year's revaluation, I hope that any Bill we get to deal with local government finance will increase the figure substantially so that the deduction is more realistic.
When looking at the expenditure which local authorities are demanding this year from the ratepayers, it is necessary for the House also to analyse the new services on which they are embarking, and the new capital expenditure which has been committed in the past and which is now falling, perhaps for the first time, on the revenue estimates. It will be interesting to know how many and how much of the programmes which the six big cities whose leaders saw my right hon. Friend last week are not an expansion of existing commitments but are brand new schemes started since those cities changed from Conservative to Labour control. If local authorities want to introduce new policies and new schemes, they have a duty to tell the Government and their ratepayers "This is not an expansion of existing services but something new." It is not right for them to say to the Government or the ratepayers that they must pay some proportion of these new services.
The hon. Gentleman has given way three times to me and I am grateful to him. Are there not new problems in areas such as his and mine in London? The increasing incidence of homelessness and the "sink" schools present new problems. How does he relate that to his general proposition?
The hon. Gentleman raises a fair point. I tried to draw a distinction because the "sink" schools have been with us for two or three decades. The problem of the homeless has always been with us; it may be growing, but it is always there. I said that I was not singling out expenditure on existing services but was dealing with the introduction of expenditure on brand-new services. This is the distinction I draw. I do not propose to argue with the hon. Member for Hackney, Central about the expansion of existing services. That is not part of my argument. I confine myself to the new services.
In conclusion, may I say that there is a fundamental difference between the thinking and the philosphy of the two sides of the House and the two sides of local government. They are summed up simply by saying that the Conservatives in local government spend ratepayers' money with one test, and one test only. It is the test of how the ratepayers want us, their elected representatives, to spend their money. The Labour Party has a much simpler test. The test is: "This is a scheme which our dogma says we must have. Let the ratepayers pay for it."
In raising this important matter the hon. Member for Derby, North (Mr. Whitehead) has given us an opportunity not only to raise local rating problems but also to give our views on the various reforms which might take place in local government financing.
I welcome the fact that my right hon. Friend the Prime Minister is having discussions with local authorities, and particularly that he is to see the County Councils Association tomorrow afternoon. The county councils have particular problems, and indeed grave problems, as have all areas of the country. My own county of Bedfordshire has a very large education problem. Its school population is going up by double the national average, and last year alone, following increases in teachers' salaries £600,000 of extra money had to be provided by the ratepayers. It cannot be overlooked that the postponement of the school meals increase—though I welcome it—has added another £65,000 to the ratepayers' bill in that county. We have almost what can be called a swinging-door system in which, although people think they will avoid paying for the increase in school meal charges, it will come back upon them in increased expenditure on the rates.
The estimates in Bedfordshire for the coming year show an increase of 34 percent. on last year's social services bill. It is inevitable that if a county is rapidly industrialised, as is happening in Bedfordshire, there will be a demand for more personal, and indeed increased, social service provision. I and many other hon Members could use many more social and medical-social workers in helping people to overcome the problems that arise with rapid industrialisation of a county. Given the present system of finance—that is to say, that Government grant plus rates equals local authority revenue—in my view the crisis over rates will recur. We have a finite number of houses and factories, but we have an infinite rise in population and in the demand for better and improved local authority services.
The Green Paper on local government finance, which was published in July 1971, put up all the alternative methods of raising local revenue and then proceeded, with relish, to knock them all down. The Green Paper is littered with phrases such as
This would be difficult …"; "… extra staff would be required"; "… this might conflict with central Government plans"; "… this is not as simple as it sounds
That Green Paper was written before the Prime Minister's speech to the Conservative Party Conference last October when he said that it was no good going on saying that, because something had been done in one way before, it must always go on being done in that way in the future. We must look at these matters with urgency. We must look in depth at the problem of rates and of raising local government finance by other methods.
Paragraph 2(10) of the Green Paper puts the argument succinctly on the question of supplementary sources of local revenue. It says
It is clearly not worth considering a supplementary source of revenue unless it could make a significant contribution to meeting local government expenditure and thus to reducing government grants.
Then in paragraph 2(11) it talks of the "potential for growth" "built-in buoyancy" and "scope for increases in that rate." I think that was partly written with a disregard for the fact that both parties are now committed to faster economic growth and rising living standards and that not sufficient attention was paid to buoyancy of local taxes being levied in the correct way. In the past year we have seen that revaluation cannot keep pace with the rise in population and the rising demands for better social services.
The Green Paper goes on to deal with local income tax. I am not a great believer in such a tax. The Green Paper wisely makes the point in paragraph 2(22), when it points out
The first question would be whether a company should pay tax to the authority in whose area its central management and control is carried on, or to that where it earns its profits.
It goes on to say that the former alternative would produce serious distortions in favour of London and the South East. Every Government since the war has grappled with the problem of reducing the drift to the South East and in countering the financial prosperity of the South East, compared with elsewhere, and what the Green Paper said on that subject is quite accurate. We are far too small as a country to operate a local income tax without producing considerable distortions.
However, the Green Paper goes on to talk about a local sales tax. This idea is much more appealing since it would have less distortions than a local income tax and those who spend would pay the local tax to the authority—and at any rate they would probably be local electors in the area. I appreciate that there is a problem involving the administrative complexities. For instance, in paragraph 2(34) the Green Paper says
Different levels of local sales tax in different areas would add to the complications. Those complications would be most severe for businesses such as chain stores which operate in a number of different local taxation areas …
I hope that the Government, if they have not already done so, will look carefully at what has been done in the United States where local State sales taxes are great local revenue raisers. The United States are a great chain store nation, and since they have overcome the problem mentioned in the Green Paper I hope that we can do the same.
The Green Paper goes on to deal with motor fuel duty. Here I must stress a note of caution. The Government already do very well out of revenues from motor fuel. The current rate of duty is 22½p per gallon and this yielded £1,250 million in 1970–71. The Government almost regard the motor industry as an Aladdin's cave and will never cease to raise as much taxation as they can from it. What we should do in terms of motor fuel duty is not to let local authorities put on an increase which is already taken in tax but that there should be a scheme in which money collected is remitted to the local authority, from where it was first paid. There is a very obvious reason for that. One of the big items in local government expenditure is that for roads. Where there is heavy traffic there is a constant demand for improved roads.
It seems to me that we could tie the motor tax so that it would be taken by a local authority, given to the Government, and then remitted back. We could devise a system whereby areas where there is heavy traffic could benefit from the duty which the Government raise. I accept that there are difficulties which can be put forward, particularly in relation to business cars. I often wonder whether some of the vehicle duty on lorries could not be remitted to the local authorities. In no way am I anti-lorry. Lorries play a vital part in the life of our country and the lorry industry is an important employer in my constituency, but where there are concentrations of lorries making great use of the roads one wonders whether part of the money which the Government receive in duty from them should not be remitted to specific areas which have a large number of lorries on the roads.
There is another natural candidate for raising local revenue—lotteries. I do not see why we could not move quickly to that. I know that there are objections from football pools, and so on, but many people would be prepared to have a small flutter if at the same time they were contributing to pay for local services they felt to be necessary. There are many examples of lotteries being used for constructive purposes—for example, charities raise money to pay for improvements to hospitals, or schools or to pay for the provision of swimming-pools, and so on. This means of raising revenue could be instituted as a local government revenue raiser. One wonders whether there could not be some local tax on gambling in certain areas.
I am not a London Member but I gather that the GLC has considered in detail the possibility of a tourist tax to be levied in the Greater London area. A good many countries in Western Europe have a tourist tax, and so does the United States. Such a tax would help to solve the problem of raising a sufficient amount of local revenue in London.
I do not want to speak for too long but there is one other point I should mention on the scope for improvement of the rating system. My hon. Friend the Member for Northants, South (Mr. Arthur
Jones) went into great detail on this. In paragraph 3.10 under this heading, "The Scope for Improvement", the Green Paper says:
It may well be possible to remedy any anomalies in the rating of plant and machinery. The Government are setting up a small expert committee to examine this question.
That was said in July 1971. Perhaps the Minister, not necessarily now, could tell us how that committee is getting on.
Rates are unpopular. No tax is particularly popular, but rates are one of the most unpopular of taxes, basically because they are unresponsive to changing circumstances. If women are widowed, if people are bereaved, if there is a drastic change in a family's circumstances—say, through unemployment—rates do not seem to adjust quickly in favour of those who really need help. At this stage we are trying to expand a pint into a quart from the domestic ratepayer. It simply cannot be done. If all earners in a locality were to pay through a local sales tax for local services we would increase interest in local government. If people know they are paying specific taxes for specific local projects and services, especially if they are the ones they want, they will be less resentful. It is better than just slapping on to the rates the costs of those things.
Given that the Government are committed to a policy of growth of 5 per cent. a year and are committed to raising living standards rapidly we would have a spin-off from that, and the buoyancy of a local sales tax, which could provide sufficient revenue at least to stabilise the present system. Basically the existing equation will not work. There is a missing link. Government grant plus rates equal local government revenue. That equation does not work any more. There has to be an addition to the equation. We should have Government grant plus some form of rates plus some form of local taxation. It would ameliorate the present position which cannot be solved as things are when we have rising populations and great demands for improved services.
The hon. Member for Bedfordshire, South (Mr. Madel) has gone through the various alternative forms of finance suitable to local authorities. They have been debated time and time again. It has been pointed out on many occasions that many alternative forms of taxation which on the surface may seem feasible present very great difficulties. Even the sales tax which the hon. Member mentioned poses quite a number of problems, one of which is how far it would fit in with the taxation system under the European Economic Community. That is now one of the problems.
My view is that, while admittedly the rating system is to some extent regressive, the means to deal with it, for the domestic ratepayer anyway, is a more substantial contribution by the Exchequer.
If at the present time that we fix the annual increase of the domestic rate at any rate no higher than, say, 5 per cent., which the Government contemplate as part of their incomes policy, then the difference for the domestic ratepayer should be met by increased Government grant. There are two objections to that. The Government say that they give 60 per cent. and that that is more than has ever been given before. In view of the rate inflation at present, local authorities have increased costs and domestic ratepayers have special burdens. This means grant would have to be substantially increased and would have to be directed primarily to the domestic ratepayers. Apart from rates, the Government are the best taxing agent in the sense that they arrange taxes and, in doing so, they consider, or ought to consider, the whole economic equation of their taxes, and they decide what a tax should be and how it should he paid to local authorities.
Although the rating system has been condemned time and time again as regressive and unfair, unfortunately no clear alternative to it has been put forward. I would not reject out of hand the suggestion that revenue—from motor taxation, for instance—should go to local authorities, but the total effect of that would not be sufficient to meet the bill which local authorities have to meet at present.
The present year is a very unusual one, and very exceptional burdens are being cast on the domestic ratepayers. This is due to one or two reasons. One is the rise of inflation and the increased costs of local authorities. The hon. Member for Hampstead (Mr. Geoffrey Finsberg) said he was not going to oppose present expenditure being extended. Indeed, it is inevitable that it should be. However, he said that he would be opposed to any new and expensive scheme. I look around local authorities and I see very little in the way of new and expensive schemes. One may find certain trivialities—peanuts of expenditure; one mentioned was the brochure issued by Liverpool. These are but small change in local government expenditure, but from the major items of local government expenditure there is no escape.
There are the additional burdens imposed by the Government in the extension of the school leaving age and the expansion of education, of which hon. Members on both sides of the House approved. There is the increased pressure for expenditure on the social services resulting from Government legislation.
That is not correct. The element in the rate support grant for improvements in education has been reduced. Last year it ran at 3½ per cent. whereas this year it is coming down to 3 per cent.
In any event, the grant is insufficient to cover the expenditure. There are additional burdens imposed by the Chronically Sick and Disabled Persons Act, and other duties which have been imposed on local authorities by the Government. With all these additional burdens, local authorities have little scope for cutting expenditure.
Birmingham has calculated that to comply with the Government's norm of 5 per cent. would mean cutting staff in many departments and would result in about 2,500 redundancies. That is not on. It would be a worse disaster than an increase in the rates.
An additional factor which arises this year is revaluation. Before embarking upon revaluation the Government should have considered the economic consequences to the domestic ratepayer.
There is no hard and fast decision upon revaluation. Since the period of the last Labour Government the situation has changed drastically. There has been an increase in the value of houses amounting to 30, 40 or 50 per cent. The whole basis of revaluation has been altered by what has happened since 1970. Before the Government come to a final decision on revaluation they should consider its consequences upon the domestic ratepayer.
In Birmingham, in addition to increased expenditure caused by inflation and the cost of increased wages to which the authority is already committed, revaluation may make a difference of about 15 per cent. The incidence of the burden falling on the domestic ratepayer is different from that which falls upon the industrial and commercial ratepayer. The industrial ratepayer benefits, whereas the domestic ratepayer suffers.
The assistant editor of my local newspaper made a survey. He supposed that Birmingham, by the most stringent and ruthless economies, could keep its rate for the coming year at the exact equivalent of the rate levied in the current year. He assumed that there would be practically no increase in the present rate, and gave a few examples of what would happen as a result of revaluation.
A luxury department store in the centre of the city would pay £47,000 less in rates, a cut of nearly 20 per cent. The owner of a three-bedroomed semidetached house in Selly Oak would have to pay another £13 a year, an increase of nearly 20 per cent. A flourishing insurance company with offices in the heart of the city would pay £4,700 a year less, a reduction of 33 per cent. The tenant of a modest three-bedroomed terraced house in Yardley would pay £24 a year more, an increase of about 30 per cent. A major motor car manufacturer would pay £15,000 a year less for its parts warehouse in the city, a reduction of about 14 per cent. The owner of a four-year-old semidetached house in Bartley Green would pay £22 a year more, an increase of 30 per cent. That takes no account of inflation which affects industrial, commercial and domestic ratepayers alike, or the cost of increased services.
In substance, this means that a young couple who have just bought a house at an inflated price will be faced not merely with increased mortgage repayments but with increased rates. That is unjust and does not make economic sense.
It has been said that local authorities could cut their services, but, as I have said, that is not on. There are no major reductions or economies that local authorities could make which would not result in disaster to the local ratepayers. Certain minor economies might be made, but basically there is little scope for economy, certainly in Birmingham, which has already cut its estimates by about £3 million. Nothing more can be done without damaging the services. There must, therefore, be additional assistance by the Government to meet the domestic rate bill; in short, an acceleration of the two-tier system between the domestic and industrial ratepayer.
The Labour Government introduced a measure which provided for an annual reduction of the domestic ratepayer's bill against that of the industrial ratepayer. That reduction has been halved by the Conservative Government. We need to go far beyond this. The Government must stabilise the domestic ratepayer's bill by providing for an annual increase equivalent to their prices and incomes policy of not more than 5 per cent., and meet the rest themselves. That means selective assistance to domestic ratepayers.
The hon. Gentleman is dismissing what local authorities could do as peanuts. His suggestion would allow local authorities to have a bonanza against the Government, and there would be no control on the rates levied.
It is to be a bonanza because it allows a limited increase. Local authorities may save a few thousand pounds here and there, but if that is all added up it amounts to peanuts. For instance, would the hon. Gentleman reduce Birmingham's educational services, its police service, its refuse collection service—
I should make them efficient, but I should not have this compulsion under the system which the hon. Gentleman is suggesting. At the same time, I should not allow free contraception on the rates as they do in Birmingham, nor should I support a direct labour department.
I assure the hon. Gentleman that if there were a direct labour department in Birmingham not only would the city be building 1,000 more houses than it is now, but it would be saving money. The direct labour scheme was non-profit making and it reduced the cost of houses by at least 5 per cent. below the price tendered by outside contractors at the time. Purely for political dogma the direct labour department was disbanded by the Tories, and Birmingham is now at the mercy of local contractors as to whether or not they tender. The wiping out of the direct labour scheme in Birmingham was not only a loss to the rates but it resulted in a reduction in the number of houses that Birmingham was able to build.
My reply to the hon. Gentleman's comment about free contraception on the rates is that unless this service is provided more children are likely to be put into care in the next year or two.
But in any event the savings to be made in that way amount to peanuts. There is very little to be saved on the major items of expenditure. The idea that large sums of money can be saved by local authorities is not on, and when the Government introduce their monitoring system they will find that there is very little that they can monitor.
I suggest that the best method of providing additional finance for local authorities is for the Government to increase their contribution. The Government impose taxes, and they are the people best able to decide how the increased provision can be fitted into their general economic progress. I have never taken the view that an increased Government contribution affects the independence of local government. The independence of local authorities is already restricted.
I hope that the Government will respond favourably to the approaches that have been made by the six large local authorities, and which I have no doubt will be repeated tomorrow by the local councils and the AMC. I hope that a larger Government contribution will be forthcoming to meet the great burden that is being imposed upon the local domestic ratepayer. Council house tenants and other houses of low rateable value will bear the largest percentage increase because of the shape of the revaluation. As an article in The Times said, revaluation does not take into consideration in assessing the difference between gross value and rateable value the expense which a landlord now has to bear in terms of repairs, management and insurance, and therefore the burden upon this domestic ratepayer is greater.
The House should be grateful to my hon. Friend the Member for Derby, North (Mr. Whitehead) for raising this issue, and I hope that we shall get a favourable response from the Government.
I agree with the hon. Member for Birmingham, Aston (Mr. Julius Silverman) that there are few possibilities of saving expenditure in the short term. Usually when it is necessary for the nation to call upon local authorities to economise it is because the construction industry or the availability of capital is under pressure, and such things as the construction of new town halls and swimming pools can be deferred, but that is not relevant to the current problem which is that of a huge and continuing increase in local government expenditure, and I congratulate the hon. Member for Derby, North (Mr. Whitehead) on enabling us to debate the issue this afternoon. I commiserate with the hon. Gentleman on having such little support from his side of the House, and I regret the absence of the Liberal Party from this debate.
My hon. Friend the Member for Harwich (Mr. Ridsdale) gave particulars of the huge increase in local authority spending and instanced the fact that education expenditure had doubled in five years. What is clear is that the proportion of expenditure falling on the rates must be reduced. It cannot continue to increase with the expansion of local government services.
My hon. Friend the Member for Bedfordshire, South (Mr. Madel) spoke about alternative methods of obtaining revenue. He instanced the difficulties of having a local income tax. I do not believe that that is a starter. He also mentioned a fuel tax, and I draw the attention of my right hon. Friend to the fact that in Germany the revenue from fuel tax is allocated to local authorities. They have that source of revenue in addition to Government grants and rating.
It is said that taxes are paid in sorrow, and that rates are paid in anger. It seems to me that rates have risen much too high, and whilst the increase from 58 per cent. to 60 per cent. in the Government's contribution is most welcome, it does not reverse the process of calling on ratepayers to meet an ever-increasing burden.
When revaluation comes along it produces hard cases, and this is especially so when there has not been a revaluation for some time. We all remember the situation in 1958, after a long period without a revaluation. Happily, there was a revaluation in 1963. We missed the 1968 revaluation, for reasons that have been discussed, and so after 10 years we have a revaluation which bears harshly on domestic ratepayers.
The hon. Member for Willesden, East (Mr. Freeson) has given notice that he will show that it is Tory Governments who carry out revaluations. If the hon. Gentleman is going to blame the Tories for the 1953 revaluation, I hope he will remember that the decision to revalue is taken three years before the process is carried out. It follows, therefore, that the 1953 revaluation was based on a decision taken in 1950.
In view of what has been said today, and also in view of the Prime Minister's statement, I shall raise the question of revaluations, but I shall do so not with a view to saying that Tory Governments were worse than Labour Governments but to make the point that the revaluation is an irrelevant red herring and has nothing to do with the immediate issue. I shall raise the matter for that reason and not for the purpose of saying that the Tories are worse than Labour or vice versa.
I still feel that the Labour Party must accept the blame for the fact that 10 years passed without a revaluation, and the hard cases are made much harder for that very reason.
Let me instance the situation in the Berkhamsted rural district, which is a collection of villages and an area with virtually no industry. There are a few shops in the villages. Otherwise it is a rural area with a large number of residents. The council's resources element this current year is £11,800. It is being reduced next year to £1,250. That is the equivalent of a 3½p rate. The council has no large balance in the rate fund that it can fall back on, which means that, just as is happening in the great cities, there is a very serious crisis for domestic ratepayers. Even in this small rural district council the same problem has arisen.
I have no doubt that we shall hear about some long-term solution to the problem. But that is not the present issue. Short-term relief is needed now. We are glad that my right hon. Friend the Prime Minister is discussing this, and it is to be hoped that something will eventuate because the need for the domestic ratepayer to be shielded against severe rate increases is self-evident.
I am glad to be called immediately after my hon. Friend the Member for Hemel Hempstead (Mr. Allason) as I welcome his view that we should consider some supplementary form of local government finance. I am sure that all right hon. and hon. Members agree that at a time when we are reforming local government and revaluing properties for rating purposes, we should be discussing the rating system as such.
It was right for the Government to produce their Green Paper on Local Government Finance some 18 months ago. But it is regrettable that we have not had a full-scale debate on that Green Paper before now. For that reason I welcome the fact that the hon. Member for Derby, North (Mr. Whitehead) has introduced this motion today. At the same time I regret that there are so few hon. Members present, especially on the Opposition benches. I am especially sorry not to see a single Liberal Member present since the Liberal Party professes to care so much for local issues.
Like my hon. Friend the Member for Bedfordshire, South (Mr. Madel) I think that the Green Paper is disappointing. It fails to analyse objectively all the options open to us. Probably the majority of hon. Members will come to the conclusion that the rating system is the best one for this country. But in my view the arguments put forward in the Green Paper were poor, and to that extent it was disappointing.
I assume that, given certain changes, the rating system must continue in some form. In that context I make a few brief points. The first concerns the present grant-making formula. I welcome the fact that this Government are ready to give extra support to local authorities and to cushion ratepayers against the general inflation that we face. But it is also true that grants supply something like 60 per cent. of all resources as opposed to the 40 per cent. coming from rates. I agree with the hon. Member who said that the more that we give in grants the less there will be in terms of local autonomy. A country like Sweden, for example, depends on central resources to the tune of only 25 per cent.
It is right also to look at other ways by which local authorities can supplement their finance. However, there is one aspect of the grant-making formula which needs looking at carefully. It is the formula for grant-giving based on the needs element which appears in some cases to produce unfairness. To illustrate what I say, I take the county of West Sussex which has one of the highest levels of rates paid per person as a percentage of the ratepayer's income, with one in five of the population retired whereas the national average is more like one in eight. Under the present formula system, which is highly complicated and difficult to understand, for virtually every newcomer moving into West Sussex there is a significant reduction in the grant. It appears to be based on a very complicated formula which takes into account what are called "education units". It has the effect of penalising a county which has a heavy and important burden in terms of elderly people in its community. We must find a way of overcoming this. The Green Paper suggests a possible solution. Paragraph 48 of Appendix 4 says:
The right objective would seem to be the distribution of grant in such a way that the cost for each local authority of providing a standard level of service should be a standard amount per head.
I hope that the Government will look carefully at that possibility.
My hon. Friend the Member for Harwich (Mr. Ridsdale) raised the very important question of education and its costs. There is no doubt that there is a great deal of resentment at a local level about the fact that a large sum of our education costs come out of the rates. People argue, quite fairly, that education covers only a small portion of the ratepaying population. We all pay for police services, for part of our roads services and for refuse collection. But education is a different problem. There is a strong argument for saying that the cost of education should be borne either by a 100 per cent. grant from the Exchequer or by some other method, and my hon. Friend the Member for Harwich has advocated for some time the interesting idea of an education tax.
I mention thirdly the rating of flats. There is a good deal of evidence in my area along the coast from Littlehampton to Shoreham—and I have no doubt that the same could be said of other areas—that many people on relatively low incomes who live in flats suffer from exorbitant levels in rates. It appears to be due to the present system of valuing on the basis of rental levels. There is more than one case in my area where a flat with a capital value of £8,000 is next door to a house with a capital value of about £12,000 but where those living in the flat have to pay substantially higher rates. This seems to be quite wrong.
One suggestion for mitigating this is to go over to the capital system of valuation, although in my view that has certain defects. Another possibility would be to examine the present methods of assessing rental evidence. We might even consider introducing the fair rent principle right across the board in terms of considering rental evidence. This might have the effect of alleviating the heavy rate burden on those living in flats.
Then there is the question of improvements. We still do not seem to have overcome the problem of the disincentive to those who wish to improve their houses by building garages or installing heating systems. The Government must endeavour to tackle the problem. Consideration might be given to the idea put forward by the Conservative Party in the 1960s that there ought to be a five-year lapse between the time when an improvement is made and the time when account should be taken of it for the purposes of assessing a new level of rates.
I deal finally with the important point made by my hon. Friend the Member for Bedfordshire, South about new sources of tax. I am convinced that we have to find ways in which local authorities can supplement the resources which they already raise through the grants system and the rating system by other means in order to give them greater flexibility. They need to have greater freedom financially to overcome the problem of the rating system which is virtually a non-buoyant tax. I hope that the Government will carefully consider the idea of some form of local tax whether it be the motor fuel tax suggested by my hon. Friend the Member for Bedfordshire, South, which is fairly attractive, or a lottery. I do not mind. However, we must enable local authorities to supplement their rates in this way.
There is enormous scope for improvement in reforming the present system. We must make the rate support grant system more equitable, we must supplement local authority finances, and we must find a fairer system of evaluating local rates. I think that the whole House will agree that the time for reform is overdue.
I cannot claim to be exactly a new boy in rating debates. I recall the remarks of the very much respected former Member for Widnes, the late Mr. James MacColl, when he said that he welcomed me to the "old boys' reunion." I think that we could do with an accretion of support for this club. We seem to have been a little thin on the benches on both sides of the House on this important subject. I advocate the issue of a ratepayers supporters' club tie. I think that my right hon. Friend the Minister for Local Government and Development should be the first holder of this particular tie, because for so many years he has been such a magnificent supporter of the ratepayers supporters' club.
I cannot hand out bouquets to any particular Government in recent years, because they have all run away from the almost intractable problem of local government finance. I have always advocated an absolutely thorough reform of local government finance. I am afraid that I must dismiss all these facile ideas of raising supplementary revenue. They just do not exist. All we can do is either to take away some substantial and costly service from local government or to give more grants from the centre if we desire the standard of services which are provided today by local authorities to continue.
I recall the way that the right hon. Member for Coventry, East (Mr. Crossman) strode on to the scene when he became Minister of Housing and Local Government. He has not taken much interest in local government debates for a considerable time since then. However, when he came in he was going to reform local government. He started by abolishing the Boundary Commission which the Conservative Government had set up, and he made generalised noises about finance. I also recall the quiet exit that he made from the scene. Local government was still to be reorganized! We were still awaiting the reorganisation of local government finance when the right hon. Gentleman moved out of the hot seat of Minister of Housing and Local Government. This has happened all too frequently.
This Government have reorganised local government, and I commend what has been done; but at the same time local government finance should have been reorganised.
Almost a week ago in this Chamber I spoke on the Water Bill, which will reorganise the whole of our water services. We have the reorganisation of the water services, but we are still waiting for the Government to tell us how it will be paid for. If I were responsible for these matters—which I never have been—I should insist that at the same time as these different services were reorganised their finances should be carefully thought through.
The rating system is complicated and sophisticated and is understood by very few people. However, I do not blame the system for that. It is not a bad system, but it is being asked to carry too heavy a load.
If we overload any kind of machine it is apt to break down. That is what has happened with our rating system. It is extraordinary how, year after year, hon. Members on both sides of the House dream up special extra social services and the like that have to be provided for the community. Recently I discovered that my local authority had appointed an officer to look after stray dogs. It is an excellent thing to have an officer to look after stray dogs, but who pays for that officer? The local government services. I give an absurd example, because that is the only way that one can draw attention to the multitude of small services which must be carried out by local Government.
I ask my hon. Friend the Member for Northants, South (Mr. Arthur Jones) about the rating of the nationalised industries. I believe that we should look most carefully at the rating contribution made by the nationalised industries. It is an extraordinarily difficult subject.
We should also consider the rating of plant and machinery. At present, fixed plant is rateable. Who is to differentiate today between fixed and movable plant? With modern moving equipment almost any plant can be moved. Plant which is deemed to be movable is non rateable. That, in my opinion, is a complete nonsense in our rating system today.
The rating system can be criticised, but I believe that it works reasonably well. Unfortunately, we are asking it to carry far too heavy a load. That is why anomalies are creeping in. I do not blame revaluation for the problems which will emerge. Strange to relate, only the other day I picked out from my action tray at home a note from the insurance company demanding my new insurance premiums for the next year. They had gone up considerably because there had been a revaluation of the houses and farm properties which I own. I carry out a revaluation each year for insurance purposes. In the same way, if it were possible, there should be a revaluation for rating purposes every year. Values do move. If revaluation is left for ten years, the anomalies thrown up are quite appalling. Therefore, I should not blame revaluation. It is merely bringing matters up to date.
A strange and unknown sector of the rating system which is being blamed is the factor of statutory deductions. Only those who might be called old members of the club about which I spoke earlier know much about statutory deductions. Very few people know what a statutory deduction is. It was mentioned by one hon. Gentleman opposite. A statutory deduction is a theoretical deduction for repairs and insurance. It is being said at present that the statutory deduction factor is not sufficient for small properties. I beg to differ, because it costs almost as much to put a slate on the roof of a council house as it does to put a slate on the roof of a castle. If we are talking about the repairs element when referring to statutory deductions, I dismiss that criticism as facile, but not capable of substantiation.
Now I should like to make one or two suggestions. I have worked on this subject for a considerable number of years and have produced one or two reports on how we should tackle local government finance, but any recommendations I have made have always been turned down flat by the Treasury. The Treasury dislikes its revenues being taken away and objects to hypothecated revenues. I hope the Minister in his reply will say—though I very much doubt it—that he has overcome all kinds of Treasury objections and will be able to announce additional help for the individual domestic ratepayer.
I believe that we should move away from the mystique of a rating system which involves assessing everything on hypothetical rental values. Who knows what the rental value of a property is, let alone the hypothetical rental value of a property that has never been rented? It is even more difficult when considering the hypothetical rental of a water undertaking and other abstruse matters. We are getting into the stratosphere of hypotheses which have little connection with reality. On the other hand, everybody knows more or less what is the capital value of a flat or a house, and indeed they may even know what is the capital value of a water undertaking. Therefore, I personally would move to a system of capital values.
I should now like to make a somewhat heretical suggestion about local government finance. I should like to take the whole of educational expenditure right out of local government. I believe that education is a national matter, and I believe that educational standards should be the same all over the country.
I believe the only way to tackle this intractable subject is to make a major shift in the responsibility for finding the money. I believe that this would not be such anathema to those who work in local government as is often alleged. Education makes up more than half local government expenditure and is the fastest growing sector. Therefore, we must make a major shift in tackling this intractable problem.
I am sorry to say that I did not agree with my hon. Friend the Member for Arundel and Shoreham (Mr. Luce) when he said that there are viable sources of locally-raised revenue. I should like to toy with the idea of whether it would be possible to put a surcharge on VAT in place of a sales tax, but I believe this to be impracticable in terms of VAT as an international tax. Therefore I have even denied myself that little flight of fancy as a relatively easy way of obtaining further revenue for local government.
I am afraid that we now face a stopgap situation, and it is rather sad that this has occurred. Delays by successive Governments in tackling this job in a root-and-branch manner have forced my right hon. Friend the Prime Minister into a difficult situation. Emergency action must be taken in current circumstances. I hope the Prime Minister will take such action to meet a very difficult, but transient, situation. We must buy a little time to help the domestic ratepayer over the immediate situation, but we must not delay in seeking to tackle the major reforms which are long overdue.
I intend to be brief, in view of the fact that the usual arrangements are no doubt in operation to allow my hon. Friend the Member for Willesden, East (Mr. Freeson) sufficient time to conclude the debate from the Opposition Front Bench.
This debate is remarkable in that Liberal Members have decided once again to absent themselves from a very important debate. I have no doubt that they are all up in Chester-le-Street, taking round questionnaires to all the households in that community and asking people to note their grievances, so that the Liberal Party, in the kind of community politics it likes to play, can forward those documents to the local authorities to try to remedy all those wrongs. However, it is important to note that in carrying out that exercise the Liberals have taken no part whatever in today's important debate.
It has been made abundantly clear in past weeks that in many speeches from the Government Front Bench on the question of revaluation and the massive rate increases that will face most local authorities in the next financial year the Government defence has been "We are not to blame". It is almost as if they are suggesting that it is all an act of God. But the opposite is the case. Although some technical arguments can be deployed on whether there should have been a revaluation as early as five years after the last one, that sort of argument does not matter very much. What is important is that the Government are responsible, because when they came to office in 1970 they put into operation certain measures which have partially, though not totally, resulted in the inflationary rate increases we are seeing this year.
One of the first actions they took was to cut the rate support grant which at that time had increased by as much as 1 per cent. for every year of Labour Government. The domestic element also had increased by 5d. in the old pound. The Conservative Government in 1970 reduced the increase in the domestic element by half the amount of the previous three years. The Government say that, as a result of the massive rate increases which are in prospect, they now seek to restore the rate support grant to its former level so that local authorities—they say—will be just as well off. But this is just not true. The money that was lost in the years 1970 to 1972 has gone for ever. Because the rate support grant went up only to 57½ per cent. instead of to 58 per cent. that massive sum of money was lost to local authorities. The same argument can be applied to domestic and commercial hereditaments which would have received the money due to them under the existing system. It is one thing to restore parity, but what is being done to take account of the money lost in preceding financial years? Will the Prime Minister tell the local authorities tomorrow that the money which has already been lost will be restored?
I suggest that the Prime Minister ought to say to the local authorities tomorrow "I appreciate that you have a difficult problem. Since it is a problem of our making, we shall put into the hands of local authorities the amount of money lost over the two previous years". I repeat that what has happened is not by act of God but is the Government's responsibility.
The other important factor which must be considered is the effect of the Housing Finance Act. The net result of that Act has been that rent assessments in the private sector have increased astronomically since that legislation became law. Whereas previously the rent assessments in my constituency for a 3-bedroomed National Coal Board house were £2·50, they have now increased to £4. There has been a chain reaction in the private sector.
The fact that local authority houses and private houses have been revalued not at two and a half times but at as much as three or three and a half times in some cases, is mainly because of the Housing Finance Act, which has increased rents in both sectors. It is not enough for the Minister to suggest that the Government have restored parity and brought the rate support grant back to its former level. What local authorities need is the money which was lost in the two previous years and a fresh look at the workings of the Housing Finance Act.
We must all be grateful to my hon. Friend the Member for Derby, North (Mr. Whitehead) for introducing this topic today. I suppose it is inevitably to some extent a preliminary run over certain ground in local government finance which we wish to see traversed more thoroughly very shortly if the Government will indicate, perhaps not today but very soon, when their White Paper on local government is to be presented to the House before the introduction of legislation on the subject.
This debate also gives us an opportunity to consider some thoughts on the immediate situation, whether in a party spirit or a non-party spirit, or a mixture of both, which we hope the Government will tackle very soon.
During the discussion a number of hon. Members opposite have spoken about spendthrift local authorities and unnecessary services. Even when they have been illustrating a genuine point, one or two of those hon. Members have introduced far-fetched examples. They suggested that a large part of the situation with which we are faced in rate-borne expenditure is the result of undue spending by local authorities. That I do not accept. Naturally, any organisation—a Government Department, a local government department, a business organisation, a trade union or a constituency party—can always be urged to make itself more efficient, but I do not accept, and nor did the Minister say when he spoke in a debate last December, that local authorities are wasting money. They provide very good services for the rates which they impose.
I recall the order which was placed before the House in December last in connection with the rate support grant. It showed that before any expenditure was considered by a finance committee in readiness for the next year's rate levying there had been an inflation during 1972 on current spending over the last year's budget of about £400 million. On the rate support grant levels adopted by the Government in the previous year—that would be 58 per cent., leaving 42 per cent. to be carried by local authorities—it means a spending by virtue of inflation of about £172 million before any expenditure embarked upon by the authorities for 1973.
It is absolute nonsense for the Prime Minister or anyone else in such a situation to exhort local authorities to restrain any increases to about 5 per cent. Even before any expansion of services or the introduction of new services, whether on the initiative of local authorities or that initiative plus support by the Government, there is well in excess of 5 per cent. inflation on current expenditure. It was misleading the country for the Government in the weeks which led up to the present situation and the days before the valuation lists were made known to the public to give the impression that, although things were a little difficult, they were not too bad and that local authorities should be able to hold increases to about 5 per cent. The truth has come out, at least in certain major areas of the country over which discussions are proceedings this week.
Inevitably the debate today has had two or three different strands which have intertwined. I do not question the desirability of that happening. There have been those who concentrated for the most part on the medium-and long-term view of local government finance; for instance, the hon. Member for City of Chester (Mr. Temple); those who concentrated on the rate support grant as a means of helping in this situation; and those who concentrated on the question of revaluation. In remarks about revaluation a number of hon. Members have referred to the deferment under the previous administration. I intervened because I thought it right to prevent this matter being turned into a party shuttlecock. We have enough problems on our hands and there are enough problems in town halls without that kind of thing happening.
I have with me a summary of the number of deferments which have taken place under the Act of 1925. There was one in 1938 and 1939, another under the Local Government Act 1948, others under the Rating Act 1955, the Rating Act 1959 and again under the Local Government Act 1966. Let us stop this silly nonsense which has nothing to do with the subject we are discussing.
All that could be argued is that if there had been no deferment and a revaluation was effective in 1968 and on previous occasions, there would have been a softening of the blow of recasting of the incidence of the burden on rateable values. It cannot be argued that the incidence would not have been there. That is why I say this is a political red herring introduced to divert public attention from the realities.
Does not the hon. Gentleman think that if we had had a look at the statutory deductions by a revaluation in 1968 we might have been able to avoid the position we now find which is detrimental to lower rated properties? Does he not also think it would probably have encouraged a greater effective reallocation of funds from the rate support grant procedures because of updating of values?
I doubt that very much. The effect would have been very marginal indeed, particularly on the first point mentioned by the hon. Member—statutory deductions. The point I make is not whether or not there would have been a marked difference at the time, but that there has been a series of deferments and this argument could have been raised on any of those occasions. To raise the argument now is to attempt to turn attention away from the concern which people in the country display about revaluation and does not meet the problem.
This matter has a long history. I believe that only once in all the years since 1925 was the original five-yearly review actually adhered to. That was in 1929. I have not checked the actual details, but I think it occurred only once. On each other occasion, certainly since the war, special Acts have had to be introduced by successive Governments to avoid an immediate revaluation at that time.
Turning to the immediate situation, I want to outline a number of thoughts which have occurred to me during the course of the debate, as well as earlier, rather than go into a general review of the impact of revaluation on various authorities. Sufficient figures have been quoted in the House on previous occasions, and doubtless sufficient information is being quoted to the Government by the Association of Municipal Corporations and the County Councils Association to make it unnecessary for me to go over that ground.
What can be done? The rate support grant is not just a support grant which must be treated once every year. It does not mean that, once it has been discussed and passed, no further action is open to the Government. Powers are available to the Government under Sections 1 and 2 of the Local Government Act 1966. Under Section 3, if the Government find that
an unforeseen increase has taken place in the level of prices, costs and remuneration
the Minister may by order approved by resolution of this House increase the amount of the grant and its elements—the needs element, the resources element and the domestic element.
Therefore, it does not require any special legislation or any great intellectual exercise. It requires only that the Government accept the facts and act upon them within the economic constraints by which they wish the country to abide. The powers are there. The Government could at any time ask the House to approve the necessary order.
Therefore, my first proposal is that the Government use their powers. Were they to seek to do so, my right hon. and hon. Friends and I might have occasion to argue about the detailed figures, but the fact that the Government were taking such action would receive the support of all hon. Members. In so far as we were able to facilitate such action, we would certainly undertake to do so.
As there has been much reference by the Government and by hon. Members on both sides to the various percentages of local authority expenditure which the Government cover by rate support grant, may I remind the House that there is nothing specially kind about a Government who take such action. When the Labour Government introduced the rate support grant in the 1966 Act, although they did not spell it out in terms, it was known to be the intention that the Government of the day should take financial responsibility for a steadily rising proportion of local authority total rate-borne expenditure. Therefore, if the Government increase the percentage they are only carrying out the intention of the Act. If they do not like the intention of the Act, they should introduce appropriate legislation.
As my hon. Friend the Member for Bolsover (Mr. Skinner) has reminded us, two years ago in that great year 1970, when all questions of public expenditure were to be knocked on the head by the incoming Tory Government, the Government reduced the percentage increase. That ran contrary to the intentions of the Act. We welcome the Government's reconversion and hope that they will continue along this path; but let not the Government take great credit for merely deciding to get back on to a road which they previously decided to abandon. They are carrying out the intentions of the Act, and that we welcome. They could carry out the intentions of the Act even more effectively were they to use their powers under the 1966 Act along the lines I have suggested.
Another field of immediate action was put to the Minister by hon. Members on this side in December, a day before the valuation lists were to be made known throughout the country and when the Rate Support Grant Order was under discussion. It was then suggested that power should be taken, which we would help to facilitate, to derate domestic property if it were shown, as it was beginning to be shown in that debate, that there had been too great a shift in values from industrial and commercial property to domestic property. No answer was given by the Government to that specific request by the Opposition.
My hon. Friend the Member for Birmingham, Small Heath (Mr. Denis Howell) said in that debate:
There is one practical solution available to the Government. This solution was provided in 1963 when we last had a revaluation."—[OFFICIAL REPORT, 20th December 1972; Vol. 848, c. 1454.]
My hon. Friend went on to quote from Cmnd. 1663, "Revaluation for Rates in 1963", which states in paragraph 15:
It is within the Minister's powers to make an Order derating houses solely in those few areas where the increase in the householder's share is greatest.
That is our second proposal for immediate action. We undertook in December, and we undertake again today, to facilitate the Government's action if they decide to bring forward legislative proposals to derate domestic properties where there has been an undue shift of burden. The details of particular levels of increase are for the Government to consider and put to the House. We urge the Government to take one or both of those proposals back to the Department and to return to the House with proposals.
In case it should be argued that the second suggestion—that about derating—is unreasonable, I remind the House of the long history of derating. It has relevance to present circumstances in a number of areas where there has been a shift of rate burden to householders.
There has been a 100 per cent. subsidy to agriculture since 1929. From 1929 to 1958 there was a subsidy of 75 per cent. derating to industry. From 1958 to 1963 there was a 50 per cent. derating subsidy to industry. For those 30 years householders bore the bigger burden of rate expenditure, apart from the then forms of Government grant. As a result of the 1958 revaluation, and under pressure from various interests, the Conservative Government introduced derating of 20 per cent. of shops. That lasted till 1963. If it was possible and reasonable for those Conservative administrations to have such a level of derating subsidy for industry, commerce and shops, it is not unreasonable to say that they should take the same steps today on behalf of those domestic ratepayers who will carry an undue burden in various parts of the country as a result of the recent revaluation.
I had some further notes on future ideas for local government finance and rating but I will not deal with them now as I want to give the Minister proper time to reply. In particular, I should like him to reply to my one request and two specific suggestions. The request is for publication at an early date of a White Paper on the Government's intentions. One of my questions deals with increasing grant aid under the rate support grant system. My second question deals with the introduction of legislation to allow derating in the hardest-hit areas.
I thank the hon. Member for Willesden, East (Mr. Freeson) for those constructive suggestions and will try to come back to them.
I congratulate the hon. Member for Derby, North (Mr. Whitehead), as others have done, on his most informative speech and on his timing of the motion. The timing is unfortunate for me but most fortunate for him because in the last few days there has, in the Press, been a build-up for his motion and for his debate.
Unfortunately, that build-up has been all one way. Most of the Press headlines and comments have given the impression that all over the country there will be a massive increase in rates; that nowhere will anyone benefit by any grants which the Government have already given, or by revaluation. My hon. Friend the Member for Northants, South (Mr. Arthur Jones) and the hon. Member for Derby, North referred to a statement issued by the Institute of Municipal Treasurers and Accountants where it had taken 87 major authorities and had found that the expected new rates ranged from a 30 per cent. increase to a 25 per cent. decrease. This is not unusual; we have seen it in previous years.
Looking a little closer at these figures, one gets an average non-domestic increase of less than 10 per cent. and an average domestic increase of less than 5 per cent., and since that 5 per cent. emerges from that calculation let me make it clear that the Government have not said that they expect every individual local authority to keep its increase to below 5 per cent. As the hon. Member for Willesden, East said, to do so would have been totally unrealistic. What the Government said—this was at the time of the rate support grant discussions—was that the aim was to keep the average rise in rates to a level compatible with the Government's prices and incomes policy, although it was recognised that local variations would be inevitable.
But in those words we are dealing with averages, and, as I have shown in referring to the figures of the Institute of Municipal Treasurers and Accountants, when one is talking of averages there are extremes at either end. But the extremes this year are not very different from those of previous years. In 1972–73 the range was from 38p up to 14p down—an average increase of 9·4p. In 1971–72 the range was from 28p up to 9p down—with an average of 10·3p So, on that basis, this year is not exceptional.
There are, of course, the exceptional cases; to some extent a band across the country. In other cases there are small pockets where revaluation has had some hardship effects on the individual ratepayers there. But even the big cities, whose representatives sought the interview with the Prime Minister, have not all come badly out of revaluation and Sheffield—get an increase in the resources the recalculation of the resources element. Three out of the six—Bristol, Leeds and element; in fact Bristol gets that element for the first time in its life.
So there is this variety in the effects of revaluation, in the effects of inflation and in the effects of the expansion of local authority services. There should be a variation of this sort. The discretion should be with the local authorities. It is certainly disappointing to me that we have had to ask for monitoring of local authority rates. This is brought about not as a matter of long-term policy, but because central Government must, in view of their counter-inflation policy, keep a close watch on rate poundages this year. But in the normal way the local authority answers to the electorate and not to the central Government for the rate poundage it fixes. The variations I have quoted are a healthy sign and a measure of the discretion of local authorities.
If because of different total rateable values in different areas a balancing is needed, that is provided in the rate support grant by the needs element and the resources element. My hon. Friend the Member for Arundel and Shoreham (Mr. Luce) referred to this matter, and I say quite definitely that we shall be revising the formula in order to try to overcome some of the distortions, so to speak, that have obtained, particularly this year, in rate revaluations. I hope that we shall be able to put this revised formula in detail before the House later.
We can divide the reasons for increase into three. In some cases, revaluation is a reason for increase. In all cases inflation is a reason for increase—prices and pay, which have gone up over past months, and which one expects may, even with the counter-inflation policy, at some time increase again. In most cases, expansion of services is the third cause.
Let me deal first with revaluation. While we have a property tax, as I think the right hon. Member for Grimsby (Mr. Crosland) referred to it over the weekend, we must have a fair valuation of that property. Here perhaps I may be permitted to quote what I understand the right hon. Gentleman said over the weekend to the Labour Party annual local government conference at Newcastle-upon-Tyne. He said that there was
… no possibility of the rating system being abolished. At a time of high taxation—and taxation should be higher under a Labour Government if we are to carry out our social programmes—we shall never find another source of as much money as accrues
through the rating system. Every country in the world has some of local property tax.
If I may say so without causing the right hon. Gentleman embarrassment, those were wise words, but local authorities will not necessarily have to rely entirely on rates in future. It may be right to give them some flexibility in the revenue which they collect.
My hon. Friend the Member for Northants, South referred to the absence of the quinquennial revaluation in 1968. Since the issue has cropped up in our discussion it would be as well to put on record just when the revaluations occurred. The first was in 1929 and the next came in 1934, in due time after the five years. The next was due in 1939 and was postponed because of the war. The Local Government Act 1948 made valuation the responsibility of the Inland Revenue, and under that Act the first list was due and came into effect in 1956. The 1961 valuation was postponed by the Conservative Government for two years, and that was how we arrived at the 1963 revaluation. I think that all that my hon. Friend was pointing out was that the longer the period between revaluations the bigger the jump in the value of property and the bigger the shock to the ratepayer when he sees the new valuation. It has been a fairly substantial shock this time.
However, revaluation is fair and we are trying to aim at fair rates. It may be the same situation which applies to fair rents, where we should phase the increase out. Phasing it out over all ratepayers would certainly not please those who will benefit under revaluation—and remember that there are many towns and many individual ratepayers who are pleased with revaluation. Whether or not there should be a transition stage is a matter which the Prime Minister is discussing with local authorities tomorrow. I am sure that all proposals, including the sort put forward by the hon. Member for Willesden, East and by my hon. Friends, will be considered, such as whether the Government should go to the aid of local authorities at this stage with increased grants, and whether industry should subsidise the domestic ratepayer by the derating of the domestic ratepayer.
The scheme put forward by my hon. Friend the Member for Northants, South, which, as I understood it, sought to deal more with the individual ratepayer and give him relief, was a more appealing form of relief than handing out substantial grants or derating across the board. I think the House would prefer, if relief is to be given, that it should be seen to be given to the individual ratepayer to prevent an increase due to revaluation in certain places. These are the sort of things which are traditionally discussed with the local authority associations before any decision is reached.
Of course, the rating system has always taken inflation into account. That has been done by means of the rate support grant increase orders, and this year the order to take account of inflation for the 1972–73 period resulted in a payment to local authorities of £237 million. Normally inflation is taken into account after it has occurred. No doubt in November next, had the matter gone on as normal, we should have had a rate support grant increase order which would have taken account of inflation during this year.
In fixing the rate support grant for 1973–74 the Government took inflation into account by increasing the amount by about £400 million. In that way we have sought to deal with inflation, first that which has occurred during this financial year by the increase of the grant by £237 million and, secondly, on the forecast of what inflation might cost during 1973–74 by increasing the total rate support grant by £400 million. That is no small sum. There are 16,500,000 ratepayers. It works out at about £24 each per year deducted from the rate bill. It is difficult to think of these matters when dealing in terms of thousands of millions of pounds but when we think of it in terms of £24 for each ratepayer it can be seen to be a definite help not only to the local authorities but to the individual ratepayer.
The true reason for the increase is the extension of services. We have asked local authorities to delay making desirable improvements but the last thing we want is to reduce the services provided by local authorities. My hon. Friend the Member for Hampstead (Mr. Geoffrey Finsberg) summed it up correctly when he spoke of the inter-relationship of central Government and local government. We are anxious to give freedom to local government and to work in partnership with them as far as expenditure is concerned. After all, the taxpayer contributes 60 per cent. to local government expenditure, and, although there must be freedom in carrying out the services of local government by local government, which is a democratically elected body, there is nevertheless, a partnership with central Government.
Therefore, to sum up what is being done and what is contemplated for the future, the immediate action being taken is the discussion with the local authority associations. This is a transitional matter, between central Government and local government, before the reforms are to take place. The steps already taken to meet inflation and the rate revaluation is the allocation by the Government of £237 million for this year's inflation, a £400 million increase in the rate support grant for next year, a 50 per cent. increase in the domestic element and an updating of rate rebates.
The future policies, which I have already indicated at this box, are improved rate rebates to help ratepayers on lower incomes, a revision of the formula for distribution of the rate support grant, and a reduction of nearly £350 million in local government expenditure by removing two major services—the local health services and the sewage disposal service—into other spheres. This amounts to a substantial removal of expenditure for local government. There will be savings resulting from the introduction of value added tax, as my hon. Friend the Member for Hampstead explained, and there will be a block grant for transport, which will give local authorities far more freedom of expenditure in that area.
These are not the full reforms. We shall announce our full reforms by means of a local government finance Bill or by a White Paper at an early date. In all these reforms we are anxious to preserve and enhance local government financial responsibility. In these circumstances I ask the House to reject the motion.