Local Government Finance

Part of Prayers – in the House of Commons at 12:00 am on 5th July 1974.

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Photo of Mr Nicholas Edwards Mr Nicholas Edwards , Pembroke 12:00 am, 5th July 1974

The whole House will be grateful to the hon. Member for Brecon and Radnor (Mr. Roderick) for introducing the debate and giving us another chance to discuss this important subject. Like my hon. Friend the Member for Harwich (Mr. Ridsdale), I note the absence of the Liberal Party from the discussions. We had looked forward to hearing the views of Liberal Members in this debate but no doubt they are engaged elsewhere in the country in disputes with their party workers.

There are a number of strands in a debate on the rating crisis, and several of them have emerged today. In a debate initiated by a Welsh Member I hope that I shall be permitted to refer to a few of the matters that cause particular concern in my constituency. First, there is the whole method of rating valuation and the anomalies that it throws up. This is something about which I have already written to the Chancellor of the Exchequer. I have been given facts which disclose a disturbing and apparently indefensible situation. I take just one example, but there are many others. Saundersfoot is a holiday village with a population of about 1,200. Tenby is a holiday town with a population of between 4,000 and 5,000. The ironmonger's shop in Saundersfoot has a sales area of 516 square feet and now has a rateable value of £1,500. A similar shop in Tenby with 1,800 square feet, more than three times as big, has almost exactly the same rateable value—£1,555. Another shop with twice the area has a lower rateable value of £1,263, and that includes a house.

That shop is typical of others in Saundersfoot where the rateable values appear to be between twice and three times those in the neighbouring towns, including the shopping and tourist centre of Tenby. That is the case even though Saundersfoot, unlike Tenby, has to rely almost entirely for its trade on its very short holiday season. Rateable values in neighbouring villages and neighbouring streets in my constituency in some cases vary by two or three times as much. The position is made worse by the fact that hardly any appeals have yet been considered, and that applies throughout the country. Certainly, the appeal I have put in on my house in London has yet to be heard. There is widespread concern and a sense of injustice, and I must press the Government for a full and impartial investigation and explanation of these anomalies.

The second matter for concern, which was referred to by the hon. Member for Brecon and Radnor, is that commercial rates have risen by as much as 100 per cent. in a single year, and that is in addition to rateable value increases last year of as much as eight times. It has been the policy of successive Governments—I am not seeking to make a party point—to cushion the impact on the domestic ratepayer by domestic relief. The amount set aside this year is tantamount to an average 25 per cent. derating of domestic properties. In other words we have super-rating of industry and commerce in all but name. Of course, commercial rates are fully allowable as a deductible expense against tax. Also the Price Code does not prevent price increases that would enable a commercial ratepayer to recover his increased outgoings. Unlike the domestic ratepayer, he is not at the end of the line and he can pass the burden on. That has influenced Governments of both parties.

However, we should recognise a number of difficulties. The first problem concerns the small shopkeeper who is competing with the supermarket but cannot immediately put up his prices. The second problem affects establishments with coin-operated machines, such as launderettes, for which an increase in prices involves a considerable capital outlay. The third problem concerns the hotel and boarding house which fixed its charges the previous year and cannot increase them. The fourth problem is that if prices are increased the cost is recovered only over a period, and in the meantime small businesses have increased borrowings at a time when they are already stretched and paying very high interest rates.

Many small businesses are in real difficulty as a result of these factors and the general rise in costs with which they are having to cope. Here I agree with the hon. Member for Brecon and Radnor. The Government will have to consider the problem more urgently, and some of the general principles about which I shall speak in a moment apply as much to small businesses as to domestic ratepayers.

Domestic relief has been calculated in Wales to cushion ratepayers from water charges. The water authority in Wales has already stated its intention to iron out next year the distortion between different areas, and the statement is welcome, but the scale of the increases by many water authorities throughout the country has come as a surprise and a shock, and something will have to be done before next year to provide relief and cushion the distortion. I agree with previous speakers on the question of sewerage charges. Here again, action will have to be taken.

We are to have an inquiry, but that in no way removes responsibility from the Government for dealing in the short term with the situation which now exists. There is a tendency for this administration to believe that blaming the last Government or setting up committees is a substitution for government. It is not, and the responsibility for action now clearly lies with them.

Secondly, people would do well not to create too great an expectation about the results of the inquiry. I share the views of the hon. Member for Stockport, North (Mr. Bennett) on that point. The faults inherent in the rating system are as obvious as the advantages, and some of them were clearly spelt out by the right hon. Member for Anglesey (Mr. Hughes).

Over the years many of us have been tempted by one or other of the alternatives to the present system. A local income or sales tax is perhaps the most attractive. However, the difficulties are very great. As the right hon. Member for Dartford (Mr. Irving) pointed out, difficulties arise in terms of practical administration. I do not believe that a genuine local income tax is possible in the very short term if for no other reason than that the organisation has to be created, and there is no accurate record at present of where people live. National income tax is based on the place of work. not on the place of residence. I forecast that even if the committee reports with dispatch no major new local tax will be introduced before the 1980s.

It is at least a possibility—I will say no more than that—that the committee will conclude that we should have an additional income or sales tax raised nationally to replace the rating system and then distributed to local authorities in a block form for their allocation and use.

There is a need for the committee to consider not only methods of raising finance but the whole complex question of its allocation. Part of the present difficulties stem from the decision, approved on both sides of the House, to allocate greater resources to city centres, but we must not overlook the additional burdens that fall on authorities that have to provide a full range of services in scattered rural areas or— this is a matter which I hope will be dealt with in a later debate today—have to provide for substantial tourist populations. If by any misfortune I do not get called for that debate, I stress now that those problems are as real in my constituency as they are in the constituency of the hon. Member for Caenarvon (Mr. Wigley). I welcome the Secretary of State's assurance that the scope of the inquiry will be wide. It needs to be.

We must never overlook the fact that the problem is not just one of distribution or method. The main underlying cause of the whole miserable situation is the vast increase in local government expenditure over many years. My hon. Friend the Member for Brent, North (Dr. Boyson) had some shrewd observations to make on that subject. The proportion of gross national product accounted for by local authorities has grown from 5·1 per cent. in 1900 to 8·5 per cent. in 1950 and to 18 per cent. in 1972. While national income calculated at constant prices increased just over two-and-a-half times between 1960 and 1973, local authority spending increased over the same period by four-and-a-half times. If ever there was a case of spending before the money was earned, that appears to be it, and it seems to me to be a major cause of the inflation which we are suffering.

It is remarkable also that in 1971–72, the latest year for which figures are available, while total local government capital expenditure was £2,055 million and repayments to lenders and transfers to sinking funds amounted to £177 million, debt charges came to a staggering £1,273 million. We live in a petty odd world when capital expenditure is just over £2,000 million and debt charges are nearly £1,300 million.

There are many good reasons for rising levels of expenditure. There is the pressure from the central Government and from the public for higher standards. But there is also a widespread public feeling, which we in this House would do well to take into account, that control is inadequate, that waste is common, and that empire building is too prevalent. Unfortunately, one of the consequences of local government reform, apart from the staff and administrative cost implications, is that if several authorities are merged one seldom does away with an existing service but almost invariably that service is extended to the areas which did not previously have it, whatever its inherent merit.

To take one example—I do not argue whether it is a sensible policy or not—if one authority subsidises bus fares for old-age pensioners and two merging authorities do not, because in the past they have thought that they could use the resources better, it is highly probable that the authority resulting from the merger will go ahead with such a scheme rather than incur the opprobrium of cancelling the existing arrangements. There is a general gearing up of expenditure.

However desirable projects may be, local authorities, like individuals, will have to realise that in the economic difficulties confronting the nation demands for ever-improving services simply cannot be met, and for a period, indeed, we face the prospect of an actual fall in standards rather than an improvement.

Let us be realistic. At the current level of inflation and with all the additional burdens imposed by the Labour Government in their Budget, next year's increases are likely to be quite horrific. I warn my hon. Friend the Member for Bexleyheath (Mr. Townsend) that if his local authority keeps its increase to 20 per cent. it will have performed miracles in the situation which it will face next year.

It is important to recognise—this arises directly from our consideration of the total level of public expenditure—that there is no magic way of reducing the total burden. The only way is by economy. The argument is about who should bear that burden and how it should be distributed.

Any change made in the future will be, as all changes in the past have been, helpful to some and harmful to others. Our debate today is not just about techniques for raising money and the consequences of inflation or extravagance. It is about how we effect change and how far Governments should cushion people from its consequences. Ironing out inequities in the present distribution system inevitably makes the Government unpopular in the areas which have been benefiting and will now face substantial rate increases.

There is a fundamental principle, I suggest, which should guide governments. If they wish to move the load, if they wish to take the yoke from one back and put it on another, they ought not to do it in a way that breaks that back. Citizens are entitled to plan their affairs in the reasonable expectation that obligations imposed by Governments will not fluctuate too violently. If the citizen has for some years come to expect a bill of £100, he may fear that it will rise to £110—and in these troubled times, if he is prudent, he will probably plan on the assumption that it will rise to at least £120. But what is wrong is that it should become £200 as a result of Government action, and without warning. If the Government do make changes of that sort of scale, they have an obligation to soften the impact so that the citizen may adjust his affairs.

That has been a guiding principle in the past. For example, it led my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) in March 1973 to protect the hardest hit by rating revaluation, which had been disgracefully and quite unnecessarily delayed by the previous Labour Government for political reasons. The Conservative Government met half the cost above 10 per cent. of any increase in domestic rate bills arising from revaluation. It was the reason, too, which led to the introduction of differential rating, which has been of considerable benefit in protecting ratepayers in part of an area from the disadvantages of a union with an area which formerly had much higher rates. The move to the new level is spread over a number of years.

The introduction of the domestic element in 1967–68 and the subsequent extension of that system was another defensive measure taken by the Government to protect the domestic ratepayer from the violence of change. The same desire to cushion the impact of change led the last Conservative Government to introduce variable domestic rate relief in this financial year to protect domestic ratepayers from exceptional increases in rates.

The present Government have chosen largely to abandon that principle by redistributing part of the domestic element so that in many areas a quite intolerable burden will fall on ratepayers. Let us be clear about it. It is fully within the power of the Government to act to protect both those excessively hard hit and those in areas such as Trafford where there were miscalculations and the burden proved higher than expected. But it is no good the Government saying, as the right hon. Member for Anglesey did today, that this is something which they inherited and they had no time to do anything about it. It is the cry of a party so addicted to opposition that when it is in power it is unable to assume responsibility. It carries on with its shrill cries of criticism, forgetting that only it is in a position to act and that it has a duty to act.

It is no good the Government saying that they could not make changes. They have made them, very substantial changes, in variable relief. They did it not on a basis of need but to obtain electoral advantage in some areas. Having made that change, they could have made others, and it is perfectly possible to make further adjustments before the second half-year rate demands are sent out.