I mentioned earlier that the previous Government assumed that earnings would increase by only 7 per cent. from 1978–79 to 1979–80, but I need not remind right hon. and hon. Members, especially those on the Opposition Front Bench, that in the event the increase was between 14 and 16 per cent. We recognise, however, that we could not increase the estimate of income at this stage in the year. Apart from anything else, local authorities would not have sufficient time to increase rents to make up the difference. But I shall return to this subject when I deal with the main order for 1980–81
Turning to the distribution of grant under the variation order, I should point out that while many of the factors used in the distribution formula have changed—this is a necessary consequence of the increased estimates of expenditure and increased grant—the distribution adheres broadly to the principles laid down in the main 1979–80 order and approved by the House. However, the House will have noticed that, while the aggregate increase in grant is about 31 per cent., not all the individual authorities will receive increases at that level. The average authority, in terms of relative house numbers and expenditure per house, will tend to receive increases close to the average. Others will receive increases that are greater or less, depending on factors such as their relative loan charges per house and numbers of houses.
On the main order for 1980–81, I should point out that, in distinction from the previous one, the estimates of both relevant income and eligible expenditure have been expressed at estimated outturn prices. That was done to avoid the confusion that was caused last year—I do not ascribe any blame for that—by the laying of the order using what might be called a hybrid price base. Last year's order was based on estimates of expenditure at November 1978 prices. Income was estimated at 1979–80 outturn prices. As a result of that, the bulk of local authorities underestimated their share of grant and produced estimates for budget purposes which have turned out to be somewhat inaccurate.
Another result is the size of the variation for 1979–80, to which I have already referred. By using forecast outturn prices, we should avoid having to adjust price increases which might occur later in the year. We cannot rule out entirely the possibility of a variation order, but by our producing all the estimates on an outturn price base there is a better chance of avoiding the need for one. If there is a need for a variation order, the amount of the variation in grant should be much smaller than I have had to fix for this year. In this case, that was my decision. That should make the 1980–81 figures easier to understand and it will enable local authorities to produce more accurate budgets for 1980–81 than would have been possible if we had stuck to the system that was used last year.
We can now look at the figures contained in the order and the accompanying report which hon. Members have before them. The 1978 Act empowers me to make estimates of the eligible expenditure and relevant income of local authorities on their housing revenue accounts. Those accounts relate entirely to local authority housing. Having made the estimates, I have subtracted income from expenditure and fixed the housing support grant for the year as the difference between the two amounts. For 1980–81, eligible expenditure has been estimated at £541·6 million, relevant income at £.356·8 million and housing support grant at £184·8 million. The estimates have been based on the latest reliable historical data available in good time for consultation with the convention and the determination of the laying of the order.
I should explain briefly how the estimates have been arrived at. On the expenditure side, the most important item is loan charges. They are the revenue consequences of capital expenditure. In order to estimate loan charges, it is necessary, as a first step, to make an estimate of aggregate debt. That is done by adding to the latest available historic debt figures capital expenditure estimates and by deducting repayments of loans to loan funds. The estimates of capital expenditure included in the calculation accord with the Government's public expenditure estimates. Certain aspects of the capital expenditure estimate for 1980–81 have been reduced by 10 per cent. but they are in line with the average of local authorities' unsubsidisable expenditure under the previous legislation. That requires a little explanation.
It is necessary because authorities are no longer subject to detailed control of their building projects since June of last year. I am considering the introduction of a system of incentives to economy in building costs from 1981–82. The unreasonable expenditure percentage is a somewhat crude device that is designed to protect the Exchequer interests in the interim year. In fairness to authorities, the 10 per cent. deduction has been applied to net capital expenditure excluding land. It has been accepted that land prices are out of the control of local authorities.