Local Government Finance

– in the House of Commons at 3:47 pm on 16th December 1981.

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Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment 3:47 pm, 16th December 1981

I will, with permission, make a statement about a number of rating and local government finance matters. In its relationship with local government, the Government face two main problems—first, the need to contain levels of expenditure, and secondly, the need to make progress with their commitment to reform the rating system.

The Government are determined to reduce the level of local government current expenditure and to ensure, through the distribution of the rate support grant, that the consequences of high spending policies are financed more directly by those local communities where the highest spending takes place. The majority of local authorities have now proved that the Government's expenditure targets were realistic and attainable. I am most grateful to those authorities for the very real efforts that they have made.

The continuing wish of most local authorities to co-operate with Government by reducing the rate borne costs of public expenditure in their areas is further reinforced by the publication today of the latest local government manpower figures for England.

They show the largest total drop in manpower ever achieved in one year. At 1·9 million the number of full-time equivalent employees in local government in England is the lowest total recorded since the joint manpower watch system was introduced, and effectively eliminates all the manpower growth that has taken place since 1974.

In their determination to maintain pressure on current expenditure, particularly in authorities which do not co-operate with the overall policy of securing a better balance between the public and private sector, the Government decided to legislate this Session to deter high spending.

The Government intend to proceed with legislation. Instead of the proposals to permit supplementary rates only after a poll of local communities, the Government propose to ban supplementary rates altogether. Parts II and III of the Bill subject to drafting changes, will stand. I am therefore withdrawing the Bill which was introduced on 6 November and I am introducing today a new Bill incorporating these proposals.

During the financial year, an authority may incur unforeseeable expenditure. In these circumstances, it could apply to me for temporary borrowing permission. I would not grant such permission unless it was absolutely essential for the expenditure to be incurred in the year, and unavoidable commitments met. I would expect the borrowing to be repaid out of revenue income within the first quarter of the following year.

Our election manifesto restated our determination to reform the domestic rating system. I am today publishing, together with my right hon. Friends the Secretaries of State for Scotland and Wales, a Green Paper on alternatives to, and possible reforms of, the present system of domestic rates. The present system contains anomalies and unfairness. In publishing the Green Paper, the Government reaffirm their long-standing commitment to reform.

The Green Paper considers first the main requirements to be met by any revenue-raising system for local government. Against those requirements, it discusses, first, domestic rates, and then the most promising alternatives—local sales tax, local income tax, poll tax and assigned Exchequer revenues. It then discusses a number of associated questions, including the economic effects of change and the consequences for the system of Exchequer grant towards the cost of local services.

We have said in the Green Paper that the country views the question of domestic rates with a sense of urgency and that the Government wish to move ahead as quickly as possible. I am, therefore, asking for comments on the Green Paper to be submitted by 31 March 1982.

I look forward to wide-ranging consultations between now and next April. We shall then aim to produce proposals for a system which would remedy as fully as possible the shortcomings of the existing system of domestic rating and which would command the widest possible acceptance in the country as a whole.

Photo of Gerald Kaufman Gerald Kaufman Shadow Secretary of State (Environment)

This is an important day for Parliament. The decision to withdraw the Local Government Finance Bill introduced six weeks ago means that the Secretary of State has learnt a lesson in democracy. He has learnt that, whatever the size of their majority, no Government can simply slap down a Bill and complacently assume that the House of Commons will rubber-stamp it. The Secretary of State would have done well to admit that frankly, rather than to try to wrap up his humiliation in verbal camouflage that will deceive no one. For example, we note that he has claimed credit for increasing unemployment.

Does the Secretary of State recall that this is the second local government Bill in two years that he has introduced and then had to withdraw? Paraphrasing Lady Bracknell's remark in "The Importance of Being Earnest", to lose one local government Bill may be regarded as misfortune; to lose two seems like carelessness.

How can the Secretary of State justify the turmoil into which he has thrown every local authority in the country over the past three months, all for what turns out to have been an exercise in futility? His decision to ban supplementary rates is deplorable in itself, but is it not also a direct invitation to every borough treasurer to evade the control by recommending a high initial rate for contingency purposes? Accordingly, could it not be an incentive to overspend?

Since the Secretary of State himself clearly has little confidence in this No. 2 Bill—his seventh attempt to arrive at a solution to a problem that does not exist—why should anyone else support it? Is he aware that, although shorn of the unacceptable device of the compulsory referendum, it is still a gross interference with the independence of local government? Is he aware that every hon. Member who cares about genuine local democracy will oppose it?

We shall study the right hon. Gentleman's Green Paper and await the Government's conclusions. We hope, this time, that there will be genuine consultation with the local authorities and that their knowledge and experience will be taken into account. Will he abandon, once and for all, his meddling with local government and allow it to get on with its job?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

I do not believe that the decision to do away with supplementary rates will increase the initial budgeting of local government. The technique of supplementary rates has been relatively rarely used in the past because treasurers have budgeted for contingency items within the original budgets. The fact is that the Labour Party has too often been largely responsible for using supplementary rates actually to increase expenditure.

I cannot accept that the announcement about lower local authority manpower leads directly to higher unemployment. The Opposition will not understand that the alternative is higher rate levels which are a direct attempt to pursue higher levels of unemployment by their deterrent effect upon the private sector. For the Opposition to lecture the Government on parliamentary democracy, when they are riddled with people trying to overthrow parliamentary democracy, is humbug.

Several Hon. Members:

rose——

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. I remind hon. Members that this is a Supply day. There are two very important debates to follow. They are preceded by a Ten-Minute Bill. I listened with care to the statement. I believe that if I allow exchanges to continue until 4.15 pm the issue will have had a very good run.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I welcome my right hon. Friend's decision to drop the referendum proposals, which had most dangerous constitutional implications. As the best solution to local government finance would be the abolition of the domestic rating system and the transfer of the cost to the central Government Exchequer, will my right hon. Friend say whether the Green Paper considers this alternative and in particular whether it works out the savings that will be raised in terms of staff and costs in the Inland Revenue valuation department, in the collection of local rates and in the rate rebate scheme?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

I am grateful to my right hon. Friend for what he says. The Green Paper that is now in the Vote Office explores among many options the one to which he has drawn my attention. It gives considerable indication of some of the economies that might flow. All these matters will be explored in greater depth in the consultation period.

Photo of Mr Stephen Ross Mr Stephen Ross , Isle of Wight

Does the right hon. Gentleman fully appreciate that while there is a duty on all responsible local authorities to try to co-operate with central Government, whatever Government are in power, he has been stretching to the limits the patience of those who have been trying to do so over the last few years? What will happen to those authorities faced with great expenditure incurred last weekend, through damage to sea walls and suchlike, which will come out of revenue expenditure and which will take them above the level of volume targets at which they are to be penalised? Is the right hon. Gentleman prepared to be fair and reasonable in relation to the present financial year? Does he appreciate that it was a previous Conservative Administration that in 1974 reformed local government, following which there was a huge expansion of bureaucracy? Does he not agree that the fault lies with the previous Conservative Administration?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The hon. Gentleman will be aware that emergencies have been considered favourably in the past, where appropriate. I would obviously discuss these matters with the local authority associations in relevant cases as my predecessors have always done.

As for the claim that there was a growth in the bureaucracy following the reorganisation of local government, any dispassionate observation of the facts will show that this is not the case. From 1956 onwards, local authority manpower increased year by year at an ever-increasing rate. It is difficult to see on the graph the point at which reorganisation took place. It was not until 1973–74 that the first checks to that increase took place, largely as a result of the oil crisis and the effects of the Labour Party.

The hon. Gentleman claims that the patience of local government has been stretched. I pay tribute to those authorities which are co-operating, but I have to make the point that the public and the ratepayer have had their patience stretched beyond endurance in many cases.

Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury

In examining ways of reforming the rating system, will the right hon. Gentleman accept the principle that one wants to achieve a greater identity between the discretion of a local authority and its obligation to finance its exercise of that discretion from local funds? To that end, will he not try to take out of local authority funding most, but not all, educational expenditure and place it with the central Exchequer so that there is greater identity between the decisions of local authorities and their means of supply?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The hon. Gentleman will find that a chapter of the Green Paper is devoted to the arguments surrounding the transfer of educational expenditure to the central Exchequer. He will wish, with many other people, to consider that possibility. As to trying to get greater local accountability to link high spending with bills that fall locally, the block grant mechanism achieves that.

Photo of Mr Charles Morrison Mr Charles Morrison , Devizes

I join my right hon. Friend the Member for Worthing (Mr. Higgins) in congratulating my right hon. Friend the Secretary of State on dropping the proposal for referendums on rates. Is he aware that I cannot recall when last a supplementary rate was demanded in my part of Britain? Does that not show that local authorities controlled by Conservatives or independents act on the whole with great responsibility and that therefore his decision to abolish supplementary rates should be no disadvantage to a responsible local authority?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

My hon. Friend is right. A responsible local authority will budget in the normal way. It will budget for a contingency allowance, as local authorities always do, and it will stick within its budget. If all local government now kept to the level of expenditure achieved by the Conservative-controlled councils there would be no need for the continuing difficulties between local and central government.

Photo of Mr Hugh Brown Mr Hugh Brown , Glasgow Provan

Does the Secretary of State agree that by linking the two subjects—the dropping of a Bill and the introduction of a Green Paper—we have all the signs of rushed government, which usually means bad government? Some of us have had some experience of that and we can recognise the signs. Does it not show that the Government have no clear idea about how they intend to reform the rating system?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The hon. Gentleman would be taking a different approach if we had announced conclusions today without a consultation period. I believe that we are right to publish a Green Paper which goes further in the production of supplementary evidence than the Layfield report and will enable us to have a wide-ranging, but I hope relatively short, consultative period.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

Is my right hon. Friend aware that we welcome his local authority reform proposals? Can he press for early legislation on the matter, which would mark a great contrast to the inactivity and ineptitude of the previous Labour Government?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

My hon. Friend will appreciate that the right hon. Member for Manchester, Ardwick (Mr. Kaufman) is now talking about reforming the local government financial scene, but he did nothing about it when the Labour Party was in office. I wish to have a relatively brief consultative period ending on 31 March 1982, which would enable us to take decisions about the timing of legislation.

Photo of Mr John Cartwright Mr John Cartwright , Greenwich Woolwich East

Does the Secretary of State accept that he is proposing to take unprecedented powers to approve the spending of individual local authorities? What will happen to those local authorities who fail to get his permission to borrow? Does he agree that most of the candidates that he has mentioned in the Green Paper are the same knock-kneed beasts that he has flogged around the course umpteen times already? Is there anything in his Green Paper that has not already been considered in detail by the Layfield Committee and similar expert bodies?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

It would be wrong to assume that I have invented a new form of taxation in the Green Paper. However, the Green Paper sets out arguments, many of which are well rehearsed, but goes further than has been attempted before in trying to show the consequences of moving to an alternative. We have tried to analyse the impact on certain identified groups of householders of possible changes in any one of the alternatives considered to be the front runners. The hon. Gentleman has not understood the announcement that I made earlier today if he believes that I am trying to control individual authority expenditure.

Photo of Mr Robin Squire Mr Robin Squire , Hornchurch

Will my right hon. Friend accept my sincere congratulations on his proposal to drop the Bill as presented to the House, especially the proposals on referendums which would have affected central and local government relations dramatically? Secondly, I congratulate him on the solution that he has put forward. Thirdly, will he resist the siren voices—not least that of my right hon. Friend the Member for Worthing (Mr. Higgins)—who would suggest that the solution lay in a totality of central Government support, which would deprive local government of some independence and the opportunity to present its own priorities?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

I have seldom found it possible to resist the siren voice of my right hon. Friend the Member for Worthing, but it is not for me today to try to reach a conclusion about the many preferred solutions that will be put forward for the reform of domestic rates. My task is to consult and not yet to reach judgment.

Photo of Mr Robert Brown Mr Robert Brown , Newcastle upon Tyne West

Is the Secretary of State aware that in the part of the statement which refers to the rate support grant it appears that he will cruelly cane ratepayers in cities such as Newcastle upon Tyne? Has he not yet taken it on board that what he calls the big spenders are the inner city authorities who have the big problems to deal with?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The hon. Gentleman is doing me the courtesy of anticipating a statement that I hope to make soon. I did not deal with the issue of the distribution of the rate support grant. That has yet to come. However, I fully understand the needs of the inner urban areas and I am aware that if there is to be a revival of activity it is necessary to have lower rates.

Photo of Mr John Page Mr John Page , Harrow West

Will my right hon. Friend not spend too much time worrying about the highly polished, pseudo-intellectual irrelevancies of the right hon. Member for Manchester, Ardwick (Mr. Kaufman)? Will he concentrate on the petition of 3,000 or 4,000 names from my constituency which was sent to him, speaking as always for the people of London as a whole, begging him to protect them against the predatory ravages of the Greater London Council under Ken Livingstone? Will his new proposals give some protection?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The legislation will deal with the powers of all local authorities, including the GLC. However, there are other matters affecting the GLC which are sub judice and it would not be proper for me to discuss them.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

Does the Secretary of State realise that it is nonsense to say that he is not interfering with the freedom of local government? Is he aware that if he interferes with the right to a supplementary rate or the amount of initial rate, that is an interference with the fundamental freedom of local government? How will his proposals help Swindon, which has co-operated with him all along the line and is an expansion area, which he has encouraged, but which is now being clobbered in its efforts to provide housing and new work for my constituents and those of the hon. Member for Devizes (Mr. Morrison), who gave the Secretary of State such praise?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

I do not believe that the hon. Gentleman would expect me to make proposals specifically for his constituents, but within his constituency many people will have grave reservations about the domestic rating system and will welcome the announcements that I have made today.

Photo of Sir David Price Sir David Price , Eastleigh

As one who has been seeking rate reform for at least the past 20 years, I welcome my right hon. Friend's Green Paper. Is it his intention to legislate during the next session of Parliament or must I wait another 20 years for the legislation?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

My hon. Friend has provided an eloquent argument about why we should get on with the job and not keep him in suspense for that period.

Photo of Mr James Lamond Mr James Lamond , Oldham East

Why has the right hon. Gentleman lost all his faith in local democracy? Why has he changed his mind since his Local Government Bill was going through Committee? Does he recall using the memorable phrase that it was good for local councillors to feel the prick of the electorate in their bottoms? Has his attitude changed?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

It is difficult for me to comment upon the precise impact on local councillors of any impetus that they may feel. However, I say to the hon. Gentleman, who has such a long memory, that other changes have taken place since the 1972 reform, a significant one of which is that many people in local government no longer believe that the traditional relationship of co-operation with central Government is a prime objective.

Photo of Mr Anthony Durant Mr Anthony Durant , Reading North

I welcome the Bill, but will the Secretary of State bear in mind the anxieties of industry and commerce about their rates, which are causing great difficulty, particularly to small firms and shopkeepers? Does he accept that one reason why I welcome the Bill is that industry will now at least be able to plan its budgeting for the forthcoming year, as it will know what the rate demand is?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

That is an important point and applies not only to industry and commerce. With the abolition of supplementary rates the domestic ratepayer will also know that he has a fixed outlay which will not be varied for the forthcoming year.

Photo of Mr Alfred Dubs Mr Alfred Dubs , Wandsworth Battersea South

Apart from what the Secretary of State said about supplementary rates, will local authorities such as the inner London education authority, from which he has through his previous actions already taken away all rate support grant money, be immune from his further proposals and free to raise and to spend money as they believe is right in the interests of those to whom they are responsible?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

There is a chill warning in those words. I am aware that my proposals can not fully control the phenomenon that the hon. Gentleman mentions, but I hope that his question is not a recommendation that that authority, among others, should go on a spending spree and disregard the ratepayers.

Photo of Mr Paul Dean Mr Paul Dean , Somerset North

As I come from the county of Avon which is suffering the burden of a supplementary rate, may I warmly welcome my right hon. Friend's statement and the Government's firm intention to reform the rating system in this Parliament? In the meantime, will my right hon. Friend assure the House that local authorities which loyally co-operate with the Government's economic policy and pursue good housekeeping do not suffer thereby in their grant arrangements?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

I am grateful to my hon. Friend. The grant arrangements are the subject of another announcement, but from what I have said it should be apparent that I am determined to co-operate with the authorities that have co-operated with the Government. Substantial differential targets have been set for the authorities which have already made substantial cuts. I sympathise with my hon. Friend's point about his constituents suffering the supplementary rate. I sympathise particularly with people who are living on fixed incomes, including pensioners, who are in now no way able to protect themselves from the effect of the rates.

Photo of Mr Norman Atkinson Mr Norman Atkinson , Haringey Tottenham

As the Secretary of State boasts that he is responsible for putting more local authority workers on the dole than any of his predecessors, can he explain why he wishes to keep down rates to protect employment? What connection is there between domestic ratepayers and the PSBR? How can the transfer payment affect jobs and threaten employment?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The economic effects are not linked simply to the PSBR. It is a question of the management of demand in society at large. As local authorities spend about £30 billion a year, the Government must take a view about the way in which the expenditure is managed and directed. I totally reject the hon. Gentleman's view that because the number of local authority employees has gone down to the 1974 level it has necessarily increased the dole queues. The vast majority of employees have left of their own free will, many to retire.

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

May I thank my hon. Friend for listening to the views of the House expressed in the debate recently and congratulate him on the new Bill? Will the powers that he has taken to himself be limited by time, as he said in the debate might be the case? Will he assure us that this document will be the last Green Paper on the subject?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

I very much hope that it is the last Green Paper that I produce on the subject, but beyond that I hesitate to go. It is not my intention that we should need a further Green Paper on the subject. I do not believe that we should take a decision on the limitation of time on banning the supplementary rate. It was a commitment that I gave very much in the context of the referendum provisions. The case is different when one comes to judge supplementary rates.

Photo of Frank Dobson Frank Dobson Shadow Spokesperson (Education)

As one reason why a number of local authorities levied the supplementary rate in the current year was that the Government had given them a falsely optimistic estimate of price and wage inflation, will the right hon. Gentleman guarantee that they will be given a realistic estimate in the forthcoming year so that they are not forced into either supplementary rate demands or appeals to him?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

The hon. Gentleman must have completely misunderstood the situation. Had the assumption been unrealistic all local authorities—not just a tiny handful—would have had to levy supplementary rates.

Photo of Mr Anthony Beaumont-Dark Mr Anthony Beaumont-Dark , Birmingham, Selly Oak

May I congratulate the Minister on his readiness to withdraw the referendum principle and on bringing forward the Green Paper so quickly? If we do not wish local authorities to levy a rate higher than needed—I believe that they will if there is no chance to levy a supplementary rate—and if the Government's figures on inflation and interest rates turn out to be wrong, will my right hon. Friend reconsider the matter? Does he agree that the temporary borrowing permission affects the Government's borrowing figures and would make a difficult position even worse?

Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment

It is extremely unlikely that the Government would be prepared to consider the situation again if the inflation factors proved to be higher than we have estimated. We are trying to secure a better balance between the public and private sectors. We cannot accept that the private sector can only watch while the public sector virtually indexes its whole expenditure patterns. The public sector must make sufficient economies to live within the means that the Government have willed.

I am grateful to my hon. Friend for praising my readiness to withdraw the Bill. It was a flattering way to describe what happened.