Rate Support Grant Settlement

– in the House of Commons at 3:53 pm on 16th December 1982.

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Photo of Mr Michael Heseltine Mr Michael Heseltine Secretary of State for Environment 3:53 pm, 16th December 1982

With permission, Mr. Speaker, I wish to make a statement on the rate support grant settlement in England.

In my statement to the House on 27 July I set out proposals for the main elements of the rate support grant settlement for 1983–84. I have today tabled the main RSG report. I am placing in the Library copies of the detailed material being sent to local authorities today.

The Government have three main objectives. The overriding one is to achieve further real reductions in local authorities' current expenditure. We must also recognise the efforts that most authorities have made to find economies and we must increase the incentive for all authorities to spend at target, by increasing the grant pressure on the high spenders.

As well as the main report for 1983–84, I have also tabled today the first supplementary report for 1982–83. The main effect of this report is to reduce block grant to authorities budgeting to overspend both their target and grant-related expenditure assessment. The holdback for 1982–83 amounts to £308 million. Authorities were warned about the holdback scheme before they drew up their budgets, and they took their decisions in that knowledge. This report implements the scheme. It also adjusts relevant expenditure and grant to reflect a number of changes, mainly in the usual variable items caused by interest rate changes.

I turn now to the main report for 1983–84. The current expenditure provision is £19·7 billion. It is about 3 per cent. more than the equivalent figure in authorities' budgets this year. The aggregate Exchequer grant is £11·8 billion or 53 per cent. Although the percentage is lower, the grant is about £300 billion higher in cash—almost 3 per cent.—than in last year's settlement. There are no major changes to the methodology of grant-related expenditure assessment. Some useful improvements have been made, including the 1981 census data, in consultation with local government. There are no changes in the main grant distribution mechanisms. The distribution of block grant between classes of authority is similar to that of last year.

I am now confirming the expenditure targets for all authorities. Since July inflation has fallen and interest rates have dropped, but I have not reduced the targets that I announced then to reflect that. A few targets have been raised following minor changes to the methodology. None has been reduced. Most low-spending authorities and those that have complied with this year's guidelines are given targets that allow a 4 per cent. cash increase over their budget this year. Usually, authorities spend less than they budget for. In those cases the new target will be a small increase beyond 4 per cent. over actual spending this year. In the light of the current economic trends it is fair, and it rewards efforts to economise.

By contrast, the target for most overspenders represents a 1 per cent. cash cut from their budget this year. That is tough, but rightly so, because those authorities have made no real effort to reduce spending so far, and their scope for reductions is greatest. I believe that most local authorities will act responsibly and will plan to hit their targets. This year and last, two-thirds of authorities budgeted to avoid grant holdback, but we also know that a less responsible minority exists. Pressure must therefore be increased on the highest spenders. The grant holdback scheme achieves that. For each of the first two percentage points of spending above target there will be a loss of grant worth a 1p rate at ratepayer level. For each subsequent percentage point of overspending, there will be a loss of grant worth a 5p rate. This will help authorities which narrowly fail, but it becomes increasingly severe for overspending at all levels above 2 per cent. For the first time since 1945, current expenditure by local government has been shifted to a downward trend, and this settlement builds on that.

We have not yet achieved the rate of reduction for which we originally asked when we took office. We have made a start, especially with manpower. Local authorities have now reduced manpower by about 5 per cent. since 1979. The Manpower Watch figures also published today show that we are back to the level of 1972. We have eliminated the growth in manpower that followed reorganisation.

The issue here is not the creation of unemployment, but the reverse. High rates have forced the wealth-creators in our society to reduce staff in order to maintain jobs in local government. Any objective survey of a proper cross-section of authorities will show that, as a result of this settlement, rate increases next year should for most authorities be nil or in low single figures. If authorities spend at target, in many cases rates could actually be reduced. That is the prize offered by this settlement. There is no excuse for overspending this year. Authorities have had more notice than ever before. In the overwhelming majority of cases ratepayers will know that excessive rate increases are the result of excessive spending by their authority.

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

Is the Secretary of State aware that, with one exception—the penal holdback formula—his statement today tells us almost nothing more than he said in his initial statement in July, which, as usual, contained material that deliberately distorted the truth?

Will the right hon. Gentleman therefore now tell us the following facts? First, what is his revised figure for relevant expenditure? Secondly, may we assume that he has not changed the angle of the taper? Thirdly, has he decided to include within targets surpluses transferred from housing revenue account to general rate fund and interest on capital receipts? Fourthly, will he confirm that there is no grant-related expenditure assessment exemption for what he calls overspenders? Fifthly, and possibly most importantly, will he tell the House the figure that he assumes for holdback for 1983–84?

The Secretary of State says that his targets are fair and that only what he calls overspenders need worry about those targets. How can he square that misstatement with the indictment by Mr. John Horrell, the Conservative chairman of the Conservative-controlled Association of County Councils, that the targets for next year require reductions in services beyond those which are likely to be acceptable to members of the public in the areas we serve"? Mr. Horrell, the Conservative chairman of the Conservative-controlled ACC, also said that central government have set unrealistic targets which are not seen to be fair even by those who are anxious to play their part in supporting the Government in their economic strategies". The Secretary of State has concealed the real reduction in rate support grant. Is it not a fact that his announcement cuts rate support grant for the forthcoming financial year in real terms by £250 million? Is it not also a fact that the reduction since he took office, from 61 to 53 per cent. of relevant expenditure, has cut rate support grant by £1,800 million, and that that is a 25p in the pound rate increase for every domestic ratepayer? Is it not a fact that his penalties so far, in addition to that reduction in the rate support grant of £700 million, have increased the additional rate burden for every domestic ratepayer, since he took office, by 35p in the pound?

Is it not therefore the Secretary of State who is responsible for the intolerable additional rate burden for domestic ratepayers? Is it not he who is damaging industry and commerce, those whom he calls the wealth-creators, by forcing up rates so steeply? In the light of his rate increases, is not his phoney and misleading talk about nil or low single-figure rate increases a sick joke?

The Secretary of State is personally responsible for destroying basic services and causing heavy unemployment in local authorities. What is more, as local authorities spend billions of pounds every year on purchases from private industry, he is causing massive unemployment in the private sector as well. The Secretary of State is the grim reaper of local government. He is killing local services, and thousands of councillors and millions of ratepayers will never forgive him.

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

I realise that the right hon. Member for Manchester, Ardwick (Mr. Kaufman) finds it necessary to make these assertions, which are ill-founded, as one realises when one considers the reality behind them. The clearest demonstration of who is responsible for high rate increases is to be found in the results of all the shire counties in the current year. Conservative-controlled counties increased their rates by 12 per cent. "Other-controlled" counties increased their rates by 21 per cent. Labour-controlled counties increased their rates by 31 per cent. Those authorities were all running the same services in broadly the same circumstances, yet where there is Labour control the rate increases are three times as much as where there is Conservative control. That clearly shows where the responsibility lies, and no other evidence is necessary.

The right hon. Gentleman asked me a long list of questions and I shall do my best to answer those that I managed to note down. First, the tapers are reflected, as he knows, by the various multipliers that are necessary to inject the holdback scheme into the distribution system. The rate at which that bears on any authority is a matter that each authority must decide for itself.

The right hon. Gentleman asked about the transfer of housing surpluses. He knows that last year we did not do that, and we do not intend to do it this year.

The right hon. Gentleman asked about the exemption below GREA. There is no proposal for a below GREA exemption this year, because we believe that setting targets 4 per cent. above those authorities which had expenditure below GREA last year is a sufficient recognition of the inflationary pressures which they face, and they should be able to operate within that expenditure.

The right hon. Gentleman asked about holdback and the assumptions. We hope that there will be no holdback. It is a matter of the judgments reached by individual authorities, and the best information that I have—at this stage it has to be informal—is that a significant number of authorities are already determined to accept that budget at levels which will not incur holdback and will lead to moderate rate increases.

Perhaps the House will bear with me if I give one example. I note that the right hon. Gentleman gave no examples. He suggested that I was responsible for decimating the services. I have no hesitation in giving the example of Birmingham. Birmingham renegotiated the costs of collecting its refuse disposal with its own workpeople. In a year, it secured savings of £3 million, and its own workpeople are prepared to carry out work currently done by 700 people with 262 fewer people. If that does not show that the same achievements and results can be obtained with much lower expenditure, I do not know what does.

Photo of Mr John Osborn Mr John Osborn , Sheffield, Hallam

In the debate two days ago my right hon. Friend and I agreed that South Yorkshire and Sheffield were high spenders. Will he confirm the consequences on rate levels there? Is my right hon. Friend aware that citizens in the Hallam constituency who have larger houses and flats have a high rate burden to bear? Commerce, industry and business cannot face any higher rate burdens. What pressure can he put on the local authority to relieve industry of the intolerable burden, which will cause rising unemployment and its collapse? The local authority is not considered sufficiently responsible by many of its citizens. Can he help to bring about an agreement so that the burden does not fall on industry and other commercial activity?

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

I have nothing but sympathy for the problems faced by my hon. Friend and his electors in Sheffield and in the metropolitan county of South Yorkshire. I have set reasonable targets which I believe they should try to achieve. If they do that, there will be low or modest rate increases. If they do not, the only sanction that is available is the democratic sanction, and that will be manifested, because people will prove to be as indignant this year as they were last year about the substantial and avoidable rate increases of some authorities to which my hon. Friend draws attention.

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

As the Secretary of State expressed some sympathy with councillors who have to operate under the schemes which he keeps introducing, switching and changing, almost week to week, is he aware that his statement today comes as no surprise and that it is probable that most authorities will get within their targets, although at a cost to services?

Will the right hon. Gentleman accept from me—he would not do so the other day, when he threw it back in my face—that in the six Liberal authorities in this country the average rate increase is not more than about 10 per cent.—the highest is Liverpool—and most of them are under 12 per cent.? Does he realise that his continual attacks on local government generally, and his constant references to nil increases, and possibly even reductions, are at best naive, and at worst totally dishonest? In fact, he has cut Government support by 3·1 per cent., and he has given no recompense for inflation. It is now becoming almost impossible for people serving in local government, who want to comply with Government policy if they possibly can, to provide the services which the country needs and which most people want.

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

I am not altogether certain how the hon. Gentleman can square the assumption that I am constantly switching and changing when he then says that I have changed nothing since July when I made the original announcements. As the hon. Gentleman will know, local government warmly welcomed the earlier announcements that we made this year to give them certainty and plenty of notice about the targets that we expected.

The hon. Gentleman's views about the reductions in services that are taking place do not accord with my experience that where authorities have had to try seriously to find additional value for money in the public sector—as the private sector is being forced to do by recessional pressures—they have been able to do so, to the greater advantage of their ratepayers.

Photo of Mr Douglas Jay Mr Douglas Jay , Wandsworth Battersea North

Is it not clear that the Government are doing serious damage to industry and employment by forcing up local authority rates on this scale?

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

The serious damage is being done by those who take the decisions about the rate levels. They are largely Labour-controlled authorities in urban areas.

Photo of Mr Angus Maude Mr Angus Maude , Stratford-on-Avon

Is my right hon. Friend aware that, without seeing the detailed figures, it is difficult to know whether this settlement will significantly help authorities such as Warwickshire which have continually underspent and tried to keep their expenditure to a minimum and yet have consistently suffered at nearly every settlement, while other authorities consistently overspend? Can he assure the House that this settlement will bring some relief to those hard-pressed authorities?

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

I am sympathetic to the sort of authority to which my right hon. Friend refers. From memory, without going through the detailed and complex figures, I think he will find that Warwickshire has a 4 per cent. increase in its cash targets for next year compared with this year. While I realise that it will require tough management to stay within those figures, if it does it will lead to relatively low rate increases and I believe that, with its tradition, it will make every endeavour so to do.

Photo of Mr Martin Flannery Mr Martin Flannery , Sheffield, Hillsborough

Is the Minister aware that, despite his well-known insensitivity, his statement is punitive and vindictive and will undoubtedly inflame the whole situation? Is he further aware that a pack of nonsense is talked by him in that statement? The reality is that in Labour areas where the rates are high, such as Sheffield, about which the hon. Member for Sheffield, Hallam (Mr. Osborn) has just spoken—the rich area in which he has a pied-a-terre, whereas I live there—people vote by increasing majorities year by year for the same Labour Government, which is accused of putting up the rates. Does the right hon. Gentleman realise that, because he is the grim reaper, who will go down in the history of local government as its destroyer, it is his parsimony and vindictiveness that are forcing us to put rates up against our will in order to provide proper services for our people? It is not true that firms have left Sheffield as a result.

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

There are Labour authorities which will achieve the Government's targets and set low rate increases. I can see no justification whatever for taking grant away from them in order to finance the ever-increasing expenditure by the authorities to which the hon. Gentleman refers.

Several Hon. Members:

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Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. I must inform the House that if questions are not briefer I shall have to call fewer hon. Members. As it is, I shall not be able to call everyone. The briefer the questions, the more hon. Members I shall be able to call.

Photo of Mr Anthony Durant Mr Anthony Durant , Reading North

Does my right hon. Friend agree that the falling rate of inflation and the downward trend of interest rates will help local government considerably at present and should keep rates low?

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

My hon. Friend is right. Since I made my statement in July, £200 million worth of resources have become available as a result of that factor alone. I was faced with the prospect of reducing the targets to reflect that position, but the Government took the view that they would not have increased targets if events had gone the other way. Therefore, it would have been quite wrong to take advantage of those circumstances when it suited the Government so to do.

Photo of Mr Chris Price Mr Chris Price , Lewisham West

Is the Minister aware that when he made a favourable comparison between the spending of the shire counties and the metropolitan districts, at the same time Her Majesty's inspectors of schools, who judge standards covering about half the home expenditure in local government, made exactly the opposite comparison in expressing worry about provision in certain shire counties while praising that in metropolitan districts? Is he now saying that the Conservative Party, which came to office saying that it would raise standards, is recommending that educational standards should be reduced?

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

The hon. Gentleman must be aware that we now have one of the best pupil-teacher ratios that we have had for many years. He will be aware to a greater extent than I am, because I do not have responsibility for the specific services to which he refers, that while considerable anxiety is expressed by Her Majesty's inspectors about schools across the country, the fact is that a great deal of it is based upon their professional judgment. They are doing their best to raise those standards, which is not always immediately transferable into the need for more cash.

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

Does the Secretary of State accept that, when he talks about the increasing pressure on those authorities which he dubs in an arbitrary way as overspenders, he is penalising, not the local councils which he regards as guilty of overspending, but the poor unfortunate ratepayers who have to pick up the bill? Is not his settlement today another step in that process of transferring financial responsibility for local services from central taxation to an already over-stretched local rate system?

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

I should be the first to say that where councillors do not take decisions to find expenditure patterns within our target, it is the ratepayers who suffer. However, it is those ratepayers who feature prominently among the local electorate which elects those councillors. If we are to have a system of local democracy, it must be with responsibility.

Photo of Mr Neil Thorne Mr Neil Thorne , Ilford South

My right hon. Friend has heard concern expressed from both sides of the House about the effects of increasing rate levels upon businesses and employment prospects. He has also heard at least one Labour Member say that domestic ratepayers in some areas continue to vote in authorities which believe in high expenditure. As the taxpayer is left to pick up the substantial unemployment benefit bill, will my right hon. Friend consider some method of limiting the amount of rates that can be levied upon the non-domestic ratepayer who has no vote and therefore reduce the number of businesses that are likely to go out of operation as a result?

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

I am grateful to my hon. Friend for drawing my attention to that point, which has been put to the Government in the process of consultation on the reform of domestic rates. One of the consequences of taking the step that he proposes is that a heavier burden would fall on the domestic ratepayer, which the Government would be reluctant to see happen.

Photo of Mr Reginald Freeson Mr Reginald Freeson , Brent East

Will the settlement to which the statement refers increase Government resources going to areas of greatest deprivation, such as the partnership and programme authorities, the designated inner urban area authorities and areas of special rural deprivation? Will the right hon. Gentleman tell the House to what extent the capital receipts of about £1,500 million that local authorities have in hand are to be used, according to the calculations of the working party with which he has been involved, to reduce loan charges and thereby reduce rate burdens for local authorities?

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

The right hon. Gentleman will realise that the extent to which capital receipts are used to earn interest charges which offset the current expenditure target is a matter for each local authority. It is impossible for us to forecast what each local authority will do. The answer to that question is similar to the estimates for which the right hon. Gentleman has asked in respect of the urban partnership and programme authorities. The grant that each of those authorities will get will depend upon the decisions that they have yet to take about their expenditure levels. I can help the right hon. Gentleman by saying that if authorities within the programme and partnership areas budget according to the target, they will receive the highest proportion of grant that they have received in the past three years.

Several Hon. Members:

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Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. I propose to call three more hon. Members from either side and then to move on to the Standing Order No. 9 application.

Photo of Mr David Madel Mr David Madel , Bedfordshire South

As it is assumed that local authorities must take action over surplus school places caused by falling rolls or face withdrawal of grant, does my right hon. Friend agree that, as the Manpower Services Commission is now taking new initiatives in education, local authorities should have urgent talks to see what help the MSC can give over the problem of surplus school places, rather than wait until they possibly collide with his Department?

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

I am grateful to my hon. Friend for inviting me down the education road. He will understand if I resist. However, he will have noticed that my right hon. Friend the Secretary of State for Education and Science is in his place. It is perhaps therefore the case that the message has reached the appropriate quarter.

Photo of Mr Arthur Newens Mr Arthur Newens , Harlow

Does the right hon. Gentleman recognise that the present method of determining grants is grossly unfair to areas faced with increases in population, such as Essex, which are Conservative controlled? Will he recognise that it is his policies that are putting the increased burden of extra rates on such authorities, which are seeking to keep in existence a minimum of services? Is he aware that those services are not provided on a level that many Labour Members desire?

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

The hon. Gentleman will be aware that Essex has received as favourable treatment under our targets as any authority, with an extra 4 per cent. cash above its budget. The hon. Gentleman will also be aware that we have fed the 1981 population statistics into the GREA mechanism.

Photo of Mr John Townend Mr John Townend , Bridlington

Will my right hon. Friend accept my congratulations for continuing the squeeze on high-spending Labour-controlled local authorities such as Humberside, where industry has been driven into the ground? Does he accept that district authorities in my constituency, such as East Yorkshire and Holderness, are in an embarrassing situation? They keep within the guidelines, but have to levy a rate which includes a large precept. Is my right hon. Friend aware that electoral pressure is, unfortunately, applied to the wrong council? If high-spending councillors do not desist, will my right hon. Friend consider abolishing the precept system?

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

I am immensely sympathetic to the point raised by my hon. Friend. It is difficult for local electors and ratepayers, who pay only one bill levied by the district authority, to know the origins of the bill. I have had to consider this, and I am continuing to do so, in consultations on the reform of the domestic rating system. My reading of the local press convinces me that electors, in the end, have a pretty clear understanding of where the ultimate decisions are being taken.

Photo of Mr Frank Allaun Mr Frank Allaun , Salford East

Does not the right hon. Gentleman's statement show that the Government's tactic is to inflict the most painful cuts through an unwilling agent, the local authority, which thereby gets the blame? Did not the Secretary of State refer to street cleaning and refuse disposal? Is the right hon. Gentleman aware—I do not think he is—that I live in the North at the weekend but that during the week I live in Wandsworth? I have never seen such dirty streets in all my life as I have since privatisation.

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

I am sure that the hon. Gentleman is an authority on these matters. The Wandsworth authority has secured savings over the contract period estimated at £1·65 million. There was a high volume of complaints before the transfer to the private sector. At the moment the private sector is beginning to build its way into the system and the new opportunities that exist.

Photo of Mr Christopher Murphy Mr Christopher Murphy , Welwyn and Hatfield

Following representations by Conservative Members and myself representing Hertfordshire, will my right hon. Friend say whether he is satisfied that the rate support grant settlement will protect education standards in that county?

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

This has to be a judgment exercised by the individual authority. It is the essence of the manner in which the rate support grant is distributed, under the present system as under the previous system, that the grant is distributed according to national formulae and national rules. Each local authority then makes up its own mind on its various service priorities.

Photo of Mr Kenneth Marks Mr Kenneth Marks , Manchester, Gorton

Is it not the case that included in the rate support grant report is the transport supplementary grant? Is the right hon. Gentleman aware that the Secretary of State for Transport has made his announcement in a written answer to the hon. Member for Reigate (Mr. Gardiner), who has shown his interest by being absent? Will the House have the opportunity to question the Secretary of State for Transport? Has the Secretary of State for the Environment considered the effect on the lives of people in inner cities of the judgment of the Secretary of State for Transport on bus subsidies?

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

The specific questions that the hon. Gentleman wishes to put to my right hon. Friend the Secretary of State for Transport are at his discretion. The hon. Gentleman has the opportunities available to every hon. Member to question the Minister in many appropriate forms. The guidelines that my right hon. Friend has issued are compatible with a reasonable level of service in the areas concerned.