With permission, Mr. Speaker I wish to make a statement about my proposals for the 1985–86 rate support grant settlement for Wales.
Local authorities have started to plan their budgets for the next financial year. For this reason, I am today circulating my proposals for the key elements of the 1985–86 RSG settlement to each local authority in Wales. Copies of the comparative material sent to them have been placed in the Library and the Vote Office.
I have decided not to make use in 1985–86 of the new powers given me by the Rates Act to set rate limits for high-spending authorities, preferring to rely on the existing measures to influence local spending decisions. Whether the new powers are used in Wales in later years to protect the ratepayer depends entirely on authorities' responses to the present voluntary arrangements.
Before outlining my proposals for the 1985–86 settlement, it is useful to consider what has been achieved to date in Wales, as this has a major bearing on my strategy for 1985–86.
In 1981–82, the excess over the Government's planning total for local authority current expenditure in Wales was £41 million, or 4 per cent. Budgets for the present year reveal a cash excess amounting to only half that figure. Furthermore, three quarters of the total overspend against targets arises in just three counties—Clwyd and Mid and West Glamorgan. The overwhelming majority of councils are budgeting moderately and responsibly, with all the benefits that such a policy brings to their ratepayers. Between 1979–80 and the present year average general rate poundages in Wales have risen by about seven percentage points less than the rise in the retail price index. The performance on rates since 1981–82 has been even better, with the average increase amounting to only about two thirds of the rise in inflation.
We have therefore reached a position in Wales where aggregate spending is within striking distance of the Government's plans, and where the vast majority of councils are budgeting to spend at or below target. That outcome has not been achieved painlessly. It has required most authorities, even low spenders, to contribute savings, and to make difficult choices of priority. It continues to be necessary for all authorities to maintain a tight grip on their spending, but provided they do so, it should not be difficult for them to meet the targets that I am proposing for 1985–86. In order to maintain the pressure for economies in the area of current expenditure and the housing revenue account, I intend to retain the target system, which has worked so well in recent years. However, I intend increasing the weight attached to GRE in the current expenditure component from 60 to 70 per cent.
Once again I intend to apply limiters to produce minimum and maximum cash increases on 1984–85 budgets. The minimum increase for the highest spenders will be 2 per cent.—which is 1·5 per cent. higher than the minimum increase allowed in the current year. The maximum increase on this year's budgets will be 4 per cent. In addition, for authorities spending at or below their 1984–85 targets, I propose to add a quarter of 1 per cent. to the current expenditure total otherwise calculable. Thus, the maximum increase for low-spending authorities spending at or below target in 1984–85 is 4·25 per cent. so real terms cuts in current spending should not be required in those authorities.
In total, those targets add up to £1,342 million, which implies an increase in current expenditure provision of £25 million. That increase in provision will be contained within the established aggregate public expenditure plans. After allowing for the abolition from next April of the national insurance surcharge payable by local government employers and the greater role proposed for the Manpower Services Commission in funding certain elements of further education, the target aggregate for 1985–86 represents a 4·1 per cent. increase on 1984–85 budgets.
It is extremely important that the more generous target package for 1985–86 must not be seen as a signal to relax the search for economies. The resources that I have made available are the maximum that the rate and taxpayer can afford. That being so, I am proposing to introduce a far tougher grant holdback schedule next year.
In the current year, grant holdback ranges from 40 per cent. of any excess up to 1 per cent. over target, to 90 per cent. for any excess over 5 per cent. For 1985–86 I propose that up to 1 per cent. over target grant should be withheld at the rate of 100 per cent. and thereafter at a rate of 150 per cent. In addition, I consider that the limiter that reduces holdback in low resource authorities is cushioning the impact of overspending to too great an extent. Accordingly, I propose to halve the effect of the present limiter in the coming year. There will be no other changes in the grant arrangements.
Aggregate grant will be £1,013 million. That represents a grant percentage of about 67 per cent. compared with 69·1 per cent. this year. What counts for rating purposes, however, is the increase in grant between that built into the authorities' budgets for the present year and that available for 1985–86. On that basis, the increase is about £41 million, or 4·2 per cent. If all authorities spend at target—there is absolutely no reason why they should not — and apply only half the reserves used in the present year, ratepayers can look forward to rate increases in 1985–86 no higher, on average, than the presently projected rise in costs for the economy as a whole, of 4·25 per cent.
The final ingredient of my proposed package for 1985–86 is a £15 million addition to the existing provision for local authority capital investment in 1985–86. This enhancement is linked directly to Welsh authorities' efforts to contain their current expenditure in 1984–85.
I shall consult the local authority associations in my proposals for 1985–86 before presenting a rate support grant settlement to Parliament at the end of the year. I shall also consult them on the possibility that from 1986–87 onwards, targets will be calculated on the assumption that targets in the previous year have been achieved. I am very attracted to this proposition, as breaking the link with budgets would eliminate the tendency for the higher spenders to increase their share of resources at the expense of low-spending authorities. However, I shall not make a final decision on this aspect until after I have had the opportunity to disuss the important issues involved with the associations during the autumn.
I commend my proposals for the 1985–86 settlement to the House.
The Secretary of State is wise not to use his rate-capping powers, but fundamentally the general thrust of his statement is that he is always threatening to do so. Regrettably, he seems to have Clwyd, Mid-Glamorgan and West Glamorgan in his sights. These authorities face fearsome social and economic problems, especially the industrial valley councils who arguably face some of the worst social and economic conditions in Great Britain.
On targets, the local authorities had hoped for a £75 million increase at least. The Minister's targeting therefore falls short, and an increase in current expenditure in the order of only £25 million represents another failure to deliver. As for holdback, by more than doubling the penalty for local authorities incurring penalty, he is heaping a catastrophic punishment on hard-pressed councils, especially those who try to cope with major unemployment problems.
On his inflation forecast, will the right hon. Gentleman explain his thinking regarding the 4·5 per cent. prediction for inflation in the next financial year, when many City forecasters point to between 5·5 and 7·5 per cent?
The right hon. Gentleman attempted to paint a rosy picture of a statement which will not be welcomed generally in Wales. My review of recent years does not in any way agree with his review. Has the right hon. Gentleman forgotten that in 1981–82 the overall rate of Exchequer grants stood at 73·4 per cent., while today it is only 69·2 per cent? Has he forgotten that this year he reduced the percentage level of grant for 1984–85 from 70·4 per cent., to 69·2 per cent? Does he recollect that he has shifted grant away from rate support towards specific and supplementary grants? Is he aware that he reduced the Welsh target in real terms and increased the penalties for exceeding targets? Is he not increasing the ratepayers' contribution to local spending and reducing that from the Government? Logic implies that this can be done only by increasing rate bills and then luring local authorities into the rate-capping trap.
Does the right hon. Gentleman understand that the Welsh Consultative Council on Local Government Finance rejects his selective and general rate limitation schemes on the grounds that they will result in the growth of central bureaucracy? I predict that the right hon. Gentleman will have great difficulty in persuading Welsh local authorities to discuss the proposals. Even at this late hour, will he recognise the supreme importance of proper local choice and restore to local government its ability to make proper decisions as county and district councils?
This statement is a negation of local democracy. It effectively tramples underfoot the record of co-operation between the Welsh Office and local government oranisations in Wales. The right hon. Gentleman has downgraded local government.
Taking up the hon. Gentleman's last point, I remind him that between 1976 and 1979 the Labour Government cut the percentage share of rate support grant on the argument that to do so would give a greater say to local democracy because it would mean that more of the burden on local government was borne by ratepayers rather than general taxpayers. I believe that that argument stands as strongly today as it did when it was advanced by the previous Labour Government.
The hon. Gentleman at the outset referred to my decision not to use rate-capping powers. That, of course, is because local authorities have discussed these rating matters with me consistently over the period and, as I have said, have come close to achieving the targets that we have set for them. The result is that we do not have such high overspenders as have been rate-capped in England.
The hon. Member referred to the position of Clwyd, Mid-Glamorgan and West Glamorgan. Those local authorities are spending well above GRE. West Glamorgan is currently budgeting to spend some 7·6 per cent over GRE, and it is hard to see why it should find it difficult to achieve the targets that we have set when Gwent and South Glamorgan — counties with similar problems—are achieving the targets that we set.
I emphasise that we are talking about a percentage increase in budgets prepared by local authorities in the current year. If one takes the additional capital that is being made available as result of the relatively good performance of Welsh local authorities and takes into account the substantial additional capital allocation that I have been able to make in recent years for the same reason, it will be seen that Welsh local authorities are not just being set reasonable objectives but being given the proper reward for containing current expenditure.
The hon. Gentleman asked me about inflation forecasts. Our record on forecasting inflation—we ate talking about the next financial year for local authorities —has been consistently better than that of most of our critics in recent years. The hon. Gentleman talked about my record of dealing with Welsh local authorities. Because Welsh local authorities have co-operated in the past, as I believe they will in future, they have gained a relatively easier settlement than local authorities in England. Welsh local authorities have obtained additional capital and the Welsh share of grant has increased.
Is my right hon. Friend aware that he has earned the grudging respect of every local authority in Wales by the clarity with which he has set out his aims and the firmness with which he has pursued them? He is to be congratulated on not having had to apply the rate-capping mechanism anywhere in Wales. Does he agree that, until local government finance is reformed so as to make local authorities responsible for raising all the money that they thereafter spend, we shall continue to hear the absurd claim that the Government are starving local democracy?
We are, of course, making a further move to place the burden on the ratepayer rather than on the general taxpayer, which will mean that the realities of spending are brought home to local ratepayers.
Secondly, I always listen with interest to suggestions that we should introduce an alternative to the present rating system—in the hope that those who raise the point will come forward with positive and workable proposals.
Will the Secretary of State look again at his claims about the increases implicit in his statement? Is not the rate-borne expenditure increase, from 30·9 per cent. to 33 per cent., an increase within that element of 7 per cent. rather than the 4 per cent. to which he referred? Will he give an assurance that if inflation moves ahead much faster than his present assumption—we are dealing with figures applicable for the year beginning next April—he will reassess these figures upwards to take account of that?
Will he clarify the position of the MSC taking over further education? Are there any further intentions over and above what has aready been announced? Will he confirm that the Welsh district councils will not be able to meet their commitments on housing repair grants which have already been given and that people with an entitlement to money will not get it? He said that greater weight has been given to GRE in the current expenditure component, from 60 per cent. to 70 per cent. Will he confirm that that will be of assistance to those counties whose target is below GRE?
On the first point, I confirm the figures that I have already given. The Government stand by the inflation forecast that they have already given and point to their record in the recent past. We have spelt out our proposals on the MSC and have no further announcements to make in that connection.
The hon. Gentleman also referred to housing renovation grant. If specific grants are taken into account, we are providing grants nearly 5 per cent. higher than the amounts included in the 1984–85 budgets — or about 0·75 per cent. more than the projected growth in inflation. We are therefore making special provision in those areas to which the hon. Gentleman specifically referred.
I thank my right hon. Friend for this early announcement, which will allow local authorities to budget more sensibly and carefully. I also congratulate him on obtaining so favourable a settlement for Wales, particularly the £15 million capital addition. Is it not true that the rate of grant offered for 1985–86 is identical to the effective rate of support in the present year?
Yes. If one takes account of the actual grant obtained by local authorities at present—taking account of the penalties and so on which have been incurred—this is an effective grant, in line with the effective grant this year. As to the relative performance of Welsh authorities and the additional capital, I remind my hon. Friend that we have been able to make available additional capital amounting to £16 million, £19 million and £45 million in the three preceding years because the Welsh local authorities have come so much closer to achieving our targets than local authorities elsewhere in the United Kingdom. I emphasise that connection. If we can get current spending down, we can make available additional capital resources.
When will the right hon. Gentleman recognise that everyone else believes that the problems of local government finance in Wales have arisen from the policies of Conservative Governments in 1970 and 1979? In fact, the Government smashed up the county of Glamorgan and are now creating the problem in the Glamorgans. Why does not the right hon. Gentleman leave the local authorities to their own electors? Does he not recognise that every action taken by him in local government means worse education provision, poorer social services, hopelessness in housing and deterioration in the environment of Welsh communities?
As the hon. Gentleman cited Glamorgan, I should point out that South Glamorgan—a Labour authority—has convincingly shown that one can meet targets and objectives, arrive at proper priorities and maintain services. That lesson should be followed by other authorities. The great majority of Welsh local authorities have been able to meet the targets that I have set and to maintain a high level of services.
Does my right hon. Friend accept that his statement will be warmly welcomed throughout Wales, particularly by hard-pressed ratepayers? However, may I add the cautionary note that, so long as the rating system persists, my constituents will look to him to exercise his new-found powers if we have a repetition of 1982, when local councils in Cardiff, controlled by Left-wing parties, forced up the rates by 54 per cent. solely to finance a reduction in 1983 in time for the elections—which I am glad to say they lost?
I am glad that, under the policies we have followed, we have on average been able to hold rate increases in Wales to below the increase in the cost of living, but I confirm that we have the powers to use rate capping and I shall not hesitate to use them if local authorities produce very high-spending policies.
I thank the Secretary of State for coming here this afternoon in person to make this statement, which is quite different from what happened a week ago. Can he assure us that he will not repeat last week's farce, whereby, on Monday 16 July, he said that consultations were continuing with local authorities on capital expenditure and on 18 July a midnight moratorium was more or less announced? When he says that consultations on current expenditure will occur in the autumn, can he assure us that we will not have the same farce as occurred last week on capital expenditure?
We have, of course, been discussing these matters with local authorities for some time, and some of the systems that we have introduced take account of local authority representations. Last year we were not able to give these preliminary indications at this time, and we have done so on this occasion very much at the request of local authorities. I shall, of course, make the formal statement in the normal way in the autumn.
Does my right hon. Friend agree that his statement that Welsh local authorities are at last showing some restraint will be welcomed in my constituency of Bridgend, not only by the domestic ratepayers but particularly by the industrial and commercial ratepayers who for too long have borne the excessive burden inflicted on them by the most profligate and extravagant county in Wales?
My hon. Friend knows a great deal about local government in his area and is well qualified to speak. He made a notable speech the other night in which he drew attention to the fact that economies were possible if efficient methods were pursued by local government. I hope that local government, not only in his area but elsewhere in Wales, will take account of his wise words on that occasion.
How I wish that we had a Secretary of State for Wales who really wanted to do something for the people of Wales rather than the pathetic show that we have had this afternoon. What does the additional capital of £15 million mean in real terms? The right hon. Gentleman's slavering "brownie points" supporters have welcomed this £15 million, but what does that mean, given that the Rhondda valley has a sewage problem which will cost £21 million to cure so that people can live through next winter in houses free from flooding?
The proposals for increased capital expenditure are quite ridiculous. When will the Secretary of State wake up to the fact that Clwyd and Mid and West Glamorgan are the largest spenders because they have the biggest problems, both socially and economically? If those counties build a school they have the greatest on-costs because it is built on the side of a mountain. They have the worst transport facilities and services. Far from standing still, these counties require positive discrimination. Does not the Secretary of State accept that he should be fighting for Wales rather than attacking the people of Wales——
The hon. Gentleman has given a vivid account of the results of Labour-controlled local government in his part of Wales. As for what I have done for Wales, Welsh local authorities will know that they have had a settlement that compares well with other parts of the United Kingdom, and I suspect that we shall be attacked by English local authorities on those grounds. I emphasise that this is because of the sensible co-operation of Welsh local government in achieving the targets that I have set. The hon. Gentleman dismissed the extra capital that had been made available on top of capital that has already been announced. He dismissed the new money on top of what has been announced in the Government's spending plans so far. I do not think that local authorities will dismiss the fact that over the past four years they have gained an additional £95 million in capital expenditure out of the settlement because they have been able to hold down current spending.
The Secretary of State is very keen on telling us what happened under Labour Administrations, but is he aware that, unless he changes course, his administration in Wales will be seen as an ugly blot on the development of the Principality? Does the Secretary of State realise that his announcement of grant holdback of 150 per cent. will be viewed with alarm and great concern within the Principality, and that the councils, rather than keeping rates down, know where their first duty lies—to the people whom they represent and for whom they provide services. That means that rates will go up by more rather than less. Will the Secretary of State realise that there is a chance for him to be viewed by history as a statesman? He could do that if he changed course and fought for the people in Wales rather than being a puppet of the Prime Minister.
The last occasion I heard a speech on this subject from the hon. Member was in our debate on rates in February 1984. He said then that rate support grant was about whether one could have an adequate supply of teachers and enough meals on wheels, and not about formulas. However, we have a record pupil-teacher ratio in Wales, and the number of meals on wheels served in Wales increased by 7,000 in 1983 over the 1979 figure. Despite all the gloom that the hon. Gentleman is portraying, services are being improved. His local authority of Wrexham should consider, if it is worried about penalties, whether it is really necessary for it to have the lowest rents charged to local authority tenants anywhere in Wales. That local authority should look seriously at its priorities.
Will the Secretary of State reconsider his statement that parallels can be drawn between Mid-Glamorgan and South Glamorgan? Does he not realise that in Mid-Glamorgan we have the greatest concentration of social problems in the Principality? Does he not understand that this rate settlement, coming on top of the declining rate base that is a result of the destruction of industry and commerce in the valleys, will compound the problems that already exist? Does he accept that today's settlement will mean more unemployment, worse education standards, worsening provision of social services and an increase in our housing problems?
No, I accept none of that. I note that Mid-Glamorgan is being asked for a cut in expenditure that is attainable and will still leave it with spending that is well above GRE. The GRE takes account of the priorities that the hon. Gentleman has spelt out. It is of vital concern in his area to keep rates down to attract industry, and the Audit Commission has drawn attention to the substantial savings in efficiency costs that can be achieved if local authorities set about it. The other five county councils in Wales that are achieving their targets have shown that it can be done in Wales while maintaining services.
In his original statement, the Secretary of State made no mention of the districts. What do his tender mercies have in store, for instance, for the borough of Newport, about which I am concerned? Bearing in mind the figures quoted by my hon. Friend the Member for Alyn and Deeside (Mr. Jones) can the Minister not see that the target exercise in which he has engaged is a sick joke on the part of the Government, as they have pledged themselves to ease the burden on ratepayers? Can he not see that he is driving our local authority into a corner, putting them in an impossible position, and that they are faced with terrible social problems because of the mass unemployment that has been created by the policies of this Government? Can he not see that what is needed now is some compassion and understanding, and a bit more help? If this is not forthcoming, our authorities will be forced to fight back:. There will be revolts and the Government will have only themselves to blame.
The hon. Gentleman asked about the districts. I can tell him that 28 out of the 37 districts are budgeting to spend, at or below target and that they represent a wide cross-section of different, social and economic positions; that shows perfectly well that the targets that we set are attainable. Almost all the districts that are faced with real reductions are those whose spending is substantially above the GRE. I note that every year at this time, the Opposition spokesmen say the same thing and forecast substantial rate increases. On every occasion on which they have done that they have been proved wrong and the rate increases implemented have been well below their forecasts. I hope that the same will happen on this occasion.