§ 4.0 p.m.
§ Mr. George Cunningham (Islington, South and Finsbury)
The subject of the debate is the London rate equalisation scheme. Under that scheme, each of my constituent ratepayers in Islington in the present year is paying an average of £7.35 in cash into a fund which is then distributed among the outer London boroughs. It therefore goes from people who on average are worse off to people who on average are better off, and from areas that have great needs to areas that have lesser needs.
923 If the tentative views of the Department of the Environment are implemented for next year, that average contribution by each rate-paying family will rise from about to about £22. Therefore, on the face of it, there is a case to answer as to why such an amazing scheme should be approved by the Minister.
I want to make a procedural point to the Minister about the way in which this scheme is made. It does not have to pass through the House of Commons. It is made by the Minister, without either the positive or the negative approval of the House being required. That is bad enough, in that the Members of Parliament for the areas are not involved in the decision-taking process. An unfortunate side-effect is that Ministers are not much involved in the decision-taking process in practice, and, because they never have to answer in this place for the content of the scheme, they do not need to brief themselves as much as they would if the scheme had to be approved by the House.
In the course of my remarks I shall make only one pugilistic statement, and that is that the procedure for consulting London Members of Parliament about the content of this scheme in future must be improved. I am not prepared to tolerate that this is the exclusive responsibility of the Department of the Environment and the London Boroughs Association. We ought to be, and we must in future be, more closely involved, and that will ensure that Ministers, as against officials of the Department of the Environment, are more closely involved.
I shall take the main arguments for and against the scheme as read. The Minister knows them better than I do and there is no need for me to rehearse them to him. There are the arguments about the higher rateable values in the City and Westminster, and about the advantage that some inner London boroughs draw from being in the Inner London Education Authority area. On the other side, there are the arguments about the greater need of the inner city areas. I shall not state those except in relation to some points later on.
I am sure that all London Members are grateful that the Secretary of State for the Environment has this year, by a 924 change in the arrangement for the rate support grant, ensured a transfer of £110 million from the non-London part of the country to London. We are concerned only that for the areas in London of great need the advantage of that shift might be at least partly undone by the arrangements under the London rate equalisation scheme.
I want now to take the ILEA argument and attempt to rebut it. First, if it were the case that the inner London boroughs, being able to share their education costs with the large rateable values of the City and Westminster, were at an unfair advantage, it would be the only advantage possessed by the hard-pressed inner boroughs, and it is a bit hard when the only advantage one has is taken away. But I argue that this is not an unfair advantage to boroughs such as Islington, Camden and so on.
There is an untidy rating system in London, with different areas being used for the different tiers and sectors of government. In local government it is normal to spread the rate or precept over the total rateable value of the area covered by the rating authority. That is what ILEA does. The fact that this means that a substantial part of the education costs of the inner London boroughs, other than the City and Westminster, is borne by the rate product of the City and Westminster does not give us any unfair advantage which cannot be compared with the situations which apply throughout the country. We did not ask the outer London boroughs not to be part of ILEA, and I do not think that they have asked to become part of it.
The rating system should follow the boundaries of the rating areas. Such an arrangement does not impose any extra burden on ratepayers in the City or Westminster. It means that the City area produces a large part of the education costs. For the purposes of education costs, there is no such thing as the City of London or Islington; there is only the ILEA area. The rate should be spread in the normal way throughout that area.
It is suggested that, because the outer London boroughs and inner London boroughs are part of the GLC area, there should be a shift from the first to the second. The GLC is a very small part 925 of the local authority financial scene in London. I think that I am right in saying that the cost of GLC services represents about 13 per cent. of the total cost of local authority services in London, excluding education. Education, both in ILEA and in the outer London boroughs, represents a third of the total cost and the remaining services are exclusively borough responsibilities. I see no reason why we should try to harmonise the non-GLC financial sector with the tiny portion represented by the GLC arrangements.
The second argument that I wish to rebut is that exclusive attention should be paid to the rates in the pound charged in inner London as against the rates in the pound charged in outer London and that we should pay no need to the fact that valuations in inner London, naturally, are very much higher than those in outer London. A small council flat in my constituency is likely to have a higher valuation than a much bigger and better detached or semi-detached house in the suburbs. That should be taken into account.
I do not say that the valuation officers are doing anything wrong in setting the valuations. My point simply is that when the Minister decides whether and to what extent he should exercise his power to make an equalisation scheme, although he should assume that that equalisation refers to rates in the pound, his decision should take into account, among other things, the different valuations applying in outer and inner London.
He should also take into account the differences in the incomes of residents in inner and outer London. There are few up-to-date statistics on this matter, but it was said in GLC publications three or four years ago that the average family income in inner London—which covers more or less the same area as the ILEA area—was 11 per cent. less than the average in outer London.
Again, I recognise that the London Government Act does not refer to that when talking about an equalisation scheme. That does not mean that the Minister ought not to have regard to it when he decides to what extent to exercise his power.
There is the fact that in inner London the land required for housing is infinitely 926 more expensive than the land required for housing in outer London. My borough of Islington spends about a 48p rate on its housing expenditure. That is above average. But there are only two outer boroughs which have housing expenditure exceeding half of that figure. The average expenditure in the inner boroughs on housing amounts to a 27p rate, whereas the average in outer London amounts only to a 15p rate.
The same applies to the costs of personal social services. In inner London the average expenditure is equivalent to a 16p rate. In outer London the expenditure represents a 10p rate. All I ask of the Minister is that he should take account of those weighty factors when deciding whether it is appropriate to use the powers he was given in the London Government Act to make an equalisation scheme and, if so, at what level to set it.
I come now to the current negotiations and the tremendous number of facts, illustrations and figures which have been passed backwards and forward between the London Boroughs' Association and the Department of the Environment for some time without ever coming near to any Member of Parliament. The Minister proposes that there should be a £110 million addition to London's needs allowance. This year that is equivalent to a 5.4p rate. We would be on average, in the whole London area, the equivalent of a 5.4p rate better off. There is some confusion in the figures which have most recently been given to the LBA.
If there is no equalisation scheme, as I read the figures there would be a gain of 5.9p to inner London and a gain to outer London of 4.4p. What is wrong with that? The whole point of bringing London into the regression analysis was to take particular account of London's special difficulties. The special difficulties of London do not exist in Richmond or Bexley. They exist in Islington.
If the system is working at all, it ought to mean that there is a greater advantage to inner London than to outer London. If the Minister is going to say that he intends to negate that advantage by means of an increased equalisation scheme, he almost might as well not have bothered. All that he will be doing is bringing an advantage to London as a whole and not to those areas which 927 have the characteristics which justified the change in the first place.
If, more modestly, there was a continuation of the equalisation scheme at its present level of 2½p, as I read the figures there would be a gain to inner London of 6.1p and a gain to outer London of 4.2p. Again, I should have thought that that was a perfectly bearable relationship. If the equalisation scheme is raised even to as little as 4p, and I believe that the officials have a higher figure than that in mind, the balance switches and the advantage to inner London would be 4.6p while the advantage to outer London would be 6.1p. So, having made a change to bring advantage to the hard-pressed inner city areas, we should be benefiting the suburban areas more than the hard-pressed inner city areas. That is not justifiable.
We also have the new, funny, idea of making the inner boroughs, other than the City and Westminster, contribute not only to the outer boroughs, but to the City and Westminster. I ask the Minister to consider the public and political consequences of this proposal. If the constituents of the hard-pressed inner boroughs are to be told—and if it is to happen, they will be told—that they must contribute not only to suburban areas, but to the City of London, they will find it difficult to swallow that there is any justification for that proposal. I understand the quasi-logical basis upon which it is based, but only two authorities in the country—the City of London and Westminster—have massively higher rateable resources than we can tolerate their being allowed to keep.
Having looked quickly at the figures which have been circulated to the London Boroughs' Association, I have reached a certain conclusion. Let us guess that the Department of the Environment has got it into its head to have an equalisation scheme at a 5p surcharge level in inner London together with the 10 per cent. funny switch to the City and Westminster. If that were done, six of the poor inner London boroughs would be worse off than the London average. They would get an advantage from the totality of the changes of less than 5–4p, which would be the London average.
Under that same option, no fewer than 17 of the 20 outer London boroughs, 928 including the best off, would be better off than the London average. For example, Bromley would get an advantage of 7.9p compared with the London average of 5.4p; Richmond would get an advantage of 9.3p; and Sutton would get a marvellous advantage of 11.9p.
I ask the Minister to pause and reflect before allowing his officials to go on cajoling and bullying the London Boroughs' Association to agree to and positively propose arrangements of that kind. I hope that he and other Miinsters in the Department will take a personal interest. Otherwise, the outcome would be ridiculous were it not so serious for the hard pressed inner city areas.
We all know that if Britain is to avoid the serious inner city social conditions that we see across the Atlantic, more funds will be required in the inner city areas. The Secretary of State helped us in 1974. By the main change being made this year, he has helped us again. But, meanwhile in another part of the forest, without Ministers taking enough interest in it, counterbalancing changes are being considered which would considerably undo the benefit of those changes.
I repeat that this matter is too important and there is too much money involved for it to be left substantially to negotiation between DOE officials and the London Boroughs' Association. This is a matter for Members of Parliament. If boroughs like mine are to suffer in the way I have indicated relative to the general London situation, I think that the Minister will have a great deal to answer for in the coming year.
§ 4.18 p.m.
§ The Under-Secretary of State for the Environment (Mr. Gordon Oakes)
My hon. Friend the Member for Islington. South and Finsbury (Mr. Cunningham) has shown a deep and continuing interest in this subject. Indeed, he has subjected my right hon. Friend to a constant barrage of questions upon it, but always. I am glad to say, under his own name.
It is natural that my hon. Friend should wish to raise this matter today at greater length on behalf of his constituents in the inner London area. However, it would be dishonest of me to pretend that I welcome unreservedly the opportunity to discuss the London Equalisation Scheme at this particular time.
929 The position is as follows: we have decided how much grant London is to receive for 1976–77 and how its share is to be distributed between the boroughs, subject to the House's approval of the Rate Support Grant Order next Monday.
My Department suggested to the London Boroughs Association in September that the equalisation scheme should be similar in form to, though not identical with, the scheme which applies in 1975–76 and gave the Association some figures to illustrate the effects of the proposed grant distribution and equalisation scheme at a variety of possible or at least conceivable levels of contribution. I stress to my hon. Friend that they were tables. They were options. They were examples. They showed the Association the effect of various levels. There was no bullying or cajoling, to use my hon. Friend's language, by officials of my Department to get the Association to take any particular one of those options.
§ Mr. Oakes
I shall deal with the point that I think my hon. Friend is making. The Association, very understandably, told us that it could not begin to consider its attitude to the equalisation scheme until the grant settlement was out of the way and the boroughs had a clear idea how much grant they were to receive for the year. The boroughs now have this information and the process of formulating an Association view is under way.
That being so—and I think that my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Brown) will agree with my remarks now—I find myself in a somewhat awkward position today. My hon. Friend the Member for Islington, South and Finsbury has put forcefully his own point of view reflecting that of his own borough of Islington, and that point of view may be shared by other boroughs, but I know, as he does, 930 that it is not universally accepted in London. I shall therefore have to refer in my remarks to some of the arguments that are put forward by those in the opposite camp or camps.
I must stress that there is as yet no Government view on these matters. There are no formal Government proposals in the field. We shall be strongly influenced, I have no doubt, by the comments which the Association will eventually put to us. The tradition has been for the Association to come up with a scheme and to ask the Secretary of State to approve it, though I cannot, of course, guarantee that the Government will fall in with the Association's proposals.
I hope, therefore, that my hon. Friend will recognise that nothing I say today is to be taken as a foretaste of the Government's decision. Because my hon. Friend has put one side of the case I shall inevitably give the appearance of arguing for the other side, but my intention is merely that the House should be informed of the wide range of opinions that are held on this subject.
One forceful point made by my hon. Friend was that under the London Government Act this is a decision for the Secretary of State in consultation with the London boroughs and does not come before the House. It may be that that was wrong. That is the Act under which we operate now, but I think that there is considerable merit in the London boroughs getting together and coming to a decided view which my right hon. Friend then has the power to reject—but I do not think ever has rejected—if they were to go wildly astray or if someone were to be badly influenced by their decision. Nevertheless, I am not as sure as is my hon. Friend that it is not right that it should be so and that hon. Members should not interfere. It is a matter between the London boroughs and my right hon. Friend.
§ Mr. George Cunningham
Will my hon. Friend always bear in mind that there are 20 boroughs that benefit from this scheme, and 12, plus the City of London, that have to pay for it? That being so, those 13 are in a weak position in reaching a compromise with the 20 which outvote them.
§ Mr. Oakes
That is one way of putting it from my hon Friend's point of view, but there is another argument from the other London boroughs.
I am reminded of what my hon. Friend said about ILEA. He concedes that the whole of inner London benefits, through the ILEA precept, from the enormous concentration of rateable value in the cities of London and Westminster to a far greater extent than outer London. However, he seems to be suggesting that this advantage is counterbalanced by the absence of any arrangement for the outer boroughs to contribute to inner London's high housing and social costs.
I repeat that I am not taking sides but think it fair to point out that, over the past few years, it has come to be accepted that the right machinery to compensate for differences between the boroughs in their spending needs is the RSG needs element formula and that the equalisation scheme should be aimed primarily at compensating for differences in rateable resources.
My hon. Friend went to the heart of the controversy that has dogged all discussions of equalisation over the years—that is, what is the equalisation scheme supposed to equalise? Should it aim at equalising the amounts in the pound which rate-payers pay in different parts of London—or rather, the total rate bills for comparable properties in different parts of London?
The terms of Section 66 of the London Government Act are seen by some as lending support to the first of these views. The Secretary of State is empowered to makea scheme for the purpose of reducing disparities in the rates levied in different rating areas of Greater London".Statutorily, the rate of a local authority levies is undeniably the amount in the pound. Moreover, this view is consistent with the use of rateable value as the test of local authority resources which is built into the rate support grant provisions of the 1974 Act.
On the other hand, there are those who think that the whole concept of basing the amount one pays for local services on the rateable value of one's house is wrong and that, instead, rate payments should be related in some way to income levels. The rateable value of a standard house does vary very widely from area 932 to area—much more widely than the average level of household incomes. It follows that if rate poundages are equalised in high-valued and low-valued areas, ratepayers in high-valued areas will be paying a larger proportion of their income in rates than their counterparts elsewhere.
These are arguments which have been put before and will be considered in depth by the Layfield Committee. Although they apply a fortiori to London, they apply of course to the rest of the country as well. This is one of the major defects of our rating system.
I wonder, however, whether my hon. Friend did not unwittingly exaggerate the extent to which rateable values vary between inner and outer London when he gave the example of many council flats in his constituency paying as much in rates as suburban dwellings perhaps much bigger than those flats. However, on average, there is not very much difference between house values in most inner boroughs and outer London, though there is a marked contrast between the valuation levels in these central boroughs of Camden, Westminster, Kensington and Chelsea and those in the rest of London.
The ILEA boundary therefore does not constitute some great divide between high and low property values. Indeed, the average domestic rate payment for 1975–76 is actually higher in outer London than in inner London—£151 as against £135; and in the league table of individual boroughs' average domestic rate bills, the bottom seven are all inner boroughs.
Again, and for the last time, I must stress that I am not seeking to prove or disprove any particular thesis about the principles that should govern any transfer to resources from borough to borough. All I am concerned to do is to make it clear that nothing is simple in the finance of London government and that nothing will be gained by pretending that it is simpler that it is or by further fostering the already well-developed sense of grievance of one or another of the parties. Rich and poor are not simply synonymous with outer and inner—or with inner and outer for that matter.
Outer Newham's rate poundage is 24p more than that for inner Hackney. But inner Camden's is 10p more than that of outer Barnet. Outer Brent householders 933 are paying £63 more on average than their counterparts in inner Greenwich. But in inner Westminster they are paying about the same amount more than in outer Hillingdon. Into the bargain, most boroughs have their quota both of very prosperous and of very poor people.
I do not envy the London Boroughs' Association its difficult task. The best thing that we can all do now until it produces a scheme for the Secretary of State is to allow it to examine the problem as coolly and calmly as possible, with a minimum of outside interference—certainly from the Government at this 934 stage, and certainly from my officials, except in the way of giving it advice on the various options that it can take.
Post-Layfield, a different situation may arise. It may be influenced by the fact that this year London has been brought into the calculation. That, I suggest, is something for the LBA to take into account when it submits its proposals to my right hon. Friend.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-nine minutes past Four o'clock.