§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Newton.]11.31 pm
§ Mr. J. F. Pawsey (Rugby)
My main purpose in this short Adjournment debate is to draw the attention of my hon. Friend the Under-Secretary of State for the Environment to the severe financial and political anomalies in the new system of distributing rate support grant, particularly as it affects district councils, and to ask him to take action to correct a series of unforeseen but penal injustices.
No one—least of all myself—doubts the gross inefficiencies in measuring need and resources under the old system, when high spenders were perpetually rewarded and encouraged in their profligacy while the quality of local services and the wishes of their paymasters—the ratepayers—were consistently ignored.
Here it may be appropriate to mention the Rugby borough council. Rugby is a Conservative-controlled authority, which prides itself, with considerable justification, on its good housekeeping. For example, since reorganisation in 1974–75, the total rate increase has amounted to 36.12 per cent. That is well under the rate of inflation, and must be one of the lowest levels of increase anywhere in the United Kingdom.
Perhaps the best way to highlight the Rugby borough council's performance is to compare it with a neighbouring local authority—the Nuneaton borough council. Nuneaton has a population of about 110,000, while Rugby's population is 85,000. Rugby has 600 employees, and has reduced its staff by over 40 during the past 12 months. Nuneaton has 1,200 employees, and has made no reductions. Nuneaton's total rate increase since 1974–75 in almost 100 per cent.—about three times the Rugby figure. Rugby has consistently tried to work within the guidelines established by various Governments, but it is now being penalised for its pains, while its free-spending neighbour gets a metaphorical and financial pat on the back.
I blow my district council's trumpet not merely because I was once deputy leader. My constituency, with its excellent labour relations and highly skilled work force, allied to its geographical situation, is, to quote the borough council's slogan:In the middle, where it matters".The strength of its work force has never been seen to better advantage than today. I mention that specifically because of the admirable order received by the GEC of about £600 million, the largest export order ever—a great tribute to Rugby. The new industrial estates under construction in Rugby, together with its stable rate, make my constituency very attractive to business. However, the debate is about rates and not excellence, so I shall end the commercial and turn to the matter in hand.
The need for an improved system for distributing grant aid from the Government to local authorities has been acknowledged for many years. I had hopes that the provisions of the Local Government, Planning and Land (No. 2) Act 1980 would be an improvement, but the new system has produced results completely contrary to what I and many other hon. Members anticipated, and certainly contrary to the objectives of the system. I appreciate that 264 there may be teething problems in the early stages of any system, but the problems affecting this system are more than transitional. They are not merely teething troubles for district councils. Block grant has become a benevolent despot. In theory, the system appears fine; in practice, it has led to a series of unforeseen and heavy penalties for district councils. I wish to champion their cause. It is no accident that this is the second of such debates in the past two or three weeks. My hon. Friend the Member for Abingdon (Mr. Benyon) introduced a debate concerning his district council in the Vale of White Horse.
I apologise for the inevitable technicalities of the debate. I am told that only three people in the country understand the block grant: one has died, one has gone mad, and the third lives in Marsham Street. It was with trepidation that I attempted to follow the Department of Environment report on local government finance. However, while the mechanisms may be obscure, the consequences for the ratepayers of Rugby are only too obvious. I do not wish to be parochial, but the difficulties that beset my constituency and borough council are reflected among district councils generally.
First, I am concerned about the new provisions for the cost of collecting the rate. The amendment to the penny rate product rules dictates that the district council must now shoulder all the costs of the collection service. Since my district council provides the staff for the service, in the interests of economy and efficiency it should also have some of the responsibility, but it is difficult to justify to ratepayers why the district rate has increased by 11 per cent. or 1½p when there has been no change in services. and the precepting county council gets its rate income free of charge. Surely that is less of a responsibility and more of a burden.
I accept that ratepayers have to pay the cost of collection whichever authority collects, but why should the costs lie where they fall when it is so grossly unfair? Furthermore, should there be a change in the political control of the Warwickshire county council following the elections in May, it is quite possible that the new council, if it is Labour-controlled, will levy a supplementary precept. That would mean that the five district councils in Warwickshire would be involved in finding an additional £100,000. That is £100,000 that has not been budgeted for but that they will be obliged by law to collect.
Secondly, I turn to local contributions to rate and disability rebates, which are now to be paid for directly by the district council. These are established by statute on the basis of income allowances and the size of the rate bill. As the county council controls about 90 per cent. of the total rate bill by virtue of having the largest precept, we at district level face the task of having to extract from our ratepayers not a local contribution but a burden of subsidy towards a service over which we have negligible control and where we can be held financially responsible for the actions of another authority. That, effectively, is taxation without representation.
The amounts involved are not small. For my local authority, after Government grant of about 90 per cent., the cost to be met in 1981–82 is estimated to be about £67,000—the equivalent of a halfpenny rate. I find it remarkable that, while charity relief under the provisions of section 40 of the General Rate Act 1967 is to be treated as a loss on collection and shared between the two 265 authorities in proportion to their share of the total rate income, that will not apply to rebate, and the cost remains with the district council alone.
I submit that rate collection at district level is fast becoming a Pilgrim's Progress, with no salvation in sight. Does the system seem any simpler or more equitable than the one that it replaced? My ratepayers and I, and, I suspect, many other ratepayers throughout the length and breadth of the United Kingdom, doubt it.
Thirdly, the grant-related expenditure assessment calculations—or GREs as they are fondly known to the rate buffs in the House—are in theory a vast improvement on the old system, but they are causing far greater problems than could be attributed to the teething troubles of any new system. The means of assessing needs and measuring resources under the previous system was arbitrary and complex, and because of its links with spending it penalised economy-minded local authorities. My district council and county council fall very much into that category. On the other hand, the new block grant system was announced as a radical, fair and, above all, understandable system, which attempted to break the link with spending by setting up an objective assessment for needs related to resources.
I and many others in the House welcomed the new proposals and accepted that there would be some difficulties associated with changes in grant distribution. However, the practical operation of the new system causes me a great deal of concern. For a start, perhaps my hon. Friend will explain why the assessment of GREs per head of population in non-metropolitan district councils varies nationally by about 232 per cent., from about £24 in mid-Bedfordshire to £80 in Portsmouth. Within my own county of Warwickshire the variation is over 60 per cent.—from £30 to £49. This wide variation causes me to question the equity of a system that can produce such wide differentials.
My initial reaction to the data set out in appendices 1 to 3 of annex J of the report is that the original objective of having a simpler, more open and fairer system is completely negated, because the method of assessment requires no fewer than 19 pages of the report and a 30 page document from the Department. Even the district council requires two full pages of computer calculations to get reasonably close to the figures. That is some simplicity!
For an illustration, I draw the attention of my hon. Friend to one area of grant-related expenditure that is particularly crucial to district councils. I refer to the housing revenue account. The assessment of GREs rightly does not seek to decide how a local authority chooses to split the housing costs between tenants and ratepayers. Instead, it takes average regional rents as a yardstick and calculates a national housing revenue account on that basis. What has happened in practice?
In Rugby, for example, it has been the policy of the district council to fix rents at a level necessary to balance the housing budget with only statutory contributions from the rate fund. However, because the GREs are calculated on a West Midlands regional rent level, in Rugby we have lost about £309,000. That is a substantial sum for a relatively small district council. That loss has been made although my district council has always operated a wholly realistic and economic rent policy. That policy has been in operation since 1974. It is completely in accordance 266 with Conservative principles and has kept our rents lower than the national average, not through subsidy but purely through good housekeeping. Rugby borough council is an authority that prides itself on its good housekeeping.
Rugby has therefore been penalised, although we have made no discretionary contributions to the housing revenue account, although we have kept rents at a reasonable level by avoiding any extravagant expenditure and have kept our rates increase for the coming financial year to only one-third more than that set in 1974–75, despite a wage and salary inflation of about 200 per cent. during that period. That is a measure of Rugby's success.
When I consider other authorities in Warwickshire that have subsidised their rents with large rate fund contributions, I find that the GRE assessment has rewarded them for what I and many other Conservatives regard as sheer local government malpractice. The national housing revenue account formula seems to assume that simply because our rents are low we are automatically the culprits of some form of subsidy. A glance at our rate record instantly shows that that is untrue.
The irony of the whole system is that if Rugby had been included in the East Midlands, as it often is, our rents would be higher than the regional average, and no deduction would have been made from the rent-related assessment. The laws of arithmetic must conform to the artificialities of geography, whilst the pure laws of economics have been thrown to one side. Surely it was not the intention of block grant to produce such an obvious anomaly.
I ask my hon. Friend to consider those three points. It comes hard to a district council such as mine, which has struggled against unjust grant distribution systems, to find that by default it is the victim of a new system administered by its political friends. To my hon. Friend on the Front Bench, this is a cry for help and understanding, and one that I hope will receive my hon. Friend's consideration and, more to the point, his help.
§ The Under-Secretary of State for the Environment (Mr. Giles Shaw)
I congratulate my hon. Friend the Member for Rugby (Mr. Pawsey) on the clear and cogent way in which he has put his case before the House this evening. It is not surprising that such a diligent Member should be acting on behalf of his constituents, at this late hour of the night, here in the middle where it counts. If I am not able to deal with all the matters that he has raised, I assure him that I shall write to him on the matters for which time may not permit an answer.
I preface my remarks by congratulating the borough council of Rugby on the steps which it is taking to reduce its expenditure in the present climate. My hon. Friend referred to staff reductions made by the council during the course of the last year. This is a good start and I hope that the trend will continue.
I also understand that the council is budgeting to spend in the coming year at slightly below the current expenditure target which was sent to it in January by my right hon. Friend the Secretary of State. My colleagues and I are very well aware of the difficult decisions which are always involved in a policy of that kind. There is criticism in the council chamber. There is criticism in the local press. It takes courage and persistence to follow through such policies, so I warmly welcome the borough council's response to our calls for economy. It is indeed, as my hon. 267 Friend said, a good housekeeper. I hope, therefore, that it will receive the support from the ratepayers and voters of the borough that it deserves, and in whose interest its Member is raising this matter here tonight.
However, my hon. Friend has called for this debate in order to focus on the block grant entitlement of the Rugby borough council, among other things, and that is the topic to which the main burden of his remarks was directed. I appreciate that the people of Rugby feel that they have done badly in this year's RSG settlement, and with an estimated grant loss for the borough equivalent to a 3.8p rate, I can well understand its point of view. But I must put that loss into perspective. In the first year of a new set of grant arrangements, there is inevitably a certain amount of readjustment of the way grant is allocated. But in the case of Warwickshire one of those adjustments has been a simple shift of grant between the district councils and the county council.
Up till 1979–80 the whole of the needs element allocated to shire areas was paid to the county councils. It is only in the last two years that the Government have reallocated some of the money to the districts within each county. For the district councils this has been a windfall. Many have actually been able to cut their rates. In the case of Rugby, its grant gain was worth virtually £1 million, and the borough council was able to cut its local rate by a fifth as a result. But it has always been evident that the way in which the grant has been split was not fully satisfactory, and would have to be looked at again before very long. In the event, it has fallen to this Government to carry out the necessary review, to introduce a proper assessment of spending needs, and to correct at least some of the anomalies, although my hon. Friend feels that it has credited others.
In Warwickshire, one of the effects of this has been to transfer some of that grant windfall back to the county council. Indeed, taken together with various other realignments in this year's settlement, Warwickshire county council has received a very substantial increase in its rate support grant, equivalent to a rate of 5.2p in the pound. So far as the ratepayers of Rugby are concerned, it is of couse, the combined effect of the grant settlement on both tiers of local government which matters, since they pay rates to both county and borough.
My hon. Friend referred to Nuneaton as an example of an authority which appears to be rewarded by block grant for its "extravagant" housing expenditure in the past. Perhaps I might be allowed to tell the House that the average level of rents in Nuneaton during 1980–81 was £7.91 a week—which is actually above the regional average. Block grant assumes no more than that authorities below the average are in a position to adopt the course now open to them of increasing their rents to the average level—which, by definition, is already exceeded by half the authorities in the region.
My hon. Friend referred to the change in the rate product rules, under which county councils will no longer contribute towards the districts' expenses in collecting their rate income. This change has been introduced in order to place the responsibility for the economical management of rate collection firmly with the rating authority which collects the rates. Generally speaking, it is it alone which can influence and regulate how efficiently and cheaply the rates are collected. I accept that there may be times when the county authorities will impose additional burdens on the rating authority by levying a 268 supplementary rate part way through the year. This possibility was raised in our discussions with the local authority associations, and we have left open the question of what terms the county and district councils might agree upon in those circumstances.
I take note of my hon. Friend's remarks. If the traditional relationship between district and county is abused, and if there are onerous and unexpected transfers for collection on to the district authorities—the rate-collection authorities—I think that we would have to reconsider this matter in consultation with the district associations.
Similar arguments apply to the residual cost of rate and disability rebates. In future, the local contribution will count as the expenditure of the rating authority and will qualify for block grant. Again, only the rating authority has discretion to vary the rebate scheme which is adopted in its area by granting an enhanced level of rebates to its own ratepayers. I accept that these changes will add to the borough's own local rate. I assure my hon. Friend that this has been taken into account in the block grant and that in both cases there should also be offsetting savings to the county rate.
This brings me to the question of assessing spending needs—the grant-related expenditures. The House is very familiar now with the GREs. Yet I fear that there is still misunderstanding in some quarters that they somehow represent a target, or a Department of the Environment view of what every council ought to be spending. Yet we have repeatedly emphasised that the GREs are simply a reference point for distributing grant and do not: detract from authorities' freedom to take their own decisions about both the total and the composition of their spending. My hon. Friend criticised the new grant arrangements for being complex, and I must agree. I do not think that I am one of the three persons to whom he referred. I can only say that it seemed to me that the number of factors listed in annex J of the rate support grant report was important evidence of our attempts to be as fair as possible to all types of authority. Fairness, inevitably but regrettably, involves a degree of complexity.
What we have tried to do is to put our assessment of districts' spending need for grant purposes on to a proper objective basis for the first time, in place of the crude and temporary arrangements which we inherited. Of course, for shire districts housing is a key component of their spending, and we have had to devise a way of representing housing in the GREs. My hon. Friend has criticised the results that we have obtained. I realise, too, that Rugby and a number of other housing authorities have strongly objected that it is quite unrealistic to present them with a GRE assessment which assumes a surplus on their housing accounts and to penalise them if they do not achieve it. I accept that the technicalities are not easy to follow, but I hope that my hon. Friend for his part will accept that the reasoning underlying this indicator takes account of the position in which authorities now find themselves.
Perhaps I might remind the House that the GRE housing component E7 is intended to reflect a notional position on an authority's housing revenue account—be it deficit or surplus—on two critical assumptions: first, that it is selling council houses, and, secondly, that it is charging the average rents for the region. In Rugby's case, this indeed produces a negative component, reflecting the possibility of a surplus. The rent figures show that in 269 1980–81 the average weekly rent of a council house in the borough was £7.34. The average for the West Midlands as a whole was £7.81.
I accept that many factors go to influence an authority's rent levels, and I would not wish to dispute that Rugby's management of its housing stock has been commendably economical and that this has contributed to its lower-than-average rents. I would only say that, in our view, it would have been wrong to have given more grant to some authorities just because they happen to have lower rents. For grant purposes we needed a standard assumption. That is why we introduced the regional average rent into the formula. It is not a matter of penalising certain authorities. The fact is that authorities now have enlarged discretion to create credit balances on their housing accounts, and the GREs recognise this. Perhaps, however, I should underline once again that, with GREs, what we are talking about is a notional assumption which is intended to secure a fair distribution of grant.
Rugby, and other councils like it, remain entirely free to settle their own levels of rents and rates, and the balance between them, according to their own local circumstances.
Overall, the ratepayers in my hon. Friend's constituency should therefore suffer no disadvantage. On the contrary, in districts where rating is run especially economically, the ratepayers should actually benefit.
My hon. Friend asked for my understanding and help. Naturally, I can give no firm assurances now about how the rate support grant for 1982–83 will come out. But we have already spoken with the local authority associations in the Consultative Council on Local Government Finance 270 about some of the aspects which we shall want to take a further look at with them during the course of this year. I have noted the points which my hon. Friend has made, particularly about the indicator of housing expenditure, and we shall be pleased to consider any other constructive proposals which his authority may care to suggest.
I must tell my hon. Friend and his constituents, that they have actually fared extremely well in the first year of a new and complicated system of block grant. I fully understand that the ratepayers in Rugby may feel differently, but in the coming year they will be faced with a rate increase of a little over 6 per cent. I am sure that this result will be warmly welcomed by the local electorate. Not that my colleagues and I would claim that this is an easy time for local government, or for anyone entrusted with the responsibility of spending public money. My right hon. Friend the Secretary of State has made that clear to local authorities on a good many occasions. The reduced amount of money available from the Exchequer to local government as a whole is only one aspect of this. But we believe that in the block grant, the Government have been able to take a considerable step forward towards greater fairness in the way those funds are distributed.
I urge councillors in every area to stick to their task of seeking efficiency and economy. There are many signs that voters—particularly in Conservative areas such as that so ably represented by my hon. Friend—are ready to recognise and to support those authorities, such as the authority in Rugby, which respond in an enlightened manner to the challenge of these difficult economic times.
§ Question put and agreed to.
§ Adjourned accordingly at one minute past Twelve o' clock.