LOCAL GOVERNMENT BILL

§ THE LORD CHANCELLOR

When the debate was adjourned, I was dealing with the point raised on this Amendment by the noble Lord, Lord Silkin. It will be generally agreed, as indeed it was by the noble Lord, Lord Silkin, himself, that there is need for some check on expenditure where Exchequer grant is paid, as in the case of the rate-deficiency grant, as a percentage of the amount spent by a local authority. Certainly one way of dealing with the matter is to give the paying Minister, the right to withhold grant where he detects extravagance or excess. That was the approach, to which the noble Lord, Lord Silkin, referred, adopted in Section 6 (1) (b) of the Local Government Act, 1948, in respect of Exchequer equalisation grant.

But I should like to put the problem to the noble Lord: how is extravagance to be detected? Surely no one—and especially no one in your Lordships' House, after the tone of the debate on the Second Reading of this Bill—wants to see close and continuous 77 scrutiny by the Ministry of the expenditure of every eligible local authority. I think that applies all the more because under this Bill the rate-deficiency grant is to he paid to county district councils as well as to county and county borough councils, and that would mean examining the expenditure of a thousand authorities instead of a hundred, as at present. This is just the sort of detailed checking of local expenditure which the Government want to get away from, as did most of your Lordships who spoke on the Second Reading.

The other danger of the approach, which I am sure the noble Lord will appreciate, is that because of these very difficulties the check on extravagance will go by default. That is why the Government have sought a different approach. As I said yesterday, they base themselves on the recommendation of the Edwards Committee, and I would remind the House that on that Committee local authorities were strongly represented. That recommendation—and I am sure this will interest both the noble Lord, Lord Silkin, and the noble Lord, Lord Latham—was, in turn, based on a feature of the London equalisation scheme, which was proposed by the London authorities themselves as a means of controlling expenditure ranking for contribution under the scheme. The effect of the present clause can therefore be put in this way. It puts the onus on the local authority to show that its comparatively high rate of expenditure is justified in any case where it has expended more per head in a year than other authorities of the same type and has also increased its expenditure per head as compared with the preceding three years to a greater extent than these other authorities.

I am sure the noble Lord, Lord Latham, has noticed that this is different from the London scheme, which was based only on two years. The advantage of this method is that scrutiny will be necessary only in cases where extreme conditions apply, and will be confined to such expenditure as the authority may wish to represent should be excluded by reason of special circumstances. The noble Lord, Lord Silkin, yesterday made a point which I have considered, for it struck me as deserving of consideration: that an authority will not knew when it expends money whether it will get a grant and therefore whether it 78 can afford to spend that money. I believe the answer is that if an authority is eligible for rate-deficiency grant it will know that the great bulk of its expenditure—probably all—will get Exchequer grant; and the limits under Clause 6 will apply only on the margin of expenditure.

We ask, therefore, is it unreasonable to say that an authority ought not to want more assurance than that before it undertakes the expenditure? Having this general assurance about Exchequer grants, it is surely right that authorities should be encouraged to address themselves to particular items of expenditure from the point of view of whether it is justifiable expenditure of public funds, irrespective of whether these come from rates or taxes. That is one effect of the clause. But even if expenditure should turn out to exceed the limits set by Clause 6, there is power for the Minister under Clause 6 (7) to disregard expenditure; and one of the points authorities may have to consider is whether there is a case for new or increased expenditure strong enough for the Minister, as an impartial arbitrator, to be likely to exercise discretion in their favour if it should result in the normal limits being exceeded.

I would remind your Lordships that subsection (7) enables the Minister, in making the calculations provided for in the clause, to leave out of account any expenditure where there are special circumstances justifying this course. What the clause does in effect, therefore, is to require an authority to show special circumstances, if it is not to have its grant limited, in any case where in one year its rate of expenditure per head of the population (as I have said) has increased at a greater rate than that of the generality of authorities of the same type. I would also point out to noble Lords who have spoken that that is subject to the qualification that if the authority's rate of expenditure per head has in the three preceding years been below the average for its group, the authority may bring its expenditure up to the average without any question of limitation arising, even though the rate of increase will exceed that of the group.

So far I have been dealing with the general justification of the clause. I have examined very carefully the suggestion of my noble friend Lord Bridgeman that there should be a margin above normal 79 expenditure to be prescribed by the Minister. To prescribe a general margin in that way would imply that it is reasonable that any authority, without being called on to show special circumstances, should get the grant without question on expenditure which resulted in both those matters which I have stressed: the greater rate and the greater acceleration. How is the Minister to arrive at the percentage which reflects the reasonable excess that does not require scrutiny? I suggest that it is surely preferable to leave the special circumstances to be considered by the Minister in particular cases rather than to introduce some arbitrary general margin whose extent it would be impossible to fix by a reference to any objective considerations.

I should not like your Lordships to think that Her Majesty's Government are approaching this matter in any way other than with an open mind, because I believe it is shown that they are not; and I would remind my noble friend Lord Bridgeman of the proviso to subsection (1) of the clause: Provided that for … the first four years for which Rate-deficiency Grants are payable the whole amount of the excess shall not be disregarded as aforesaid, but for the first of those years one-fifth only shall be disregarded, for the second two-fifths and so on. I believe that that helps to meet one of the matters which was worrying my noble friend Lord Bridgeman, namely, that there must be a certain element of trial and error in a new proposal of this kind. It is going to affect only one-fifth of the additional expenditure. But I do not think the matter stops there. My noble friend will note that the words are "any special circumstances", and that expression is wide enough to enable the Minister to take account of all circumstances in which expenditure was incurred and any circumstance which distinguishes the position of the authority concerned from that of other authorities of the same kind whose expenditure was an element in the calculation of the normal limits.

If the Committee will bear with me, I should like to repeat what my right honourable friend the Minister of Housing and Local Government and Minister for Welsh Affairs (Mr. Henry Brooke) said in regard to his approach to this jurisdiction. I am reading from OFFICIAL REPORT of the Commons Standing Com- 80 mittee on the morning of March 4 last, Columns 592–3: I assure the Committee that I really have no desire at all to be inflexible in the sense of getting the clause on the Statute Book and then refusing to operate subsection (7) in a reasonable and understanding manner. The Government would never have put the subsection in the Bill if they did not intend to operate it. Clearly, one cannot give a general advance undertaking about the administration of subsection (7), but I should be prepared to give as much guidance as I possibly could to any local authority which had a genuine anxiety about the position in which it might find itself as respects rate deficiency grant arising from special circumstances, believing it might be given the benefit of subsection (7), but desiring some indication from me whether the expenditure would qualify. In so far as it is necessary, I repeat and endorse what my right honourable friend has said.

The other point which I have considered again is whether the term "any special circumstances"—especially in relation to the word "any"—is wide enough. I feel that it is wide enough to cover the circumstances which are special to the one authority and also wide enough (and this again may be helpful to my noble friend Lord Bridgeman) to cover a group of authorities who had, for example, special expenditure with regard to coast protection. It might be that half a dozen authorities were in that position. I think they would be covered by that; it is certainly our intention. If my noble friend Lord Bridgeman has any doubt about the width of the word, I shall be glad if between now and the Report stage he will try to think of other words, and I shall do the same, because that is what is desired. I apologise for taking up so much of the time of the House, but the arguments that were put against me were quite tightly packed and I was anxious that I should try adequately to reply to them. I hope, in view of what I have said and my readiness to consider any improvement in the words, that my noble friend Lord Bridgeman will consider these points and not press the matter at this stage of the Bill.

§ LORD LATHAM

As one of those associated with one of the three Amendments we are discussing to-day connected with this clause, I should like to make a few remarks. The noble and learned Viscount said that the purpose of this clause was that if the Minister detected extravagance he would be able to curb it. I submit that that is not the case.

§ THE LORD CHANCELLOR

I am most sorry. If I put it in that way I did not intend to do so. I said that that was the procedure under the Local Government Act, where it works in that way. This is, of course, a substitute for that procedure, which works on the basis of what other authorities do. I am sorry if I misled the noble Lord; I did not intend to do so.

§ LORD LATHAM

I am much obliged to the noble and learned Viscount for that amplification of what he said. But that brings me to his statement as to the purpose of the London pool. The London pool was not devised to curb extravagance on the part of any of the constituents of that pool. The London pool arose from the difficulties that ensued from the first block grant under the Act of 1929, because it was found that, contrary to expectations, the poorer boroughs of London were, under the formula, the paying boroughs, and some of the more wealthy boroughs were receiving. It was a voluntary arrangement. I agree that the pool devices in connection with the 1948 Act had many of the features of that voluntary pool, but it was never devised for the purpose of curbing extravagance on the part of any one of the constituents. I do not deny that it might have had that result, but that was not its purpose, and I do not think it can be prayed in aid as an analogy to support the present proposals.

The noble and learned Viscount was good enough to quote from a statement of the Minister (very apposite to a consideration of this matter, I readily admit), appearing at columns 592 and 593; but there is also another statement made by the Minister appearing at column 590 of the Report of Proceedings of Standing Committee D of March 4. The Minister said: It is true that an authority which is spending less than the average will he allowed to increase its expenditure up to the average without any limitation applying. It can do that whether it does so extravagantly or not. The merits of the expenditure cannot be examined by the Minister at all. Indeed, that statement is almost an invitation to authorities whose average expenditure is below the normal to increase expenditure, whether it is necessary or whether it is not.

Another point which it seems to me should be made in connection with this 82 clause is this. Under Clause 1 the procedure, after the determination of what is in excess of the norm, is automatic, whatever the merits of the expenditure; and it is only when we reach the provisions of Clause 7 that the question of the merits of the expenditure can be examined, by reference to "special circumstances" and as to whether the expenditure is reasonable. The Amendment which stands in the name of my noble friend Lord Silkin and myself suggests or proposes that the percentage should be prescribed by the Minister. The noble and learned Viscount said that the Minister would have some difficulty in doing that. He may have to do it, however; indeed, he is required to do it under subsection (7). It seems to us that it is only fair upon the local authorities that they should know within what limits they can operate as regards this rate-deficiency grant, and the Amendment suggests that it would be a proper thing that in determining that percentage the Ministry should have the fullest, and, I do riot doubt, useful, conversations and consultations with local authorities.

§ LORD SILKIN

I do not want to continue the debate except to draw attention to the terms of subsection (7). It deals first with expenditure for police, which, it says, is to be left out of account. Then it goes on to say that the Minister may leave out of account any other expenditure of a local authority. It seems to me that those words could well be interpreted as meaning any block of expenditure similar to expenditure incurred for police purposes—for instance, expenditure for road purposes or something of that kind. I am sure that that is not the intention, but the noble and learned Viscount knows of the eiusdem generic rule and that it might well be interpreted in that way. If subsection (7) is going to be used at all it should be used where a local authority establishes not merely that a particular type of expenditure has been incurred specially but that, even in the case of ordinary expenditure, there are good grounds for expending more than other authorities. I had hoped the Government would be prepared to look again at the whole clause (I have given my reasons and I will not repeat them), but if they will not do that, I think that at least they should I look at subsection (7) more carefully and 83 ensure that the Minister really has power to do that which he is praying in aid as the justification for this clause.

§ THE LORD CHANCELLOR

Before the noble Viscount, Lord Bridgeman, speaks, may I say that I shall be very glad to do that? It is not the intention of the Government that that clause should be limited by the eiusdem generis rule at all. I will go into it again, in view of the point raised. It is exactly the sort of thing. I was anxious should not happen, and I shall be very glad to do that.

§ VISCOUNT GAGE

Will the noble and learned Viscount give an undertaking that the Government will seek to explain what is meant by the word "special" in this particular clause? I think it would be an admirable thing if that were done.

§ THE LORD CHANCELLOR

I did try to show that, in my view, it might mean special in the sense of arising through a particular set of circumstances, in the case of one authority, or a particular problem with which one authority was faced; or, equally, if the authority was one of a group (I instanced coast protection, because there might be half a dozen authorities with the same problem), it would still be a "special circumstance" relating to each of the authorities. All that the word "special" excludes, if I may put it in this way, is the circumstances that are common to all the authorities of one group. We are trying to give the Minister the widest powers to deal with circumstances of the type I have described. I do not want to make a narrow idiosyncracy of it. I want to get a term which will give the Minister the widest powers. I shall apply my mind to it and I should be very willing to consider what either or any of my noble friends suggests in this way.

§ VISCOUNT BRIDGEMAN

I am sure that we are all grateful to my noble and learned friend for the trouble he has taken in explaining this matter in detail, and for making arrangements by which the debate on it was adjourned last night and resumed to-day. I think that the time has now come to begin to separate the Amendments we have been discussing together, and what I am going to say now refers only to my own Amendment and not necessarily to the Amendments of noble Lords opposite. One of the things 84 that has come out of this discussion is the need, when these clauses begin to operate, whatever their final form, for an atmosphere of mutual trust and confidence between the local authorities and the Ministers; and I think that some of the explanations given by my noble and learned friend have gone a long way to achieve that result.

I still feel that, as this clause stands, we may find that local authorities are ground between the upper millstone of subsection (1) and the nether millstone of subsection (7). Much of what my noble and learned friend said is technical, and I think that we shall want to study it carefully when we read it in the OFFICIAL REPORT to-morrow; and that applies also to others concerned, outside your Lordships' House. My own feeling at this stage, for what it is worth, is that subsection (7) could be looked at again, and I am glad that my noble and learned friend gave some indication that he and his advisers would do that. Equally, some of us may want to look at it in our own way. We may not want to return to the question, or we may return to it in another way on Report stage, but until we have studied the matter more carefully I should like to leave it at that. Once again I thank my noble and learned friend for his explanation, and beg leave to withdraw my Amendment.

§ THE MINISTER WITHOUT PORTFOLIO (LORD MANCROFT)

This is a most important Amendment. It is a fundamental Amendment really, and the noble Lord, I think, has fully conveyed that impression to the House. He is suggesting that we should re-rate industry fully, instead of up to 50 per cent. as the proposal at present stands in the Bill. I hope the noble Lord will forgive me if I do not follow him into the attractive and provocative fields into which he has journeyed concerning the return to the gold standard—of which I somehow seem to think Mr. Philip Snowden approved—the causes of the general strike, and other matters. If I do not follow him into those fields I hope he will not think I am tacitly agreeing with the many arguments of a provocative, interesting nature he put forward. May I confine myself to the facts at present before us?

This is the third occasion (apart from the proceedings in another place on this actual Bill) within three years that this issue of industrial re-rating has been before Parliament. It was fully debated in Committee in another place on the Rating and Valuation (Miscellaneous Provisions) Bill in 1955; it was debated again in another place in 1956 on the Second Reading of the Industrial Rating Bill. Those debates were carefully studied when the Government were considering what should be done about industrial de-rating. Your Lordships have been reminded by the noble Lord, Lord Latham, of some of the past history. Perhaps it may be of interest to your Lordships if I were to recall for a moment some of the figures that were prayed in aid on former occasions. We were told that in the year before industry was de-rated from 100 per cent. to 25 per cent. (that is, 1928) industry contributed 10 per cent. of the rateable value of local authorities, and that immediately after de-rating that figure fell to 3.41 per cent. Local authorities, it was argued, would benefit as a result of the repeal of industrial de-rating—that is from 25 per cent, back to 100 per cent.—by approximately £20 million 91 a year, and that industry would thereafter contribute 12 per cent. of the rate burden as against 3.5 per cent. in June, 1955. I come to this conclusion. The Opposition in 1955 thought that an increase of nearly 250 per cent. in industry's share of the rate burden was not unjust.

Since 1955 there has, as your Lordships know, been a general revaluation. Clause 9 of this Bill proposes to re-rate industry and freight-transport up to 50 per cent. Before revaluation, industry's share of the rate burden was just over 4 per cent. After the measure of re-rating which we propose has effect, its share will be nearly 12 per cent. That is an increase of over 180 per cent. in industry's share. There is not, therefore, very much difference, I suggest, between what the Opposition considered to be acceptable in 1955 and what the Bill now actually provides for. Noble Lords opposite are increasing their demands. But I think I am entitled to emphasise that whilst industry's share of the rate burden will have risen to about three times its 1955–56 level, the share borne by householders will have fallen by about 20 per cent. over the same period, while the share of shops and miscellaneous properties will have risen by about 7 per cent. The increase over the period in the total amount levied in rates applies, of course, to all classes of ratepayers equally. If the increase continued at the speed it has achieved in recent years, industry would be paying considerably more than three times as much as in 1955–6.

§ LORD LATHAM

May I just intervene? I think this should be said: that of course industry pays its rates out of gross income, whereas private persons pay their rates out of taxed income.

§ LORD MANCROFT

Yes; that fact is perfectly acceptable. The noble Lord in his argument talked about the export trade. May I refer to that for a moment? If we bear in mind the need to keep down prices and to maintain exports in the face of growing competition, the Government were, I think, right when they decided that this increase in the rate burden was just about as much as could safely be levied on industry. Full re-rating, such as the noble Lord, Lord Latham, and his friends advocate, would add perhaps £45 92 to £50 million to the rate burden of industry in 1959–60 in addition to the £30 million or so added by re-rating to 50 per cent. proposed in the Bill. That is a total of between £75 and £80 million added to the burden on industry. That is a lot of money.

§ LORD LATHAM

Would the noble Lord say whether the added burden is by reference to the rating before 1956 or after?

§ LORD MANCROFT

I am saying that the added burden which would be put on industry if the noble Lord's Amendment were accepted would amount to £75 million to £80 million.

§ LORD LATHAM

I am sorry, but that is not so. A goodly proportion of that is due to the revaluation, and industry was paying rates on assessments which went back to 1934.

§ LORD MANCROFT

Come what may, you are going to add a considerable burden to industry, and the noble Lord wants to add twice the burden that we suggest should be added to industry.

§ LORD LATHAM

Thirty million pounds.

§ LORD MANCROFT

The noble Lord says "thirty million pounds" rather scornfully. I suggest that it would be folly to increase overheads by £30 million, or by the £75 million to £80 million, which I suggest is the more probable figure, at a time when the prospects of halting, and perhaps reversing, the wearisome trend of rising prices from which this country has suffered for several years are so promising. Widespread price falls are, as your Lordships know, having a stabilising effect on the wholesale prices of manufactures—such falls, hitherto exceptional, seem to be becoming almost common form, at any rate in manufacturing industry. Take the figure of an increase of £45 million. That would be roughly the equivalent of either a 3 per cent. wage increase for all operatives in metal manufacture, shipbuilding, engineering and vehicles; or a 1½ per cent. wage increase for all operatives in manufacturing industry; or a 2 per cent. rise in the import bill of manufacturing industry. Are these insignificant figures? Are these figures that we can dismiss lightly as merely marginal?

§ LORD LATHAM

I am sorry to interrupt, but the noble Lord refers to £45 million. According to the figure in the White Paper, it is £60 million, of which, of course, £30 million is recovered in relief of taxes.

§ LORD MANCROFT

I think the noble Lord is arguing on a false premise. He is trying to double the burden that we suggest is the full burden that industry can bear. I am arguing to your Lordships that the burden which noble Lords opposite are seeking to put upon industry is a heavier burden than industry could or should fairly be asked to bear. Let us riot quibble about pounds this way or that. An increase of this order, as suggested by noble Lords opposite, would double the burden that we are seeking to impose.

An increase of that order in the burden of rates would, I suggest, certainly be a disincentive to private investment. My right honourable friend the Chancellor of the Exchequer pointed out in his Budget speech that one of the Government's principal objectives is to maintain a high rate of savings and investment. On this, as your Lordships may know, the national economy depends. My right honourable friend has also since further increased the concession on initial allowances which he proposed in his Budget to encourage industrial investment. I think noble Lords opposite to-day agree with my right honourable friend's views. This, at any rate, is clear to me from Mr. Harold Wilson's speech in the Budget debate in which he criticised the Budget on the grounds that it would fail to produce the necessary increase in investment. He went on to say that, second only to exports, investment must be given a clear priority over all other calls on our economic resources. But, surely, any addition to industrial overheads must, in the absence of compensating price increases, cut into funds potentially available for investment and have some disincentive effect on investment. Admittedly, re-rating at 100 per cent., as the noble Lord, Lord Latham, proposes, rather than 50 per cent., would mean only a marginal increase in costs, taking industry as a whole, but—and this is where the noble Lord and I differ—it is a margin that matters. For instance, the increase in capital expenditure by manu- 94 facturing industry between 1956 and 1957 was only about £50 million.

I hope that your Lordships do not feel that this increase will be unimportant because, as the figures which were quoted on earlier occasions sought to show, it was small compared with gross profits. Surely it is misleading of the noble Lord to try to judge the effect of changes of this kind by averages. The consequences of even the Government's proposals may be, I readily admit, severe for individual firms. As we all know many manufacturers are finding it increasing difficult to compete successfully in the hardening export markets to which the noble Lord, Lord Latham, has drawn attention, and their position would undoubtedly suffer from the addition of even small amounts to their overheads. As we are abundantly aware, world trade is no longer expanding and trading conditions are likely to be more difficult in the months to come, so that any increase in export prices, however small, could have harsh repercussions. We just cannot afford to ignore facts of this kind.

I have carefully reconsidered the remarks which the noble Lord, Lord Latham, made in his speech on the Second Reading of the Bill in this context. If I understood him aright, he tried to show that the effect of 50 per cent. de-rating of industry was to compel local authorities to subsidise (that was the word he used) both industry and the Exchequer. If the noble Lord will forgive me, I would suggest, with great respect, that that is rather an odd word to use in either context. Rating authorities will be collecting more than £60 million in rates from industry, while the Exchequer are currently paying local authorities over £500 million a year in grants. In any event, I suggest that it is necessary in this case to take a much broader view. The real effect of de-rating is to reduce the share of the rate burden borne by the de-rated ratepayers and to increase the share borne by the others. All ratepayers—most of us—in fact have a stake in the ability of industry to compete successfully in overseas markets, and it would obviously he wrong to reach a conclusion about the proper measure of re-rating without regard to the consequences to industry. But even if this were a possible course, there is, I suggest, no case for full re-rating of industry at a time when perhaps 95 99 per cent. of the rest of the ratepayers enjoy de-rating in one form or another—be it in 1939 values for houses or 20 per cent. relief for shops and offices.

The noble Lord, Lord Latham, talks about fair shares. I agree with that entirely. I suggest that the burden we are putting upon industry at the moment is a fair burden. I suggest that it is about as severe a burden as industry can bear. I suggest that whether we argue this way or that about a few million pounds, which to some people seem unimportant but to me on this occasion are important, the effect of the noble Lord's Amendment will be to put an unfair, if not almost an intolerable, burden on industry. I think we have gone as far as we possibly can. We have asked industry to do all it possibly can. This, I am afraid, is a fundamental point, and I cannot possibly accept the noble Lord's Amendment.

§ LORD SILKIN

I agree with the last words of the noble Lord, that this is a fundamental point. I think he has put the best possible case for the Government position, but there are one or two things in his argument which I could not possibly accept. He has based his case almost entirely on the need to preserve our export trade, but this concession—and it is a concession as compared with the other ratepayers; the concession of giving to industry half their rates—applies to all industry, whether it is for export or for the home market. The vast bulk of industry is for the home market, and even if it were assumed (which I do not assume) that the export trade really needs this subsidy—and I am continuing to call it a subsidy—the noble Lord has made no case for the people engaged in the home trade who are getting the full benefit of it as well.

He rather brushed aside the case that my noble friend made, and referred to it as something that was irrelevant. He said, "Let us get down to the relevant time" but it is relevant to try to under-stand the circumstances in which the original concession was made. In 1929 there was a crisis in industry—not merely in the export trade, but in all industry—and it was necessary, looking back to the position as it was then, to give some relief to industry in order to enable 96 it to keep on its feet, and that concession was given. But is the position the same to-day? Does the noble Lord say that that concession is still necessary? Is it still necessary to-day, in present conditions, to give to industry a subsidy on its rates? How does the noble Lord measure it? Have we got half-way back to the position where it can stand on its own feet and no longer need a subsidy? I just do not understand by what argument the Government come to the conclusion that to-day it is right to relieve industry of half its rates; that in 1929 it was right to relieve it of three-quarters of its rates, and that apparently for all time we must remain in the present position. The argument that the noble Lord put before us to-day for relieving industry of half its rates, in so far as it applies to the export trade, will apply for all time. Is the noble Lord then saying that for all time we are to relieve industry of half its rates?

He rather brushed aside my noble friend's figures, but they are relevant and important on this issue. It is important to bear in mind that the Government are paying, by way of relief of taxation, a proportion of any increase in rates that industry has to bear. If industry is relieved of £80 million, would not the Government then get half of that in additional taxation? If industry were to pay at the full rate, the burden on public funds would in fact be only half, because industry would be relieved of paying taxation on half its rates. So that if my noble friend is asking industry to pay another £30 million or £40 million by way of rates, it in fact means only £15 million or £20 million out of the pockets of industry. Therefore, in my submission, it is not a burden that it is unable to bear. If you look at the output of industry in the last financial year—my noble friend gave the figure—you will find that it was £10,500 million as against £30 million or £40 million which would be the net amount that it would be required to pay if it were rated to the full extent. That is roughly about £1 in £300 on its output and is not going to make all the difference in the world between its being able to compete with other countries in export and not being able to do so. It certainly is not going to make any material difference so far as the home market is concerned.

97 While I realise that this is a matter upon which the Government have come to a decision and that they are not likely to change it in this House, nevertheless I submit that the Government have not really made their case for continuing to subsidise industry to the extent of 50 per cent., and none of the arguments which have been put forward today have been in any way convincing. I quite agree with the noble Lord that this matter has been debated on a number of occasions

§ LORD MANCROFT

The noble Lord's Amendment would come into effect when the tenant of an industrial hereditament was paying rent inclusive of rates and his tenancy agreement or lease contained no provisions for increases of rent to take account of increases in rates. The object of the Amendment, as the noble Lord told us, is to secure that in that case, if the letting took place before this Bill reached the Statute Book, the tenant should pay the owner an increase in rent equal to the increase in rates attributable to the re-rating of industry by Clause 9, which we are now discussing. I hope that the noble Lord will not mind my pointing out that there are serious deficiencies in the drafting of the Amendment, but I do it purely as a formality and not out of discourtesy. I also agree that there is no political intent in this Amendment, as there has been in others. But because it has respectable antecedence in the support of Mr. Percy Morris and Mr. Graham Page in another place—respectable, indeed—that does not mean that the Amendment is a good one.

104 As the noble Lord told us, it is primarily concerned with the Treforest Trading Estate, and he was good enough to suggest that my noble and learned friend the Lord Chancellor and I know this estate well—my noble and learned friend when Secretary of State for Home Affairs and Welsh Affairs and I when I was Under-Secretary in the same Department. I visited the estate on many occasions and I remember this problem, and I should have paid a great deal more attention to the details of it if I had known that I should ever have to grapple with it from this Dispatch Box. The problem, if I remember rightly, was largely pre-war and war-time in origin. As the noble Lord has told us, the tenants on the estate were largely refugees. I remember being introduced to one who spoke hardly anything except Yiddish and who married a lady from the noble Lord's part of the world who spoke hardly anything except Welsh. I can assure your Lordships that there is nothing more likely to bring a roomful of people to complete silence and standstill than a marital row between husband and wife in Yiddish and Welsh.

These refugees were apprehensive about taking leases at exclusive rentals in case they were overwhelmed by rate increases. Those who have argued the point elsewhere have recognised that the company accepted the risk of increased rates but maintained that they could not have foreseen the possibility of industrial re-rating in part or in whole. It was suggested in another place that the problem was not peculiar to this company but that there must be many small industrial properties let at inclusive rentals. If the company's tenants at inclusive rentals escaped any increase in rates on re-rating, we were told that" an unfortunate position would be created "between them and the company's tenants at exclusive rents. The other place was told that lettings at inclusive rentals were not unusual and it was argued that it would be grossly unfair not to provide for the converse of the provision in the Local Government Act, 1929, which required the landlords of property let at inclusive rentals to pass on to their tenants the benefit of de-rating. Re-rating, we were told, was being introduced because the Government considered that industry, not the landlord, could bear the additional burden. The fact of re-rating was itself tantamount to 105 an interference with the terms of the tenancy and, it was suggested, could be clearly distinguished from normal increases in rates due to increases in poundages.

At Report stage in another place, the Opposition pointed out that this Amendment of the noble Lord provided only a partial solution and did not deal with any possible further measure of re-rating or with increases upon revaluation. The solution, it was argued, was a fresh lease. At Committee stage in another place the Government undertook to look at the extent and character of the problem but my honourable friend indicated that the Government inclined to the view that it would be wrong in any event to apply the Amendment to any lease or tenancy entered into after 1945. At Report stage the Government said that, despite the publicity given to this problem, no other instance had come to their notice; and so far as I know, that is still the case—I am subject to correction on this point.

I must honestly confess that the Government do not think it right to alter the law solely to meet one known case, even if the merits there were beyond dispute, and I suggest, with respect to the noble Lord, that, in fact, the merits are not quite beyond dispute. The pre-decessors of the board of management had accepted the risk of rate increases, but because they had not envisaged the possibility of a measure of re-rating we are asked now to indemnify them at the expense of the tenants, whose concern had been to safeguard themselves against increases from any quarter. It is difficult in this one known case even to make any substantial plea of hardship on behalf of the landlord. I think that the noble Lord has had Gladstone revolving in his grave. This company was not constituted for profit and, as my honourable friend the Parliamentary Secretary pointed out in another place, the worst that would be likely to happen, if the company made a loss, would be a partial default in its payment of interest to the Exchequer. I am sorry that the noble Lord, Lord Latham, is not in his place. He complained that the Exchequer was getting too much out of this Bill, and this might put him slightly at ease. My honourable friend agreed that some re-negotiation of terms between company and tenants 106 might be appropriate. However, there are no break clauses in the leases.

It was suggested that one reason justifying a general application of this Amendment would be the clear distinction between increases in rates due to re-rating and ordinary increases due to rising rate poundages. But re-rating is not a new idea. The original scheme of de-rating was opposed by the Party opposite and various attempts have been made since to modify or abolish it. The last of these was the Industrial Rating Bill presented by the honourable Member for Acton in another place in November, 1955, which we were discussing on previous Amendments. Five months earlier, the Government had announced their intention of including de-rating in the comprehensive review of local government finance which led to the presentation of the present Bill. In December, 1954, the honourable Member for Southall had presented his Industrial and Agricultural Rates Bill. Clearly, for example, it would be wrong to give relief where the letting took place after the Government had announced the review of de-rating. Since I think it is probably fair to say that re-rating has in fact been a live issue ever since de-rating was introduced, it seems equally wrong to give relief for earlier lettings. While, therefore, nobody can criticise a factory owner who has taken a chance and let at an inclusive rental, I must say I find it difficult to see why Parliament should intervene to rescue him because the chance has not come off.

Nor is the argument that this is merely the converse of the 1929 provision passing the benefits of de-rating to tenants conclusive. The de-rating of industry was, in a Parliamentary sense, a new idea. It was not, as re-rating has been, an event which had been lingering in the background for many years; and I think a distinction can fairly be drawn between the treatment of this issue on de-rating and on re-rating. In all these circumstances, I am afraid I can see no reason for withdrawing the Government's opposition to this Amendment. If there should be a change in circumstances and many other cases should come to light, then I quite agree that we might have to look at it again. At the moment, however, I am afraid the Government's decision must stand.

§ LORD OGMORE

Although the noble Lord has been answering the arguments in another place rather than those I ventured to put forward to-day, I take it that the Government will look sympathetically at the Industrial Estates Company when, as must happen, they are unable to pay the full per cent. interest which they have to pay to the Exchequer. I do not think I need pursue this matter further. The Government are the watchdog of the taxpayer, and as the taxpayer has to bear the burden, if the Government are satisfied, why should I argue? I merely say that I think it is an extraordinary position to be in: that the Industrial Estates Company, a public company, will have to pay more in rates than it will get in rent. The noble Lord's friend who has a Welsh-speaking wife is going to be in a very happy position. I do not think it matters whether he speaks English or not; it could not have been any better for him if he had spoken English. In the circumstances, having ventilated the matter, I do not think there is anything more I need say, and I beg leave to withdraw the Amendment.

§ LORD MANCROFT

This is a drafting Amendment. I beg to move.

§ LORD MILVERTON

I rise to offer, very briefly, some objection to the Amendment which has just been proposed. I do not wish to depreciate in any way the strength of the arguments used by the noble Viscount, but there is another aspect to this question. The Amendment, if adopted, would prevent the Commission from carrying out a proper review of the administrative counties. It is true that it would prevent them from embodying Rutland in any other county for administrative purposes, yet there would be nothing to prevent the Commission from combining, say, East and West Sussex, or the three Ridings of Yorkshire, into a single administrative unit.

It has been suggested to me that the Amendment strikes at the root of the agreement between the local authority representatives which form the basis of the proposals in the White Paper (Command 9831) entitled Local Government: Areas and Status of Local Authorities in England and Wales. I have ascertained that the Association of Municipal Corporations—and they are surely entitled to some consideration of their views, especially in view of what I have just said—view this Amendment with considerable misgivings, and they feel that it would possibly cause a reopening of the whole question of the power of county councils to make proposals for the reduction in status of non-county borough councils and also lead them to ask for safeguards against a reduction in the status of county borough councils. I therefore suggest that the Amendment would not be a wise one to adopt.

§ THE LORD CHANCELLOR

My noble friend, Lord Milverton, has deployed the main argument but, with your Lordships' consent, I should like to elaborate it a little. The restriction which my noble friend Lord Soulbury proposes would be one on the effectiveness of the reviews, and it would be absolutely contrary to the basic objective of this Part of the Bill, which is to enable the whole of the local administrative structure in England and Wales to be reviewed and, where necessary, overhauled. My noble friend who moved the Amendment mentioned some remarks of the noble Lord, Lord Silkin. The whole basis of Lord Silkin's speech, as I understood it, was that this matter should have been considered by a Royal Commission, before a Bill was introduced, and that the recommendations of the Royal Commission should have been embraced in a Bill. I did not understand the noble Lord to be saying that it was wrong that the whole structure should be considered.

But the point that my noble friend Lord Milverton has made is surely very important. The objective of this Bill, that the structure should be reviewed and overhauled in the interests of effective and convenient local government, has not only been wholeheartedly accepted, but has been demanded. It has been demanded, first, by all the local authority organisations; secondly, by all political Parties; and thirdly, by responsible public opinion interested in this matter for many years. It was that demand which underlay the agreed proposals put to the Government by the local authority associations in 1955, the White Paper of 1956 and the many debates on local government that we have had. Indeed, as again my noble friend Lord Milverton has reminded the Committee, the Association of Municipal Corporations, representing the boroughs, have assented to the proposition, even though it means that certain ancient municipalities will lose their local government functions—although, of course, they will keep certain offices which are not connected with those functions. The County Councils Association, for their part, have equally accepted that administrative counties also must be subject to the change if necessary; and in their case no question of any non-local government functions arise.

113 When one has had that general acceptance, to introduce the limitation that my noble friend suggests would, I think, be wrong, and would certainly strike at the basis of agreement which has been come to by all local authorities and, as I say, all political Parties. But having said that, I want to make it clear to my noble friend that I sympathise with his objects. I sympathise with the importance of local patriotism; I sympathise with the importance of the convenience of the place of local government to the ratepayers and persons governed. Therefore I want to indicate again, as I did on Second Reading, how many and clear are the protections which the Bill gives against any derogation of these rights or conveniences. It is well understood that people do associate the administrative counties, although they are of modern origin, with the historic shire, and no one would want to see any administrative county or any other kind of local unit disappear without very good reason. That is why the Bill contains such full provisions ensuring adequate safeguards at all stages. No change can be proposed except in the interests of effective and convenient local government.

If one considers the inquiries of the Commissioners, that is not a matter of projecting the views of Whitehall; it is a matter of collecting the views of the persons affected on the spot. The regulations requiring Parliamentary approval will give guidance as to the matters to be taken into account in this connection, so that will come back to this House; and the guidance will include reference to the importance of considering the wishes and convenience of the inhabitants—the very point on which my noble friend expressed his fear. The character of an area is another of the points; and a third, of course, is the record of administration of an existing local authority, whatever its size or population.

That is one branch of the protection. But there is also the provision for each Local Government Commission to hold preliminary consultations locally, to circulate its draft proposals, to consider and confer on the comments of the draft proposals, and to submit to the Minister final proposals and a report in a form for everyone to see. Then, when everyone has seen them, and has been able to comment, the Minister must advertise 114 and circulate them, and must consider objections. He would certainly hold a public inquiry into objections where the proposals of the Commissioners involved the disappearance of an existing county.

I will not say any more about an Amendment which we shall discuss further later on, but I say without any fear of contradiction at all that he would certainly hold an inquiry in this case. If, in the end, he decided to give effect to such a proposal, he would have to do so in an Order as far as possible dealing with that issue only, and he would then have to obtain the approval by Resolution of each House of Parliament. I cannot imagine a stronger series of protection, and I hope that when my noble friend has considered all these safeguards, he will come to the conclusion that no administrative county or any other well-respected local government institution, can possibly be eliminated lightly. It is too early to say whether any counties will in fact be eliminated at all. I am not going into that discussion; I think it would be wrong to do it at the moment.