I beg to move, That the new clause be read a Second time.

With this it will be convenient to take amendments Nos. 19, 20, 21, amendment (a), to amendment 21, and amendments Nos. 23, 24 and 25.

The Bill has been fully considered in Committee. Hon. Members who served on that Committee will recognise that one of the matters that caused substantial concern was the position of water authorities under the Bill, particularly public rights of access to water authorities' accounts. During the Committee stage I tried to place an amendment before the Committee for discussion, but I was unable to do that. However, we have now tabled an amendment in the shape of new clause 1, which seeks to meet the points that were brought to the attention of the Committee.

We received numerous representations about the auditing of water authorities, but nearly all made one point—that it is wrong to deny the public access to the books of water authorities when they already have those rights. That is largely because of the system under which water authorities have been audited to date. That system is similar—and identical in most respects—to that applied to local authorities. Under the Bill the audit commission will be the vehicle by which local authorities will be audited, whereas the Secretary of State will appoint auditors, thus bringing them closer to the position of nationalised undertakings.

It was apparent from that move that the traditional rights enjoyed by ratepayers and electors in being able to make representations to auditors would be lost during the passage of the Bill unless it was amended. Therefore, right hon. and hon. Members may be surprised that such a short and comparatively simple new clause, which refers to new paragraphs for schedule 3 to the Water Act 1973 should have taken four pages to achieve. I hasten to assure the House that there is nothing sinister about that. There is no surreptitious attempt to smuggle in new provisions. Tinkering with schedule 2 in order to introduce our amendments on public rights would have led to an unwieldy set of provisions and would have involved extra cross-referencing. Therefore, we considered it better to replace schedule 2 with a new schedule to include the full set of accounting and auditing arrangements for water authorities. That is the purpose of the new schedule.

Most of what the new schedule contains is already in existing legislation or in schedule 2 to the Bill. The only changes of substance relate to the public inspection of accounts and rights to make representations, which are found in paragraph 39C. Paragraph 39A refers to the provisions about general duties of auditors.

In Committee I endeavoured to meet hon. Members by committing the Government to bring forward these amendments. By the amendments, a local government elector is given rights to inspect and copy the accounts, books and deeds relating to the accounts of a water authority, which are the rights that he presently enjoys under section 159 of the Local Government Act 1972. Under 39C(2) he is given the right to question the auditor. The right to challenge an item in the accounts is modelled on the existing provision, although it differs from it in one or two respects. The existing right to make objections is closely tied to the possibility that there has been illegality or wilful misconduct in the incurring of expenditure. There are provisions for the district auditor to follow up any such cases. That is an essential part of his duties under local government legislation.

Therefore, in future the water authority auditor will have two general duties, which are spelt out in paragraph 39A. The first is to ensure that there are proper accounting practices and that any ministerial requirements have been observed in the compilation of the accounts. The second general duty is for the auditor to consider whether he should make a report in the public interest on anything coming to his notice in carrying out the audit. Those duties are connected with existing duties under local government legislation. A useful means of conferring a right of challenge upon the public is also provided. Under paragraph 39C(2) the public will be given the right to draw the auditor's attention to any matter on which he might make a report in the public interest.

That is a full and adequate set of rights that preserves the public's present position in relation to the audit of water authorities. It extends those rights somewhat in that it extends them to the full range of water authorities, not just those which, historically, have been audited by the district auditor process. However, the public rights will not extend to the accounts of the National Water Council. They are inappropriate for such a national body. There has never been any objection to the accounts of the National Water Council.

The remaining amendments in the group—amendments Nos. 19, 20, 21(a), 23, 24 and 25—are consequential. They do not call for comment from me. I commend new clause 1 and those amendments to the House.

We shall be pleased to support the new clause because it is in accordance with an undertaking that the Minister gave after a long debate in Committee—one of the longest debates on one issue. The Minister said that it might appear that a short amendment would be required, but as there are many dovetailing procedures amendment No. 21 has had to be long. It is right that the House should be reminded that the Government substantially changed their attitude to this matter during a four or five hour debate. That was due largely to pressure from both sides of the Committee. That needs to be put on the record.

The House should be aware that the Government's original view was set out during the debate in Committee on 2 March, when the Minister said:

"It is our view, which is why the Bill is so drafted, that there is a sufficiently strong case for saying that, in the vital services with which the water authorities provide the consumer; in their structure and regional organisation; in the way in which Government have used the mechanisms of MMC and other ministerial intervention and the way in which Ministers are perhaps more directly responsible in Parliament to what water authorities do than is the case with individual local authorities, it seemed sensible to us that the regional water authority, in auditing terms, should be treated more as a nationalised undertaking than as a local authority."

That was the point at which the Government, quite fairly, defended the existing provisions in Committee. However, the Minister said:

"I take the point absolutely that in the Bill as drafted, and without amendment No. 143"—

that amendment added water authorities to the other list and was tabled by my hon. Friend the Member for Blaydon (Mr. McWilliam)—

"individual ratepayers would lose their right of access to water authorities' accounts."

I want the Minister to make it absolutely clear that exactly the same rights as now exist will be preserved in the changes. The Minister also said:

"We shall introduce an amendment to the Bill at the appropriate stage which, subject to consultation, we foresee as providing for existing rights to continue so that consumers will have access to water authority accounts and will be able to question the auditor in the manner sought by the hon. Member for Edmonton and my hon. Friend the Member for Reading, North."—[Official Report, Standing Committee D, 2 March 1982; c. 515–519.]

I have received reports from The National Farmers Union, as no doubt, have other members of the Committee. It is not cavilling at the intention of the new clause but draws attention to one or two points. In a letter to me the NTU states:

"At present under the Water Act 1973 water authority audits are regulated by Part VIII of the Local Government Act 1972. By virtue of section 159 of that Act, where the audit is conducted by a district auditor a local government elector may attend before the auditor and make objections"

That is the first point. It must be made clear that the right to make objections to the accounts is preserved. The letter continues:

"an elector may also question the auditor about the accounts, and where the audit is conducted by an approved auditor may request the Secretary of State to direct a district auditor to hold an extraordinary audit"

I want the Minister to confirm that all those existing rights are preserved. The letter adds:

"The elector seems to be losing a right of objection, and a right to request the direction of an extraordinary audit."

The Opposition will raise no objection to the new clause if the Minister can assure us that the provisions of the Water Act 1973, and in particular section 159 of the Local Government Act 1972, are contained and preserved in their entirety. In fact, we shall congratulate the Government on their change in attitude.

I welcome the new clause. I strongly pushed for this change to be made in Committee. I place on record my appreciation of the Reading ratepayers who initiated this move, involving myself as the local Member of Parliament. They ran a successful campaign, contacting about 60 Members of Parliament who had an interest in the subject. They deserve credit for their efforts. I know that they are pleased with the new clause.

The Government are right to leave out the National Water Council. I take a jaundiced view of the water council. I hope that it will be included in the consideration of water authorities now in hand following the recent Green Paper on the future of the water authorities. I am not convinced that the water council does as good a job as it should. In anticipation of the possibility of the water council being abolished, I am not worried about its exclusion from the new clause. It is right that the powers should be extended beyond two water authorities and that the new powers will now cover all water authorities. That is to be widely welcomed.

A promise was given in Committee to table an amendment dealing with the powers and duties of rating authorities to reduce a rate, make refunds to ratepayers, recover sums paid to precepting authorities and to deal with the resultant costs to rating authorities. An amendment has not been tabled. I hope the Government have not changed their mind. My own county council is in some difficulty because no one is in charge at the moment. It would help the county council if such an amendment became law. Some London boroughs would welcome the opportunity to reduce their rate during the year. The Minister will remember that I withdrew an amendment on the understanding that the Government would table an amendment to deal with this matter of a rate reduction or rate refund during a year. I realise that there are legal problems but I urge my hon. Friend to tell us that the matter has not been forgotten.

I believe that my hon. Friend is referring to the cause celebre in Bedfordshire. We had the problem of a supplementary precept before the beginning of the financial year. I agree with my hon. Friend and I hope the Government will make it clear, absolutely clear that a supplementary rate precept, although started in the previous financial year, is void for the financial year beginning 1 April 1982.

My hon. Friend is right. We debated Bedfordshire at great length in Committee. I was avoiding the use of the word "Bedfordshire" for fear of starting an exchange. I am grateful that my hon. Friend has reminded me of the case although it was in my mind. However, I consciously decided not to mention Bedfordshire on this occasion.

I urge the Minister to tell the House that this matter is not forgotten and that in the other place an amendment will be tabled that will give relief to those authorities that are in difficulty.

I welcome the new clause and pay tribute to the Reading ratepayers for their initiative. It meets the points raised and I am delighted that it goes further than existing legislation. I support the new clause and schedule.

I refer to amendment (a) to Government amendment No. 21. This concerns a small but important aspect of the amendments tabled by the Government—the nature of those who are enabled to audit the water authorities. I speak on behalf of the Chartered Institute of Public Finance and Accountancy, which feels strongly on this point. Its members audit water authorities as employees of the district audit service. They are also employees of private firms, which also audit water authorities. Under the Bill none of these members would be allowed to act as auditors in their own right. CIPFA is concerned with public sector accounting and audit and its members have considerable expertise. The exclusion of these members from the list of auditors would, therefore, exclude as principals people with specialist public sector expertise. That exclusion is wrong. The amendment is designed to remedy that.

In the past there has been some opposition from the Institute of Chartered Accountants in England and Wales to the inclusion of CIPFA names in this context. However, negotiations have taken place and agreement has been reached. I shall quote from two letters.

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The first letter is from the secretary of the Institute of Chartered Accountants to the secretary of CIPFA. It states:

"As you know the Local Government Finance (No. 2) Bill provides, at Schedule 2, Paragraph 2, that a person shall not be qualified for appointment as auditor of a water authority unless he is a member of a body of accountants established in the United Kingdom and recognised for the purpose of section 161(1)(a) of the Companies Act 1948.

We understand that CIPFA intends to suggest to the Department of the Environment that, in addition to members of those bodies recognised by the Department of Trade in accordance with section 161(1)(a) of the Companies Act 1948, members of CIPFA should be qualified to audit water authorities…The object of this letter is to advise you that the Institute of Chartered Accountants in England and Wales will not oppose such an amendment as long as it is understood to be subject to the following qualification … it is agreed by this exchange of correspondence that a member of CIPFA will not, in practice, be eligible to undertake the audit of a water authority unless either:

in the case of a member admitted before 1 January 1974, he has completed three years' experience engaged principally on auditing work in a practising office; or in the case of a member admitted after 31 December 1973, he has completed five years' experience engaged principally on auditing work in a practising office."

CIPFA replied:

"We accept the conditions set out in your letter and this exchange of letters will constitute an agreement between us as to the practical effect of the addition of the name of this Institute."

The two bodies most affected by this small but important aspect are in agreement. It would be in their interest and in the interests of the auditing of water authorities generally if the small amendment were accepted.

I, too, welcome new clause 1. The Bill as published would have taken away the right of ratepayers to examine water authority accounts.

The hon. Member for Reading, North (Mr. Durant) is right to praise the Reading ratepayers, but it was a little churlish of him not to acknowledge the support of right hon. and hon. Members on the Opposition Benches in the debate which brought about the new clause. I do not make a party political point, but together we forced common sense on the Government. Right hon. and hon. Members on the Government Benches repeatedly asked for greater speed, but had we proceeded faster such points would have been missed, to the detriment of ratepayers.

I hope that the Minister will acknowledge the part that we played. Had we gone faster we may not have had the new clause.

I do not wish to be churlish, but the main thrust of the Opposition's argument was that the water authorities were being shifted to a different audit status. The question of the involvement of ratepayers came later.

The hon. Gentleman is partly right. That was part of our argument, but, equally forcefully, we argued that ratepayers would lose their right to review water authority accounts. I could quote from our Committee debates to prove that I am correct, but I am sure that, being an honourable man, the hon. Gentleman will accept my word. I believe that it is vitally important to place that fact on the record.

In Committee, I joined my hon. Friend the Member for Reading, North (Mr. Durant) in tabling the amendment to encourage the Government to rectify this mistake. I join him this afternoon in welcoming the new clause and thanking the Government. I thank my hon. Friend the Minister For fulfilling, in the spirit and tha letter, the assurance that the new clause would be drafted in time for it to be examined, so that, if it was not acceptable other amendments could be tabled.

There is no intention to be churlish. The Opposition made a contribution. The hon. Member for Newcastle upon Tyne, Central (Mr. Cowans) and his right hon. and hon. Friends argued this and many other cases in Committee. They argued them well but not always with conspicuous results. Had it not been for the interest of my hon. Friend and myself they might have argued another case well but with no conspicuous result. We should all thank the Government for responding to cross-party pressures in Committee.

I, too, participated in the Committee debate on 26 March, but I shall not take part in the self-congratulation. I am grateful to the Minister for fulfilling the obligation that he gave, but I agree with the hon. Member for Newcastle upon Tyne, Central (Mr. Cowans) that the new clause does not go far enough. The right of access to information has been restored, but the right of objection should have been enhanced.

I quote again from the letter from the National Association of Local Councils, which states:

"Our Association has been much exercised all last year about the lack of local control over the operations and charges of Water Authorities and we have just settled a policy paper seeking more influence in their decision for those they serve. It seems very wrong that a revision of audit procedures should take away an opportunity for the local public to query the accounts of the Water Authorities."

That association, too, put pressure on the Government. It has been all-party pressure. The debate in Committee helped to bring about the new clause.

There is also general concern about the size of water bills. Many ratepayers have a feeling of futility because they cannot go to an elected representative and gain access to the water authority. Following the consultation paper "The Membership of Regional Water Authorities" and the Department of Trade's paper "Consumers' Interests and the Nationalised Industries", I hope that the Government will bring forward radical proposals for the greater democratisation and accountability of water authorities.

The water rate system needs to be reformed. It is iniquitous that an elderly person living alone can pay the same water rate as a family next door purely because of arbitrary property valuations. I and other Liberal colleagues made representations to the Secretary of State for the Environment about the matter last week in response to his Green Paper on rating.

I hope that we shall see radical proposals to change the way that water authorities operate and to ensure that they become far more responsive to consumers and more accountable. The purpose of the Bill was to get value for ratepayers' money. I hope that we shall not lose sight of that purpose when considering the role of water authorities.

I shall respond briefly to some of the points that have been raised. The hon. Member for Edmonton (Mr. Graham) asked for an assurance, as did the hon. Member for Liverpool, Edge Hill (Mr. Alton), that the rights being embodied in new clause 1 were identical to those that now exist. They are not identical in words although they are in design.

An objector has the right to challenge the auditor but not in precisely the same way as the district auditor accepted those rights under the local authority legislation. The district auditor's response to an objection is in relation to illegality, the rule of the courts and so on, closely allied to procedure in the courts. This is a much wider power. We are providing an open right of challenge linked to the auditor's duty to report matters in the public interest. That meets the request of the NFU. It will continue to have the right to object. That is an appropriate right for the water industry in its new guise.

My hon. Friend the Member for Reading, North (Mr. Durant) welcomed the proposed change. I, too, recognise the part played by the ratepayers of Reading and the other ratepayers' associations that raised this issue. My hon. Friend made a further and extremely important point. He pointed out that there is not as yet an amendment dealing with the powers to reduce a rate. My hon. Friend the Member for Bedfordshire, South (Mr. Madel) also referred to that matter. I assure both my hon. Friends that the matter will be dealt with in another place. My right hon. Friend intends to bring forward an amendment for that purpose. Its omission from the Order Paper today indicates the complexity of dealing with the matter, not a lack of intention that it should be dealt with.

My hon. Friend the Member for Hornchurch (Mr. Squire) spoke in support of amendment (a) to the new schedule, which we are pleased to accept. It allows CIPFA members to join the audit team in the same way as other qualified members. From what I have heard, I believe that there is general acceptance of new clause 1 and the amendments. I welcome that view and I commend the amendments to the House.

On a point of order, Mr. Deputy Speaker. I am unclear whether you have disposed of my amendment (a).

We work through the Amendment Paper, of which the hon. Gentleman has a copy.

I beg to move, That the clause be read a Second time.

New clause 2 is short and would simply limit the duration of part Ito 12 months from the date on which the legislation comes into force, giving the Government an opportunity to renew part I by statutory instrument approved by the affirmative procedure of the House.

There are three principal reasons why the Opposition want to discuss the new clause in the House. First, the Secretary of State himself, the Minister for Local Government and Environmental Services and the Under-Secretaries of State have repeatedly, on Second Reading and throughout the Committee stage, referred to this as an interim measure. The Opposition believe that if it is to be enacted at all, it should be enacted as interim legislation. At the penultimate sitting of the Committee, the Minister made it clear at that late stage that the Government intended to operate clauses 1 and 2 retrospectively. Because of that, the Opposition wanted the House to have the opportunity to debate what the Committee did not have the opportunity to debate as a result of that extremely late intervention by the Minister.

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Ministers have continually said that this is interim legislation. It is detested by all local authority associations. They would be mollified a little if they knew that the Government would treat the legislation as being an interim measure.

Our second reason might interest Conservative Members, if they were here in sufficient numbers to be interested. They often express concern about reform of the rating procedure, on which the Government introduced a Green Paper. The final date for representations to be made on the Green Paper was 31 March this year. The Minister—indeed, all Ministers—continually tell the country that they intend to act on the rating system. If they intend to do something, why are they introducing this measure as primary legislation for all time? Our new clause will strengthen the arm of those who want something done about the rating system, as it will give the Government only 12 months to operate the Act—by which time, presumably, they will have done something about the Green Paper and put proposals before the House to deal with the reform of the rating system.

Thirdly, throughout the Committee stage we were presented with a kaleidoscope. It is a pity that the hon. Member for Bedfordshire, South (Mr. Madel) has left the Chamber, as the matter is apposite to Bedfordshire. Matters changed from week to week, and the Government changed the Bill from week to week. The issue of Bedfordshire is apposite to clauses 1 and 2. We believe that it is wrong for the Government to have introduced retrospection in primary legislation, which is intended to remain for all time. Were the legislation intended to be interim, we could understand that, but the House should not allow the Government to introduce retrospection in primary legislation.

My right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) will speak about clause 4 and part II which are intimately connected with part I. During the weekend, we witnessed an international shambles created by the Government. Members of the Committee were not surprised, as a permanent shambles was presented to us by the Government. We understand that there is likely to be a major change to clause 4, which in itself was a major change to the original Bill, which in turn was a change to the Local Government Finance (No. 1) Bill. In such circumstances, it is wrong for the House to pass part I as primary legislation. The Government should at least partly rectify the position by saying that this is interim legislation, that it is for only one year and that the House will have the opportunity annually to review it.

I rise briefly to support the new clause. As the right hon. Member for Widnes (Mr. Oakes) has said, we are here stepping into very dangerous and uncertain waters. I certainly do not wish to explore the Bedfordshire case at this point, but it highlights the fact that unanticipated events have occurred even during the passage of the Bill. If it can happen in Bedfordshire, it can happen elsewhere and it is clear that other problems may crop up that even the Government have not anticipated or expected. In that situation, it seems sensible to review the application of part I annually.

The right hon. Member for Widnes referred to the situation as a kaleidoscope. That is a colourful term, but I should have thought that the present situation for local government was more like a switchback, with considerable ups and downs and some very nasty turns and bends, not to mention jolts, for some local authorities. It would therefore be sensible for Parliament to review this major change. The removal of the right to levy supplementary rates, which has existed for many years, is a major and extremely important change that should not be lightly made, and it is right that it should be reviewed annually. I therefore support the new clause

It seems to me that in Committee we covered, if not exactly this ground, at least very similar ground, as well as what I might describe as allied ground. In other words, the new clause represents yet another attempt by the Opposition to prevent the Government from banning supplementary rates.

This is in no way a temporary expedient. Reference has been made to the comments on Second Reading of my right hon. Friends the Secretary of State for the Environment and the Minister for Local Government and Environmental Services. I see no contradiction whatever between the two statements. My right hon. Friend the Secretary of State said:

"In all it is an important measure to carry us forward to the next stage which will follow the consultation we have now begun on the reform of local government finance itself."—[Official Report, 18 January 1982; Vol. 16, c. 58.]

It is in that context that we must see the total ban that the Government intend to impose on supplementary rates.

I assure the House that this measure is not intended to avoid the need for the fundamental reform of the domestic rating system to which we are committed. As the House knows, consultation on this finished at the end of last month. We must now consider the results of that consultation. The ban on supplementary rates and precepts is an interim measure, at least in the domestic sector, pending our proposals for the reform of the domestic rating system. In the commercial and industrial sector, in which rates may well remain for the foreseeable future, the ban is likely to continue.

I think that I have explained to the House why we oppose some of the arguments advanced in favour of the new clause in relation to our proposals for rating reform.

The real reason behind our banning of supplementary rates was stated by my right hon. Friend the Secretary of State for the Environment on Second Reading, when he said:

"What the House clearly has to face, and what is at the centre of the controversy about so much of local government today, is that parts of local government are determined to scrap the traditional relationship between central Government and local government whereby local government recognised and accepted the right of central Government to set the level of local expenditure."—[Official Report, 18 January 1982; Vol. 16, c. 49.]

Last year, a situation developed in which 30 local authorities levied supplementary rates. That was something of a novelty, and the Government are not prepared to allow it to continue.

In further justification of our decision to abolish supplementary rates, I must point out yet again that they have never been allowed in Scotland. We have come to the conclusion that ratepayers in England and Wales have the right to seek the protection of the Government from the depredations of irresponsible local authorities, as large numbers of ratepayers have done in the past six months. Our objective in banning supplementary rates and precepts is to give ratepayers that protection and to prevent hasty and ill-considered increases in spending after the financial year has begun and both domestic and non-domestic ratepayers have made their financial plans for the year.

I repeat that there is nothing temporary about the measure that we propose to abolish supplementary rates. Therefore, I must ask the House to reject the new clause.

All that the Minister has really said in reply is that in the vocabulary of Her Majesty's Ministers "interim" means "permanent" and "permanent" may mean "interim". In the words of a famous comedian, there is no answer to that. There is no point in debating the matter further. I therefore ask my right hon. and hon. Friends to divide the House on the new clause.

I beg to move, That the clause be read a Second time.

I first offer an apology in advance. I must attend a meeting of the Shadow Cabinet at 6 o'clock. Therefore, after I have spoken, I shall be unable to remain for much of the first part of the debate. I hope that the House will forgive me in the special circumstances.

We have tabled this new clause because of the chaos into which the whole business of rate, target and penalty fixing has fallen as a result of the Government's inability to manage these matters and the Bill.

Since last year, the Government have involved local government in a series of targets and penalties by which the Secretary of State seeks to control local authority expenditure. I shall not go into the basis of the right hon. Gentleman's unfounded allegations that local authority spending is out of control, but, looking at these various operations, one sees that last year's hold-back exercise was written off by the Secretary of State as disastrous. This year's exercise—that is, the targets announced with the rate support grant report—is based on criteria which, as I have tried to point out in previous debates, are not only new and different from the criteria introduced during the last hold-back exercise, but are also irrational and, to many, incomprehensible. They are also riddled with flaws. Last year volume targets were imposed on local government, which led to many local authorities being subjected to penalty. When the Secretary of State considered the outcome of the hold-back exercise he thought that too many local authorities had been subjected to penalties. From his point of view, too many Conservative authorities had been penalised.

When the exercise had been completed the right hon. Gentleman introduced the alternative criterion of grant-related expenditure assessment. He introduced that belatedly as a way of reprieving some Conservative authorities. Forty-six authorities were relieved of penalty by the introduction of the alternative criterion despite the fact that there was an aggregate overspend of over £70 million on the basis of the Secretary of State's criterion. That episode was described by the right hon. Gentleman as disastrous.

This year the Secretary of State has attempted to retrieve the disaster by introducing new targets and from the start assigning grant-related expenditure assessment as an alternative ceiling. He has said that any local authority that spends up to but not beyond the GREA will not be subjected to penalty, even if the authority is above its expenditure target.

In our debates last year we forecast that the optional target fixing would lead to many councils spending well over the target in the knowledge that they could not be penalised. We estimated that it could lead to an overspend—this is on the Secretary of State's criterion because we do not acknowledge that there is such a thing as an overspend—of about £790 million.

At present we have incomplete information about local authority budgets but the information that is available shows that council after council has decided to budget precisely up to its grant-related expenditure assessment where that assessment is above the target. Among the metropolitan authorities five local authorities have budgeted to spend up to their GREAs—Oldham, Birmingham, Wolverhampton, Kirklees and Leeds. Each authority is spending over its target and in some instances well beyond it. However, the authorities will be free of penalty.

As I have said, the relevant information is incomplete but that which is available has brought some crazy anomalies to light. For example, Salford, a Labour-controlled authority, is budgeting to spend 2·5 per cent. over its target and will be subject to penalty as a result. Wirral, a Conservative authority, is budgeting to spend 2·5 per cent. over its target but will not be subject to penalty because it will not exceed the GREA. Gateshead, a Labour authority, is budgeting to spend 3·7 per cent. above its expenditure target and will be subject to penalty. Oldham, which is also a Labour-controlled authority, is budgeting likewise to spend 3·7 per cent. above its target but it will be subject to no penalty because, although it is spending precisely as much over its target as Gateshead, it will be below its GREA.

Bury, a Conservative-controlled authority, is budgeting to spend 4·9 per cent. over its target and will be subject to penalty. Bolton, a Labour authority, is budgeting to spend 5·2 per cent. over its target but will be subject to no penalty because it is spending below the GREA.

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The anomalies become even more bizarre the more we examine them. Tyne and Wear, which is a Labour authority, is budgeting to spend 13·9 per cent. over its target, and the House will not be surprised to hear that in these circumstances it will be subject to penalty. However, Leeds, which is also a Labour authority, is budgeting to spend not 13·9 per cent. but 16·4 per cent. above its target, and will not be subject to penalty because it is spending within its GREA.

I have chosen these examples to show the demented nature of the irrationality and to demonstrate that it does not exclude Conservative councils. The Government are so bad at the way in which they connive that they cannot even do a political fiddle. If a Government cannot manage that, they are failing in what is expected of them.

The counties provide an interesting example. If there is one group of authorities which is responsible for overspending beyond targets, it is Conservative-controlled county authorities, which are spending more than their targets but seeking to escape penalty by remaining below their GREAs. The unreasonableness of the targets combined with the GREA loophole is estimated—this is based on the latest information that is available—to have led not to the £790 million overspend that we anticipated but to an overspend of £1,460 million. The shire counties are responsible for 41 per cent. of that huge overspend. The House should remember that the shire counties number only 45 out of the 411 local authorities in England.

I know that the right hon. Gentleman does not want to mislead the House with his ingenious use of statistics. I think that he said that the shire counties are responsible for 40 per cent. of the overspend. Perhaps he will tell us the level of expenditure that is represented by the shire counties. If he does not have the figure readily to hand, let me tell him that it is about 50 per cent.

I realise that. However, the Government have rigged the rate support grant. Last year the counties received an increase in RSG. It was increased from 32 per cent. of the total to 53 per cent. We do not have the figures for this year. That increase is one of the reasons for their high level of expenditure. They are buttressed by RSG.

With great respect, that figure is wildly wrong.

No, it is mildly right. The right hon. Gentleman has a tendency to blurt things out. He must take great care. These statistics are based on figures that he supplied to me. A simple pocket calculator—I shall be ready to supply him with one—will allow the right hon. Gentleman to arrive at the same conclusion. In the circumstances, it is no wonder that the condemnation of the Government is spreading far more widely than was previously the case. Last week there was a leading article in The Daily Telegraph which stated:

"For all his grand gestures Mr. Heseltine has worse confounded the confusion. Mr. Heseltine has imposed somewhat arbitrary limits on spending and still more arbitrary penalties on offenders. The result has been litigation, bad tempers and no real brake to extravagance. The fundamental problems relating to tiers of Government and the welter of unnecessary statutory duties remain untouched."

It is true that the Secretary of State's alleged controls have not led to reduced rate burdens. The average rate increase, so far as it is known for the financial year that began last week, is higher than inflation. In London, it is Conservative-controlled councils which have the highest rating. Of the 15 councils that plan to increase their general rate by more than 11 per cent., the current rate of inflation, only one is Labour controlled. Although some Conservative authorities, including the authority to which I pay rates in London, Westminster, are blaming the precepts from the GLC and the ILEA, the fact is that Labour authorities have had also to bear those precepts. Yet, on average, Labour authorities in London are rating much below Conservative-controlled authorities.

I think, on any understanding of the English language, "rating" means the amount of rates that are charged. Does the right hon. Gentleman accept that the rates charged consistently by Labour authorities in London are higher than those charged by Conservative authorities when one considers the rate in the pound?

I am sorry that the right hon. Gentleman has fallen so easily into that trap. He will now have to withdraw everything that he said about the figures issued by my hon. Friend the Member for Blackburn (Mr. Straw) in which my hon. Friend showed that people living in Labour authorities were paying less in rates than people living in Conservative authorities. The Minister stood his own argument on its head and said that this was not true: it was not what one paid in rates but the rate poundage that counted. Now he says precisely the reverse. The right hon. Gentleman had better make up his mind where he stands. My hon. Friend the Member for Blackburn has proved conclusively that people living in Labour areas are paying less in rates than people in Conservative areas.

Is the right hon. Gentleman advancing the theory that a large department store in Oxford Street should pay no more rates than a corner tobacconist in Newcastle?

I am very much in favour of a large department store in Oxford Street paying more in rates. I am not, however, a large department store in Oxford Street; I am a householder living in Westminster. I am paying vast rate increases because of the profligacy of Westminster city council on things that are unimportant, including the sending out of wasteful, expensive and politically motivated leaflets for which I, as a Westminster ratepayer, have to pay. In the end, as The Daily Telegraph among others has pointed out, it is the sheer irrationality of the grant that is the most onerous factor. That is one reason for the Opposition moving the new clause.

We refer to the level of prices, costs and remuneration. Those factors are among the reasons for the irrationality of the basis upon which the Secretary of State has approached the rate support grant. We say that if such costs rise above the level laid down in the rate support grant report, as they already have, the Secretary of State should move a supplementary report to compensate local authorities.

As well as those factors, there is also the question of the lawfulness of the targets and the penalties being laid down by the Secretary of State. All hon. Members know—the Minister has admitted it—that the targets and penalties of last year's hold-back exercise were unlawful and that the penalties cannot be imposed until this Bill becomes law. The Minister has said—it is in the rate support grant report—that clause 4 clarifies the situation. Now that we have produced for the House and the country the Anglo-Heseltinese dictionary that is necessary for people who study rating matters, we know that "clarify" means to make lawful retrospectively that which was unlawful when originally done by the Secretary of State for the Environment.

We knew that the targets and penalties of the hold-back exercise were unlawful. We thought that we knew that the targets for the financial year that began last week were equally unlawful but that they would be made lawful when this Bill becomes law. It is now said that the targets will not become lawful even when the Bill, as drafted, becomes law.

The Government have had three shots at drafting clause 4. They tabled it; they amended it; they reamended it. We are now told—this requires clarification frome the Minister—that clause 4 as it is before the House is still wrong. We are now told that the targets referred to as guidance in the clause will remain unlawful if the Bill is carried in its present form because they are constructed with the PESC figures. We have had brought to our notice that it is considered that targets constructed on PESC figures will not be targets that are stated in clause 4(1) as being

"in accordance with principles applicable to all local authorities."

Because of the phraseology of guidance issued

"in accordance with principles applicable to all local authorities"

we are told that not only are the spending targets for the current financial year unlawful in the Bill as at present drafted but that the exclusions from the targets—the limits—of spending on urban aid and riot damage will be unlawful despite the fact that the Government say that these elements will be excluded from the spending limits.

It is essential that we should hear a statement from the Minister clarifying the position—a statement that will tell the House whether, five months after the Bill was originally introduced, after the withdrawal of the Bill, after its reintroduction, after the amendment of clause 4, after the withdrawal of the amendments on clause 4, after the tabling of new amendments on clause 4 and after the incorporation into the Bill of the new amendments on clause 4, this Bill still contains a basic flaw at its heart and that clause 4, as drafted at present, is not fulfilling what the Government say it will fulfil. If that is so, I tell the Government here and now that this House, which has spent many months on the Bill, will regard it as intolerable if they seek to remedy their further mistakes by slipping in amendments for passage in the House of Lords. It is the House of Commons that has been put to prolonged inconvenience by the Government's incompetence in drafting the Bill.

The Government would be treating the House with discourtesy if they were to seek to pass the Bill in a form—it is for them to tell us whether this is so—that they knew themselves to be faulty. If the Government treat the House with any respect, they should abandon this debate until they are ready with new amendments to clause 4 which they can present to the House so that hon. Members may consider them carefully, debate them and decide whether to seek to amend them. I am assuming that when the Government draft the amendments they will get them right at the fifth attempt. They cannot be relied upon to do so. They have made four attempts so far and have got it wrong every time. We want to know now whether the Government think that they have got it right this time. if they have got it wrong, we want to know that they are sure that when they amend the Bill again they will get it right. There is a procedure whereby Bills can go backwards between the House of Commons and the House of Lords, but if it is done too frequently it is likely to get noticed.

My right hon. Friend makes too many assumptions for my liking because he seems to say that the Government have clause 4 right. May I cast my right hon. Friend's memory back to when this No. 6, 7, 8, 9 or 10 Bill was first introduced? The Government assumed then that they had clause 4 right and argued that they had. They subsequently brought in an amendment to clause 4 and argued that that was correct. Later they brought in another amendment to the amended clause 4 and argued that that was correct. We now understand that this is clause 4 mark 58, and this one is correct. However, my right hon. Friend has just told us that there is another clause mark 59 coming up which again will presumably be right. If all those clauses were supposed to be right, how can my right hon. Friend assume that the latest effort will be right?

I accept my hon. Friend's correction. It was an act of impertinence on my part to believe that the Government were likely to get it right on this attempt, the next one, or the one after that.

The Opposition want a categoric statement from the Government on the position on clause 4. If the case is not as I have started it, we will be corrected, although only if the Government are 100 per cent. sure. If what we are saying is right, the best thing that the Government can do is to abandon this botched-up and ill-starred Bill altogether. It has brought them nothing but trouble since they so unthinkingly launched it.

I support the new clause for a number of reasons. First, in many ways local councillors are having to fulfil a dual capacity of not only serving their constituents in their wards but having to immerse themselves in the detail of law and becoming Philadelphia lawyers. At the same time they are having to find out the details of how chartered accountancy works. It is not the job of a local councillor to become a professional in either of those capacities. Yet, as a result of this legislation introduced by the Secretary of State and the Government, it is becoming a nightmare for people to become local councillors.

In Committee, I suggested that it would be appropriate for the Government to bring forward and amendment to clause 4 so that we could be made aware of the Government's true intentions, after they had got the Committee in the mess that they had. Now we hear that there is to be a further new clause 4—probably to be introduced in the House of Lords—and we are being asked to vote for legislation that the Government must think is inadequate. That seems to be a crazy way of going about things.

As I said before, it is a nightmare for people to work in local government. They do not know whether they are coming or going, and this legislation makes things worse. Rate support grant settlements are more complicated to understand these days than the Rubik cube. Local councillors can be seen muddling through pages and pages of circulars from central Government and diktats and new amended pieces of legislation, all of which lead to the complete bewilderment of those who are there to serve their local constituents.

Local councils should have the inalienable right to levy a supplementary rate. I do not see why it should be a matter for central Government to interfere in these matters. If local authorities make a mess of things, local electors can throw them out. Why should the Government constantly interfere with the work of the local administration?

I think it was Disraeli who coined a phrase to the effect that centralisation is the death blow of freedom. He must be turning in his grave today considering the things that the Government have introduced within the past three years. There was the Local Government, Planning and Land Act, then the Housing Act and now this latest legislation. All three pieces of legislation add up to the same thing—the reducing of powers of local authorities and the taking of more power to the centre.

In many ways the approach being adopted towards local authorities is similar to the approach that Cromwell adopted towards the monasteries—first list them, then bust them. Clearly, the Secretary of State's intentions have been at all times to thwart the democratic will of local electors in electing councillors to serve them.

The right hon. Member for Manchester, Ardwick (Mr. Kaufman) referred to a specific local authority where already great chaos has been caused as a result of the proposals in this legislation. It is worth looking again at the example of Bedfordshire county council. In Committee, the Minister accused me of maligning the leader of the Conservative group on the county council because I suggested that he had told local ratepayers not to pay their supplementary rates bills. It comes ill from the party that calls iself the party of law and order to go round telling people to defy the legitimate rights of the local council to levy a rate or a supplementary rate. That is still the law as it stands today.

However, the Government intend, retrospectively and against every tenet of natural justice, to enact legislation that will bust that local authority and undo what a local authority quite legitimately decided to do in a democratic meeting of its council. It is interesting to examine the legal opinion given to the members of the Bedfordshire county council. It stated that it is a general rule of English law that no statute can be construed so as to have retrospective operation, unless such a construction appears clearly in the terms of the Act or arises by necessary and distinct implication. On the basis of that advice, the county council stood by its original decision to go for a relatively small increase in rates to ensure that it could continue running local services.

It is worth noting that Bedfordshire county council has suffered badly as a result of the decisions taken by the Government. For instance, over the past three years it has lost more than £12 million in central funds. In 1981, prior to the county council elections, the Conservatives used the balance of £11 million in a desperate bid to retain their seats on the council. While opposing the cuts in the council's police budget, the same Conservative leaders have been urging people not to pay the supplementary rates that have been levied in an attempt to retain the level of services provided by the county council.

The hon. Gentleman is giving us a great lecture about Bedfordshire county council and the difficulties in the county. Will he address his mind to the difficulties that face industry in that county and how the proposed supplementary precept and rate would affect it and disturb its employment base?

Yes, I shall do so. It is relevant to the amendment.

It is worth noting precisely what it is that the Bedfordshire county council is attempting to do. It is trying to maintain services and at the same time to improve certain things that it promised to do in the mandate it asked for at the election. It is not doing anything that it did not say it would do at the time. It would be dishonest of it now to run away from the commitment that it gave to the electors. Equally, the Labour Party has a majority on that council and, therefore, a right to implement its policies.

The hon. Gentleman is not answering my question. I referred not to services but to industry in Bedfordshire and the effect that the supplementary rate would have on it. Will the hon. Gentleman get his nose out of community politics and address himself to the problems of Bedfordshire industry?

I am aware of the effects of massive rate increases on local businesses. That is why the Liberals on Bedfordshire county council attempted to introduce rates that they regarded as being reasonable to maintain services without at the same time hitting local industry unduly.

The county council now has to levy a 31 per cent. rate increase simply to stand still and provide the same services. The Liberals and the Labour Party were characterised on that county council by the Conservatives as being wicked. The extra spending that the Liberals proposed amounted to another 2 per cent.

Answer the question.

Two per cent. of the 33½ per cent. increase is our responsibility. The rest of the increase is the responsibility of the Conservative Party.

Answer the question.

Order.

The Conservatives have reduced central Government funds to Bedfordshire county council by £12 million over the past three years.

I am grateful to the hon. Member for Liverpool, Edge Hill (Mr. Alton) for making such a good case for the Bedfordshire county council supplementary rate. I hope that he is prepared to apply similar arguments to the supplementary rate levied by the Merseyside county council.

My argument is that it should be a matter for local authorities to decide for themselves. If hon. Members had listened, they would have heard me say that councillors were elected on the basis of the programme that they offered to the electorate. The programme that the Bedfordshire county council Liberal group offered was to maintain services and to improve them in certain areas. On Merseyside, the county council is Labour-controlled and dominated by Left-wing elements. That has led to the resignation of the leader and deputy leader of that county council's Labour group, because they could no longer stomach the decisions made in the name of the old Labour Party. Under its Labour leadership, the county council made such profligate proposals that they had to be opposed. For example, Labour councillors wanted to open a resources centre, which is a total waste of ratepayers' money.

These matters must be looked at on their merits by local councillors. They should not be matters for Parliament to decide. This legislation is ill-conceived, because it takes away power from local councillors.

I think that everyone agrees that the whole of local government finance, especially the rates, is now in chaos. It was not an easy task to get it into this state, but the Secretary of State has spent three long years working hard at it. The right hon. Gentleman reminds me of a certain Left-wing Labour leader in Liverpool who has vowed publicly to grind the city to a halt. Both are part of that other alliance that uses local government, local money and local people for its own selfish and dogmatic ends.

I support the new clause.

I agree with much that the hon. Member for Liverpool, Edge Hill (Mr. Alton) has said. I am amazed by Government supporters who appear. though one can never be certain because there have been many cartwheels performed before, to be about to oppose new clause 3.

The new clause would at last put some sanity, though not enough, into this nonsensical Bill. The ability to raise a supplementary rate is being taken away from local authorities, and new clause 3 is proposed as an alternative. Obviously it is not the full alternative, but it will help. The advent of the Bill has left officers in local government in a complete void. They do not know what advice they can give, and they look to the new clause to provide some sense at last.

6.15 pm.

I assume that the Government will be totally opposed to the new clause. However, I remind them that it is taken from their own Act. The new clause refers to the Local Government, Planning and Land Act, a Conservative Act. I should have thought that they would support their own Act. The clause mentions section 61, which refers to

"supplementary reports for that year."

In the new clause, we seek to put some bones on what the Government have said in the interests of local authorities. The Government agree that supplementary reports are necessary. That is provided for in their 1980 Act. However, they seem reluctant to spell out clearly and precisely, so that those in local government know exactly where they are going and what they are about, what should be contained in these supplementary reports.

My right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) spoke of the penalties and targets. I do not want to go over that ground. But there are other aspects dealt with in the clause, apart from the penalties and targets. Any hon. Member who has served in local government will agree about the uncertainty of the finances of local government. At best they are based mainly on guesstimates.

Again there seems to be agreement between the Government's Act and our new clause. The Government provide in section 54(4)(d) that

"the current level of prices, costs and remuneration and any future variation in that level which in the opinion of the Secretary of State will result from decisions which appear to him to be final and which will have the effect of increasing any particular prices, costs or remuneration."

So it is agreed that prices, costs and remuneration are relevant. The difference is that the Government believe that the dictatorial hand of the Secretary of State is the only one that shall decide what prices, costs and remuneration are to be considered.

That is absolute nonsense. One has only to consider the time when the Secretary of State decides prices, costs and remuneration. There is a gap in the financial year when the financial position changes, sometimes as a result of Government policies. The Government are well aware of the disastrous policy changes that there have been. Interest rates change, prices go up, costs go up and wages go up from the time that the Secretary of State makes his guesstimate of the rate support grant.

The Opposition say that that is reasonably fair. No one can foresee the future, though one gets that impression from reading the Act. But no one can see into the future, and it is reasonable that the Secretary of State shall make supplementary reports. That is the fundamental difference between the Opposition and the Government. The Opposition say that the Minister "shall", whereas the Local Government, Planning and Land Act 1980 says that he "may". Having said that he should make supplementary reports bearing in mind that during the year prices, costs and wages change, we should try to spell out exactly what is to be done in those supplementary reports. If the Secretary of State makes a supplementary report—and up to now there has been no disagreement about a supplementary report being made—it seems reasonable to spell out what is to be contained in it and what the method of that supplementary report shall be. If we do not do that, we achieve nothing.

We do that by stating what shall be contained in the supplementary report and the matters of which it should take account. But we go even further, because we do not see the Secretary of State as the be-all and end-all of knowledge. The right hon. Gentleman's track record lets him down too much even to think of giving him that dictatorial power. The Opposition are not prepared to say that one man, whether it be a Conservative or a Labour Secretary of State, should be in a position to make these decisions.

When the Secretary of State makes his supplementary report, the Opposition say that he should make it to the people at the sharp end—those in local government—and agree the data and agree the prices, costs and wages which are to be considered. Only when they have been agreed is the right hon. Gentleman in a position to publish that report. In addition, he must state the amount of the block grant that is payable to each local authority, and, more important—something that the Government always manage to hide—the method of calculation. Nothing in the Bill has confused local authorities more. It even makes them hanker for the old method. People working in local government did not like that method, but the implications of this Bill make them nostalgic for it.

Does my hon. Friend really have confidence in the ability of this Secretary of State or this Government to forecast accurately, for instance, the levels of inflation and wages, when the built-in figures in this year's settlements are woefully inadequate—4 per cent. for wages and 9 per cent. for inflation? They seem to be totally out of touch with reality.

By no stretch of the imagination do I consider that this Secretary of State is capable of forecasting anything. One of the problems for local government is that the Government do not make truthful forecasts or view matters in their proper perspective. Many Government actions create inflation, but then the Government profess not to have created inflation. They fix a low rate support grant, with disastrous consequences for local government.

The new clause is necessary because this measure has created more confusion in local government than any other legislation before has done. The Government have been successful in one respect: they are the only Government that I recall who have united all local authority associations of all political colours against what they seek to do. Worse than that, they have put local government officers who are employed to give legal and professional advice in an impossible position. I do not come from Bedford, but that area is a monitor of what is happening in local government throughout the country. Something which at present is lawful and on which chief executives have to pronounce suddenly becomes retrospectively unlawful. Local authorities are in a mess. What a chief executive says today will be illegal when the Bill comes into force, although it is legal when he says it. New clause 3 is an attempt to clear the mist that is slowly descending on local authorities.

I want to highlight what I am saying by quoting a letter which, although it relates to Bedfordshire, applies throughout the country. I do not seek to make a political point. I want to show the utter confusion that now exists in local government. The chief executive says in his report to the council:

"In what is undoubtedly a very complex and difficult situation,"—

without new clause 3 it will be worse—

"and probably one without precedent, any advice which is tendered to Members can only be a personal judgment. Again, as has been the position for some months, the easier course for any officer would be merely to present the issues to the Members and conclude 'the committee's instructions are requested."'

That is what the Bill is doing to local officers who, because they now have to look at their own legal position, may have to opt out. The chief executive goes on:

"I would see this as an inadequate discharge of a professional responsibility and propose therefore to put forward a recommendation. It is my opinion"—

it should be noted that it is his opinion; the way the Bill is drafted, that is all that he has to rely on, because the legal validity is changing day by day—

"that the Council should continue to maintain the validity of the supplementary precept and should take whatever measures are necessary to see that its validity is established but that, at the same time,"—

this is where local government is in complete confusion—

"some restraint should be applied to the commitment of expenditure so as to reduce the difficulties which would occur if that argument should fail and the income from the supplementary precept should be lost after all".

That is what the Bill is doing to local government—apart from the many other ways in which councils are being placed in utter confusion.

I do not claim that the new clause will solve every difficulty. The letter refers to other matters which are relevant to later amendments, but I shall not refer to them now because they are not germane to this new clause. New clause 3 may not be the be-all and end-all. All I claim is that it would make this nonsensical and obnoxious Bill a little better than it is. If the Government have the interests of local government at heart, they will accept it because it will help to clarify the situation.

New clause 3 is particularly relevant to this legislation and to the Government's administrative and executive action in determining the rate support grant for the financial year 1982–83. I shall describe how the new clause and the Government's actions in that respect affect Merseyside and the metropolitan district of Sefton, in which my constituency lies.

New clause 3 puts back into statute law the provision for a supplementary report to be made by central Government during the course of a financial year. Traditionally, the purpose of a supplementary report is to enable the Government to put right mistakes, errors of judgment or miscalculations made when the original rate support grant settlement was decided and implemented. It has always been felt advisable that central Government should have the power to correct, adjust or change the original rate support grant settlement as the financial year progressed because no Government—no matter how successful they may be at predicting economic trends, inflation, unemployment or wage settlements—always get it exactly right. This Government are no better at assessing the likely outcome of economic trends than any other Government. For that reason, we feel that they should retain the power to produce a supplementary report and to alter the rate support grant settlement originally decided at the beginning of the year.

New clause 3 is particularly important because the Bill takes away all the other options for correcting mistakes that have been made in the rate support grant settlement. It takes away the options that were previously available to local government to correct the mistakes. For instance, the assumptions made in the Government's rate support grant settlement of 4 per cent. for wage settlements and 9 per cent. for inflation are totally inaccurate, but local government is landed with a block grant rate support grant settlement dependent on those two assumptions.

6.30 pm

The Government must introduce a supplementary report during the current financial year—we have passed 1 April—to rectify that mistake, but, according to the Bill, the Government do not have the power to do so. Local government does not have the power to make up the deficit that every local authority in the country will face as a result of the Government's miscalculations. We have already pointed out that the Bill takes away from local authorities the power to levy a supplementary rate to put right the mistakes and to close the gap between the assumed and actual rates of inflation and wage increases.

In addition, if there is a crisis within a local authority and the grant is withdrawn, or if there is not enough rate support grant available and the local authority cannot raise the extra revenue from the rates because it is not allowed to levy a supplementary rate, it cannot pass on a deficit to the following year. If it does, it will be penalised by the Secretary of State for overspending and for passing on overspending from one financial year to the next.

Therefore, the option of maintaining a deficit and carrying it forward and levying a rate for it in the following year is closed to local government. If a local authority, because of economic difficulties, faces the prospect of becoming insolvent—a prospect that never existed before the Government began legislating to prevent local authorities from raising revenue to make up for losses in grant—the first call on its moneys goes to those who have lent it money, not to its employees or anyone else. The first call on a local authority that has borrowed money is the interest that must be paid. That is another area where local government is in a Catch-22 situation and where it is important that the Government are at least in a position to move in to assist with a supplementary report.

What will happen if new clause 3 is not accepted must be related to what is happening on the ground. This is not an academic debate. It matters in terms of the services provided by local authorities for local people. Before May 1981 a Conservative-controlled Merseyside county council overspent £16 million on its own Government's target and left a £5 million deficit to be carried forward into the financial year 1981–82. That £5 million deficit which was left by the Conservatives to an incoming Labour county council, led to a penalty being imposed by the Secretary of State for the Environment who withdrew grant for the current and the following financial years.

When the Merseyside county council came to formulate its budget for 1982–83, it faced a number of choices. There was an aspiration budget of £180 million, which everyone would like to have seen. That would have provided the best possible services for Merseyside. A budget of £168·7 million was put forward by the various services committees of the council, which, having scrutinised their budgets, made cuts where it could. A budget of £157 million was proposed by the officers of the local authority, because they did not want to annoy the Government or the Secretary of State. They wanted to do what the Secretary of State asked them to do, but they could not quite make it, because the Secretary of State's target figure was £140 million. The Merseyside county council examined the services committees' request budget of £168·7 million and managed to reduce that to £165·5 million. The £140 million target required by the Secretary of State was deducted from the £165·5 million. That left £25·5 million above the Secretary of State's target. That was done 'to maintain essential services in Merseyside.

The Labour group on the Merseyside county council knew that the Bill was going through Parliament, but its strong view was that it was acting legally and that the Secretary of State had no legal power of super holdback or clawback under the existing legislation when the budget was made or as it exists now as the precept goes out to the districts and the rate bills go out to the electors. The budget was drawn up in the knowledge that the councillors were acting legally.

What is sad is that the Bill may or may not—the legal advice that the Minister offered in Committee does not clarify the position—retrospectively make the actions of Merseyside county council illegal. The advice given to the county council is "We do not think that it will retrospectively apply to you. You are certainly acting legally at the moment." The Minister's remarks in Committee lead us to believe that he has received advice which leads him to believe that the Bill is all right as it is because it will retrospectively make illegal the action taken by the Merseyside county council.

I suggest to the hon. Member for Liverpool, Edge Hill (Mr. Alton) that his defence of Bedfordshire county council in its desire to fulfil its election commitments, to keep its promises to maintain services and, as a consequence, to raise a rate higher than the target set by the Secretary of State, applies equally to Merseyside county council.

I rise simply to inform the hon. Member for Bootle (Mr. Roberts) and other hon. Members that I take that view and that it would be illogical not to do so. It is a matter for the Merseyside county council to determine. I accept that the Labour Party has a majority on Merseyside and, in many ways, is doing what it said that it would do when it was elected. If local electors do not like that, they should replace Labour councillors at the next local election.

My objection to what Bedfordshire county council has now done is that it was intimidated into taking that action by decisions that were taken in Committee, because the Bill will apply retrospectively to that council. That goes against what the electors in that area wanted.

I am grateful to the hon. Member for Edge Hill for his assurance that he supports what the Merseyside county council is doing to fulfil its election pledges.

In Committee, I asked the Minister a specific question about local authorities receiving advice from various quarters about what was and was not legal?

The Merseyside county council hopes to receive a supplementary report to help it make up the money lost because of extra inflation and wage increases, greater than anticipated expenditure on the police service and the expenditure—which the Government have still not met—to deal with the results of the rioting in Toxteth.

The council also wants a supplementary report, which will give it a greater block grant allocation, so that it can provide bus passes for old-age pensioners in the Sefton area, which includes my constituency. The Sefton council—the only authority on Merseyside which is controlled by the Conservatives—is so measly that it will not give pensioners proper bus passes, but insults them by providing a handful of tokens, which run out within about three months, after which they cannot travel without paying the full fare.

During the county council elections, the Labour Party promised to introduce a uniform bus pass for the whole of Merseyside and, in default of the Sefton council doing its duty, to provide passes for pensioners in Sefton. The council was advised that it might be illegal to provide bus passes for the elderly citizens of Sefton and elsewhere on Merseyside by other ratepayers and district councils. It was suggested that if the county council provided the service for Sefton, some ratepayers might be paying twice, which could be illegal.

The county council consequently expressed its desire to establish arrangements, if lawful, for the concessionary travel system to be on a basis similar to that in Liverpool and other districts. We are still waiting to find out whether that is lawful. I hope that the Under-Secretary will give me an answer.

I strongly support the latter part of the hon. Gentleman's argument. What is being done to local government is creating a licence for lawyers to make money. As a result of the legislation, more cases are going to court, and those who benefit are not the ratepayers but the legal profession.

I welcome that intervention. I must be careful. If the hon. Gentleman and I continue to agree with each other, those on Merseyside will not understand what is happening.

I hope that the Under-Secretary will accept the new clause, because it will give to him and his colleagues the flexibility that they need to deal with the rate support grant settlement as the year progresses. It need not commit them to extra expenditure, but it would show local authorities that the Government are not as vindicative as they appear to be.

I wish to put the debate on the new clause into its proper context. New clause 2 sought to make the legislation temporary and we know from the result of the Division on that clause that the Green Paper on the replacement of the rates and the Government's stated intention to abolish the rates are nothing more than a vote-gathering sham and were never intended to be more than that. If they had been otherwise, the Government would have accepted the new clause.

We now have to deal with the rest of the nonsenses in the Bill. It is clear that there will be nothing to replace the Bill in the foreseeable future, that the Government have no intention of treating it as temporary legislation—as was at least implied—and that the Bill will be the law for the lifetime of this Parliament and Government. Let us have no illusions about that.

6.45 pm

One of my problems with the Government is that they are like the Hapsburgs—they have remembered everything and learnt nothing.

It was the Bourbons, and they learnt nothing and forgot nothing.

I am grateful for the results of the hon. Gentleman's classical education.

Both the accurate quote and the quote used by my hon. Friend are applicable to the Government.

I am grateful to my hon. Friend. The point that I am about to make is underlined by the interventions.

The Government have had adequate time to study the Layfield report, which was published in 1976. Paragraph 46 of the report states:

"Wages and salaries tend to rise faster than other costs in the economy. Between 1972 and the first half of 1975"—

we did not have a Labour Government in power for most of that time—

"this tendency was particularly marked. In those years the relative price effect, which we describe in paragraphs 29–32, was large, so putting local government finances under extra strain. Because of the relative price effect local authorities would have been obliged to increase their expenditure beyond the general rate of inflation even if'—

and this is important—

"they had only maintained their services at existing levels … and if the wages and salaries they paid had increased no faster than wages and salaries generally."

It is bad enough that the Government have not taken that aspect into account, but that is compounded by Layfield's comment:

"Wages and salaries in local government therefore increased faster than wages and salaries generally and so aggravated the problem."

Why did those wages and salaries increase faster? The Layfield committee said:

"the emphasis in national pay awards was on lower-paid workers, many of whom are employed in local government."

The relative costs of local authorities are not directly related to the level of inflation and if the country decides that the low-paid deserve to keep up with inflation better than the higher paid the preponderance of low-paid workers in local authorities means that the costs of local government are higher than the general level of wage inflation at the time.

Layfield goes on to say in paragraph 47:

"Any misjudgement of the likely amount of inflation in the coming year could lead to a serious shortfall in the necessary income. In turn that required greater rate increases in the succeeding year than the spending in that year might demand."

It is not as if the Government did not have any evidence before the matter was discussed in Committee. They had the considered opinion of an emiment Royal Commission and they ignored it.

The situation becomes worse in paragraph 48. It says:

"Within their normal provision for contingencies and reserves, local authorities have only limited scope for meeting increased expenditure once the rates for the year have been set."

If that was true in 1976, given that supplementary rates are to be banned under this Bill, it is even more true now. In 1976 the Layfield committee gave the Government the benefit of its advice.

The final crunch in the Layfield report comes in paragraph 49, which says:

"Further difficulties were caused for some authorities by the increasing tendency of aggrieved ratepayers to withhold rate payments pending the outcome of appeals".

Given the level of uncertainty which the Government are building in to this legislation, that seems to be much more likely in the future than it was in the period leading up to the Layfield report of 1976—the good old days which many Conservative Members try to hark back to.

To be fair, all Governments tend, at least initially, to put relatively unrealistic figures upon the projected level of inflation for the coming year. My criticism of the Government is that the word "relatively" is inadequate to describe the misinformation which they have attempted to perpetrate upon the populace in general and upon local government in particular.

I disagree fundamentally with my hon. Friend the Member for Bootle (Mr. Roberts) when he says that our proposal is intended to put right errors of judgment. It is intended to do no such thing. It is intended to set the law right, to make the Bill workable. If it is not accepted, the Bill will not be workable.

A local authority has an absolute duty to levy an adequate rate. If it tries to levy that rate on the basis of 4 per cent. and 9 per cent., local authorities know—and if they are honest the Government will accept—that that level of rate is inadequate. The only way that that shortcoming can be made up is for the Government to accept the responsibility which our proposal lays upon them. This has always been the case in Scotland, where we did not have access to supplementary rates. It was only that kind of provision which enabled us to stay within the law in levying a rate.

The Government might be trying to make a political point. They might have been trying to lead people down a certain path, and if people did not go down that path—even if the Government had tried their best and failed—at least they would bail out the local authorities in the sense of levying an adequate rate.

It is impossible under the Bill for any local authority to carry out its legal duty to levy an adequate rate. I say most strongly to the Minister that if he will not accept the new clause how will he make up the shortfall which as a result of Government mis-estimates—deliberate mis-estimates in many cases—will occur in the income of local authorities to enable them to carry out their legal duty to levy an adequate rate?

I rise, much to the sadness of Labour Members, to urge the House to oppose this new clause. As is so often the case with debates of this kind led by the right hon. Member for Manchester, Ardwick (Mr. Kaufman), a considerable amount of time has been spent, not on what the clause contains but on other matters which are considered germane to the discussion. That is understandable to those who served on the Committee.

First, the right hon. Gentleman made some claims about the counties receiving substantially more recently than they should have done at the expense of other classes of authority. He probably missed the point that in the years prior to 1981–82 part of the counties' grant resources was paid as a resources element to the district, unlike block grant, that counted as part of the district's rate income and was therefore taken by the county through the precept.

The simple arithmetic proposed by the right hon. Gentleman simply does not work. I suspect that that has happened once or twice during the Bill's progress. The relevant part of the resources element paid to the districts has to be added to the share received by the counties. When that is taken into account, it will be seen that there has been no major change in the counties' share of grant between 1980–81 and 1981–82. I sincerely hope that the right hon. Gentleman will accept that.

The second matter raised concerned clause 4 and the question of the public expenditure control system and whether the Government were seeking to make further amendments to it. As a layman, looking at clause 4, I believe that the principles enacted, including the

"principles applicable to all local authorities"

are those that fairly operate.

It is common in local authority financing to find that a number of local authorities do varying things with their income. Some are police authorities, some programme authorities and some education authorities. However, all authorities have to operate within budgets which relate to the principles of public expenditure. That is common to Governments of both parties. The detailed use of those words has been raised by my hon. Friend with the local authority associations.

Discussions on the fine points of legal definition are continuing. If some clarification is recommended, it would be appropriate for an amendment to be made. That would be within the ambit of discussion. Clause 4 contains an acceptable definition of the principles applying to all local authorities. Indeed, a wide range of local authorities would seek to make exemptions anyway. Programme authorities are a typical case in point. Should there be any consequential change, an amendment will be tabled in another place.

The hon. Member for Bootle (Mr. Roberts) slightly misconstrued the present position. He implied that there is no power to make a supplementary report in existing legislation. Under section 61 of the 1980 Act the Secretary of State has the power to make a supplementary report

"at such time … as he thinks fit".

However, neither the 1974 nor the 1980 Act makes it obligatory on him to use that power. I suspect that that is the point that the hon. Gentleman was wishing to make.

7 pm

The statutory basis for rate support grant settlements in the 1980 Act is the same as that in the 1974 Act. At any given time the Secretary of State has to take into account present and prospective levels of pay and price increases which affect local government. He must take a prospective view of trends in expenditure.

My right hon. Friend the Secretary of State, like his predecessors, has made clear in each RSG report the rates of increase which he has taken into account. Most increases in costs are in the hands of the local authorities and not of the Department.

Does the Minister agree that the legislative framework for the rate support grant is the same as it was in making the settlement on assumptions of inflation and wage settlements? Does he agree that the proposed legislation takes away the power of local authorities to adjust for discrepancies in the basis on which the rate support grant is calculated? Is that not why the new clause is necessary? If local authorities cannot adjust in the way in which they have been able to adjust, surely the Government must be required to adjust.

I do not accept that. We are talking about the cash planning by which local authorities are controlled. That was the discipline used by the right hon. Member for Stepney and Poplar (Mr. Shore). The circular issued at the time of the last settlement promulgated by the right hon. Member for Stepney and Poplar incorporated a pay factor of 5 per cent. The circular stated:

"Expenditure programmes should therefore be planned and managed on the basis that even if pay and prices increase faster than estimated, for the purposes of the cash limits, the grant will be held within the limits".

I accept what the Minister has said, but I hope that he will accept that the difference between then and now is that my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) had the opportunity to put the matter right, whereas under this legislation the Secretary of State will not have the opportunity to put right his mistakes.

I accept that at that time the power of the supplementary rate was not available to the local authority and that that power was available to the Secretary of State. What is being suggested now is, in principle, identical. Local authorities are now budgeting for a full 12 months, just as Chancellors of the Exchequer and Governments must do. The discipline is no different. There is no reason why Opposition Members should assume that what is now required is an amendment to remove the cash control system.

Opposition Members should bear in mind that the 1979 circular made it clear that the payment of additional grant to match the full increase in expenditure as a result of inflation is not automatic.

I stress the message that even the Labour Government understood. The level of service provided by local government and elsewhere in the public sector must be determined by the finance available. It is the cash that counts. The new clause would run counter to a cash control policy and should be rejected.

In the absence of my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman), I must reply. The Minister has made an unsatisfactory defence. As a result of what the Government are doing in the Bill and in the Local Government, Planning and Land Act, local government is being made a nightmare not only for councillors but for ratepayers and the public in general. We are asking the Government to accept some reasonableness and flexibility in their control of local government. The Minister has demonstrated once again——

Will my hon. Friend reflect on the Conservative manifesto in which there was a pledge to give more democracy to local government? Is this the Conservatives fulfilling that pledge?

This is a demonstration of the way in which the Government fulfil their pledges. There is a mockery and a sham about it. Even the Conservative-controlled Enfield council is aghast at what is happening. Only this morning did the hon. Members for Enfield, North (Mr. Eggar) and Southgate (Mr. Berry) and I receive letters from the town clerk, who complained bitterly about the impost in the legislation.

My hon. Friends the Members for Bootle (Mr. Roberts), Newcastle upon Tyne, Central (Mr. Cowans) and Blaydon (Mr. McWilliam) and the hon. Member for Liverpool, Edge Hill (Mr. Alton) have considerable experience of local government. They have tried to explain the anguish of councillors in their areas and their belief that damage will be done to local government if the new clause is not accepted.

The forecasts on which the Government based their settlements were made in November and December 1981, but the Government are looking ahead to the costs to be borne by councils in 1982–83. There is a gap of between 15 and 18 months. As such forecasts are obviously far out of tilt, we ask the Government to introduce a supplementary report. That can be done only in consultation with the local authorities. In this Bill and in others the Secretary of State has taken unto himself more power than any other Secretary of State. The Minister has made a bad job of defending the proposition. I have no hesitation in inviting my right hon. and hon. Friends to press the new clause to a vote.