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Local Government Finance (Wales)

Volume 164: debated on Monday 18 December 1989

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3.51 pm

With permission, Mr. Speaker, I should like to make a statement on local government finance in Wales. I have already made it clear that, in order to assist local authorities in Wales, I would announce the 1990–91 grant settlement before Christmas. I propose to lay the reports for 1990–91 on Wednesday; but I am today placing in the Library a paper detailing my settlement decisions. I will be sending copies of the reports and of further technical data to all Welsh local authorities on Wednesday.

In summary, the settlement provides for a realistic level of total standard spending of £2,114·5 million, well up on the equivalent figure for 1989–90. Aggregate external finance at £1,738·5 million is increased by no less than 8·6 per cent. Within this, and as compared with my provisional estimates in November, revenue support grant has been increased by a further £10·4 million to £1,141·3 million, and the distributable amount from the non-domestic rating account has been reduced by the same amount to £443 million.

This is an excellent settlement. It is good for non-domestic ratepayers because a uniform poundage of 36·8p across Wales will provide the certainty and stability they have been seeking and because their contribution of £443 million, which is only 20 per cent. of local government spending, is over £10 million lower than I predicted in November.

It is good for community charge payers because it presents local authorities with an outstanding opportunity to keep community charges down. They know, and their electorate will know, that the burden of overspending is borne entirely by charge payers. This will bring realism to the local authority budgeting process.

The increase in total standard spending should allow authorities to maintain, and where appropriate to develop, services—particularly if councils achieve the efficiency savings which the Audit Commission has identified and which, commendably, they have been seeking.

There is no reason for local authorities to budget to exceed total standard spending, and no reason for the average community charge in Wales to be more than £173. This is the true measure of the excellence of this settlement for the Principality.

Charge payers will expect their councils to set their community charges in line with this settlement. They will very quickly appreciate that expenditure increases which exceed this will result in higher charges, and will wish to satisfy themselves that they are not being asked to pay the price of overspending and inefficiency. It will be for councils, particularly those whose spending exceeds their standard spending assessment and who set higher charges, to justify their decisions to their electorate.

Similarly, charge payers will not expect those councils whose spending falls below their standard spending assessment to increase their spending by more than I have allowed for if they are already efficiently providing an appropriate level of service.

I intend to introduce a scheme of community charge transitional relief, carefully tailored to reflect Welsh circumstances. For 1990–91, I am providing £20 million in grant to fund this scheme; resources will also be made available for the following two years. This scheme replaces and improves upon the safety net that I proposed in July. It is carefully targeted and cost-effective. I have placed in the Library provisional details of the communities which may receive additional grant. The scheme is fully funded by the Government and an area safety net will not be required. This additional grant will reduce the average community charge which should be payable in Wales to about £165.

In addition, community charge rebates will be available for those on low incomes, and I urge all charge payers who may be eligible for a rebate to apply for one to their local councils. Those on the lowest incomes in Wales will actually be better off with the community charge than if they had received a 100 per cent. rebate under the old rating system.

Under this excellent settlement, central Government and non-domestic ratepayers will together finance around 85 per cent. of local government revenue expenditure in the Principality. It follows that only 15 per cent. of local government expenditure will be met by charge payers. In the light of this, charge payers have every right to expect their local councils to protect their interests by budgeting sensibly, by containing their spending to affordable levels and by keeping the community charge low.

I must tell the Secretary of State that, based on the provisional figures announced at the end of November, Mr. Gwyn Davies, the chairman of the Welsh Association of District Councils and Mr. Fred Kingdom, chairman of the Welsh Counties Committee, are of the view that, to cover costs for next year, some 3 to 4 per cent. more money is needed. Is he aware that, when poll tax demands fall through letter boxes in a few months' time, people in Wales will wonder why the amount is so much higher than the £173 that he has widely publicised? The Secretary of State will try to put the blame on local councils but the buck starts, and it stops, with him and his statement today.

Does the Secretary of State not realise that the statement borders on a confidence trick? It is not an excellent statement: it is deplorable. It will destabilise rather than stabilise. There is no room for efficiency savings after 10 years of Conservative Government. Therefore, will he concede that the statement is some 3 to 4 per cent. short; that the standard poll tax will be not £173 but £210 per year; that 2 million poll tax payers in Wales will pay £30 to £40 extra per person than he says; that the valleys communities will be hit very hard; that expenditure provision is £80 million short of what councils say they need to spend, and that the revenue support grant is £40 million short? The statement ignores persistent high inflation, high interest rates, and salary and wage increases of 9 per cent. which must be funded. The Secretary of State has not found the money to do so.

Does the Secretary of State understand that, if local councils in Wales spend, on average, 4 per cent. more than the provisional allocation, the poll tax charge for two-adult families—according to the district councils, not the Opposition—might increase by 50 per cent. in Dinefwr, Llanelli, Pwllelli, Islwyn, Arfon, Merionnydd and Rhymney Valley; by 66 per cent. in Merthyr Tydfil, Lliw Valley and Neath; by 75 per cent. in Port Talbot; by 90 per cent. in Blaenau Gwent and Cynon Valley; and by 123 per cent. in the Rhondda. What have the valleys communities done to deserve such a system? This is supposed to be the season of good will, but today the Secretary of State for Wales is implementing a deeply unpopular measure. He should know that Wales hates the whole concept of the poll tax.

Does not the right hon. Gentleman agree that the people who will benefit from the poll tax settlement will be those who occupy large, high-rateable-value houses? Has he forgotten that the transitional relief will be phased out over three years, just after the next general election? What a coincidence. I remind the right hon. Gentleman that this statement will not help district councils to increase the number of environmental health officers and their back-up technical staff in a year when Wales has suffered serious outbreaks of listeria and salmonella. Yet again, he leaves our councils short in that sphere.

How can local councils step up their excellent work to encourage new industries if, as a result of the statement, they will be short of the means to create new jobs? How can our councils build new homes when they estimate that their spending will be 13 per cent. down on their current expenditure? The Government have enforced the sale of 72,000 council houses in Wales, but they have not given the councils the means to build new council homes.

Has not the right hon. Gentleman wrapped the poll tax round the necks of the Welsh people? Surely the poll tax in Wales in a Tory tax. It is the Secretary of State's tax, as he has given the poll tax to the people of Wales. Does he understand that, when the general election comes, there will be nobody behind him in support?

The hon. Member for Alyn and Deeside (Mr. Jones) has come out with a long statement, most of it totally inaccurate. Without exception, all the percentages he quoted are inaccurate. Let us get one percentage absolutely correct—the one for his constituency. There, on average, the community charge will be 15 per cent. below the average domestic rate charged in the past. Perhaps the hon. Gentleman would like to convey to his constituents the adverse effects of the settlement.

It is nonsense to say that a settlement which is 7–1 per cent. above the budgets of the local authorities for the previous year is a scandalous cut in local government expenditure. If the hon. Gentleman wants to adopt a system under which there were scandalous cuts, he will have to go back to the time when he was a Minister at the Welsh Office. In his final three years at the Welsh Office, there was a cut in real terms in the rate support grant every year. I am glad to say that, in the past four years, there has been no cut in real terms in the rate support grant.

The hon. Gentleman also said that, after 10 years of Conservative Government, there was no room for any improvements in local government efficiency. That is one of the classic quotes from an Opposition Front-Bench spokesman. The Audit Commission recently had meetings with the local authorities, which agreed that a host of improvements could be made in efficiency. It is deplorable that, given his responsibilities, the hon. Gentleman should suggest that local authorities in Wales should not look for further improvements.

I am delighted to say that one of the results of new business rate is that the valleys will pay £11 million less in business rates than under the present system. That is very much to their advantage, and the scheme I have announced this afternoon contains additional great advantages for those valleys. Opposition Members always cite the terrible low incomes of those in the valleys. In the Rhondda, the substantial number of people who have been receiving 100 per cent. rebates under the rate rebate scheme will receive 130 per cent. rebates under the new scheme.

I assure my right hon. Friend that I shall be here to support him after the next general election. However, even his legendary skill at extracting blood from the Treasury's stony heart—which has brought such great benefits to Wales generally and ensured that the levels of poll tax in Wales will be appreciably lower than in the United Kingdom as a whole—cannot make sense of this nonsensical system for financing local government. Can it be right that a local authority such as Rhuddlan in my constituency, which has managed its affairs with skill and prudence, should find that its grant has been cut by £750,000·20 per cent. on its last year's grant? This will oblige it to increase the poll tax by 50 per cent. Does not that show that, despite my right hon. Friend's efforts to modify the effect on Wales, the system is preposterous and those who denounced it from the start were absolutely right?

I think that my hon. Friend will discover that, when local authorities study the figures and my announcement this afternoon, they will find that the figures he has given are not accurate. Instead of the average rates in Rhuddlan being £201 per adult, as they were under the rating system, they will be £199. As a result of the new system, in the other part of his constituency, the district of Colwyn—a place which has many retired people —there will be rate reductions of about 17 per cent.

I am sure that the House is grateful to the Secretary of State for telling us how prosperous local government is in Wales. In that context, will he explain why each of us in rural areas meets weekly ever-increasing queues of young people who can no longer find housing in their own area? Will he explain why unmarried mothers with children whom they are looking after increasingly have to go into unsuitable halfway house accommodation where they cannot look after their children properly? Will he explain why, in the context of the prosperity of which he boasts, local authorities can no longer meet those priority housing needs?

The hon. and learned Gentleman knows full well that we have substantially increased expenditure on Housing for Wales, which, in turn, is substantially increasing its grant to housing associations throughout the community—that is having a considerable impact. Under the settlement, we have ensured that, under the new statutory arrangements, there will be a substantial increase in expenditure on improvement grants and the backlog of improvement grants, which are important in many rural areas.

Although I appreciate that my right hon. Friend has fought an effective and successful fight to gain a reasonable settlement for Wales as a whole, he will appreciate that I share the concern of my hon. Friend the Member for Clwyd, North-West (Sir A. Meyer) because together we represent the borough of Rhuddlan in this House. Is my right hon. Friend also aware of the concern in the borough of Delyn where the settlement appears to have been penalised because of the way in which it finances expenditure on industrial development?

The system that is operated in local authorities has operated for several years. It was discussed with local authority associations as to whether any change should be made, and the associations agreed that the existing system was the right one to keep. Therefore, Delyn's financing process was one that it used knowing what the past rules were and the fact that the local authority associations did not want any change in those rules.

Will the Secretary of State recognise, as he did a while ago, that our Welsh local authorities are not inefficient, but have a splendid record? Will he also recognise that the unrealistic poll tax figures which he has put out are seen by all local authorities for what they are: simply a red herring to disguise the full implications of what will undoubtedly be an unpopular policy?

The hon. Gentleman says that an increase of 7·1 per cent. on the budgets of the local authorities for last year is a red herring. However, it is a perfectly accurate assessment with which, due to the improvements in efficiency which have taken place, the Welsh authorities can certainly cope. I am delighted that in Newport the likely reduction, compared with the rating system, will be about 14 per cent. per adult.

We have not yet heard what scheme of local government finance the Opposition intend to bring in. They announced one scheme and abandoned it due to its unpopularity. Presumably, given reductions like those in Newport and Cardiff, they will not go back to the rating system. The people of Wales need to know soon exactly what the Labour party will do about local government finance.

I congratulate my right hon. friend on his statement and advise him not to shout too loudly in this House about his achievements, in case our English colleagues hear exactly what the people of Wales have managed to achieve. Is it not true that in Wales 67 per cent—two thirds—of all local government expenditure comes from central Government, whereas the comparable figure in Scotland is 56 per cent. and in England only 46 per cent.? That is an excellent achievement.

Can my right hon. Friend confirm that my ratepayers, who now number 50 per cent. of the electorate, will be pleased to find that in future everyone who has a vote in local elections will make some contribution to the services that they enjoy?

Certainly the average community charge in Wales will be £100 per person lower than in England or Scotland. The people of Wales should rejoice about that; it is something that I find it difficult to explain to my constituents in Worcester.

Has not the Secretary of State been proved wrong yet again? Does he recollect how dismissive he was in November when he forecast a figure of £173 and I forecast one of £200? He regarded my figure as scaremongering.

The Secretary of State said that the burden of overspending would be borne entirely by the chargepayer, but is it not equally true that the burden of under-provision will also be borne entirely by the charge payer if the gap is offset by cuts? As the figure that the right hon. Gentleman announced today—of 7 per cent.—is lower than inflation, has he not announced a formula that will mean savage cuts in Wales in the next 12 months?

In November I gave a figure of £174; I now give it as £173, which, with the rebate scheme that I have announced, will come to £165.

If the inflation rate for this year proves to be above 7·1 per cent. and if there is no improvement in efficiency, it could be argued that local authorities and charge payers will be squeezed, but that will be as nothing compared with the 8 per cent. drop in real terms that took place when the right hon. Gentleman was a Minister at the Welsh Office.

Is the right hon. Gentleman aware that, despite what he has said today, the valley communities, of which Neath is one, will be especially hard hit? Is he aware that we prefer to accept what we are told by local government officials–that there will be a 3 to 4 per cent. shortfall? Is he further aware that, in a two-adult household in Neath, there will be an increase of 66 per cent. as a result of the poll tax? How does he think that we will be able to afford to pay for roads, environmental protection, schools and the promotion of jobs? Is not this testimony to what the valleys initiative has been all about?

The hon. Gentleman's figure of 66 per cent. for Neath is not correct. With the interim relief, it will be much lower than he has suggested.

My answer on spending in the hon. Gentleman's constituency is: it depends. If he is arguing that will be a 3 or 4 per cent. gap, he is saying that we should be giving Neath an 11·1 per cent. increase on last year's budget—

If that is what is required in the hon. Gentleman's view, the people of Neath will have to see what it means and compare it with the present system, under which 85 per cent. of all local government expenditure in Wales is met either by the business community or by the Government. In no other part of the United Kingdom is only 15 per cent. of it met by the charge payers.

But is it not true that, stripped of its gloss and technicalities, the right hon. Gentleman's statement, once interim relief is over, will mean that the real poll tax charged to working-class home-owning households in valley communities such as New Tredegar, Merthyr Vale, Aberfan and Brithdir will increase hugely as compared with the position under the present rating system?

How can the Secretary of State possibly justify that? I know that he has nothing to lose in those communities but he has gained nothing politically. However, he has a reputation to lose. He was supposed to be sensitive and caring to the needs of the valley communities, but he will destroy any reputation by implementing this inequitable system.

Without the interim relief, which makes quite a contribution in Merthyr Tydfil, the community charge would go to £167, compared with an average of £131 per adult previously. Merthyr will also have the benefit of its share of the £11 million lower rates on businesses in the valley area. There are many people in Merthyr on low incomes and they will get the benefit of much better rebates than under the previous system. A total analysis of Merthyr shows a very good result. The total cost in Merthyr to a charge payer who does not receive any rebate at all will be £100 a year less than for people in England or Scotland.

The Secretary of State said that the total standard spending of £2·114 billion will be "well up" on the equivalent figure for this year. Can he tell us the percentage by which it will be up, and whether the amount was agreed with local authorities? Does he stick by the assurance which was widely broadcast in the Welsh press last month, that no one will face an increase greater than £25 a year?

On the hon. Gentleman's last point, I think that I will probably have to change the figure and say that nobody will pay more than £20. However, I cannot be certain about that. That will apply in all communities designated for the relief under the system that local authority associations in Wales agreed was the best system to apply. It will also apply to people who are not in such communities, but in all communities designated for the relief it is likely that people will finish up with a maximum increase of £20. I shall try to get the exact constituency figure. It is substantial.

Does the Secretary of State agree that he seems to be brushing aside the assessment of every district council and county council in Wales of the amount that they really need? In my county of Mid Glamorgan the councils have worked out that their needs assessment is greater by about 3 per cent. than the amount to be provided by the Welsh Office. On that assessment alone, those councils will need £20 a head in poll tax more than the Welsh Office estimates. The council treasurer in the district of Ogwr, half of which I represent, has said that the figures so far provided do not take account of the fact that last year about £800,000 was taken from the reserves to maintain the services in the borough. The Welsh Office assumes that the borough can do that again this year, but it cannot.

The Welsh Office has not yet announced the new debt redemption rules, which will have an effect on the amount of poll tax that has to be levied. The Welsh Office seems to be assuming that everybody who registers for the poll tax will pay, but we know that in Scotland at least 10 per cent. did not. That has to be taken into account. Will the Secretary of State admit that, all in all, it is the Welsh Office that has got it wrong and not the local authorities in Wales?

Perhaps the hon. Gentleman will excuse me while I reply to the previous question asked by the hon. Member for Caernarfon (Mr. Wigley). The percentage increase is 9·4 per cent.

Under the present arrangements, I do not think that there will be a substantial increase in the borough of the hon. Member for Bridgend (Mr. Griffiths). The hon. Gentleman claims that all local authorities suggest that their spending will be higher than the Government estimate. I have had the privilege of being a Member of the House for 30 years, under Governments of every complexion, and I have never known a rate support settlement under any Government being greeted by local authorities with the words, "The Government have given us exactly what we want and have agreed with our estimates." But the worst period was under the last three years of the last Labour Government in which the hon. Member for Alyn and Deeside (Mr. Jones) was at the Welsh Office.

Does the Minister realise that many poor people who do not qualify for rebates, although they work on low pay and live in poor quality housing, even with transitional relief will face increases of 25 or 30 per cent. in their bills? When that transitional relief goes in two years' time, hundreds of thousands of people in Wales will find their bills doubled. What does the Secretary of State have to say to those people?

The Secretary of State is no doubt aware that the Select Committee on Welsh Affairs has identified a number of problems, endemic to the valley communities, that will require large expenditure. These include cleaning up the environment and identifying landfill sites full of methane. How will local authorities pay the huge amounts of money that will be needed to drain such sites without the kind of increases that have already been suggested?

On the general improvement in the environment in the valleys, the total expenditure going, for example, on derelict land clearance is on an all-time, historic scale and way above any level previously achieved, and it is a committed programme for the next three years.

Order. I think that all the remaining hon. Members who wish to ask a question are Front-Bench spokesmen. I ask them to have consideration for the 40 hon. Members who wish to take part in the coming debate. I should appreciate it if they were brief.

I thank the Secretary of State for Wales for the letter that he sent me today apologising for the wildly inaccurate and misleading figure that he gave me in an answer to an oral question that I asked a week ago today. Will he avoid further embarrassment for himself by revising the figure of the standard poll tax that he has given, with which every treasurer in Wales seems to disagree? Will he agree with these local authorities, which have a fine record of good value service, and say that the average ratepayer in Wales faces an increase of 20 per cent.? Or will he wait to send every poll tax payer in Wales a letter of apology because he has cruelly misled them today?

I sent the hon. Gentleman a letter that clearly stated the nature of the figures, and gave him two figures instead of the one that I had presented. I then sent a copy of that letter to the Library. To suggest, as the hon. Gentleman has done, that there was something terrible about that when the letter confirmed that the average wages in Wales and in his constituency in real terms were much higher than when the Government took over from the last Labour Government, is wrong.

I should hate the public to get a false impression from what the hon. Gentleman has said. The people of Newport will be paying less under the community charge then they were under the rating system, and I shall see that all the electors of his constituency are circulated with these figures, so that they can compare them with those in the scare campaigns that the hon. Gentleman has conducted on the community charge.

The Secretary of State will know that teachers' pay is well over half the education budget, and that the Secretary of State for Education and Science has already announced that teachers' pay will be increased by 7·5 per cent. from 1 April next year. That figure is likely to be increased by the interim advisory committee. Therefore, how does the Secretary of State expect Welsh local authorities to manage with what is a GDP inflator of about 5 per cent. when this year, they have to make special provision for local management? How can they ensure that local management will get off on a good footing with this great burden?

The 7·1 per cent. increase in budgets—9·4 per cent. of total spending—and the potential improvement in efficiency will enable authorities to cope with the problem of teachers' pay.

Why did the Secretary of State use the figure of 2 per cent. on which to base his inflation forecast?

In view of the Secretary of State's answer to the hon. Member for Clywd, North-West (Sir A. Meyer), and of the fact that he will inflict it on the people in Wales from next April, would he give the House two or three sentences of full, wholesome and unstinting praise of the poll tax?

Certainly. The people of Wales should be grateful for and pleased with any tax that produces the result that the people of Wales, on average, pay £100 per person less than the people of Scotland and England, and under which 85 per cent. of local government expenditure is met by the business community and Government.

Will the Secretary of State tell the local authorities of Wales how they are supposed to make up next year for the shortfall announced over the weekend by the EC of £20 million a year, if not £25 million, in European regional development fund receipts over the next few years?

Will he explain why it is that the people of Wales are asked to choose between believing the right hon. Gentleman, who says that the 7 per cent. or 7·1 per cent. increase is okay, and non-political city treasurers like John Markham in Cardiff, who says that 11 per cent. is necessary and that the right hon. Gentleman's settlement is causing great anger in the city hall?

If there is one city in the United Kingdom that should be pleased about going over to the community charge, it is Cardiff, where it is likely to result in a 22 per cent. cut in domestic contribution. That is the largest reduction in Wales and no safety provison—[Interruption.] I look forward to making sure that the people of Cardiff recognise how lucky they have been.

Will not the Secretary of State accept that many of his figures are misleading? Will he not accept also that his statement makes nonsense of consultation, and that it has been condemned by hon. Members on both sides of the House? He has stuck precisely to both the total standard spending level and the aggregate external financing level with which he started the process. The right hon. Gentleman has not listened to councillors and treasurers throughout Wales, who have explained that this level of settlement is inadequate. Will he listen to the House and accept that a standstill in local authority spending will require a level of standard poll tax of more like £210 than his £173, and that only after belt tightening? The right hon. Gentleman is the person who is introducing poll tax in Wales, and the people of Wales know that he is the person who will be responsible for the heavy level of poll tax that will be contained in the demands that fall through their letter boxes.

The manner in which the Labour party is trying to urge local authorities in Wales to go in for extravagant expenditure—[Interruption.] The Labour party says that an increase of 9·4 per cent. in total standard spending is inadequate and unreasonable and that much more should be given—that is from a party which cut rate support grant in real terms year after year when the Labour Government were in office—when the fact is that we have made a perfectly reasonable and sensible assessment. There is no reason why the community charge in Wales should not be the figure which I have given, of £173 on average.