In view of what happened yesterday, I sent a message to the right hon. Gentleman the Member for Woodford (Sir W. Churchill) communicating the substance of what passed at Question Time yesterday, and I wish to report to the House that I have this morning received from him a telegram, which reads as follows:

"I am deeply obliged to the House for the solicitude with which it has honoured me. May I ask you, Mr. Speaker, to convey my gratitude.

Winston S. Churchill."

I beg to move,

That the General Grant (Increase) (No. 2) Order, 1962, dated 24th May, 1962, a copy of which was laid before this House on 25th May, be approved.

Section 1 of the Local Government Act, 1958, requires that an Order such as this shall be accompanied by an Explanatory Report. The necessary Report has been published as House of Commons Paper No. 208.

I suspect that hon. Members are now becoming familiar with the basis of these increase Orders, but that may be too optimistic a statement and I had better recapitulate it. Where there are rises in the level of prices, costs or remuneration which were unforeseen when the aggregate of general grants was last fixed and these affect the cost to local authorities of providing the services covered by the general grants, I am able under Section 2 (4) of the Local Government Act, 1958, to increase the aggregate amounts of the grants if the effect of the rises mentioned seems to me to be so large that the burden ought not to fall entirely on the authorities.

The House will recall the previous increase Order which was approved in March. It increased the aggregate amount of the general grants for 1961–62 to £467 million, an increase of £13 million. This was mainly because of pay awards, especially the pay award for teachers. The Report laid with that Order—House of Commons Paper No. 135—set out the circumstances in which it was made.

The present Order makes a further increase in the aggregate amount for that year—1961–62—of a further £5 million, making a total new aggregate for 1961–62 of £472 million. But the major increase contained in the present Order relates to 1962–63. It is an increase of £42 million, bringing the aggregate for this current year up to £514 million.

It may be asked why there has been a further £5 million increase for 1961–62, with a total £18 million for that year, instead of the £13 million approved in the March Order. It is mainly to take account of the estimated cost in 1961–62 of the change in the arrangements for awards to students, the so-called Anderson change. Almost entirely as a result of the new Anderson arrangements, the additional expenditure to be taken into account for 1961–62 is now calculated at £28·69 million instead of £24·08 million.

Section 7 of the Education Act, 1962, enables me, as the House will recall, to take account of those new arrangements by means of an increase of general grant for 1961–62 as well as for 1962–63. The Government undertook, when the Education Act was discussed in Committee, that the additional costs falling on local authorities under Section 1 of the Act in the arrangements for awards to students would be matched in full by an increase of general grant, while the additional costs under Section 2 would be taken into account in the ordinary way. That has been done, the Section 1 element for 1961–62 being £3·3 million, a figure agreed with the local authority associations.

The increase proposed in the general grant aggregate for 1962–63 is £42 million, bringing it up to £514 million. This, again, includes an element for Anderson, including 100 per cent. of the extra costs, amounting to £4·95 million, agreed to be attributable in 1962–63 to Section 1. The bulk of the increase, as the House will see from the Report, with its breakdown, is attributable to pay awards, mainly the awards to the teachers.

As regards 1962–63, I should perhaps refer also the transfer of responsibility for colleges of advanced technology, the so-called "cats", referred to in paragraph 6 of the Report. The Government took over financial responsibility for these colleges with effect from 1st April, 1962, and I feel it right that I should bear in mind what this means in terms of a saving to local authorities' expenses, when deciding what increases should be made in the amount of general grant for the year.

It is particularly important to bear this in mind, having regard to certain observations which were made during the debate on the March Order. There may be a temptation, once more, to make a direct comparison between the new total figure of grant proposed for 1962–63 and the figure of expenditure which is produced by adding together the totals of the last two columns in Part (b) of the Appendix to the Report. Those figures do not take into account the local authorities' savings of nearly £6½ million on these colleges.

For both the years, agreement has been reached with the associations representing the local authorities generally, and the London County Council, on the items and amounts of expenditure taken into account in this Order. There has also been agreement on the manner in which the additional costs attributable to the Anderson changes in awards to students have been taken into account, and on the new aggregate amounts of grant proposed. Let me say that I am grateful for the help which these bodies have given me in reaching the settlement embodied in the Order.

The Explanatory Report has been extended to meet the suggestion made by the hon. Member for Widnes (Mr. MacColl), in the March debate, that it would help hon. Members if these increases in expenditure giving rise to grant increase Orders were broken up and shown against the relevant services in the same way as is done for purposes of the principal Orders. This analysis is given in Part (b) of the Report's Appendix. Hon. Members will remember that for some of the items—in particular the increase in interest rates—where the cost is quantified for two or more services taken together, the apportionment between the services is necessarily a little arbitrary. So much for the aggregates of the grants.

Of course, the aggregate for each year has to be shared out between authorities by reference to the objective factors specified in the Local Government Act, 1958. That, I readily recognise, is a matter of complexity. A revision of the weightings, in the formula which expresses those factors, is now required to distribute the extra money provided under this Order. The Order, therefore, contains amended weightings for both years. They are designed to maintain as far as possible the same proportional distribution, both through the basic and the supplementary grants, as before.

Finally, a brief word about the timing of the Orders. The increase Order approved in March, as was explained at the time, was made then so that local authorities should have as much as possible of the increase for 1961–62 in 1961–62. This Order was made towards the end of May so that the House should have the opportunity to approve the expenditure before it was called upon to complete business on the Estimates and to pass the Appropriation Bill. Already, since the Order was made, another improvement in the scale of awards to students has been announced, which will still further increase the educational expenditure of local authorities. There are also pay claims outstanding. All I will say on this is that it will be open to local authorities, if circumstances justify, to come forward later on in the grant period with a request for a further adjustment of the grant.

We are indebted to the right hon. Gentleman for his clear explanation of what is involved in this Order but I am afraid that the number of hon. Members who will benefit from this chance of familiarising themselves with the working of the block grant is not very great.

The need for a General Grant (Increase) Order arises in the main—in this case not wholly—from unforeseen rises in costs and expenditure. That, of course, has happened with nearly every general grant that we have had. One result of this procedure is that the Government are obliged to draw attention to their lack of foresight with an agreeable frequency. There will always be unforeseen items. The truth of the matter is that these things could not, in the nature of the case, be foreseen. That is one of the drawbacks of this attempt to calculate two years in advance what the expenditure of the local authorities will be.

I think that we now have to recognise that increase Orders, possibly more than one a year, are an inescapable part of the block grant procedure. In that connection, and. I hope, without getting out of order, I might note very briefly what this Order does in order to illustrate the nature of the block grant itself. It will be remembered that the idea of a block and general grant was defended on the ground that it would give certainty to the central Government to know what their expenditure was going to be. This Order is yet a further piece of evidence that there was nothing in that claim, and that there would be the certainty only if the Government could foresee for two years ahead what the expenditure of local authorities was going to be. The regular flow of increase Orders shows that that cannot be done.

This Order also illustrates that the percentage of total relevant local authority expenditure which they are provided with by the Government in the form of the general grant remains very much the same and that next year the result of this Order is very slightly to reduce the percentage of local authority expenditure which will be met by the general grant. As the Parliamentary Secretary has pointed out, it has been hovering round about 55·4 per cent. If we divide the £514 million provided for 1962–63 by the £928·41 million which we get on relevant expenditure for that year, we find a slightly lower percentage. It is a little disquieting to notice that the percentage does drop even by that microscopic amount. But apart from tiny variations, the percentage remains constant. What does that mean?

It means that the Government have thought up a rather elaborate procedure of percentage grant. They have not been able to escape from the fact that the only satisfactory way of financing local government expenditure is on a percentage basis, and if the original general grant does not give that result they have to deal with the situation by increase Orders such as this.

The other claim made for the general grant was that it would give greater freedom to local authorities. Here again, this Order and the negotiations with the local authorities that preceded it illustrate that that is not so. It is not so because, when costs begin to rise, a local authority does not know what help, if any, will be forthcoming from the Government in the form of an increase Order. It only knows that the Minister has power to make such an Order. It has no certainty.

It has to consider, therefore, "Ought we, in view of the increase of costs and the uncertainty of help from the central Government, to consider cutting down on the services?" Furthermore, in this case, as in previous cases, the Minister announced his intention to make an Order and negotiations took place. We are always told when an Order is put before the House that the local authorities have agreed on the figure. I wonder what would happen if they did not agree on the figure?

The figure, of course, would remain the same—there is no doubt about that. I suppose that the Minister would be unable to tell the House that they had agreed to it, and perhaps they might make it known that they had not agreed, in which case we should be able to draw attention in this House to the lack of agreement. The local authorities, however, before embarrassing a Minister in that manner, have to reflect that they will probably have to beg him for an increase Order in the following year and that therefore it would be highly imprudent for them to embarrass him. Thus, he enters negotiations with them in a very strong position. I do not, therefore, attach very much importance to these repeated announcements that the local authorities have agreed on the figure. The whole set-up is so arranged that they know very well that they had better agree on the figure.

There are not, therefore, any substantial advantages in this procedure as compared with the procedure it replaced, and there remains one permanent disadvantage—that it discourages those local authorities which want to be pioneers in showing useful ways in which services can be expanded. A local authority, for example, which wants to make a special effort to encourage its citizens to keep their children longer at school, knows that that will run it into further expenditure and is uncertain about the degree of help which will be forthcoming from the Government in that matter. We are left, therefore, with a procedure which has no advantages as far as certainty for the Government or freedom for the local authorities are concerned, and which continues to have this general and permanent disadvantage.

I turn now from these general considerations to the particular matters dealt with in this Order. Here we are helped, as the right hon. Gentleman said, by the rather full form of the Report which accompanies it and by the provision in Part (b) of the Appendix of the apportionment of the increase among the different services covered by the grant as a whole.

That will be gratifying to my hon. Friend the Member for Widnes (Mr. MacColl) who suggested this alteration. If the Government were to pursue the practice of taking his advice it would be generally to the public advantage. But when we look at particular items we are obliged to notice that some of them are for increases of pay. I am bound to record, as did my hon. Friend on the previous Order in March, that we cannot regard these increases of pay as adequate.

It is interesting to note that in 1961–62 the amount which has to be provided by the Exchequer for increases in interest rates on loans is nearly twice as much as the amount which has to be provided in respect of the award to nursing and allied staff. That is one of the results which follow from the Government's general policy of high interest rates and discouraging the proper pay of public servants.

Another matter to which the Minister referred was raised in paragraph 6 of the Minister's explanation of the Order. It refers to the fact that colleges of advanced technology in 1962–63 will no longer be the responsibility of local authorities and says that the Government have borne this fact in mind. Does that mean that if that change had not been made and the local authorities were still responsible for these colleges, this General Grant (Increase) Order for 1962–63 would be greater?

It is clear that the deduction could not have been made but for the fact of the transfer.

I wanted to be quite clear, however, that the deduction was made. For example, we are told in paragraph (b) of the Appendix that the additional expenditure on the education services is £69·39 million. Am I right in thinking that, but for the transfer of the colleges, it would have been so much more and that when considering what was the increase in the expense of the education services the Government observed the various factors which caused it to go up and deducted from that the £6·48 million on account of the colleges? That is what seems to follow from paragraph 6. It does not mean that the local authorities are getting any sort of bonus in respect of the fact that they are no longer responsible for the colleges, but that that fact is taken into account and the grant is so much less on that account. I wanted to get that clear.

Another matter to which I should like to refer, without detaining the House too long, is the distribution formula. This matter was raised by my hon. Friend the Member for Widnes in March and the Parliamentary Secretary's answer was:

"On the distribution formula, as the hon. Member for Widnes knows, we carry out the mathematics in accordance with the provisions of Section 2 (2) and Part III of the First Schedule to the 1958 Act. There is no dispute about this, for it has the desired effect of distributing in the most equitable manner the increase which results from the Order."—[OFFICIAL REPORT, 26th March, 1962; Vol. 656, c. 963.]

That, as the Parliamentary Secretary will agree, is no answer at all, because those parts of the 1958 Act to which he referred do not automatically determine what the distribution formula shall be.

If I understand it rightly, the way in which it works is as follows. First, there has to be decided what is the total sum of money which is to be made available to all the counties and county boroughs as a lump. The aggregate sum has to be decided. There is then worked out what each county or county borough is to get and that is done by taking certain facts about each county and county borough—for example, its population, the number of persons in it under 15, the number under 5, the number over 65, its road mileage and any exceptional proportion of school children in the population and so on. I refer to those as facts because they are ascertainable facts and and not determinable by will of the Government or by an act of policy.

There is then applied to each of those facts a prescribed number of £s and the prescribed number of £s is multiplied by the facts. That prescribed number of £s is something within the will of the Government and is an act of Government policy. For example, the Government say that they will multiply the population fact by a certain number of £s and the school children fact by a different number of £s. It will be clear from that that some local authorities are more benefited than others.

One decision may give exceptional help to a local authority with an exceptional number of old people. Another may give exceptional help to a very thinly populated local authority with an exceptional amount of road mileage in proportion to its population. Therefore, every time an Order is made there is an act of Government policy, and it is that about which my hon. Friend the Member for Widnes was asking. That is an act of policy which has to be made not only when a general grant Order is made, but when every increase Order is made. The question which my hon. Friend was putting was why the Government had fixed on these prescribed amounts.

This time, we go some way towards the answer to that in paragraph 7 of the Minister's memorandum. If we study the figures in the general grant Order itself a little more closely, we get this result. First, the aggregate figure for 1961–62 is increased by virtue of this Order by £5 million, or slightly more than 1 per cent.—I know that it was increased by £13 million earlier. It is clear that if what I have called the facts and the prescribed number of £s were multiplied by just over 1 per cent., each county and county borough relative to its neighbours or rivals—whichever term is preferred—would be left in exactly the same position as before. But in fact that is not what happens.

Even under this Order, which increases the total by only just over 1 per cent., the prescribed amounts are varied. For example, the prescribed number of £s for the population factor is increased from £6·69 to £6·74, an increase of about ¾ per cent. To that extent, therefore, the population factor is made rather less important. Most of the other factors mentioned in the Order—that about children under 15, that about the under-5s, that about the over-65s, and that about the excess number of school children—are increased by about 1⅔ per cent., that is to say, more than the increase in the aggregate sum. Those factors, therefore, are being given more importance. Certain factors which are not mentioned in the Order, for example, road mileage, are being regarded as less important. A similar conclusion emerges from the figures for 1962–63.

What this adds up to is that the Government are increasing the total amount and, in deciding how to distribute that increased total, are very slightly increasing the weighting in favour of those authorities where the significant factors are the number of children under 15 years of age, the number of persons under 5 years of age, and the number over 65 and in favour of those authorities which have rather more school children in proportion to their total population than the average authority has.

If we ask why that is done, I take it that the answer will be that the reason why the total has been increased is in respect of services that are connected with those factors, the education factor which is affected by the number of school children and the number of persons under 15 and, say, the welfare services factor which is affected to some extent by the number of people over 65.

What does that mean? It means that these nice adjustments are really an attempt again to make the grant something like a specific grant. When one comes down to how much each authority is to get, one pays attention to the extent to which it will have to expand particular services. At the end of the day, therefore, we have an extremely complicated bit of mathematics, the purpose of which, and to some extent the result of which, is to try to make the whole thing look as much like a percentage specific grant as possible.

I conclude as I began by saying that the Government have not been able to get away from the fact that help to local authorities ought really to be in the form of percentage specific help. They do it now by a rather more cumbrous method than they used to, and they do it by a method which is still a permanent discouragement to the authority which wants to act as a pioneer of services. That, at any rate, is the general moral that we draw from the study of this as of other general grant increase Orders.

I find it difficult to draw any general moral from the speech of the hon. Member for Fulham (Mr. M. Stewart). He has rather blinded us with a somewhat complicated mathematical formula. The Government do not agree with the hon. Gentleman's preliminary remarks about the general grant, but this is obviously not an appropriate moment to determine whether or not the provisions of the 1958 Act ought to be looked at or whether they are working well.

No doubt the House will recall the comments of the Plowden Committee on the control of public expenditure, Cmnd. 1432, which said in paragraph 42:

"There has been the substitution of the general grant to local authorities for the former specific grants for education, health, fire service and a number of others; it is early to make a judgment of the success of this, but the principle that has been adopted of putting the primary incentive for economy on the spending authority seems to us to be undoubtedly right, and we hope that the scope of the general grant will be extended as further experience is gained."

The hon. Gentleman says that the fact that we have to bring forward these increase Orders from time to time shows a Jack of foresight on the part of the Government. He immediately went on to concede that this criticism was a little unfair and that most of the items dealt with in this increase Order could not possibly have been foreseen. The Act of 1958 requires the grant to be fixed having regard to the current level of prices, costs and remuneration. When the Government's policy of stabilising prices has borne fruit no doubt we shall not need quite so many of these increase Orders.

If one looks at the figures in the Report one sees that they cover items like awards under the Anderson proposals which could not have been foreseen at the time. They also make allowances for awards to members of the fire brigades, and increases in costs and pay of the amounts specified in the Report on the Order. It is not relevant to discuss in any way whether these increases of pay are adequate or not. This is a matter for negotiation through the usual channels and I should have thought that we could safely leave this to the local authorities and their negotiating committee.

The hon. Gentleman went on to suggest that as a result of this Order the proportion of the grant paid by the Government towards the total expenditure of the local authorities had been marginally reduced. This was a matter which we discussed during the debate in March, and I think got into a little confusion, because the hon. Member for Widnes (Mr. MacColl) said that in 1958–59, before the first general Order was made, the proportion of expenditure met by the Government was 56·4 per cent. and that now it was under 55 per cent. But, as I pointed out at the time, the hon. Gentleman did not have regard to the fact that it is not possible exactly to compare one year with another in regard to these Orders. The hon. Gentleman omitted to take account of the effect of rerating which meant an adjustment in the grant of the figure of £6·75 million. As a result of this Order, the Government's contribution is marginally increased.

At the time of the first increase Order in March, I said that the percentage was 55·4, marginally down from 55·5. That was a result of rounding down. Under the new Order there is a measure of rounding up, and so, as far as this second increase Order is concerned, in respect of next year the figure now is 55·8 or, if the amount for the "CATs" is not deducted the percentage will be 55·4. The hon. Gentleman is right in saying that regard has been had to the decrease in expenditure as a result of the transfer of responsibility for these colleges of advanced technology.

It is not true to say that the local authorities do not get a bonus from this. The £69·39 million additional expenditure on education is gross. In other words, £6·48 million is not deducted from the starting figure of £716·71 million. The local authorities get a bonus from the transfer because they are relieved of the rate-borne expenditure on them and the grant is less by only 56·3 pet cent. of the £6½ million involved.

The hon. Gentleman went on to deal with the distribution formula. This was touched on only briefly during the debate in March. I am sure the hon. Gentleman is aware that it is of the essence of the general grant that a fixed total is distributed among individual county and county borough councils by reference to objective factors not under the control of the authority, but which influence the rate of expenditure. The formula has been agreed with the local authority associations. It is a distribution on the basis of a number of factors, on the basis of population weighted by reference to the number of children, the proportion of schoolchildren, population density, sparsity, and so on.

A deduction is made of the prescribed product of the rate. Factors which have to be taken into account are contained in the Act but the weightings to be given to them are, by design, not contained in the legislation but are fixed for each period by a general grant order. The point, therefore, at which one considers whether one ought to vary the weightings to be given to the factors is at the time of the general grant Order, and no doubt it will be possible for suggestions to be put forward before we have the next general grant Order for a variation in the light of changing circumstances.

I said that I thought this was an equitable way of doing it, and I believe that that is night, because we discussed these matters very carefully with those concerned. We have not been ungenerous in our dealings with the local authority associations in this matter. That is why I think we manage to get the agreement which the hon. Gentleman seemed to find so surprising. As I said during the debate on the March Order, there was a short-fall of the estimated expenditure of the local authorities in 1959–60 of £16 million. That means that they got £9 million more grant than they might have been expected to receive if the figure had been exactly right. In 1960–61 there was a short-fall of £3·2 million so they got about £2 million by way of extra grant.

If they did not agree we should have to explain to the House—as the hon. Member so cleverly pointed out—that there was no agreement. But in the case of this Order, although it is quite a complicated business, we have managed to achieve agreement. We can bring this forward as an effective agreed Order. This is because the Government have behaved fairly in dealing with the general grant, as they promised to do when the 1958 Act was passed. Local authority associations, for their part, have behaved very responsibly, as we have always expected them to do.