RATES
Mr. Speaker
Almost 50 right hon. and hon. Members have told me that they want to speak in the debate which is to follow. We are starting rather late, which is not altogether my fault, but with a selfdenying ordinance all round, including both back bench and Front Bench speakers, perhaps we shall be able to manage fairly well as we have done on previous occasions, including in particular one or two occasions in the last Parliament.
I understand the anxiety of hon. Members who have a strong constituency interest in the subject of the debate. I shall do my best, but there is no point in hon. Members coming to the Chair to ask about their chances of being called. However, if they indicate that they can say what they have to say in five minutes, it might improve their chances.
4.25 p.m.
Mrs. Margaret Thatcher (Finchley)
I beg to move,
That this House, in view of the massive increases in rates in many areas greatly in excess of the growth of incomes, stresses the need for a fundamental reform of the rating system; and urges Her Majesty's Government to introduce a measure of interim relief this year for the benefit of those worst affected and to provide that water and sewerage charges should rank for rate rebate.
The motion is deliberately phrased in moderate terms. The purpose is clearly stated—it is to help the ratepayer now. The motion contains three parts—we try to deal first with the immediate situation, then the longer-term situation and finally the question of water and sewerage rates.
With regard to the immediate situation, people have for years complained about rates, but they have paid them, usually on time. The losses to the local authorities through failure to pay have been minimal. This year not only have there been the most vociferous complaints ever but people have been threatening to withhold payment of rates, or that part of the rates [column 1751]which exceeds money growth in incomes, which, taking the personal disposable income as a yardstick, was 12½ per cent. between the end of 1972 and the end of 1973.
Over the years local authority expenditure has risen faster than the growth of the economy. In spite of attempts to relieve the burden on ratepayers, the weight of tax on the ratepayer has risen. While over the years there have been anomalies in the rating system, so long as the amount raised by rates was comparatively small people would bear the anomalies. But when the amount to be raised became larger than ever before people naturally objected strenuously.
The right hon. Gentleman Anthony Croslandthe Secretary of State and his right hon. Friends will have seen innumerable deputations from the countries. After they had seen him, or one of his Ministers, they came to see me. There have been deputations from many parts of the country, including Cornwall, Northampton, Norfolk, Somerset, Lincolnshire, Dorset, North-East Derbyshire and Cheshire, and also from the newly-formed ratepayers' action groups.
All those people have been to see us about increases in rates, the reasons for which I shall try to analyse in a moment. Their rate demands show increases of up to, and occasionally in excess of, 100 per cent. Many of them have increases of between 70 and 80 per cent. These increases go far beyond anything for which they have budgeted, and many of them are in no position to pay.
That is the position in many parts of the country, particularly, but not exclusively, in those areas adversely affected by the abolition of the variable domestic relief.
The right hon. Gentleman, much as I regret it, is in the seat of power, and he is the only person who can now introduce a major relief. He and his Ministers justified rent freezes on the ground that if people's incomes were restrained it would be wrong if their rents were to be increased. Similar reasoning could also be applied to rates.
I make it clear that, although people are threatening to withhold their rates, I would never advise anyone to withhold rates contrary to the law. Any member of any Opposition who urged people to [column 1752]disobey the law would morally have forfeited the right to expect others to obey his Government's laws. Unless the rule of law is upheld, society will have lost its most valuable asset. But if that is our advice to our constituents, when we are presented with genuine and serious grievances by the most law-abiding citizens it is our duty to try to redress those grievances.
The Secretary of State has a choice—he can do something or he can do nothing. I can assure him that if he had my hon. Friends behind him he would not be allowed to do nothing.
Mr. Max Madden (Sowerby)
Can the right hon. Lady tell us what obstacles to reform of the rating system the Conservative Government were confronted with?
Mrs. Thatcher
I think that the hon. Gentleman will know that neither party has managed to reform fundamentally the rating system. That is not the only question at issue, and I will come to it later. At the moment, I am concerned with the short-term problem in which people are faced with massive increases which, try as they will, they cannot meet. This is causing many human problems which must be as well known to hon. Members opposite as they are to us. The Secretary of State will doubtless try to blame it all on us. I shall, therefore, trace the events which led to the rate support grant order which was issued by the right hon. Gentleman in March.
First, a thorough reorganisation of local government was required, which, presumably, was why the last Labour Government set up the Redcliffe-Maud Commission. In spite of criticism, the terms of reference of the commission failed to include the financing of local government. Yet it would have made sense to consider the powers of local government and one's belief in devolution and dispersion of power along with the method of financing local government. That was the only sane and proper way to do it.
Secondly, my right hon. Friend the Member for Worcester (Mr. Walker) introduced reorganisation. It was a measure different from that proposed by the then Opposition, but I believe that any measure involving larger authorities would have had substantially the same [column 1753]effect. The economies of scale are often elusive, and “bigger” tends to mean “dearer” . When it came to deciding to which tier education should go in the metropolitan areas, the then Opposition urged me to put it to the top tier. I refused to do so and kept it with the smaller authorities. “Bigger” again would have meant “dearer” , and I believe that keeping education to the lower tier means a more personal service.
Thirdly, the Conservative Government moved some small blocks of expenditure away from local authorities to central Government. In particular, the local health services and 90 per cent. of the cost of students awards were moved to the central Exchequer to protect the ratepayer. The saving to local authorities at November 1973 prices was some £348 million, and if we had not done it that burden now would go on the ratepayers.
Fourthly, unlike the right hon. Gentleman, we believe in containing local public expenditure. To substantiate my accusation, I will quote from a speech made by the right hon. Gentleman to the Labour Party's local government conference last year. The report was published in The Guardian on 12th February 1973. The report quoted him as saying:
“At a time of high taxation—and taxation should be high under a Labour government if we are to carry out our social programmes—we shall never find another source of as much money as accrues through the rating system.”
It is quite clear that the right hon. Gentleman believes in high taxation. We, on the contrary, usually succeed in having lower taxation, and this cannot be achieved without rigorous scrutiny of local expenditure for the purpose of determining the amount of relevant expenditure. Last year, when we were doing the relevant expenditure estimates, my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) announced in December a reduction in expenditure of which £111 million was to be saved by the local authorities. The present Government have adhered to those cuts, although they had denounced them in Opposition. If those cuts had not been made, the rates would be still higher now.
A level of inflation of 9 per cent. was the position at which the expenditure level for local authorities was finalised. It is, [column 1754]of course, customary to take care of any further increases by rate support grant increase orders. The final result of the relevant expenditure negotiations permitted a growth of only 2½ per cent. in local authority expenditure in real terms over the previous year.
Some of the authorities which have suffered the biggest rate increases—and I have been over the accounts of Somerset and Norfolk in particular—are those which have adhered in every respect to the last Government's request for economy. They have implemented the cuts; they have allowed for only 9 per cent. inflation; some have even had to lower the standards of their services to protect the ratepayers. But, even having done all these things, they are faced with rate increases on declining services in excess of 50, 60, 70 or 80 per cent. My own local authority managed to keep to an increase of only 9 per cent. for inflation—and I remind the House that I represent a London constituency. The Chairman of the Barnet Finance Committee said:
“The Conservative Government in making every determined effort to control inflation requested local authorities to reduce capital expenditure by 20 per cent. and revenue expenditure (excluding salaries, wages and loan charges) by 10 per cent., so as to limit the increase in the domestic rate to 9 per cent. This has been done so far as Barnet's own expenditure is concerned, and the increase for domestic ratepayers would have been no more than 9 per cent. had the Greater London Council played its part in a spirit of co-operation in the true interests of the ratepayers and the country as a whole.”
Next, a rate support grant representing the highest percentage grant of all time, was made to local authorities to help them to keep the rates down. It meant 60.5 per cent. of their relevant expenditure being met by the taxpayers—a further effort on the part of the Conservative Government to reduce the rates payable.
Mr. David Ginsburg (Dewsbury)
The right hon. Lady has omitted from her historical catalogue the order for mandatory differential rating, laid by the Secretary of State for the Environment in the Conservative Government on 7th February, not long before the General Election. It led to substantial increases in rates, including my constituency.
Mrs. Thatcher
It is true that we laid an order for mandatory differential [column 1755]rating. I agree also that the Local Government (Finance) Act was hurried through the other place in one day, otherwise some other amendments might have been made. But it was vital, when we had the election, to get the Act through in one day. The new formula for the distribution of that grant was slanted to the benefit of the cities—sufficiently, we thought, bearing in mind the needs of the rural areas.
The right hon. Gentleman knows that a sum of £448 million was allocated to domestic rate relief, and in principle this was to be distributed on the basis of the largest increase in rates to warrant the largest relief. Those increases in rates which ranked for relief included water and sewerage rates. At the time when those allocations were made by us on that equitable principle local budgets had not been made up.
Mr. Joseph Dean (Leeds, West)
When the right hon. Lady speaks of “fair and equitable” does she consider the fact that some people in Cornwall were receiving as much as 40p personal assistance on their rates as against 7p in the Trafford area? Is that her idea of “fair and equitable” ?
Mrs. Thatcher
But the reason they were to receive 40p was that otherwise they would have suffered the largest rate increases. It seems to me to be an equitable principle that those who suffered the largest percentage increase should have received the largest amount of relief.
Mr. Joseph Dean
rose——
Mrs. Thatcher
I am sorry, I cannot give way again. As the hon. Gentleman's right hon. Friend gave 33p to Wales he must have recognised the need for some differential between the needs of Wales and England. When we allocated the domestic relief on the basis I have indicated the local budgets had not been drawn up and we were working on the basis of calculations. There were a few exceptional areas, and Trafford is one, where I believe the calculations were wrong, and corrections would have had to have been made when the facts became known; but before the facts became known a General Election intervened, and when the right hon. Gentleman came to do his computer runs the budgets were known and he had all the [column 1756]necessary facts in order to distribute the £448 million on a different equitable basis if he wished. I will give way for the last time.
Mr. Kenneth Marks (Manchester, Gorton)
The last communication which the Conservative Government sent to local authorities informing them of the domestic rate relief was on 20th February. Is the right hon. Lady suggesting there would have been some changes in local government estimates then, and is she suggesting that any more money would have been forthcoming from a Conservative Government seven or eight days later had the election gone the other way?
Mrs. Thatcher
I do not think the hon. Gentleman can have been with us when we debated the rate support grant order or he would have heard me refer to the similar situation we got immediately after rating revaluation when, after the facts were known, more money was made available because my hon. Friends insisted that it should be. In fact, the right hon. Gentleman altered the whole distribution of the £448 million domestic relief. That aggravated the situation in a number of rural areas already facing serious problems, and they are rightly resentful of that.
When the right hon. Gentleman came to allocate the relief the facts were known, and he could have had a different system of distribution so as to have alleviated some of the 70, 80 or 90 per cent. increases had he chosen to do so. He did not choose. He himself called it rough justice and used the word “capricious” . We say it was not justice but was very rough and capricious. Reports of increased staffs for the new authorities were rife and among the offenders were some of the new Socialist authorities; and some of the bitterest attacks in council were those made by Conservatives on the Metropolitan counties for putting the staff up beyond any reasonable assessment of need. I have with me copies of a speech by Alderman Bellow, of Leeds, and attacks made on the West Yorkshire Authority for the very extravagant policy it was following. My right hon. Friend the Member for Crosby (Mr. Page) in January ordered an urgent inquiry into complaints about extravagant overstaffing and excessive salaries of chief officers in [column 1757]reorganised local councils. We are still awaiting the result.
All these steps were taken by the Conservative Government to try to protect the ratepayer from severe increases. We could not protect him from local authority expenditure above the limit of relevant expenditure. All the extra fell heavily on the ratepayer because it would not attract grant, but that is a matter for the local authorities themselves. The domestic relief which has now been given by the right hon. Gentleman on the basis of an equal 13p and 33p in Wales would not be altered or taken back, so this year we have to accept the right hon. Gentleman's distribution and its consequences. But unless some extra interim relief is found to help those worst affected in time for the autumn rates demand we can see a bitter and desperate situation developing.
There is a precedent. A. BarberMy right hon. Friend the Member for Altrincham and Sale after revaluation was faced with rating anomalies. I told the right hon. Gentleman the last time we debated the rate support grant that my right hon. Friend made available a sum of money—I agree a much smaller sum than would now be required—for relief that year. The right hon. Gentleman will by now have a full list of rate demands and knows the percentage increases over last year. I have only the limited list published by the Rating and Valuation Association. The kind of order needed and the distribution would have to be left to his Department in consultation with the local authorities, as was the case when we had the other relief after rating revaluation.
I quote what my right hon. Friend then said in his Budget speech on 6th March 1973:
“After discussion with the local authority representatives, the Government therefore propose to phase the effects for those hardest hit by meeting half the cost above 10 per cent. of any increases in domestic rate bills in 1973–74 which are attributable solely to the effects of revaluation.” —[Official Report, 6th March 1973; Vol. 852, c. 268.]
In this case, when the facts were known we took action. We did not limit ourselves to expressions of sympathy. I must tell the right hon. Gentleman that deputations have been received most courteously by his Department. His Ministers have been very sympathetic. It is simply [column 1758]that they have failed to take any kind of action afterwards.
There is one point I should mention before leaving the question of interim relief, arising from a deputation from North-East Derbyshire including the area formerly administered by the urban district of Clay Cross. At its meeting on Saturday last, the North-East Derbyshire District Council passed a resolution calling on the Minister to allow the council to levy a special rate on Clay Cross sufficient to cover the amount of any deficit inherited from that council. It is impossible to be precise about the amount of the deficit. It could be as little as £75,000 or as much as £500,000.
There is strong feeling among the ordinary people in North-East Derbyshire, regardless of their usual party affiliation, that no part of that deficit should be paid by the people of North-East Derbyshire other than those who live in Clay Cross. Ten of the parish councils in North-East Derbyshire have already indicated to the district council that they are not prepared to meet any part of the deficit. There exists in North-East Derbyshire a situation in which a great many ordinary people may find themselves disobeying the law by refusing to pay any rate which relates directly to the Clay Cross deficit. In our view the Government must give favourable consideration to relieving North-East Derbyshire from the burden arising from Clay Cross and I hope they will do so.
I shall now say a few things about the longer-term position on rates. As a result of Question Time today I understand from what was said by Harold Wilsonthe Prime Minister and from the amendment that Anthony Croslandthe right hon. Gentleman has put down that he is going to announce—to quote the words I expect to hear from him later— “a fundamental review of local government finance” . Most of us would welcome this but I am not quite sure what kind of review he will announce.
May I urge what we on this side have come to know as a James-type inquiry? We feel that a Royal Commission takes a very long time. When we had an inquiry on teacher training it was of a different kind. We took a comparatively small number of people, about seven or eight, and asked them to sit fulltime and report within a year. The James inquiry did that. I think [column 1759]that the situation now is such that people would wish any fundamental review to be undertaken quickly and not at the rather leisurely speed which is customary with reviews meeting only once a week or once a month and embarking on a great deal of research.
I should like to make some further points about the longer term. First, any fundamental changes must be considered in conjunction with the powers of local authorities, their degree of independence and the nation's philosophy on the distribution of power. Local authorities carry out their tasks better than Whitehall could, although many of us may have criticisms of the way that some of them discharge their duties from time to time.
Second, before adopting major changes local authorities would have to be consulted. That is obvious. To do otherwise would be high-handed and arrogant.
Third, I accept the thesis not wholly accepted by some of the many local authorities that I have seen that the Chancellor should have control over the level of public expenditure. As local authority expenditure is arranged now, he has not got the control, particularly on the revenue side. For example, in 1973–74 the difference on the estimate and the provisional outturn of local authority expenditure was over £200 million in real terms. That can make a serious difference to the Chancellor's Budget.
I accept that the central Exchequer must be able to determine the top level of local authority expenditure, but to do this the Chancellor must give himself the requisite powers.
This becomes even more important when considering the possible transfer of further items of expenditure from the local to the national budget. We transferred nearly £350 million worth. I believe that we should get the worst of all possible worlds if the Chancellor had to raise more tax to meet the transferred expenditure and local authorities then added further items to their budgets instead of reducing the rates proportionately.
Fourth, I hope that the review will involve an investigation into the consequences of financing local authorities in block grant money terms rather than the present method. This would give strict [column 1760]control over the upper limit of expenditure. It may be objected that such a scheme would mean the end of local authority independence. I do not think so. A similar method is used for financing the universities, and no one suggests that that is an example of central control. Rather it is quoted to illustrate university autonomy.
Fifth, a review body would obviously look at the effect of a local income tax on various income groups in different areas where wages and salaries varied greatly and at the varying income from a sales or turnover tax.
I should be grateful if at some stage today—perhaps in the reply—I can be given the answer to one particular question. I have the impression—perhaps past experience comes in—that the Inland Revenue could not at the moment contemplate the administration of another tax because it is still very much occupied with the work involved in moving to a tax credit scheme. If so, the option of a local income tax would be closed for some time.
Sixth, any change in the system of local government finance should not involve the creation of a new bureaucracy to operate it. People do not like it and it would be expensive compared with the tax collected.
Seventh, there will be cities with special problems which need special subventions of a kind for which the rate support grant, I admit, is not at present fitted. London will be in difficulties later because of the awards recommended in the Pay Board's report on the London allowance. I understand that that will rank for relevant expenditure, but there is no way of ensuring that the grant attracted by the expenditure will find its way into London where the expenditure is incurred. We must find a way of getting special grants to cities with special problems.
I turn now to the third part of the motion relating to water and sewerage charges. To put it mildly, the demands of the new authorities have in many areas been unexpectedly high. The right hon. Gentleman's answer no doubt would have been nationalisation. But bigger still would probably have meant dearer still. I hope that someone in his Department will go through the demands of the water authorities to see whether they are [column 1761]justified. At a time when their capital expenditure has been cut, it is difficult to understand why they should be making such heavy demands. I suspect that they may be attempting to build up a reserve out of the rates for the first year or two years. I trust that the right hon. Gentleman is carrying out the same kind of monitoring as did my right hon. Friend G. Pagethe Member for Crosby on rates during the early period of counter-inflation. I believe that due to his action the rate increase that year was prevented from rising still further.
Mr. Cledwyn Hughes (Anglesey)
Will the right hon. Lady give way?
Mrs. Thatcher
No. I have given way many times already. I am concerned to continue, because many of my right hon. and hon. Friends wish to speak in the debate.
Many deputations have reported the difficulty of getting adequate information from the new water authorities. The authorities must be told to give the information that is required. I hope that the right hon. Gentleman has made that perfectly clear.
The problem of a charge for a sewerage or water service which is absent has arisen many times. The final insult was having to pay to have a septic tank emptied in addition to paying the main drainage rate. [Interruption.] We discussed this matter on the Control of Pollution Bill. I pointed out that in the Bill the Government had retained the power of local authorities to make a charge. I suggested that that power should be deleted from the Bill. The right hon. Gentleman has power in Section 30(1) and (6) of the Water Act 1973 to give directions to the water authorities regarding charges. My hon. Friend the Member for Hornsey (Mr. Rossi) and others of my hon. Friends also took up that point in Committee on the Control of Pollution Bill. The right hon. Gentleman is creating many difficulties which do not really exist.
On the allowance for rate rebate, the right hon. Gentleman will no doubt point to the previous Government's decision at the earlier stage of the Bill dealing with local government finance not to let it be rebated. We took account of the increases in water and sewerage rates in distributing domestic relief on a variable basis. The [column 1762]present system has reduced that because it was an even distribution.
The only further relief I can find that was provided by the previous Government is in a letter of 29th January, 1974 from the Department to local authorities and water authorities which stated:
“The charge is also not subject, in principle, to remission on grounds of poverty, but the Department accepts that it would be unreasonable to expect a rating authority who allowed remission of rates on these grounds in any case to proceed to recover the charge in that case. They will be authorised therefore to treat as irrecoverable the sewerage charge payable by any person to whom they or the magistrates have remitted the rate and should take this into account in estimating losses on collection.”
The right hon. Gentleman will have noted that some of my right hon. and hon. Friends have tabled an amendment to the Finance Bill to secure full rebate for water and sewerage charges. We fully support that. I hope that the Government will now take steps to deal with these matters, because there is very strong feeling about them.
The Government amendment refers to the effects of inflation. The rate of inflation over the last 12 months was published on Friday. On Saturday 22nd June The Times said:
“The recorded rise in retail prices over the last 12 months has now edged up to 16 per cent. The annual rates of change have been 22.1 per cent. over the last half year and 25.3 over the last three months.”
So the rate of inflation is now accelerating. What hope, therefore, for the ratepayer next year? [Interruption.] I shall not make a point about the accelerating rate of inflation. My point is that even an increase of 16 per cent. through inflation does not and cannot account for increases in rates of anything up to 100 per cent. It is absurd to try to use that defence to suggest that it does. The right hon. Gentleman knows that, but that is his chosen defence in his amendment.
The situation has been made infinitely worse by the right hon. Gentleman's own decisions in respect of some of the towns and the rural areas and his attitude to expenditure to be borne by the ratepayer. If he refuses to redress this grievance, if he and every one of his hon. Friends on the back benches refuse to grant a measure of relief, he will deserve and receive the censure of the nation.