Michael Heseltine – 1991 Statement on the Local Government Finance Settlement

The statement made by Michael Heseltine, the then Secretary of State for Environment, in the House of Commons on 17 January 1991.

With permission, Mr. Speaker, 1 should like to make a statement about the local government finance settlement for 1991–92.
On 31 October, my right hon. Friend the Member for Bath (Mr. Patten) announced the Government’s proposals for next year’s finance settlement. As the House will know, since then I announced that the Government are undertaking a fundamental review of the structure and finance of local government. We are looking both at longer-term changes and at changes that we might implement in the short term. My statement today deals with the changes that we can make for next year, but announces first our decisions following consultation on the finance settlement for 1991–92.

I have considered carefully all the representations that we received on the proposed finance settlement from the associations and from individual authorities. My hon. Friends the Minister for Local Government and Inner Cities and the Parliamentary Under-Secretary responsible have reported to me on the meetings that they held with a number of authorities.

My predecessor’s proposals envisaged that it would be appropriate for local authorities to spend £39 billion in aggregate. That is an increase of 19 per cent. over the corresponding figure for 1990–91—a very substantial increase. It follows an increase of 10 per cent. for this year over last year, and takes account of the fact that local authority spending has grown substantially in the last three years. I am satisfied that £39 billion is fully sufficient for local authorities’ services, taking account of all the pressures that local authorities face, as well as the scope for saving and what the country can afford.

I considered the representations that were made about the methodology for calculating standard spending assessments. My right hon. Friend had proposed a number of improvements for 1991–92, and with those improvements in place, I am satisfied with the method for calculating SSAs for 1991–92.

My right hon. Friend proposed that aggregate external finance—that is, central support from grants and from business rates—should be set at £26.05 billion—an increase of 12.8 per cent. on this year’s settlement. I considered very carefully the argument for providing a greater level of support from national taxation to reduce the burden on community charge payers generally, but I concluded that in the present circumstances—notably those in the middle east—no further increase can be afforded in the amount of AEF beyond the increase of nearly £3 billion already proposed. So I confirm today that figure for the increase in aggregate external finance.

I am therefore fixing AEF and its distribution on the basis described in the consultation paper that was issued on 31 October. I have placed in the Vote Office, and have sent to local authorities, exemplifications showing the final standard spending assessments and grant entitlements for each authority that will follow from the settlement. The formal reports will be laid before the House shortly and debated in the normal way.

When we moved from rates to the community charge, the Government were concerned to protect many of those whose bills rose significantly as a result of the changes. We therefore introduced some transitional relief to protect those former rate payers, and elderly or disabled people even if they did not pay rates.

My predecessor announced in July improvements to the transitional relief arrangements that would take effect in April. The Government have reviewed the impact of those arrangements, and we have decided that they are no longer adequate for the present circumstances. We intend to replace them from April with a community charge reduction scheme that will reflect the improvements already announced but provide considerably more help.

The new scheme is designed to help those whose bills have increased significantly over what they paid in rates. It will continue to limit increases over rates. This year, the limit is £3 a week. The limit next year will be £2 a week, as previously proposed—but unlike the transitional relief scheme, the new scheme will be based not on notional charges but on actual community charges after allowing for the unwinding of the safety net. Sadly, in many areas local authorities increased their spending by much more than we had provided for in the settlement, and almost all actual charges were higher than those notional charges.

As I shall explain, the new scheme will provide help for many of those in sheltered housing who largely did not qualify for transitional relief. The new scheme will reduce the amount paid in charges by £1.7 billion—of which £1.2 billion is new money—compared with £350 million of transitional relief this year. The number of people receiving help will go up from about 7 million this year to more than 18 million next year, which, as the House will realise, represents more than half of all those liable to pay the community charge.

The House will be aware that many people who lived in sheltered accommodation were ill-served by the old scheme. No matter how many people live in a sheltered housing scheme, in many cases they shared an entitlement to transitional relief as if there were only two people living there. Under my new scheme, most individuals or couples in such accommodation will be able to qualify for a reduction in their own right. Within the new scheme, that will provide about £150 million of help for these people. I know that that change will be warmly welcomed.

I also propose that my new scheme will give more help to people who previously benefited from charitable rate relief. It will require local authorities to take account of charitable relief granted under the General Rate Act 1967 when calculating the assumed rates bill. Among those who will benefit will be clergymen who live in church accommodation and elderly people who live in almshouses or other accommodation provided by a charity. Further details have been sent to local authorities today. Copies of the letter are in the Vote Office.

My right hon. Friend the Chancellor of the Exchequer is making a separate announcement on the wider public expenditure and financing implications of the new scheme.

By adding the new scheme to the increase in AEF announced by my predecessor, the Government will be providing more than £4.25 billion extra support for England alone towards community charges next year than has been given this year. In addition, there is help from community charge benefit, which is paid to about 10 million people and is running at nearly £2 billion this year.

Given the extensive help available from relief and benefits, it is not surprising that the community charge that people actually pay on average is much less than the figures that local authorities have announced as their charges. This year, although the headline average charge was £357, the average amount payable was only about £280. Next year, provided that local authorities budget in line with the realistic provision that we have made, it is within their power to ensure that the average amount actually paid is less than £300.

It is of the utmost importance that that additional Government help should go to the benefit of charge payers, not to finance higher spending. In October, my right hon. Friend announced the criteria that he was minded to adopt in using his powers to cap excessive budgets, or excessive increases in budgets between years. I should make it clear to the House and to local authorities that I stand firmly by the intentions that he then announced. Let nobody think that the additional support means that authorities can relax their efforts to control spending.

The finance settlement I have announced and the new community charge reduction scheme reflect the Government’s commitment to financing local government. It will now be for local authorities to provide the services that their charge payers want, at a price that their charge payers can afford.