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Mr. Paul Flynn (Newport, West) : The town of Newport has been uniquely punished by the settlement. Newport's block grant for 1989-90 is to be £5,810,000--a mere £245,000 higher than the grant for the current year, if the council spends precisely at the level that the Welsh Office is assuming for grant purposes. It represents an increase of 4.4 per cent. in grant, which is expected to cover inflation--the Government forecast that it will be 5.3 per cent.--the preparation costs for the community charge, which the Welsh Office estimate will amount to £450,000, and the library service in Newport, which is being transferred in April from Gwent county council at a cost of about £1 million.

Newport is sharply disappointed about the settlement. Just four weeks earlier the Welsh Office published provisional information about Newport's claim. The

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Secretary of State said that these sums are sometimes beyond the comprehension of ordinary people, but the extraordinary people in the Welsh Office and in Government got their figures wrong to the tune of 55 per cent. The settlement means that Newport's grant for next year will be £318,000 lower than the previous settlement.

The grant settlement implies a rates increase of 16 per cent., if we disregard the libraries. We do not know whether the county council precept is to be reduced. If it is not, there will be a 21 per cent. rates increase. But it could be even worse. The Government's assessment of inflation at 5.3 per cent. appears very optimistic, especially as local authorities are affected mostly by pay inflation. Inflation is running at about 6.4 per cent., but pay inflation is about 9 per cent. Interest rates are high and seem set to remain high for a long time.

The Welsh Office has produced an arithmetic explanation for Newport's grant, but that has highlighted and concentrated attention on the Byzantine intricacy of the scheme. It may be thought reasonable to bamboozle members of the public and ratepayers, but it is not a good scheme if it manages to bamboozle the experts who administer it so that they produce an error of 55 per cent. If Newport increases expenditure by 5.3 per cent. for inflation and adds the community charge preparation costs, the grant settlement implies a rate increase of at least 16 per cent. The Welsh Office consoled Newport council by saying that it was no worse off than 12 other Welsh councils. How do we square that with what the Secretary of State said about modest rate increases? We have to look to the transfer of the library services and perhaps the Secretary of State can tell us something about that when he replies.

For some 18 months we have had the experience of the Secretary of State for Wales in his intensive peregrinations around the country stirring up a manic optimism which has had a considerable effect in Wales. Last Friday the first national opinion poll showed that since the Secretary of State took office support for Labour has risen by a heartening 8 per cent. and support for the Conservative party has plummeted. There is a record number of Labour councillors on Newport borough council and Labour gained four seats in this year's election. That is not entirely due to the Secretary of State for Wales and his contribution to Welsh life, although he has contributed to the resurgence and consolidation of the strength of the Labour party in Wales. It is also due to the work of the local authorities. The Newport local authority has a splendid record of fine stewardship of the town's affairs, and providing good services at good value prices.

The people of Newport will not blame the local authority for the swingeing increases. They will point the finger for the unreal and unfair settlement at the Secretary of State. He is picking the pockets of the ratepayers in Newport.

11.32 pm

Mr. Dafydd Wigley (Caernarfon) : I too associate myself with the remarks about the late Brynmor John. We offer our condolences to his family, and to the hon. Member for Alyn and Deeside ( Mr. Jones), the Front Bench spokesman for the Labour party, who suffered a bereavement recently.

Last week when the Secretary of State made his statement in the House about the settlement, I asked him

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why the expenditure sub-group of the Welsh Consultative Council on Local Government Finance had established a figure for the needs in Wales £13 million greater than the amount he is delivering. We are getting substantially less money than that committee thought necessary to meet the varying needs in Wales. The Secretary of State responded by saying that the sub-group did not include in its calculations the potential for improved efficiency. One can talk about improved efficiency year after year, but there is a danger of constantly expecting squeezes and cuts from local government. Ultimately that becomes counter-productive as the services that are so badly needed in Wales, particularly in areas where incomes are low and the dependency on the services is high, cannot be delivered. Looking at the recommended settlement for 1989-90, the grant-related expenditure for district councils shows a very great variation from area to area in Wales. The average expenditure per capita is £106. Not surprisingly, the highest is Rhondda, with grant-related expenditure of £146 per capita recognising the very great needs in Rhondda. Monmouth is the lowest, spending £81 per capita. That shows a plus and minus around the mean of about 25 per cent. That is a very great fluctuation. It is surprising that in areas such as Montgomeryshire, with a figure of £81, there is rural deprivation. Areas such as the Lliw valley or Neath, which has urban problems, are well below the average.

As the scatter is so great for district functions, one is surprised at the great homogeneity in the determination of grant-related county council expenditure, to the exclusion of Powys. That is very high because of the rural nature of the area. The scatter of about £535 per capita is very tight. One wonders whether the mechanisms are sensitive enough to identify the needs of these areas and whether those needs are being met.

The Secretary of State spoke about the cost of local government services and about where the money came from. He came down to a residual figure of £5 per week per household. That may not be much in terms of the income levels in the south-east of England, but it must be related to the incomes in some of the poorer areas of Wales. In some of the housing association areas in my constituency the average income is £58 per week. To people on such incomes the figures mentioned by the Minister can be devastatingly high. I realise that such people would not pay the full rate, but even people on an income of £130 a week, which is £6,500 a year--that is the sort of average that one could find in my constituency--will pay the full poll tax. They are above the £125 cut off below which there will be some sort of reduction, and families on such incomes will find this a great imposition.

The Government will find it difficult to sell in Wales the cost of the poll tax administration to local government as well as its impact on those who will have to pay it. There will be considerable resentment.

I realise that housing benefit is not entirely the responsibility of the Welsh Office and does not come entirely within this sort of settlement. Local authorities in Wales will have to face the growing indebtedness of people who are finding it difficult to meet rent arrears. That is having a direct effect on local authority finance and must be taken on board.

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The settlement deals with the future, and many social service changes will inevitably have an effect on county expenditure. We do not yet know where the Government intend to take us in response to the Griffiths and Whiteman reports. Inevitably, the Government have had to make some assumptions about that. They have also had to make assumptions about the movement of people from hospitals to community care. What are those assumptions and what additional resources will be given to the social services departments to meet them? We also wonder about the full implementation of the Disabled Persons (Services, Consultation and Representation) Act 1986, the so-called "Tom Clarke Act." Sections 1, 2, 3 and 7 are vital and have still not been implemented. Has the money for implementing those sections been built into the settlement? There is no mention of that.

I accept that we have seen worse settlements, but many aspects of this one raise question marks, not least on the capital side. Those question marks are raised when one looks at the state of the roads, schools and buildings and the need for capital expenditure in many such areas. One wonders how long the capital side can be kept down without having to pay a long-term price.

The proposals and reports do not answer all the questions that people are asking, especially the questions about the maintenance of services for people who most depend on them. I should like to see in all parts of Wales less dependency on grants. I should like to see in each area an economy that is strong enough to allow us to be buoyant. We have not yet reached that state, but in the meantime I ask the Secretary of State to make sure that those most vulnerable do not miss out.

11.38 pm

Mr. Rhodri Morgan (Cardiff, West) : The Secretary of State's Welsh rate support grant settlement is beginning to follow a pattern established by President Lyndon Johnson about 20 years ago. President Johnson made a speech announcing the great society and said : "From this moment on this Republic is going to declare war on poverty."

Thirty seconds later there was a telegram on the rostrum in front of him from the governor of West Virginia. It said : "Where do we surrender?"

The Secretary of State has said that he does not expect any applause from the Opposition. As far as Cardiff is concerned he is certainly right about that. There is disbelief at the fact that the Secretary of State has said nothing that will resolve the conflict over the missing £2.3 million in the rate support grant settlement for the financial year 1987-88. The Government retrospectively removed it from ratepayers and administrators, although they abided by the Government's rules.

Following correspondence with my hon. Friend the Member for Cardiff, South and Penarth (Mr. Michael), who has more experience than I in these matters, the difference between Cardiff city council and the Welsh Office was narrowed, yet £2.3 million is at stake. Was Cardiff city council remiss in failing to send to the Welsh Office the closed books of its financial affairs for 1987-88? It sent them to the district auditor before 7 July, to the Ministers, to me as a local Member of Parliament but not to the Department. Should the Welsh Office, knowing that the council had closed its books, have shouted across the Welsh national war memorial gardens to the council,

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"You have the figures that we need. We are bringing down the shutters on 7 July ; you have closed your books, but bring them over to us and you will receive your £2.3 million"? As it stands, because of this nit-picking point, Cardiff's ratepayers will lose £2.3 million. Should we believe those completely unbelievable circumstances? I hope that the Secretary of State will resolve the problem tonight.

11.41 pm

Mr. Paul Murphy (Torfaen) : I offer our condolences to my hon. Friend the Member for Alyn and Deeside (Mr. Jones) on the loss of his father. We recognise that it was a considerable burden for him to return to the House today.

This has been a short but important debate. The rate support grant covers the main services in Wales such as education, housing and all the other matters that affect its people. It is interesting that today and a few weeks ago, the Secretary of State used the words "realistic" and "stable". He said that Welsh local authorities would be responsible and would make low rate rises in the months ahead. Having spent a decade as chairman of a finance committee of a Welsh local council, I know that its spending depended on three major factors beyond its control. Councils' spending is affected by the grant that the Secretary of State gives, which is 2 per cent. below inflation, by interest rates, which will rise in the future, and by pay rises. Rises of more than 8 per cent. are more likely than those envisaged in the settlement.

District councils have said for many years that the rate support grant settlement is an annual lottery, and that the money they obtain owes more to chance than precision. The 1987-88 settlement has destabilised at least a dozen local authorities such as Newport and others. The Secretary of State has gone against all accountancy practice and procedure by imposing an arbitrary cut-off point of midnight on 6 July. He should have used the final budget or outturn figures, but anyone with experience in local government knows that it was nonsensical to use the half-yearly review ; there was no proper reflection of what local authorities were likely to spend. By those decisions, the capital city of Wales will be many millions of pounds worse off. My local authority will this year, at a stroke, lose a quarter of its rate fund balances and, as a result of that decision, will have to increase its rates by at least 20 per cent. County councils tell us that rate rises will be at least 4 per cent. above inflation and of the 37 district councils in Wales at least 30 will have rate rises, many of which will be in double figures. Inevitably under this Government, a great number of those councils will be valley local authorities which, by any measure of deprivation, will most need the rate support grant. The Secretary of State is boasting about his valleys initiative. It is some initiative when the rate support grant is being taken away from our valley councils. The mean aspect of the settlement must be the poll tax. Local authorities in Wales asked for £17 million for capital allocation to implement the tax. They got £10 million. They asked for £14 million, spread over two years, for revenue expenditure. They got £5 million. They asked for a specific grant to cover the cost of the implementation of the poll tax. They got the block grant with all its vagaries. That is the measure by which the Secretary of State considers that local authorities can afford to implement that tax.

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No Opposition Members are particularly displeased that this is the last rate support grant settlement. No one will mourn them. After all, they have been over-complex and, over the years, have been full of jargon and gobbledegook. Most significantly for the people of Wales, the settlements have consistently underfunded Welsh local government. There is not a shadow of doubt about that.

The Secretary of State tells us that things will improve. We believe that worse will follow. Wales will have to face a revenue support grant which, although simpler, is unquestionably more unfair. Wales will have to face a business rate which will give the Secretary of State much more power over local authorities and will break the important link between councils and local industry. Local authorities will have to face completely new housing revenue regimes, which will put rents way beyond the pockets of Welsh people. Above all else, the people of Wales will face an unwanted poll tax which must go down in history as the most unpopular measure in the Principality. For all those reasons, it is no wonder that the Secretary of State's party lies well down in the polls in Wales. I urge the House to turn down the proposals.

11.46 pm

Mr. Peter Walker : With the permission of the House, I will reply to the debate.

I congratulate the hon. Member for Torfaen (Mr. Murphy) on his first appearance on the Opposition Front Bench. He had a much more crowded House than I had for my first such appearance, when I was asked to wind up an Adjournment debate from the Opposition Front Bench. My hon. Friend who led the debate said that he would like me to add a few words prior to the Government replying, to give the Opposition's full support to his argument. As my hon. Friend spoke for 25 minutes of a 30-minute Adjournment debate, it was impossible for me to make any contribution. Although I disagree with much of what the hon. Gentleman said, I congratulate him on his first Front Bench appearance and the lucidity and fluency of his speech. I join with the hon. Gentleman in extending the sympathy of the whole House to the hon. Member for Alyn and Deeside (Mr. Jones) for the personal loss that he suffered this week.

The hon. Member for Alyn and Deeside spoke of district councils and their estimates of rate rises, and quoted the Welsh Office published figures in support. I do not blame him for using those figures, because the subject is complicated. However, they do not take into account a range of factors that affect rate rises. For example, I refer to the increase in rateable values, which were up by 1.4 per cent. last year as a result of all the extra business that has been attracted to Wales ; the use that local authorities make of money held in balances to the benefit of their ratepayers--they used about £9 million of such balances last year ; and the £5 million in additional rate support grant in the supplementary reports that we are debating. A range of factors mean that those figures no longer apply. I am sure that it was said unintentionally that our figures took no account of interest rate increases. In fact, an additional sum of about £14 million has been made available to take account of increased interest rates since my initial announcement. As I have explained previously, higher interest rates do not have the impact on local

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authorities that some might think. That is because much of their borrowings are at fixed rates. Only a proportion of them are at current interest rate levels.

The hon. Member for Brecon and Radnor (Mr. Livsey) talked about education, on which in this settlement there has been a substantial percentage increase in capital expenditure. Initial capital outlay has been increased by 17.4 per cent. The hon. Gentleman constantly draws our attention to the difficulties of reorganising rural schools, but with fewer pupils taking advantage of education in such establishments there is sense in rational reorganisation in many parts of Wales. The resultant capital outlay has been met in the figures that we have announced.

An additional £10 million in need assessment has been made available to Powys to take account of sparsity of population. That amounts to £100 for every person in the county. That factor has strongly been taken into account.

My hon. Friend the Member for Vale of Glamorgan (Sir R. Gower) talked about the valleys. The rate support grant system is based upon needs assessment calculations, and the grant is already skewed to take account of areas such as the valleys. On the capital side, extra provision can be made available for certain areas. In this respect the valleys have done well this year, with extra allocations for housing and transport. Allocations have yet to be announced for the urban programme, but there will be extra provision for the valleys. The introduction of the new business rate in the valleys will bring a benefit of about £8.5 million each year. That will be the reduction of their rating burden. That must be good news for employment prospects.

The hon. Member for Newport, West (Mr. Flynn) made his usual vigorous and lively attack on all that has taken place. If he is dissatisfied with the settlement, I dread to think what he would have said if he had been a Member of this place when Conservative Members were in opposition from 1974 to 1979. The hon. Gentleman expressed dissatisfaction with the settlement's relationship to inflation, but current expenditure during 1974-79 decreased virtually every year. There was only a slight increase--it was not large enough to offset the decreases--in the year before the general election. There was a considerable reduction in capital expenditure, which amounted to about 50 per cent. in real terms. I am glad that Newport enjoys an ever- expanding economy and considerable new inward investment. The Newport library has had an effect on rates. Newport asked for the library to be taken from the county so that is could organise it, which means that it will have an impact on the district rate rather than the county rate. As the ratepayer pays both the county and the district rates, the ratepayer overall will benefit if Newport organises the library more efficiently and effectively. The result, however, will be an increase in rates.

I understand that Cardiff Members are aggrieved that a line drawn on a certain date had an adverse effect on their city. We have now received the final expenditure figures of 31 of the 45 Welsh local authorities, and we know that 14 will have gained grant as a result of drawing the line on that date. Of the remainder, 13 have lost grant and four have not had their figures changed.

It seems extraordinary that not one hon. Member who represents any of the 14 local authorities which have

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gained from drawing the line in that way has said, "For heaven's sake, do not alter that. Let us adhere to that date." I believe it was necessary to draw the line at a certain date, and it so happens that some authorities have gained and some have lost.

Mr. Barry Jones : Which local authority has gained £2.3 million?

Mr. Walker : I agree that the biggest loser was Cardiff. I do not deny that at all. But the figures were not sent in by Cardiff until long after the date, and Cardiff has been treated in the same way as every other local authority in the United Kingdom. I am glad to say that the rate support grant for Cardiff in the coming year is generous, and I do not believe there is any need for very inflationary rate rises in Cardiff this year.

As always happens on these occasions, Oppositions--be they Conservative or Labour--are, rightly, critical of the rate support grant. I would only say that in relation to inflation and the expansion of the Welsh economy, this is a perfectly reasonable and sensible settlement, and I urge my hon. Friends to support it. Question put :--

The House divided : Ayes 237, Noes 212.

Division No. 26] [11.56 pm

AYES

Aitken, Jonathan

Alexander, Richard

Alison, Rt Hon Michael

Amos, Alan

Arbuthnot, James

Arnold, Jacques (Gravesham)

Arnold, Tom (Hazel Grove)

Ashby, David

Aspinwall, Jack

Atkins, Robert

Atkinson, David

Baker, Rt Hon K. (Mole Valley)

Baker, Nicholas (Dorset N)

Baldry, Tony

Batiste, Spencer

Beaumont-Dark, Anthony

Bellingham, Henry

Bendall, Vivian

Bennett, Nicholas (Pembroke)

Blaker, Rt Hon Sir Peter

Body, Sir Richard

Bonsor, Sir Nicholas

Boscawen, Hon Robert

Boswell, Tim

Bottomley, Peter

Bottomley, Mrs Virginia

Bowden, A (Brighton K'pto'n)

Bowden, Gerald (Dulwich)

Bowis, John

Boyson, Rt Hon Dr Sir Rhodes

Brandon-Bravo, Martin

Brazier, Julian

Bright, Graham

Brooke, Rt Hon Peter

Brown, Michael (Brigg & Cl't's)

Bruce, Ian (Dorset South)

Buck, Sir Antony

Budgen, Nicholas

Burns, Simon

Burt, Alistair

Butler, Chris

Butterfill, John

Carlisle, Kenneth (Lincoln)

Carrington, Matthew

Carttiss, Michael

Chalker, Rt Hon Mrs Lynda

Channon, Rt Hon Paul

Chapman, Sydney

Chope, Christopher

Churchill, Mr

Clark, Dr Michael (Rochford)

Clark, Sir W. (Croydon S)

Clarke, Rt Hon K. (Rushcliffe)

Conway, Derek

Coombs, Simon (Swindon)

Cope, Rt Hon John

Couchman, James

Cran, James

Curry, David

Davies, Q. (Stamf'd & Spald'g)

Day, Stephen

Devlin, Tim

Dickens, Geoffrey

Dicks, Terry

Dorrell, Stephen

Douglas-Hamilton, Lord James

Dover, Den

Dunn, Bob

Durant, Tony

Dykes, Hugh

Eggar, Tim

Evans, David (Welwyn Hatf'd)

Evennett, David

Fallon, Michael

Favell, Tony

Fenner, Dame Peggy

Fishburn, John Dudley

Fookes, Miss Janet

Forman, Nigel

Forsyth, Michael (Stirling)

Forth, Eric

Fowler, Rt Hon Norman

Fox, Sir Marcus

Franks, Cecil

Freeman, Roger

French, Douglas

Fry, Peter

Gale, Roger

Gardiner, George

Garel-Jones, Tristan

Gill, Christopher

Glyn, Dr Alan

Goodson-Wickes, Dr Charles

Gow, Ian

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