MINISTRY OF HEALTH Proposals for Reform in Local Government and in the FINANCIAL RELATIONS BETWEEN THE EXCHEQUER AND Presented by the Minister of Health to Parliament LONDON: PRINTED AND PUBLISHED BY HIS MAJESTY'S STATIONERY OFFICE 15, Donegall Square West, Belfast; or through any Bookseller. 1928 Price Is. od. Net Cmd. 3134 * Financial Relations between the Exchequer and Local Authorities in England and Wales. 1. As the result of a careful review of the difficulties of productive industry the Government have, as Local Authorities are aware, come to the conclusion that the basis of rating of agricultural, industrial and transport properties needs to be revised; and they have adopted a plan which they believe will not only place the rating of these properties on a more rational basis, but will, more than any other political action which could be taken, contribute to the revival of agriculture and the basic industries. Their proposals were outlined by the Chancellor of the Exchequer in opening the budget; and, as was then indicated, they involve not only some important changes in the machinery of local government, but a considerable modification of the financial relations between the Local Authorities and the Exchequer. In considering the effect of these changes it must be realised that the rating relief and the changes in the machinery and finance of local government are connected parts of one single policy. Legislation will be submitted to Parliament as early as possible in the autumn session, to give effect to the administrative and financial adjustments of local government; and the object of this memorandum is to inform Local Authorities in advance and in some detail of the changes proposed to be embodied in the legislation. It is hoped that in this way their full co-operation may be secured and that, as a result of discussions between their representatives and the Government, the legislation may be framed on practical lines so as to be of the greatest permanent value to local government. 2. The first element in the Government's plan is the relief to productive industry. The grounds for this proposal have been fully stated in Parliament, and the Rating and Valuation (Apportionment) Bill, which is the first piece of machinery required in connection with the whole scheme, is now before Parliament. It is not proposed, therefore, to recapitulate the grounds for the decision to derate, or to discuss the details of the Rating and Valuation (Apportionment) Bill. But in order that the manner in which Local Authorities will be directly affected by the relief given to industrial and agricultural property may be appreciated, it may be recalled that the effect of the derating proposals is that, from the 1st October, 1929 Agricultural land and agricultural buildings will cease to be rated. Industrial hereditaments will be rated on a rateable value which is to be one-fourth of the net annual value, as defined by the Rating and Valuation Act, 1925.* * In London, one-fourth of the rateable value as determined under the Valuation (Metropolis) Act, 1869, and the Rating and Valuation Act, 1928. Pk. 358 30 6/28 F.O.P. [17804] [17847] Wt. 5M 11/28 [18394] B 2 Freight transport hereditaments will be rated at one-fourth of what they would pay under the existing law. (It will be remembered that the relief in respect of rates on railways is conditional on the equivalent of the reduction in rates being used to reduce the freight charges on certain selected classes of goods.) The hereditaments which are to be the subjects of derating are defined in detail in the Rating and Valuation (Apportionment) Bill, which also provides the machinery for the preparation of a special list of the values of the properties to be the subjects of derating, as at 1st October, 1929, and for permanent valuation provisions which will be applicable to those properties after that date. Properties in the occupation of the Crown will be dealt with on similar lines. 3. The magnitude of these rating changes must profoundly affect both the general structure of local government and Local Authorities individually. Until the preparation of the special lists provided for in the Rating and Valuation (Apportionment) Bill has been completea, it will be impossible to state with precision the amount of rates at present being raised by Local Authorities on the part of the rateable value of their areas which under the Government's proposals will be the subject of rate relief. That amount is throughout this Memorandum referred to as "loss of rates." It is estimated that, had the derating proposals been in operation in the year 1926-27, the loss of rates, taking England and Wales as a whole, would have amounted in round figures to £24,000,000 for the year. Obviously, if Local Authorities are to suffer so serious a loss of rating power, some alternative source of revenue must be provided, and the Chancellor of the Exchequer has indicated that he is prepared, as part of the general scheme, to find moneys for this purpose from the Exchequer. 4. The receipts of Local Authorities from Government grants in the year 1926-27 (which is the latest year for which complete figures are available) were approximately £87,000,000, while the total of rates collected was £159,500,000. If in that year the relief now proposed had already been given to agricultural, industrial and transport property, and the proportion of local expenditure to be found under the present scheme from the Exchequer had corresponded with the above estimate of £24,000,000, the relation between grants and rates would have been Grants ... £111,000,000 So large an increase in the Exchequer grants in aid of rates necessitates some reconsideration of the grant system, and the mcre so because reforms in regard to certain parts of that system have long been accepted as necessary. In particular (and especially having in mind that the relief of industry is a primary reason for undertaking a scheme of this magnitude) it has seemed to the Government that no scheme of the kind would be complete unless consideration were given to the case of those districts which have been commonly called necessitous areas. 5. If the derating proposals are important in relation to the whole fabric of local government, they are no less so in their influence on individual Local Authorities. It must first be remarked that no scheme for providing an alternative source of revenue for Local Authorities can take the form of a grant varying from year to year with the expenditure of individual authorities. Under such a scheme, the Government would be committed to finding a material proportion of every Local Authority's general expenditure without any possibility of effective control, and the financial interest of Local Authorities in their administration would be seriously impaired. 6. The most important effect of the derating proposals on the position of the individual Local Authority is clearly the narrowing of the basis of taxation available to that Authority, which necessarily involves a greater or less impairment of the capacity to meet the considerable fluctuations in certain classes of expenditure inevitable from time to time. This is a matter of less significance in the case of larger Authorities, or of those whose resources are drawn from a wide area, but is of the greatest importance in the case of smaller and financially weaker Authorities who may be responsible for services involving considerable expenditure liable to periodic fluctuations between wide limits. An examination of returns rendered by Local Authorities indicates that the loss of rates in rural areas due to the derating proposals will vary from about 3 per cent. to about 57 per cent. Thus in the extreme case the reduced assessable value on which would be charged any future increase in the cost of the local services would be little more than 40 per cent. of the present assessable value; in other words, where the Local Authority at present would require to meet an increase of expenditure by an additional levy of 18. in the £, it would in the future, in the absence of special action, have to levy a rate of 2s. 6d. in the £. 7. The Government have accordingly come to the conclusion that the necessary accompaniments of the derating scheme are (a) some modification of the basis and method of Government contribution to local services; (b) arrangements to meet the case of the necessitous areas; (c) arrangements to obviate the difficulties of those Authorities whose finances are on too narrow a basis. If the case of necessitous areas is to be met, a new method of distribution of Government grants and re-organisation of administrative arrangements are both requisite. Change in the areas or functions of some authorities is the only way in which a remedy can properly be found for the difficulties of those Authorities whose resources would be inadequate to enable them to meet their needs under the new conditions. 8. Such a change must generally proceed on the basis of widening the area of charge, which is in the line of the development of English local government for many generations and is fully [17847] B 3 |