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D O C U M E N T IS T H E P R O P E R T Y O F H E R B R I T A N N I C M A J E S T Y ' S
CC(74) 43rd
Conclusions
GOVERNMENT
COPY NO
CABINET
C O N C L U S I O N S of a M e e t i n g of the C a b i n e t
h e l d a t 10 D o w n i n g S t r e e t on
T U E S D A Y 5 N O V E M B E R 1974
at 10. 00 a m
PRESENT
The Rt Hon Harold Wilson M P
P r i m e Minister
The Rt Hon E d w a r d S h o r t M P
Lord P r e s i d e n t of the C o u n c i l
The R t Hon James Callaghan M P
S e c r e t a r y of State f o r F o r e i g n and
Commonwealth Affairs
The Rt Hon L o r d E l w y n - J o n e s
Lord C h a n c e l l o r ( I t e m s 1 and 2 )
T h e R t Hon R o y Jenkins M P
S e c r e t a r y of State f o r the H o m e D e p a r t m e n t
The Rt Hon D e n i s H e a l e y M P
Chancellor of the E x c h e q u e r
The R t Hon Anthony C r o s l a n d M P
S e c r e t a r y of State f o r the E n v i r o n m e n t
The Rt Hon M i c h a e l F o o t M P
Secretary of State f o r E m p l o y m e n t
(Items 1 and 2 )
T h e R t Hon E r i c V a r l e y M P
S e c r e t a r y of State f o r E n e r g y
The R t Hon S h i r l e y W i l l i a m s M P
Secretary of State f o r P r i c e s and
Consumer P r o t e c t i o n
T h e R t Hon B a r b a r a C a s t l e M P
S e c r e t a r y of State f o r S o c i a l S e r v i c e s
( I t e m s 1 and 2 )
The R t Hon A n t h o n y W e d g w o o d B e n n M P
Secretary of State f o r I n d u s t r y
T h e R t Hon P e t e r S h o r e M P
S e c r e t a r y of State f o r T r a d e
The Rt Hon R o y M a s o n M P
Secretary of State f o r D e f e n c e
T h e R t Hon R e g i n a l d P r e n t i c e M P
S e c r e t a r y of State f o r E d u c a t i o n and S c i e n c e
The Rt Hon W i l l i a m R o s s M P
Secretary of State f o r Scotland
T h e R t Hon John M o r r i s Q C M P
S e c r e t a r y of State f o r W a l e s
T h e R t Hon H a r o l d L e v e r M P
C h a n c e l l o r of the D u c h y of L a n c a s t e r
The R t Hon L o r d S h e p h e r d
The Rt Hon Robert Mellish M P
Lord P r i v y S e a l
Parliamentary Secretary,
Treasury
T h e R t H o n John S i l k i n M P
M i n i s t e r f o r P l a n n i n g and L o c a l G o v e r n m e n t
THE FOLLOWING WERE ALSO PRESENT
The Rt Hon Judith H a r t M P
Minister of O v e r s e a s D e v e l o p m e n t
(Item 2)
M r Joel Barnett M P
Chief Secretary, T r e a s u r y
( I t e m 2)
SECRETARIAT
S i r John Hunt
Mr
Mr
Mr
Mr
P
J
K
J
Benner
A Hamilton
R Stowe
A Marshall
( I t e m s 1 and 3)
( I t e m 2)
( I t e m 1)
( I t e m 2)
C O N T E N T S
Item
Subject
Page
1.
L A T E I M P L E M E N T A T I O N OF THE HOUSING FINANCE A C T
1
2.
PUBLIC EXPENDITURE
4
3.
RATE SUPPORT GRANT
11
ii
jjATE
IMPLEMENTATION
OF THE HOUSING
FINANCE A C T
previous
Reference:
CC(74) 8th
J I
Conclusions,
Minute 2
1.
T h e C a b i n e t c o n s i d e r e d a m e m o r a n d u m b y the S e c r e t a r y
o f State f o r the E n v i r o n m e n t ( C ( 7 4 ) 124) about l a t e i m p l e m e n t a t i o n
o f the H o u s i n g F i n a n c e A c t 1972.
T H E S E C R E T A R Y OF S T A T E F O R T H E E N V I R O N M E N T said
that i n E n g l a n d and W a l e s 18 l o c a l a u t h o r i t i e s had defaulted i n
1972-73 o v e r the i m p l e m e n t a t i o n of the H o u s i n g F i n a n c e A c t and
s o m e 400 c o u n c i l l o r s w e r e now l i a b l e to s u r c h a r g e s in r e s p e c t
of l o s s e s totalling £ 1 . 5 m i l l i o n .
T h e r e w e r e 3 c o u r s e s open t o
the G o v e r n m e n t to d e a l w i t h this s i t u a t i o n .
T h e y could l e g i s l a t e
t o m a k e g o o d the l o s s e s f r o m E x c h e q u e r funds: h e w o u l d
s t r o n g l y o p p o s e t h i s , s i n c e i t w o u l d condone d e f i a n c e of the l a w
a t the t a x p a y e r s ' e x p e n s e , and the G o v e r n m e n t w e r e in any c a s e
pledged against it.
S e c o n d l y , t h e y could l e t e v e n t s take t h e i r
c o u r s e : this w o u l d , h o w e v e r , r e s u l t in about 2 y e a r s of l e g a l
p r o c e e d i n g s f o r r e c o v e r y , l e a d i n g t o C o u r t O r d e r s , b a i H f f s and
b a n k r u p t c i e s but w i t h l i t t l e p r o s p e c t of r e c o v e r i n g m o r e than a
f e w thousand p o u n d s .
I t would d i s t r e s s m a n y c o u n c i l l o r s of
s t a n d i n g , i n c l u d i n g s o m e w h o had g e n u i n e l y b e l i e v e d that the
G o v e r n m e n t of the day would h a v e r e s p o n d e d to t h e i r a c t i o n s i n
E n g l a n d , as t h e y had i n W a l e s , b y putting i n Housing
C o m m i s s i o n e r s t o take o v e r r e s p o n s i b i l i t y f o r the r e n t i n c r e a s e s .
H e d i d not b e l i e v e that such a p o l i c y of i n a c t i o n w o u l d b e a c c e p t ­
able.
T h e f i n a l c o u r s e was the c o m p r o m i s e w h i c h had b e e n
c o n s i d e r e d b y a m e e t i n g of M i n i s t e r s under the P r i m e M i n i s t e r ' s
chairmanship.
This w o u l d put r e s p o n s i b i l i t y f o r r e c o v e r i n g the
l o s s e s b a c k on the c o u n c i l s that h a d i n c u r r e d t h e m , by r e q u i r i n g
t h e m to r e c o v e r the s u m s b y w a y of i n c r e a s e s e i t h e r i n r e n t s o r
i n r a t e s o v e r the next 5 y e a r s .
T h i s w o u l d m e a n that s u r c h a r g e s
and d i s q u a l i f i c a t i o n s f o r t h e s e c o u n c i l l o r s w o u l d not then a r i s e .
B e c a u s e of l o c a l g o v e r n m e n t r e o r g a n i s a t i o n s i n c e 1972, h o w e v e r ,
m a n y o f the c o u n c i l s had b e e n a b s o r b e d i n t o b i g g e r a u t h o r i t i e s
and h e thought i t r i g h t t o e m p o w e r t h e s e a u t h o r i t i e s to i n c r e a s e
r e n t s o r r a t e s d i f f e r e n t i a l l y s o a s t o r e c o v e r the m o n e y o n l y
f r o m w h e r e i t had b e e n l o s t .
Clay C r o s s was in a different
p o s i t i o n i n that s u r c h a r g e s had a l r e a d y b e e n m a d e and had b e e n the
s u b j e c t of O r d e r s of the C o u r t , and the c o u n c i l l o r s had b e e n
disqualified.
H e thought i t r i g h t i n t h e s e c i r c u m s t a n c e s that the
s u r c h a r g e s s h o u l d stand and not b e m e t in a n y w a y f r o m p u b l i c '
funds b u t the G o v e r n m e n t w e r e c o m m i t t e d t o r e m o v a l o f the
d i s q u a l i f i c a t i o n and, w i t h r e l u c t a n c e , he w o u l d p r o p o s e to
l e g i s l a t e f o r this p u r p o s e .
H e c o n s i d e r e d that taken a s a w h o l e
t h e s e p r o p o s a l s , although n o t i d e a l , w e r e a p r a c t i c a b l e and humane
s o l u t i o n to a d i f f i c u l t p r o b l e m , although i t w a s i n e v i t a b l e that t h e y
w o u l d b e h e a v i l y c r i t i c i s e d f r o m both s i d e s .
I f the C a b i n e t
a g r e e d h e p r o p o s e d t o announce t h e m on W e d n e s d a y 6 N o v e m b e r .
I n d i s c u s s i o n i t w a s a g r e e d that the b r e a c h e s of the l a w w h i c h
had o c c u r r e d should not be c o n d o n e d b y the G o v e r n m e n t and that
the t e r m s of the S e c r e t a r y o f S t a t e ' s a n n o u n c e m e n t should m a k e
this v e r y c l e a r , . It should a l s o b e m a d e c l e a r that i f c o u n c i l s
1
c h o s e t o r e c o v e r the m o n e y f r o m the r a t e s , this w o u l d not a t t r a c t
R a t e Support G r a n t .
The s o l u t i o n p r o p o s e d f o r E n g l a n d and
W a l e s w o u l d not, h o w e v e r , b e a p p r o p r i a t e f o r S c o t l a n d , s i n c e
s u r c h a r g e s could o n l y a r i s e t h e r e w h e n , f o l l o w i n g an a u d i t o r ^
r e p o r t of a l o s s , the S e c r e t a r y of State i m p o s e d t h e m ,
There
w e r e s o m e 170 c o u n c i l l o r s r e s p o n s i b l e f o r l o s s e s r e p o r t e d f o r
1972-73 t o t a l l i n g £ 1 . 6 m i l l i o n ; and s i n c e the s u m s i n v o l v e d w e r e
p l a i n l y b e y o n d the c o u n c i l l o r s m e a n s to p a y i t w a s p r o p o s e d that
the L o c a l G o v e r n m e n t ( S c o t l a n d ) A c t 1947 should b e a m e n d e d s o
a s to g i v e the S e c r e t a r y of State a p o w e r , i n r e s p e c t of s u r c h a r g e s
a r i s i n g f r o m 1972-73, to h a v e r e g a r d t o a l l the c i r c u m s t a n c e s of
the c a s e , i n c l u d i n g a b i l i t y to pay, and t o b e a b l e t o r e d u c e the
surcharge accordingly.
T h i s p o w e r a l r e a d y e x i s t e d f o r 1974-75
o n w a r d s under the p r e v i o u s A d m i n i s t r a t i o n ^ l e g i s l a t i o n f o r l o c a l
government reorganisation in Scotland.
1
I n f u r t h e r d i s c u s s i o n i t w a s a r g u e d that the G o v e r n m e n t w o u l d d o
b e t t e r to w i p e the s l a t e c l e a n , as the N a t i o n a l E x e c u t i v e C o m m i t t e e
and the Conference of the L a b o u r P a r t y had d e s i r e d , b y paying the
C l a y C r o s s s u r c h a r g e s f r o m the E x c h e q u e r .
The councillors
c o n c e r n e d had f e l t that they w e r e d e f e n d i n g the i n t e r e s t s of t h e i r
s u p p o r t e r s , as t h e y had p r o m i s e d to d o , and that t h e y w e r e d e f e n d ­
i n g the r i g h t s of l o c a l a u t h o r i t i e s t o f i x t h e i r r e n t s ; t h e y had l e d
the o p p o s i t i o n to the H o u s i n g F i n a n c e A c t , w h i c h had b e e n to the
G o v e r n m e n t s advantage e l e c t o r a l l y .
Moreover, retrospective
l e g i s l a t i o n was n o t o b j e c t i o n a b l e i f i t w a s b e n e f i c i a l t o the
i n d i v i d u a l s a f f e c t e d ; and b r e a c h e s of the l a w had b e e n f o r g i v e n
i n o t h e r s i t u a t i o n s , f o r e x a m p l e , i n r e s p e c t of i l l e g a l P a k i s t a n i
immigrants.
A s a g a i n s t this i t w a s a r g u e d that the G o v e r n m e n t s
s u p p o r t e r s i n P a r l i a m e n t w e r e not e x p e c t i n g a g e n e r a l a m n e s t y
f o r the C l a y C r o s s c o u n c i l l o r s , w h i l e t h e i r s u p p o r t e r s i n l o c a l
a u t h o r i t i e s , e s p e c i a l l y in L o n d o n and the M i d l a n d s , w h o had s t o o d
up t o c r i t i c i s m f o r a p p l y i n g the l a w as i t then s t o o d , w o u l d b e
o u t r a g e d i f those w h o had b r o k e n i t w e r e t o have t h e i r p e n a l t i e s m e t
b y the t a x p a y e r .
T H E P R I M E M I N I S T E R , s u m m i n g up the d i s c u s s i o n , s a i d that the
C a b i n e t a g r e e d w i t h the p r o p o s a l s put f o r w a r d b y the S e c r e t a r y of
S t a t e f o r the E n v i r o n m e n t and c o n g r a t u l a t e d h i m and his o f f i c i a l s
o n the i n g e n u i t y s h o w n in m e e t i n g the G o v e r n m e n t s c o m m i t m e n t s
w h i l e e n s u r i n g that r e s p o n s i b i l i t y f o r r e c o v e r i n g the l o s s e s should
b e put upon the r e n t - p a y e r s and r a t e p a y e r s in the a r e a s w h e r e
they w e r e incurred.
T h e f a c t that t h e s e p r o p o s a l s d i d n o t m e e t
f u l l y the v i e w s e x p r e s s e d b y the N a t i o n a l E x e c u t i v e C o m m i t t e e ; and
b y the L a b o u r P a r t y C o n f e r e n c e w a s r e c o g n i s e d ; but i t w a s
i m p o r t a n t t o u n d e r s t a n d that the G o v e r n m e n t s a u t h o r i t y r e s t e d ,
n o t upon r e s o l u t i o n s o f the P a r t y E x e c u t i v e and P a r t y C o n f e r e n c e
b u t upon the s u p p o r t o f the P a r l i a m e n t a r y L a b o u r P a r t y i n the
House of C o m m o n s .
T h e r e w a s no doubt that t h e m a j o r i t y of the
l a t t e r w e r e v e r y f a r f r o m thinking i t r i g h t f o r the t a x p a y e r t o m e e t
2
the f i n a n c i a l l i a b i l i t i e s of the C l a y C r o s s c o u n c i l l o r s .
The
G o v e r n m e n t ' s c o m m i t m e n t w a s to r e m o v e the d i s q u a l i f i c a t i o n on
t h e m and, under the S e c r e t a r y of State f o r the E n v i r o n m e n t s
p r o p o s a l s , this w o u l d b e done f r o m the date w h e n the l e g i s l a t i o n
had b e e n g i v e n R o y a l A s s e n t .
A s r e g a r d s the o t h e r c o u n c i l s
c o n c e r n e d , the p r o p o s a l s put f o r w a r d f o r E n g l a n d and W a l e s and
f o r S c o t l a n d would b e r e g a r d e d as fully m e e t i n g the G o v e r n m e n t ' s
undertakings.
T h e S e c r e t a r y j o f State f o r the E n v i r o n m e n t and
the S e c r e t a r y of State f o r Scotland should announce the
G o v e r n m e n t ' s p r o p o s a l s on W e d n e s d a y 6 N o v e m b e r , the p r o p o s a l s
f o r S c o t l a n d b e i n g r e f e r r e d t o i n the S e c r e t a r y o f State f o r the
E n v i r o n m e n t s s t a t e m e n t o r published i n r e p l y t o an a r r a n g e d
Q u e s t i o n , as s e e m e d m o s t a p p r o p r i a t e .
T h e S e c r e t a r y of States
f o r the E n v i r o n m e n t should c l e a r the t e x t of the announcement
u r g e n t l y w i t h m e m b e r s of the C a b i n e t .
The Cabinet T o o k n o t e , w i t h a p p r o v a l , of the P r i m e M i n i s t e r ' s
s u m m i n g up of t h e i r d i s c u s s i o n and i n v i t e d the
S e c r e t a r y o f State f o r the E n v i r o n m e n t and the
S e c r e t a r y o f State f o r Scotland t o b e g u i d e d a c c o r d i n g l y .
3
2.
T h e C a b i n e t had b e f o r e t h e m m e m o r a n d a b y the C h a n c e l l o r
of the E x c h e q u e r ( C ( 7 4 ) 120), b y the S e c r e t a r y of State f o r S o c i a l
S e r v i c e s ( C ( 7 4 ) 122 and 123) and b y the M i n i s t e r o f O v e r s e a s
D e v e l o p m e n t ( C ( 7 4 ) 121), on public e x p e n d i t u r e f r o m 1974-75 to
1978-79.
T H E P R I M E M I N I S T E R , i n t r o d u c i n g the d i s c u s s i o n , r e m i n d e d the
C a b i n e t that they had a l r e a d y r e a c h e d a b r o a d d e c i s i o n on the
o v e r a l l a l l o c a t i o n of r e s o u r c e s , w h e r e b y p u b l i c e x p e n d i t u r e
s h o u l d b e a l l o w e d t o g r o w at 2 f p e r c e n t a y e a r i n d e m a n d t e r m s
o v e r the p e r i o d under c o n s i d e r a t i o n .
T h e y h a d not h o w e v e r
c o m p l e t e d t h e i r d i s c u s s i o n o f p r i o r i t i e s w i t h i n this o v e r a L l c e i l i n g ,
and a t t h e i r r e q u e s t the C h a n c e l l o r of the E x c h e q u e r had put f o r w a r d
an i l l u s t r a t i v e s c h e m e .
M e m b e r s of the C a b i n e t w o u l d n o doubt
w i s h to s u g g e s t v a r i a t i o n s but this should b e on the b a s i s of a
s w i t c h i n r e s o u r c e s and not s i m p l y p r o p o s a l s f o r a d d i t i o n s .
T H E C H A N C E L L O R O F T H E E X C H E Q U E R s a i d that t h e r e w e r e two
points of s p e c i a l u r g e n c y .
T h e f i r s t w a s t o s e t t l e the a r r a n g e m e n t s
f o r next y e a r ' s Rate Support Grant, which would be c o n s i d e r e d later
as a separate i t e m .
T h e s e c o n d w a s to a g r e e public e x p e n d i t u r e
f i g u r e s f o r 1975-76 f o r i n c o r p o r a t i o n in the B u d g e t he w o u l d b e
p r e s e n t i n g on the f o l l o w i n g T u e s d a y : s o long as f i r m a g r e e m e n t
w a s r e a c h e d on the t o t a l , s o m e s w i t c h i n g b e t w e e n p r o g r a m m e s
w o u l d b e p o s s i b l e l a t e r , but i t w a s a l s o n e c e s s a r y to m o v e t o w a r d s
d e c i s i o n s on the y e a r s up t o 1978-79 to f a c i l i t a t e the p r e p a r a t i o n of
the p u b l i c e x p e n d i t u r e W h i t e P a p e r , p u b l i c a t i o n o f w h i c h w o u l d
a l m o s t c e r t a i n l y now s l i p to J a n u a r y .
P u b l i c e x p e n d i t u r e w a s under
e n o r m o u s p r e s s u r e s and h e w a s g r a t e f u l f o r the u n d e r s t a n d i n g he
had had i n his b i l a t e r a l t a l k s .
T h e l a s t p u b l i s h e d f i g u r e s f o r 1975-76
had a p p e a r e d i n the C o n s e r v a t i v e G o v e r n m e n t s W h i t e P a p e r the
previous December.
A l l o w i n g f o r the i n c r e a s e s l i k e l y to b e
n e c e s s a r y i n the f o r t h c o m i n g R a t e Support G r a n t s e t t l e m e n t , and f o r
the I n c r e a s e s c o n t e m p l a t e d i n his o w n p a p e r f o r h o u s i n g , h e a l t h and
e d u c a t i o n , the t o t a l f o r 1975-76 w o u l d show a n i n c r e a s e of s o m e
£ 3 , 000 m i l l i o n c o m p a r e d w i t h the f i g u r e g i v e n l a s t D e c e m b e r .
The
m a i n a r e a s of i n c r e a s e w e r e housing ( £ 1 , 1 7 0 m i l l i o n ) , s o c i a l
s e c u r i t y ( £ 7 6 8 m i l l i o n ) , t r a d e and i n d u s t r y ( £ 5 4 7 m i l l i o n ) - m a i n l y
f o r p r i c e r e s t r a i n t - and a g r i c u l t u r e and f o o d ( £ 5 3 4 m i l l i o n ) - m a i n l y
food subsidies.
F o r 1 9 7 8 - 7 9 , the p r o g r a m m e s i n the 1974 P u b l i c
E x p e n d i t u r e S u r v e y w e r e s o m e £ 3 - 4 0 0 m i l l i o n a b o v e the 2 f p e r c e n t
g u i d e l i n e ; and he w a s s u g g e s t i n g t h e a d d i t i o n of a f u r t h e r
£ 1 3 5 m i l l i o n f o r s o c i a l s e c u r i t y i m p r o v e m e n t s , b e i n g i n h i s v i e w the
m i n i m u m n e c e s s a r y for f a m i l y support.
T a b l e 3 of h i s p a p e r
i d e n t i f i e d f u r t h e r c l a i m s t o t a l l i n g £456 m i l l i o n , o f w h i c h £165 m i l l i o n
w e r e distinguished for special consideration.
He also drew
a t t e n t i o n t o the p r o s p e c t i v e c l a i m s i n T a b l e 4 , w h i c h i n c l u d e d
£3,.000 m i l l i o n f o r p u b l i c ownership'; ..and although the r e s o u r c e e f f e c t
of m u c h of this w o u l d b e s m a l l , i t d i d c r e a t e f i n a n c i n g p r o b l e m s ,
e s p e c i a l l y i n 1975-76 when the b o r r o w i n g r e q u i r e m e n t would b e
unprecedentedly high.
In s p i t e of t h e s e d i f f i c u l t i e s he had t r i e d
to h e l p the spending M i n i s t e r s ; he had f o r e x a m p l e a g r e e d to t w o
u p r a t i n g s o f s o c i a l s e c u r i t y b e n e f i t s n e x t y e a r ; to an i n c r e a s e i n
f a m i l y a l l o w a n c e s of 60p f o r the f i r s t qualifying c h i l d and 50p f o r
the o t h e r s ; and t o a s u b s t a n t i a l i n c r e a s e i n the R a t e Support G r a n t .
H e had a l s o a c c e p t e d that i n 1975-76 e x p e n d i t u r e on p r i c e support
w o u l d have to be as high a s i n 1974-75.
But i t w o u l d b e i m p o r t a n t
b y 1978-79 to g e t r i d of a l l s u b s i d i e s to n a t i o n a l i s e d i n d u s t r y p r i c e s ,
and to h a l v e f o o d s u b s i d i e s , unpleasant though the p o l i t i c a l
consequences might b e .
In his v i e w the m a j o r p r i o r i t i e s w e r e
h o u s i n g , i n d u s t r i a l and m a n p o w e r p o l i c i e s and r e g i o n a l d e v e l o p m e n t .
T h e phasing out o f s u b s i d i e s was e s s e n t i a l to a c c o m m o d a t e t h e s e ,
and h e p r o p o s e d t o i n d i c a t e this i n h i s B u d g e t s p e e c h .
While
housing i n v e s t m e n t w a s a p r i o r i t y , housing s u b s i d i e s m u s t not b e
a l l o w e d to g r o w a b o v e t h e i r p r e s e n t s i z e , and this m e a n t that t h e r e
w o u l d h a v e to be r e n t i n c r e a s e s to this e n d .
He emphasised also
the n e e d f o r the G o v e r n m e n t to take g r e a t e r c o n t r o l o v e r l o c a l
a u t h o r i t y c u r r e n t e x p e n d i t u r e , the r a t e of i n c r e a s e i n w h i c h m u s t be
reduced.
E v e n i f e v e r y t h i n g he h a d s a i d about s u b s i d i e s and l o c a l
authority expenditure was accepted, there was still a need for
r e d u c i n g the planned e x p e n d i t u r e i n s o m e o t h e r p r o g r a m m e s .
On
D e f e n c e , h e w o u l d b e p r e p a r e d t o a c c e p t the f i g u r e s f o r 1975-76
a l r e a d y d i s c u s s e d b y M i n i s t e r s but i t c o u l d w e l l p r o v e n e c e s s a r y to
r e d u c e the amounts f o r l a t e r y e a r s f a s t e r and f u r t h e r than at p r e s e n t
foreseen.
C e r t a i n o t h e r p r o g r a m m e s , a l l m a k i n g h e a v y demands
on g o o d s and s e r v i c e s , and m o s t l y i n the l o c a l a u t h o r i t y f i e l d ,
w o u l d need t o be cut, although e v e n a f t e r cutting they w o u l d s t i l l b e
g r o w i n g at a r a t e h i g h e r than public e x p e n d i t u r e as a w h o l e .
In
1975-76, i n v i e w of the s p e c i a l p r o b l e m s f a c i n g s o m e M i n i s t e r s , he
w o u l d w i s h t o add £ 1 4 9 m i l l i o n t o e x p e n d i t u r e on l o c a l a u t h o r i t y
m o r t g a g e s , the H o u s i n g C o r p o r a t i o n , h e a l t h , e d u c a t i o n and o v e r s e a s
aid.
In 1978-79 he w o u l d f a v o u r a n a d d i t i o n a l £100 m i l l i o n f o r l o c a l
a u t h o r i t y m o r t g a g e s and £65 m i l l i o n f o r the H o u s i n g C o r p o r a t i o n ;
but such i n c r e a s e s i n that y e a r m u s t m e a n o f f s e t t i n g cuts e l s e w h e r e ,
p e r h a p s on the r o a d s p r o g r a m m e .
H e h o p e d the C a b i n e t would a g r e e
b r o a d l y w i t h his i l l u s t r a t i v e s c h e m e .
H e r e c o g n i s e d the m a t t e r w a s
a c o m p l e x o n e , and he w o u l d t r y to find a s i m p l e r and m o r e
s a t i s f a c t o r y w a y of p r e s e n t i n g i t n e x t y e a r .
M e a n w h i l e , he w a r n e d
h i s c o l l e a g u e s that i f t h e y a g r e e d t o his g e n e r a l a p p r o a c h , t h e y would
b e c o m m i t t i n g t h e m s e l v e s to m o d i f y i n g both c e n t r a l and l o c a l
g o v e r n m e n t spending p o l i c i e s t o t u r n i t into a r e a l i t y .
T H E S E C R E T A R Y O F S T A T E F O R S O C I A L S E R V I C E S , introducing
h e r p a p e r s , s a i d that i t w a s n e c e s s a r y t o c o n s i d e r w h e r e the
p r o p o s e d p r i o r i t i e s w o u l d take the G o v e r n m e n t b y 1 9 7 8 - 7 9 . In the
f i e l d of f a m i l y s u p p o r t , i n c l u d i n g n u r s e r y e d u c a t i o n , t h e y w o u l d find
that they h a d a c t u a l l y r e d u c e d f i n a n c i a l s u p p o r t to f a m i l i e s ; t h e r e
w a s a f a l l o f £170 m i l l i o n b e t w e e n 1975-76 and 1976-77, p a r t l y
b e c a u s e the p r o p o s e d i n c r e a s e s i n f a m i l y a l l o w a n c e s did not r e s t o r e
the e a r l i e r r e a l l e v e l , and p a r t l y b e c a u s e the C h a n c e l l o r p r o p o s e d
to p o s t p o n e the i n t r o d u c t i o n of child a l l o w a n c e s to 1977, w i t h no
f u r t h e r u p r a t i n g of f a m i l y a l l o w a n c e s b e f o r e then.
She f e l t i t
e s s e n t i a l that s o m e w a y b e found of h e l p i n g the f i r s t c h i l d of one ­
parent families.
In the f i e l d of h e a l t h , c u r r e n t e x p e n d i t u r e would
g r o w at an annual r a t e of only 2. 8 p e r c e n t , w h e r e the C o n s e r v a t i v e
G o v e r n m e n t had a c h i e v e d 4. 2 p e r c e n t .
The p r o g r a m m e as a whole
w o u l d g r o w l e s s r a p i d l y than r o a d s , w h i c h under the C h a n c e l l o r ' s
i l l u s t r a t i v e s c h e m e w o u l d g r o w at a r a t e of 3. 2 p e r c e n t .
Turning
to t h e L a w and O r d e r p r o g r a m m e , she thought i t w a s a w r o n g s e t of
p r i o r i t i e s w h i c h a l l o w e d a 40 p e r c e n t i n c r e a s e i n c a p i t a l e x p e n d i t u r e
on p o l i c e , p r i s o n s and c o u r t s , w h i l e the s e r v i c e s f o r y o u n g o f f e n d e r s
g r o u n d t o a h a l t f o r w a n t of m o n e y .
A n . u r g e n t r e a s s e s s m e n t of
o v e r a l l p r i o r i t i e s was necessary.
She had r e a c h e d a g r e e m e n t with
the C h a n c e l l o r o f the E x c h e q u e r on the i m p r o v e m e n t s i n s o c i a l s e c u r i t y
b e n e f i t s to b e m a d e i n 1 9 7 5 - 7 6 .
S o c i a l s e c u r i t y b e n e f i t s had of
n e c e s s i t y t o k e e p p a c e w i t h e a r n i n g s , and this m a d e the u p r a t i n g next
A p r i l essential.
This would cost an extra £200 m i l l i o n next year,
but e v e n then, b e c a u s e she had a g r e e d t o the " h i s t o r i c a l " b a s i s for
a s s e s s i n g the i n c r e a s e s i n r e l a t i o n to the r e l e v a n t m o v e m e n t s i n
e a r n i n g s and p r i c e s , b e n e f i c i a r i e s w o u l d b e r e c e i v i n g a s m a l l e r
p r o p o r t i o n of a v e r a g e n a t i o n a l e a r n i n g s next A p r i l than l a s t J u l y .
She had a g r e e d w i t h the C h a n c e l l o r that a s e c o n d u p r a t i n g i n D e c e m b e r
w o u l d m e a n that t h e r e w o u l d b e no C h r i s t m a s bonus in 1975.
Her
other p r o p o s a l s w e r e a m o d e s t i m p r o v e m e n t in some other benefits
and i n s u p p l e m e n t a r y b e n e f i t d i s r e g a r d s - the o n l y thing w h i c h was
b e i n g done f o r o n e - p a r e n t f a m i l i e s . F a m i l y a l l o w a n c e s w o u l d b e
i n c r e a s e d f r o m A p r i l 1975 but the i n t r o d u c t i o n of the f u l l s c h e m e of
c h i l d a l l o w a n c e s w o u l d b e p o s t p o n e d until 1977: she had a c c e p t e d
that the c o r r e s p o n d i n g r a t e need not b e s e t t l e d now.
E v e n w i t h these
i m p r o v e m e n t s s h e doubted w h e t h e r i t w a s a c c e p t a b l e t o r e d u c e food
s u b s i d i e s a s the C h a n c e l l o r had s u g g e s t e d , and she u r g e d o n h e r
c o l l e a g u e s the n e e d f o r s o m e g e s t u r e of s u p p o r t f o r o n e - p a r e n t
f a m i l i e s i n 1976.
T H E M I N I S T E R O F O V E R S E A S D E V E L O P M E N T s a i d she r e c o g n i s e d
the p r o b l e m s w h i c h the C h a n c e l l o r f a c e d , a m that h e r own r e q u e s t
w a s a d i f f i c u l t one i n the p r e s e n t s i t u a t i o n .
But i t w a s u n a v o i d a b l e .
In h e r v i e w the p r o p o s e d i n c r e a s e o f £ 9 m i l l i o n i n 1975-76 w a s
not e n o u g h : the f i g u r e should be £ 3 0 m i l l i o n .
She w a s , h o w e v e r ,
p r e p a r e d t o a c c e p t the p r o p o s e d S u r v e y f i g u r e s f o r l a t e r y e a r s w i t h
the e x c e p t i o n of the cut o f £ 1 0 m i l l i o n i n 1 9 7 8 - 7 9 .
F o r 1975-76,
the C h a n c e l l o r ' s p r o p o s e d a d d i t i o n of £ 9 m i l l i o n w o u l d m e a n - and
w o u l d b e s e e n t o m e a n - no m o r e than a s t a n d s t i l l in the a i d
programme.
H e r own p r o p o s a l would offer a r e c o g n i s a b l e i n c r e a s e .
In the p a s t the C a b i n e t had b e e n m o t i v a t e d b y a d e s i r e t o h e l p
d e v e l o p i n g c o u n t r i e s ; but t o d a y the s i t u a t i o n w a s one of c r i s i s , with
the p o s s i b i l i t y of a w o r l d s l u m p .
The developing countries
r e p r e s e n t e d s o m e 18 p e r c e n t of the United K i n g d o m ' s t r a d e and an
:
6
i m p o r t a n t p a r t of that of other c o u n t r i e s t o o .
T h e i r ability to
continue that t r a d e w a s thus d i r e c t l y l i n k e d w i t h the United
K i n g d o m s own e c o n o m i c s e l f i n t e r e s t .
A n a l y s e s b y such b o d i e s as
t h e United N a t i o n s and the O r g a n i s a t i o n f o r E c o n o m i c C o - o p e r a t i o n
and D e v e l o p m e n t had shown that the c o u n t r i e s which w o u l d b e h a r d e s t
h i t by a w o r l d r e c e s s i o n would b e t h o s e w h o w e r e t r a d i t i o n a l l y
r e c i p i e n t s of B r i t i s h a i d , such a s India and B a n g l a d e s h , w h e r e
political as w e l l as economic breakdown was threatening.
T h e aid
p r o g r a m m e had t o b e f i x e d i n the l i g h t of the c o m m i t m e n t s in the
P a r t y M a n i f e s t o and i n T h e Q u e e n ' s S p e e c h .
T h e r e f e r e n c e i n the
l a t t e r w a s b e i n g taken b y v o l u n t a r y o r g a n i s a t i o n s a s a p r e c i s e
c o m m i t m e n t to show s o m e i n c r e a s e next y e a r .
T h e United S t a t e s
w a s u n l i k e l y t o d o m o r e next y e a r than i n 1974-75, and this put a
g r e a t e r b u r d e n on o t h e r c o u n t r i e s .
T h e " h o p e was that next y e a r
w o u l d b e g i n to s e e the i n v o l v e m e n t o f the A r a b o i l - p r o d u c i n g
c o u n t r i e s i n the p r o v i s i o n of d e v e l o p m e n t a i d ; but this would take
t i m e , and i n h e r j u d g m e n t an a d d i t i o n a l £30 m i l l i o n n e x t y e a r w a s
e s s e n t i a l i f the United K i n g d o m w a s t o p l a y its p r o p e r p a r t .
!
I n d i s c u s s i o n t h e r e w a s g e n e r a l a c c e p t a n c e of the a n a l y s i s p r e s e n t e d
b y the C h a n c e l l o r and of the a p p r o a c h r e p r e s e n t e d b y his i l l u s t r a t i v e
scheme.
T h e r e w a s b r o a d a g r e e m e n t that housing - w h i c h had b e e n
r e f e r r e d to b y e v e r y L a b o u r s p e a k e r i n the debate on T h e Q u e e n ' s
Speech - was a first priority.
On o v e r s e a s a i d , t h e r e w a s a l s o a
g e n e r a l v i e w that m o r e m o n e y should b e m a d e a v a i l a b l e - both on
g r o u n d s of m o r a l c o m m i t m e n t and b e c a u s e i t w o u l d b e i m p o r t a n t
t o m o b i l i s e the s u p p o r t of the d e v e l o p i n g c o u n t r i e s i n coping w i t h
the p o t e n t i a l t h r e a t s to i n t e r n a t i o n a l e c o n o m i c s t a b i l i t y .
There was
n o d i s e e n t f r o m the a r g u m e n t that n a t i o n a l i s e d i n d u s t r y p r i c e s u b s i d i e s
should b e p h a s e d out and the c o s t of f o o d s u b s i d i e s g r a d u a l l y r e d u c e d .
C o n c e r n w a s e x p r e s s e d at the d i f f i c u l t y of m a k i n g c o l l e c t i v e d e c i s i o n s
o n fundamental q u e s t i o n s of p r i o r i t y on the b a s i s of the p r e s e n t f o r m
o f public e x p e n d i t u r e s u r v e y j b e f o r e the n e x t s u r v e y M i n i s t e r s should
b e a b l e t o d i s c u s s p r i o r i t i e s i n depth and the f i g u r e s should b e g i v e n
i n a w a y that w o u l d a l l o w this t o be done s e n s i b l y .
I n f u r t h e r d i s c u s s i o n , the f o l l o w i n g points w e r e m a d e : ­
a.
E x p e n d i t u r e on r o a d s had a l r e a d y b e e n s w i t c h e d t o a
v e r y low priority.
T h e r a t e of i n c r e a s e o f 3 . 2 p e r c e n t
w h i c h had b e e n quoted w a s a m e a s u r e of i n c r e a s e , not i n
c a p i t a l e x p e n d i t u r e on r o a d s , but of the w h o l e r o a d s and
t r a n s p o r t p r o g r a m m e , and w a s l a r g e l y a t t r i b u t a b l e t o the
s u b s i d i e s to B r i t i s h R a i l and t o l o c a l p a s s e n g e r t r a n s p o r t
u n d e r t a k i n g s . - In W a l e s the c o n s t r u c t i o n of r o a d s w a s
l a g g i n g b a d l y behind E n g l a n d , m o s t of the m o n e y i n
1976-77 b e i n g r e q u i r e d f o r the M 4 , w h i c h w a s of c r u c i a l
i m p o r t a n c e f o r the P r i n c i p a l i t y .
b.
T h e p r o p o s a l s f o r e d u c a t i o n m e a n t that s o m e
e x p e c t a t i o n s could not b e f u l f i l l e d .
T h e r e w a s no
p r o s p e c t of r e s t o r i n g f r e e s c h o o l m i l k i n p r i m a r y
schools.
I n h i g h e r e d u c a t i o n it m e a n t a t a r g e t of only
640, 000 students c o m p a r e d w i t h the 750, 000 w h i c h had
b e e n the a i m of the C o n s e r v a t i v e A d m i n i s t r a t i o n (although
t h e r e w a s s o m e e v i d e n c e of f a l l i n g d e m a n d ) .
It m e a n t n o
r e s o u r c e s t o c a t e r f o r the r e c o m m e n d a t i o n s of the R u s s e l l
R e p o r t , the J a m e s R e p o r t o r the B u l l o c k R e p o r t ; and no
a d d i t i o n a l r e s o u r c e s f o r the youth s e r v i c e , the l i b r a r i e s
s e r v i c e or the a r t s or b a s i c s c i e n t i f i c r e s e a r c h .
The
l a r g e cuts p r o p o s e d w e r e f e a s i b l e p a r t l y b e c a u s e of
r e d u c e d d e m o g r a p h i c f o r e c a s t s ; ,but s o m e i n c r e a s e i n
c a p i t a l e x p e n d i t u r e w a s d e s i r a b l e - a d d i t i o n a l s t a r t s of
£ 5 m i l l i o n f o r n u r s e r y e d u c a t i o n and £ 1 0 m i l l i o n f o r
i m p r o v e m e n t s i n p r i m a r y and s e c o n d a r y s c h o o l s adding
s o m e £ 7 - 8 m i l l i o n to e x p e n d i t u r e i n 1 9 7 5 - 7 6 ,
c.
O n e x p e n d i t u r e on L a w and O r d e r , w h i l e c a p i t a l
e x p e n d i t u r e , a s had b e e n n o t e d , w a s p l a n n e d to i n c r e a s e ,
h a r d l y any of this w a s f o r the e x p a n s i o n o r i m p r o v e m e n t
of accommodation for adult offenders.
Some £40 m i l l i o n
had b e e n taken out of the p r i s o n p r o g r a m m e , and to g o
f u r t h e r would h a v e s e r i o u s r e p e r c u s s i o n s on p r i s o n b u i l d i n g .
M u c h o f the i n c r e a s e w a s d e v o t e d t o the n e e d s of the under
2 1 ' s - the a g e g r o u p w h i c h s h o w e d the m o s t d i s t u r b i n g
increase in criminal activity.
d.
T h e S e c r e t a r y of S t a t e f o r the H o m e D e p a r t m e n t had
a g r e e d to a cut in the b u i l d i n g p r o g r a m m e f o r c o u r t s under
his c o n t r o l ; but i t w a s f o r c o n s i d e r a t i o n whether there
should not b e a l a r g e r cut than a g r e e d s o f a r i n the c o u r t
b u i l d i n g p r o g r a m m e c o n t r o l l e d b y the L o r d C h a n c e l l o r .
*
e.
P r i v a t e productive i n v e s t m e n t could b e stimulated i n
t h r e e w a y s - b y g e n e r a l i s e d f i s c a l m e a s u r e s , through the
B u d g e t ; b y e a s i n g the p r i c e C o d e ; and b y d i r e c t s e l e c t i v e
support for industry.
O n l y the t h i r d of t h e s e , w h i c h w a s
f a v o u r e d b y the T U C , i m p i n g e d d i r e c t l y on public e x p e n d i ­
ture.
T h e r e w e r e o b v i o u s d i f f i c u l t i e s i n t r y i n g to c o r r e l a t e
t h e s e t h r e e d i f f e r e n t w a y s of t a c k l i n g the s a m e p r o b l e m .
T h u s , the I n v e s t m e n t Bank w h i c h w a s c o n t e m p l a t e d , and the
National Enterprise Board, might require some £1,500
m i l l i o n , but t h e r e w a s no w a y of r e l a t i n g that t o h e l p which
could b e g i v e n t h r o u g h B u d g e t e a s e m e n t s .
This was a
q u e s t i o n that n e e d e d f u r t h e r s t u d y .
In. subsequent d i s c u s s i o n , i t w a s pointed out that e v e n t s beyond the
c o n t r o l of M i n i s t e r s m i g h t w e l l m a k e it n e c e s s a r y to l o o k a g a i n at
a n y g e n e r a l p a t t e r n of p r i o r i t i e s a g r e e d n o w .
If a r e c e s s i o n b e c a m e
a r e a l i t y the p r e s e r v a t i o n of e m p l o y m e n t m i g h t w e l l need t o a s s u m e
top priority.
S i m i l a r l y i f the w o r l d m o v e d i n t o a n e w and
e m e r g e n c y food supply situation, i t could m e a n that t h e r e would need
t o b e i n c r e a s e d e x p e n d i t u r e on the f o s t e r i n g of h o m e b a s e d
a g r i c u l t u r a l p r o d u c t i o n ; but that w o u l d b e a n e w s i t u a t i o n w h i c h
w o u l d h a v e t o be c o n s i d e r e d a t the t i m e .
The Contingency R e s e r v e ­
£ 3 0 0 m i l l i o n next y e a r r i s i n g t o £ 1 , 000 m i l l i o n i n 1978-79 - was
m e a n t t o c o p e w i t h u n f o r e s e e n e x p e n d i t u r e s on a m o d e s t s c a l e , but
c l e a r l y a m a j o r c r i s i s such a s a t h r e a t e n e d b r e a k d o w n i n the t r a d e
and m o n e t a r y s y s t e m w o u l d r e q u i r e fundamental r e c o n s i d e r a t i o n .
E v e n w i t h i n the e x i s t i n g s c h e m e , the p r o s p e c t i v e c o m m i t m e n t s l i s t e d
i n T a b l e 4 of the C h a n c e l l o r ' s p a p e r should not b e v i e w e d l i g h t l y .
I f the C a b i n e t w e r e t o b e s t r i n g e n t about public e x p e n d i t u r e w h i c h
d i r e c t l y or i n d i r e c t l y , m a d e d e m a n d s on g o o d s and s e r v i c e s , i t m u s t be
p r e p a r e d to b e e q u a l l y tough t o w a r d s e x p e n d i t u r e w i t h l i t t l e or no
d e m a n d e f f e c t - as w i t h the p u r c h a s e of a s s e t s on n a t i o n a l i s a t i o n ­
s i n c e t h e i r i m p l i c a t i o n s f o r the public s e c t o r b o r r o w i n g r e q u i r e m e n t
could be v e r y s e r i o u s .
I t c o u l d w e l l be that the m a i n O p p o s i t i o n
a t t a c k on the G o v e r n m e n t s s c h e m e w o u l d b e f o c u s e d on the b o r r o w i n g
requirement itself.
N o r w a s i t to b e a s s u m e d that the d e m a n d
e f f e c t s of m a n y of t h e s e p r o s p e c t i v e p a y m e n t s w o u l d b e n e g l i g i b l e .
I n c o n s i d e r i n g p r i o r i t i e s i t w o u l d not be enough t o c o n f i n e attention
t o the public s e c t o r s i m p l y b e c a u s e that w a s the a r e a under M i n i s t e r i a l
c o n t r o l , and i t w a s n e c e s s a r y to w o r k out a m e a n s of r e i n i n g b a c k
i n e s s e n t i a l p r i v a t e e x p e n d i t u r e so a s to m i n i m i s e the public s e c t o r
cuts n e e d e d .
T h e G o v e r n m e n t w o u l d h a v e t o c o n s i d e r the p r o b l e m of the p r e s e n t a ­
t i o n o f t h e i r p o l i c i e s t o the P a r t y and the c o u n t r y .
T h e Budget Speech
w o u l d b e an o c c a s i o n f o r a c o m p r e h e n s i v e p r e s e n t a t i o n of s t r a t e g y ,
but e a r l y o p p o r t u n i t i e s should be taken t o r e i n f o r c e i t .
It was
s u g g e s t e d that t h e r e m i g h t b e m e r i t i n d r a w i n g up a d e c l a r a t i o n f o r
i s s u e a f t e r the C a b i n e f s m e e t i n g at C h e q u e r s on 17 N o v e m b e r w h i c h
w o u l d s e t out the r e l a t i o n s h i p b e t w e e n the w o r l d s c e n e and the United
K i n g d o m ' s o w n p r o b l e m s , and r e l a t e public e x p e n d i t u r e p o l i c y to
economic strategy generally.
On the o t h e r hand i t w a s pointed out
that the C h e q u e r s m e e t i n g w a s to a l l o w a w h o l l y f r e e and uninhibited
discussion between Ministers.
E v e n i f such a d e c l a r a t i o n w a s
a p p r o p r i a t e i t s d r a f t i n g c o u l d only b e put i n hand s u b s e q u e n t l y .
1
T H E P R I M E M I N I S T E R , s u m m i n g u p the d i s c u s s i o n , s a i d that, the
C a b i n e t g a v e g e n e r a l a p p r o v a l to the a p p r o a c h p r o p o s e d b y the
C h a n c e l l o r of the E x c h e q u e r to the p r o b l e m s of pubHc e x p e n d i t u r e .
T h e C h a n c e l l o r should now c o n s i d e r the p o i n t s m a d e i n d i s c u s s i o n ,
b o t h t h o s e of a g e n e r a l c h a r a c t e r a n d t h o s e c o n c e r n e d w i t h d e p a r t m e ntal
p r o g r a m m e s ; and should c o n s u l t f u r t h e r w i t h the M i n i s t e r s c o n c e r n e d
t o d e c i d e w h a t a d j u s t m e n t s could b e m a d e i n o r d e r t o a c c o m m o d a t e
d e s i r e d changes w i t h i n the a g r e e d g u i d e l i n e s .
A s f a r as p o s s i b l e h e
9
should r e a c h a g r e e m e n t w i t h h i s c o l l e a g u e s , and t h e n c i r c u l a t e a
d e f i n i t i v e v e r s i o n of his p a p e r , w h i c h c o u l d s e t out any u n r e s o l v e d
p o i n t s f o r the C a b i n e t to s e t t l e a t a f u r t h e r m e e t i n g .
H e should note
the g e n e r a l v i e w that t h e r e should b e an i n c r e a s e i n the o v e r s e a s aid
p r o g r a m m e , a s p a r t of the United K i n g d o m s a p p r o a c h t o the w o r l d
problem.
M i n i s t e r s had quite r i g h t l y p r e s s e d t h e i r d e p a r t m e n t a l
p o i n t s , but he thought t h e r e had b e e n a n o t e w o r t h y w i l l i n g n e s s to a c c e p t
the g e n e r a l e c o n o m i c l i m i t a t i o n s and the p r o b l e m s o f other M i n i s t e r s .
T h e C h a n c e l l o r should now take the i n i t i a t i v e w i t h a l l the D e p a r t m e n t s
c o n c e r n e d t o w o r k out a t i g h t e r s y s t e m f o r the c o n t r o l of l o c a l
a u t h o r i t y c u r r e n t e x p e n d i t u r e , w i t h p a r t i c u l a r r e f e r e n c e to the n e e d
f o r m o n i t o r i n g that e x p e n d i t u r e i n v i e w of the p r o p o s e d i n c r e a s e s
i n l o c a l a u t h o r i t y m a n p o w e r , n o t a l l of w h i c h could b e g o i n g to
priority programmes.
On p r e s e n t a t i o n , the B u d g e t s p e e c h w o u l d
r e l a t e pubHc e x p e n d i t u r e t o the n a t i o n a l s.nd, to a d m e e x t e n t , the
w o r l d c r i s i s , and would p r o v i d e p a r t of the b a c k g r o u n d f o r t h e
C a b i n e t ' s d i s c u s s i o n on 17 N o v e m b e r . T h i s would b e t i m e l y g i v e n
the f a c t that the m a i n f o r u m o u t s i d e P a r l i a m e n t f o r the p r e s e n t a t i o n
o f G o v e r n m e n t p o l i c i e s t o the P a r t y and the N a t i o n i n the n e a r future
w o u l d b e t h e P a r t y C o n f e r e n c e l a t e r i n the m o n t h .
1
The Cabinet T o o k n o t e , w i t h a p p r o v a l , o f the s u m m i n g u p of t h e i r
d i s c u s s i o n b y the P r i m e M i n i s t e r .
10
TE
UPPORT
3.
The Cabinet had b e f o r e them a m e m o r a n d u m b y the S e c r e t a r y of
State for the E n v i r o n m e n t ( C ( 7 4 ) 125) a b o u t R a t e Support" Grant in 1975-76.
RANT
L
fevious eference: 'C(74) 19th
(inclusions,
[inute 3
T H E S E C R E T A R Y O F S T A T E F O R T H E E N V I R O N M E N T said that the
P r i m e M i n i s t e r had recently chaired a meeting about R a t e Support Grant
in 1975-76 with the M i n i s t e r s i m m e d i a t e l y concerned, and the outcome
of the d i s c u s s i o n w a s reflected in the m e m o r a n d u m which he had
circulated.
F o u r m a i n issues had to b e c o n s i d e r e d .
The f i r s t w a s the
acceptable l e v e l of l o c a l government expenditure for r a t e support grant
purposes.
L o c a l authorities had b e e n g e n e r o u s l y treated in recent
y e a r s ; their expenditure had been i n c r e a s i n g b y about 8 p e r cent a y e a r
in r e a l t e r m s and the number of staff e m p l o y e d b y about 80, 000
(though about half of these w e r e p a r t - t i m e ) .
This rate of i n c r e a s e
could not b e a l l o w e d to continue, and it w a s proposed that, for 1975-76,
expenditure should b e held at its 1974-75 l e v e l , plus a n allowance for
inescapable commitments amounting to about 4 p e r cent.
The l o c a l
authorities w e r e expecting m e a s u r e s on these l i n e s ; b u t the effect
on s e r v i c e s would b e painful - M e t r o p o l i t a n bus f a r e s would, for
example, have to b e i n c r e a s e d b y 30 p e r cent next y e a r and fares in
London by 50 p e r cent.
The second question w a s the t o l e r a b l e l e v e l
of i n c r e a s e in r a t e s .
This year the o r i g i n a l t a r g e t of an a v e r a g e
i n c r e a s e of 30 p e r cent had proved unacceptable and had subsequently
had to be r e d u c e d to about 10 per cent.
In his v i e w a f i g u r e of
25 per cent w a s the m o s t that could b e accepted politically and f r o m
the point of v i e w of p r e s e r v i n g the s o c i a l contract.
This should b e
adequate to d i s c o u r a g e l o c a l authorities f r o m i n c r e a s i n g expenditure,
p a r t i c u l a r l y b e a r i n g in mind that M e t r o p o l i t a n d i s t r i c t elections would
be taking place in A p r i l .
T h i r d l y there w a s the question of how the
grant should b e distributed amongst l o c a l authorities.
This was a
matter on which he would be circulating p r o p o s a l s to the Cabinet.
F i n a l l y there w a s the need to e x e r c i s e g r e a t e r control o v e r local
authority spending and, i n particular, staffing.
Monitoring a r r a n g e ­
ments would have to be established, and the Government would have to
accept g e n e r a l r e s p o n s i b i l i t y for reductions in s e r v i c e s and to give
guidance on p r i o r i t i e s .
THE C H A N C E L L O R O F T H E E X C H E Q U E R said that he a g r e e d b r o a d l y
with what w a s p r o p o s e d for 1975-76.
It w a s , h o w e v e r , important to
make c l e a r to l o c a l authorities that this w a s only the f i r s t step in a
continuing p r o c e s s and that s e v e r e r e s t r a i n t on expenditure would have to be
e x e r c i s e d throughout the P u b l i c E x p e n d i t u r e S u r v e y ( P E S C ) p e r i o d . T h e
G o v e r n m e n t w o u l d h a v e to g i v e c l e a r g u i d a n c e on p r i o r i t i e s and on c h a r g i n g
p o l i c y , and to e s t a b l i s h e f f e c t i v e m o n i t o r i n g m a c h i n e r y . A s r e g a r d e d the l e v e l
of rate i n c r e a s e s , he f a v o u r e d a f i g u r e of 35 p e r c o a t , w h i c h w o u l d r e p r e s e n t ]
an i n c r e a s e of only 20 p e r cent i n the t a r g e t which had originally b e e n
adopted this y e a r .
A t a r g e t of 25 p e r cent would i n c r e a s e the
Exchequer cost by £250 million but would only reduce the r e t a i l p r i c e
index b y 0. 25 p e r cent.
M o r e o v e r , the l o w e r the a v e r a g e i n c r e a s e i n
r a t e s , the w e a k e r w o u l d b e the r e s t r a i n t s on l o c a l a u t h o r i t y e x p e n d i t u r e .
H e a g r e e d that t h e r e should b e s o m e i n c r e a s e i n the g r a n t p a y a b l e to
l o c a l a u t h o r i t i e s this y e a r , but i n o r d e r to d i s c o u r a g e p r o f l i g a t e
e x p e n d i t u r e i t w o u l d b e d e s i r a b l e n o t to m e e t the l o c a l a u t h o r i t i e s
d e f i c i t s i n f u l l , s t i l l l e s s t o e n a b l e t h e m t o b u i l d up the b a l a n c e s w h i c h
h a d b e e n run d o w n .
H e f a v o u r e d a n a r b i t r a r y f i g u r e of £ 2 5 0 - 3 0 0
m i l l i o n i n t e r m s of c u r r e n t v a l u e s .
1
I n d i s c u s s i o n , i t w a s a r g u e d that the p u b l i c found r a t e i n c r e a s e s
p e r h a p s the m o s t o b j e c t i o n a b l e of a l l the i n c r e a s e d c h a r g e s t h e y w e r e
c a U e d upon t o p a y , and that this w a s a g r o u n d f o r k e e p i n g the i n c r e a s e s
t o the m i n i m u m .
I t w a s , m o r e o v e r , u n d e s i r a b l e that the r a t e i n c r e a s e
should e x c e e d b y t o o m u c h the l i k e l y r a t e of i n f l a t i o n ; but an a v e r a g e
i n c r e a s e of e v e n 25 p e r c e n t w o u l d i n v o l v e s o m e m u c h l a r g e r
i n d i v i d u a l i n c r e a s e s - i n d e e d , s o m e 5 p e r c e n t of the p o p u l a t i o n w o u l d
b e f a c e d w i t h i n c r e a s e s of 50 p e r c e n t o r m o r e .
It was, however,
n o t p r o p o s e d t o i m p o s e an upper l i m i t to p e r m i s s i b l e i n d i v i d u a l
increases.
It a l s o had to be b o r n e i n m i n d that t h e r e w o u l d b e
s u b s t a n t i a l i n c r e a s e s i n w a t e r and s e w e r a g e c h a r g e s , w h i c h i n W a l e s
w o u l d a m o u n t to about 60 p e r c e n t on a v e r a g e .
On the o t h e r hand, i t
w a s a r g u e d that s u b s t a n t i a l r a t e i n c r e a s e s w e r e the m o s t , p e r h a p s the
o n l y , e f f e c t i v e w a y of c o n t r o l l i n g e x p e n d i t u r e b y l o c a l a u t h o r i t i e s ,
w h o s e e x c e s s i v e spending d u r i n g the c u r r e n t y e a r i t w a s now p r o p o s e d
t o a l l o w f o r the p u r p o s e of c a l c u l a t i n g g r a n t .
In the l i g h t of p a s t
e x p e r i e n c e i t w a s doubtful h o w e f f e c t i v e m o n i t o r i n g w o u l d b e .
In f u r t h e r d i s c u s s i o n , i t w a s a r g u e d that w i t h i n an o v e r a l l m a n p o w e r
c e i l i n g i t w a s i m p o r t a n t that s o m e i n c r e a s e should b e a l l o w e d i n the
n u m b e r of t e a c h e r s .
W i t h o u t this t h e r e w o u l d b e a d e c l i n e i n the
pupil/ t e a c h e r r a t i o and s i g n i f i c a n t u n e m p l o y m e n t a m o n s t n e w l y
qualified t e a c h e r s .
The G o v e r n m e n t would be obliged to indicate
t h e i r i n t e n t i o n s a s to the p r o s p e c t i v e n u m b e r of t e a c h e r s to b e e m p l o y e d ,
and i t w a s i m p o r t a n t t o a v o i d the i m p l i c a t i o n that t h e y w e r e d e l i b e r a t e l y
adopting policies which would produce unemployment amongst teachers
w h o w e r e about t o c o m p l e t e t h e i r t r a i n i n g .
T H E P R I M E M I N I S T E R , s u m m i n g up the d i s c u s s i o n , s a i d that the
C a b i n e t a g r e e d w i t h the a p p r o a c h p r o p o s e d b y the S e c r e t a r y o f State f o r
the E n v i r o n m e n t .
The a i m should t h e r e f o r e be to hold expenditure b y
l o c a l a u t h o r i t i e s i n 1975-76 a t i t s 1974-75 l e v e l , plus a 4 p e r c e n t
allowance for inescapable commitments.
Continuing r e s t r a i n t s i n
e x p e n d i t u r e w o u l d b e n e c e s s a r y t h r o u g h o u t the P E S C p e r i o d ; and
a l t h o u g h i t m i g h t not b e p r a c t i c a b l e to g i v e the l o c a l a u t h o r i t i e s t a r g e t s
f o r the y e a r s a f t e r 1 9 7 5 - 7 6 , the S e c r e t a r y of S t a t e f o r the E n v i r o n m e n t ,
i n c o n s u l t a t i o n w i t h the C h a n c e l l o r of the E x c h e q u e r , should c o n s i d e r
u r g e n t l y how the continuing n e e d f o r s e v e r e r e s t r a i n t s c o u l d b e s t b e
i m p r e s s e d on l o c a l a u t h o r i t i e s i
T h e G o v e r n m e n t should a c c e p t
g e n e r a l r e s p o n s i b i l i t y f o r the e f f e c t s on s e r v i c e s and should i s s u e
detailed guidance to l o c a l authorities on p r i o r i t i e s .
The total number
of staff e m p l o y e d b y l o c a l a u t h o r i t i e s should b e h e l d at i t s p r e s e n t
l e v e l and d e t a i l e d m o n i t o r i n g a r r a n g e m e n t s should b e e s t a b l i s h e d .
D e t a i l e d a r r a n g e m e n t s f o r t h e s e purposes should b e w o r k e d out on
the l i n e s a g r e e d at his r e c e n t m e e t i n g w i t h the M i n i s t e r s i m m e d i a t e l y ­
concerned.
T h e r e should b e f l e x i b i l i t y w i t h i n the s t a f f i n g c e i l i n g ;
and the S e c r e t a r y of State f o r E d u c a t i o n and S c i e n c e w a s f r e e to m a k e
c l e a r that the G o v e r n m e n t w e r e not planning f o r u n e m p l o y m e n t
a m o n g s t n e w l y qualified t e a c h e r s .
In v i e w of the s t r e n g t h of public
r e s e n t m e n t c a u s e d b y i n c r e a s e s i n r a t e s , and the h a r m f u l i m p l i c a ­
t i o n s f o r c o u n t e r i n f l a t i o n a r y p o l i c i e s , the C a b i n e t a g r e e d that the
m a x i m u m t o l e r a b l e l e v e l o f a v e r a g e r a t e i n c r e a s e w a s 25 p e r cent,
d e s p i t e the i n c r e a s e d d e m a n d s w h i c h w o u l d thus b e m a d e on the
Exchequer.
T h e y a g r e e d a l s o that s o m e e x t r a g r a n t should b e paid
this y e a r by w a y of a R a t e I n c r e a s e O r d e r .
The p r e c i s e amount
should b e s e t t l e d b y the S e c r e t a r y of State f o r the E n v i r o n m e n t i n
c o n s u l t a t i o n w i t h the C h a n c e l l o r of the E x c h e q u e r , w h o had e x p r e s s e d
a p r e f e r e n c e f o r l i m i t i n g i t t o s o m e £ 2 5 0 - 3 0 0 m i l l i o n s o as t o a v o i d
a n y i m p r e s s i o n that the G o v e r n m e n t w e r e condoning p r o f l i g a t e
expenditure.
The Cabinet ­
1.
T o o k n o t e , w i t h a p p r o v a l , of the P r i m e M i n i s t e r ' s
s u m m i n g up of t h e i r d i s c u s s i o n .
2.
I n v i t e d the S e c r e t a r y of State f o r the E n v i r o n m e n t ,
i n consultation w i t h the C h a n c e l l o r of the E x c h e q u e r ,
to proceed accordingly.
Cabinet Office
5 N o v e m b e r 1974
13