HIS 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
GOVERNMENT C (74) 1 2 4
Q
U
COPY NO
1 November
1974
CABINET
LATE IMPLEMENTATION OF THE
HOUSING F I N A N C E A C T
N o t e b y tbe S e c r e t a r y of S t a t e for the E n v i r o n m e n t
1,
A t a m e e t i n g of M i n i s t e r s y e s t e r d a y t i n d e r t h e c h a i r m a n s h i p of t h e
P r i m e M i n i s t e r the p r o p o s a l s m a d e i n the a n n e x e d paper w e r e a p p r o v e d
g e n e r a l l y ; and I w a s invited to c i r c u l a t e t h e m for c o n s i d e r a t i o n by the
Cabinet at the m e e t i n g on T u e s d a y .
I will as necessary report more
fully at that m e e t i n g .
2.
On t h e i s s u e s a f f e c t i n g - C l a y C r o s s , i t i s n e c e s s a r y t o m o d i f y w h a t
I said in m y paper.
I have reluctantly concluded that the disqualification
i n c u r r e d b y the e x - c o u n c i l l o r s should, a s r e c o m m e n d e d , be r e m o v e d b y
t h e l e g i s l a t i o n , a n d n o t b e m a d e c o n d i t i o n a l o n r e p a y m e n t of t h e s u r c h a r g e .
B u t w e w o u l d n o t r e s c i n d t h e s u r c h a r g e of £ 6 9 8 5 a l r e a d y m a d e a n d n o w
f o r m i n g the s u b j e c t - m a t t e r of a n o r d e r of the c o u r t .
T h e p a y m e n t of
that s u m p r o p e r l y falls to be dealt with in the m a n n e r indicated in the
P r i m e M i n i s t e r ' s s t a t e m e n t to the H o u s e on 4 A p r i l , that i s to say, by
"those a s s o c i a t e d w i t h the d e c i s i o n s t a k e n a t the r e l e v a n t c o n f e r e n c e s " .
I n t e r e s t and c o s t s r e l a t i n g to the c o u r t a c t i o n s a r e a l s o outstanding;
the r e l e v a n t a m o u n t s have not y e t b e e n f i n a l l y d e t e r m i n e d but it w i l l be
n e c e s s a r y for t h e m a l s o to b e m e t .
(There is in existence a modest Party
f u n d t o h e l p w i t h c o s t s , b u t t h e r e i s n o P a r t y o r o t h e r fund a v a i l a b l e t o
p a y the s u r c h a r g e - )
3.
I seek my colleagues
1
agreement:-^
,,
a.
to the p r o p o s a l s i n the a t t a c h e d p a p e r , a s a m e n d e d b y
paragraph 2 above; ^
b.
to m a y making a s t a t e m e n t i n the H o u s e on Wednesday
6 November;
and
c.
t o m y p r o c e e d i n g w i t h t h e d r a f t i n g of t h e n e c e s s a r y B i l l
for introduction a s quickly as p o s s i b l e .
A C
D e p a r t m e n t of t h e E n v i r o n m e n t
I November
1974
NFIDENTIAL
ANNE3
PAPER CIRCULATED AS MISC'33(74)33 ON 28 OCTOBER 1974
LATE IMPLEMENTATION OP THE-HOUSING.FINANCE ACT 1 972
Memorandum by the Secretary of State for the Environment 1.
At the last meeting of MISC 33 my colleagues:
(a)
approved the proposals in my paper MISC 33(74)1 :
(b) agreed that the matter should be considered again after the Election; but (c) asked me to look into one possibility, which I had to dismiss
(letter of 9 August).
2. The process of audit h a 3 been continuing; and the Annex shows the local authorities where surcharge now seems likely, the amount, the number of councillors at risk, and the stage reached. Present position at Clay Cross
'
3. I understand that the eleven ex-councillors of Clay Cross have
told the District Auditor s .legal advisers that they have no assets;
and that the District Auditor has subsequently been considering, with
his legal advisers, which of the courses open to him-he should follow
in.enforcing the judgement order obtained in the High Court on 2 August
in respect of the surcharge of £6985 plus interest from £ October 1973
and costs. The audit of the Clay Cross Council's accounts for
1972/73 and 1973/74 has been continuing. In addition to the further
probable surcharges of about £100,000 shown on the Annex I understand
that the District Auditor is investigating a number of other items
not relating to the Housing Finance Act.
f
Po1icy considerations 4.
Our policy objectives, as stated by the Prime Minister on lj April,
are:
(a) to remove or obviate the disqualification for membership of local authorities as a result of surcharges arising out of the Housing Finance Act; (b)
to avoid any extra charge on public funds; (c ) to resolve the problem with fairness to all-concerned, . including fairness to those who reluctantly' implemented the ( c o n f i d e n t i a l )
Act, and'in a spirit which will diminish for the future the bitterness engendered. The Prime Minister also said that the law of the land must bo obeyed.
We are committed to removing tho sanction of disqualification. But
in other respects we should seek a solution which upholds tho rule o f
law.
The issue to be considered ,
The essential question is whether we want recovery o f the lo3t
rent income from the councillors to be attempted. A3 the figures in'
the Annex show, the sums involved are large, and it is virtually
certain that only a small part could be brought in. Most o f it would
have to be written off as not recoverable; and would fall to be met
by the local authority (with such support from central Government as was
then appropriate under the relevant statutory provisions). Some o f , n .
the lost rent could, however, be recovered from the councillors:
attachment of earnings would yield periodical repayments; seizure of
assets T t f o u l d yield something; enforced bankruptcies would yield
something. Surcharges are joint as well as several, and where one of
the councillors had a shop or other business, or even a house, an
enforced bankruptcy might pay his share and that of several other
councillors. If court orders for seizure of assets or attachment
o f earnings were made and not complied with, the councillors would
risk prison.
6.
If my colleagues consider that some attempt at recovery is
necessary, the surcharges must proceed. If not, and since disqualifica­
tion is t o be lifted, the only two results of surcharge would be
removed; and the process of surcharge becomes pointless,.
7.
The arguments for attempting recovery ares that law enforcement
should not be interfered with; that the rates and/or rents should be
relieved of any amount which can be recovered; that it will bo
salutary to remind people that group decisions carry personal
responsibility. The arguments against attempting recovery ares
that the processes are bound to drag on for a long time with continued ­
publicity and controversy; and that it is necessary to avoid further
bitterness. It could also be argued that the financial repercussions
o f failure to implement the Act, coming at a time of local government
reorganisation, have produced a situation of such complexity that
an ad hoc solution for dealing with losses would be justified and
would not constitute a precedent in other circumstances. There is
also the question whether the prospect of hundreds of councillors
being subjected to the process of recovery (no matter how tactfully *
handled it may be by the District Auditors) when substantial public
write-offs x^iould be seen to be inevitable in the end might tend­
to diminish the respect for law which we want to encourage.
A possible alternative solution 8. Wo must recognise that there is no way of avoiding making good the lost rent income. If the councillors do not meet it the only available sources are future rents or rates. We must rule out central Government funds because of the Prime Minister's statement, but we could treat rates as not being "public funds"., in that context, )
On. that basis a possible solution would bo to "include in tho proposed ( Bill provisions to authorise tho relevant local authority to make CONFIDENTIAL good the rent income l o 3 t ,
as a result of negligence or misconduct,
out of 'f utura rents, beginning in 1 9 7 5 / 7 6 and spread over a fairly
long period, say five or seven years. This should not prove onerous,
especially as local authorities will have freedom to fix their own
"reasonable" rents once our Housing Rents and Subsidies Bill is
passed. If, however, they chose not to make good the loss out of
future rents, or to the extent that they did not choose to, we would
provide for the amount to be met out of the rates, the sum involved
not being counted, however, as relevant expenditure for rate support
grant.
9.
There is a further point which has policy implications. Owing to
local government reorganisation, many of the late implementing
authorities no longer exist..having become parts of new and larger
authorities. Those communities now incorporated in the North-East Derbyshire District which, when independent authorities, implemented
the Act on time, have already-shown their resentment of a possible
requirement to contribute to make good the Clay Cross losses. This
is a just objection which other communities similarly affected may also
make, and to meet it we would need to give authorities power to
charge differential rents, or levy a differential rate, so that,
for example, the Clay Cross burden fell only on the tenants and/or
ratepayers of the old Clay Cross area and not upon the whole body
of tenants and/or ratepayers of the new North-East Derbyshire
District.
Two special points affecting Clay Cross. 1 0 . . Another point is that if we now provide authorities with a
means for making good the lost rent income we cannot justify not
doing the same for Clay Cross. It would be necessary, therefore,
to provide for the surcharge already made at Clay Cross to be
rescinded. In order to avoid hybrid legislation a general provision
would be necessary. But I would not think it right for tenants
and/or ratepayers to be required to bear the legal costs etc for which
the Clay Cross ex-councillors are liable, (these include their own
costs and those of the District Auditor and of the Department in the
legal actions). Any surcharges against the ex-councillors for the
other items referred to in paragraph 3 would of course proceed in the
usual way.
­
1 1 . Finally, Clay Cross did not make the rate fund contributions
they should have made towards their housing revenue expenditure. As
a result the North-East Derbyshire District Council havo inherited a
deficit upon which they will probably wish to rate the Clay: Cross
Parish differentially. The sum has yet to be finally assessedj but
it could be as much as £ 7 5 * 0 0 0 , involving a 9 p additional rate in
the Parish and attracting rate support grant. I do not see how we
could refuse this. Provision/would probably be needed in.the Bill,
Immediate action needed, 1 2 . If we decide to adopt the solution outlined above it would be
necessary to make an announcement in the House as soon as possible.
When this had been done the District Auditors would not feel it
necessary to proceed with any further Housing Finance Act surcharges
(though they would still havo to establish the amounts involved) pending a decision by Parliament on the Bill. Conclusion 13.
I invite my colleagues to agree
(i) that the balance of argiiment is against attempting to recover the very large sums (see Annex) from the councillors concerned and that vie should; (ii) include in the proposed Bill provisions enabling local authorities to'make good the lost rent income out of future rent
or, if they chose not to do so, requiring them to meet it out *
of rates (paragraph 8 ) ;
(iii) enable local authorities to charge differential rents or levy differential rates to make the old defaulting area bear the
liability (paragraph 9) J
,?
(iv) rescind the surcharge made as a result of the extraordinar
audit at Clay Cross but leave the ex-couhcillors to meet legal .costs (paragraph 1 0 ) ; /
(v) provide power for local authorities to levy differential rates where the old areas did not make the required rate fund contributions, as at Clay Cross (paragraph 11 ) ; :
(vi) announce our decisions in the House as soon as possible' (paragraph 12). AC
f ,
'
'
'
Department of the Environment
2 Marsham Street
SW1
2 g October9 1
7 U
mmmmmmm
A.UTH0RIPI]
c?
h o u g i h o p i g P V N O P : a cop
1972
d i s P S SURCHARGE 237:1-13 L I K E L Y
P s t i n a t e d
P o t e n t i a l
1
main or
P r e s e n t
P o s i t i o n
of
members
at
r i s k
IPIdHPIPi 1972-3
AG :OI.M-TS Barrow CB 57,000
27 Blackburn OB 57,000
45 Doncastcr CB 83,000
28 Oarnderi - LB 345,000
30
56,000
18
27,000
14
25,000
11
43,000
11
14,000
5
10,000
22
Secies B detailed a u d i t
work completed.;
audit adjourned
for confide radix
of losses arisir,
from late impls­
mentation
/
Hansfield B
flay Cress UD
Gonisberough UDHalstead UD
Long 3aton TJD
okelmersdale
& Holland OQ
1973-4
11,000
;
1
5
ACCOUNTS
Birmingham CB
539,000
Clay Cross UD
about
formal coning o:
audit/on"11 dev. 7
100
/due
(1 1 included,
above)
00,000
1 3 7 3 - 4 audit now
in progress
' V/AL33
.19 7 2 - 3
* CC01JKT3 ','
Kerthyr itydfil CB 58,000
24
Bedwas & Maehen UP -
13
?
000
d e t a i l e d
a u d i t
c o m p l e t e d ;
5,000
(also 1 9 7 3 - 4 ) Cvbran TJD ad j ourned.
l o s s e s
Vaynor d Fcnderyn RD 9 , 0 0 0 Ystradgynlais Ri). There
s e n t
may
w e l l
5
'f U
* Ov'0
be a f d r t h e r
r e o r g a n i s a t i o n
l a t e '
10,000
i
t h e
c a s e s
audits:
i n v o l v i n g
f o r
t h a t
f o r jj
c o n s i d e r a t i o n ' o f
10 16,000
rc:
a u d i t
the
y e a r
1.975-4'a
are
not
, s s
a r i s i n g
i'r­
ir.:;lc:..e.P: s i ;