A Chathaoirligh, I am very glad of this opportunity of speaking here on local authority financing and on the Government's position in regard to the financial provision for the current year. Far from feeling in any way defensive on this subject, the position is that the Government have taken radical action to retrieve local authority finances from the brink. The financial provision for local authorities this year is as much as can be done in the current economic conditions. It is, moreover, a fair and reasonable provision and is calculated to enable service and employment to be maintained as closely as possible to the 1983 levels. I want also to explain that I am looking very urgently and very fully at the whole system of local authority financing to see how we can modify it so as to get rid of the worst features, including the inordinate dependence on central financing and the related diminution in local independence and discretion.
First, it is appropriate, I think, to remind ourselves of the importance of the part which local authorities have come to play in the national life of the country. Not alone does the Government of the day rely on them to give effect to important national policies in such key areas as housing, roads development, provision of services and infrastructure and in matters such as planning and environmental protection, but the local communities, too, rely on them to create wealth and to provide jobs. Because of the scale of their responsibilities and the way in which they have developed in recent years, they have now become very important local centres of economic and social activity. Perhaps the best indicator of their key economic and social role is the fact that in 1983 they spent, between current and capital spending, about £1.4 billion and provided employment for about 35,000 people. It is only natural, therefore, that there should be keen political and public interest in their affairs and in their wellbeing.
In times of economic difficulty such as those we are experiencing at the moment, it is inevitable that problems will be experienced in maintaining services and employment. Local authorities are no different from any other institutions in the public sector in this regard — all are being asked to do their share in the effort to bring the public finances under control. Where the local authorities are different, however, is in that the problems which the general economic situation has created for them have been compounded by other difficulties which have emerged over the past few years.
Nobody will deny that the burden of domestic rates was regarded as a severe one on many families and that the decision to abolish them was, indeed, a popular one. But, although it was not acknowledged by the Government of the time, this step was to deal a major blow to the financial state of local authorities — one from which they have not recovered — and to their vitality as local democratic bodies.
For all the problems about rates — and there were considerable problems — the fact is that domestic rates had come to be recognised and accepted as one of the mainstays of local authority financing. To knock away this prop without providing any adequate substitute system was a recipe for financial trouble, and so it has proved to be. The decline of local authority finances on current account from a position of credit to a situation of substantial deficit is clearly traceable to the decision of 1978. The acceleration in the dependence of local authorities on Exchequer financing — to which I shall come back — is also traceable to those decisions.
The inordinate dependence on central financing, in turn, threatens the sense of responsibility, the sense of discretion and the sense of accountability at local level. These are not trends that are in the best interests of a healthy and effective system of local democracy. It was in connection with the abolition of domestic rates in 1978, also, that the decision was made — which I am glad to say this Government has reversed — to remove the discretion of local councils to determine the level of their rates. Instead, we had the spectacle of the Minister deciding for them each year the level to which rates had to be limited, leaving the council with no option but to put up with it and to tailor their decisions and what they could do for the local community accordingly.
Rates were the discretionary source of local authority revenue which they used to effectively perform their functions and meet their commitments. With the loss of this discretionary power of revenue and the rate poundage limits imposed by the Minister, local authorities were no longer able to raise funds as they had always done, but the demands for more and better services continued. Naturally, the authorities wished to maintain services and the infrastructure in which they had invested so much and, consequently, available credits were quickly used up and deficit financing and certain cut-backs became inevitable. I think it is well to remind ourselves at this stage of the background to which I have referred and that a heavy price has been paid by local authorities and by the public for whatever political gain was secured by the abolition of rates in 1978.
Other factors have aggravated the position. Local authorities were already beginning to feel the strain when the farmers challenged the constitutionality of rates on land. While the Supreme Court, in January of this year, ruled in favour of the farmers, this decision itself did not present immediate problems for local authorities because rates on land had already been relieved in full with effect from 1983. But some farmers, in anticipation of a favourable outcome to the court challenge, had refused to pay rates in 1981 and 1982 and, as a consequence of this action, local authorities lost over £20 million in rate arrears over those two years. This was money which the authorities had budgeted to get and which they spent in the normal way. The loss was, consequently, very real and very severe.
We have, of course, been experiencing a very severe recession. This has meant that there has been very severe pressure on public finances generally and, of course, finance for local authorities did not escape. In this situation, it was found impossible to maintain full Exchequer recoupment to local authorities in respect of the domestic rate reliefs granted to householders and in 1982 there was a shortfall of £10.7 million in the Exchequer recoupment.
This, then, was the position which we found when the present Government took office. Furthermore, the 1983 Estimates which our predecessors had prepared provided for no increase in the domestic grant over the reduced amount which was paid in 1982, while the provision for the grant in lieu of rates on land would have financed only a standstill in rates poundages. This would have spelt disaster for the local authorities and for the provision of local services and, despite the serious state of the national finances generally, we felt we had to take steps to avert that situation.
The first step which we took was to allocate a special additional £31.5 million to the rate support grants. This enabled us to provide for full recoupment of rates, including an increase of about 5 per cent over the 1982 rate poundage level. This was an immense improvement for local authorities, both immediately and in terms of the measure of the commitment of this Government to the local government system.
We also looked at the question of the rate poundage limitation which had operated since 1978 and we came to the conclusion that this practice, while basically designed to protect the State from unreasonable demands was, in fact, a counter productive, inappropriate device. What was happening in practice was that local authorities wee being prevented from raising revenue from local rate sources by the State imposed limitation and, consequently, the demand for State grants was being pushed up. This situation existed because of the link established by the Local Government (Financial Provisions) Act, 1978 between the amount of the rates reliefs given by a local authority and the amount of the State recoupment. So we decided to break this link and to remove the obligation to give full recoupment of rates reliefs. This left the way open to release the stranglehold of the State on rate poundage levels and, in fact, no rate poundage limit was imposed for 1983 — or, indeed, for 1984. We were, of course, criticised in certain quarters for the removal of the obligation to give full domestic rates recoupment, but this was essential if we were to relax control of rate poundages and, as I have said, full recoupment had already been dropped in practice.
This relaxation of the rate poundage controls was the first step in an effort to restore to local authorities some of the independence which they previously enjoyed. We took another significant step in this direction when we gave to the local authorities greatly increased powers to charge for the services which they provide. I know that local authorities were not in a position to reap the full benefit of these additional powers in 1983 for reasons which I shall go into later, but I am confident that they will make full use of them in 1984. Although charges of this type will never constitute a major source of revenue for local authorities, they constitute a necessary and significant source of additional discretionary revenue which can be called on to finance various projects. I know that the additional powers were welcomed by most people associated with local authorities for this reason.
This, then, was the financial package which we gave to the local authorities in 1983 and I am glad to say that they responded positively. They adopted realistic increases in industrial and commercial rates; they applied their new charging powers, although the full benefits have not yet been seen; they looked at their various existing charges and reviewed them as appropriate; they continued to seek better and more efficient ways of doing things, and the net result was that they managed to get their finances on to a better basis than had been possible for a number of years.
And what of the proposals for 1984? I should like at this point to dispel a few misconceptions which have been expressed about the Government's treatment of local authorities in the 1984 Estimates. The story is being put about that the Government are looking after services and employment in Government Departments through an overall increase of 8 per cent in the Public Service Estimates but that grants to local authorities are going up by only 0.8 per cent. This is certainly not the case. In my own Department, for example, staff numbers are now down by 15 per cent on what they were in 1981 through the operation of the embargo. There is no corresponding embargo in local authorities, although I would expect that local authorities should look seriously at vacant posts, to see if savings can be achieved.
In so far as grants to local authorities are concerned, Senators may wish to know that Government grants and subsidies to local authorites will this year amount to £663.311 million, an increase of £52 million, or 10.3 per cent on 1983. The capital allocations will be up by £12.5 million, between voted provisions and borrowing authorisation, in spite of the curtailments arising from the need to restore overall State borrowing to more manageable proportions. In so far as the rate support grants are concerned, we have managed not alone to maintain the additional £31.5 million which we provided in 1983, but we have added a supplement of £2.27 million. This brings the total of the rate of support grants to almost £280 million, a massive contribution by any standards.
If we are going to talk about the level of grant provision, therefore, we should look at the total picture. We should take account of the major financial rescue effected by this Government last year, without which there would have been major losses in services and employment, and relate this year's provisions with last year's. We should in fairness be prepared to look at the total subventions and to acknowledge, as I have shown, that the total has been increased to a degree that reflects well on the Government's commitment in this area in the present very difficult times.
I believe that these provisions, combined with greater competitiveness in tendering for local authority contracts, will enable the authorities to maintain the level of employment and services at or close to existing levels in the short term. Councils must be willing to make reasonable use of the extended powers which they have been given to raise revenue locally and they must be diligent in collecting funds due to them. I have no wish to see local rates or charges raised to excessive levels, but there has to be some correlation between the demand for local services and the readiness to finance them from local sources. A further factor working in favour of the local authority position is the fact that there is at present keen tendering for their contracts.
There must also be closer attention than ever, in the present climate, to ensuring that the best possible return is secured for local authority expenditure in terms of employment and output. This requires programmes at local authority level for eliminating waste and for promoting cost effective procedures in all areas of their operations. I know that a lot of economising has been going on, but all local authorities must make further efforts to maintain services and employment within the constraints of the restricted budgets within which they have to operate. This is a considerable challenge, but I have no doubt that local authorities will respond to it positively and successfully as they have done in the past.
As I said a moment ago, local authorities were not in a position to reap the full benefit of their additional charging powers in 1983. There were a number of reasons for this. Firstly, the Local Government (Financial Provisions) (No. 2) Act, 1983, the instrument which contained the additional powers, did not come into effect until 12 July last, more than half way through the year, and then there was a problem about preparing and issuing demands because of industrial action by local authority staff. This means that the issue of demands was delayed for a very long time and, in some areas, demands were not actually issued until well into November.
In these circumstances, I am sure that Senators will agree that a collection of about one-third — we have not got all the returns in yet, but this is the trend so far in relation to new charges imposed for the first time in 1983 — is reasonable. In some areas, collections have been particularly heartening — in Cork city, for example, 65 per cent of the new charges have now been collected. The position in regard to the existing charges, for example domestic water in the country council areas, has also been good, with collection levels well up to the standard of previous years. In some cases collections have bordered on 100 per cent of the amounts provided in the Estimates. These indications give real grounds for optimism and I am hoping that a vigorous and sustained collection campaign in 1984 will yield good returns.
Before leaving the question of charges, I would like to refer briefly to the objections which have come from various quarters to the payment of charges. The principal argument which is used against charges is that the services were paid for through the rates and that the cost of the rates relief is now being paid for through direct and indirect taxes. But, of course, the principle of services being paid for by those who have access to them has long been enshrined in local government law. There was provision for a separate water charge with which we are all familiar in non-urban areas, where the services were not available to all, and payment was expected where the service was available. This principle is equally valid in relation to urban areas. There is no valid reason why a person who lives in a non-urban area and who does not have access to services such as water or refuse collection, should have to contribute towards the cost of providing these services for his urban neighbour. The only fair system is to charge separately for those services which are not available to all.
What I find more difficult to understand, and what I find disquieting, is the attitude of opposition to payment of charges which has been taken up by some politicians, and even by a political party represented in the Oireachtas. Let me be clear about this. I am not questioning the right of any political figure to express his opposition to a Government measure of this kind and, indeed, a certain amount of political point-scoring is only to be expected in an area like this and does not bother us very much.
What does bother us and, should I suggest, bother all who are interested in the welfare of the political process is a situation in which people who claim to be involved in that process are openly encouraging ordinary people to break the law by withholding payments which are legally due from them; who are openly professing their intentions, as some are recently doing, of themselves breaking the law by refusing to pay charges due to their own local authority. I can only appeal to these people to look again at their positions and their responsibilities and to consider whether they are being true to their role as public representatives.
I do not believe that many people are going to be taken in by these tactics, or that they will have much influence at the end of the day on the local authority finances. The greater danger lies in the damage that can be done to the standing of representative local government itself if political practitioners feel free to break laws and to encourage others to break laws duly enacted and being duly applied in the local government sector. That, I believe, is a real danger and a real cause for concern.
There is a lot of mischievous talk about charges being rates restored in another form. Neither the form nor the amount of charges in any way matches up to what would be involved now for householders if domestic rating were to be restored on the old basis. The rates on a typical semi-detached dwelling in the Dublin area would now be about £450 and local authority charges are nowhere in this league. Moreover, I do believe that most householders will accept that the charges are perfectly reasonable in relation to services such as water supply as compared, for example, with what they pay for other domestic services such as electricity, gas, television, telephones and so on. I can, at the same time, fully apprecitate that the initial reaction of many people to what is regarded as an additional impost is not one of welcome. I think the system will settle down fairly quickly.
To turn away for a moment from the revenue raising functions of local authorities, I would now like to mention one particular area of local authority expenditure which is the subject of much criticism and complaint. It is the area of the statutory demands, as they are known. In many respects, statutory demands are the relics of former functions of local authorities which have now been taken over by other public bodies. But although the functions have gone, the financial obligation remains. The principal statutory demands are in respect of supplementary welfare allowances, arterial drainage and ACOT. There are many other demands also, but these are the ones about which local authorities express the greater concern.
Supplementary welfare allowances are paid by the health boards on behalf of the Department of Social Welfare. But because they replaced a scheme of home assistance which the local authorities used to operate, the local authorities are obliged by law to contribute up to more than 40 per cent of the cost of the scheme plus the full cost of the administration of the scheme by the health boards. Similarly, the local authorities' responsibility for arterial drainage was taken over by the Office of Public Works but they must still pay the full cost of the maintenance work carried out by the Office of Public Works. The position with regard to ACOT is much the same as it is for most other demands, except that there is a limit to the amount of the ACOT demand.
Local authorities argue, with some justification, that they have no control over the statutory demands and no say in the administration of the schemes to which they relate. They are not consulted in advance about policy, or furnished with detailed accounts. They have seen over recent years the demands, particularly in respect of the supplementary welfare allowances scheme and the arterial drainage, escalating at an alarming rate, while their income has, in addition to being tightly curtailed by the rate poundage limits, suffered the loss of over £20 million of farmers' rate arrears.
Another problem with statutory demands is, of course, that they do not fall evenly on every area. The burden of supplementary welfare demands falls most severely on those counties which formerly had the best home assistance schemes, because of the peculiar arrangements which were built into the law at the time this scheme was introduced. This has resulted in a disproportionate burden being imposed on counties which had good home assistance schemes while other counties, which had less generous schemes, are faring far better now. Similarly with the arterial drainage demand. Naturally, drainage and maintenance are not equally spread over the country and some counties are badly hit. Western counties come to mind as facing particularly severe demands because of the level of drainage activity. It is unfortunate that, although land is improved through this drainage, there is no extra yield in taxes to the local authorities in response to their financial commitment.
I can appreciate the concern and difficulties these statutory demands and other extraneous services are causing for local authorities, and it is my aim to have them examined urgently in the context of the review of local government.
Another area which is very much akin to the statutory demands is malicious injuries compensation. Again, local authority involvement is a relic of bygone days when local authorities had a role in law enforcement and judicial affairs. And although their liability is now limited to a maximum of the produce of a rate of 20 pence in the £ in any year, local authorities do incur non-recoupable expenses of considerable amounts in processing and defending claims. It is this financial burden, arising from a function which has nothing to do with the normal role and functions of a local authority, which gives rise to frustration and annoyance, and I am also looking at this question of malicious injuries compensation in the context of the review of finances.
I have mentioned the review of local finances, and I would now like to talk about it for a few moments.
I have already spoken of the financial difficulties of local authorities and of the adverse effects which they are having on local democracy and on local government generally. These problems stem directly from the abolition of domestic rates in 1978 and the assumption of a greater degree of central control over local financial affairs. No new system was devised to replace the rates and the system has just stumbled along ever since, with local dependence on the Exchequer increasing year by year. We have now reached a stage where almost two-thirds of the current spending of the local authorities is funded by the State, as compared with only 40 per cent in 1976. This trend cannot be allowed to continue — it is unhealthy for the local authorities and unhealthy for the State, and so we must find a new and better way of financing local authorities. The review is part of the search for this new and better system.
The purpose of the review is to identify clearly and positively the problems which beset the finances of local authorities at present, to determine the source of these problems and to suggest solutions. Any solution should provide a firm basis for adequate funding of the various local services and programmes, without undue dependence on the Exchequer; should involve an appropriate degree of local financial independence and discretion, and should ensure that all sectors of the community contribute their fair share. Most of us could, I suspect, make a reasonable stab at identifying the problems, but I am not at all sure that there would be too many takers for the job of producing realistic and workable solutions.
But solutions will have to be found. From the point of view of local authorities, the present situation is one in which their freedom of action as elective local representative bodies is seriously restricted by the constraints of limited local revenue sources, by statutory demands and by their dependence on the Exchequer. This situation can only continue to undermine the viability and independence of the local government system, and cannot go on. It is generally accepted that proper accountability in a democratic local government system requires that a reasonable portion of the resources spent by the local authorities in providing local services should be controlled by them.
From the point of view of the Exchequer, the increasing cost of funding local authorities cannot continue, given the other demands which have to be accommodated from the same source. The task is to devise a system which will reconcile the aim of the central Government for less participation in local financing and that of local authorities for greater financial discretion, with due regard for the overall national economic policy.
The task is not an easy one. It requires considerable analysis of all the available options, including the methods of financing in other countries. It is necessary to apply as much expertise as possible to the problem, and I would welcome the contributions of people, particularly in local authorities, who have expressed concern on this matter previously. I should also, perhaps, mention in this regard that the National Economic and Social Council are carrying out an independent review of local authority finance at present, and I hope to have the fruits of their labour available to me before making final decisions on new arrangements.
I will close now, a Chathaoirligh, and I would like to thank you and the Members of this House for your attention and for giving me this opportunity to speak about this very important subject, to explain the Government's position and the action that has been taken to provide the fullest possible measure of support for local authorities under the current circumstances, as well as the intention to seek as a matter of urgency to devise a more appropriate overall system of local authority financing for the medium and longer terms.
I should like to respond to Senator Doolin's request that the estimates of local authorities should be put back for some time until I can meet deputations. Estimates have to be prepared within the prescribed time. That is a statutory requirement which must be respected. I am willing to see deputations at an early date but I have to say again, and I am quite clear in saying it, that I cannot hold out any prospect of extra funds being provided in the current year. The local estimates process should, therefore, proceed in every local authority area. I will certainly be available to meet local authorities and, if an immediate meeting is required, I will try to get the Minister of State to meet any local authority who requests it.
