We were not to know it at the time, but these decisions contributed to the undoing of the community charge. At this time the Treasury was still using an inflation measure (the GDP deflator) of just 4 per cent. In fact, inflation and – most important – wage settlements were turning sharply upwards. Combined with a pretty tight grant settlement and with the determination of many local authorities to push up spending for political reasons, we were now on course for much higher levels of community charge in 1990–91 than any of us foresaw.
I moved Chris Patten to become Secretary of State for the Environment later that summer and in early September Chris, with my approval, began a review of the operation of the charge. A couple of days before, Ken Baker (now the Party Chairman) had sent me in great secrecy research conducted by Central Office in ten Conservative marginal seats. This confirmed the scale of the political problem we faced. On the assumption of a 7 per cent increase in local spending the following year, 73 per cent of households and 82 per cent of individuals would lose from the introduction of the charge in 1990 compared with the rates in the previous year. If spending increased by 11 per cent the figures would rise to 79 per cent and 89 per cent respectively. On any calculation these figures were pretty bad.
Now that dual running had been dropped, the only way in which we could limit the losses of individuals or households generally was by a new scheme altogether. Chris Patten and the Treasury accordingly worked up a proposal for ‘transitional relief’.
Chris favoured a massive programme of transitional relief for households to limit losses to £2 a week – that is, £2 a week on the basis of what we thought local authorities should spend (the CCSS), which many of them of course would exceed. Even in this limited form the scheme might cost as much as £1,500 million. Ken Baker wanted a very costly scheme too. The Treasury argued for something much more modest, targeted on the worst losers. All of this was against a difficult public expenditure round and a worsening economic situation with rising inflation. I told Chris Patten that transitional relief on the scale he was proposing was out of the question, but I also pressed the Treasury hard to take a positive and co-operative attitude. I held a meeting at the end of September to try to get agreement and concluded by saying that it was essential that the scheme should be sufficiently generous to defuse genuine criticism but that it must be clear that this was indeed the last word and that the Government would not make further money available for 1990–91.
Discussions continued up to the eve of the Party Conference where David Hunt, the Local Government minister, announced a scheme costing £1.2 billion over three years. The scheme would ensure that former ratepayers (and ratepayer couples) need pay in community charges no more than £3 a week extra, over and above their 1989–90 rate bills, provided that their local authority spent in line with the Government’s assumptions. Pensioners and disabled people would be entitled to the same level of help even if they had not previously paid the rates (and of course many of them were entitled to rebates as well). At the same time David Hunt announced that the taxpayer would finance the safety net in England and Wales after the first year and that all gains would therefore come through in full from 1 April 1991. In spite of this, backbench pressure increased. There was even doubt as to whether we could win the crucial Commons votes in January 1990 to authorize payment of the 1990–91 Revenue Support Grant. And I was under no illusion that victory in the House of Commons would be sufficient to convince public opinion, which had now turned strongly against the community charge.
By January 1990 the DoE had yet again raised its estimate of the average community charge to £340. We were heading for double the original estimate. That had been bad enough. Now, in February, the latest indications were that it could be £20 or more higher.
Another piece of bad news was that the Retail Price Index Advisory Committee had decided that the community charge should be included in the RPI – treating it like the rates, but unlike other direct taxes. But the massive reliefs to individual charge payers should not be taken into account. This administrative fiction gave another expensive upward twist to the RPI and greatly increased the political damage which we were sustaining.
The political atmosphere was becoming grim. All my instincts told me that we could not continue as we were. On Thursday 22 March we sustained a very bad by-election defeat in Mid-Staffordshire where we had had a majority of over 19,000. The press was full of outraged criticism of the community charge from Conservative supporters. What hurt me was that the very people who had always looked to me for protection from exploitation by the socialist state were those who were suffering most. These were the people who were just above the level at which community charge benefit stopped but who were by no means well off and who had scrimped and saved to buy their homes. Our new scheme of transitional relief did not protect them against overspending councils. Something more must be done.
There was widespread support for the principle that everyone should pay something towards the cost of local government, which only the community charge could ensure. When people complained about its fairness they were not usually rehearsing the hackneyed – and spurious – point about the hypothetical duke and dustman paying the same. Unless the duke was very poor or the dustman very wealthy this could not be so, because about half of local authority expenditure was met out of general taxation which did reflect ‘ability to pay’. The problem was the levels at which the charge was now being levied and the fact that it was sudden and unexpected in its impact. But what could now be done?
The essential point, I felt, was to ensure that central government stepped in to protect the victims of what was essentially an arbitrary abuse of power by irresponsible local authorities.
The main option seemed to be the introduction of a direct central control over levels of local authority spending; for example, laying down that expenditure by each authority could be no more than a certain percentage above a Standard Spending Assessment (SSA) – that is, the level at which the authority needed to spend to deliver a certain nationally uniform standard of service. That, however, would need to be matched by a substantial increase in the level of government grant to local authorities, perhaps with a larger proportion of the total in the form of specific grants for particular services. We would then have to consider whether to continue with the community charge as the sole means of financing expenditure above the level allowed for, given that at present all the extra expenditure fell on the charge. An alternative would be to place some of the burden of higher spending on the business rate. All this pointed to the need for a major internal review.
John Major, as Chancellor, did not dissent from my judgement that a radical review was necessary. He also agreed that the changes we came up with must control total public expenditure.
But the most public opposition to the community charge came not from the respectable Tory lower-middle classes for whom I felt so deeply, but rather from the Left. From 1988 a number of Labour MPs, mostly in Scotland, had proclaimed their determination to break the law and refuse to pay the community charge and the far Left were agitating effectively in England too. On Saturday 31 March, the day before the introduction of the community charge in England and Wales, a demonstration against the charge degenerated into rioting in and around Trafalgar Square. There was good evidence that a group of troublemakers had deliberately fomented the violence. Scaffolding on a building site in the square was dismantled and used as missiles; fires were started and cars destroyed. Almost 400 policemen were injured and 339 people were arrested. It was a mercy that no one was killed. I was appalled at such wickedness.
For the first time a government had declared that anyone who could reasonably afford to do so should at least pay something towards the upkeep of the facilities and the provision of the services from which they benefited. A whole class of people had been dragged back into the ranks of responsible society and asked to become not just dependants but citizens. The violent riots of 31 March was their and the Left’s respon
se. And the eventual abandonment of the charge represented one of the greatest victories for these people ever conceded by a Conservative Government.
The trouble was that, because of the size of the bills now being sent out, the new system had the very same law-abiding, decent people, on whom we depended for support in defeating the mob, protesting themselves. The riot did not, therefore, shift me from my determination to continue with the community charge itself or to see the criminals of that day brought to justice.
In fact, unbeknown to me, the rioters were on their way up to Whitehall as I was addressing the Central Council in Cheltenham.
I began my speech with what was to be the first of a number of increasingly risky jokes about the political threat to my leadership. Cheltenham’s reputation as the traditional retirement centre for those who governed our former empire provided the peg. I began:
It’s a very great pleasure to be in Cheltenham once again. To avoid any possible misunderstanding, and at the risk of disappointing a few gallant colonels, let me make one thing absolutely clear: I haven’t come to Cheltenham to retire.
I then went almost immediately to the heart of the issue about which the Party was agonizing:
Many of the bills for the community charge which people are now receiving are far too high. I share the outrage they feel. But let’s be clear: it’s not the way the money is raised, it’s the amount of money that local government is spending. That’s the real problem. No scheme, no matter how ingenious, could pay for high spending with low charges.
But I did go on to announce a number of limited special reliefs. Even this modest package had necessitated my tearing up a feeble draft from the Treasury and writing it myself. Given the weak draft, the absence of colleagues and the late hour, however, I was not able to write into my speech assurances of the weight and substance I would have liked. So I had to content myself with hinting at my ideas about further capping powers to deal with overspenders.
My main message, therefore, had to be that the way to have low community charge bills was to vote Conservative in the forthcoming local elections.
The reception was good. But for them and for me the worries remained. Now I had to ensure that my colleagues threw themselves as wholeheartedly as I would into the job of protecting our people from the kind of problems we were experiencing in 1990–91.
Chris Patten was strongly opposed to any kind of comprehensive capping of local authorities but I insisted that the DoE should work up the options. I wanted to see cuts in expenditure in some local authorities. The local election results on Thursday 3 May 1990 strongly suggested that where Conservative councillors and candidates used the community charge in order to point up the differences between them and the Labour Party and then worked to get out the Conservative vote – rather than indulge in recrimination against the Government – they could do very well. (Indeed, some of our councillors opposed wider capping in 1990–91 on the ground that it would protect profligate Labour councils from the electoral coup de grâce.) Conservative successes in Wandsworth and Westminster were the results of that approach. Where the Conservatives were in control of an authority, the lower the charge it set, the better we did. The reverse was true where Labour was in office. In this respect the community charge was already transforming local government. There was the prospect that, even in a bad year for the Conservative Party nationally, local government elections could now be fought and won on genuinely local issues and the local record, rather than the political control of councils swinging according to national trends.
These successes, however, did not diminish the urgency of ensuring that next year’s charge levels throughout the country were kept down. Throughout May and early June papers were produced and discussions between ministers and officials held. Chris Patten and I were still at odds over the question of a general capping power. I put some pressure on him by refusing to allow any discussion about the level of next year’s central grant until we had reached a decision on spending controls. John Major was in two minds. On the one hand, as Chancellor, he wanted to see effective controls on public spending. On the other, he was worried about getting the Parliamentary Party to pass the necessary new legislation for stronger capping powers.
But suddenly the whole basis of our discussions was changed by new legal advice. When we had met on the morning of Thursday 17 May the lawyers advised that even new legislation on capping could be undermined by judicial review. This seemed to me to be extraordinary. It suggested that Parliament would not be allowed by the courts to fulfil its duty to protect the citizen from unreasonable levels of taxation: it cast doubt on our ability to control public expenditure and manage the economy. At that point I asked for urgent advice about how these difficulties could be overcome.
It is easy to imagine my surprise – and initial scepticism – when, as I worked through my boxes overnight on Wednesday 13 June, I came across a note from my private secretary reporting a telephone conversation with government lawyers earlier that evening. Their view now was that the present legislation – let alone any future legislation – might be more robust than their earlier advice had indicated.* They told us that we would be in a position to cap large numbers of authorities as long as we made clear at an early stage in the budgetary cycle what we would regard as an excessive increase in spending – and we could achieve this without the difficulties which new legislation would have brought. This legal advice was strengthened as a result of the Government’s victory in a court case several days later against a number of local authorities appealing against capping.
On the evening of Tuesday 26 June I held a meeting of ministers to sort out exactly where we stood. The lawyers confirmed their advice that it was unlikely that we could have any greater certainty about capping under new legislation than under the present. I was reluctant to drop the idea of introducing a general capping power. I would have liked to combine this with the use of local referenda, so that an authority which wanted to spend more than the limit set by central government would have first to win the agreement of its electorate. This would have done a good deal to defuse the accusation that new spending controls would undermine local democracy. In the light of the revised legal advice, though, I accepted that unless the courts came up with some new judgment which changed the position it would be best to cap in 1991–92 under the existing law. It was crucial, however, to achieve the greatest possible deterrent effect and so Chris Patten had to announce in July – well before local authorities set their budgets – how he intended to use his powers. The other aspect we had to discuss was the extra money which was needed to be put in in order to limit the burden on individuals. Chris was authorized to announce to the House certain extensions to the transitional relief scheme and other changes.
The system of local authority finance which I bequeathed to my successor remained unpopular. At the end of March 1991 Michael Heseltine, once again Environment Secretary, announced that the Government had decided to abandon the community charge and to return to a property tax, supplemented by a sharp rise in VAT from 15 to 17.5 per cent.
Few episodes of my period in government have generated more myths than the community charge. It is generally presented as a doctrinaire scheme forced on reluctant ministers by an authoritarian Prime Minister and eventually rejected by popular opinion as unworkable. This picture is a tissue of nonsenses. As Nigel Lawson has generously conceded, few pieces of legislation have ever received such a thorough and scrupulous examination by ministers and officials in the relevant Cabinet committees as did the charge. The conclusion I draw is that whatever reform was chosen, we should have accompanied it with draconian restraints on local government spending from the centre in order to prevent local authorities – Conservative as well as Labour – from using the transition to jack up spending and blame it on the Government.
The fact remains that the defects in our system of local government finance were largely remedied by the charge, and its benefits had just started to become apparent when
it was abandoned. The fundamental problems of local government – badly administered services, an obscure relationship with central government, lack of effective local accountability – not only remain: they will get worse.
* Central government grant contributes a large proportion of local authority spending. GREAs were an attempt to allocate grants to authorities on the basis of their ‘need to spend’, as defined by central government on the basis of dozens of indicators covering everything from an authority’s population to the state of its roads. The block grant system altered the distribution of central government grant so that it provided a lower proportion of local authorities’ expenditure if they spent significantly more than their GREAs – in other words, the more a council overspent, the higher the proportion of its spending ratepayers would have to meet. ‘Targets’ for individual local authorities (based on past spending) were introduced later in an attempt to secure year-on-year reductions in local authority spending: local authorities exceeding their targets actually lost grant (‘holdback’). The Audit Commission was established in 1982 with responsibility for auditing the accounts of local authorities in England and Wales and with powers to undertake or promote work on value for money and efficiency.
* Rates were levied at so many pence in the pound (the ‘poundage’) on the basis of the rental value of the property, which was assessed by a general valuation carried out by the Inland Revenue. Since the rental market in domestic property was small and shrinking the valuations were often very artificial. In addition, obviously, their accuracy deteriorated over time; hence the need for periodic revaluations.
Margaret Thatcher: The Autobiography Page 79
