The rate-capping rebellion was a campaign within English local councils in 1985 which aimed to force the Conservative government of Margaret Thatcher to withdraw powers to restrict the spending of councils. The affected councils were almost all run by left-wing Labour Party leaderships. The campaign's tactic was that councils whose budgets were restricted would refuse to set any budget at all for the financial year 1985–86, requiring the government to intervene directly in providing local services, or to concede. However, all fifteen councils which initially refused to set a rate eventually did so, and the campaign failed to change government policy. Powers to restrict council budgets have remained in place ever since.
Rising local government spending had long been a concern of central government, but direct powers to limit individual council budgets were controversial and some Conservative Party members opposed them. While the measure was passing through Parliament, internal dissent within Liverpool City Council led to prolonged delay in budgeting which only ended when government grants were increased. Believing Liverpool to have forced a concession, left-wing Labour council leaders decided to emulate their approach, despite warnings by Liverpool that success was unlikely. Refusing to set a budget was illegal and the campaign was divisive: it did not unify the left wing of the Labour Party in its support and the party leadership made clear its lack of support.
Eight councils ended their campaign when the leadership proposed a legal budget, six when councillors from the majority group joined opposition councillors to overrule the leadership; Lewisham conceded in unique circumstances. Two councils, Lambeth and Liverpool held out for longer than others and were subjected to an extraordinary audit which resulted in the councillors responsible for not setting a budget being required to repay the amount the council lost in interest, and also being disqualified from office. Liverpool's delay in setting a budget caused a severe financial crisis which was denounced by the Labour Party leader Neil Kinnock.
Background
Rates
Until 1989 in Scotland and 1990 in England and Wales, local councils raised their own revenue through a tax known as rates. Every property, whether residential or commercial, was given a rateable value which estimated the annual rent it would bring in. In the budgeting process the council would work out the total amount it needed to raise locally, and then divide it by the total rateable value within its boundaries to produce the proportion of the rateable value that each householder or business would have to pay. This proportion was known as 'the rate' for the year and the process was therefore known as 'setting a rate'.
Where there were two levels of local government, one of them (the lower tier) was designated as the principal local authority, with the higher tier authority setting its rate in the form of a precept which was added to the rate levels set by the lower tier authorities it covered. The lower tier was responsible for collecting the whole amount and then passing on the proceeds of the precept to the authority which had set it.
Targets and grant penalties The Conservative Party came to power in 1979 committed to reducing public spending, and reducing spending by local authorities was part of this desire from the start. As early as November 1979 the Environment Secretary Michael Heseltine announced his intention to take powers to curb overspending local authorities. From the financial year 1980–81, councils which were deemed to be overspending had their central government grants reduced; in 1981–82, a system known as 'targets and penalties' was introduced.Butler, Adonis, Travers, "Failure in British Government", p. 25-7. A table showing the penalties applied is in Grant, "Ratecapping and the Law", p. 27.
However, the election of many more Labour councillors and Labour councils in local elections in 1981 and 1982, many of whom were associated with the left-wing, meant that more councils were explicitly committed to increasing public spending. Local government spending started to rise again in 1982–83.Butler, Adonis, Travers, "Failure in British Government", p. 28. As councils found their grants from central government cut, their response was not to cut their budgets, but to increase the rates even further to compensate.Campbell-Smith, "Follow the Money", p. 95-6. Pressure within the Government, especially from the Treasury and Chief Secretary Leon Brittan was applied to the Department of the Environment to take more effective action.Butler, Adonis, Travers, "Failure in British Government", p. 37. On 16 July 1982 Brittan told the conference of the Society of Local Authority Chief Executives that continued overspending was "bound to cause central government to intervene ever more obtrusively and seek ever greater powers over local authority finances".David Walker, "Brittan seeks fewer teachers", The Times, 17 July 1982, p. 3.
Cabinet committee In June 1982, a Cabinet committee had been set up to look at local government finance, on which Brittan sat. At this committee the idea of central government taking powers to limit rates was first developed; however it proved very unpopular with most Ministers on the committee: Michael Heseltine and his deputy Tom King thought it would be too complicated and possibly unconstitutional, and the Attorney General Sir Michael Havers had to give advice. When the committee reported to Cabinet on 17 January 1983 against rate limitation, Margaret Thatcher rejected its report and instructed Tom King (who had since been promoted to Environment Secretary) to come up with a foolproof system.Butler, Adonis, Travers, "Failure in British Government", p. 37-8.
Rate limitation proposed King put Terry Heiser, a civil servant then Deputy Secretary in charge of the Finance and Local Government at the Department of the Environment, in charge of developing the policy; Heiser produced two schemes known as 'selective' and 'general' rate limitation which were approved at a Cabinet meeting on 12 May – three days after Thatcher had called a general election.Butler, Adonis, Travers, "Failure in British Government", p. 38. The Conservative Party manifesto declared:
The Conservatives' victory in the election was followed on 1 August 1983 by a white paper which put more details on the proposal. It stated that authorities would be selected on the basis of several factors, not only the absolute level of spending in comparison with the 'Grant Related Expenditure' (the notional level set by the Government needed to provide a standard level of service):"Rates: Proposals for rate limitation and reform of the rating system", Department of the Environment and Welsh Office, Cmnd. 9008, August 1983, para. 3.6, p. 15.
Identifying the local authorities which were spending significantly more than they received in grants and more than the government's targets, all were controlled by the Labour Party except for the City of London Corporation. The Government announced that it would aim to pass legislation in 1984, and then select a small number of councils to have their rates capped in 1985–86.David Walker, "White Paper spells out powers to tame high-spending councils", The Times, 2 August 1983, p. 4. The proposal to cap rates was controversial and many in local government were concerned where it would lead to; in particular the Audit Commission, responsible for overseeing local government spending, was concerned that it might be drawn into a political fight, casting doubt on its independence.Campbell-Smith, "Follow the Money", p. 81.
Parliamentary passage of the Rates Bill On 20 December the Rates Bill was published, with the new Environment Secretary Patrick Jenkin making it clear he would resign if he could not get it enacted. It was anticipated that the Bill would be highly controversial especially with members of the House of Lords and Jenkin was said to have reminded them of the Salisbury Convention which prevented the Lords from rejecting any Bill mentioned in an election manifesto.Julian Haviland and Hugh Clayton, "Rate-capping Bill faces strongest test in the Lords", The Times, 21 December 1983, p. 1. The Bill was soon under criticism in Parliament by Conservative MPs Geoffrey Rippon and Anthony Beaumont-Dark,"Tory MPs attack rates capping Bill", The Times, 23 December 1983, p. 4. and outside it by David Howell.Anthony Bevins, "Rates Bill attacked by Howell", The Times, 5 January 1984, p. 2.
When the Bill was debated on 17 January 1984, the opposition was led by former Prime Minister Edward Heath who attacked the centralisation of power; Heath led a total of 24 Conservative MPs in voting against the Bill, while 11 more abstained including Francis Pym.Julian Haviland, "Heath leads Tory rebellion over rate capping", The Times, 18 January 1984, p. 1. With opposition MPs debating the Bill in detail, the Government was forced to move a guillotine motion on 29 February, which was passed despite some Conservative protests."Rate Capping Bill must be law by summer", The Times, 1 March 1984, p. 4. After making a minor concession exempting smaller councils from selective capping,"Small councils offered rate-capping exemption", The Times, 7 March 1984, p. 2. the Bill went to the Lords where the Labour opposition moved an amendment asserting that it would "gravely weaken local democracy" and rejecting the Bill. The amendment was lost by 235 to 153,"Rate Capping Action forced on Government by the continual upward trend in rates", The Times, 10 April 1984, p. 4. the Government regarding it as an issue of confidence which justified them summoning many Peers who rarely attended."Chief whip defends rates vote", The Times, 27 April 1984, p. 4.
The main clause giving the Government power to cap rates was supported by the Lords with a majority of 10 votes despite some Conservative abstentions,"Rate cap vote", The Times, 9 May 1984, p. 1. and after some more concessions the Government saw the Bill through the Lords without a defeat. The Rates Act 1984 received Royal Assent on 26 June.
Liverpool budget-setting in 1984
When the Labour Party won control of Liverpool City Council in the local elections of May 1983, the council leadership was under the effective control of the Militant tendency, a group which had a majority of the active members of the Liverpool District Labour Party which directed the activities of the council group.Michael Crick, "Militant", Faber & Faber, 1984, chapter 9 passim. See also the majority report in "Report of the investigation into Liverpool District Labour Party", National Executive Committee of the Labour Party, 1986. The new leadership inherited a budget set by the Liberal Party administration which preceded them, which it considered was insufficient to meet their commitments to the electorate to the tune of £25m. The council, under Militant's guidance, began in Summer 1983 a political fight to win more resources from the government.Taaffe and Mulhean, "Liverpool – A City that Dared to Fight", chapter 6, pp. 101–103.