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This summer marks 20 years since local and central government went to war over rate capping. Francis Beckett charts...
This summer marks 20 years since local and central government went to war over rate capping. Francis Beckett charts its controversial history - from mob scenes in Hackney to near bankruptcy in Liverpool

'It was a bright cold day in April, and the clocks were striking 13.'

It was 1984 and George Orwell's Winston Smith, in the guise of local authorities, were fighting their very own battle against Big Brother's central control - in this case, the Thatcher government.

That government put an end to the Attlee settlement of post-war affairs. Most significantly the mixed economy, with some sectors of industry - mainly natural monopolies - under state control and the rest under private control. The welfare state, and the role of trade unions and collective bargaining were also eroded following the election of the Thatcher government in 1979.

Councils were a key part of the Attlee settlement. The Education Act 1944 tasked them with ensuring everyone of school age was given an education, and health & housing minister Aneurin Bevan made them the engine of his housing policy.

This settlement was the post-war consensus which became known as Butskellism, an amalgam of the names of senior Conservative politician Richard Austen Butler and Labour leader Hugh Gaitskell. It was not seriously challenged by either the Labour or the Conservative Party until 1979. But after 1979, prime minister Margaret Thatcher tore into the post-war consensus.

In 1984, two of the biggest confrontations of the Thatcher era took place - the miners' strike and her assault on local democracy through rate capping.

It was an eventful year. The IRA planted a bomb in Brighton's Grand Hotel during the Conservative Party conference, killing five people. WPC Yvonne Fletcher was shot dead outside the Libyan Embassy. Robert Maxwell bought the Daily Mirror, Prince Harry was born and Poet Laureate Sir John Betjeman and comedian Eric Morecambe died. Jayne Torvill and Christopher Dean won an Olympic gold medal in ice dancing.

The Thatcher government looked, as she put it, to push back the frontiers of the state - and that meant cutting taxes and reducing public expenditure. As defence, social security and the NHS were protected by pledges in the manifesto, the squeeze was on housing and education; these were still mainly provided, under the Attlee settlement, by local government.

This should have suited the Conservatives, whose approach had been to favour local autonomy against state centralisation. Mrs Thatcher reversed that, with the pursuit of monetarism overriding Conservative tradition.

So the election manifesto for Mrs Thatcher's second general election victory in 1983 included two policies that were supposed to end the 'municipal socialism' that Greater London Council leader Ken Livingstone came to personify. The first was the abolition of the GLC and the six metropolitan counties of Greater Manchester, Merseyside, South Yorkshire, Tyne & Wear, West Midlands and West Yorkshire.

The second, rate capping, was originally the idea of Leon Brittan, then chief secretary to the Treasury. It set a limit on increases in rates, and penalised councils through the grant system if they broke the limit. Fifteen authorities were named as being particularly vulnerable: The metropolitan districts of Newcastle upon Tyne, Sheffield and Manchester; the metropolitan county councils of Merseyside and South Yorkshire; the GLC, the Inner London Education Authority and the eight London boroughs of Islington, Hackney, Southwark, Haringey, Tower Hamlets, Lewisham, Lambeth and Greenwich.

Before the 1983 general election, Michael Heseltine, Mrs Thatcher's first environment secretary, had tried to reduce local government spending by cutting back grants for those councils which increased spending above a level the government deemed appropriate to provide a standard service. In June 1981, he also asked for big real-term cuts, backed by financial penalties for those councils that did not make them.

Nonetheless, the government still thought rates were rising too fast. Retail prices between April 1979 and April 1982 had risen by 60%, while rates had jumped 79% - but the difference was due to the cutback in grants given to councils by central government.

At the GLC, Mr Livingstone introduced cheap fares on public transport. They were outlawed by the House of Lords, but immensely popular with Londoners.

In June 1983, Mrs Thatcher was re-elected with a majority of 144. The following October, Neil Kinnock replaced Michael Foot as Labour leader. Patrick Jenkin - best remembered for telling the nation to brush its teeth in the dark to save electricity during the power cuts caused by the 1973 miners' strike - took over as environment secretary.

In December 1983, Mr Jenkin published a Rates Bill to make it illegal for councils to finance levels of spending in excess of government norms. For the first time, the government and not the council would determine the level of local taxation.

Not only was the government proposing to control spending over the government norms, but the bill also included a general reserve power to control increases in all authorities. This united both Tories and Labour in opposition. All three council associations opposed rate capping, even though two of the three were Tory controlled.

As for abolition of the GLC, the government outraged even its own supporters in the House of Lords with its proposal. The timetable involved legislation in the 1984-85 session of Parliament to abolish the GLC by the end of March 1986. In the meantime, there was the small problem of the GLC elections due to be held in 1985.

The government solution was to introduce a Paving Bill to abort the elections and for the GLC to be run by nominees of the London boroughs in its last year. As the Tories had a majority in the boroughs, this would be an effective switch of power from Labour to Conservative without an election.

Former Conservative prime minister Edward Heath said the bill 'immediately lays the Conservative Party open to the charge of the greatest gerrymandering in the last 150 years of British history'. He spoke before Dame Shirley Porter, then leader of Westminster City Council, had applied her mind seriously to the subject.

In June 1984, an amalgam of Labour, Liberal, Social Democratic Party and rebel Tories managed to pass a wrecking amendment to prevent the elections being cancelled until the main Abolition Bill became law. The government was forced to scrap their nominee proposal and to announce that the existing GLC and metropolitan county councils would be given an extra year in office.

It was not until November 1984 that the government introduced the bill to abolish the GLC and the metropolitan counties. LGC's leader was almost right when it said: 'The bill is born out of malice and its provisions will be lucky to survive another 10 years.' (LGC, 9 November 1984)

The government justified its proposed control of local rates by arguing that the country was a unitary and not a federal state. Local government power derived from Parliament, and Parliament was within its rights to rein in their spending.

Also, the argument ran, many of those who elected the 'municipal socialists' Mrs Thatcher came to hate, did not pay rates as they were in receipt of rebates and benefits. Mr Jenkin was even taken to task in a BBC Panorama programme in February 1984 for implying that those who don't pay full rates shouldn't have a full vote.

Despite the government claiming to act for the hard-pressed rate payer, in 1983-84 over 85% of councils in England and Wales spent within 5% on either side of their targets. The biggest overspender was the GLC, which was 50% above target because of the Fares Fair ruling.

In 1983-84, councils had been given targets of 1% less than 1982-83. But for 1984-85, the target was a 6% cut on the 1983-84 figures. Taking into account inflation, this effectively meant an 11% cut.

At the Labour local government conference, Mr Kinnock told councils to stay within the law, make the cuts and blame the Tories. But others like Derek Hatton, deputy leader of Liverpool City Council, said they would not implement the cuts.

In July 1984, after the bill became law, Mr Jenkin told the GLC, ILEA and 16 other councils that they were to be rate capped in the following financial year. The councils were those which budgeted to spend more than 25% above the government assessed norm in 1984-85. The 16 councils were the London boroughs of Greenwich, Brent, Camden, Hackney. Haringey, Islington, Lambeth, Lewisham and Southwark, as well as Basildon, Leicester, Merseyside, Sheffield, South Yorkshire, Thamesdown and Tory controlled Portsmouth.

According to Mr Jenkin, the government would save£500m of public spending by applying the rate cap.

Labour councils decided that in the first year of the new policy, the authorities had to act together. The favoured option was refusing to fix a rate until the government made concessions for fear of the resulting chaos and breakdown in services. This was the tactic adopted by Liverpool City Council for the financial year 1984-85 and resulted in more money being found from the urban programme and the setting of a 15.5% rate increase.

In Liverpool, feelings had been running so high that in April 1984, the MP for Liverpool Riverside Bob Parry warned that if troops were sent in, they would be resisted and violence would ensue. It was not hyperbole - not in the middle of the miners' strike. The strike provided the political backdrop to the ratecapping confrontation. Sheffield City Council leader David Blunkett, Islington LBC leader Margaret Hodge and Lambeth LBC leader 'Red Ted' Knight were, for a time, local government folk heroes in the left's battle with the Thatcher government.

Mr Blunkett drew the lesson from Liverpool. 'Liverpool's controlling Labour group has shown that persistence and determination pays off.' Mr Blunkett was chair of the strategy group of the Local Government Information Unit, which had been set up to co-ordinate the actions of councils and trade unions against central government control.

It is not an analysis of which today's ultra-respectable and rather right-wing home secretary would wish to be reminded. Some years were to pass before Mr Blunkett was to join the mad scramble from Bennery to Blairism.

Basildon, called by Mr Jenkin 'Moscow down the Thames', tried to head off the government by calling in the Audit Commission in December 2003 to look at its books. Despite concluding it was not irresponsible or inefficient, Basildon was still to be rate capped.

The councils - including Liverpool and Manchester, which were not being rate capped - agreed to synchronise their budget meetings on 7 March 1985 when they would pass resolutions refusing to set a legal budget or rate on the basis that they could not meet the needs of their communities.

By provoking a crisis, the councils hoped to force Mr Jenkin to the negotiating table.

But after Liverpool and the fiasco of the Paving Bill, Mr Jenkin was too politically weak to concede anything, and the government was more determined than ever to stamp its authority. It did not want another defeat after suffering a reverse in the courts when civil servant Clive Ponting, despite the direction of the judge, had been acquitted of breaching the Official Secrets Act after revealing information on the sinking of Argentine cruiser the General Belgrano.

According to the statutory timetable, the GLC, ILEA, Merseyside and South Yorkshire had to set a rate by 10 March 1985. This was then passed to the lower-tier borough and district councils to be incorporated in their own rating decisions for the next financial year. Failure to meet the 10 March deadline could lead to these four sets of councillors being surcharged, disqualified from public office and potentially made bankrupt.

Bankruptcy would disqualify politically ambitious councillors from becoming MPs.

The lower-tier councillors were not immediately in the firing line. They did not have a statutory date by which rates should be set. Although it was usually done by 1 April, delay was not unprecedented.

South Yorkshire and Merseyside were the first to break ranks and set a rate, but promised not to implement any cuts.

At the GLC, despite stating they could not live within the government's 36.5p rate cap, an actual rate of 33.8p was set.

A dispute had broken out between Mr Livingstone and finance chair John McDonnell - later secretary of the Association of London Government and then Labour MP for Hayes and Harlington. A reworking of the figures had shown that Labour could set a rate without cuts. The left, including Mr McDonnell, Tony Banks - soon to be MP for Newham - and Paul Boateng - soon to be MP for Brent South and now chief secretary to the Treasury - refused to break the national line and set a rate. Fifteen years later, Mr Boateng opposed Mr Livingstone's bid to become London mayor.

The Labour right, in the end, voted for a deal brokered by Labour GLC member Barry Stead to accept a rate. It was carried by the Labour right, the Tories and the Liberal/SDP Alliance, with Mr Livingstone and Mr McDonnell voting against.

ILEA too had set a legal rate. So, on 7 March, when the budget meetings were held, GLC, ILEA, South Yorkshire, Merseyside, Basildon and Portsmouth all broke ranks and set rates.

Leicester and Thamesdown were the next to fall into line. In Hackney, the council was taken to court by a rate payer and Mr Justice Woolf - now Lord Chief Justice - ordered them to set a lawful rate by the end of May.

In Haringey, 13 Labour members voted for a budget proposed by the opposition councillors, which led to Bernie Grant, later MP for Tottenham, taking over as Britain's first black council leader.

In Lewisham, the Labour councillors failed to arrive on time to a resumed council meeting. In their absence, a vote was taken by the opposition councillors which in the end went unchallenged.

In Sheffield, 20 Labour members rebelled against the Labour group, led by Mr Blunkett, and voted with the Tories and Liberals to set a rate. But later the city council expanded its services and refused to implement government cutbacks, fully expecting a financial crisis by the end of the year.

Brian Skinner, the metropolitan district auditor, then said he would consider action against any borough that had not set a rate by the end of May. The threat involved surcharge and disqualification.

In mid May, the Labour Party national executive decided that no party or group should require individual councillors to break the law. By the third week in May, Tower Hamlets had set a legal rate. Hackney set a rate following angry scenes. One meeting had to be abandoned when demonstrators prevented councillors going into the town hall.

Islington, led by left-winger Ms Hodge, caved in on the deadline. Ms Hodge is now MP for Barking, children's minister and the most ardent Blairite on the Labour benches, a far cry from when she was a political ally of Lambeth leader Mr Knight. Southwark toed the line; Camden set a rate on 5 June and Greenwich on 12 June.

This left Lambeth and Liverpool. Liverpool had not been rate capped, but the militant-dominated Labour group were refusing to set a budget that would inevitably lead to cuts in services. Both refused to set a rate until the government provided extra resources to reflect the scale of poverty and deprivation in their areas.

In early June, the district auditor started action under s20 of the Local Government Finance Act 1982. It looked to recover expenditure incurred by the councils because of the wilful misconduct of the Lambeth and Liverpool councillors in failing to set a rate before 31 May.

In June, the Lambeth Labour group, which had a majority of three, set a rate when two Labour councillors voted with the Tories and one resigned. In Liverpool, a deficit budget was set.

In September 1985, 31 Lambeth councillors were issued with certificates of surcharge of£126,947, or£3,967 each. The equivalent figures for the Liverpool 49 were£106,103 and£2,165 each. As the individual liability was greater than£2,000, each councillor faced disqualification. In March 1986, the councillors lost their appeals in the High Court and were both surcharged and disqualified for five years.

Jo Sinclair was one of the Lambeth councillors, and chaired the council's employment committee. She was barred from standing for public office for five years, and was held jointly and severally liable, which meant she could become liable for the full sum. Today she says: 'We were a very poor borough - one in 10 households still had an external lavatory.' She had taken the ward from the Conservatives - its previous councillor was future Tory prime minister John Major.

Ms Sinclair's employment committee was a success, and rate capping would have brought its work to an end. 'For every£1 of public money I spent, I was getting£9 from the private sector,' she says. She was raising money to build the Bon Marche Centre, a business centre which ought to have been a model for Thatcherite Britain, full of start-up companies, and British American Tobacco put£4m into it.

Nonetheless, she says, 'we should have drawn back when defeat stared us in the face'. Ms Sinclair and her Lambeth colleagues were saved by Labour people all over the country subscribing to a fund to pay off their debt.

Liverpool, generally bracketed with Lambeth, was in a different position. They were never rate capped - they simply did not have enough money to provide the services they wanted. And in Liverpool, unlike Lambeth, Militant was in control, with its fatal addiction to gesture politics.

Matters came to a head when Mr Hatton, in a wonderful example of doublespeak, issued redundancy notices to the 31,000 staff with these words: 'Our preferred option is to inform the workers that as from 31 December 1985, there is no money to pay them. We've been left with no alternative. It is the only way to keep jobs and services in the city.'

It took a task force from the Association of Metropolitan Authorities to set a balanced budget in Liverpool at the end of November. It included Maurice Stonefrost, who that year became director general of the GLC, and Martin Pilgrim, now chief executive at the Association of London Government, who remembers 'they were pleased to see us by that stage . . . but it got quite bloody', while the Labour Party was grateful for any initiative that would help sort the mess out. By that time, Labour had set in train the expulsion of Mr Hatton and the Militant Tendency from its ranks.

In the second round of rate capping for the 1986-87 financial year, 12 councils were on the list: Basildon, Camden, Greenwich, Hackney, Haringey, Islington, Lambeth, Lewisham, Southwark, Thamesdown, Liverpool and Newcastle. But this time, rather than following a tactic of non compliance, the councils tried to negotiate with the new secretary of state Kenneth Baker - the man who will be remembered for introducing the national curriculum into schools.

Today, we are used to rate capping. 'The government is not as vindictive about it as the Conservatives were' says Ms Sinclair. 'They use it because it's a mechanism they've inherited and it's available.'

The rate-capping battle, like the miners' strike, showed the ability of a determined government to prevail over dissent, while the anger and conflict of 1984 laid the groundwork for the far more benign - but no less controlling - capping announcements of the present day. The big guns used to break the left in Lambeth and Islington are now pointed, with rather less fanfare, at the likes of Shepway and Fenland.

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