Local Government Bill

Public Bill Committee, 30 January 2003.

Standing Committee A

Local Government Bill

Clause 11 - Use of capital receipts

Win Griffiths (Labour, Bridgend)

I remind the Committee that with this we are discussing the following amendments:

No. 59, in

clause 11, page 5, line 4, leave out from 'State' to end of line 5 and insert

'shall not in any circumstances interfere in the use of capital receipts by local authorities.'.

No. 69, in

clause 11, page 5, line 4, after 'use' insert 'by a local authority'.

No. 70, in

clause 11, page 5, line 5, leave out 'a' and insert 'that'.

No. 60, in

clause 11, page 5, line 6, leave out subsection (2).

No. 61, in

clause 11, page 5, line 6, leave out from beginning to end of line 22.

No. 67, in

clause 11, page 5, line 6, leave out 'in particular'.

No. 51, in

clause 11, page 5, line 7, leave out from beginning to end of line 10.

No. 62, in

clause 11, page 5, line 11, leave out from beginning to end of line 12.

No. 3, in

clause 11, page 5, line 11, leave out from 'requiring' to 'of' and insert

'such amount as the Secretary of State shall specify, being not more than 20 per cent.'.

No. 40, in

clause 11, page 5, line 12, at end insert—

'(c) make provision requiring an amount not exceeding sixty per cent. of a capital receipt to be used only to meet capital expenditure in connection with the local authority's functions under part II of the Housing Act 1985 (provision of housing).'.

No. 63, in

clause 11, page 5, line 12, at end insert—

'(2A) Regulations made under subsection (2)(b) may only include the following in relation to payments to the Secretary of State—

(a) in relation to the disposal of dwellings, the maximum amount that can be specified is 25 per cent. of the capital receipt; and

(b) in relation to the disposal of any other asset, the maximum amount that can be specified is 15 per cent. of the capital receipt.'.

No. 39, in

clause 11, page 5, line 14, after '2(b)', insert 'and 2(c)'.

Government amendment No. 25.

No. 41, in

clause 11, page 5, line 20, leave out subsection (5).

Desmond Swayne (Conservative, New Forest West)

The Minister was determined to make the case that his proposals were designed to generate more revenue for expenditure on housing. I do not doubt for a moment his sincerity in seeking to achieve that objective. My concern is that the proposals will have the opposite effect.

The Select Committee's report refers to the evidence produced by CIPFA. It quotes Mr. Bisland of CIPFA as saying:

''I think it is more likely that Members are going to be reluctant to sell assets if they think they are going to be pooled''.

Nick Raynsford (Labour, Greenwich and Woolwich)

May I short-circuit this discussion and save the Committee a lengthy detour and the hon. Gentleman some embarrassment by pointing out that the policy that we propose relates only to receipts from the sale of council houses. The council itself has no discretion. It cannot generate sales. It is entirely a matter for the house buyer to decide whether they wish to exercise the right to buy. I am afraid that Mr. Bisland's argument has no force or effect.

Desmond Swayne (Conservative, New Forest West)

Ah, well, I will illustrate that the principle of what Mr. Bisland said still holds good. I will refer to an asset currently possessed by New Forest district council, which falls within the terms of subsection (4)—a mobile home park worth in excess of £11 million. It seems reasonable to ask why a district council is sitting on such an asset when there is a such a shortage of affordable and social housing in the New Forest, not least because of the Minister's Whitehall-imposed policy, which prevents the district council from using its resources to acquire more housing of that nature, but rather directs it to use those resources to renovate its existing housing stock. Such a policy might be appropriate to a northern metropolitan council that has not maintained its stock over many years, but it is inappropriate to the New Forest.

I leave that matter aside, as I am sure that the Minister would not want me to go down that road.

Nick Raynsford (Labour, Greenwich and Woolwich)

The hon. Gentleman appears determined to dig himself further into his hole. Nothing in our proposals would impact on this mobile home park in the New Forest, because its occupants will not have the right to buy and therefore the proceeds from any sales will not be subject to the pooling procedures.

Win Griffiths (Labour, Bridgend)

Order. You are pursuing an interesting point, Mr. Swayne, but under which amendment are you raising it?

Desmond Swayne (Conservative, New Forest West)

Amendment No. 59, Mr. Griffiths. It has a certain simplicity and attraction. The difficulty that the members of the council face in disposing of the asset is that there is a political cost, because the occupants of the park do not want it to be sold. They would much rather that it be owned by the district council than by that unique breed, the owners of mobile home parks, who, as I am sure the Minister is aware, often lack the social and managerial skills required to make a success of them.

While the law is so stacked against the tenants, they do not want to be sold off by the district council, so there is a political penalty. The district council has to balance the question of selling the asset to generate revenue to provide housing against the political cost of the campaign mounted by the residents not to be sold off. If the district council will not retain any of the revenue for its own purposes, the motive for selling will disappear and councils will sit on such assets rather than lose control of them.

Kali Mountford (Labour, Colne Valley)

I am confused by the hon. Gentleman's inconsistency. How does what he is saying fit with his party's previous policy of allowing councils to use such capital receipts only to repay debt?

Desmond Swayne (Conservative, New Forest West)

The repayment of debt is a perfectly legitimate use of such assets, because it creates the financial circumstances that enable councils to build. To me, that is evident and straightforward.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to my hon. Friend for raising the important issue of mobile home parks, because it is a little known fact that my constituency in Surrey has the second largest number of permanent mobile homes of any parliamentary constituency in the country. That is known by some hon. Members. I can tell the Government Whip, the hon. Member for Oldham, East and Saddleworth (Mr. Woolas), that the hon. Member for Lancaster and Wyre (Mr. Dawson) and I see eye to eye on this issue, although we have little in common politically on any other subject. In fact, his constituency has the largest number of mobile homes.

This important issue is not the Minister's direct responsibility, but he will be concerned to learn that a significant proportion of the mobile homes in my constituency have recently been under water. That in itself is cause for grave concern, although I know that the Office of the Deputy Prime Minister is not responsible for the Environment Agency.

Nick Raynsford (Labour, Greenwich and Woolwich)

In the bipartisan spirit of the hon. Gentleman's remarks, may I say that I had great pleasure in visiting a mobile home park in the constituency of my hon. Friend the Member for Lancaster and Wyre. I suggest that the hon. Gentleman pay a visit to the mobile homes in the constituency of the hon. Member for New Forest, West (Mr. Swayne) to tell those constituents about their legal position? Their Member of Parliament

appears to be labouring under the delusion that they might benefit from the right to buy.

Philip Hammond (Conservative, Runnymede and Weybridge)

I do not think that my hon. Friend labours under any such delusion, but I shall be very happy to visit the mobile home dwellers in his constituency when I have a moment free. At the moment, I am required to visit my own. Tomorrow evening, I shall talk to a group of them about the rather perilous circumstances in which they have found themselves as a result of floodwater—not as a result of recalcitrant landlords on this occasion.

All joking aside, the Minister will know that the legal position of mobile home owners is far from satisfactory. His noble Friends are discussing the subject with members of the all-party parliamentary group for the welfare of park home owners, and I hope that the Minister's Department will find some legislative time for it. It is a shame that there is nothing on the matter in the Bill, but we hope that it will be included in the draft housing Bill. The Minister is adopting the posture of someone at an auction; he is carefully not moving his head a millimetre in any direction, lest it be construed as a signal that he did not intend to send.

I return to this group of amendments and the Minister's hurried reply at the end of our last sitting when time was short. We had a long debate on the proposals, but members of the Committee may wish to explore some of the issues raised in the light of the Minister's reply.

The Bill has been presented as giving freedom to local authorities, but the clause does precisely the opposite. The Minister seems to expect to receive plaudits for having made a modest, and probably administratively essential, concession to the 34 debt-free local authorities that will be most significantly affected by the measure. The transitional arrangement that the Minister announced on Tuesday is an improvement, but it is a concession made by the emperor rather than the underpinning of a genuine dispersion of power to the local authorities—

Geoffrey Clifton-Brown (Conservative, Cotswold)

Who is the emperor?

Philip Hammond (Conservative, Runnymede and Weybridge)

When my hon. Friend takes over from me in leading for the Opposition for the remainder of our proceedings, he will quickly see who is the emperor. The Minister and his Secretary of State are giving themselves huge powers and conceding small amounts of power to local authorities. The Bill is presented as a wholesale distribution of power that gives freedom and flexibility back to local authorities, but it is the opposite. It is the accretion of a huge additional power—the power of the purse string—to the centre and the granting of concessions when the Minister feels so inclined.

David Curry (Conservative, Skipton and Ripon)

My hon. Friend started by referring to God, and is now down to emperor. May I suggest that he moves rapidly down the hierarchy to clerk, which is closer to reality?

Philip Hammond (Conservative, Runnymede and Weybridge)

I have some respect for the Minister and I have noticed that the Deputy Prime Minister makes a point of sitting next to him; he is closely

huddled with the Minister whenever any important complex and technical matters are discussed. I believe that the Minister is the driving force behind these initiatives.

Mr. Raynsford rose—

Philip Hammond (Conservative, Runnymede and Weybridge)

I am happy to give way to the Minister as he modestly seeks to declaim his position.

Nick Raynsford (Labour, Greenwich and Woolwich)

I am most grateful to the hon. Gentleman for giving way and I thank him for his kind remarks. However, I suggest that he defer to the views of the right hon. Member for Skipton and Ripon (Mr. Curry), who speaks on this subject from experience.

Philip Hammond (Conservative, Runnymede and Weybridge)

There is a barbed intention there somewhere, but it has totally passed by me—

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Or through you.

Philip Hammond (Conservative, Runnymede and Weybridge)

Or through me, as the hon. Gentleman says. I look forward to my right hon. Friend's response to the Minister's remarks in due course.

I return to the serious subject of the debate. I want to pick up on several things that the Minister said, and on some things that he did not say, although I understand that he lacked time. He said that in practice clause 11 would affect only debt-free authorities. I will explore that further, because the Minister will leap to his feet to correct me if I have misunderstood the way in which the current system works.

Casting my mind back to my first ever—terrifying—Standing Committee in 1997, I understand that local authorities, if they are not debt free, are required to set aside 75 per cent. of their receipts from housing disposals. That set-aside receipt is, in effect, offset against their housing debt. The Minister says that only the debt-free authorities will be affected by the measure in clause 11. However, I should like to know what will happen to the debt of the indebted authorities. Those authorities would have had their 75 per cent. set-aside offset against their debt, but will now have a 75 per cent. levy taken by the Secretary of State.

The answer lies in clauses 40 and 41, in which the Government give themselves the power to pay off local authority debts—not all local authority debt, but the debt that they choose to pay off. If I am not misunderstanding what will happen, we will move from a situation in which local authorities' receipts are channelled through the set-aside system into repayment of their housing debt, to a system in which local authority receipts are sequestered by the Secretary of State. The Secretary of State will then address the problem of those local authority debts not being repayable because of the sequestration by giving himself the power to distribute largesse in the form of debt repayment on behalf of the local authorities.

That seems to me to be a huge accretion of power to the Secretary of State. I do not want to fast forward to clauses 40 and 41 at this point, but as I understand it the Secretary of State has no obligation to repay all local authority debt, or any class of local authority debt, but has the power to do so. That is a huge

discretionary power. The projected sums for 2003–04 are some £800 million. That is some pork barrel.

Nick Raynsford (Labour, Greenwich and Woolwich)

In the spirit in which the hon. Gentleman spoke, saying that he would expect me to jump to my feet if he was incorrect in any respect, I shall make two points.

There is no connection between the provisions that we are currently debating and those in clauses 40 and 41 concerning set-aside debt. We will deal with the issue of overhanging debt when we reach those clauses. The Government facility to extinguish the debt of authorities that have transferred their housing stock is in lieu of the continued subsidy provision which otherwise would apply to those authorities that continued to hold stock. It is not a special treatment and is not connected to this clause.

The clause replaces a regime under which 75 per cent. of certain receipts had to be set aside and were then used by the Government to support increased capital investment for other authorities, with a regime that does that explicitly. The 75 per cent. will be transferred to the Secretary of State to support capital investment by all authorities. That is simply a change in the administrative arrangements. There is no change in policy, and no change in the application of finance, because currently there is no statutory obligation to repay debt under the set-aside regime.

Philip Hammond (Conservative, Runnymede and Weybridge)

I appreciate the Minister's intervention, but it is not clear to me what happens to the local authority debt that cannot be repaid. There may be no statutory obligation to repay debt, but I understand that the set-aside receipt can be used to repay debt.

What will happen to the housing debts that local authorities have accrued, when 75 per cent. of their sales receipts are creamed off by the Secretary of State? The Minister says that there is no connection to clauses 40 and 41. However, I suggest to him that there must be a connection, because the overhanging debt must be correspondingly larger since the local authorities will have a smaller receipt, the Government having taken 75 per cent.

Nick Raynsford (Labour, Greenwich and Woolwich)

No, there is no connection. The overhanging debt applies only in circumstances in which authorities transfer all of their housing stock and the receipt is insufficient to cover the outstanding debt. In those circumstances, the repayment of overhanging debt would avoid the otherwise bizarre position of the authority continuing to receive housing subsidy from the Government to meet those previous debt costs even though the authority no longer had any housing stock, which anyone with experience of the matter will realise would be nonsense.

That is the purpose of the overhanging debt provisions. They do not relate to the normal processes whereby authorities may reduce their debt through the application of receipts from right-to-buy sales.

Philip Hammond (Conservative, Runnymede and Weybridge)

If the Minister reads clause 40, he will see that while he asserts with great confidence how it will be used in precise form, it states nothing of the

kind. It gives the Secretary of State a wide power to repay local authorities' debts. I must press the Minister on the question of debt. How will local authorities repay the debt attached to housing stock sold under the right to buy when the Secretary of State is taking 75 per cent of the receipt? What is the mechanism and how will they account?

Nick Raynsford (Labour, Greenwich and Woolwich)

There is a simple explanation. The authority will continue to qualify for a housing subsidy that will meet the repayments on the outstanding debt in the same way that has applied in the past, so there is no change. It will be free to use its 25 per cent. of the receipt for whatever purpose, plus any other receipts where it will be entitled to use 50 per cent. to extinguish debt should it choose to do so. It will be a local authority's policy decision and authorities will have to find a balance between the advantages of reducing debt and the advantages of using those sums for investment.

Philip Hammond (Conservative, Runnymede and Weybridge)

Throughout our debates, the Minister has extolled the virtues of a proper accounting practice approach. He tells us that the system will operate so that councils receive a capital receipt, of which the Secretary of State takes 75 per cent. The debt remains with the local authority, and the Secretary of State then disburses revenue funding to that authority to continue to service a debt that now supports an asset that no longer belongs to the authority.

Nick Raynsford (Labour, Greenwich and Woolwich)

No.

Philip Hammond (Conservative, Runnymede and Weybridge)

Well, that was my understanding of what he said, but it seems to me the antithesis of appropriate accounting practice. I would have expected that a capital receipt from the sale of an asset would be used to pay debt associated with the asset.

Nick Raynsford (Labour, Greenwich and Woolwich)

On reflection, the hon. Gentleman will realise that it would be impossible for local authority accounts to be organised on the basis of a separate debt repayment regime for every property. The arrangements apply to the outstanding aggregate debt. That has always been the case, and there is no change. The difference in clauses 40 and 41, which relate to overhanging debt where there is a total stock transfer, is that the authority ceases to be a landlord and to hold stock. Therefore, it would be inappropriate for that authority to continue to receive housing subsidy.

Philip Hammond (Conservative, Runnymede and Weybridge)

There is nothing in clauses 40 and 41 to limit their application to those cases, but I will not anticipate the long and enjoyable debate that my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) will have the pleasure of engaging in with the Minister.

I move on to another point that the Minister made in his reply. I did not intervene at the time because time was so short. That is a generous interpretation; I tried to intervene, but the Minister would not allow me to do so for the same reason. He talked about the increased funding that the Government are making available for affordable housing provision. Will he tell

the Committee how many more affordable houses are being built this year as a result of that increased funding than were built in the last year of the previous Conservative Administration in 1996?

Nick Raynsford (Labour, Greenwich and Woolwich)

As the hon. Gentleman will know, there has not been an increase because the Government have had to address two crucial factors.

The first was the need to increase grant significantly from 56 per cent in 1997–98 to 68 per cent. in the current financial year to ensure that housing was affordable to people rather than leaving them dependent on benefit. I am sure that the hon. Gentleman will agree that that is an important policy consideration. The second factor is that the profile of the new build programme has been changed dramatically to concentrate on areas where there is the greatest shortage, which as he will know—this is not difficult economics—are concentrated predominantly in high-cost areas. Therefore, the unit costs of individual homes provided by registered social landlords are substantially higher than when a rather higher proportion of the programme was being built in parts of the country where there was not a great need and where homes that were built with registered social landlords sadly remained empty and in some cases had to be demolished.

There has been a significant change in both the affordability of the homes being built and their location, which has had a significant impact on the costs. So for any given amount of money, fewer homes can be produced. That is why the Government are increasing and will continue to increase investment in housing, as my right hon. Friend the Deputy Prime Minister will make clear when he announces the communities plan next week.

Philip Hammond (Conservative, Runnymede and Weybridge)

The approximate translation of that long intervention is, ''It's a fair cop. We have built only two thirds of the number of affordable houses this year that the Conservative Government built in 1996.'' The Minister should be careful about singing about his record when the end result is so poor.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Another point in the Minister's intervention that was interesting was that he claimed that the Deputy Prime Minister and the new housing policy would ensure that extra money went to build affordable houses in high-cost areas. Is that not our argument against pooling and the effect on debt-free authorities? Those authorities tend to be in areas that need affordable housing and the Government are taking money away from them in the clause.

Philip Hammond (Conservative, Runnymede and Weybridge)

Absolutely. The Government have a concept of housing need that does not recognise the reality in large parts of south-east England, which is that people in quite well-paid, full-time jobs can no longer afford market housing. That has changed the nature of what social housing has to do. In areas like that of the hon. Member for Kingston and Surbiton (Mr. Davey) and my area social housing is needed to provide housing for people who are earning what in many parts of the country would look like good wages, but who cannot afford a mortgage for any property that is on the market. I am sure that the Minister understands that issue.

So we have two distinct demands for affordable housing. In areas of the country where average wages can support mortgages for market housing, social housing needs to be provided for those who do not have full-time, properly remunerated employment, who are disadvantaged in some way or who are unable to enter the work force. In housing hotspots, which are not exclusively in the south-east, social housing is required for people who are fully participating members of the work force with good wages and salaries, but who have no hope of supporting a mortgage to buy even the most humble dwelling. That issue goes to the heart of the objection of hon. Members on both sides of the House to clause 11. They believe that it will allow the Government to sequester the capital receipts of local authorities in areas of high housing stress. Figures show that there is a strong inverse correlation between sales of right-to-buy housing and indices of deprivation. Right to buy is strongest in the more affluent areas, and those receipts are being attacked in the clause.

I asked the Minister about the role that total cost indicators played in the past and continue to play in limiting authorities' ability to spend capital sums on procuring affordable housing because of the way the market operates. In the past, that has been a serious constraint on the ability of authorities in high-cost areas to recycle capital funding into the provision of new, affordable homes.

The Minister is fond of reeling off a list of authorities that have not spent all their housing receipts on providing affordable housing. Things may be improving, but I would like him to acknowledge that a factor in the equation is an inability to find development or purchase opportunities within the total cost indicators.

Nick Raynsford (Labour, Greenwich and Woolwich)

I am happy to respond to the hon. Gentleman, as I did after our last sitting when time had expired. I told him then that, although I recognised that the total cost indicator regime had acted as a break on development in some high-cost areas, it was not now a major constraint for several reasons. First, the change in funding in terms of the grant level would considerably reduce the affordability problems created by high-cost development. Secondly, the encouragement of partnership with the private sector and registered social landlords should make it possible, through section 106 and other planning agreements, for schemes to be developed under which a proportion of the site and land would be made available by the developer. The terms of the agreement would determine how far it was possible to develop cost-effectively. Authorities have the means to negotiate arrangements under which they can secure affordable housing as part of section 106 agreements and to do so cost-effectively.

Philip Hammond (Conservative, Runnymede and Weybridge)

I understand what the Minister is saying, but I ask him please to bear it in mind that when those developing market housing enter into section 106 agreements to provide land for affordable housing, those who buy in the marketplace subsidise the affordable housing sector. The economics are clear and it applies particularly in the south-east. Although

that may be acceptable to the Government when the market housing in question is very expensive—what the Deputy Prime Minister likes to call executive housing—at the bottom end of the marketplace it must mean that even fewer people can afford to step on the ladder.

Mr. Raynsford rose—

Philip Hammond (Conservative, Runnymede and Weybridge)

I will give way to the Minister, but I do not want to labour the point.

Nick Raynsford (Labour, Greenwich and Woolwich)

I simply ask the hon. Gentleman to bear it in mind that, given the affordability issues, which must be a major driver for house builders in determining pricing policy, there is not a straightforward subsidy from those buying market properties to those getting sub-market properties. Other factors are involved, including the impact on land prices and constraints on the developer's profit. The issue is much more complex than the hon. Gentleman suggests.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister is right; the equation is complex and the effect on land values is an important factor. This is probably not the place to have that debate, but it would be interesting.

Andrew Turner (Conservative, Isle of Wight)

Will my hon. Friend give way?

Philip Hammond (Conservative, Runnymede and Weybridge)

I should like to move on, if my hon. Friend will allow me.

We offered the Government a compromise in the form of amendments. We were picking up on a cross-party concern about the effect of clause 11. However, the Minister snubbed any suggestion of a compromise, and the transitional arrangement that he has offered is a meagre response to the concerns that have been expressed on both sides of the Committee.

The hon. Member for Dagenham (Jon Cruddas), as a representative of what I think will be the largest single loser among debt-free authorities, has a significant interest in this matter. That debt-free authority stands to lose the largest amount of money.

Desmond Swayne (Conservative, New Forest West)

Twelve million pounds.

Philip Hammond (Conservative, Runnymede and Weybridge)

Indeed, yet the hon. Member for Dagenham is serving on the Committee. I do not see any other Government Members who have concerns about this issue on the Committee. Perhaps I can correlate the hon. Gentleman's presence to the comment reported to have been made by a Minister of State in the other place that Barking and Dagenham was likely to be the only one of the 34 debt-free authorities which the Government deemed to be in housing need. I assume that the hon. Member for Dagenham has received a private assurance that when the communities plan is made public, which according to the original schedule would have been before this debate, there will be good news for the people of Barking and Dagenham. I am afraid that the other 33 debt-free authorities do not anticipate the communities plan bringing them good news. That is our concern.

Clause 11 is not about securing reinvestment in housing stock. If it were, the Government would have

accepted the amendments that would have ensured that right-to-buy receipts were recycled into new housing provision in the areas where they were generated. The clause is about increasing Government control and patronage; redirecting funding to the Government's favoured areas; and reinforcing the Government's determination to ignore the real issues in the areas of greatest housing stress.

Patrick Hall (Labour, Bedford)

Will the hon. Gentleman briefly outline what evidence he has for saying that none of the other debt-free authorities has any housing need?

Philip Hammond (Conservative, Runnymede and Weybridge)

I do not have evidence, because that certainly is not my perception. I am reporting to the Committee a reported—

Nick Raynsford (Labour, Greenwich and Woolwich)

Tittle-tattle.

Philip Hammond (Conservative, Runnymede and Weybridge)

It is not tittle-tattle. I am reporting the comment reported to have been made by a Housing Minister to a representative group outside Parliament—none the less, I think that it was authoritatively made—that of the 34 authorities, Barking and Dagenham was likely to be the only one that the Government regarded as being in housing need.

Jon Cruddas (Labour, Dagenham)

I can categorically assure the hon. Gentleman that, in all the lobbying that takes place during these processes, and in the discussions with Ministers, no assurance has been given to Barking and Dagenham. There has, however, been much discussion about the outstanding housing needs in the borough and the hopes that the Government will confront those in their broader housing strategy, of which this measure forms only a part. I just wanted to clarify for the record that there had been no unequivocal statement that we would receive net gains in the total package. The arguments have been advanced thoroughly, however.

Philip Hammond (Conservative, Runnymede and Weybridge)

Well, the Government Whips must have looked at the hon. Gentleman and decided that he was reliable material anyway, even in the absence of such unequivocal reassurance. We shall see. When the communities plan is announced, Opposition Members will remember this debate and look carefully at which of the 34 debt-free authorities are privileged to receive some benefit from it. I know that Barking and Dagenham has a real problem, so we will be delighted to see it taken care of properly. However, I suspect that we will be disappointed to find that many of the other 33 authorities do not benefit.

The point that I, and others in the debate, have made is that the lack of affordable housing in the areas that will be hardest hit by the provision will lead not only to a housing crisis, but to a breakdown in the delivery of public services. That goes to the heart of all the matters that the Government say are their principal concerns.

The lack of affordable housing prevents the proper delivery of policing services. Most recruits to the Surrey force commute into Surrey from outside the county. That is in stark contrast to the situation that

prevailed only a couple of decades ago, when the law required police officers to live within six miles of their police station. Police officers now routinely travel long distances from Hampshire and Kent to Surrey, invariably by motor car, with all the negative consequences that that entails. More than half of the police recruits live out of the county.

There is a crisis in the staffing of hospitals. When I was privileged to be an Opposition health spokesman and travelled around the country in that capacity, I did not encounter that problem in other parts of the country in the form in which it is found in the south-east. I do not say that hospitals in other parts of the country have no problems, but they do not have the persistent, chronic and substantial staffing problems that are found in hospitals in the south-east. In my area, for example, 20 to 25 per cent. of nursing establishment posts at Ashford and St. Peter's hospitals NHS trust are unfilled; that has been the case for a long time, and consequently there are huge agency staffing bills.

There is a crisis in the delivery of social services, where relatively low-paid social workers cannot be recruited and retained, and there is a crisis in education. Surrey now has the highest turnover of secondary school teaching staff of any shire county. If I visit schools in my constituency—I know that other hon. Members will have had the same experience—and talk to head teachers, they tell me that there are two polarising trends among teaching staff. First, there is a cadre of young, relatively inexperienced teachers who work for two or three years at the beginning of their careers before moving on in search of a place where they can afford housing.

Secondly, there is the increasing feminisation of the teaching work force. In Surrey, more and more secondary school teachers are women whose salaries are subsidised by a husband or partner who is working in a well-paid private sector job. Thank goodness they are there, or there would be no teachers at all, but the absence of mature male teachers in secondary schools is a serious problem, particularly for male pupils who do not have male role models at home.

Sue Doughty (Liberal Democrat, Guildford)

Does the hon. Gentleman agree that another major problem in Surrey is delayed discharges from hospitals? That is related to the fact that we cannot get people to work in nursing homes or to care for people in their own homes. The prohibitive cost of housing means that such workers cannot afford to live in the area, or, if they do live in the area, they cannot afford to do the work and will seek work that is more highly paid.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Lady is right. I think, Mr. Griffiths, that you would probably prefer that we did not widen the debate into a general analysis of the problems of delivering public services in the south-east.

However, the Minister, who I assume is responsible for housing—

Nick Raynsford (Labour, Greenwich and Woolwich)

No.

Philip Hammond (Conservative, Runnymede and Weybridge)

Wisely, the Minister says that he is not, but he is certainly responsible for snaffling the

capital receipts from those 34 authorities, who would have liked to be able to spend them. The issue goes far beyond the important issue of the provision of affordable housing. It goes to the heart of whether the Government will be able to deliver the improvements in public services that they say they want, and into which they are putting a large amount of money.

The large increases going into the NHS in Surrey, for example, are expected to allow the system to stand still. All other things being equal, it is expected to keep its head above water, but it will not deliver the step change in quality and volume of services that the Government hope for. The root cause of the problem is the housing crisis. It means that people on public sector salaries, which are broadly similar throughout the country, cannot afford a workable and worthwhile lifestyle in areas of high housing cost.

Andrew Turner (Conservative, Isle of Wight)

I do not wish to widen the debate, but does my hon. Friend agree that this problem is not limited to the areas of the south-east with the highest costs? Even in my constituency no fewer than 90 members of staff at my district general hospital were recruited from the Philippines.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Only 90.

Andrew Turner (Conservative, Isle of Wight)

Thank goodness it is only 90. They are needed elsewhere in the country too. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) has got to the nub of the matter. Public sector salaries do not reflect market forces. The only way to solve the problem, regrettably, is through social housing. If we had a system that better reflected market forces, we would not need to argue about the social housing receipts to the extent that we have today.

Win Griffiths (Labour, Bridgend)

Order. We obviously will not have a clause stand part debate, but could I ask hon. Members to tighten up some of their interventions?

Philip Hammond (Conservative, Runnymede and Weybridge)

The point has been made. We all understand how crucial the provision of affordable housing is to the operation of our society, particularly in the delivery of good public services. On top of all the other funding pressures on the 34 authorities such as the inadequate local authority finance settlement and the continuous pressures for higher spending in education and social services, they now face an attack on their capital receipts.

It all fits into a pattern. Authorities in areas that are perceived by the Government to be rich and leafy are to be attacked. They are to have their capital receipts sequestered; they are to have their grant funding cut; they are to be forced to make council tax increases that are massively above inflation. The Surrey police precept this year will rise by 40 per cent. just to try to maintain services. Many county councils across the south-east will be increasing their council taxes by 12, 13, 14 and 15 per cent. because of the inadequacy of the Government's funding and the pressure to increase the passporting of money to schools.

This is also an attack on the right to buy. The Government do not like the fact that it delivers real freedom to ordinary people so they are attacking it.

First, they are undermining the ability of individuals to buy their council homes through the announcements that the Deputy Prime Minister has already made. Secondly, in the clause, they are attacking the receipts in the hands of the recipient authorities that sell the housing.

The clause gives the lie to everything that the Government have said about their attitude to local government. The freedom that they purport to give with one hand they take away with the other. I shall urge my hon. Friends to vote for amendment No. 66. I will also ask you, Mr. Griffiths, for a separate vote on amendment No. 3. If the amendments are not accepted or the Minister is not prepared to look at them again at a later stage, to change the clause so that local authorities can retain their receipts and use them for housing purposes in their own areas, I will have to ask my hon. Friends to vote against the clause.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

This has been a long debate divided over two sittings. Unfortunately, we do not yet have Hansard for the previous sitting to scrutinise in detail what the Minister said. He made some important announcements, which I shall come to. Nevertheless it has been a good debate.

When one sits back one sees that here are two separate arguments, and the amendments before us allow us to deal with both. The first argument is about how one uses capital receipts in general. The Minister was right in his exchanges with the hon. Member for Runnymede and Weybridge (Mr. Hammond) that many of the provisions in clauses 9 to 11, which we are debating on this group of amendments, really just change the administrative system. The old system of receipts taken into account, set-aside is what the pooling system is trying to achieve.

We can argue about whether the old system and the new mirror system are right—I wish to argue the opposite. I believe that the old system was wrong, because it infringed the rights of local councils to use the receipts in the way they thought best. In a moment I shall turn to the second argument about how the new aspect of the system affects debt-free authorities.

The Conservatives have a greater problem than may have emerged in the debate because they had the same sort of rules for many years. There is no change for the majority of councils; this is a Conservative policy. Labour has not brought in a new policy but has kept the same policy for the majority of councils. That was one of the problems with the right-to-buy policy, which the Liberal Democrats support.

The problem was that councils were not allowed to reinvest in social housing the receipts generated by that policy. That is why we have an affordable housing crisis now. We have stacked up major housing problems over a long period. The housing crisis did not arise in the past five years; housing policy does not work like that. It has grown worse, but the root causes go back many years. The Conservatives have to take responsibility for not allowing the important capital receipts to be reinvested in the local communities.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Labour members say, ''Hear, hear,'' but they are about to be asked to vote to continue that policy.

Andrew Turner (Conservative, Isle of Wight)

Not only that, but they also promised before 1997 to release capital receipts. They have released them in such a slow and desultory fashion that the number of houses being built has decreased. But that was not the point of my intervention, which was to ask the hon. Gentleman whether he agrees that part of the problem relates to public sector salaries being controlled nationally.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do indeed, which is why our party's policy is for greater flexibility at local and regional levels. The hon. Gentleman is right: we must have greater flexibility in public sector pay, not only because of housing costs but for other reasons.

Philip Hammond (Conservative, Runnymede and Weybridge)

At the risk of taking the debate too far, I understand the hon. Gentleman's point, which is sensible, but is he going to propose that public sector pay in any area should go down, or whether the current levels will be the base line in the lower index areas and it should go up everywhere else. If so, at how much does he cost that Liberal Democrat commitment?

Win Griffiths (Labour, Bridgend)

Order. The hon. Gentleman does not have to answer that question.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I ask the hon. Gentleman to read our policy papers. Everything is costed and in the public domain. Having been in charge of costing our pre-election manifesto, I can say that we cost in great detail.

The second argument is in many ways the new policy debate. It is important to address that, particularly given the Minister's announcement. There is no doubt—he has not tried to hide this—that debt-free authorities will be worse off as a result of the new pooling system. In trying to mirror the old system, the Government felt that they wanted to make one slight change, which was to ensure that the right-to-buy receipts were taken away from debt-free authorities. The Minister frowns, but that is exactly what the legislation will do.

Nick Raynsford (Labour, Greenwich and Woolwich)

My quibble is not with the overall concept that the hon. Gentleman is setting out—which I agree with—but with the wording. Our concept is to ensure that debt-free authorities are treated in exactly the same way as all other authorities, and that a proportion of capital receipts from right-to-buy sales are put into the pool, as they are with all other authorities. We are not taking them away from debt-free authorities, but applying to those authorities the same principle as applies to other authorities.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I said that the receipts would be taken away, and I think that the Minister has confirmed that that is what he is doing. He says that he is trying to treat debt-free authorities in the same way as other authorities, but let us remember that debt-free authorities worked hard to pay their debt so that they could have the freedoms. In the main, those authorities run their finances well. There are one or two examples where that is not the case, but in the main they have managed their budgets well to get

those freedoms, and now those freedoms are being taken away.

The question is: did the Government's announcement last Tuesday evening make any difference? As far as we can see, the transitional relief that they announced is pretty paltry. It is for a three-year period and is a declining amount—[Interruption.] The Minister laughs and says that it is not paltry, but he gave us no figures.

Nick Raynsford (Labour, Greenwich and Woolwich)

I did.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The only figure that the Minister gave us was when he said previously that the cost to debt-free authorities of the whole policy was £120 million. If he wants to intervene to say how much he is giving back, that will be very welcome, because it will be news.

Nick Raynsford (Labour, Greenwich and Woolwich)

I gave all the figures, including the £120 million that the hon. Gentleman acknowledges. I also made it clear that as a result of Tuesday's announcement, 75 per cent. of the set-aside amount available to debt-free authorities in the first year would be available to them if they used it for housing investment. By no stretch of the imagination is 75 per cent. of £120 million a paltry sum, although it may be to the person responsible for doing the Liberal Democrat finances.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The point is that this is an ongoing issue; it will not be an issue just for one year. Okay, in the first year the Minister has found some money, and I agree that 75 per cent. of £120 million is not a paltry sum, but that is only for one year. We are talking about capital assets that are managed over a period of years. In year two it goes down, and in year three it is gone. The point is that a lot of money will be taken away from debt-free authorities under the new regime that was not under the former regime.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman has slipped into the trap that I slipped into earlier of talking about a three-year transition. The Minister has announced a two-year transition. In the third year, the full burden will be imposed. My understanding of what the Minister said is that 75 per cent. will be available in the first year, 50 per cent. in the second year and 25 per cent. in the third year, which is the norm.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

That is what I had understood, but the Minister clearly wants to clarify it, because the statement on Tuesday was rather rushed. We do not have Hansard and it is useful to go over this ground, not only for us, but for people outside.

Nick Raynsford (Labour, Greenwich and Woolwich)

In the nicest possible way, I point out to the hon. Member for Runnymede and Weybridge, through the hon. Member for Kingston and Surbiton, that a scheme that gives 75 per cent. relief in year one, 50 per cent. relief in year two and 25 per cent. relief in year three cannot by any normal mathematical calculation be described as a two-year scheme.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I think that I can accept that logic, but the question remains of the costs to the debt-free authorities over a period of time. I began by saying that housing policy had to be seen over a long period, but the Minister's proposal is a short-term and partial

let-off for the debt-free authorities. Eventually, all the money will be taken away from them. He does not seek to deny that, which is why the debate is important. We believe that there are other ways of dealing with the problem. One solution was provided by amendment No. 40, tabled by the hon. Member for Runnymede and Weybridge. I am at a disadvantage; the Minister is explaining his policy in a quiet way to the hon. Gentleman, and I may be missing out on some golden nuggets that will help me to understand it.

Is there another way round the issue? Can we meet the Minister half way and protect the debt-free authorities but ensure that we tackle the housing issue about which he is deeply concerned? Amendment No. 40 would ring-fence the receipts for housing investment in perpetuity, which is a much better way forward, but I would rather there was no penalty on debt-free authorities, and our amendments would remove the provision altogether.

If we are to reach a compromise, the best solution would be ring-fencing the money for housing investment, not the bizarre transitional relief scheme about which we learnt more today. The hon. Member for Runnymede and Weybridge went into detail on the matter and said that my constituency, for example, is not in a debt-free authority, but it suffers from a lack of affordable housing.

Next week, the Government will announce the communities plan—presumably, it is the buzz word for building, developing and reviving communities—but they must realise that communities are not properly built when the police, teachers, nurses, carers, people who sweep the streets and those who deliver the post cannot live there. How can there be a rich, sustainable community when those people have to travel to work from way out in surrounding counties? People regularly travel to London from the midlands to work in the public sector.

The communities plan will have a hole in the middle if it does not tackle that problem. Some of us find these measures bizarre because they take money away from areas that are losing social housing, which is being sold off under the right to buy, and give it to the Secretary of State to use elsewhere. But those areas are where communities are under the greatest pressure.

Mr. Raynsford indicated dissent.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The Minister shakes his head, but the list of debt-free authorities shows areas that have problems.

Nick Raynsford (Labour, Greenwich and Woolwich)

I did not quibble with the fact that there might be housing pressure and need in those areas; our policy specifically gives an incentive to authorities, not all of which currently do so, to use their receipts for housing purposes. I objected to the hon. Gentleman's suggestion that they were the areas of greatest need. Any fair-minded observation of needs throughout the south-east would highlight not only the 34 debt-free authorities; there are many other authorities in that region and elsewhere with intense need, especially for housing investment. How would the Liberal Democrats secure the additional funds for investment in those areas.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The key question is balancing local democracy and local management of the budgets, and deciding when to use national resources to deal with areas that are in crisis. Many councils that will be badly hit by the measure have housing problems. Why create a ridiculous administrative system to claw back relatively small amounts of money from individual authorities and give it to the centre, which will give it out at its own discretion? If the Government believe in freedom and in rebuilding local democracy and local government they should allow the councils to keep their receipts and deal with their own housing problems using the large amounts of money announced last July.

The Minister asked me where the money would come from and the answer is from the money that his right hon. Friend the Deputy Prime Minister will announce next week. My party would use that as the main source for dealing with housing need and not try to pull back to the centre small crumbs from a huge cake.

Nick Raynsford (Labour, Greenwich and Woolwich)

I put it gently to the hon. Gentleman that it is precisely because of the existence of the former set-aside rule—now the pooling rule—that it will be possible for my right hon. Friend to make the announcement next week enabling a substantial increase in investment to be made in areas of greatest need.

I understand that the hon. Gentleman does not object to the set-aside regime, which ensures that some capital receipts are recycled. It has existed for several years and currently applies to the great majority of councils. Why, therefore, does he object to the same principle applying to debt-free authorities?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I thought I made it clear that I objected to the set-aside regime. That is what I said. I object to it is because housing policy is not always best set from Whitehall. I thought that was something that Labour and the Liberal Democrats had in common. When Labour was in Opposition they said that councils should have the freedom to invest their receipts. Now they are in Government they have changed their policy.

The Minister asked where all the money would come from but there is a large amount of extra money that is additional to the pot we are discussing—

Mr. Raynsford indicated dissent.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The Minister shakes his head but that is what his Department's report suggests. I hope he is not suggesting that the 34 debt-free authorities and the others affected by set-aside will not get any money at all? The question is who decides how the funds will be distributed.

Nick Raynsford (Labour, Greenwich and Woolwich)

I am most grateful for the hon. Gentleman's clarification of Liberal Democrat policy. I understand it now: his party is opposed to any set-aside or pooling of capital receipts. The expected capital receipts in the current year will be about £1.4 or £1.5 million—

Chris Leslie (Labour, Shipley)

Billion.

Nick Raynsford (Labour, Greenwich and Woolwich)

I am sorry, the figure is £1.4 or £1.5 billion. The right hon. Member for Skipton and Ripon suggested that a sudden surge or boom is taking place, but it is not. We expect the figure to be broadly comparable in the coming year to the current figures. If there is no mechanism for making use of those receipts for investment in housing and the receipts will simply be left with the authorities, what mechanism is there to assist those areas of the country that do not have the advantage of substantial capital receipts? Would the hon. Gentleman leave it entirely to the market, where there will be spending power, and do nothing to help the poorer areas? If so, how will the Liberal Democrats make up for the £1 billion hole in the budget that their policy will create? Where will they find that sum of money for additional housing investment?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The Minister failed to answer my question. The Treasury has other national resources, which will be disbursed on housing, so moneys are available. The hon. Gentleman seems to think that the money would not be invested locally in affordable housing, but it would be. It is not taking money out of the housing budget. The question is how decisions are taken; this Government takes the centrist route every single time and that is their huge mistake. [Interruption.] The Minister says that is surrendering to the market; far from it. The money stays in the public sector for social housing.

We do not want Whitehall getting its grubby fingers on every penny that local authorities generate themselves for their communities to be invested in their communities. It is bizarre that the Government are talking about a communities plan but trying to undermine the communities.

Mark Todd (Labour, South Derbyshire)

Will the hon. Gentleman further clarify his policy? If his concern were mainly about an infringement of local democracy, presumably he would not wish any restriction on the purposes to which the capital receipts could be put. That would be the logical extension of his argument.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Our party would invest them in affordable housing, as we have made clear. That is our policy. It is the Government who are trying to have it both ways. They are trying to say that they are in favour of local democracy. That was the whole point of the Minister's supposed trump card of referring to ''Focus'' the other evening. He held the leaflet back as if it contained something wounding, but when we finally heard its content, it concerned a debate in Dorking on how the local council should use its money. The Liberal Democrats believed that it should be spent on affordable housing and the Conservatives did not. I thought that that was what democracy was about.

Nick Raynsford (Labour, Greenwich and Woolwich)

I am grateful to the hon. Gentleman for confirming in everything he has said this morning the point that I was making on Tuesday, that Liberal Democrats locally pretend that they would like to use

the money for housing, but nationally deny the opportunity to ensure that that happens. The Liberal Democrats' two-faced approach has been exposed.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

When people see the record, they will see that I am arguing for democracy and local accountability, whereas the Minister is arguing for national control and national direction. That is the difference between his party and mine.

This has been a long debate and we have much more business to discuss. I believe that I have made my point clearly. We would like a separate vote on amendment No. 62. I hope that through that we can change this new policy, and remove the idea that debt-free authorities should be penalised.

Sue Doughty (Liberal Democrat, Guildford)

I will not detain the Committee for long. However, I was concerned about some of the points that the Minister made. Local authorities, if they have constrained non-housing areas to become debt-free so that they can invest in housing, must be grateful for the transitional funding as crumbs that drop from the table. The short period of transitional funding is, as I say, a drop, because those authorities already will have restricted other areas to try to deliver more housing and improved housing stock.

In Waverley a large number of older houses will require much work to bring them up to a decent standard. We mentioned earlier that, because of the shortage of funding for housing, holes in windows have been painted over rather than the windows being replaced.

Paul Goodman (Conservative, Wycombe)

Would the hon. Lady clarify one point for me? She said that the transition arrangement was a drop, but I thought that her Front Bench spokesman said a moment ago to the Minister that the transitional relief in year one was by no means meagre.

Sue Doughty (Liberal Democrat, Guildford)

Yes, of course I can help with that. When one is looking at the long-term housing strategy, a two-year plan or, as the Government would have it, a three-year plan, is not significant in the grand scheme of things. When councils are trying to get the money together to invest in housing, the work that they have to do to become debt-free is not achieved in one or two years. It takes a number of years to develop such a strategy. I am surprised that the hon. Gentleman asked the question when it is clear how much work has gone into making those local authorities debt-free so that they can invest in housing, which is what we all would like them to be doing.

Some areas seem to have been completely missed by the Government. Many of the authorities about which we have been speaking are not demolishing empty homes. They are not saying, ''Well, we have a number of people who live in three-bedroomed houses, but we have lots of single-person dwellings that we can move them into.'' That would not be possible because of the higher level of housing occupancy in those areas.

Some local authorities may be able to accommodate someone who comes along and says, ''I am on a low income, and am married with two children, but I am a

postman and cannot afford private rented accommodation or to buy a property.'' But in probably all the local authorities in Surrey and many other parts of the south-east, normal, decent families, who do jobs that we value in the postal service, in shops, offices and elsewhere, will never have a hope of even having a council house, despite our having worked so hard to achieve that. Yet we need those families and those jobs in order to have balanced communities and to support the local economies, which, in the more prosperous areas, support the national economy, where so much Government funding comes from.

At the same time, the Deputy Prime Minister complains that we are not building enough houses. We do not want executive houses; we need affordable houses for decent folk who need a home to live in. Those who have been dealt a rotten deal by life and who may never be able to come off benefits because of disability or other problems also need housing.

I need to know from the Minister, as do those who have new towns in their constituencies and who are not represented on the Committee, how debt-free authorities will be expected to bring their houses up to a decent standard. We are talking about apparently prosperous areas that contribute so much to the national economy and the work that the Government are trying to do nationally. The Minister may ask how the Government are meant to do that, but the reality is that it can be achieved through the work that we do and through the vibrant economy of the south-east, even though from time to time it is hindered by a lack of a suitable work force. That is how we contribute to the national pot.

The money that is in the housing receipts has come by and large not from the most affluent, but from tenants' own rents. It has come from council tax. That is a regressive tax: it is related not to ability to pay, but to the house one lives in. How will the Minister recognise the needs of the poorest people living in the affluent areas? How does he expect councils to deliver? Will the debt-free authorities receive fair consideration in return for giving up that cash?

Paul Goodman (Conservative, Wycombe)

I have greatly enjoyed the company of the Minister on the Committee. Indeed, I wish that I could have enjoyed more of his company in a certain circumstance. I wish that he had been present at surgeries that I have held in my constituency of Wycombe over the last year, so that he could have heard poorer constituents of mine asking for my help in obtaining a council house.

I am told that I have the largest proportion of Muslim voters in my constituency, which is a debt-free authority, of any Member of my party. Most of those voters originate from poor communities in Pakistan and Kashmir. They were poor when they arrived in Britain and they are still relatively deprived and socially excluded now. They seek my help in obtaining a council house, and in at least one case a constituent has told me that 10 people are sleeping under one roof and they need help to get council accommodation.

Will the Minister explain how those people will be helped by what my hon. Friend the Member for Runnymede and Weybridge correctly describes as a ''grab'' by Government nationally on capital receipts that previously would have been available to my local council to build the council and social housing that my constituents need? As far as I can see, the policy will transfer to other constituencies money and resources that would otherwise have helped my poorer constituents. In some cases they are very poor.

Desmond Swayne (Conservative, New Forest West)

The Minister tried to reassure me by saying that that will apply only to right to buy. That is bad enough, but the clause refers to any housing land, which is defined as any land that has been subject to the duty to maintain a housing revenue account.

Paul Goodman (Conservative, Wycombe)

I am grateful to my hon. Friend for making that point as it might have slipped my mind. As far as I can see there is no guarantee, or even the likelihood, that my constituency, unlike Dagenham, will gain through the Community Fund which might have compensated my constituents for the loss that they will experience if the clause stands part of the Bill.

Robert Syms (Conservative, Poole)

My hon. Friend may have seem the film a few years ago in which Danny DeVito plays a corporate raider who really loves other people's money. Is this not an ''other people's money'' Government?

Paul Goodman (Conservative, Wycombe)

My hon. Friend would be astonished if I my reply were anything but yes. In conclusion, I have one ward—it is being re-warded but as it stands it is Booker and Castlefield—which is among the top 20 per cent. of local authorities for child poverty. My constituents in that ward and in similar deprived wards in Wycombe will be hit by these proposals. I hope to get some reassurance from the Minister on this point. I simply do not see how I can receive any when the clause stands as it does.

Question put, That the amendment be made:—

The Committee divided: Ayes 10, Noes 15.

Philip Hammond (Conservative, Runnymede and Weybridge)

On a point of order, Mr. Griffiths. The Minister told the Committee at the beginning of its deliberations that the Government intended to table a new clause or amendment to repeal section 19 of the Fire Services Act 1947. Since then, the Deputy Prime Minister has announced to the House—on Tuesday—that he intends to table further-reaching legislation in relation to that Act. Have you had any indication, or could the Committee be made aware, of whether the Government intend to proceed with the repeal of section 19 during proceedings on this Bill, or whether Tuesday's announcement by the Deputy Prime Minister subsumes the Minister's earlier intention?

It is important to hon. Members and right hon. Members in all parts of the Committee that they should be aware as early as possible of additional business to be placed before it.

Win Griffiths (Labour, Bridgend)

I have had no indication of what business may proceed in the coming weeks in the Committee.

Nick Raynsford (Labour, Greenwich and Woolwich)

Further to that point of order, Mr. Griffiths. For the Committee's information, may I make it clear that the Deputy Prime Minister's announcement on Tuesday that the Government intend to consult on additional powers in relation to the fire service will not involve any additional amendments being placed before the Committee? It is not our intention to make any of the changes outlined by the Deputy Prime Minister in the Local Government Bill.

No decision has been taken as to whether it might be appropriate for the proposed repeal of most of section 19 of the Fire Services Act to be effected by an amendment to this legislation, as originally planned, or whether it might form part of the new proposed legislation announced by the Deputy Prime Minister. There is no change to the current plan, but we would inform the Committee at the earliest opportunity if there were to be an alternative route for the section 19 repeal, which would have implications for easing the time pressures on the Committee.

Philip Hammond (Conservative, Runnymede and Weybridge)

Further to that point of order, Mr. Griffiths. That debate will be of considerable interest to hon. Members in all parts of the Committee. I hope that the Minister will ensure that any such Government new clause or amendment is not tabled at the latest possible moment, effectively making it impossible for other Members to table amendments to it, as it would be unstarred for debate on the relevant occasion.

The Minister has been good in letting the Committee have draft regulations in good time. I hope that he will ensure that the same thing happens in relation to any such new clause.

Win Griffiths (Labour, Bridgend)

I am sure that he will.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Further to that point of order, Mr. Griffiths. When we heard from the Deputy Prime Minister earlier this week, he suggested that the Government would be taking powers to themselves

in any emergency legislation; in other words, centralising some powers, when we understand that the amendment for the repeal to be put to the Committee would have decentralised similar powers. I should like your advice, Mr. Griffiths. We know that the proposed legislation could take the opposite direction from that which the Committee might be asked to see. How would the Committee deal with it when there would be contradictory legislation coming before the House in a few weeks?

Win Griffiths (Labour, Bridgend)

The two issues are totally separate. If the Government wished to introduce a provision in the Bill to decentralise and move down some of their authority, I hope that that would be acceptable to all members here. If they wanted to take some power to themselves on a separate issue to do with the fire service, there would be a consultation about it, so it does not need to detain the Committee any further.Clause 12 Power to invest

Clause 12 - Power to invest

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister was suffering from premature something there. [Interruption.] I did not say dementia—I thought that the Under-Secretary was suggesting dementia. I have a simple question for the Minister about definition. Clause 12 states that a local authority may invest

''(a) for any purpose relevant to its functions under any enactment, or

(b) for the purposes of the prudent management of its financial affairs''.

I just want to probe the word ''invest''. I used to think that I knew what it meant, but the Chancellor of the Exchequer has corrupted the word ''invest'', as has the Prime Minister.

Over the last five or six years, I have heard about the Government ''investing'' in nurses' pay, for example. Nurses' pay is a very worthy thing to spend money on, but by anyone's historic definition that was not an investment. An investment was the sinking of money into an asset that would yield a long-term return. In the good old days, that word would never have been used to refer to revenue spending, but the Chancellor and the Prime Minister have used the word differently over the last few years.

I therefore thought it important to ask the Under-Secretary to clarify what the relevant definition of ''invest'' is in clause 12. If it is the definition used by the Chancellor and the Prime Minister, the clause could be seen to be giving local authorities the power to ''invest'' in higher wages for their staff, for example, but I assume that that is not intended.

Chris Leslie (Labour, Shipley)

I shall not detain the Committee long: clause 12 is fairly self-explanatory. In the process of a cash flow and other normal business undertaken by a local authority, investing sums of money may be required, but oddly there is no explicit permissive power for that

currently. The clause changes that. Its purpose is to avoid doubt about the power of local authorities to invest. Guidance notes are likely to be issued to supplement that freedom, which we touch on later in the Bill. The Bill does not explicitly define the term ''invest'', because it should be interpreted in the normal sense. In other words, it means to place funds with a bank or others for safekeeping.

Philip Hammond (Conservative, Runnymede and Weybridge)

Has the Under-Secretary heard the Chancellor and the Prime Minister use the word ''invest'' repeatedly in a different context and with a different meaning? Does he understand why I and other members of the Committee are confused as a consequence?

Chris Leslie (Labour, Shipley)

I could never understand the confusion that enters into the hon. Gentleman's mind. I know what ''invest'' means and I believe that most people of a rational disposition do. I cannot necessarily vouch for the hon. Gentleman, but I hope that the clause is self-explanatory. It should stand part of the Bill.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to the Under-Secretary for his attempt at an explanation. Clearly, he thinks that no person of a rational disposition could ever be tempted to use the word ''invest'' in any other way than the way in which he understands it. I shall send the relevant extract from Hansard to the Chancellor of the Exchequer and ask him whether he has any comment to make. What the Under-Secretary has said is very helpful.

Question put and agreed to.

Clause 12 ordered to stand part of the Bill.

Clause 13 - Security for money borrowed etc

Philip Hammond (Conservative, Runnymede and Weybridge)

The clause asserts that

''a local authority may not mortgage or charge any of its property'',

thus continuing the principle that all local authority debt is deemed to be secured on the totality of the assets and revenue streams of the local authority. I am not suggesting that that is necessarily wrong, but we should challenge the thinking that lies behind the decision to perpetuate that system. I am sure that the Minister will say that that is the way that it has always been, but the fact that something has always been done in a certain way is not necessarily a good reason for continuing to do it in that way.

What analysis has the Minister's Department carried out of the impact on the total cost of borrowing of any change in the arrangements? For example, have proper studies been done to confirm that allowing local authorities to secure debt on specific assets would not reduce—indeed, would increase—the overall costs of borrowing to that authority?

The issue is the overall cost of borrowing. If local authorities go into the marketplace when they are in debt, rather than borrowing from the Public Works Loan Board, it is important to explore ways of making that debt less expensive. On the face of it, being able to

secure debt against real estate assets might make that debt less expensive. The freedom that the Government like to say they are giving local authorities to explore novel sources of lending is significantly curtailed by the inability to charge specific assets as security. Will the Minister therefore explain the logic behind the proposal?

The explanatory notes say that the clause enshrines the ''vital principle'' that local authority debts are secured by all their assets. It might have its uses and be convenient or expedient but it is not clear to me that it is a vital principle; the Minister must explain why it is.

Will the Minister confirm that the power in the clause to appoint receivers is the same power as in the current legislation with the exception of the threshold limit, which is raised, and rightly so? Will he also confirm that the powers of a receiver over the revenues and affairs of a local authority exactly reflect the existing legislation? If there are any changes, will he please tell the Committee?

Robert Syms (Conservative, Poole)

I, too, would like a further explanation of the clause. I presume that borrowing includes leasing. Usually, equipment such as a vehicle, fire engine or computer equipment is leased and if the amount due is not paid the equipment is simply recovered. That could not happen under the clause as the High Court would have to appoint a receiver if a sum of more than £10,000 were involved.

Like my hon. Friend, I question whether we should proceed on that basis as it would make it difficult for authorities to put bonds into the marketplace. Bonds sometimes have a preferential position in the credit arrangements, which gives local authorities an opportunity to launch a bond for a specific, perhaps limited, purpose. For example, the Greater London Authority discussed whether a better way of organising the affairs of the London Underground would be to have a bond and a public corporation, which would be secured against Underground income. Under the clause, it would be secured against the income from people in the London charging area.

I am feeling my way in the matter and I should like a little more explanation from the Minister. Does the proposal include leasing? What impact would it have on local authorities that wanted to launch bonds? What would happen if a local authority such as Bristol decided that it wanted to raise money for a tram scheme? Is it implicit in the clause that the risk would be wholly on the council tax payers in the area or could that be ring-fenced against the income or assets of the enterprise?

What the clause proposes may be a good thing but I want clarification about whether it is a liberating or a constraining part of the Bill.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I have some sympathy with the comments made in the debate. As the Government move towards a prudential capital regime there may well be a corollary in due course, if they allow local authorities greater freedom to decide how they secure their debt. I do not wish to propose that as a policy initiative, but I should like the Minister's assurance

that the Government will follow the logic of their new freedoms on the capital regime, examine that issue and report on it to the House. Will he also assure the Committee that the Government will carry out the studies that the hon. Member for Runnymede and Weybridge suggested should already have been carried out—I doubt that they have been—and report back to the House on the results? Finally, will he assure the Committee, the House and local authorities that the Government will keep the matter under review?

Chris Leslie (Labour, Shipley)

Most hon. Members will now be clear that the clause is closely linked to clause 6 in terms of providing a safeguard to lenders. Clause 13 is even more important in that respect: it ensures that local authorities may not offer their property as security for loans.

The hon. Members for Runnymede and Weybridge and for Kingston and Surbiton asked what specific review we had undertaken to re-examine the fundamental principles in this area. We have not commissioned any studies or any accountants to do so. However, during the establishment of the prudential regime and in re-examining fundamentally the principles that underpin the capital expenditure and borrowing rules Ministers, including myself, came to the conclusion that this principle should be continued, for good, long-established reasons.

Philip Hammond (Conservative, Runnymede and Weybridge)

Does the Minister accept that what were good, long-established reasons may no longer be good, given that the Government are explicitly encouraging local authorities to explore other avenues of borrowing, and to move beyond the Public Works Loan Board?

Chris Leslie (Labour, Shipley)

I realise that the hon. Gentleman is attempting to be innovative by seeking to allow local authorities to borrow more widely. I was about to comment on the reasons why I believe that the provision should continue. One of the main reasons is that borrowing against a specific asset is usually more expensive than borrowing through the Public Works Loan Board. It is also a less secure method of raising resources. I accept that we could have a debate about that.

The provision came into being, and will be continued, because of the principle that the essential assets of a local authority could be exposed to a high level of potential risk if borrowing was secured against particular assets. It would not be sensible for those essential assets to be put at risk in such circumstances.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister has just asserted that borrowing from the Public Works Loan Board will always be cheaper than borrowing from the marketplace secured against a specific asset. That was the purpose of the debate—to ask the Minister whether that assertion is based on a well-founded position that he has properly tested, or whether he is reciting a prejudice or a belief, without any rigorous analysis behind it.

Chris Leslie (Labour, Shipley)

No. The experience so far invariably suggests that the cost of borrowing through the Public Works Loan Board is cheaper than mortgaging and other forms of borrowing. As I said earlier, it would be possible to debate that whole issue. However, we came

to the conclusion that, given some of the essential facilities and property owned by local authorities, whether they be care homes or the town hall, it would not be a sensible use of those assets to use them as security for a loan, and risk their being taken away. That is why we view it as necessary to continue that prohibition.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Some of us may have some sympathy with the remarks that the Minister has just made. The Government are exploring new ways for the public sector to raise money on the markets through the private finance initiative. In many respects that is quite a sensible approach so it seems odd that the Minister resists our suggestions. The Government should examine whether there are other options. They should learn from the experience of the PFI and the experience in other countries where local authorities and lower tiers of Government have the freedoms that would apply if this clause did not go through.

Chris Leslie (Labour, Shipley)

I stand by the comments that I have already made. Local authorities must ensure that certain activities and properties are not exposed to risk. They can already obtain good and competitive forms of capital.

Philip Hammond (Conservative, Runnymede and Weybridge)

I understand the Minister's point, but the key point is that an asset is not at risk unless one defaults on loan payments. What is the current lending rate of the Public Works Loan Board? The Minister tells us that it is invariably cheaper. Perhaps we can test that against our experience of what is available in the marketplace.

Chris Leslie (Labour, Shipley)

I cannot give the hon. Gentleman chapter and verse about the various rates and offers from the PWLB off the top of my head. I believe that it is usually cheaper. It can pass on those benefits to authorities. If another borrowing opportunity came along that was cheaper than the PWLB the local authority could take it, but it could not necessarily secure it on particular property. The charge would be on the revenues across the authority. That would be the safest and most prudent way to secure that form of borrowing. There is still a great deal of freedom here, but we have to enshrine a certain measure of protection for local people who need and enjoy those essential assets.

Kali Mountford (Labour, Colne Valley)

Does my hon. Friend recall the case of Allerdale, where the borrowing was against a particular asset? When that deal collapsed because the borrowing was outside the scope of the asset that it was borrowed against, it affected all local authority borrowing for a good 10 years afterwards. The rate of local authority borrowing against assets doubled for that period.

Chris Leslie (Labour, Shipley)

There are good grounds for having our rules and statutes, not least in case history probably before my time in this place. I understand that the case of Allerdale involved giving an unlawful guarantee on the loan that was undertaken. It was not specifically an issue that affected the borrowing in a more general sense. It is important to have this principle because certain essential local authority services and properties should not be exposed to the risk of a default. The

opportunities for borrowing in the normal processes with this rule continuing are the safest to protect the interests of local people.

Philip Hammond (Conservative, Runnymede and Weybridge)

I suspect that if local authorities test the marketplace they might find that it is difficult for them to borrow in the way that suits them best if they cannot do it secured on a specific asset when they are borrowing for the project. They will not be able to project finance on it. Would the Minister undertake to find out what the current rate offered by the PWLB to local authorities is and to let members of the Committee know? Normally, when the Minister says that he does not know something, the cavalry come charging in and a few minutes later his memory improves and he is able to answer. If he could give us that information, we could form our own judgment about whether he is correct, and it will invariably be cheaper than what is available from the private sector.

Chris Leslie (Labour, Shipley)

Yes, I can certainly provide a note to the hon. Gentleman and to other members of the Committee on the exciting topic of the rate that the Public Works Loan Board offers.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I should like to challenge the Minister's assertion that the rate and terms available from the Public Works Loan Board are always and invariably cheaper. The national Fire Service College is in my constituency. It is locked into a 20-year loan with the PWLB at rates in double figures, which causes it considerable embarrassment. How does that contrast with the Minister's statement?

Chris Leslie (Labour, Shipley)

I do not know whether the position would be any better if the loan was secured on a particular fire station or property, which would give a certain amount of risk exposure to that essential facility. I would question the sense of securing that borrowing against an essential asset.

I will provide the note on the PWLB rate. The hon. Member for Runnymede and Weybridge asked whether the receiver powers would be the same as at present. They will be, although there is a change to the threshold so that the default powers cannot be triggered if the debt is below £10,000. The present threshold is £5,000.

The hon. Member for Poole (Mr. Syms) asked whether bonds would be affected. They will not be affected by the clause, which relates only to borrowing. It does not prevent the use of bonds to raise cash, but it means that they would have to be secured on all the local authority's revenues. I hope that that answers his question, but I do not think that it does.

Robert Syms (Conservative, Poole)

May I ask for clarification of the phrase,

''indifferently on all the revenues of the authority''?

Does it mean that if an authority owed an amount to a bank, it would have to repay it by charging across the whole range of its charges—rents and everything else—so that council tenants and everyone else would have to pay a contribution? In other words, the authority would have no choice and the repayments would fall not only on the council tax payer but also on people from whom it might be taking rents. I am trying to get at the meaning of the

term ''indifferent''. Does it mean that the authority cannot discriminate?

Chris Leslie (Labour, Shipley)

All borrowing is to be charged indifferently on all revenues of the authority. That means that in the event of a default on a loan—which, incidentally, has never happened—the lender could look at the entire revenue stream of the authority for reimbursement. I hope that that answers hon. Members' questions and that the clause can stand part of the Bill.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clause 14 - Information

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I beg to move amendment No. 64, in

clause 14, page 6, line 19, after 'may', insert 'reasonably'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss amendment No. 65, in

clause 14, page 6, line 19, at end add

'and may charge the Secretary of State for the cost of providing that information.'.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I do not want to detain the Committee for too long on this group, but hon. Members may like to consult clause 14. It is very short—possibly the shortest clause in the Bill. It allows the Secretary of State to demand that a local authority supply him with information on a time scale set down by him. There are no ifs or buts; it is a clear new power and the Minister can demand such information almost irrespective of the cost or difficulty that it might impose on a local authority.

Our amendments Nos. 64 and 65 attempt not to get rid of the power but to curtail it a little. Amendment No. 64 seeks to add the word ''reasonably'', so that the Secretary of State ''may reasonably request''. I hope that the Minister will agree with it; I am sure that he would not want unreasonably to request information from a local authority. It is a slight protection for local authorities so that the Minister—not this Minister, but a future Minister—may not suddenly wake up one day and decide to ask every single council in the country to provide a huge amount of information by the following week. We want to guard against such possibilities.

Paul Goodman (Conservative, Wycombe)

If I understand the hon. Gentleman correctly, he said that the time scale would be determined by the Minister. That does not appear to be in the Bill, so will the hon. Gentleman explain how he draws that conclusion from the clause?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I may have misread the clause, but I was referring to the words ''at such time'' in line 18. I was concerned about it and tabled amendment No. 64 because the clause would place an onerous potential burden on local authority officers if they could go into the office one day and find a fax or an e-mail from Whitehall saying that it wanted all the information by tomorrow. I do not suggest that that is what the Minister will do, but the provision seems odd as it goes

in the opposite direction to the Government's new regime, which will take regulations and reporting duties from local authorities. I hope that the Minister will accept amendment No. 64.

The hon. Gentleman will probably not accept amendment No. 65, which would allow local authorities to charge the Secretary of State for the cost of providing the information. I wanted to draw attention to the fact that providing information comes at the cost of office time directed from other things, such as providing and managing front-line services. If the Government are to ask for even more information from local authorities than they already have, they need to be reminded of the cost.

Local authorities want amendment No. 65 and if the Minister accepts it I shall be delighted. It would put a little control on Ministers' whims in wanting to find out everything that goes on in a local authority. I hope that the Minister understands the spirit in which the amendments were tabled and I am optimistic that he might agree to amendment No. 64.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am delighted to serve under your chairmanship, Mr. Griffiths. For the avoidance of doubt, I explain to the Committee that I have not been present so far because I have been leading for the Opposition on the Planning and Compulsory Purchase Bill Committee. We did not manage to persuade the Government to accept any of our amendments, including the correction of spelling mistakes, and I hope we will do better in this Committee. I look forward to debating matters with both Ministers and with the hon. Member for Kingston and Surbiton in a spirit of co-operation.

I start by declaring that I am a fellow of the Royal Institution of Chartered Surveyors and have various property interests outlined in the Register of Members' Interests.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Could the hon. Gentleman tell us about the Government's spelling?

Geoffrey Clifton-Brown (Conservative, Cotswold)

The odd words ''complusory'' and ''satinsfactory'' appeared in the Planning and Compulsory Purchase Bill. The Minister would not accept the Liberal Democrat amendment because he could not be sure that there were not other spelling mistakes. He had to send his team away to examine the whole Bill in detail to ensure that all the spelling mistakes had been spotted.

David Curry (Conservative, Skipton and Ripon)

Will my hon. Friend give way?

Win Griffiths (Labour, Bridgend)

Order. This line of inquiry about another Bill has been pursued far enough. I am sure that members of the Committee will want to take copies of the Bill back to their rooms this afternoon and check the spelling mistakes.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Thank you, Mr. Griffiths. I give way to my hon. Friend.

David Curry (Conservative, Skipton and Ripon)

It would be entirely consistent with the Liberal Democrats to be in favour of different spelling in different parts of the Bill. [Laughter.]

Geoffrey Clifton-Brown (Conservative, Cotswold)

The point has been made. I have not come across any spelling mistakes so far in

this clause, but it is only three lines long. I am sure that there will be scope for that in the rest of the Bill.

I hope that, in the spirit in which he introduced them, the hon. Member for Kingston and Surbiton will not press the amendments to a vote. I am sure that they are only probing amendments, and it is pertinent to probe this point. As I understand it, if a court were asked to interpret the clause, the Minister would have to demonstrate that he was acting reasonably in any case, but it would be useful to have that on the record.

With regard to charging for the cost of providing the information, I hope that the Government will not accept that amendment. If the Secretary of State were charged for information, presumably he would want to charge the local authority when providing information. The bureaucratic mechanism whereby charging would be introduced would be an unnecessary burden on top of the cost to council tax payers.

I also want to ask the Liberal Democrats, tongue in cheek, how they would apply the mechanism where they were in control of district councils in England. They also have a controlling interest in the Scottish Parliament and a major interest in the Welsh Assembly. How would they react if the boot were on the other foot? No doubt the Liberal Democrats, who always face both ways at the same time, will have an answer to that question.

In the spirit of these probing amendments, let me say that this is a simple clause, and I hope that we can move on fairly quickly.

Chris Leslie (Labour, Shipley)

I, too, hope that we can move on fairly quickly. I welcome the hon. Member for Cotswold to his rightful place in the Committee. He has already served a useful purpose by demolishing the arguments on the amendments advanced by the hon. Member for Kingston and Surbiton.

I can confirm that the Government will act reasonably, as we always do, in respect of any request for information. If we did not, it would be open to challenge. It would not be right for councils to be able to charge the Secretary of State for the cost of providing information. That would not only be bureaucratic, but would not make sense, not least because the Government do not charge local authorities when they request information. In addition, there would be no limit on the charge by the local authority.

I imagine that if a local authority wants a grant or other support from central Government, it will reasonably want to supply the relevant information, such as data on pupil numbers and normal formula grant reviews. If it did not provide that data, it would be hard to see how it could receive any grant, so the amendment simply makes no sense.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Even given the spirit in which I moved the amendment, I think that the Under-Secretary is going slightly over the top. For the record, will he ensure that when his Department makes requests of local authorities, it is mindful of the costs that it imposes on them in making those requests?

Chris Leslie (Labour, Shipley)

I not only confirm that, but go further by saying that we are already, through some of the extra freedoms and flexibilities that we have announced, relieving a significant burden on local authorities by reducing the number of submissions that they are required to make to central Government. I am not just saying that; it is already happening in practice. The clause is reasonable, and I hope that hon. Members will support it.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I, too, welcome the hon. Member for Cotswold. I have served on Committees with him before and it has always been a pleasure.

These are indeed probing amendments and they have been useful, because the Minister has said on the record that the Government will not make requests unreasonably, but that if they do, local authorities can challenge the requests. He has also said that the Government do not intend to use the power willy-nilly and that they will think about the costs that they impose on local authorities. It is good that we have got that on the record. We will hold the Government to account when they use the powers. If, over time, we see the powers being abused, the House may need to return to the matter. Through the usual channels and with local government, we will be watching. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 ordered to stand part of the Bill.

Clause 15 - Guidance

Geoffrey Clifton-Brown (Conservative, Cotswold)

I beg to move amendment No. 42, in

clause 15, page 6, line 24, leave out from beginning to end of line 26 and add,

'to such guidance as the Secretary of State may by regulations specify for the purposes of this provision, whether or not issued by him.'.

The amendment provides a good opportunity to probe the Minister's intention in relation to guidance and regulations. On the whole, the purist in me says that wherever possible legislation should be made by primary legislation, not by guidance or regulations and certainly not by directions, as we will see later in the Bill. More than half of all the legislation last year went through in the form of secondary legislation. There were more than 4,000 items, many of them completely undebated. A small part went through by negative procedure under a statutory instrument and received only cursory scrutiny. We, therefore, need to probe the Minister every time a Bill refers to regulations.

The Minister has been very courteous in producing draft regulations for the Bill in plenty of time for the Committee to debate them, unlike his colleague on the Planning and Compulsory Purchase Bill. However, I do not believe that we have had sight of any draft regulations on this clause. Perhaps the Under-Secretary can give us an idea of what he expects might be in such regulations. It will not have escaped the notice of the Committee that there is a difference between subsections (a) and (b). Whereas subsection (a) refers to

''such guidance as the Secretary of State may issue'',

subsection (b) refers to

''such other guidance as the Secretary of State may by regulations specify for the purposes of this provision.''

There is a difference. Under one subsection the Secretary of State can issue guidance such as he sees fit, in the other it has to be by regulations which presumably must go through this House and receive some scrutiny.

I understand from my hon. Friend the Member for Runnymede and Weybridge that in the Regional Assemblies (Preparations) Bill the Minister accepted and made directions subject to scrutiny, in other words subject to regulations. It would be useful to probe the Government's consistency as to how they intend to draw up the guidance and whether it is by regulations. I do not quite see why the entire paragraph should not be by regulations but it would be interesting to know the Under-Secretary's thinking on this matter.

Chris Leslie (Labour, Shipley)

The amendment would significantly change the clause, which first requires local authorities to have regard to any guidance issued by the Secretary of State. We are thinking of using that power to give clear and simple guidance on prudent investment practice. Secondly, it requires authorities to have regard to guidance issued by other bodies and specified in regulations under the clause. Regulation 18 of the draft regulations indicates that we intend to specify the treasury management code published by CIPFA, which is already widely adopted by local authorities.

Unfortunately, the amendment would require all guidance to be specified in regulations, including any issued by the Secretary of State. That would be an extremely unusual approach. Guidance is one thing, but it is not the same as a direction. It simply requires authorities to have regard to a particular policy. To have that aspect always enshrined formally in regulations would be excessive. The Housing Act 1996, which was brought in by the previous Administration, contained powers to issue guidance by regulation. This is not abnormal. I hope that, in those circumstances, the hon. Gentleman will reconsider and withdraw the amendment.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Minister's explanation is helpful. I seek one further assurance before urging my colleagues to ask the Committee for its approval to withdraw the amendment.

With regard to the guidance, particularly the CIPFA code on prudential borrowing, will the Minister confirm that it would be the normal practice of the Department, when changing the guidance, to consult widely, particularly with CIPFA and the other main bodies involved?

Chris Leslie (Labour, Shipley)

Certainly, in the normal course of our business we are keen to consult when we make changes to guidance. With regard to the specific provisions to which I have already referred, including the code produced by CIPFA, it would be slightly awkward for us to consult on changes that CIPFA proposed to make to its own code. However, I accept the spirit of

consultation that the hon. Gentleman seeks, and we shall endeavour to do that as best we can.

Geoffrey Clifton-Brown (Conservative, Cotswold)

After that short debate, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 15 ordered to stand part of the Bill.

Clause 16 - Capital expenditure

Geoffrey Clifton-Brown (Conservative, Cotswold)

I beg to move amendment No. 43, in

clause 16, page 6, line 30, leave out 'proper practices' and insert 'Generally Accepted Accounting Practices.'.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following amendments:

No. 78, in

clause 16, page 6, line 31, leave out subsection (2) and add—

'(2) The Secretary of State may request the Chartered Institute of Public Finance and Accountancy or the Comptroller and Auditor General at any time to provide guidelines and advice on what expenditure of local authorities shall be treated for the purposes of this Chapter as being, or not being, capital expenditure, and shall lay any such guidelines or advice so received before Parliament.

(3) The Secretary of State may direct a local authority to follow any guidelines and advice laid before Parliament under subsection (1)'.

No. 44, in

clause 16, page 6, line 35, leave out from beginning to end of line 37.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Amendment No. 43 seeks to probe what the Minister means by ''proper practices''. ''Generally Accepted Accounting Practices'' is a well-known term, and I would like to know why the phrase ''proper practices'' has been included in the provision.

I do not intend to address amendment No. 78, as that was tabled by the Liberal Democrats.

Amendment No. 44 would remove the power of the Secretary of State to, by direction, treat the expenditure of a particular authority as being capital expenditure or not. If that power is retained, black could be white, and there would be no scrutiny or direction. That contrasts with the provision for all local authorities in subsection (2)(a), which operates by regulation and is subject to parliamentary scrutiny. Will the Minister explain the reasons for that difference, because that would help us to decide whether to push amendment No. 44 to a vote?

John Pugh (Liberal Democrat, Southport)

I am rapidly forming the view that the Local Government Bill should be renamed the Local Government (Hackney) Bill, because there seems to be a sort of pattern running through it, in which the apparent granting of freedoms is followed by a process of gradual retraction during consideration of the detail of the Bill. Several times, the Secretary of State seems to have reserved powers that he has given away at an earlier stage.

In this case, the Secretary of State has absolute discretion, and amendment No. 78 seeks to fetter that discretion. The amendment asks him to ask CIPFA to provide guidelines, so that he is not free to define black as white or white as black.

I am forming a view about the genesis of the Bill. I think that what happened was that the Minister met someone like Sir Jeremy Beecham at a conference and that they agreed a new concordat for local government that would end the decades of friction and factions that have existed between local and central Government. While the Minister was going through the details of the new piece of legislation that he had in mind, there was some Sir Humphrey character who, the moment any clause came forward, shouted, ''What about Hackney?'' and suggested a solution which, while apparently dealing with an exceptional case, none the less took away all freedom that existed for local authorities in the legislation.

If that is the case, that will mean the Minister having to go back to local government and the guileless Sir Jeremy Beecham to explain how things will run. That conversation will require trust, and I am sure that it will not draw attention to the letter of the law but to the spirit in which it is moved and presented. We are all prepared to trust the Minister to some extent, but this regulation appears to put into the hands of any successor an enormous power to take away most of the freedom initially granted. Therefore, I suggest that he fetters that power a little in the letter of law by accepting amendment No. 78.

Chris Leslie (Labour, Shipley)

I understand the normal cry from the Liberal Democrat Benches against regulations, which is echoed by the Conservatives, but it might be a tad overdone in this case given that we are talking simply about the definition of capital expenditure. However, I shall try to address each amendment.

Amendment No. 43 relates to the definition of capital expenditure. It would make the starting point what is known as the generally accepted accounting practice rather than the proper practice terminology that we have used in the clause. We will come in clause 21 to talk about proper practice in more detail, but we have already covered the issue of how we define proper practices when debating clause 7 on credit arrangements, as members may recall. I refer the hon. Gentleman to that part of the record.

There has been a general movement over recent years to bring public sector accounting close to GAAP in the private sector, but local government has its own well-established route to accounting practices, summed up in the phrase ''proper practices''. The main element of proper practices is an accounting code of practice produced jointly by CIPFA and the Local Authority (Scotland) Accounting Advisory Committee. This requires endorsement by the Accounting Standards Board, and the ASB will permit the code to diverge from generally accepted accounting practices only if the divergence is required by statute.

This follows the model in central Government, where the Government Resources and Accounts Act 2000 acknowledges that generally accepted accounting practice as it applies to resource accounts will be subject to modification. The Government's view is that the current framework for local authority accounting set out in clause 21 should continue. We particularly

value the independent role of the accounting institutes in this framework. It would be anomalous to import a definition from generally accepted accounting practices into this clause when the circumstances in which local authorities should capitalise expenditure in exceptional cases are set out in proper practices, in particular in the accounting code of practice. I hope that that goes some way to explaining our reasons for following that phrase in this regard.

Amendment No. 78 would remove clause 16(2), which provides the power to vary the definition of capital expenditure by regulations or directions. Instead of being able to make regulations under 16(2)(a), the Secretary of State would merely be able to ask CIPFA or the Comptroller and Auditor General to prepare guidelines about what should and should not count as capital expenditure. Having laid such guidelines before Parliament, the Secretary of State would be able to direct authorities to follow them.

In the draft regulations seen by the Committee regulation 19 makes clear the importance of the regulation-making power proposed in the Bill. For example, we want to continue to allow authorities the flexibility to treat computer software development costs as capital expenditure. A similar provision exists under the present system, which we believe anticipates likely developments in standard accounting practices.

We also want to ensure that when making loans and grants towards capital expenditure by other bodies, authorities may draw on their own capital resources. That freedom exists under present legislation and seems a sensible modification of accounting practice, since authorities are in effect undertaking capital expenditure by proxy.

The use of regulations is in our view the most effective way of adapting the accounting concept of capital expenditure to respond sensitively to the special needs of local government as a whole. Such regulations would of course always be the subject of full consultation with the local authority associations, individual authorities, CIPFA and the Audit Commission before being formally laid before Parliament. The curious arrangement suggested by the amendment offers few benefits.

Amendment No. 78 would remove the power in clause 16(2)(b) for the Secretary of State to issue directions to individual authorities turning revenue expenditure into capital. Amendment No. 44 would have the same effect.

The direction-making power is merely a continuation of one that we already have, which is much appreciated by the local government community. We have used the power, for example, to help authorities to cope with substantial redundancy costs and pension fund deficits that would have otherwise have been unaffordable. The power was introduced in 1990 by a previous Administration, who used it extensively in much the same way as we have since. Under the new system, the power will be exercised as now, which means that we could continue to issue capitalisation directions only in exceptional cases.

I hope that, in the light of those explanations, the hon. Member for Cotswold will withdraw the amendment.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am glad that my hon. Friend the Member for Runnymede and Weybridge drafted the amendments. I partially accept the Minister's explanation on clause 43, but it should be the general thrust that public sector organisations should, as far as possible, conform to the accounting practices in the private sector. After all, that is where risks are taken and innovation takes place. I cannot for the life of me see why the same prudent accounting practices as apply in private practice should not apply to the public sector. Be that as it may. The Minister has given an explanation.

Having heard that explanation, however, I now have some sympathy with the Liberal amendment No. 78, because it seems to me that clause 16(2)(b) could be used perniciously and unfairly. I do not see why a direction should be made to ''a particular local authority'' as to a class of local authorities with a particular asset.

The Minister referred to draft regulation 19(a) on computer software. It would be perfectly reasonable to make a direction to say that all computer software should be capitalised, but it would be unfair on an individual local authority to say that their particular leasing scheme had to be classed not as a revenue item, but as a capital item. It would be perfectly reasonable to issue a regulation to say that such leasing schemes should be capitalised or not across all local authorities.

Chris Leslie (Labour, Shipley)

Let me assist the hon. Gentleman. I am sure that he can foresee circumstances in which a direction may be required to aid a local authority in its definition of capital expenditure, if it needed to capitalise some of its revenue and ensure that it was able to cover unforeseen costs. I think that in 1996, a previous Administration used the powers to direct to

allow capitalisation in Plymouth for £175,000 and in Thurrock for £423,000.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I accept what the Minister says, but in general it would be unfair to use the powers in relation to a particular local authority in a particular way. Doing that on a general class of assets would be a fairer way to proceed. However, I accept that the power may be needed in exceptional circumstances, so having probed the matter, I beg to ask leave to withdraw the amendment.

John Pugh (Liberal Democrat, Southport)

I accept that the Minister has made valid points, particularly about computer software, on which we will have to reflect. What he has not done very well is counter the accusation that the framing of the words gives the Minister the power to be whimsical.

The phrase ''a particular local authority'' is a poor one. If particular circumstances prevail in one local authority, they may be replicated in a subsequent authority and therefore can be formulated in a general rule. There is a distinction between offering a particular authority advice on what the rules are and clarifying its position, and making exceptions or including an authority unnecessarily simply because it happens to be in the Government's firing line.

That reinforces my point that this is really the Local Government (Hackney) Bill, because the Government seem to have left themselves the possibility of referring to external rules, but with absolute unfettered discretion. Will the Minister explain in what sense the discretion of the Secretary of State will be limited?

Chris Leslie (Labour, Shipley)

The hon. Gentleman says that he wants to prevent the powers from being used in a whimsical fashion.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Standing Committee A

Clause 16 - ''Capital expenditure''

Derek Conway (Conservative, Old Bexley and Sidcup)

I remind the Committee that with this we are discussing the following amendments:

No. 78, in

clause 16, page 6, line 31, leave out subsection (2) and add—

'(2) The Secretary of State may request the Chartered Institute of Public Finance and Accountancy or the Comptroller and Auditor General at any time to provide guidelines and advice on what expenditure of local authorities shall be treated for the purposes of this Chapter as being, or not being, capital expenditure, and shall lay any such guidelines or advice so received before Parliament.

(3) The Secretary of State may direct a local authority to follow any guidelines and advice laid before Parliament under subsection (1)'.

No. 44, in

clause 16, page 6, line 35, leave out from beginning to end of line 37.

When we adjourned for lunch the hon. Member for Southport (Dr. Pugh) had the Floor but the Under-Secretary was intervening. Had the hon. Gentleman completed his intervention?

Chris Leslie (Labour, Shipley)

It would not be right to make a long intervention so I shall allow the hon. Gentleman continue. I will follow up my point when he sits down.

John Pugh (Liberal Democrat, Southport)

The Under-Secretary made a case for discretion with regard to capital expenditure and we accept that. However, we are trying to find out whether that discretion is fettered or controlled. I think he said that he will consult before varying definitions of what capital expenditure may or may not be, and that is an option for him. We are pressing him to bind himself to consultation so that when he comes up with a definition of capital expenditure it will command wholesale respect. For example, let us take the case of a local authority that decides to buy shares in its local airport. It defines that as capital expenditure and decides to use headroom under capital expenditure limits in order to accommodate it. Is it an option for the Under-Secretary to say, arbitrarily, that it will not count as capital expenditure but as something else? If it is not an option for him and he cannot act in such an arbitrary way, what in the Bill prevents him doing so? I want to press the Under-Secretary on that point.

Chris Leslie (Labour, Shipley)

We finished the previous sitting on the concept of whimsicality and whether a Minister was fettered in using his discretion over the issuing of a direction on the definition of capital expenditure. In my earlier intervention I tried to explain that there was a limit to what Ministers can do. Ministers cannot exercise their powers unreasonably under the normal understanding of that concept. It goes back to something called the Wednesbury principle in the 1930s, with which I am sure he is familiar. Ministers must act reasonably or they are subject to a challenge. There will be full consultation in the normal way. Some of these directions are not impositions on the authority concerned; often, they can be requested by the authority concerned in the case of capitalisation. I am not entirely clear about the specific example that the hon. Gentleman posits about what would happen in the case of purchasing shares in an airport, as I do not have the information on such circumstances to hand. However, my understanding is that directions to change would be in exceptional circumstances and I hope that the hon. Gentleman will accept that assurance as sufficient in this case.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am pleased to serve under your chairmanship, Mr. Conway. As I explained to your co-Chairman this morning, I have arrived fresh from the Planning and Compulsory Purchase Bill Committee, which is why I have not attended this Committee before.

Before I speak to the amendment I want to raise a matter of housekeeping, Mr. Conway. I arrived this morning to find the Committee embroiled in political controversy over the matter of pooling capital receipts. I was not able to find out what had been said on the matter in a previous Committee because the Hansard report was not ready. I do not attach any blame to the individual Hansard reporters, as it is not a matter for them. However, if the Government are scheduling so many Committees at one time that the Hansard report of the previous sitting is not available in time for the next sitting, how can the Committees do their job properly and scrutinise what the Government say? We needed to check what the Minister said to see whether we needed to query it any further. We have a real difficulty here Mr. Conway. It may not be within your control, but I would be grateful if you could pass on our feelings about this to the relevant House authorities.

Derek Conway (Conservative, Old Bexley and Sidcup)

I am grateful to the hon. Member for that observation. The Hansard reporters, who serve us extraordinarily diligently and with great accuracy, are manning a number of Committees at the moment. This time of year is always difficult. I will ensure that the hon. Gentleman's observations are drawn to the attention of the Editor of the Official Report to see whether something can be done. Perhaps a draft could be made available, if not the final printed version. The point that the hon. Gentleman makes is clearly a reasonable one for the Official Report to consider.

Geoffrey Clifton-Brown (Conservative, Cotswold)

If we are in the middle of debating a clause, perhaps that section of Hansard relating to that particular clause could be made available.

Derek Conway (Conservative, Old Bexley and Sidcup)

That is not an unreasonable request when the Committee is discussing the same item of business over two sittings that are not on the same day. I shall ensure that that message is conveyed.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Thank you for your helpful guidance, Mr. Conway.

The Minister has explained that the powers in the clause would be used only sparingly and in exceptional circumstances. While I do not entirely agree with the rather arbitrary nature of these directions, I would rather see more laid out in regulation. We are moving far too far from proper scrutiny in this House, not only of primary legislation, but secondary legislation by regulation. We seem to be getting to a tertiary type of direction that is under nobody's scrutiny except that of the Secretary of State. We will get into some pretty arbitrary territory, which is desirable neither from the individual local authority that has to interpret those directions, nor from the Secretary of State's point of view. He may consider something perfectly reasonable when in practice, because no consultation has taken place, it might turn out to be nonsensical. With those cautionary remarks, I think that we have explored the amendment for the time being. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 16 ordered to stand part of the Bill.

Clause 17 - External funds

Robert Syms (Conservative, Poole)

The explanatory notes make it clear that the clause deals with local authority pension funds, and there is a separate regime for dealing with that. Subsection (1)(b) says that a local authority can borrow from a pension fund on a temporary basis. Could the Minister say a little more about that because I did not appreciate that local authorities could borrow from their pension funds? Could he define ''temporary''? Is it days, weeks or months? For what purpose would a local authority borrow from its pension fund?

Desmond Swayne (Conservative, New Forest West)

Before my hon. Friend concludes, may I, through him, ask the Minister to tell us how much this is practised at the moment? What order of funds is borrowed in this way?

Robert Syms (Conservative, Poole)

This is a small point. The Minister may wish to write to members of the Committee to set out the situation. I would be generally interested to see how often it occurs. Is it purely a housekeeping measure or is there a general application? The subsection reads:

''the temporary use by a local authority of money forming part of an external fund, if not for a purpose of the fund, shall be treated as borrowing by the authority''.

How often is money borrowed from pension funds and how is ''temporary'' defined?

John Pugh (Liberal Democrat, Southport)

I should like some clarification about the phrase ''external fund''. I am familiar with arrangements where local authorities act as trustees for organisations working in the regeneration and

renewal area. In effect they are not simply trustees but co-funders of a scheme. When I initially read the clause I thought that the phrase ''external fund'' embraced such factors. I now understand that it does not and that it is meant exclusively to embrace pension funds and the like. But the definition of external funds seems inexact, or in fact unformulated, in the legislation. Will the Minister consider the necessity of tightening it to exclude other forms of external finance to local authorities?

Geoffrey Clifton-Brown (Conservative, Cotswold)

Members of the Committee who have spoken on the matter have raised some reasonable points. As I understand it, the purpose of the clause is to keep local authorities' superannuation funds' capital controls ''as now'', as it says in the explanatory notes. Perhaps the Minister will confirm that there is nothing new in the safeguards, unless in fact there is. My hon. Friend the Member for Poole (Mr. Syms) mentioned the problem of the superannuation fund borrowing from the local authority. I wonder whether he read, at clause 17(1)(c):

''entry into a credit arrangement by a local authority''.

It would be useful for the Committee to know whether these are normal arrangements and whether that has ever occurred.

Finally, will the Minister clarify what is meant in subsection (2)(b) by

''a trust fund of which the authority is a trustee''?

Is that a normal pension fund arrangement or does the provision envisage other arrangements that may be being used to get around current financial controls?

Andrew Turner (Conservative, Isle of Wight)

I wonder whether that provision also applies to funds such as charities of which the local authority may be a trustee. My local authority was the trustee for a property called Northwood house in Cowes. It reached the point of selling it before it discovered that it was a trustee and therefore not allowed to do so. Fortunately that situation was reversed, but this seems an opportunity to plunder all sorts of funds.

Geoffrey Clifton-Brown (Conservative, Cotswold)

My hon. Friend has opened up a Pandora's box. We are getting into the fiduciary role of a trustee. I wonder why or where it would occur that a local authority would be a trustee of anything, let alone that the superannuation fund would enter into a trust deed with another party. Perhaps the Minister could clarify that point and then we might return to it.

Chris Leslie (Labour, Shipley)

The questions came thick and fast. Opposition Members should read the clause in the context of chapter 1, which is about the prudential regime and the changes in the capital regime we are putting in place. Clause 17 deals with external funds—which I will come to in a moment—but simply preserves the existing arrangements under the present system.

The main example is pension funds, which will be treated outside the normal capital controls but governed by their own regulations and arrangements. Those funds are ring-fenced and subject to separate legislation. In response to the hon. Member for Cotswold (Mr. Clifton-Brown), the provision would also cover other funds such as charitable funds for

educational or recreational purposes or property held in trust for people in the care of authorities.

The clause ensures that transactions such as expenditure, borrowing and investment undertaken for the purposes of such funds are outside the scope of the provisions in chapter 1. The hon. Member for Poole asked me to clarify the meaning of ''temporary'' in subsection (1)(b). We covered a lot of that ground under clause 5 and the meaning is largely the same; in other words, the money would have to be repaid within the financial year.

The hon. Member for New Forest, West (Mr. Swayne) asked how much the temporary facility is used across the country. I cannot have that information to hand, not least because so many funds and authorities are concerned. I suspect that the answer could be discovered only at disproportionate cost, but I will ask officials to look further into the matter. If an answer is readily to hand I shall supply it to the hon. Gentleman in due course.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Minister has given a reasonable explanation of what the clause is about, but could he give the Committee some examples of where problems have arisen that have generated the need for the clause? Could he also tell us what the clause gives the Government extra powers to do that is not already enshrined in other regulations?

Chris Leslie (Labour, Shipley)

I can. The provision concerns the prudential borrowing regime that we are seeking to establish. In ensuring that a local authority is able to make its own assessment of how affordable its borrowing commitments are, we are saying that external funds and pension funds should not be classed as part of that, even though in their normal course of activities they would involve capital transactions. The clause concerns the normal affordability of capital and borrowing for a local authority. That is why the existing arrangements will continue in clause 17. The existing system works well and we want that to continue, so it is necessary for us to make that clear in the Bill.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

Clause 18 - Local authority companies etc

Geoffrey Clifton-Brown (Conservative, Cotswold)

Clause 18 concerns local authority companies. As on the previous clause, I seek clarification from the Minister. We are concerned to ensure that there are no possible loopholes that would give rise to misuse of public money. For example, no draft regulations under clause 18(4) have been published. Could the Minister tell us what those draft regulations might include?

Will the Minister also tell the Committee what borrowing safeguards there will be for local authority companies and whether local authorities can give shareholder guarantees to the companies? With what

auditing regime will the companies have to comply, and will they be subject to best value and comprehensive performance assessments? How will local authorities be protected from fraud in relation to those separate companies, and what other safeguards provided in the Bill will apply?

John Pugh (Liberal Democrat, Southport)

May I make a simple point about the clause? I tried reading subsection (1) several times before I managed to attribute any meaning to it. At first I thought it was tautologous, but eventually I worked out what it meant. It appears to say that the actions of a body covered under subsection (2) are to be treated for the purposes of the chapter as the acts of local authorities. However, it says that in a very cumbersome way, and would not pass a plain English test. Would the Minister consider re-drafting it in a more felicitous fashion?

Chris Leslie (Labour, Shipley)

I believe that subsection (1) is reasonably drafted. It simply says that the regulations would allow local authority company activities to be regarded as if they had been undertaken by the local authority itself, with regard to capital activities and borrowing, and in so far as they relate to the affordability test. The clause concerns local authority companies and defines—

John Pugh (Liberal Democrat, Southport)

That is indeed what it says, but I think it would be better, for the sake of clarity, to say it without using a sentence that includes the word ''regulations'' with three different functions.

Chris Leslie (Labour, Shipley)

I would prefer statute to be drafted in a certain way, but it is sometimes drafted in a repetitious manner so that it does not exclude any possibilities and avoids loopholes. That brings me to the point made by the hon. Member for Cotswold. The broad purpose of the clause is to preserve and continue the current system. The current system prevents local authorities evading capital controls by operating via companies, and that principle will be preserved in the new system,not only for the prudential limit, but for the national economic reasons limit, which we discussed under clauses 3 and 4.

The hon. Gentleman asked about borrowing safeguards, the auditing regime and protection from fraud. The company laws, including the Companies Act provisions, will apply to local authority companies just as they do to any other limited company. That law contains perfectly adequate protections relating to the auditing of accounts and other matters raised by the hon. Gentleman. Local authority companies do not need to be treated in the different way suggested.

It is important that, if a company is controlled by a local authority and has significant borrowing or significant liabilities, they can be classed and held together with those of the local authority, so that it can properly calculate its liabilities and be certain that it can afford to service the borrowing undertaken in respect of all its activities. That is the simple purpose of the clause. I hope that I have helped to answer some of the points that have been raised.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Under-Secretary has been helpful and given us a reasonable explanation. I therefore hope that my colleagues will support the clause standing part of the Bill.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 19 - Application to parish and community councils

Geoffrey Clifton-Brown (Conservative, Cotswold)

It may be worth having a canter round the powers and duties of parish councils. The Bill seems very much in line with Conservative policy in that the Government envisage a much bigger role for parish and community councils. It would be interesting to probe what the Under-Secretary envisages.

The clause gives parish councils very big powers, but that has been the case with all the clauses that we have debated. Clause 2(3) relates to control of borrowing. Clause 6 deals with protection of lenders. Clause 9 relates to capital receipts. Security for money borrowed is dealt with under clause 13. Guidance, inevitably, is dealt with under clause 15. Clause 17 is about external funds.

Clause 19 gives parish councils pretty significant powers. If we combine that with the powers and duties under clause 36, which relates to best value and parishes, we see that those bodies will perform a significant role. With all the increased borrowing powers, the Under-Secretary must envisage their performing significantly greater functions than they do at present. If they do perform greater functions, someone else, one hopes, is performing lesser functions. It would be interesting to know who is performing those.

One assumes that, all the way down the line, powers are being devolved. If we must have the regional bodies that we disapprove of, one hopes that they will delegate as many functions as possible down the line to subordinate councils—district, unitary and county councils. In turn, the Government are encouraging those councils—we approve of this—to devolve as many functions as possible to parish councils. One hopes that that is what is in the mind of the Under-Secretary, but also that the parish councils will be subject to as light a touch as possible.

We will debate best value and other issues, but the Government have loaded a number of requirements on to parish councils in respect of auditing, disclosure and so on. I do not know whether other members of the Committee have had this experience, but we are finding that parish councillors are standing down because of those onerous requirements. Surely we want to encourage as many people as possible to take up their civic duties and become councillors. The tradition was that parish councils were not a particularly burdensome office and that everyone from the spectrum of the community was encouraged to stand for them. If we make the post too burdensome we will simply turn parish councils into mini district councils, and then what will be the point of having this extra tier of local government? This is a circular argument and I simply probe the Minister on the matter.

Andrew Turner (Conservative, Isle of Wight)

I am pleased to support my hon. Friend with regard to the burdens on parish councils. Like him I support the devolution of more responsibilities to parish councils, but it has to be done on a fair and honest basis. One of the criticisms that I have received is that parish councils are given additional responsibilities by their district or county councils for matters for which the county or district councils may have equal responsibility—for example, grass-cutting in churchyards and along the sides of roads is a responsibility that can be exercised by county or district councils and also by parish councils—but some local authorities do not give parish councils sufficient warning of their intention to pull out of this activity.

My parish council provides such an example. Before the beginning of the current financial year, parish and town councils set their precepts and budgets. My parish council did not require any money for grass-cutting because until that point the Isle of Wight county council had undertaken it. But the county council later in its own budget-making process provided insufficient resources—that is the term they always use—for grass-cutting in parished areas, although it continued to cut the grass in unparished areas. So a very small parish council with a small budget found itself having to pick up responsibility for keeping its verges and churchyards tidy.

Greater involvement and a more effective process of consultation are required between county or district councils and parish or town councils. I am not suggesting that the Government should legislate on or regulate these factors because any well-intentioned and well-run county or district council should pursue them as a matter of course. As hon. Members have suggested on other clauses, if we are not satisfied with the way in which our county or district councils behave—this applies also to parish councils—we have the opportunity to chuck the blighters out.

My hon. Friend the Member for Cotswold referred also to the snoopers charter created by the Government through the standards board. It requires parish councillors to provide a huge amount of information about their activities, possessions, friends and shareholdings, despite the fact that such information has no bearing whatever on their performance as parish councillors.

I give an example from the Daily Telegraph on 13 January this year. Chris Garner of Kings Langley in Hertfordshire is one of a huge number of parish councillors who have chosen to resign or retire or, in his case, not to sign the snoopers charter, and who have been disciplined by the standards board for England as a result of the charter set up by the Government under the Local Government Act 2000.

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. The hon. Gentleman makes an interesting point, but it would be helpful to the Chairman if he could relate the snoopers charter to the clause. We have to stick to the legislation before us, however interesting or challenging that might be. I am sure that he will do so.

Andrew Turner (Conservative, Isle of Wight)

I am grateful for that guidance, Mr. Conway. I was going to say that in applying the legislation to town and parish councils we must ensure that it is reasonable, having regard to their size and responsibilities. The snoopers charter has been applied to tiny parish councils with populations in the hundreds, rather thousands, and with a precept in pence, rather in tens of pence—tiny budgets—and yet is has led to the resignation and retirement, or in this case the disciplining, of parish councillors. There has, as my hon. Friend the Member for Cotswold said, been a great reduction in the resources that are available to the community through the democratic local structures.

I will pause at this point, Mr. Conway, because I was going to say some things about parish partnerships and, because those are not mentioned in the clause, you may have ruled me out of order if I went in that direction. Perhaps I will have the opportunity to talk about them later.

Desmond Swayne (Conservative, New Forest West)

My hon. Friend began with grass-cutting and then made an appeal for a light regulatory touch. Is he aware that there are performance standards for grass-cutting? That is nonsense, because that any fool can see whether it needs cutting.

Andrew Turner (Conservative, Isle of Wight)

Indeed, that is so, although my own local authority did not consider that the grass needed cutting, or, if it did need cutting, the authority decided that someone else should take responsibility for that.

The light regulatory framework is the most important issue of all in the context of local government law, especially in respect of small town and parish councils. Those do not need a burdensome and confusing regulatory framework, but I regret to say that that is precisely what many are taking on, and they have taken that on since the passage of the 2000 Act.

Robert Syms (Conservative, Poole)

In my experience, most parish councils do not need vast amounts of capital. The only authorities that need capital are parish councils with 10,000, 20,000 or 30,000 electors which turn themselves into town councils. They might, perhaps, have an income from the council tax of £200,000 to £300,000 and they could wish to renovate the town hall or do something in the centre of a town. I know that in the past many slightly larger parish councils had to wait in a queue for funding before being able to do what they wanted in their towns. Perhaps the Minister will tell us whether the provision would substantially change the regime, or whether things would continue along the same lines, with occasional capital grants being given to small and very small local authorities to provide for their own particular needs.

Chris Leslie (Labour, Shipley)

It would be a great pleasure to debate all the provisions that surround parish council activities, but sadly, the scope of the clause allows us to talk only about the application of capital controls and rules and borrowing arrangements in respect of parish or community councils. While I would love to talk about the quality of the parish council scheme that we are developing in order to enhance and support the important work that parish, town and community

councils undertake, to which the hon. Member for Cotswold referred, I would, unfortunately, be restrained from doing so by you, Mr. Conway.

Hon. Members referred to the standards regarding the requirements for the proper disclosure of interests by all elected representatives with responsibility at parish or local level. Far from being a snoopers charter, this is a perfectly reasonable prospect and not an onerous burden on the 70,000 or so parish councillors in this country. Once again, I am afraid that to talk about that at any length would lead to my being ruled out of order.

The hon. Member for Cotswold has probably got the wrong end of the stick on the clause, but that is understandable, since it is complexly worded. The broad arrangements that exist at present will be tidied up, but they will remain mostly unchanged. We seek a simpler and more efficient statement of the rules on borrowing and capital for parish and community councils. Applications for borrowing consent will be appraised case by case and the old provisions will be continued under the proposed system. There will be no system of queueing for borrowing, as mentioned by the hon. Member for Poole, but we have introduced a new administrative regime with mechanisms to make parish borrowing quicker and easier to process. I hope that many local town and parish councils will benefit.

The hon. Member for Isle of Wight (Mr. Turner) talked a lot about grass cutting. In respect of capital spending, I cannot imagine that the grass cutting functions would be particularly affected unless the parish council wanted to buy a new lawn mower. It would have to be quite a large lawn mower to incur significant capital expenditure.

Mark Todd (Labour, South Derbyshire)

Although I agree that the issue of grass cutting is scarcely relevant, I draw the Minister's attention to the experience of a parish council in my area—Barrow-upon-Trent—which is a minor housing authority. Through a bequest, it has a large number of almshouses for a tiny village. It therefore has a substantial capital base that it needs to maintain, and it occasionally funds improvements from its revenue resources. I corresponded with the Minister's predecessor about the difficulties it has in fitting its extremely unusual circumstances into the constraints placed on parish councils. The Minister need not answer at this point, but I would welcome his reviewing that correspondence and seeing whether there are better ways of assisting Barrow-upon-Trent to continue to thrive as it has under the enlightened leadership of its chair, Chris Barker.

Chris Leslie (Labour, Shipley)

I will certainly look into the correspondence between my hon. Friend the Member for South Derbyshire (Mr. Todd) and my predecessor in this illustrious ministerial post. I cannot say that I have visited Barrow-upon-Trent. I am sure that that is my loss and that the villagers cut their grass to a high and consistent standard.

We want to make the regime easier for town and parish councils. We considered whether the prudential system should be applied to larger parishes, but we concluded that it should not for the time being, given

that it would require a fairly sophisticated level of financial expertise. It would not be right to expect a parish council to have such expertise, and it would be a heavy burden to impose. We are tidying up the regime and the rules and making them simpler for parish and community councils to operate. That is the purpose of clause 19.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The Minister slightly disingenuously said he thought I had got the wrong end of the stick. Clause 19(1) is pretty straightforward. It says that the following clauses will be applied to parish councils—clauses 2(3) and (4), 6, 9 to 13, 15, 16, 17(1)(a), (b) and (d) to (f) and (2) and 18. We are transferring significant financial controls to parish councils. Therefore, it seems quite reasonable to ask the Minister what powers and duties he expects the parish and community councils to take on.

It is sometimes difficult to discuss one clause without referring to subsequent clauses. The Minister will be perfectly aware that under clause 115, the maximum £3.50 per elector multiplier will be increased to £5. In a parliamentary written answer to me on 4 December 2002, the Minister told me that under the current system a maximum of approximately £45 million is granted to parish and community councils and that that would increase to £65 million under the new system.

Clearly, the Government are expecting parish and community councils to take on significantly more responsibility, which is why they are putting this financial regime in place under clause 19. The Minister did not properly explain what extra duties, functions and obligations parish and community councils will be expected to take.

Chris Leslie (Labour, Shipley)

I wanted to be helpful to the hon. Gentleman, and he will find that the provisions maintain the current roles and powers of parish councils. We are simplifying the rules, but they are broadly the same as those of the current system, because clause 1, which deals with the new prudential borrowing regime, will not apply to them. There will be a new power in relation to investment, which will give an additional freedom to parish councils. Most of the other clauses referred to in clause 19 relate to the controls on lender security, guidance capabilities and so forth, which do not change the roles of parish councils significantly.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I hear what the Minister says about simplifying and not changing the roles significantly, but as we will find when we come to clause 36, which is to do with best value, auditing and other requirements placed on parish and town councils are now so complicated that they are to be given a grant of £30,000 to help them pay for all the auditing and best value. The Minister says one thing, but the reality on the ground is totally different.

Mr. Leslie indicated dissent.

The rest of the debate is in Hansard.