House of Commons Hansard Debates for 13 Jun 1989

Mr. Gummer : The hon. Member for Newham, North-West (Mr. Banks) has put forward a reasonable case for the circumstances outlined. The problem is that we are discussing a range of matters and it would be difficult to consider that it would be sensible to discuss such matters in general as they must be discussed individually. My officials often discuss with the local authority associations the methodology of distributing housing investment programme and other services block capital allocations. Indeed, the latter are usually distributed on the basis of recommendations made by the local authority associations. There has also been extensive consultation with the local authority associations on the new system of capital finance. We shall, of course, be continuing this detailed consultation, although I hope that, in future, the working papers will not be referred to as "leaks". In particular, we shall be inviting comments on the regulations to be made under this part of the Bill. But on our past performance no one could doubt our willingness to listen to the views of the local authority associations as that is crucial to what we are doing.

Although a local authority will receive one basic credit approval, that approval will cover several services. It will

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be compiled from annual capital guidelines for each of those services. So it would not be very productive to hold formal discussions on the total level of basic credit approvals. Discussions should focus on the service by service annual capital guidelines which will be the building blocks of the structure. The best course for representations about credit approvals ought to be to Ministers and officials of the relevant service Department. That is what we seek to do.

There are, and will be, many opportunities open to local authority associations wishing to discuss the size of credit approvals with the appropriate service Departments. Obviously procedures vary from Department to Department, but representations can be made at both ministerial and official level. My colleagues and I will be willing to discuss the volume and methodology for distributing credit approvals with representatives of the associations either in a body such as the Housing Consultative Council or in a meeting specially convened for the purpose.

I am happy to give all those undertakings to the House. It is better to do that than to do so within the terms of a narrow amendment. I am not seeking for the hon. Gentleman to withdraw or not to press his amendments in order to avoid the type of consultations that I have mentioned. The opposite is true : I want them to continue on the broadest possible front. I do not believe that there is any doubt that the local authority associations would believe that we have not sought, and will not continue to seek, discussions and consultations on such matters. Those associations do not always agree with what we have decided, or agree among themselves about what we should have decided. Such is the nature of those discussions. I hope that, given my undertakings, the hon. Gentleman will find it possible to withdraw his amendment.

Mr. Tony Banks : I accept what the right hon. Gentleman says about being prepared to listen, but the point is whether any action follows, otherwise one is asking local authorities to participate in a facade of consultations. Consultations must mean that there is the real possibility that Ministers and the officials on the other side of the table are open to persuasion.

What bothers me is that we are talking about a multitude of Departments and I am rather concerned about co-ordination between those Departments if the expenditure cannot be discussed and decided upon in one go. However, having entered those caveats and in view of what the Minister has said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 47

Criteria for issuing credit approvals

Mr. Tony Banks : I beg to move amendment No. 171, in page 53, line 36, leave out from received' to end of line 38.

Mr. Deputy Speaker : With this it will be convenient to discuss amendment No. 172, in page 53, line 40, leave out or likely to be received'.

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Mr. Banks : Clause 47 sets out the criteria that the Secretary of State shall use when fixing total credit approvals for local authorities. The clause sets out two things to which the Secretary of State should have regard and among other factors they are "any grants or contributions which it appears to him that the authority concerned have received and are likely to receive" within the year and any capital receipts that the local authority has received or is likely to receive within the year.

The amendments seek to remove from those factors capital receipts as one of the things that the Secretary of State shall take into account when fixing total credit approvals.

I move the amendments more in hope than in expectation.

Mr. Gummer : The hon. Gentleman is on to a good point when he rightly suggests that it is not easy to take into account future receipts and that that is what he wants to restrict.

It is important to reconsider the example I gave in Committee. When an authority has completed the sale of its housing stock and is about to receive the proceeds of the sale and those proceeds greatly exceed the authority's capital programme for several years to come, it would be ridiculous for us to have to ignore that information simply because the totality of the proceeds had not yet reached that authority, but was about to reach it.

One of the purposes is to ensure that we are able to give more capital allocations in accordance with need. Under the present system we are tied to giving capital allocations where there are considerable receipts in any case and people have considerable opportunities to spend. Then, in addition, they get capital allocations, which reduces those available for local authorities in much greater need.

I do not think there is any difference between the two sides of the House on what we are trying to do here. It would be wrong to restrict the Secretary of State's ability to take into account such future receipts as I have indicated. I accept that it is not an easy matter. We shall handle it with very considerable care. We have not yet decided exactly how best to do it, but the case I have quoted is very much the kind of case that we have in mind. There is nothing secret or special behind this proposal. It is merely that we shall be able to have more capital allocations available for those whose needs are not met by their ability to spend from their own capital receipts.

Mr. Banks : A number of problems still arise even given what the Minister has said. Although one can misunderstand what can be read between the lines, perhaps the Minister shares some of my unease about this aspect of the Bill, in particular with regard to how he proposes to find out what future capital receipts a local authority may have and how he proposes to estimate what they might be. There is the matter of the prospects for interest rates. It will be extraordinarily difficult for anyone to say for sure how interest rates will move.

I know that there will be continuing discussions with local authorities and, that being so, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Clause 49

Capital receipts

Amendments made : No. 95, in page 55, line 5, after if', insert at the time of disposal'.

No. 224, in page 55, line 25, at end insert

but, in the case of a disposal made before that date, the reference in paragraph (a) or, as the case may be, paragraph (b) of subsection (1) above to the time of the disposal shall be construed as a reference to 1st April 1990'.

No. 96, in page 55, line 26, at beginning insert

Subject to subsection (3B) below'.

No. 97, in page 55, line 30, leave out from beginning to sums' in line 32 and insert

are represented in the authority's accounts for the financial year ending immediately before that date either by amounts shown as capital receipts which are unapplied as at the end of that year or by amounts included in the balance as at the end of that year of any fund established by the authority under paragraph 16 of Schedule 13 to the Local Government Act 1972, those'.

No. 98, in page 55, line 35, at end insert--

(3A) So far as may be necessary for the purposes of this Part, a local authority shall identify which (if any) sums falling within paragraphs (a) and (b) of subsection (3) above are represented by amounts included as mentioned in that subsection in the balance of a fund established as so mentioned.

(3B) Subsection (3) above does not apply to a sum in respect of which an amount shown as an unapplied capital receipt or included in a balance as mentioned in that subsection is, on 1st April 1990, held in an investment which is not on that date an approved investment ; and, so far as may be necessary for the purposes of this Part, where on that date a local authority hold investments which are not then approved investments, the authority shall identify which (if any) of the amounts so shown or included are to be treated as held in such investments.'.

No. 117, in page 55, line 48, leave out seven days' and insert three months'.-- [Mr. Gummer.]

Clause 50

The reserved part of capital receipts

Mr. Tony Banks : I beg to move amendment No. 178, in page 56, line 24, leave out 75' and insert 20'.

Mr. Deputy Speaker : With this we shall take the following amendments : No. 210, in page 56, line 24, leave out 75' and insert 10'.

No. 179, in page 56, line 25, leave out 50' and insert 20'. No. 211, in page 56, line 25, leave out 50' and insert 5'. No. 180, in page 56, line 32, leave out 100' and insert 20'.

Mr. Banks : These amendments relate to one of the most controversial aspects of the Bill, which sets out how the local authority must use its capital receipts, from both the disposal of housing stock and the sale of land.

In the past, as we know, local authorities have been able to use 20 per cent. of the capital receipts for capital works and the remainder for non- prescribed expenditure, or alternatively to use a further 20 per cent. of the remainder in subsequent years towards further prescribed expenditure. It is now proposed that only 25 per cent. of capital receipts from the sale of housing can be used and only 50 per cent. of capital receipts from the sale of land, while the remainder, now called the reserved part, must be applied against debt.

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These amendments, which are a mixture of SLD and Labour amendments, seek to look once again at how much should constitute the reserved part and how much freedom the local authority should have in disposing of capital receipts that have come from the sale of what are, after all, assets accumulated by the historic effort of local authorities over many years.

It is the local authority with a mandate from the local people that decides to build houses or acquire land and it is quite absurd that the disposal of those same assets, whether voluntary or forced, should not leave the local authority the freedom to decide what next to do with its own assets.

The Government argue that local authority debt is massive and needs to be controlled, but I remind the Minister that as a proportion of the gross domestic product local authority borrowing fell from 1.4 per cent. in 1980- 81 to 1 per cent. in 1985-86 and over the same period long-term local authority debt as a proportion of GDP fell from 15 per cent. to 13 per cent. Loans outstanding as a proportion of gross annual revenue expenditure fell from 135 per cent. in 1980-81 to 117 per cent. in 1986-87. The Government need to bear in mind that in reducing the part of the capital receipts available for use they are reducing the incentive to local authorities to dispose of their assets, and that is obviously contrary to the Government's intentions.

The Under-Secretary of State for the Government, the hon. Member for Rossendale and Darwen (Mr. Trippier), made a number of statements in Committee. In particular, he said :

"We have made it clear that we wish to provide exemptions from in-and-out transactions, which exist in the present system, and we need the regulation -making power to do so."

I hope that the Minister will be a little more clear about that. He undertook to consider whether an amendment would be an appropriate way of achieving that rather than the sweeping powers that he confers upon himself in clause 50(3), (4) and (5). Has he further considered that point? If so, what are his conclusions?

Secondly, the position of a local authority that has no debt is still open to speculation. In Committee the Minister said : "I accept that we have to consider what might happen when an authority has no debt We are considering that matter carefully We have not ruled out further amendments which would provide alternative solutions."--[ Official Report, Standing Committee G, 6 April 1989, c. 737-8.]

It is absurd to suggest that a local authority that has no debt must still be forced to set aside 75 per cent. of its capital receipts for future debt which becomes less and less likely to be incurred as its capital receipts accumulate because it is not allowed to use them. What does the Minister for Local Government intend to do about that?

I understand that the Under-Secretary of State for the Environment also gave an undertaking in the same debate in Committee that he would shortly list the capital receipts that would be exempt from the new rules. Can he now honour that undertaking, and, if not now, when will he be in a position to do so?

Opposition to clause 50 is strong. If a local authority is elected with a mandate to build houses, to modernise its school and to build homes for the elderly, and has the means to do so from its own resources, it is abhorrent that the Government should take it upon themselves to override that mandate and say that the local authority cannot use the resources that it has conscientiously built

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up over the years to meet those promises. Clearly, the abolition of local government is not far off and one of the accusations that we have levelled against the Government is that they are completely undermining the process of local accountability.

When the European Parliament threatens to overrule the Government, even on such a minor matter as to whether there should be a health warning on the front rather than the side of a cigarette packet, the Government's reaction is one of outrage. They are up in arms threatening a constitutional crisis. But on this important matter--the use of capital receipts for essential projects--the Government seem willing to ride roughshod over the wishes of local people. I hope that the Minister for Local Government will address himself to those points.

Mr. Matthew Taylor : The Minister is eager to respond and I shall not delay him long. I support the hon. Member for Newham, North-West (Mr. Banks). The main difference between the amendments is that ours are more radical in giving local authorities greater freedom to respond to the needs of local people.

The point that I want to reinforce is that there is surely an economic absurdity in the Government's eyes in enforcing the repayment of debt. In many cases local authorities are paying fixed rates of interest as low as 6 per cent. Surely Ministers can see that it is madness to replace low interest bearing debts with higher interest rates which have resulted from the Chancellor, with the Prime Minister's help, messing up the national economy. They now seem to want to transfer those high interest rates, which we have as a result of the difficulties that the Government have got into nationally, to local authorities, quite needlessly, to the detriment of local people and local authorities.

Our amendments, the most radical put forward here tonight, are a way of meeting the requirements of local authorities. I do not accept the Minister's view that they undermine the national economy. It is crucial that such amendments are passed if local authorities are to start to tackle the real problems on a range of issues that they face within their local communities. I could outline them, but I suspect that at this time of night right hon. and hon, Members will be relieved to hear that I do not intend to do so. Nevertheless, the amendments are important.

12.30 am

Mr. Gummer : There has been, under both Labour and Conservative Governments, a clear need to control the total amount of public sector capital expenditure. There is certainly a difference of opinion between the hon. Members for Truro (Mr. Taylor) and for Newham, North-West (Mr. Banks). Neither is very near to power, but the hon. Member for Truro is much further away from it, and therefore is at liberty to make proposals that no Government could possibly adopt.

To do as the hon. Member for Truro suggests is to say that those authorities that happen to have considerable capital receipts for all kinds of historical reasons will do all the capital spending--because as they undertake that expenditure, the only way to keep the generality of public sector spending under control is to reduce the allocations that the Government make to those authorities without any capital receipts. The hon. Gentleman's recipe is just a

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more extreme version of that presented by the Labour party. Both would mean that the very authorities having the greatest needs and the smallest chance of capital receipts would pay the cost. They are the authorities--often elected on precisely the mandate described by the hon. Member for Newham, North-West--that often depend more on central Government allocations for capital spending because, while they have no resources themselves, their needs are considerable. The purpose of the changes we are making is to ensure that it will be easier to give to local authorities in greatest need allocations to spend on the capital projects that they must undertake. Until now, allocations have been continuously eroded because of the considerable latitude available to local authorities able to realise assets and having a considerable amount in the bank--either as a consequence of cascading or because of the value of assets they sold in any one year. They were able to spend so much that every year the Government were compelled to reduce the allocations available to others. The odd point about the proposals of the hon. Member for Newham, North-West is that they would hit local authorities exactly like his own. The authorities that ought to be most concerned are those having large historical assets and whose allocations are restricted so that authorities in greater need may be helped. That is a much fairer system.

As to paying off debt, the hon. Member for Truro could not have studied my detailed comments. I made it clear again and again that no one is being forced to pay off advantageous loans of the 6 per cent. variety. But where local authorities realise capital, they must apply a substantial part of the resources thus realised to debt repayment--either by discharging such debts or by establishing a fund as a contra to them. Provided that local authorities build up such a fund and use the interest from it for other purposes, they do not have to pay off advantageous debts. However, they must not spend that money a second time without making provision to repay any debts already incurred.

When the hon. Member for Newham, North-West says that local government debt is not very great as a proportion of the gross national product, of course it is convenient to use those figures today because the GNP has grown so fast under this Government. It is an interesting way of using the success of the Government's economic policy as part of the judgment.

If the hon. Member for Newham, North-West had his way, the allocations to other authorities would be reduced. Many of the resources released in the way which he describes are not 100 per cent. local authority resources. Many of them have, in the past, been provided by the general taxpayer, by Government grants and the like. I have no intention of taking away those resources. I am merely saying that it is unacceptable to distort the system of the provision of capital allocations and the Government's responsibility to help local authorities with real needs by giving capital allocations. The balance that we are trying to present should help the very authorities that Opposition Members are supposed to support. Therefore, I find their amendments surprising. If the House were to pass them, it would do great harm to the very authorities which they are often most concerned to defend.

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Mr. Allan McKay (Barnsley, West and Penistone) : I have given due consideration to the Minister's argument, but what then of the Government's promise, when they decided to sell council houses, that local authorities would be able to use their old receipts to replace the council houses which had been sold? What about the Government's promises in relation to the homeless and those who are now on extended waiting lists? What about the local authorities which always charged an economic rent and did not take anything from the rate fund? Will not the Government's proposed system take from the pockets of those local authorities the assets for which they paid over many years?

Mr. Gummer : None of the hon. Gentleman's comments accords with the facts. It is already true that, over the years, local authorities have been able to spend a high proportion of those assets and have spent many more millions of pounds than the assets referred to when the original statement was made by Lord Joseph. Much more than was promised has already been spent. There is no argument and the hon. Gentleman knows that.

In addition, there is no argument to suggest that those assets are being taken away from anyone. What is being said is that where debts have been incurred, and the assets on which they were incurred have been sold, at least part of the assets released should go towards the redemption of the debt. Otherwise, it would be as though someone who borrowed £8,000 for a car and then sold it said that he had £7,000 to spend. He would not because first he would have to repay the debt. We must acknowledge that it is the double spending of many of these assets which has harmed us so much.

Under the present system, the very local authorities with the needs of which Opposition Members speak are often not the ones with the assets to meet those needs. If we are to provide that money, the best way to do so is to ensure that we have greater freedom to allocate capital expenditure, which is what we are trying to do.

What the Opposition propose would do great harm to those very authorities which are most in need, which is why we are trying to change the system. Most people, other than those who are purblind, agree with what we are trying to do and believe it to be fair. That explains why the Association of Municipal Authorities has been so quiet and has not supported some of the proposals put forward by the Opposition today.

Mr. Tony Banks : I find it difficult to accept what the Minister says. He comes here in his saintly role and tries to suggest that he is doing the local authorities a great favour. It is difficult to find any local authorities which agree with him. I do not know to which local authorities he is dispensing his favours. I cannot find any : there are certainly none in the London Boroughs Association or the Association of London Authorities, and I am talking about Conservative, Liberal and Labour authorities in London. I am sure that the same is true of other authorities. No one seems to want his help and, therefore, I can only assume that he does not realise that his suggestion is totally unacceptable to local authorities of all political complexions.

As far as I can see, this is a final perpetration of the fraud carried out against local authorities. My hon. Friend the Member for Barnsley and Penistone (Mr. McKay) mentioned the understanding on which local authorities

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were made to sell council houses : that all the capital receipts would be used to build new homes. That gave the idea considerable appeal for a number of authorities, but it has been gradually whittled away. Authorities are now being told that, notwithstanding any needs that they may have, they will have to use 75 per cent. of receipts for the realising of debt, without regard to their assets. I should like the Minister to give an undertaking that he will consider the assets of each local authority against its debts. I am convinced that most if not all authorities could cover their existing debts through the value of the assets that they still hold. That seems a fairly straightforward economic proposal, which even the Minister and his hon. Friends should be able to grasp--even at this late hour.

The Minister talks about a local authority being forced to sell its own property, and then--in his words--being allowed to spend the money a second time. A council building new structures is not spending in the crude sense, but reinvesting. Against that spend comes a realisable asset.

I am not at all happy with what the Minister has said. No local authority of which I know offhand will be prepared to take the poisoned chalice that he is offering in his saintly role this evening. However, I shall not press the amendment.

Mr. Soames : Why not?

Mr. Banks : Do not push me.

I am sure that we shall find other occasions on which to return to this matter. I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.

Clause 52

Capital receipts not wholly in money paid to the authority

Amendments made : No. 67, in page 59, line 14, leave out a sum' and insert an amount'.

No. 68, in page 59, line 17, leave out sum' and insert amount'.-- [Mr. Gummer.]

Clause 53

Aggregate credit limit

Amendment proposed : No. 174, in page 60, line 5, leave out the first six months of'.-- [Mr. Tony Banks. ]

Question, That the amendment be made, put and negatived.

Clause 54

Duty to set certain sums aside as provision to meet credit liabilities

Amendments made : No. 69, in page 60, line 39, leave out sum' and insert amount'.

No. 70, in line 43, leave out a sum' and insert an amount'. No. 71, in line 48, leave out set that payment aside' and insert at the time the payment is received, set aside an amount equal to that payment'.

No. 72, in page 61, line 5, leave out set aside' and insert at the time'.

No. 73, in line 7, after payments', insert

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is received, set aside an amount equal to the payment'. No. 74, in line 10, leave out that sum shall be set aside' and insert

they shall, at the time the sum is received, set aside an amount equal to that sum'.-- [Mr. Gummer.]

Mr. Murphy : I beg to move amendment No. 181, in page 61, line 13, at end insert--

(6) The calculation of the minimum revenue provision referred to in Part IV of Schedule 3 to this Act shall permit other proper practices to be used for the redemption of debt.

(7) A local authority shall determine its minimum revenue provision in accordance with proper practices and the duty to determine such provision shall be performed before the beginning of the financial year to which the provision is to relate.'.

The purpose of the amendment is to permit local authorities to determine the provision to be set aside from revenue accounts to meet credit liabilities, in accordance with proper practices, as alternatives to the "reducing balance" method specified in schedule 3. In Committee the Minister implied that the reducing balance method now proposed in place of the original proposal for equal instalments of principal was generally welcomed by local authorities. That is true, but only in the sense that it was marginally less bad than the original proposal.

The clause, as drafted, means that conflict is possible. The amendment is designed to resolve that conflict by allowing codes of practice to be on an equal footing with statute. In other words, it allows local authorities to calculate the minimum sum that they have to set aside to meet credit liabilities by reference to the rules set out in the schedule or any other set of proper practices at the discretion of the individual local authority.

Local authorities have traditionally been free to manage their debt in the way they felt best and to take advantage of opportunities that arise to minimise their overall payments. A code of guidance on the average maturity of debt has been agreed between local authorities and the Treasury and has proved useful in giving local authorities flexibility and in meeting the concerns of the Treasury. The Government's proposal to force councils to repay a specified percentage of their outstanding debt each year has no standing within the accountancy profession, and the Chartered Institute of Public Finance and Accountancy has already expressed its doubts about the new scheme.

12.45 am

There are well-established alternative methods of repaying debt which are preferable to the Government's proposals on economic, efficiency and practical grounds. The sinking fund method is one example and annuity payments is another. No one with any real appreciation of the problems of debt management would have dreamt of imposing this system upon local authorities. It will start a random set of changes in local authority debt repayments which have no merit in themselves and cannot be justified on proper accounting grounds.

Mr. Gummer : There is obviously a fundamental difference between us on this matter. There are problems with some of the mechanisms of accounting for debt. If a local authority decides on some methods, there is little immediate impact on major borrowing decisions, whereas most of us agree that it is important to have at least an initial clear impact so that people can make a realistic decision as to whether they want to spend so much money through borrowing.

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The advantage of the reducing balance method is that, first, it looks at the totality of an authority's debt and not bits of it--that is what the Government have to do when considering any of their major economic indicators in this way.

Secondly, under the reducing balance method, the marginal effect of new borrowing is felt more sharply at the time the decision is taken to borrow. That is surely sensible and prudent, not least because local authority debt is not like personal debt. When one borrows money, one knows that it must be paid back within one's lifetime and that one is going to pay it back. A local authority is not in that position. Those who make the decision know that when the burden of paying back is faced, they will not be around to carry the cost. The danger is that the council will pass on the burden of the decision to future generations, to a new set of electors and totally different people.

Thirdly, the needs assessments on which we base our grant to local authorities have always been based on the reducing balance method. That may well continue in the new system, both on housing subsidy and for needs assessments. It seems to me that if we are paying grant on the assumption that a minimum amount of provision for debt redemption is being made, that minimum provision should be made.

It seems reasonable to say that the only way to have a sensible policy of debt redemption is to have one that, first, looks at the whole of the authority's debt ; secondly, bears in some way on those who immediately initiate the debt ; and, thirdly, has some reference to the way in which the needs assessment for debt and for debt redemption are made. Those three factors lead me to believe that the reducing balance method is the best one.

This method has been widely welcomed. It has not been accepted in the curmudgeonly way that the hon. Member for Torfaen (Mr. Murphy) suggested. We have moved a long way to try to meet the requirements of local authorities, and many of them have recognised that. We do not want to return to a situation in which a local authority can choose a system which means that those who make the decision and benefit from the initial spending are not the people who feel the weight of the cost of the debt or make a substantial contribution towards completion of its redemption.

Mr. Murphy : The Minister is right when he says that there is a major difference between himself and us which is irreconcilable. I should like to ask him a question about the proposed method of providing for the cost of capital expenditure and whether it will increase the expenditure of some local authorities. Will he give the House an assurance that grant will be adjusted to avoid any of those additional costs falling on poll tax payers next year?

Mr. Gummer : Community charge payers next year will pay the costs that will arise from the arrangements that we come to with local authorities. We are discussing a number of matters, including the way in which we shall account for capital expenditure and its cost, but we have not yet reached a final decision.

Amendment negatived.

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