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4.7 pm

Mr. Ross Cranston (Dudley, North): I welcome the Bill. Unfortunately, the hon. Member for Christchurch (Mr. Chope) drifted substantially from the subject matter, and I am afraid that some of his points were tendentious to say the least. It is a technical Bill, but it has very important practical implications. Perhaps I could sketch some of the commercial background.

There is always a difficulty in commercial transactions when a party deals with an entity. It may be a problem of the authority of those purporting to contract on behalf of the counter-party, but there is also a question of capacity. That problem arises with companies, trusts and co-operative bodies. I hope that the House will at some point revisit the problem that arises when bodies contract with trusts. Trusts are big business, and have an important role in the financial world.

A number of years ago, the problem with company contracts was dealt with: statute abrogated the ultra vires rule, and the doctrine of constructive notice was modified in relation to corporate contracts. All this was to be welcomed, but, unfortunately, there was and is a problem with the local authorities, and the problem is that of ultra vires.

My hon. Friend the Minister mentioned several high-profile cases that have occurred since 1991, as did the hon. Member for Christchurch. Those cases concerned transactions involving derivatives and guarantees. The decisions led to a reluctance on the part of financial institutions to deal with local authorities.

The leading case was that involving Hammersmith and Fulham council. Many were critical of that decision of the House of Lords, sitting in its judicial capacity, believing that it was commercially unrealistic and that the Court of Appeal had adopted a more commercially realistic approach, distinguishing between debt management and speculative transactions.

The decision had a chilling effect on the transactions entered into by local authorities and the extent to which financial institutions dealt with them. Unfortunately, it led to a fall in the reputation of the City of London. Many

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European banks became disinclined to deal with local authorities. They could not understand why English law, which is generally conducive to commercial transactions, was unfavourable in this case. It was no consolation when, as a result of a series of cases following that decision, the courts decided that money paid over was recoverable on restitutionary principles, and when local authorities gave guarantees to banks.

The effects of the decision had to be dealt with. Fortunately, that led to the establishment of the Financial Law Panel. I commend the work of that body, established and supported by major financial institutions in the City of London and by major law firms. I have had a small association with its activities. It has done sterling work on clarifying English law to give greater certainty to commercial transactions, thereby enhancing the reputation of the City of London.

The Financial Law Panel prepared a short report on the problem, as a result of which the Bill emerged. I shall not go through the details of the Bill. As my hon. Friend the Minister explained, it creates a safe harbour, and there is a self-certification process. The Bill does not exclude the possibility of judicial review, permitting the courts to review contracts that have gone through the self-certification procedure.

It is generally accepted that the Bill will be conducive to financial transactions. The consequences of the swaps decision of 1991, which deterred foreign banks from dealing with local authorities, will be reversed. The idea behind the Bill is good, and has been welcomed by the markets. The Bill will work, and when it is explained to financial institutions, it will provide a boost to their willingness to participate in private finance initiatives and other transactions. I support the Bill.

4.13 pm

Mr. David Rendel (Newbury): It is pleasant to find you still in the Chair, Madam Speaker, and for once to address you and not one of your Deputies.

At the start of the debate, mention was made of resurrection. It is fair to say that, in a sense, the Bill attempts to give the kiss of life to the private finance initiative. As the Minister said, under the Conservative Government, the PFI had become more than a little moribund. I am sure that hon. Members on both sides of the House welcome an opportunity to ensure that there is still life in the PFI, so that it can continue properly to be of use to local authorities and other government bodies.

In principle, local authorities should be given the opportunity to use the PFI or to contract out services. Where possible, they should be given the option to go their own way in providing the services their electors require. However, for one particular reason, the PFI is likely to prove rather expensive.

Inevitably, when risks are moved from the public sector to the private sector, higher borrowing costs are likely to be involved. Therefore, it would not be sensible for any public body to finance its operations privately or through a contractor unless other efficiencies were involved. In some cases, other efficiencies may be involved in contracting out to the private sector.

In local government terms, however, there is another problem which has been mentioned in the debate, and which is the very cause of the Bill: an extra risk is

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involved because of various ultra vires rulings that have been made in respect of local authorities. That increases the risk, and can serve only to increase the cost of involving the private sector, and in some cases to make it impossible.

As the Bill attempts to overcome those difficulties, we join the Conservatives in not opposing it. However, perhaps unlike the Conservatives, had they remained in government, we would not have introduced such a Bill had we been the governing party on 1 May, as we believe that an alternative way of overcoming the problems would have been preferable. We support the introduction into local government of a power of general competence, which has already been mentioned by the hon. Member for Christchurch (Mr. Chope). Such a power would probably make the Bill unnecessary.

Before the election, the Labour party apparently spoke in favour of a power of general competence for local government. Therefore, it was disappointing that there was no mention of such a power in the Labour manifesto. However, it is contained in the European charter of local self-government. Of all the moves that the Government have made since 1 May, I would commend above all the signing of that charter.

Article 4.2 states:

If the Government fulfil their apparent wishes in signing the charter, and introduce a power of general competence for local government in the United Kingdom, the Bill may be short-lived. Were a power of general competence to be introduced, the Bill would rapidly become unnecessary.

I was delighted, therefore, that the Under-Secretary of State for Northern Ireland said in another place that the Government intend to introduce a power of general competence in Northern Ireland. That is good news. He was quoted to that effect in the Municipal Journal this week.

I hope that that legislation will be introduced and will be rapidly followed by similar legislation for this country. A general power of competence would be a much better way to overcome the problems of the PFI, and it would also be beneficial for local government in many other ways. All three parties in local government have pressed for such a power, including the Labour party through the Local Government Association. I hope that the Minister will accept that point, and ensure that the Bill, welcome though it is in the short term, becomes unnecessary in a few months.

4.19 pm

Mr. Fabian Hamilton (Leeds, North-East): I ask for the indulgence of the House, as this is the first time that I have had the honour of speaking in the Chamber. As the Member for Leeds, North-East, I follow the Conservative, Timothy Kirkhope, who rose to the rank of junior Minister at the Home Office. He worked hard for his constituents in the 10 years that he represented the constituency. His predecessor was the late Sir Keith Joseph, the distinguished parliamentarian and architect of what became known as Thatcherism. He represented the constituency for 31 years, and held many high offices of state.

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I wish to quote another predecessor this afternoon. The last Labour Member to represent Leeds, North-East was the great Alice Bacon. In the conclusion of her maiden speech on what became the National Insurance (Industrial Injuries) Act 1946, she said:

I hope that that sentiment will guide this Parliament.

I have the great privilege of representing a constituency of diverse places and communities. It stretches from inner-city Chapeltown to the stately home of Harewood house. It encompasses the largest Afro-Caribbean community in West Yorkshire, a large Sikh and Muslim population, the largest Jewish community in Yorkshire, which has been well established since the early 19th century, and representatives of the growing Vietnamese, Chinese, Greek, Polish, Latvian, Gujerati Indian, Iranian and African communities that make up the most ethnically rich of Leeds constituencies.

I am also fortunate to have in my constituency the magnificent Roundhay park, one of the finest and largest parks in any European city, with its splendid tropical house and butterfly garden. It is a tribute to the work of Leeds city council over many decades, and the largest tourist attraction in England after Hampton court.

Leeds has one of the fastest growing economies of any city in Great Britain, with more jobs being created than in any other city. One reason for that is the partnership between the Labour-controlled local authority and the business community, which has brought investment by many new firms, many from the financial sector, to the city. I pay tribute to three leaders of Leeds city council, two of whom are now Members of Parliament, for the part they have played in the city's economic regeneration.

Economic good fortune and prosperity do not necessarily bring investment in public housing or schools. The Local Government Finance (Supplementary Credit Approvals) Bill that we discussed on Tuesday will have important consequences for the city of Leeds, especially Leeds, North-East. Social housing is more than just the local authority provision of low-cost rented property. There is a whole host of different providers in the many small independent housing associations.

In Leeds, we have Leeds Partnership Homes, which is a collaboration between the local authority and the housing associations. It has worked for the benefit of those citizens who seek quality housing for a reasonable rent. Organisations such as Unity Housing in Chapeltown have provided good quality low-cost homes for the Afro-Caribbean community, and Leeds Jewish Housing Association, with its 1,000 tenants and 415 properties--many of which are sheltered and specialist homes--has served the Jewish community of Moortown very well.

Leeds has more than £70.4 million in the bank from council house capital receipts, with an estimated £10 million coming in from new sales each year. The release of this sum on a phased basis will do a great deal to refurbish and regenerate old stock, which, according to the housing department of Leeds city council, will need £485 million in the next few years just to bring all properties up to modern standards.

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The previous Government's borrowing approval for capital spending was £9.6 million in 1997-98 for the whole of the city of Leeds. In my constituency, there are more than 6,000 council homes, for which identified necessary improvements will cost about £37.8 million. The extra investment that the Bill will generate will be invaluable to the tenants I represent.

In addition to the much-needed improvement of the housing stock in my constituency, the spending of capital receipts will inevitably generate much-needed employment. In Chapeltown especially, the level of male unemployment is one of the highest in Yorkshire. I am confident that the many job opportunities that will result directly from the enactment of this short Bill will benefit my constituents.

In common with those of most local education authorities, Leeds LEA's schools are in great need of building improvements. Leeds is the second largest LEA in England, and has devolved almost 93 per cent. of its budget to schools in the city. That may well be the reason why there are only two grant-maintained schools in Leeds, out of more than 300 schools in total.

As well as the local management of school budgets, the LEA has devolved some capital spending, a policy which has been very popular among schools and their governing bodies. But even this is not enough to counter the huge backlog in spending on school buildings, many of which are in a poor state of repair. The Bill will enable many more private finance initiative schemes to go ahead in areas where they are much needed.

Leeds city council has established a policy of working closely with the private sector over a number of years, especially through organisations such as the Leeds Initiative and various sector initiatives. The PFI, if properly carried out, and with safeguards for public and private interests, will allow the rebuilding of such dilapidated school buildings as Cardinal Heenan Roman Catholic high school in my constituency. Other schemes could benefit schools such as Upper Wortley primary school and Wortley high school, which could be redeveloped using surplus land that could not be used for school playing fields, perhaps as a trade-off for part of the construction costs of the new building.

In the end, it is the welfare and the quality of education for our children which count, and I welcome anything that will improve that education. Used properly, the PFI will greatly enhance our schools and buildings, and will assist staff in concentrating on the job of educating, rather than being distracted into site management, as so many senior school staff are currently forced to do.

The combination of this Bill and the Local Government Finance (Supplementary Credit Approvals) Bill will, I hope, lead to a renaissance in local government, which has been so starved of capital during the past 18 years. I commend the Bill to the House, and I hope that its swift passage will allow the rebuilding of schools in Leeds and all over the country, so that we deliver our priority election pledge, education.

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