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Ms Louise Ellman (Liverpool, Riverside): Would the hon. Gentleman like to comment on the fact that local authorities and the people of this country regarded as paltry and derisory the action taken by the Conservative Government to prevent house building, which led to a period of social crisis? Against that background, he should welcome every attempt to invest in our housing stock to provide homes and employment.

Mr. Chope: The hon. Lady will be extremely disappointed when she looks at the figures. Each year, local authorities receive about £1 billion of capital receipts as a result of sales, so for the current financial year and next year, there will be another £2 billion of capital receipts. When the Labour party made its commitment before the general election to allow more of those receipts to cascade down and produce a housing revival, people thought that that money and some of the previous capital receipts that had been set aside would be made available, and that from the onset of a new Labour Government all capital receipts obtained by local authorities would also be made available. Existing capital receipts will be released at the rate of £200 million this year and £700 million next year, whereas we were told that £5 billion would be released over five years. The effect of taking this year and next year together is that about £900 million will be released under the so-called capital receipts initiative, but £2 billion will be added to local authority capital receipts as a result of the normal process. A comparison of the position in two years' time with the position as of April this year shows that local authorities will have more capital receipts that they cannot spend after two years of Labour government than they had at the end of 18 years of Conservative government.

Sir Paul Beresford: I am in slight disagreement with my hon. Friend. The Bill deals with supplementary credit approvals and, in fact, no capital receipts are released, although reference is made to that. We will have the basic credit approvals allocated under the housing investment programmes on one system, and a parallel system--with extra bureaucracy--for supplementary credit approvals merely as a flag-waving exercise for the Labour party's manifesto pledge.

Mr. Chope: My hon. Friend is right to challenge me for having fallen for the Government's propaganda. The Bill deals not with the release of capital receipts but with the application of supplementary credit approvals as a cover for a promise made during the election campaign which Labour has been unable to deliver in practice.

4.15 pm

Dr. Brian Iddon (Bolton, South-East): Is the hon. Gentleman aware that, after 1979, the previous Government put so many people out of work in the

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construction industry that restarting that industry will have to be done in a phased way, as my right hon. Friend the Chancellor proposes?

Mr. Chope: I am almost speechless. The Government will have to come to terms with this--the construction industry is either booming or in the depths of a recession. The Chancellor has said that he will release capital receipts, taking account of the needs and capacity of the construction industry. I presume that the fact that the Chancellor only felt fit to release £200 million under the supplementary credit approvals programme shows that he thinks that he has inherited a construction industry from the previous Administration that is extremely healthy and is in danger of overheating. We have read of many fears that there is a danger of overheating in the construction industry. I find the hon. Gentleman's intervention amazing.

I hope that the Government will accept the new clause--which is in line with their deficit reduction strategy--as recognition of the fact that there is a real debt problem for local authorities. The sooner authorities recognise that, if they reduce debt, they will be able to spend more on providing services and investment, the better.

Mr. Andrew Lansley (South Cambridgeshire): On Second Reading, a number of questions were raised, and I was fortunate to be called to raise some. The context in which the Bill would emerge was not clear at that time, as we did not know the character of the Budget or the provision that would be made by the Chancellor. It is timely that my right hon. and hon. Friends have tabled the new clause, since it would have been difficult to structure such a clause at an earlier stage. I agree very much with my hon. Friend the Member for Christchurch (Mr. Chope) that the intention behind the new clause is to assist the Government.

Reference was made in Committee by my hon. Friend the Member for Christchurch to the Labour manifesto, which stated that capital receipts would be

to which my hon. Friend and others have referred--

    "and to meet the requirements of sound economic management."--[Official Report, Standing Committee A, 24 June 1997; c. 9.]

Treasury Ministers estimate that the capacity utilisation of the building industry is above the long-run average at present.

The new clause relates more to the question of sound economic management, and the addition of the new clause to the Bill would assist in that process. The Government have produced a Budget, the intention of which is to secure the reduction of borrowing in the public sector; however, the Bill will increase borrowing in the public sector. The two cannot be right. In present circumstances, we should not enact a measure that would negate the reductions in public borrowing. We ought to set the Bill in that context.

I support the new clause because I represent two authorities in my constituency. One is debt-free, while the other has substantial debts. It is clear from the way in which the consultation paper issued by the Ministers is structured that they contemplate the possibility of debt-free authorities, although having been allocated supplementary credit approvals, choosing not to take them up. Paragraph 24 of that paper states:

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In the case of debt-free authorities, I can well understand members of South Cambridgeshire district council choosing not to take up the supplementary credit approvals. Taking them up would remove their debt-free status and lead them to incur costs through borrowing. The absence of such costs and the income that the authority receives from the set-aside receipts which it has accumulated enable it to be an authority that does not levy a council tax.

Authorities that have been prudent and are meeting service needs but are not levying a substantial council tax may be allocated supplementary credit approvals but may choose not to take them up. If those SCAs are reallocated, it should be only to authorities that continue down the path of increased prudence in their financial management. Prudent authorities should not be benefiting profligate authorities that might increase borrowing.

We now understand the consequences of the Bill, which were not clear on Second Reading. At that time, it was not clear who would pay for the cost. There is no cost-free option. The capital receipts do not sit around in a cash fund. Even in South Cambridgeshire district, the council's provision for credit liabilities set aside is not backed by cash. The cash generated has been used to pay off borrowing. Who pays?

On Second Reading, various possibilities emerged--one idea was that it would be paid for through council rents and another was that it would be paid for through the council tax. The implication of the consultation paper is that the general taxpayer will pay, and we see that in the Budget. The increase in public sector borrowing requirement of £200 million and £700 million to which my hon. Friend the Member for Christchurch referred has had to be offset in the Budget by tax-raising measures.

The direct result is that other taxpayers will be funding the increase in borrowing for this purpose. It is all the more important that those taxpayers should ensure that they are not building up a further and growing liability through borrowing that will magnify in time and add to the overall tax burden. It is bad enough that the Budget should have added 1 per cent. to the tax burden this year and another 0.5 per cent. next, without adding to the burden beyond that.

For those reasons, it is important that we add the new clause to the Bill and give ourselves the opportunity to move public sector borrowing in the same direction in both local and central Government. Therefore, I support the new clause.

Mr. James Clappison (Hertsmere): It is a pleasure to follow the analysis given by my hon. Friend the Member for South Cambridgeshire (Mr. Lansley).

My hon. Friend the Member for Christchurch (Mr. Chope) argued cogently in support of the new clause. It is important to return to the subject of debt and the servicing of debt, because the issue of debt is an important starting point in the history of capital receipts and the Bill. When in opposition, Labour Members and, certainly, present Ministers widely believed that the capital receipts--the proceeds of house sales and other assets--were locked away, being wasted, and were not put to any good purpose.

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We were told--the Minister nods his head now, but I remind him of what he said in opposition. Last year, he said that a Labour Government would release capital receipts and added:

The hon. Gentleman also talked about "foolish" Government restrictions. I hope that he realises the folly of his words, because those resources, as he well knows, have never been wasted but have been used by local authorities, as my hon. Friend the Member for South Cambridgeshire rightly said, to make provision for credit liability, to support the expenditure of local authorities and to service local authority debt.

It is one of the fictions perpetrated by the Labour party that receipts have not been put to any good use. As the Minister knows now, if he did not when he uttered those words, debt-free local authorities have always been able to spend their entire capital receipts as they see fit. That is contained in his consultation paper. He has come to that knowledge. Local authorities with debts are required to set aside capital receipts on account of them: 75 per cent. for the proceeds of the sale of houses, and 50 per cent. for the sale of other assets.

We must return to the important issue of how to make provision for local authority debt. It is interesting that the Treasury's financial statement was mentioned, because another fiction perpetrated by the Labour party was that the release of council house receipts would have no effect on public expenditure. I remember having that argument several times with Labour spokesmen in opposition. They would not have it that such a release amounted to public expenditure. As we told them, every penny spent from the capital receipts amounts to additional public expenditure, because provision must be made for the way in which capital receipts are used.

It is interesting that the Labour party now admits, in the "Financial Statement and Budget Report" to which my hon. Friend the Member for Christchurch properly referred, that every penny of the capital receipts initiative, as it is called, amounts to extra public expenditure. That fact appears in the financial statement set out by the Chancellor as part of general Government expenditure, outside the control total, for that is what matters for these purposes.

The Minister nods his head at that, but one of the classic fudges perpetrated by the Labour party was that, if public expenditure was outside the control total, it somehow did not count. He should know that the control total is for the internal purpose of controlling the expenditure of Departments. Expenditure outside the control total is still part of general Government expenditure which has to be paid for. It is also made clear in the financial statement that it counts towards the public sector borrowing requirement. In at least two places in the financial statement, it may be seen that that expenditure is counted as part of general Government expenditure and as counting toward the PSBR.

I referred to the alleged capital receipts initiative because my hon. Friend the Member for Mole Valley (Sir P. Beresford) made an important point, which was properly accepted by my hon. Friend the Member for Christchurch. It is nonsense to talk about this money coming from capital receipts; it does not. There is not one penny piece of capital receipts in any of this expenditure.

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It is all additional government expenditure by way of supplementary credit approval. The only way in which capital receipts come into the picture is as part of the formulae for the distribution of that spending.

I draw the attention of the hon. Member for Liverpool, Riverside (Ms Ellman) to the somewhat bizarre formulae in the Government's consultation document. Three formulae are set out by the Government as ways in which the money could be distributed. The Government have chosen a way that will penalise authorities such as hers.

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