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Mr. John Hayes (South Holland and The Deepings): Does the right hon. Gentleman acknowledge that this is an issue of culture, not structure? That was the point of my hon. Friend the Member for Woodspring (Dr. Fox). Is there a distinctive, undesirable Labour local government culture in Scotland?

Mr. Dewar: I do not suppose that there is any sort of Tory local government culture in Scotland. If there is, it is being carefully retained in a test tube while the antidote is produced.

I accept that there are a wide range of councils in Scotland, very different in character, scale and size. There are many different councillors, who range, no doubt, in ability and character, but the vast majority try hard to deliver good services. Across the board, they succeed in doing so, by and large. They would be as distressed as I am by the fact that the two councils in deep trouble raise questions about the integrity and competence of other councils.

It is important to ask whether, for example, it is right that the council tax payer should continue to bear the risk of failures of this sort. If something goes wrong, the risk

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falls on the services provided by the council and on the council tax payer. It is legitimate to ask whether providing such services directly is the right way for councils to secure for their communities the provision that they deserve. I think that it can be, but I agree that there is a cultural problem.

In the days of compulsory competitive tendering, with its rigid structures, which were ill suited and which failed, people in some areas became convinced that they should keep work in-house if they possibly could. There have been cases in which people have signed up for tendering, but without having their heart in delivering the results that tendering should produce: the best possible deal for the council tax payer, and, most important, for the person who depends on council services.

In considering the introduction of best value systems, it is important that councils understand, and act on the basis, that the tendering process must not be weighted in any way, and that it should be a fair test of the market and the best way of producing the services that the users require. It is vital that we get that established, and that it happens in practice.

Mr. Salmond: The Secretary of State's point is fair, but does he accept that it can be greatly in the public interest to have effective direct service organisations and DLOs, because they can provide the cutting edge of competition in those areas? In most councils, such organisations work efficiently. The problem of management and uncontrolled expenditure in the two authorities should not be used to condemn the many councils where such organisations work carefully and appropriately.

Mr. Dewar: I have already said that, in many areas, the service provided is good and delivery is up to standard. I have also said that, where there have been difficulties, we must get to grips with them and eliminate them. It would be as wrong to say that there should be no in-house services as to say that there must be in-house services and nothing else. It is a matter of balance and judgment.

I am facing up to an unpleasant truth. There has been a tendency in some parts of the local government world, for perhaps understandable reasons, to be so keen to keep work in-house that we have sacrificed efficiency and not delivered services as effectively as we should have. That is what the best value regime is intended to put right.

Mr. David Marshall (Glasgow, Shettleston): My right hon. Friend said that services may not have been delivered as well as they could have been. After 17 years of continual cuts by the previous Government, local government was reorganised two years ago. It was a shabby, gerrymandered, ill-conceived, politically spiteful and politically motivated reorganisation.

Was not the problem that all the new councils and councillors, regardless of party, had to face the serious underfunding by the previous Government of all the essential costs of reorganisation? They put in some £36 million when an independent report by the Convention of Scottish Local Authorities and the Chartered Institute of Public Finance and Accountancy stated categorically that reorganisation was underfunded

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by more than £200 million. How can we have perfection, with such underfunding caused by the activities of the previous Government?

Mr. Dewar: My hon. Friend put his point passionately. I have much sympathy with the difficulties of local government. No one has denied them. We must get the right balance and framework in which services can be efficiently delivered. Best value, on which we have worked closely with COSLA, seems to offer that opportunity. If it is to be taken, we must deal with some of the difficulties that have arisen and that have dramatically struck down the management and financial control system in two important local government areas.

I agree that compulsory competitive tendering did not work, because it was based solely on compulsion. I agree that it encouraged the creation of an evasion industry. That is why we have abandoned it, and asked local authorities to sign up to the best value regime and implement it willingly and with full co-operation. That is the road that we still intend to travel.

However, part of that process is a tendering procedure--testing the market in the interests of ensuring that we are delivering services effectively. I am sure that I carry most of my hon. Friends with me when I say that we must adopt a straightforward, uncomplicated approach to get the best tender for the services, and, if they are in-house, to ensure that they are delivered efficiently and effectively as advertised. Apparently that has not happened in Ayrshire and Lanarkshire, and I regret that.

I make it clear that we must now move forward and examine the whole basis on which local government now operates. The House will know that the public perception of the many able and dedicated people in local government is often undermined by the few who fall short of the standards that are expected of them. There is no doubt about that, and local government deserves better.

As the House will know, we have suggested a new ethical framework for local government, to rebuild public confidence in its probity. Especially important in that respect is a clearer national code of local government conduct for Scotland, and a new national standards commission for Scotland with powers to investigate and to come to conclusions about the validity or otherwise of complaints that may be made about councillors or officials thought by some to have fallen short of the required standard.

The commission will have the power to take decisions, and I hope that, when it is in place, it will approach the task with impartiality and consistency. I hope that that will reassure the public that, if there are complaints, they will be dealt with expeditiously. It will also offer an element of protection for councillors against ill-founded allegations--and there are many of those in currency at the moment. The development of best value on the basis that I have tried to outline, the new ethical framework, will do a great deal to help to deal with the problems.

We must also consider some of the other difficulties that local government faces. For example, we are working co-operatively with local authorities on community planning, on the role of councils in community leadership, and on the way in which they can establish a good and positive working relationship with the Scottish Parliament that is to come.

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We want to examine local government's standing in the community. If less than 40 per cent. of the people turn out to vote in local government elections, clearly that undermines the legitimacy of mandates, and makes it more difficult for those who operate on elected councils.

Several hon. Members rose--

Mr. Dewar: I have read the Liberal Democrat motion, so I do not think that hon. Gentlemen need to put their point to me. I accept entirely that this is not simply a Scottish problem. It is worth noticing that, at the English local government elections a few weeks ago, the average turnout was 26 per cent., which suggests that the problem goes far beyond Scotland.

That may point to at least some of the arguments that will be advanced about changes in voting systems. It will be on the agenda of the McIntosh commission, which was set up in fulfilment of an election manifesto promise by the Government. No doubt its members will have heard the arguments, and will want to consider them.

I do not intend at present to go down a technical byway, but I am by no means sure that the single transferable vote is likely to be the answer. However, I realise that we are all thirled to the baggage of the past to some extent--none more, and none in more distinguished ways, than the Liberal Democrat party. Undoubtedly there are questions to be answered, and we shall come to them.

There is also the possibility of considering, as we considered in the past, the traditional committee system through which local government has operated over many generations. The system was endorsed by a Conservative party committee in 1993, but since then it has been under constant attack.

I was interested to read a Convention of Scottish Local Authorities working party report that at least opened the door to change in that respect, by looking with some favour at some of the arguments for a Cabinet system within local government. Beyond that, there is the possibility of elected leadership in the cities.

There is a great deal to consider, and, as I have made clear in several recent speeches, I am anxious that all those matters should be on the agenda. I do not want to rush to judgment today, but I believe that the McIntosh commission has an important remit, and that we have to consider all those possibilities, as well as how to attract talented people back into local government and broaden its basis.

Local government is a vital democratic bulwark, and a level of accountability between central Government and the ordinary citizen is essential. It is also responsible for a wide range of services in Scotland. As the House will know, its total expenditure equals almost half the Scottish block.

What we cannot have in local government is inadequate systems, inefficient management or an apparent lack of effective scrutiny. Those are cancers, and if they were to spread, they would do great damage to the whole fabric of local democracy. The Government are determined to put the mechanisms in place to ensure that they are rooted out. I am sure that I will carry the House with me when I say that this is an issue not between right and left but between right and wrong.

At the heart of the problem may have been a culture of complacency in some areas, but that is something we can change. It does not lead to the conclusion that there is no

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need for local democracy, or that we can in some way wipe out large parts of the remit and responsibilities of local government. However, it does put upon us a real and heavy responsibility to work with local authorities to put local government's house in order.

As for the tendering process, I repeat that the overwhelming priority must be to get the best deal for those who use the services and for the council tax payer. The head count in the DLO is not necessarily the true test when considering such matters.

Those are all important and serious questions, which go well beyond the immediate problems of two buildings and works departments in two Scottish local authority areas. Those represented very serious breakdowns in financial and management discipline, and I believe that I have taken the swiftest possible action to deal with them--action that I shall not hesitate to carry through.

Those two examples point up a need, which the Government have always recognised, for a different and modernised local government in Scotland, marching alongside a new Scottish Parliament. We want a local government elected by more local people, properly accountable to them through new ways of doing council business, and attracting a different and wider range of members who demonstrate the highest possible standards of probity. Such authorities will lead their local communities through vision and influence, and will not automatically run all services as an extension of the municipal machine.

We want a local government focused on performance and on improvement in quality and cost--in total, something of which Scotland can be proud. Despite the problems that we have seen, I believe that we are beginning to move in the right direction, and that many of the preliminary steps have been taken.

We must learn the lessons of the unfortunate events in East Ayrshire and North Lanarkshire, and make the transformation. Those problems should be a challenge--a challenge for central Government certainly, a challenge for the new Scottish Parliament inevitably, but above all a challenge for local government itself. I am convinced of the importance of local government's place in our life in Scotland, and I believe that the transformation that is needed can certainly be achieved.

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