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Mr. Redwood: In those circumstances, the Opposition would be saying that the councillors should be changed. We want the council to be accountable. It would doubtless be a Labour or Liberal Democrat council that got into that financial pickle and we would have strong advice for the electors—choose a better council next time.

Mr. Raynsford: I do not have the right hon. Gentleman's party political certainties. I know well that

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the authorities in difficulty with which I have been engaged over the last two years have been under the control of all political parties. Fortunately, none is in the kind of circumstances that we are envisaging in the Bill, but it would be imprudent not to allow for the possibility that, at some future date, that might happen. This is simply a safeguard that we believe to be necessary.

We have set out in the House and in another place the evidence on which we concluded that the powers were necessary, including the findings of the Audit Commission on current levels of reserves in individual authorities. We take the point that the provisions will apply to all authorities when problems are confined to a minority. We would have sympathy with the point made if the effect of the provisions was to impose added burdens, but it is not. All that these clauses do is to give statutory backing to what is accepted as good practice that all authorities should follow.

The clauses in part 2 were debated in detail in this House and in no case was a Division called against them. I like to think that that was because, when all factors were considered, Members of this House appreciated the importance of sound financial management. Unfortunately, those considerations apparently did not carry the same weight in another place.

The Government are not prepared to take risks on the issue. If the new freedoms in the Bill are to be given to local government, we regard it as essential that the force of statute be given to these basic rules of prudence. The new clause would prevent that from happening and should be removed.

Mr. Hammond: The amendment addresses part 2 of the Bill. It is clear that, even more than in part 1—dealing with capital receipts—the provisions in part 2 are offensive to local government and undermine the Government's claim to want to free it.

We explained to the Minister during the Commons consideration—Members on both sides of the other House also tried to explain it—that the appropriate relationship between central and local Government is not, as the Government seem to think, that of a parent and a child, where freedoms are given conditionally and are undermined by the keeping of reserve powers to step in whenever local authorities do not behave exactly as central Government wish.

Baroness Hamwee described the approach as undermining the capacity of individuals within local authorities. In Committee, the hon. Member for Southport (Dr. Pugh) said that the real test of the Government's commitment to freedom was whether local authorities were to be free to go against the Government's wishes, not merely whether they were to be free to comply with them.

The Minister knows well that the earlier amendments in the House of Lords sought to delete clause 26—the power to dictate minimum reserves. That is the key issue. The amendment represents a different approach to achieving that, by leaving the power in the Bill and limiting its application to councils at particular risk. It is an attempt by our noble Friends to meet the Government's concerns while lifting the implied slur on all local authorities that this part of the Bill, as drafted, contains.

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5.45 pm

There is a real problem about the message that this part of the Bill, particularly clause 26, sends to local government. Seen through the Government's eyes and as expressed by Lord Rooker in the other place—this is a frankly astonishing quote—

I do not know where Lord Rooker gets his intelligence from, but I can assure him that he is wrong on all counts. There is no consensus between all parties in this House or in the other place, nor does it exist outside in local government—not a good start for ministerial connection to the real world. As Lord Hanningfield helpfully pointed out to Lord Rooker just a few moments after he made those startling assertions, all parties in the Local Government Association had unanimously condemned clause 26.

We can cast the net a little wider to test qualified opinion. The Society of Local Authority Chief Executives, in its evidence to the Select Committee, said:

The Chartered Institute of Public Finance and Accountancy—the very body on which the Government are depending, in terms of defining proper practice in the prudential borrowing regime—said:

I am sure that the Minister is taking note. Not much support there, then, for the assertion of the Minister in the other place. That last quote is particularly telling. The Bill relies heavily on the principle of using standards and codes of accounting practice. They will provide the guidance on proper reserve practices, which will differ from authority to authority. The Secretary of State's having a power to override proper accounting practices and standards is inimical to the whole system that he is seeking to put in place.

The Audit Commission said:

We agree with the Audit Commission, the Chartered Institute of Public Finance and Accountancy, the Society of County Treasurers—which I quoted earlier—the Society of Local Authority Chief Executives and the Local Government Association. We disagree with the Minister, and with no disrespect to him, I am afraid that the calculation of the balance of collective wisdom—with Ministers from the Office of the Deputy Prime Minister on one side and all those professional bodies ranged on the other—has not taken me long to perform. The Government are utterly friendless on this issue, as on so many others.

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Early amendments focused on clause 26; this amendment, carried on Third Reading, uses a different approach, imposing an admittedly arbitrary threshold to try to limit the provisions' scope to local authorities that are judged to be vulnerable. In the other place, Lord Bassam quoted all sorts of technical objectives in terms of the criterion selected and the threshold chosen, but the Government understand very well the objection. They had plenty of opportunity to address it, in this place and during the Bill's passage in the Lords, but did not. My colleagues in the other place—and, I believe, Liberal Democrat peers—were prepared to agree to a sensible compromise with the Government. What they are not prepared to accept is a set of clauses that take back, via reserve powers, all the so-called freedoms that Ministers are so keen to emphasise, for use in circumstances that, by the Minister's own admission, he cannot currently foresee. In keeping those reserve powers, he has underlined how little real freedom local government is being given, how little trust this Government place in local authorities—especially their own—and how far out of touch they are with local government opinion and practice. I urge my hon. Friends to resist the Government's attempt to overturn not only the decision of the other place, but the clear view of all the qualified outside bodies who have opined on the matter.

Mr. Edward Davey: The Government are introducing some good measures on capital finance for local government. We urged them on the Conservatives, who were deaf to our calls, and we are pleased that the Government are adopting a prudential capital regime. That is very good, but having made those advances through liberalising measures, which the right hon. Member for Wokingham (Mr. Redwood) failed to do, the Government have now added a centralising measure. They have thus spoilt what would have been a good story for them to tell.

We argued in Committee, and it has been argued in the other place, that the Government have not convinced anyone that the power is necessary. The reason is that other powers are already on the statute book to ensure that, if a local authority is managing its finances imprudently, the amber and the red light will be turned on and warning given. That applies to the requirements on chief financial officers, district auditors and so forth to report, so we were left bemused about why the extra power was needed. The only answer that the Government have offered is the case of Hackney.

It is worrying when the Government have only one example to justify a new wide power. Although the Minister has offered some assurances—I accept that they are good and I am sure that they will be heard in the other place—local government and other bodies still feel that the powers may be misused. That is the worry. When the Government say that a power has been used only rarely or in one case and then use that case to justify the power, there is a danger that people will not quite trust them. That is the problem.

I would have liked to think that the Minister would learn from the mistakes of the Conservatives. The Conservative Government legislated for local government on the basis of a few rogue councils. They were partisan in pointing to a few loony left councils that they then used as an excuse for imposing huge

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centralised controls on all the good local government of the period. That was the Tory mistake, and I am surprised that the Government, despite the good aspects of the Bill, are making the same mistake in respect of this clause. I hope that the Minister and his noble Friend Lord Rooker will repeat their assurances because it is important to have them on the record. Unfortunately, they are not in the Bill, and the Minister should understand that that is why so many people are concerned.

Tonight, the Liberal Democrats will have to disagree with the Government, who will need to show in proceedings over the next few days that they are listening and taking our points into account. The Minister will not win the argument for new localism and empowering local government if the Bill that is intended to accomplish those objectives also moves in the opposite direction. He must make a stronger case than he has hitherto provided.

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