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Mr. Redwood: I have had recent experience in my own area of Wokingham of the problem that the Minister has highlighted this evening and during the progress of the Bill. The principal unitary council, Wokingham district council, got into budgetary difficulties a couple of years ago. The council started to spend way beyond the levels laid down in its budget and was unable to increase the tax within the year, so that when the budgetary overspend became pronounced and the financial controls did not work, it ran down its reserves to pay for the spending.

When that happened, I did not ask the Minister to intervene because I happen to believe in local democracy. I felt that the answer to the problem lay in regular elections and taking the case to the electorate. The Minister may be surprised but not pleased to learn that the electorate was capable of sorting the problem out in exemplary fashion—by deciding that the Liberal Democrats who were overspending and running down the reserves were not running the council well. The electorate threw the Liberal Democrats out and put in a Conservative administration. Over the months that have passed since that election of May last year, the Conservative administration has brought spending and taxation more into line and rebuilt the reserves to a much more prudent level. It made the issue of the reserves one of the main issues of the election.

To be fair to the Liberal Democrats—not something that I am usually able to do—the Liberal Democrat councillors in Wokingham would probably say that part of the problem was due to the fact that their officers wrongly advised them. I do not believe that that is a satisfactory defence. Ministers have to take the blame for their officials, and councillors have to take the blame for their officers. I dwell on that because it goes directly to the issue raised by the Minister. He believes that there are wonderful finance officers in local government who always get it right and on whom we can entirely rely. In my view, however, councillors, like Ministers, have to make judgments based on the best available advice. The Liberal Democrat testimony from Wokingham should make us pause and consider whether the council's problems were a combination of political misjudgment and advice from finance officers who had lost control of

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the budget in trying to implement the policies that were pursued. One cannot always expect finance officers to get all the forecasts right. Sometimes, they may not be aware of the spending pressures that build up in some departments, which are not always under their immediate control.

My conclusion from the Wokingham experience is threefold. First, we should not rely entirely on officers of the council; it has to be a collective judgment. Secondly, such matters can be sorted out perfectly well by the electorate and by the free flow of ideas and criticisms between the political parties fighting for control of the council. It is much easier if, as in Wokingham, there are annual elections, so that issues can be dealt with even more quickly. Thirdly, I see no need to appeal to Ministers to become involved, and there is no guarantee that Ministers' judgments on these matters would be any better than those of the chief finance officers or councillors. Indeed, it would take some time for a Minister to read all the documents and get up to speed in making a difficult judgment about future revenue flows and costs and therefore about what constituted a safe level of reserves.

The Minister and the Liberal Democrat spokesman referred to my role as Minister for Local Government. I freely confess that I did not bring before the House the big liberalising measures that I would have liked, but I reassure the Minister that I tried to. He will know that in a collective and busy Government, it is not always possible to win colleagues over to all that one would like. I have always been against capping and in favour of giving local authorities much more control. I would like to see the current Minister live the brand because, after all, Labour made strong criticisms of the Conservative Administration when they were in opposition, and it is deeply disappointing that they have not lived up to all the fine rhetoric.

Local government does not mean anything unless it has reasonable power of the purse. Often local government will choose to spend more than I would like it to spend, but I believe that it is my democratic task, together with other interested groups from my party, to make the case against overspending and to seek to win elections on that basis. If every major decision is to be second-guessed or overridden by Ministers, it is hardly surprising that people do not take much interest in local government or actively participate in local elections. The Minister should trust rather more to regenerate the interest in local elections that we all want.

Finally, I am sure that the large power assumed in the clause overrides and outweighs all the freedoms that the Minister is granting. It is a clever power: in operating on one element of the budget—but an important swing element—it gives the Minister power to intervene whenever he does not like the budget of a local authority, because he can always say that the reserves are going to be taken down to too low a point and effectively force the local authority either to cut expenditure or increase its tax by rather more at a future budget round. It is an undesirable power, so I urge the Minister to think again.

6 pm

Mr. Raynsford: I feel a sense of unreality about this debate, because we have heard three speeches from Opposition Members that have not been about the new

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clause that we are debating but about something that they would have preferred as an alternative—the removal of clause 26. We debated clause 26 in detail in Committee. An amendment was moved for the Liberal Democrats by the hon. Member for Southport (Dr. Pugh), who was quoted by the hon. Member for Runnymede and Weybridge (Mr. Hammond) in effusive terms. Indeed, his colleague, the hon. Member for Cotswold (Mr. Clifton-Brown) said at the end of the debate:

the hon. Member for Southport—

That was the Conservative position in the Commons.

When the debate was held in the other place, clause 26 was debated and an attempt to remove it from the Bill was defeated. That is the outcome for that clause. We have had a wholly different debate this evening about the new clause that has been inserted, which would have several perverse and undesirable consequences. It would create a huge new bureaucracy, requiring the Audit Commission to do a vast amount of speculative work in making guesses about the future budgets and viability of every local authority in the country.

The hon. Member for Runnymede and Weybridge pretended that the Government were friendless on the issue, but in fact the Audit Commission has made it clear that it shares our concerns about the new clause on grounds of practicality and the added regulatory burden that it would impose on all authorities. In the nicest possible way, I put it to all Opposition Members that they are supporting a new clause that would substantially increase the regulation of local authorities, impose a whole new bureaucratic framework for examining the budgets of local authorities and result in some perverse outcomes, as I identified in my opening speech.

Mr. Hammond: The Minister is keen to quote the Audit Commission selectively. Will he confirm that he understands that the Audit Commission believes it to be the responsibility of local authorities to determine their reserve levels, based on a risk assessment of their operational and business models?

Mr. Raynsford: I happily agree that that is the responsibility of local authorities. Clause 26, which we are not debating tonight, will simply put in place a reserve power that, as I have already made clear, we see as a long stop that we will be reluctant to use, and that we will use only in certain extreme circumstances. The new clause, which we are debating tonight, does not find favour with the Audit Commission, for obvious reasons. I am surprised that the hon. Gentleman should advocate something that is both bureaucratic and burdensome to local government.

Mr. Redwood: The Minister is addressing an important point and it would assist the House and local government interest in the debate if he could be more

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specific about the extraordinary circumstances that would trigger an investigation and possible action under clause 26, because I am not sure how he would do it.

Mr. Raynsford: I am not sure that the right hon. Gentleman was listening carefully when I outlined the situation. As I explained, the new clause would oblige the Audit Commission to form a judgment in respect of every local authority about its circumstances and budgets, and the circumstances that might lead it to overspend by 10 per cent. That would have some perverse consequences, because it would be unlikely to catch all those authorities that were genuinely in difficulty, while at the same time, it could tarnish the reputation of well run authorities that happened technically to breach the regulations. That cannot be a sensible framework. It is a bureaucratic and centralising proposition and I am astonished that Opposition Members should support such absurd proposals when they claim also to support our decentralising agenda of giving more freedom to local authorities, which the Bill will achieve.

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