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Matthew Green: We have discovered a new Tory tactic: they say, "If you score a victory, milk it." However, to take things a bit more seriously, we welcome the removal of clause 8(4). It would have given the Secretary of State apparently wide-ranging powers, although I know the Minister said that they were unlikely to be used in such a way. We welcome the amendment because there are too many occasions on which the Secretary of State accrues powers and too few occasions when such powers are removed, so this is a rare and welcome occasion.

Mr. Raynsford: I am delighted that there is broad support for the amendment, which simply reflects our growing appreciation of worries that were voiced during the passage of the Bill in both Houses about clause 8(4) and the scope for achieving by other means the policy objectives for which we had framed the provision. Our overall objective has been to maintain the prohibition on using credit for anything other than the acquisition of capital assets. Long-term credit such as borrowing should be used only to meet capital needs and not to pay for running costs. Such a restriction has existed since 1990 and currently exists in primary legislation, but it has given rise to technical difficulties. We therefore concluded that a rule could be dealt with more flexibly in regulations, so we drafted clause 8(4) to give us the power to make such regulations. However, the debates in this House and the Grand Committee in the other place convinced us that there were genuine concerns about the measure because it was drafted in broad terms and could conceivably have been used in ways that were different from what we intended.

Of course, we have tried to base the capital regime in the Bill on accounting principles as much as possible. We therefore checked whether modern accounting practice might offer a sufficient safeguard against the use of credit for revenue purposes. After careful consideration, we concluded that there was such an accounting safeguard. An authority that received a form of service and had the fees deferred for several years would be required to make a charge to revenue during those years, so there would be no perverse incentive to acquire services on credit. That means that regulation 7 may be deleted from the draft capital finance regulations, and as the power to make such a regulation is no longer needed, clause 8(4) may be removed.

I shall now address the other issues raised by the hon. Member for Runnymede and Weybridge (Mr. Hammond). I make it clear that private finance initiative projects will follow accounting practice. If the deals are

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off balance sheet, they will not score as credit, and, conversely, if they are on balance sheet, they will score as credit—that is the key distinction.

The issue was debated in detail for some time in the other place at the instigation of Lord Hanningfield. Our understanding is that accounting practice is highly relevant to PFI and that we can achieve everything necessary by using regulation 5 in the draft capital finance regulations, which deals with PFI contracts, by implication, and other forms of long-term credit. Its effect is that for the purpose of the new capital finance system, such transactions should be treated in accordance with proper accounting practice. If a contract has to be recognised on a local authority's balance sheet, it must be treated exactly like borrowing and count against the borrowing limits that apply to the authority. If it does not fall to be recognised on the balance sheet, it will not score as a credit agreement and, therefore, will not count against an authority's borrowing limits.

Mr. Hammond: The Minister has partly addressed my worry, but I was concerned that there seemed to be an all-or-nothing approach: a PFI charge must count either wholly against a borrowing limit or not at all. I am not an accountant—I usually stand up to say that I am not a lawyer—but it is likely that in a complex PFI deal, part of the charge would fall to be treated as a balance sheet item to finance a capital asset and part would fall to be treated as a revenue item. Does the Minister acknowledge that that could be proper practice?

Mr. Raynsford: I am in the same position as the hon. Gentleman because I am not an accountant. I have to ask for advice on such matters and I am told that PFI revenue costs are treated as part of the total package, which is what accounting practice requires. Revenue and capital costs cannot be split up in a proper PFI deal.

Mr. Hammond: Is the Minister concerned that that will create a perverse incentive not to do PFI deals and that such deals will become less attractive to local authorities, which would go against the grain of what the Chancellor has tried to encourage? Was the purpose of regulation 7, which will not be made, to exempt PFI transactions from counting against borrowing limits altogether because that appeared to be the case?

Mr. Raynsford: No. As I have already explained, the purpose of regulation 7 was to provide a safeguard against the possible perverse treatment of expenditure for revenue purposes under the capital framework, which would not be appropriate. There are separate rulings on PFI and I have spelled out my understanding of the treatment of PFI projects. I do not believe that there will be a perverse incentive not to undertake PFI projects, although if a local authority undertakes a PFI project that falls on balance sheet, it will have to take account of the obvious consequences for its finances, which is right and proper.

The hon. Member for Runnymede and Weybridge also asked about regulation 3, which relates to leases. We conclude that the regulation will not be needed, so it

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will be deleted. Accountancy practice supplies all that is required to provide necessary safeguards. With those assurances, I hope that the House will support the amendment.

Lords amendment agreed to.

Lords amendments Nos. 4 and 5 agreed to.

Clause 31

Power to Pay Grant


Lords amendment No. 7.

Mr. Raynsford: I beg to move, That this House agrees with the Lords in the said amendment.

Mr. Deputy Speaker: With this it will be convenient to consider Lords amendments Nos. 8 to 12.

Mr. Raynsford: Lords amendment No. 11 will remove clause 32, which would enable a Minister or the National Assembly for Wales to seek any information necessary when considering the award of a grant to an authority under clause 31. It will also allow Ministers to require retrospective information on the way in which a grant has been used. Clause 32 provides that a local authority must supply such information. In the light of concerns expressed in Committee and in another place about the wide scope of that power, we agreed to look at it again.

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By contrast, clause 31(3) allows conditions to be attached to the payment of grant. Such a condition could be that the receiving authority must supply certain information, if ever necessary. That power is much more limited in scope, as it is linked to the actual payment of the grant. It is also entirely in keeping with our policy of removing unnecessary restrictions and burdens on local authorities. The provision makes a separate clause unnecessary. To enable the National Assembly for Wales to use the grant-making power, it makes sense to remove clause 34 and to include its provisions in clause 31.

Mr. Hammond: The deletion of clause 32 is welcome. It was an unnecessary additional power for the Secretary of State to require information to be delivered by local authorities. As Lord Rooker said in the other place, and the Minister repeated, there are other ways of securing information, if it is really required, after a grant is paid rather than at the time when the Secretary of State is merely contemplating payment under the powers in clause 31(4). We have no problem with that.

Perhaps I am having a bad day, but I have a little more difficulty in understanding the logic of the Welsh provisions. Lord Rooker told the House of Lords that because of the deletion of clause 32 there was no longer any need for clause 34, which, in respect of Welsh local authorities, extended the definition of "Minister" to include the Welsh Assembly. If the essentially technical changes that remove clause 34, and insert the relevant amendments in clause 31, are intended to tidy up the Bill so that there is not a separate reference to Wales in

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clause 34, I have no objection to them—but that is not what Lord Rooker and the Minister say. They say that it is a change consequential upon the deletion of clause 32—in other words, that clause 34 is no longer needed owing to the deletion of clause 32. I am afraid that I have not been able to work out how the one follows logically from the other. Will the Minister explain how the wholly laudable decision to drop clause 32 makes clause 34 redundant in such a way as to make the other amendments consequential on the deletion of clause 32 instead of mere redrafting and tidying amendments? As I cannot see the chain of causality, I am worried that I may be missing something important. If so, no doubt the Minister will enlighten me.

Matthew Green: We welcome the removal of clause 32, which was triggered by amendments tabled by my hon. Friend the Member for Kingston and Surbiton (Mr. Davey). The clauses provided for powers on the requiring of information that, with the benefit of time over the summer, the Minister rightly decided were not needed. The Welsh provisions are merely a tidying exercise; as such, we are happy with them.


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