Local Government Bill

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Mr. Raynsford: As we go through the Bill, the hon. Gentleman will see that a number of clauses are broadly acceptable, so that no amendments to them are required—indeed, they would look perverse. Therefore, we will be able to make rapid progress at some stages. However, I accept his point that other clauses will be more controversial, so there will be a need for greater debate. That is as it should be.

All of us have experience of Committees where, after a great fuss at the beginning by the Opposition about a lack of time, as proceedings develop it becomes clear that there is not much of substance to debate, and we end up having lengthy and not entirely productive discussions about the appearance of the word ''but'' at the start of a sentence.

Mr. Desmond Swayne (New Forest, West): Will the Minister give way?

Mr. Raynsford: I am delighted to have stimulated the hon. Gentleman.

Mr. Swayne: The Minister will recall that during that lengthy debate, much of the time was taken up by hon. Members from his own party—and not least by himself.

Mr. Raynsford: The fact that the Opposition had to focus so much energy, attention and time on the issue of the appearance of ''but'' at the start of a sentence

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was an indication that the expressions of outrage at the shortage of time that we heard at the beginning of the Committee's proceedings might not have been entirely justified.

The only other comment I wish to make in response to the remarks of the hon. Member for Runnymede and Weybridge is about the reference to a load of guff. My recollection of that—it might be incorrect—is that I had been prompted by hearing his colleague, the right hon. Member for Suffolk, Coastal (Mr. Gummer), referring in the Chamber in an interesting way to his parliamentary and ministerial legacy of the 1990s as a load of guff.

I look forward, in the same spirit as the hon. Member for Kingston and Surbiton, to hearing the current Conservative party describing its legacy from the 1990s as a load of guff. That is our view of it. This Bill is designed to sweep away a lot of that guff, and I hope that we can make rapid progress with it.

Mr. Hammond: The guff that my right hon. Friend the Member for Suffolk, Coastal and I have referred to is the kind of stuff that comes out in reams from those neat little ring binders that Ministers tend to have.

I had not noticed that there are four Liberal Democrat Committee members. Given the way in which the Liberal Democrat Members seem to be collaborating with the Government on some of the most controversial issues that will be put before the Committee, that is telling. Now is an historic moment, because I suppose that the previous time when four Liberal Democrat Members were present in one Committee was in 1909.

Mr. Davey: Will the hon. Gentleman give way?

Mr. Hammond: I do not have time to give way at the moment. The Minister has not dealt with the substantive issue that was raised about the Select Committee's comments on the Bill. I urge my hon. Friends to vote against the timetable motion, and I hope that Liberal Democrat Members will join us.

Question put:—

The Committee divided: Ayes 15, Noes 9.

Division No. 1]

Caton, Mr. Martin Cruddas, Jon Davey, Valerie Dean, Mrs. Janet Gilroy, Linda Hall, Patrick Iddon, Dr. Brian Leslie, Mr. Christopher
Mountford, Kali Quinn, Lawrie Raynsford, Mr. Nick Sawford, Phil Todd, Mr. Mark Touhig, Mr. Don Woolas, Mr. Phil

Davey, Mr. Edward Doughty, Sue Goodman, Mr. Paul Hammond, Mr. Philip Marsden, Mr. Paul
Pugh, Dr. John Swayne, Mr. Desmond Syms, Mr. Robert Turner, Mr. Andrew

Question accordingly agreed to.

The Chairman: Before we proceed, I remind the Committee that there is a financial resolution and a ways and means resolution in connection with the Bill,

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copies of which are available in the Room. Adequate notice should be given of amendments. As a general rule, I do not intend to call starred amendments, including those that may be reached during an afternoon sitting. I also remind members of the Committee to switch off their mobile telephones.

Clause 1

Power to borrow

Question proposed, That the clause stand part of the Bill.

Mr. Hammond: As the Minister said, the clause is not highly controversial. Its intention is to restate the power of local authorities to borrow for a purpose that is relevant to any of their functions and to elaborate that they may also borrow for the purposes of prudent management of financial affairs—that is to say, to borrow in the course of normal Treasury operations.

The relevance of my question to the Minister will become clearer when we discuss clause 2 and amendment No. 26. Has it been established that there is no power at present to borrow for normal Treasury operations? By that, I mean short-term borrowing for prudent management of financial affairs. The explanatory notes do not make it clear, but it may have been established by the courts, for example, that no such power exists. I should be grateful if the right hon. Gentleman could explain why the Government have found it necessary to elaborate that specific power under the Bill.

Mr. Raynsford: The hon. Gentleman was true to his word. He was brief and to the point, and asked a pertinent question. I, in turn, shall not give the Committee a detailed explanation of the clause, but it is important to clarify the significance of the two parts of it. The major innovation under part 1 of the Bill is the introduction of what is now referred to as the prudential system for local authority borrowing. The logical starting point for that is the general power to borrow, which is the subject of the clause.

Local authorities have always been able to borrow. Clause 1(a) preserves their existing broad power to borrow

    ''for any purpose relevant to''

any of their statutory functions. Subsequent clauses, to which we will turn shortly, make provision for borrowing procedures and the level of borrowing. However, none of them restricts the wide-ranging purposes for which borrowing may be undertaken in accordance with clause 1(a).

Under the current legislation, which was introduced in 1990, there are technical doubts about the lawfulness of borrowing to repay existing debt—which comes to the meat of the concern raised by the hon. Member for Runnymede and Weybridge. Clause 1(b) deals with that concern. The refinancing of debt is a widespread practice and has full Government approval. Indeed, a large part of the money lent by the Public Works Loan Board to local authorities is for that very purpose. It gives local authorities flexibility over the timing of loan repayments and makes it possible to negotiate more favourable interest rates.

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Many members of the public do something very similar with the mortgages on their homes. The practice is current and widespread, but current legislation does not confer an explicit power on local authorities to borrow for such a purpose.

9.30 am

Local authority lawyers have widely and, I suspect, wisely concluded that there is an implicit power; we see no reason to dissent from that judgment. However, that situation is not satisfactory, so, in clause 1(b), we make it clear that local authorities will have an explicit power to borrow for the prudent management of their financial affairs. That will enable them to borrow to repay existing debts, provided that they are satisfied that it is prudent to do so.

Clause 1(b) is also needed because certain other borrowing procedures may not be fully covered by clause 1(a). One issue that arises is that individual loans cannot easily be linked to particular statutory purposes of the kind referred to in clause 1(a). Authorities aggregate their borrowing requirements and a single loan may help to fund several capital projects as well as meeting temporary cash flow needs and, perhaps, refinancing old debts. The ability to relate loans to specific statutory purposes may not therefore be easy.

In addition, there is no close link between the timing of borrowing and expenditure. Borrowing for capital projects is sometimes postponed if interest rates seem likely to fall; in the meantime, expenditure is met out of temporary surplus cash. On the other hand, if interest rates seem likely to rise, loans may be taken out some months ahead and invested until spending need arises. Clause 1(b) confirms the lawfulness of such Treasury management practices—subject, in all cases, to the requirement of prudence being met.

I hope that I have answered the hon. Gentleman's question and that he is happy with my recommendation that the clause stand part of the Bill.

Mr. Davey: That clarification was useful, as the hon. Member for Runnymede and Weybridge will, I hope, confirm.

I want to raise an issue that will overshadow all aspects of this morning's debate on the prudential capital regime. The Minister will readily admit that freedom to borrow, as laid out in clause 1, is useful only if one has the resources to back it up—to pay the interest on the debt and then, in due course, the capital. A key issue in the Select Committee's report, and in evidence that it heard from bodies such as the Chartered Institute of Public Finance and Accountancy, is that the Government have not yet made clear the regime of revenue support that they will provide for local authorities to back up the new prudential capital regime. It is all very well for us to debate and support clause 1—as we will do—and for us to say that it is great and that it clarifies the legitimacy of local authorities to borrow in those circumstances. However, the Government have not yet told the Local Government Association—or CIPFA, Parliament or anyone—what the new revenue regime will be to back up the freer capital regime. Will the Minister take this opportunity to clarify that? Many

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local authority treasurers want to know what the revenue regime will be. When will the Minister tell them? He says that the new prudential regime will be in place by April 2004. To prepare for that, local authorities will need to know about the new revenue regime much earlier.

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