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Standing Committee Debates
Local Government Bill

Local Government Bill

Column Number: 45

Standing Committee A

Tuesday 21 January 2003


[Mr. Derek Conway in the Chair]

Local Government Bill

Clause 2

Control of borrowing

Amendment proposed [this day]: No. 26, in

    clause 2, page 1, line 14, at end insert

    'except where such borrowing is for the purpose of refinancing existing borrowing and the local authority states that repayment of an amount of existing borrowing sufficient to eliminate any such breach is to be made within fourteen days of the date of the borrowing in question.'.—[Mr. Hammond.]

2.30 pm

Question again proposed, That the amendment be made.

The Chairman: I remind the Committee that with this we are considering the following amendments:

No. 53, in

    clause 2, page 1, line 15, leave out subsection (2).

No. 5, in

    clause 2, page 1, line 16, leave out 'direction' and insert 'order'.

Mr. Philip Hammond (Runnymede and Weybridge): If the Government have imposed an aggregate limit on local authorities' borrowing to send signals to the market that they are addressing whatever macro-economic crises are occurring, it is important that any breaches of borrowing limits are dealt with in a transparent way. There should be an openness about the reasons for the breaches. It would be dangerous for the Government to be put in the position of issuing directions in the form of letters whizzing out from Whitehall, right, left and centre to the favoured corners of the land. There is a good macro-economic spin reason for ensuring that any arrangements are transparent.

Given the lingering suspicion about the way in which the Government distribute their largesse among local authorities, it is also important for the Opposition to see clearly the objective bases on which exceptions are established. I see no real objection to consulting Parliament about the matter. There is no reason why an order in the form of a statutory instrument should lead to inordinate delays. If it takes a Department as long to write a letter giving a direction as it often takes to write a parliamentary written answer, the delegated legislation procedure would probably be quicker.

The Minister's arguments are not persuasive. There is no obvious reason why such a significant and potentially discriminatory use of power should not be exercised by an order that is subject to parliamentary scrutiny, given that it would be a rare occurrence and that arrangements should be transparent if the limits are to have their effect for macro-economic reasons.

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In the course of the Minister's remarks, he mentioned a situation in which an authority might have contractual commitments that it was in danger of breaching as a result of the imposition of Government limits. Alarm bells should be ringing in the background about that, because therein might lie a loophole in the mechanism proposed by the Government. If the measure is necessary, it must be robust. I would be worried if the Minister was suggesting that, if a local authority has entered into forward commitments—however irresponsibly—an exception could apply.

The Minister for Local Government and the Regions (Mr. Nick Raynsford): I hoped that I had made the distinction clear. Any imposition of a national limit, as the hon. Gentleman recognises, would be in the wider economic interests of the country. In such a situation, it is perfectly possible that the new limit, which could be below the individual local authority's own prudential limit, could cut across existing contractual relations. Such relations may have been entered into responsibly and entirely properly because the authority was satisfied that it would have the ability to repay the loan from revenues that it would receive—it may be well within its prudential limit.

In such circumstances, if the authority could make a good, strong case, it would seem churlish and unwise not to be able to make an exception. I hope that the hon. Gentleman will acknowledge that such an exception would be made only in good faith, and not to bail out an authority that had acted irresponsibly.

Mr. Hammond: In the Minister's example, he would be able, when setting the initial limit on the authority for national economic reasons, to take into account any of the authority's forward commitments. It is therefore not clear to me why he needs the power to make an exception when everything should have been taken into account in setting the limit in the first place.

Mr. Edward Davey (Kingston and Surbiton): Will the hon. Gentleman speculate on whether clause 6 will be overridden by clause 2(2)? Clause 6 provides protection for lenders, who can take their local authority to court. If the Government do not exercise their power under clause 2(2), would the national economic limit imposed by the Government still be overridden by the protection offered to lenders by clause 6?

Mr. Hammond: If I understand correctly, the intention behind clause 6 is to ensure that a lender does not have to inquire into the vires of the local authority in making the borrowing in question. The clause has nothing to do with commercial contractual relationships outside borrowing relationships, so I do not think that it applies in the case that the hon. Gentleman raises.

We have made a perfectly reasonable proposition. We are not suggesting, as the Liberal Democrats have done—although I understand why they have done it—that the power in clause 2(2) should be removed, but that if the power is to remain, it should be exercised by order subject to parliamentary scrutiny. That would be a sensible way for the Government to exercise the power. If the macro-economic considerations of

Column Number: 47

clause 4(1) are to have their proper and desired effect, the process will have to be transparent.

Although I do not intend to press the amendment to a Division, I would like to have a separate vote on amendment No. 5. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 5, in

    clause 2, page 1, line 16, leave out 'direction' and insert 'order'.—[Mr. Hammond.]

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 13.

Division No. 2]

Cruddas, Jon Curry, Mr. David Goodman, Mr. Paul Hammond, Mr. Philip Marsden, Mr. Paul
Pugh, Dr. John Swayne, Mr. Desmond Syms, Mr. Robert Turner, Mr. Andrew

Caton, Mr. Martin Clifton-Brown, Mr. Geoffrey Davey, Mr. Edward Gilroy, Linda Hall, Patrick Iddon, Dr. Brian Lepper, Mr. David
Leslie, Mr. Christopher Mountford, Kali Raynsford, Mr. Nick Sawford, Phil Todd, Mr. Mark Woolas, Mr. Phil

Question accordingly negatived.

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

Mr. Andrew Turner (Isle of Wight): I would like to explore an issue that I wanted to discuss in some detail when we were considering one of the amendments, but your predecessor quite rightly ruled the subject to be wide of the amendment, Mr. Conway. However, it is certainly not wide of the clause, as I am sure you will agree. The issue is the aggregation of borrowing limits.

The Minister explained this morning that one reason why the Mayor of London has power to set the prudential borrowing limits for five local authorities is that he has executive power over them. However, another reason is the aggregation of borrowing that might be imposed on the ratepayers of London if those five local authorities operated independently. I explored to some extent the operation of such a rule in relation to North Tyneside, and the Minister quite reasonably explained that the council and the mayor work together there and set the prudential borrowing limit together. However, there are overlapping jurisdictions in North Tyneside, as there are in many local government areas. There is a police authority and a fire and civil defence authority that overlap the borders of North Tyneside council.

In my area, there is one all-purpose authority—or rather, it is practically all-purpose, because there is the ill-named Hampshire police authority, which operates in both Hampshire and the Isle of Wight, and it overlaps the borders of my council. All single-purpose authorities are local authorities for the purposes of the Bill. On the mainland, in Hampshire, outside the unitary authorities of Southampton and Portsmouth,

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there are district councils, too. Each of those will set prudential borrowing limits independently. However, the only controls over that borrowing are, first, how much the Secretary of State considers that the authority can afford, and secondly, what income stream the local council sets for that authority.

In the Minister's response about London, he said that the Mayor's borrowing powers—or his wish and desire to borrow—would be restricted by the income stream set by the assembly; he did not say that the income stream to be set by the assembly would be driven by the obligations of the Mayor. At least in the case of London, one body borrows and another provides the income stream. In most local authorities, one body will set the prudential borrowing limit, decide whether to borrow and set the income stream on which that borrowing will depend.

It is important to ask about the direction of the influence. Is the setting of the income stream driven by the desire to borrow, or is the ability to borrow driven by an estimation of the income stream that may be available to fund that borrowing? I guess that, as is generally the case in the world, there is no tidy black and white answer, and that the influence works both ways. However, I am sure that the Minister will admit that borrowing depends on the ability of the local authority to predict an income stream that is sufficient to maintain that borrowing prudentially. I suspect that that is what is meant in clause 3 by the words,

    ''ensuring that the authority does not borrow more than it can afford.''

The authority can afford what its income stream will support.

2.45 pm

If there are overlapping jurisdictions, the judgment about what can be afforded may depend on the level of the income stream that is set by other authorities. For example, the Hampshire police authority might want to borrow a hell of a lot of money to improve all the police stations and the control system throughout the Isle of Wight, and it might raise the precept accordingly to ensure that its borrowing can be met without taking account—it does not need to take account—of the income stream that the Isle of Wight council, and all the town and parish councils, might be setting for their purposes. Those purposes may be to permit those bodies to borrow as they are permitted by law.

Whether an authority can afford to borrow is one question, but whether the ratepayers can afford it is an entirely different, and I suspect a more important question with which the Bill does not wholly deal. How does the Minister propose that two, three or four authorities operating in the same area shall individually set their own prudential borrowing powers, when they would not know how much another authority may be setting, which one takes priority and what income streams might be set? The Bill does not even attempt to deal with that.

It is admirable that we are asking local authorities to set prudential borrowing limits and we all agree, more or less, that it would be excellent if the

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Government did not interfere unduly with the setting of those borrowing limits. It is, however, incumbent on us to explain, as the hon. Member for Kingston and Surbiton (Mr. Davey) came close to doing in his nirvana of councils being able to go bankrupt, that the responsibility for meeting the costs of the borrowing, which may have been prudential in the eyes of one party but highly imprudent in the eyes of another, will rest with the council tax payers for many years to come. We need to trumpet that loudly, so that the council tax payers are in no doubt that they are making a choice. One of the intentions behind the Bill is that council tax payers and electors should be clearer about the choices that they are making when they vote in local elections. We should ensure that that excellent intention is carried through.

Earlier on, we talked about the hon. Gentleman having to borrow money to replace the furniture in this Room that, in his enthusiasm for clause 1, he had destroyed. You may not be aware of that, Mr. Conway, but it was an important part of our consideration of clause 1.


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