Local Government Bill

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The Chairman: I am glad that I was not involved.

Mr. Turner: That would be fine for the hon. Gentleman, because he cannot walk away from his debts. However, councillors can, and all too frequently do, walk away from the decisions that they have taken on behalf of their electors. They could easily do that and not seek re-election. Sometimes, the electors are given the opportunity to elect them and choose not to. I do not entirely blame the councillors for that. I blame those councillors who set Hackney, for example, on an appalling track and decided not to seek re-election. I would be concerned about councillors who set high prudential borrowing requirements because that seemed, in their political judgment, to be the right thing to do. I do not decry their judgment, but it may differ from that of other councillors. However, I am concerned that having made such a decision and having found that the level of council tax is pushed ever higher, councillors might decide not to seek re-election and walk away from the responsibility, leaving it to other councillors, whether from the same or different parties.

Dr. John Pugh (Southport): Regarding financial impropriety, I do not think that a councillor's liability in legal terms would disappear if they had been advised by the finance officer to behave properly and not to act in such a way. They might be able to get out of the political flak, but if they do not seek re-election their responsibilities persist in legal terms, even in such a scenario.

Mr. Turner: The hon. Gentleman is right, but I am talking about financial imprudence, not financial impropriety, which may be a matter of judgment between councillors from different parties. For example, my local authority, which is Liberal Democrat-led, was advised by the chief executive that they were in grave danger of making a loss when they ran a pop concert in the middle of last year. The councillors decided that they were going to make a profit and, lo and behold, they made a loss of £380,000, which worked out at £8 per household on

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the council tax. It is possible for councils to act legally and stupidly at the same time.

Mr. Patrick Hall (Bedford): That is what elections are for.

Mr. Turner: It is indeed what elections are for, and they are fine for dealing with councils that act stupidly in setting the revenue stream. However, councillors may place an obligation on future councillors, who may be of a different party—a party that is more sensible than the Liberal Democrats, such as the Labour party or my party. If councillors set high borrowing levels—and do so within the law but in a manner that the hon. Gentleman and I may consider imprudent—they will require future councillors to have a high income stream to meet those debts. In other words, a burden will be placed on future generations.

I do not say that that is wrong, but I do say that it is stupid. We ought to make it clear to electors—and hon. Members may be sure that I will do so in future local government elections—that if they elect a high-spending, high-borrowing council this year, they will face a high council tax bill not only this year and for four years to come but perhaps for a generation to come.

Mr. Hammond: This may be a good moment for a time check. So far, we have spent about 140 minutes on the first two clauses. We are rather behind our schedule: the programme resolution allows us only 12 minutes for each clause. I suspect that we will still require a few minutes to finish clause 2. However, I do not think that anybody would argue that this morning's debates have not been important. [Interruption.] Perhaps not all hon. Members were here for those debates. I accept that we have explored areas of general importance to this first part of the Bill, but I am concerned about the time that it has taken.

Let us take stock of where we are. Clause 1 puts into primary legislation a specific power to borrow for local authorities. Clause 2 then puts restrictions on that power. First, and quite properly, it refers to the self-imposed restrictions that councils will face as a result of the determinations that they make under clause 3. Secondly, and much more controversially, it refers to the externally imposed limits that councils will face as a result of Government action—Secretary of State action—under clause 4. Several hon. Members have questioned the extent to which the Government's much-vaunted granting of freedoms to local authorities is genuine. Already we see that what is granted in clause 1 is clawed back in clauses 2, 3 and 4. Perhaps more importantly, several hon. Members have stressed that, ultimately, the ability to borrow and to set a prudential borrowing limit depends on the stream of revenue funding that is available to a local authority. That remains very much in the iron grip of the Minister of State. I think that we are supposed to pretend that it is in the grip of the Deputy Prime Minister but we have all seen the firm way in which the Minister of State manages these affairs.

We have overarching concerns about this part of the Bill, but we have a specific concern about clause 2(2) and the Secretary of State's ability to exempt any

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authority from any limit that is imposed on it under clause 4. We have been told that that will not involve any parliamentary scrutiny: it will simply be a determination made by the Minister, issued in the form of a letter. That causes us concern. We have seen bias in funding and we must now be concerned about bias in exceptions to borrowing restrictions.

The prohibition on borrowing in foreign currency may not seem controversial—local authorities have always been prevented from doing that. However, that is not a good enough reason for the inclusion of that prohibition in the Bill. I would like to think that the Government have reviewed afresh every restriction faced by local authorities.

Perhaps there are good reasons for such a prohibition, but many borrowers whose revenue streams are derived in sterling may consider foreign currency borrowings with suitable hedging tools in place to protect them from currency exposure. What evaluation has the Minister's Department undertaken of any benefits that might have accrued to local authorities from removing the prohibition? I do not suggest that many local authorities would wish to borrow in foreign currencies or that it would be appropriate. However, Conservative Members' starting position is that we should not restrict the powers available to local authorities unless it is essential.

The onus of proof lies with the Minister. He must show, beyond reasonable doubt or at least on the balance of probabilities, that the power to borrow in foreign currencies would be wholly a bad thing. If the Government are setting their face against foreign currencies and all that they stand for, is that a portent of decisions yet to come? Perhaps we have detected a shaft of light illuminating future intentions through a chink in the Government's armour. I await the Minister's comments with bated breath.

Mr. Edward Davey: I welcome you to the Chair, Mr. Conway. I will not explain my earlier alleged vandalism, but I confessed to the policeman and he will rectify matters.

Although we have debated this subject exhaustively, there is one aspect that I wish to draw to the Committee's attention. It is pertinent to future debates and answers an earlier question by the hon. Member for Isle of Wight (Mr. Turner).

In a letter to you, Mr. Conway and your co-Chairman, Mr. Griffiths, dated 15 January, the Minister kindly set out the background to some of the clauses that we are debating. In the commentary, it states that there will be an opportunity for account to be taken in the code that the Chartered Institute of Public Finance and Accountancy will produce of any views expressed by the Committee and of any changes in the draft legislation. The commentary states that we are invited to comment on the code. The Government want CIPFA to take account of our discussions. We can still influence the way in which the code is developed by CIPFA and its implications for councils throughout the country.

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The hon. Member for Isle of Wight may be pleased to know that in the draft code, which is work in progress, paragraph 27, on page 14 states:

    ''Affordability is ultimately determined by judgement about acceptable Council Tax levels and, in the case of the Housing Revenue Account, acceptable rent levels.''

Paragraph 29 lists the different matters that should be considered in respect of affordability.

I agree with some of the hon. Gentleman's comments. When it examines the code and final drafts before publication, CIPFA may wish to consider his point about council tax levels and precepts, which, taken together, might affect affordability. I do not wish to say much more than that because—we hope—the House will influence the important code in the debates that follow. We want the code, CIPFA's role and that of other accounting bodies put into the Bill. If we want control of borrowing to happen in the true prudential way, the Committee must influence CIPFA to change its current draft of its code.

3 pm

Mr. Robert Syms (Poole): We are debating capital finance, which inevitably has a strong relationship with the revenue budgets. I have scanned through some of the documents and want to know where the private finance initiative falls into the equation. We do not count it as capital, but it is a long-term liability. I am interested in how that is accounted for in the financial indicators that must be produced by local authorities. It will have a big impact on the capital and revenue.

If local authorities felt that the Government, at some point, would intervene to control their local borrowing, they might think that it would be better to go along with the PFI and reduce their borrowing, but have higher revenue costs as a consequence. I want the Minister to put on the record the Government's view of the long-term liabilities of PFI that local authorities have and how that would relate to the financial indicators that we are expected to show, so that we decide whether money can be afforded.

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