Local Government Bill

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Mr. Davey: The hon. Gentleman suggests that it is the intention of new clause 2 to prevent any limit

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biting on local authorities, even in the circumstances described, but it is not. The intention is to ensure that local authority borrowing is treated in the same way as other borrowing.

Mr. Hammond: The hon. Gentleman clarifies the intention of the new clause, but the fact that it is being considered in a clause stand part debate suggests that parliamentary counsel views it as a wrecking proposal.

We are happy to reassert that we will vote against the clause and I hope that the hon. Gentleman will join us. Amendment No. 7 and new clause 2 attempt to highlight and reduce the odiousness of the clause, but it would be best to vote against it as it clearly signals the Government's determination to clutch at a reserve power, which is not compatible with genuine decentralisation; it is nothing to do with granting freedom and flexibility. As the hon. Member for Southport (Dr. Pugh) said at our last sitting, the test, which I shall apply throughout the Committee stage, is whether the Government propose to allow local authorities to do what the Government do not want them to do, rather than only what the Government want them to do. Do they propose to give local authorities partial freedom to do what the Government want them to do and to retain a reserve power to prevent them doing what the Government do not want them to do?

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Mr. Christopher Leslie): That is clear.

Mr. Hammond: The hon. Gentleman is absolutely right. It is clear that it is the Government's intention to allow the local authorities freedom as long as they are doing what the Government want. When they think about doing what the Government do not want them to do, the reserve power is there to put them back on the Government-defined track. That is Government at their worst; dishonest about the purpose of the provision at the outset and shifty when rumbled. I hope that the Government will review the clause or, even better, at a later stage take into account at least the underlying intention of the amendments and properly scrutinise the regulations, for which there is no provision under subsections (1) and (2). If they do not do so, and unless the Minister makes a significant concession when he winds up the debate, I shall urge my hon. Friends to vote against the clause.

Mr. Raynsford: I shall do my utmost to retain my usual good humour, despite the monstrous travesties and hyperbole of the hon. Member for Runnymede and Weybridge, who sought to transform a modest safety net provision into a terrible, odious construct, which the Liberal Democrats find equally objectionable. I shall deal with both points of view.

New clause 2 is designed to replace clause 4(1), which would enable the Secretary of State to limit local authority borrowing if it was likely to exceed the nationally sustainable level. There are similarities between the new clause and amendment No. 7, which has been withdrawn, and links with the recommendation in paragraph 14 of the report on the draft Bill by the Transport, Local Government and the Regions Committee.

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There should not be a statutory requirement for parliamentary approval before setting a national limit. If, in the unlikely hypothetical circumstances of a major financial crisis—we do not envisage such a crisis, especially while the economy continues to be as prudently managed as it is at present—it would not be appropriate for the Government to delay before taking the necessary corrective action. In any case, any action that the Government took in pursuance of their powers under clause 4(1) would be implementing policies on public expenditure that had already received parliamentary scrutiny. Nor do we believe that it is practical to specify in the Bill detailed methods for assessing national economic interests as new clause 2 proposes. We put in the reference to national economic interests in response to concerns voiced in the Select Committee to demonstrate our good will and that we will seek to use this measure only in those extreme circumstances.

Hon. Members will understand that one cannot anticipate the circumstances that may apply. Could anyone have imagined, other than in a Jeffrey Archer novel, the run of events that occurred at the time of this country's ejection from the exchange rate mechanism during the imprudent management of our affairs by Lord Lamont? Such circumstances could not have been anticipated—[Hon. Members: ''They were.'']—other than by someone with an extraordinary imagination. The total mismanagement of the economy and the extraordinary incompetence of senior members of the Government at that time are difficult to apprehend in today's more tranquil, rational and calm environment. But that happened. Therefore we should not anticipate that everything will continue for ever in the calm, measured, prudent form to which we are now accustomed thanks to the Government's good management of the economy.

Mr. Hammond: I am delighted that the Minister has spelled out to the Committee the folly of linking a currency inextricably to another currency that has a different set of underlying economic determinants. I hope that he will be casting his vote accordingly if and when the Prime Minister ever dares consult public opinion on making a yet more irrevocable link.

The Minister talked about the use of subsection (1) only in extremis; in serious national economic circumstances—a crisis.

Mr. Raynsford: Yes.

Mr. Hammond: But the Bill does not say ''crisis'', as I mentioned earlier. It says ''national economic reasons''. Does the Minister have any advice, perhaps from counsel, that ''reasons'' means extreme or crisis reasons? The words that he has put into subsection (1) do not constrain the Government in any way.

Mr. Raynsford: If the hon. Gentleman feels that they do not constrain the Government he is not terribly experienced in the ways of the House. Anyone looking at the operation of these powers will question whether the national economic interest is such that it is necessary. That is a clear constraint because the Government have said that they will use these powers only for that purpose. I am not going to get

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into textual analysis over whether ''national interests'' should be substituted with ''national crisis''; I feel that ''national interests'' is a better expression. I have already indicated that those are the circumstances where these exceptional powers might be used. I will turn to the code for fiscal responsibility in a moment.

Mr. Davey: Before the Minister was tempted into a debate on the European question, he said that one could not always envisage the circumstances, so he wanted to leave himself maximum flexibility. However, the code for fiscal stability allows for such flexibility. Paragraph 11 states:

    ''The Government may depart from its fiscal policy objectives and operating rules temporarily''.

The flexibility in the code for fiscal stability is why we put it into new clause 2. The only difference between our approaches is that the Minister always wants to distinguish between local government and central Government borrowing. He believes that central Government borrowing should always take precedence and no consideration should be given to local authority borrowing, which can be treated willy-nilly by Whitehall. We are trying to change that; that is why new clause 2 is proposed.

The Chairman: Before the Minister replies, I ask hon. Members to keep their interventions brief rather than making long speeches. The Committee system allows everyone to have their turn. It is quite warm in here, so if anyone wishes to remove their jacket that would be in order.

Mr. Raynsford: Thank you, Mr. Conway. I am delighted to hear the tributes of the hon. Member for Kingston and Surbiton to the code for fiscal responsibility and to the Chancellor's prudent management of the economy. We are delighted to agree with him on that. However, it lead me to suspect that Liberal Democrats are beginning to dream, in the memorable words of one of their former leaders, of going back to their constituencies to prepare for power, or perhaps it was the first shot in the hon. Gentleman's campaign for the deputy leadership of his party. I should not have such unworthy thoughts.

We are delighted that the hon. Gentleman welcomes the code for fiscal responsibility, but it would not be particularly helpful in this context. It lays down broad financial principles rather than dealing with the conditions that might apply in the extreme circumstances that I have described. I am also surprised that the new clause did not include any reference to the Audit Commission, which we would want to involve in consultations on any possible national limit, as it is the appropriate audit authority for local government. I hope that he will agree that the new clause is not useful.

As Members know, clause 4 gives the Government reserve powers to impose borrowing limits on authorities, which would override the affordable borrowing limits set by authorities under clause 3 in limited and exceptional circumstances. The first power is detailed in clause 4(1), which enables the Secretary of State to set borrowing limits for all authorities, but it can be exercised only for national economic reasons. As I said already, we inserted that in response to the

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concerns expressed by the then Transport, Local Government and the Regions Committee. The clause reflects the policy of the White Paper ''Strong Local Leadership—Quality Public Services'' and the Welsh Assembly Government policy statement ''Freedom and Responsibility'', which is that the power should be used only if necessary to maintain public expenditure at nationally sustainable levels.

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We hope that we will not need to set a national limit at the beginning of the system, but a sudden surge of borrowing could be prompted by the new prudential regime, which could create circumstances in which it could be felt necessary to do so. If we ever needed a national limit it would have to be imposed by regulations, on which we would fully consult local government. We will not draft regulations on a national limit unless and until they are required, but we are already discussing with local government representatives the possible general structure of such regulations, in case they are ever needed.

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Prepared 28 January 2003