Local Government Bill

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Mr. Geoffrey Clifton-Brown (Cotswold): Who is the emperor?

Mr. Hammond: When my hon. Friend takes over from me in leading for the Opposition for the remainder of our proceedings, he will quickly see who is the emperor. The Minister and his Secretary of State are giving themselves huge powers and conceding small amounts of power to local authorities. The Bill is presented as a wholesale distribution of power that gives freedom and flexibility back to local authorities, but it is the opposite. It is the accretion of a huge additional power—the power of the purse string—to the centre and the granting of concessions when the Minister feels so inclined.

Mr. David Curry (Skipton and Ripon): My hon. Friend started by referring to God, and is now down to emperor. May I suggest that he moves rapidly down the hierarchy to clerk, which is closer to reality?

Mr. Hammond: I have some respect for the Minister and I have noticed that the Deputy Prime Minister makes a point of sitting next to him; he is closely

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huddled with the Minister whenever any important complex and technical matters are discussed. I believe that the Minister is the driving force behind these initiatives.

Mr. Raynsford rose—

Mr. Hammond: I am happy to give way to the Minister as he modestly seeks to declaim his position.

Mr. Raynsford: I am most grateful to the hon. Gentleman for giving way and I thank him for his kind remarks. However, I suggest that he defer to the views of the right hon. Member for Skipton and Ripon (Mr. Curry), who speaks on this subject from experience.

Mr. Hammond: There is a barbed intention there somewhere, but it has totally passed by me—

Mr. Edward Davey (Kingston and Surbiton): Or through you.

Mr. Hammond: Or through me, as the hon. Gentleman says. I look forward to my right hon. Friend's response to the Minister's remarks in due course.

I return to the serious subject of the debate. I want to pick up on several things that the Minister said, and on some things that he did not say, although I understand that he lacked time. He said that in practice clause 11 would affect only debt-free authorities. I will explore that further, because the Minister will leap to his feet to correct me if I have misunderstood the way in which the current system works.

Casting my mind back to my first ever—terrifying—Standing Committee in 1997, I understand that local authorities, if they are not debt free, are required to set aside 75 per cent. of their receipts from housing disposals. That set-aside receipt is, in effect, offset against their housing debt. The Minister says that only the debt-free authorities will be affected by the measure in clause 11. However, I should like to know what will happen to the debt of the indebted authorities. Those authorities would have had their 75 per cent. set-aside offset against their debt, but will now have a 75 per cent. levy taken by the Secretary of State.

The answer lies in clauses 40 and 41, in which the Government give themselves the power to pay off local authority debts—not all local authority debt, but the debt that they choose to pay off. If I am not misunderstanding what will happen, we will move from a situation in which local authorities' receipts are channelled through the set-aside system into repayment of their housing debt, to a system in which local authority receipts are sequestered by the Secretary of State. The Secretary of State will then address the problem of those local authority debts not being repayable because of the sequestration by giving himself the power to distribute largesse in the form of debt repayment on behalf of the local authorities.

That seems to me to be a huge accretion of power to the Secretary of State. I do not want to fast forward to clauses 40 and 41 at this point, but as I understand it the Secretary of State has no obligation to repay all local authority debt, or any class of local authority debt, but has the power to do so. That is a huge

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discretionary power. The projected sums for 2003–04 are some £800 million. That is some pork barrel.

Mr. Raynsford: In the spirit in which the hon. Gentleman spoke, saying that he would expect me to jump to my feet if he was incorrect in any respect, I shall make two points.

There is no connection between the provisions that we are currently debating and those in clauses 40 and 41 concerning set-aside debt. We will deal with the issue of overhanging debt when we reach those clauses. The Government facility to extinguish the debt of authorities that have transferred their housing stock is in lieu of the continued subsidy provision which otherwise would apply to those authorities that continued to hold stock. It is not a special treatment and is not connected to this clause.

The clause replaces a regime under which 75 per cent. of certain receipts had to be set aside and were then used by the Government to support increased capital investment for other authorities, with a regime that does that explicitly. The 75 per cent. will be transferred to the Secretary of State to support capital investment by all authorities. That is simply a change in the administrative arrangements. There is no change in policy, and no change in the application of finance, because currently there is no statutory obligation to repay debt under the set-aside regime.

Mr. Hammond: I appreciate the Minister's intervention, but it is not clear to me what happens to the local authority debt that cannot be repaid. There may be no statutory obligation to repay debt, but I understand that the set-aside receipt can be used to repay debt.

What will happen to the housing debts that local authorities have accrued, when 75 per cent. of their sales receipts are creamed off by the Secretary of State? The Minister says that there is no connection to clauses 40 and 41. However, I suggest to him that there must be a connection, because the overhanging debt must be correspondingly larger since the local authorities will have a smaller receipt, the Government having taken 75 per cent.

Mr. Raynsford: No, there is no connection. The overhanging debt applies only in circumstances in which authorities transfer all of their housing stock and the receipt is insufficient to cover the outstanding debt. In those circumstances, the repayment of overhanging debt would avoid the otherwise bizarre position of the authority continuing to receive housing subsidy from the Government to meet those previous debt costs even though the authority no longer had any housing stock, which anyone with experience of the matter will realise would be nonsense.

That is the purpose of the overhanging debt provisions. They do not relate to the normal processes whereby authorities may reduce their debt through the application of receipts from right-to-buy sales.

9.15 am

Mr. Hammond: If the Minister reads clause 40, he will see that while he asserts with great confidence how it will be used in precise form, it states nothing of the

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kind. It gives the Secretary of State a wide power to repay local authorities' debts. I must press the Minister on the question of debt. How will local authorities repay the debt attached to housing stock sold under the right to buy when the Secretary of State is taking 75 per cent of the receipt? What is the mechanism and how will they account?

Mr. Raynsford: There is a simple explanation. The authority will continue to qualify for a housing subsidy that will meet the repayments on the outstanding debt in the same way that has applied in the past, so there is no change. It will be free to use its 25 per cent. of the receipt for whatever purpose, plus any other receipts where it will be entitled to use 50 per cent. to extinguish debt should it choose to do so. It will be a local authority's policy decision and authorities will have to find a balance between the advantages of reducing debt and the advantages of using those sums for investment.

Mr. Hammond: Throughout our debates, the Minister has extolled the virtues of a proper accounting practice approach. He tells us that the system will operate so that councils receive a capital receipt, of which the Secretary of State takes 75 per cent. The debt remains with the local authority, and the Secretary of State then disburses revenue funding to that authority to continue to service a debt that now supports an asset that no longer belongs to the authority.

Mr. Raynsford: No.

Mr. Hammond: Well, that was my understanding of what he said, but it seems to me the antithesis of appropriate accounting practice. I would have expected that a capital receipt from the sale of an asset would be used to pay debt associated with the asset.

Mr. Raynsford: On reflection, the hon. Gentleman will realise that it would be impossible for local authority accounts to be organised on the basis of a separate debt repayment regime for every property. The arrangements apply to the outstanding aggregate debt. That has always been the case, and there is no change. The difference in clauses 40 and 41, which relate to overhanging debt where there is a total stock transfer, is that the authority ceases to be a landlord and to hold stock. Therefore, it would be inappropriate for that authority to continue to receive housing subsidy.

Mr. Hammond: There is nothing in clauses 40 and 41 to limit their application to those cases, but I will not anticipate the long and enjoyable debate that my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) will have the pleasure of engaging in with the Minister.

I move on to another point that the Minister made in his reply. I did not intervene at the time because time was so short. That is a generous interpretation; I tried to intervene, but the Minister would not allow me to do so for the same reason. He talked about the increased funding that the Government are making available for affordable housing provision. Will he tell

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the Committee how many more affordable houses are being built this year as a result of that increased funding than were built in the last year of the previous Conservative Administration in 1996?

 
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