Local Government Bill

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Mr. Andrew Turner (Isle of Wight): I wonder whether that provision also applies to funds such as charities of which the local authority may be a trustee. My local authority was the trustee for a property called Northwood house in Cowes. It reached the point of selling it before it discovered that it was a trustee and therefore not allowed to do so. Fortunately that situation was reversed, but this seems an opportunity to plunder all sorts of funds.

Mr. Clifton-Brown: My hon. Friend has opened up a Pandora's box. We are getting into the fiduciary role of a trustee. I wonder why or where it would occur that a local authority would be a trustee of anything, let alone that the superannuation fund would enter into a trust deed with another party. Perhaps the Minister could clarify that point and then we might return to it.

Mr. Leslie: The questions came thick and fast. Opposition Members should read the clause in the context of chapter 1, which is about the prudential regime and the changes in the capital regime we are putting in place. Clause 17 deals with external fundsówhich I will come to in a momentóbut simply preserves the existing arrangements under the present system.

The main example is pension funds, which will be treated outside the normal capital controls but governed by their own regulations and arrangements. Those funds are ring-fenced and subject to separate legislation. In response to the hon. Member for Cotswold (Mr. Clifton-Brown), the provision would also cover other funds such as charitable funds for

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educational or recreational purposes or property held in trust for people in the care of authorities.

The clause ensures that transactions such as expenditure, borrowing and investment undertaken for the purposes of such funds are outside the scope of the provisions in chapter 1. The hon. Member for Poole asked me to clarify the meaning of ''temporary'' in subsection (1)(b). We covered a lot of that ground under clause 5 and the meaning is largely the same; in other words, the money would have to be repaid within the financial year.

The hon. Member for New Forest, West (Mr. Swayne) asked how much the temporary facility is used across the country. I cannot have that information to hand, not least because so many funds and authorities are concerned. I suspect that the answer could be discovered only at disproportionate cost, but I will ask officials to look further into the matter. If an answer is readily to hand I shall supply it to the hon. Gentleman in due course.

Mr. Clifton-Brown: The Minister has given a reasonable explanation of what the clause is about, but could he give the Committee some examples of where problems have arisen that have generated the need for the clause? Could he also tell us what the clause gives the Government extra powers to do that is not already enshrined in other regulations?

2.45 pm

Mr. Leslie: I can. The provision concerns the prudential borrowing regime that we are seeking to establish. In ensuring that a local authority is able to make its own assessment of how affordable its borrowing commitments are, we are saying that external funds and pension funds should not be classed as part of that, even though in their normal course of activities they would involve capital transactions. The clause concerns the normal affordability of capital and borrowing for a local authority. That is why the existing arrangements will continue in clause 17. The existing system works well and we want that to continue, so it is necessary for us to make that clear in the Bill.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

Clause 18

Local authority companies etc

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

Mr. Clifton-Brown: Clause 18 concerns local authority companies. As on the previous clause, I seek clarification from the Minister. We are concerned to ensure that there are no possible loopholes that would give rise to misuse of public money. For example, no draft regulations under clause 18(4) have been published. Could the Minister tell us what those draft regulations might include?

Will the Minister also tell the Committee what borrowing safeguards there will be for local authority companies and whether local authorities can give shareholder guarantees to the companies? With what

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auditing regime will the companies have to comply, and will they be subject to best value and comprehensive performance assessments? How will local authorities be protected from fraud in relation to those separate companies, and what other safeguards provided in the Bill will apply?

Dr. Pugh: May I make a simple point about the clause? I tried reading subsection (1) several times before I managed to attribute any meaning to it. At first I thought it was tautologous, but eventually I worked out what it meant. It appears to say that the actions of a body covered under subsection (2) are to be treated for the purposes of the chapter as the acts of local authorities. However, it says that in a very cumbersome way, and would not pass a plain English test. Would the Minister consider re-drafting it in a more felicitous fashion?

Mr. Leslie: I believe that subsection (1) is reasonably drafted. It simply says that the regulations would allow local authority company activities to be regarded as if they had been undertaken by the local authority itself, with regard to capital activities and borrowing, and in so far as they relate to the affordability test. The clause concerns local authority companies and definesó

Dr. Pugh: That is indeed what it says, but I think it would be better, for the sake of clarity, to say it without using a sentence that includes the word ''regulations'' with three different functions.

Mr. Leslie: I would prefer statute to be drafted in a certain way, but it is sometimes drafted in a repetitious manner so that it does not exclude any possibilities and avoids loopholes. That brings me to the point made by the hon. Member for Cotswold. The broad purpose of the clause is to preserve and continue the current system. The current system prevents local authorities evading capital controls by operating via companies, and that principle will be preserved in the new system,not only for the prudential limit, but for the national economic reasons limit, which we discussed under clauses 3 and 4.

The hon. Gentleman asked about borrowing safeguards, the auditing regime and protection from fraud. The company laws, including the Companies Act provisions, will apply to local authority companies just as they do to any other limited company. That law contains perfectly adequate protections relating to the auditing of accounts and other matters raised by the hon. Gentleman. Local authority companies do not need to be treated in the different way suggested.

It is important that, if a company is controlled by a local authority and has significant borrowing or significant liabilities, they can be classed and held together with those of the local authority, so that it can properly calculate its liabilities and be certain that it can afford to service the borrowing undertaken in respect of all its activities. That is the simple purpose of the clause. I hope that I have helped to answer some of the points that have been raised.

Mr. Clifton-Brown: The Under-Secretary has been helpful and given us a reasonable explanation. I therefore hope that my colleagues will support the clause standing part of the Bill.

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Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 19

Application to parish and community councils

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

Mr. Clifton-Brown: It may be worth having a canter round the powers and duties of parish councils. The Bill seems very much in line with Conservative policy in that the Government envisage a much bigger role for parish and community councils. It would be interesting to probe what the Under-Secretary envisages.

The clause gives parish councils very big powers, but that has been the case with all the clauses that we have debated. Clause 2(3) relates to control of borrowing. Clause 6 deals with protection of lenders. Clause 9 relates to capital receipts. Security for money borrowed is dealt with under clause 13. Guidance, inevitably, is dealt with under clause 15. Clause 17 is about external funds.

Clause 19 gives parish councils pretty significant powers. If we combine that with the powers and duties under clause 36, which relates to best value and parishes, we see that those bodies will perform a significant role. With all the increased borrowing powers, the Under-Secretary must envisage their performing significantly greater functions than they do at present. If they do perform greater functions, someone else, one hopes, is performing lesser functions. It would be interesting to know who is performing those.

One assumes that, all the way down the line, powers are being devolved. If we must have the regional bodies that we disapprove of, one hopes that they will delegate as many functions as possible down the line to subordinate councilsódistrict, unitary and county councils. In turn, the Government are encouraging those councilsówe approve of thisóto devolve as many functions as possible to parish councils. One hopes that that is what is in the mind of the Under-Secretary, but also that the parish councils will be subject to as light a touch as possible.

We will debate best value and other issues, but the Government have loaded a number of requirements on to parish councils in respect of auditing, disclosure and so on. I do not know whether other members of the Committee have had this experience, but we are finding that parish councillors are standing down because of those onerous requirements. Surely we want to encourage as many people as possible to take up their civic duties and become councillors. The tradition was that parish councils were not a particularly burdensome office and that everyone from the spectrum of the community was encouraged to stand for them. If we make the post too burdensome we will simply turn parish councils into mini district councils, and then what will be the point of having this extra tier of local government? This is a circular argument and I simply probe the Minister on the matter.

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