Clause
24
Control
of disposals
etc
Mr.
Syms:
I beg to move amendment No. 52, in
clause 24, page 15, line 28, at
end insert—
‘(5) Nothing in
this Chapter or in any direction from the Secretary of State shall
restrict a relevant authority from utilising its financial reserves to
reduce its budget requirement for council tax
purposes’.
This
is a very good amendment. We have started to test some of the
propositions to do with the financial implications of dealing with the
winding up and merging of authorities. I have a few general questions
on the matter, and I tabled the amendment because I am sure that the
Minister has a very good explanation to offer to the
Committee.
Some
authorities will have large reserves, and some will have small
reserves. There is an argument that large reserves are inefficient
because they result from overtaxing people. My hon. Friend the Member
for Shrewsbury and Atcham (Daniel Kawczynski) told the House about the
reserves of the authority in his area on Second Reading. What will be
the practice when an authority with large reserves comes together with
an authority with small reserves? Will a number be put together by
simple aggregate? Will an attempt be made to return what some might
argue to be the proceeds of overtaxing to the people whose council
holds large reserves? There are other issues: some authorities have
large insurance funds, others may not. In other words, there will be
financial imbalances when two authorities meet. How does one deal with
those
imbalances?
6.15
pm
The Minister did
not have the opportunity the other day—one talks about
staffing—to address the single status issue, which some
authorities have dealt with more speedily than others. If two
authorities are put together, that will lead to financial imbalances.
Under clause 24, we are trying to find out how we will proceed in
dealing with financial imbalances between authorities. Will it just be
a case of hard luck? An area comes together, everything is aggregated
and, as the Minister said, people go for the lowest common denominator
in terms of council
tax.
Amendment No. 52
is concerned about financially irresponsible authorities doing what I
suggested a moment ago. We were thinking of a situation in which an
authority has reserves and just returns the money in the last year
before it is merged with another authority. That is why we tabled the
amendment, which
states:
“Nothing
in this Chapter or in any direction from the Secretary of State shall
restrict a relevant authority from utilising its financial reserves to
reduce its budget requirement for council tax
purposes.”
That would deal
with the Shrewsbury issue. It would allow Shrewsbury simply to give the
money back, if it wished to do that, before it was merged against its
will with another
authority.
We have
discussed staff imbalances. We want the Government to say what happens
with financial imbalances. As part of the overall submission, have
authorities to discuss how they will deal with such imbalances in
arriving at the new arrangements with the consent of the
people?
Andrew
Stunell:
I want to take the point made by the hon. Member
for Poole a step further. As I understand it, one of the criteria that
the Secretary of State will have in mind is the council tax levels that
will arise in the combined authority. I think that I heard the Minister
say that the Government would expect that not to exceed the lower of
the levels that might be in force in the eight or more unitary
authorities. Perhaps he could underline that or not, as the case may
be. It is clearly relevant to the disposal of any reserves that might
be held by one or other of the authorities. It might well be that, to
achieve what has been described, the reserves held by one authority
would of necessity be applied to reduce the charges in another
authority or what was previously another authority area.
I may not be expressing myself
clearly, but I hope that the Minister can understand the points that I
am making. Clearly, that could be an aggravating feature, if I can put
it that way, of the circumstances that arose post merger. I would be
interested and grateful if the Minister gave us a response to that as
well as to the issues raised by the hon. Member for
Poole.
Mr.
Dunne:
I support the amendment moved by my hon. Friend the
Member for Poole, which has my name attached to it. I would like to
elaborate a little on the issue, as he was kind enough to refer to my
neighbouring authority and it does illustrate the importance of the
amendment and the difficulties posed by the clause as
drafted.
As we all
know, councils have assets of very variable amount and quality. That is
not a criticism of any individual council administration. Those assets
tend to have been built up, accumulated or spent over years, decades
and, in some cases, probably even longer than that. That is a result of
the practice and stewardship of successive councils and successive
Government policies, so this is not a party political point at all; it
is just a fact of life. Some councils are well run; some are not so
well run. Some retain substantial assets deliberately for a rainy day,
and those assets may be, as my hon. Friend said, large cash
balances—for example, from the sale of housing stock where they
have not as yet spent the receipts. I am sure that, had my hon. Friend
the Member for Shrewsbury and Atcham been lucky enough to serve on the
Committee, he would be making the point more forcefully in the case of
Shrewsbury and Atcham than I
could.
Mr.
Woolas:
And probably at greater
length.
Mr.
Dunne:
I could not possibly comment on the
Minister’s sedentary intervention, but I am sure that any
contribution made by my hon. Friend would be an impressive
one.
Other councils
have land—indeed, Shrewsbury and Atcham borough council still
has farms on its books. Some of the ceremonial assets that might be up
for sale as a result of having a unitary authority might also have
value.
Other councils
have significant debts. If the Minister will bear with me, I shall
illustrate that some councils in Shropshire have significant debts. The
county council has substantial debts, which are in the hundreds of
millions of pounds—they total at least £100 million.
That situation compares with the assets of the other
councils. The debts might not be purely financial ones, because
councils may have commitments and liabilities.
Irresponsible
administrations might enter into liabilities ahead of elections for
party political advantage. Again, I do not regard that as a party
political point, and I am sure that none of us approve of such an
approach. I represent Ludlow, as I am sure the Minister knows. There is
an interesting contrast within Shropshire between the financial
circumstances of those who are proponents of unitary authorities and
those councils that are opposed to unitary authorities. As I have
mentioned, the county council, which is the primary advocate, has
significant debts.
I
should perhaps have declared at the outset that I still serve on South
Shropshire district council, which is an advocate of having a unitary
authority. It has sold its housing stock and has invested the proceeds,
so its receipts have now been depleted to the point where it is
operating at the minimum level of prudent reserves without entering
into debt. In the past year or so, it has been spending its reserves to
fund its priorities. It would be coming into a unitary authority with
neither assets nor liabilities and would broadly be in balance. That
contrasts with some of the councils that are opposed to having a
unitary authority.
I
have already referred to Shrewsbury and Atcham borough council, which
has significant cash, although it has some commitments because of how
it plans to spend that. One of its primary concerns about having a
unitary authority is that those plans might be taken over by a
different authority with different objectives and that much of the
money instead of being spent in Shrewsbury will be spent elsewhere in
the unitary authority area. That is one of the strongest
reasonsfor concern about the proposals in the town of
Shrewsbury.
Patrick
Hall:
Is the hon. Gentleman suggesting that a council that
is not in favour of the situation into which it is getting bound might
prefer to make a huge one-off reduction in council tax as a way of
getting rid of reserves rather than to favour investment in the longer
term, albeit in a wider area?
Mr.
Dunne:
I am grateful for that intervention, because I
shall go on to explain the ramifications of the different asset
positions, if the Committee will bear with me.
As the hon. Gentleman rightly
says, the amendment is concerned with the use of reserves for a
potential annual council tax adjustment. I am not, for one moment,
suggesting that substantial reserves should be used to wipe out the
council tax bill so that residents can be told that they can have a
free ride for a year. Such an approach would be
irresponsible.
These
decisions are critical at the margin. This illustrates the fundamental
problem: different balances of assets will give rise to significant
problems in determining how the assets will be deployed in a new
authority. The individual councils that are responsible for the assets
at present will not be responsible for them in the future, and nor will
the residents, whose assets in the broadest sense have given rise to
that capital account. They might not bear the benefit in the future.
Bridgnorth district
council is opposed to having a unitary authority. It retains its
housing stock and therefore has a substantial capital asset, which is
not cashable—it could not be used, as the hon. Gentleman
suggests, to adjust council tax. It is an asset, and the council has
decided not to cash it in at this point. In a future council
environment, a decision on whether to release the value in the housing
stock would be taken not by Bridgnorth residents, but by a unitary
authority. That is another strong reason why residents in that district
are concerned about the possibility of a unitary authority imposing the
sale of council housing.
There are a number of areas in
which I seek reassurance from the Minister. One is whether residents of
an area could gain any comfort in relation to asset disposal upon
change to unitary status. If the unitary authority decided to dispose
of assets—for whatever purpose, whether reductions in council
tax, as the amendment suggests, or other purposes—could
reinvestment and deployment of those assets be ring-fenced to the
relevant area?
In
Shropshire, we have just decriminalised parking offences, and each town
is introducing a residents parking scheme, which is having an impact on
the revenues from the off-street car parks that are owned by the
district councils. Revenues from off-street car parking
charges—a locally derived source of income—are at present
used to serve the district. If the districts were subsumed into a
unitary authority, would those revenues be used to subsidise parking
schemes elsewhere in the county? Such issues are very live to the
debate in Shropshire. They come down to the question of who makes
decision about assets as one makes the transition from one local
authority to another.
On the issue of transition, I
think that we all have some sympathy with the intent of clause 24,
which I shall address, if I may, Mr. Benton, when we reach
the clause stand part debate. Nevertheless, if the clause remains
unfettered by the amendment that has sensibly been suggested by
Opposition Members, there are a great many issues as to how the powers
in the clause will be exercised. I hope that the amendment will be
supported. If it is not, the Secretary of State’s power to
direct will effectively emasculate the ability of councils that have
reserves to use them—quite properly—for their local
area.
Michael
Fabricant:
I am motivated to speak in the debate partly
because I am so fed up with hearing about Shropshire and Bedfordshire.
It is about time we heard about Lichfield.
I am far too young to recall the
last substantial boundary changes in 1973. I am told, however, that
there was a major fight, because there was a Lichfield urban council
and a Lichfield rural council. My hon. Friend the Member for Ludlow
mentioned ceremonial objects. If you were to visit Lichfield now,
Mr. Benton, you would find, in the small museum in the St.
Mary’s centre, a huge amount of gold and other ceremonial
objects that came from Lichfield urban district council. Incidentally,
whereas the House of Commons has a so-called gold Mace that is actually
just silver gilt,and pretty cheap, Lichfield has two solid
gold maces—one from King James, and one, I believe, from King
Charles
II.
6.30
pm
That was a
digression. As my hon. Friend the Member for Ludlow said, we must
consider how assets will be distributed, but I want to make a point
that has not been made so far. There may, just may, conceivably be a
time when it is in an area’s interest to have a unitary
authority—not in Shropshire, we know that, but in some other
area, though I can hardly imagine it.
I hope that the
Minister can reassure people here. It would be very wrong if a local
referendum were to say that we did not want a merger, because our
assets—be they two gold maces in Lichfield or assets held in
reserve—would be distributed among a whole series of spendthrift
councils. A referendum could well end up with a nay vote, if the
Minister cannot now with his golden tongue—if not golden
mace—reassure the Committee that assets will not be distributed
in a way that prevents the prudent council from benefiting from such a
merger.
Alistair
Burt:
Before the Minister replies, could I nominate that
as today’s champagne
moment?
Mr.
Woolas:
This is one of those occasions, Mr.
Benton, when the brief from one’s officials is not adequate.
Quite why we did not anticipate the intervention will be the subject of
a discussion in the Department tomorrow morning. That the Lichfield
mace would be an asset is perfectly obvious. [ Hon.
Members: “Maces.”] If the plural of mace is
maces, I will accept the justice of that. Had I known about it, I would
have had my beady eyes on it for reduction of council tax purposes. Now
that I do, I may re-examine the direction order and look at what powers
theremay
be.
My difficulty is
compounded by the fact that I can give the reassurances that the hon.
Members for Lichfield and for Ludlow are seeking, but their amendment
would not do what they say. I commend the hon. Gentlemen for the
amendment, which raises an important point and is quite ingenious.
However, it would allow the very bingeing of councils with reserves and
assets which the hon. Gentlemen wished to avoid. I will accept it at
face value, because it gives me the opportunity to explain the
Government’s purpose. My third difficulty is that it may be more
helpful to the Committee if I can just briefly explain the purpose of
the clause and then refer to the
amendment.
The clause
allows the Secretary of State to make a direction requiring an
authority that may be dissolved as a result of these procedures to
obtain consent from herself or from such authority or person as she may
specify before it can dispose of land over £100,000 in value,
enter into contracts or include an amount of financial reserves when
calculating its budget requirement for council tax purposes. I refer
the Committee to pages 9 and 14 of the document “Invitations to
councils in England” on making proposals for future unitary
structures, where the policy on the treatment of assets is dealt with.
The intention of the clause and the reason that I think it sensible to
recognise the point of the amendment, but to resist it, is precisely to
ensure that those authorities with reserves are not plundered in a
circumstance where a unitary authority is to be created.
Paragraph 3(2), on affordability,
states clearly that in each year of the new
authority
“transitional
costs incurred are to be financed through a combination of the
following—...in year revenue savings arising as a result of
restructuring;...other in year specified revenue savings that are
additional to annual efficiencies...which local authorities are
expected to
make”—
in other
words, Gershon efficiencies cannot be taken into account—and,
crucially and
thirdly,
“drawing on
available revenue reserves, subject to ensuring that satisfactory
amounts remain to meet unforeseen pressures or other potential calls on
reserves.”
which means
being prudent and having some money just in case. It goes on to
say:
“Use of
revenue reserves should be the final option considered, both because of
the need to preserve a contingency to meet future pressures and because
use of reserves adversely affects the fiscal aggregates in a given
year, increasing spending but not receipts and so placing further
pressure on the Government’s fiscal
rules”.
The
intention behind the amendment is to allow the use of reserves to
reduce budget requirements for council tax purposes. It strikes at the
point made by my hon. Friend the Member for Bedford and other hon.
Members that the more prudent position is to safeguard in the medium
and long term rather than in the short
term.
I turn briefly to
contracts, as opposed to reserves. Consent must be sought under the
clause for any capital contract under which consideration
exceeds£1 million or which includes a term allowing the
consideration payable to be varied. That means that an authority may
not enter without consent into a capital contract for less than
£1 million if provision in the contract means that its price can
go up. That will ensure that an authority cannot tie the hands of a
future
authority.
Andrew
Gwynne (Denton and Reddish) (Lab): As I believe my hon.
Friend the Minister is coming on to say, the opposite of using reserves
is building up debts. That is where he has perhaps learned lessons from
the past. It is no surprise that a number of municipal facilities date
from between 1970 and 1974. Indeed, in my constituency the former
Denton urban district council decided after almost 80 years to build
the swimming pool that it had been campaigning for, knowing that it
would never have to repay the money that it borrowed and that that
would be a problem for the new Tameside metropolitan borough council.
That decision might have been right for Denton but it was certainly
wrong for the new council. Does my hon. Friend agree that the clause
will set that situation right for the
future?
Mr.
Woolas:
That is a real example of exactly the sort of
decision making that the Government are keen to avoid. We do not want
to restrict local authorities’ freedom unreasonably, but we want
to act in the long-term interests of the council tax payer.
The proposals on assets and
contracts must be taken in the context of the requirement, highlighted
by the hon. Member for Hazel Grove, that the council tax payer should
not suffer as a result and should only benefit from the requirement to
equalise to the lower level. The invitation proposals require
authorities to
put forward figures and plans to do that. They may
not therefore enter into a contract that is not a capital contract
without consent if the consideration exceeds £100,000 and the
contract would run beyond a date specified in the direction or if,
under the terms of the contract, its period could be extended beyond
that date. There are
many examples from previous restructuring rounds of authorities that
were to be dissolved acting irresponsibly in relation to assets,
disposals and contracts. The clause is designed to ensure that that
does not happen again and that old authorities do not dispose of
valuable land, enter into long-term contracts or apply financial
reserves above a specified limit to reduce council tax in the short
term. Such actions could have a negative effect on the new
authority.
Of course,
the Secretary of State or other person specified in a direction may
consent to the disposal, to the authority entering into a contract or
to the use of reserves. The Secretary of State may specify that consent
must be sought from the new authority if it has already been
established, which would be appropriate as such decisions would affect
the new authority. The assets and liabilities of the old authority will
of course be transferred to the new, as has been the case in previous
restructuring.
Andrew
Stunell:
I thank the Minister for what he is saying, which
is helpful. Subsection (1)
states:
“The
Secretary of State may direct that, with effect from a date specified
in the direction, a relevant authority may
not”
and so on. Will he
say something about the commensurate date? Will it be retrospective and
how will he stop, let us say, contracts being let which might do all
the things to which the hon. Member for Denton and Reddish drew our
attention? Back in 1974, we had a case or two in my own constituency as
well. I think that it was quite common. I would just be interested to
know how the Minister is going to erect a fence that prevents that
happening in quite the way he
hopes.
Mr.
Woolas:
The hon. Gentleman is right. That is what these
clauses are designed to do. The Secretary of State’s power under
the clause requires an authority that is going to be dissolved to
obtain consent under the circumstances that I outlined. I hope that it
is clear that this clause does not provide a draconian power. It is not
designed, or does not seek, to remove the discretion of local
authorities to spend a reasonable amount of reserves for the purposes
of reducing their budget requirement for council tax or other
purposes.
The hon.
Gentleman will remember past debates about capping powers and the
relationship between reserves and revenues. Those debates highlighted
the various circumstances described by the hon. Member for Ludlow in
which very similar councils and neighbouring councils had wildly
different levels of reserves, often as a result of the sale of housing
or land assets that had been inherited in a number of ways, or in some
cases due, for example, to the ownership of ports and
harbours.
Before I
answer the hon. Gentleman’s question, I will say that the
amendment would mean that those reserves that would otherwise have been
available to the new authority would no longer be available. It would
artificially, as it were, lower the council tax
level in that area for a short period which would make it harder, if
not impossible, for the new authority to equalise the council tax level
across the new area as a whole. Those actions could undermine a new
authority’s financial position in terms of both the cost of
restructuring and its future consideration of equalising services and
service provision. Finally, and importantly, in a given year, an undue
use of reserves places further pressure, not just on that council, but
on the Government’s fiscal rules as it adversely affects the
fiscal aggregate by increasing spending but not receipt. The timing of that is important
because authorities are no doubt debating these points as we speak.
Such a direction can be given only following Royal Assent. In other
words, it is quite rightly subject to the will of this House. However,
contracts, on which such a direction can be made, can be taken into
account from31 December 2006 and that is a reasonable point.
Therefore, there is a time scale built in for
contracts.
I
do not believe that I am being dictatorial in resisting this amendment.
Neither do I believe that the clause is dictatorial. It is based on the
common-sense experience that we have heard from Members on both sides
of the Committee this evening. It is not dictatorial in restricting
what local authorities can and cannot do with their reserves. It is
about prudence and best value for the council tax payer in the areas
affected in the medium and long term. I therefore ask the Committee to
resist the amendment and to support the
clause.
6.45
pm
Mr.
Syms:
I thank the Minister for that explanation. To be
honest, we are all a bit schizophrenic about this issue depending on
the balances that our own authorities have. Our amendment could be
dubbed “the Shrewsbury amendment” given that one
couldsee in those circumstances imbalances between
neighbouring authorities, which might, I suspect, be one of the reasons
that there would be less consent for and consensus on any kind of
reorganisation of local government. People will look towards their
pocket book, their baubles and various other things. Clearly, one has
to look at efficient and effective local government, but there are
going to be all sorts of imbalances and some of those will balance out.
One authority may have more assets, another more cash and another a
more efficient staffing structure; one hopes that they all balance out.
I suspect that underpinning the whole process is, ultimately, the
consent of the people in those areas, and that financial or other
imbalances are more likely to lead to non-consent to merger. That is
why Shrewsbury, Shropshire and other counties, start to come
up.
Clearly, it would
be irresponsible of one authority to use its reserves in one year, thus
giving its successor authority difficulties. Nevertheless, there might
be a degree of rough justice for an area that finds itself in a
particular financial situation and, having been merged into a rather
larger organisation, then finds that that is somewhat lost. However,
given the Minister’s golden tongue, which we heard about
earlier, I beg to ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Question
proposed,
That the clause stand part of the
Bill.
Mr.
Dunne:
Having forewarned that I might like to speak during
clause stand part, I would not want to disappoint the
Minister.
I want to
pick up on the word used by my hon. Friend the Member for Poole:
“consent”. That gets to the heart of the difficulty with
the clause that I alluded to earlier. Where an area has a disparate
disposition of assets, with some councils that are relatively well off
and some that are in debt, much the best way to avoid a sense of
unfairness residing within the population is simply not to impose a
unitary structure on those councils against their will—that is,
for the Secretary of State not to impose such a structure against the
will of the people as well expressed. The debate on that issue
highlights that fact. The Minister himself made the point well in his
earlier remarks that the Government do not intend to impose a structure
unless there is a broad cross-section of support. It says that in the
invitation to bid, and that is an appropriate way to proceed.
When the Minister considers all
the issues arising from our debate, I hope that he will recognise that
financial disparity is a critical one. It is particularly relevant for
those areas where local authorities have not sold the housing stock.
Bridgnorth district council, which, he may be surprised to hear, is run
by a Conservative administration, decided only last year not to dispose
of housing stock. Having consulted tenants it decided that that was the
right thing to do for its area, when it might have been thought that
the authority’s natural instinct would have been to realise the
asset. That is not a party political point; it is about fairness and a
sense of injustice, for if the local council housing were sold by a
unitary authority and the funds spent to improve housing in some other
part of the county, it would be regarded as a very unfortunate
consequence of restructuring local
government.
Robert
Neill:
I promise members that I will not be going into the
history of what happened to the former Greater London Council’s
civic regalia, or how I ended up in possession of Lady
Dartmouth’s settee as leader of the fire authority. That must
wait for another occasion, because only one champagne moment is
permitted—even at 10 to 7 at night.
I have a genuine inquiry with
which I hope the Minister can help. Under clause 24(2), a
“relevant authority” for these purposes is a local
authority that is, in effect, caught by either clause 7 or clause 10.
Looking at clause 30, which is the definition clause for this part of
the Bill, the definition of a “local authority” includes
“a London borough council”. We know that clause 7, which
deals with the unitary scenario, does not apply to London borough
councils, but clause 10 does, yet the Minister told me earlier that
clause 10 is simply for tidying up boundaries. Why, then, do we need to
have reference to London boroughs in a passage envisaging the disposal
of assets when a local authority is dissolved? If the Minister is
right, that provision could surely be removed for these
purposes.
Mr.
Woolas:
The Committee will be pleased toknow that
I will not comment on Shropshire or Shrewsbury—it would be wrong
of me to do so.
However, the Committee will be aware that different types of authorities
have different types of assets and, because of historical
circumstances, the assets can vary widely. The local authority in my
own area recently sold a Lowry painting in which, it would argue, it
had wisely invested some 40 or 50 years’ ago and which provided
a good return on its investment. Others would argue that it was
disposing of an asset that belonged to the people in order to keep
council tax down. Those are the types of argument raised.
The county councils and
upper-tier authorities are education authorities where reserves are
held in schools and are now the asset of the school, not of the local
authority. Similarly, with housing disposals, there can be different
situations in different areas. I do not think it would be wise to stray
down the path of
Shropshire—
Mr.
Woolas:
Although I think that the hon. Gentleman is going
to tempt
me.
Alistair
Burt:
I would simply tempt the hon. Gentleman back to
Bury. Can he contemplate on the circumstances in which a Labour
Government required a Labour authority to sell a Lowry painting to make
ends meet?
Mr.
Woolas:
I congratulate that Labour authority on its wise
investment and good housekeeping. I am constantly amazed that the
Opposition advocate irresponsible housekeeping and the wrong use of
assets. I met with the leader of the council to discuss that individual
proposal.
Alistair
Burt:
It should never have been
allowed.
Mr.
Woolas:
The hon. Gentleman says that the authority should
never have been in that position, but if it had been up to the
Opposition it would never had been allowed to buy the painting in the
first place. However, that is a different story and L. S. Lowry is not
mentioned in the Bill.
On a point that the hon. Member
for Bromley and Chislehurst made regarding London, it is already
possible, and will still be possible if the measure is effected, for a
procedural boundary change between two authorities to result in the
creation of a new authority. It would not be possible for the Mayor of
London to do that under current legislation. That is why the provision
is drafted as it is. There are no proposals in the Bill to encourage
such circumstances and the boundary committee is independent. I hope
that that clarifies the matter for the hon. Gentleman. Clause 7 and
earlier clauses of the Bill on restructuring do not affect the
situation in London in that regard. On the basis of that, I ask that
the clause be agreed
to.
Question put and
agreed
to.
Clause 24
ordered to stand part of the
Bill.
Further
consideration adjourned.—[Jonathan
Shaw.]
Adjourned
accordingly at six minutes to Seven o’clock till Thursday 8
February at half-past Nine
o’clock.
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