The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Huw Irranca-Davies): I beg to move,

The Chairman: With this it will be convenient to consider the draft Cotswolds Area of Outstanding Natural Beauty (Establishment of Conservation Board) (Amendment) Order 2009.

Huw Irranca-Davies: It is a pleasure to serve under your chairmanship, Mr. Bercow. The draft orders will allow the conservation boards of the Cotswolds and Chilterns areas of outstanding natural beauty to reverse the effect of financial reporting standard 17 in respect of pension fund adjustments when compiling their annual statements of account. I shall explain why that is important.

Financial reporting standard 17 requires a conservation board, when compiling its accounts, and subject to its having a turnover in excess of £1 million, to provide for the possibility of all its staff being made redundant at the same time and taking all their pension entitlement. The background to the provisions is that there is no legislative requirement for any particular accounting practices to be followed by conservation boards. In practice the two that exist—for the Chilterns and the Cotswolds—follow the relevant part of the code of practice on local authority accounting in the UK, “A Statement of Recommended Practice”. Under current regulations, when the turnover of a conservation board exceeds £1 million, the board becomes subject to FRS17 requirements. The Cotswolds conservation board’s turnover now exceeds £1 million, and, although that of the Chilterns conservation board is less than that at the moment, we anticipate that it will increase to more than £1 million in the next few years.

In contrast to conservation boards, local authorities are exempt from the financial implications of FRS17; conservation boards do not fall within the exemption. That means in practice that the charge that conservation boards must make to the revenue account for pensions is higher than that for mainstream local authorities, as local authorities need provide only for a regular but small-scale series of retirements, redundancies and so on. The requirements of FRS17 mean that conservation boards must at present allocate a higher proportion of their budget to provide for pensions than local authorities are required to. The draft order is intended to address that inconsistency.

This is important because the long-term effect of FRS17 on conservation boards with an annual budget of more than £1 million will be to transfer an increasing amount of resources away from environmental work and into the pension fund reserve, to provide for the complete winding up of the board, with all the staff taking a pension entitlement. However, it is worth pointing out that a conservation board is no more likely than a local authority to be wound up, and local authorities do not have to include in their accounts a provision with respect to all their staff being made redundant at the same time. When a local authority is abolished, its duties and outstanding liabilities are simply transferred to the local authority that takes over its responsibilities, and often many of its staff are taken on by the new authority.

If we do not take action, the eventual outcome could be that a large proportion of the funds that the Cotswolds conservation board and, eventually, the Chilterns conservation board, receive from Natural England via the Department for Environment, Food and Rural Affairs and from local authorities will go towards meeting pension fund requirements rather than on environmental work, which is, after all, what a conservation board is all about. Although, as I have said, the Chilterns conservation board is not in the same position as the Cotswolds conservation board, not having a budget of more than £1 million, we anticipate that, with a growing budget, the Chilterns will be similarly affected quite soon.

The orders will apply regulation 30 of the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 to the Cotswolds and Chilterns conservation boards. That means that the boards would need to provide pension funds only in the event of occasional redundancy, rather than for the unlikely situation of the entire board’s staff being made redundant at the same time, as is the case now. The orders will ensure that the boards can make the best use of their budgets. It is important that the boards can devote more of their resources to fulfilling their duty to conserve and enhance the natural beauty of the AONB and to increase the understanding and enjoyment of the area’s special qualities, while at the same time providing for pensions in the same way that local authorities are required to do.

It seems inevitable that, without the orders, the Cotswolds and Chilterns conservation boards will experience increasing difficulties in carrying out the functions for which they were created as an increasing amount of their budget is set aside to meet the FRS17 requirements. I commend the orders to the Committee.

Mr. Richard Benyon (Newbury) (Con): As always, it is a pleasure to be under your watchful eye, Mr. Bercow. People looking in on these proceedings may wonder at the mysteries of this place, as people frequently do. They may wonder why a fairly technical issue such as this requires us to gather in this way, but I can assure the Minister that I support what he is trying to achieve.

The orders under scrutiny today will modify the original establishment orders of 2004 for the Cotswolds and Chilterns areas of outstanding natural beauty conservation boards in respect of their pension commitments under FRS17. Currently, as I understand it, these conservation boards, whose turnovers are above or approaching £1 million, are bound by FRS17 to allocate enough resources to their pension fund to cover the eventuality of the board being disbanded and every employee claiming a pension at the same time. As the Minister stated, that would be a very unlikely turn of events; indeed, as the boards themselves say, it is almost certain not to happen.

The amendment will allow both boards to emulate local authorities, as the Minister said. I understand why the Government want the orders to go through. The change is much needed. It will relieve the boards of a significant financial burden that has prevented them from operating effectively and even, as the impact assessment pointed out, threatened to result in

There is an issue regarding governance of organisations. People get involved in conservation boards and similar organisations because they are fascinated by what they are seeking to achieve, but too often they get bogged down in governance matters. We must remember that we prey on volunteers’ time and we have to ensure that the organisations are run as smoothly and simply as possible, which will allow them to use their enthusiasm for what the organisation does, rather than the governance of it. I therefore support the orders in principle. However, I should like to raise a couple of issues with the Minister before we move on.

The amendment makes sense, but it certainly does not make sense that for five years these conservation boards have been left in a situation in which they are forced to siphon much-needed resources away from projects on the ground for little more reason than a legislative loophole. The conservation boards in question play a key role in protecting some of the UK’s most environmentally important areas. My first thought on seeing the measures was to wonder why the North Wessex Downs area of outstanding natural beauty was not included, but a little research showed me that its income is well below the threshold—it is about one third of it. However, I assume that in time we may have to come to this place with further orders for other conservation boards. That is a regrettable waste of everybody’s time, but I understand the need to do it.

These boards were set up by a parliamentary order in 2004 to conserve, enhance and promote the natural beauty of the Chilterns and Cotswolds. They are given funding by local authorities and Natural England to address, through local management plans, issues such as landscape, farming and forestry, biodiversity, water and development. The Minister and I recently had the pleasure of debating such important issues, and we are aware of the key role of ensuring the sustainability of the natural environment. It is a real waste that these conservation boards have been hindered in carrying out their important role, to such an extent and for so long, because of this requirement. It is particularly alarming that precious resources have been drained in that way, bearing in mind our various pressing commitments to halt the decline of biodiversity in the UK, which were discussed at length when we debated the Darwin project two weeks ago.

We will all know, from the explanatory memorandum, and perhaps from speaking to conservation boards, that their commitment under FRS17 has forced them to divert substantial resources, year on year, into the pension reserve, which could and should have been invested in projects. The explanatory memorandum on the Cotswolds order states that the board estimated that, in the past four years, it has had to move

Why were the conservation boards set up in such a way that they did not fit within the remit of any financial regulations, thereby leaving them wide open to this kind of regulatory black hole. What assessment has been made of the impact that this delayed change will now have on the pension funds of the conservation boards. Are we certain that the pendulum will not now swing the other way, weakening the board’s financial position on pensions? Finally, will the significant sum of money that has already been re-routed to the pension fund be reimbursed retrospectively, as a result of the order, to the working balance of the Cotswolds conservation board? It is important that the boards are able to fulfil the duties with which they are charged. If the Minister is able to answer my questions, I shall support the orders.

Andrew George (St. Ives) (LD): It is a pleasure to serve under your chairmanship, Mr. Bercow—an intriguing pleasure, one might say. Carrying on the theme of intrigue, I reassure the Committee that, like the hon. Member for Newbury, I see no need to divide the Committee.

The boards clearly are not simply public pension funds, but conservation bodies. As the Minister has rightly said, that is the primary objective of this afternoon’s order. Following the simple principle of subsidiarity, if decisions will primarily affect one area and no other, the bodies within that area should have the lion’s share of the say about what is to happen in that area. I looked in the explanatory memorandums at the impact of the consultation process, and it is clear that the majority of local authorities affected have indicated that they have no objection and that they support the orders. In the case of other local authorities, no objections have been made. However, I have one question for the Minister about the local authorities that have made no submission to the consultation. Is he aware of any concerns being expressed informally, outside the consultation process, by other means? I would appreciate hearing the Minister’s comments about the lack of unanimity.

My final question elaborates on a point that the hon. Member for Newbury made. Does the Minister know the extent to which these issues need to be resolved in other parts of the country or in other bodies that are funded indirectly or directly by his Department or by Natural England?

Huw Irranca-Davies: I welcome the welcome for the order. It is good to be in a Committee that is considering the Government’s normal business in these unusual times, and to get on with some important, albeit technical work to achieve something that has been asked for by the conservation boards. I will respond to some of the comments that have been made, because that will partly explain why we are where we are today and why we were not there sooner.

One issue relating to why action was not taken earlier is the passing of the £1 million turnover threshold, and another is that the matter has been raised directly by the Cotswolds conservation board. We investigated whether it would apply to the Chilterns conservation board, and it will soon. At some point, but not imminently, we may have to consider other boards, but it is appropriate to do that at the time and to consider them one by one, rather than having a wholesale approach of pushing many organisations through. The hon. Member for St. Ives made a valid point, and I hope that the hon. Member for Newbury understands why the matter did not arise earlier. It was not an issue, but we have responded directly to it being raised by the Cotswolds conservation board.

The hon. Member for Newbury referred to funds, and I confirm that the order will allow the Cotswolds conservation board to use the £42,000 that has been put aside on environmental projects. That is good news. He mentioned other issues concerning governance and so on that it would be worthwhile to debate, but they are probably not pertinent to the order. I am happy to engage in debate on the wider issues, but the purpose of today’s order is to deal with the technical issue before us.

The hon. Member for St. Ives asked whether any external concerns had been expressed. To our knowledge, none have, and certainly local authorities are supportive of the request. In response to the query about why the boards were not originally set up to avoid the pitfall, there are occasions in Government when one does not foresee every technicality, and as I said about the £1 million turnover and the point one gets to, it was not anticipated, but as soon as it was raised, we responded rapidly and directly. On retrospection, the answer is yes, as soon as the order is made. I hope that the Committee is keen to do that. I have dealt with reimbursement and why that was not dealt with earlier.

Moving on to some general points that were mentioned, I emphasise that the order is aimed at avoiding the unfortunate effect that non-reversal of the measure is having on the finances of the Cotswolds conservation board. The effect of that non-reversal is cumulative, and it is building up year on year. It will become a serious drain on the board when, as expected, its turnover exceeds £1 million. Unless we take action, the board’s funding from Natural England and from the local authorities in its constituent area will be used largely to meet pension fund requirements instead of being spent on environmental projects, which is what we all want.

The measure has been brought forward to overcome that growing problem. We responded rapidly to the issue being identified and are giving the boards the opportunity to make the best use of their budgets. I thank hon. Members for making constructive points. I hope that I have responded to them, and that hon. Members are reassured. I commend the order to the Committee.