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Baroness Hamwee: My Lords, I welcome the Government's intention to take account of the experience of the pilots when framing guidance, but will the pilots, when completed, provide enough experience by the time the Bill takes effect? The CCT regime comes to an end soon, which we welcome. Should we not see something close to the guidance that will start authorities off on the course of best value, which could be amended in light of experience as months and years pass?

Lord Whitty: My Lords, that is in reality the way that we intend to proceed. We will produce initial guidance which may need to be revised and modified in light of experience of the longer running pilot schemes and when the full regime is in operation. We want for that reason to see some flexibility.

A number of noble Lords mentioned the costs of the system, particularly of inspection. My colleagues in another place made it clear, as does the background memorandum, that the costs of audit and inspection will be around £50 million a year once the system is fully running. That is hardly disproportionate. We are talking about £75 billion a year being expended by local authorities. We believe that we can achieve efficiencies over time and put a figure in the current CSR of a 2 per cent. per annum efficiency target.

The noble Baroness, Lady Seccombe, made the point that in reality this is not a continuous process--service by service, delivery by delivery, authority by authority--but is over time the kind of target that we will be looking to achieve. That vastly outranks the likely cost for the central inspection or for those engaged in it by local authorities. We made it clear also, so far as local authorities are concerned, that their additional costs of auditing and inspection will be covered partly through the RSG, to cover the additional fees, and partly through the grant to the Audit Commission in respect of its own inspections.

Queries were raised in relation to the possible imposition on parish councils--particularly by the noble Baroness, Lady Miller.

Lord Bowness: My Lords, before the Minister leaves cost, can he explain to what the figure of £50 million refers? Is that the cost that will fall on local authorities to comply with the legislation, which they will be expected to find within their existing budgets, or does it refer to audit and inspection? There are two lots of costs. The first amount must be found by local authorities, however big or small. The second will, according to the explanatory notes, be provided through revenue support grant.

Lord Whitty: My Lords, the noble Lord is clearly correct. There are two sorts of costs. The reference to £50 million relates to the additional total cost to public expenditure. I cannot immediately find the division. I shall write to him. It is intended to cover both costs but

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it would be paid in different ways: one to the Audit Commission and other inspectorates and the other via the RSG to local authorities.

I was referring to the cost to parish councils. The number of parish and town councils which would be best value for authorities would be limited. We are talking of a cut-off point of £500,000 expenditure per year. As of now only 50 parish or town councils would exceed that level out of a total of 8,000 councils at that level.

There has been a central concern about the level of intervention by the Secretary of State provided in the legislation. The noble Lord, Lord Dixon-Smith, raised the question of the Secretary of State interfering with local discretion on conducting reviews. Clause 5 strikes a balance. It challenges the authorities to ask themselves fundamental questions about their services, but it allows them flexibility in choosing the priority areas for review and in drawing their own conclusions about necessary changes. In other words, it confers responsibility without removing local discretion.

More generally in terms of the powers in the Bill, the noble Baroness, Lady Hamwee, and others expressed serious concern about the additional powers being given to the Secretary of State. It is true that we are taking new powers. Inevitably much of our discussion has focused on that. However, the Government are providing in total 42 new powers under the Local Government Bill on both the financial control side and on best value, but we are repealing 59 powers under the existing regime. On a crude count, we are replacing them with 17 fewer powers than now exist if one takes all aspects of the Bill together.

I must also stress again that the intervention powers will be used as a last resort. I acknowledge the reported remarks by the unfortunately absent noble Earl, Lord Russell, that there is no such thing as a benign Secretary of State. Nevertheless, there is such a thing as a restrained Secretary of State. This legislation will restrain him or her not only in his or her present incarnation but for the future. Clause 14 is designed to provide the teeth that we need to ensure that best value delivers, even when there is some opposition at local level. That requires the Secretary of State to have these powers. However, they are not powers that can be undertaken lightly. The reality is that those powers would be used only after a long period of advice and discussion with local authorities, with the exception that I shall come to in a moment of the fast-track procedure.

In this context, as the noble Lord, Lord Hanningfield, and others will know, we have worked closely with the Local Government Association in drawing up a protocol which sets out the general principles that would underpin the exercise of the Secretary of State's intervention powers and the broad procedures which would be followed. At present it is still a draft, but a fairly advanced draft. It cannot be finalised until Royal Assent to the Bill, but copies of the draft have been placed in the Library as an annex to the memorandum submitted to the Delegated Powers and Deregulation Committee.

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As regards the fast-track powers--the noble Lord, Lord Hunt of Tanworth, was concerned about them--urgent intervention will occur only in exceptional circumstances where there is clear evidence of serious failure which needs to be immediately addressed or of persistent failure. These provisions are needed to ensure that the Secretary of State is able to act swiftly where vulnerable people are at risk.

Children's homes were mentioned and there are situations where immediate action is needed. In our view, the Secretary of State must have the power to act. For example, the local authority may be unwilling or unable to provide an approved social worker service in the assessment of mentally ill people who may require compulsory hospital admission. In that case, not only the safety of an extremely vulnerable section of the population but the safety of others may be at risk. It is therefore important that as a reserve power the Secretary of State has the ability to intervene.

There has also been considerable and understandable debate about the Secretary of State's powers to intervene in the sense of being able to amend primary legislation in order to achieve the purposes of best value. In that context, we sought to strike the right balance between primary and secondary legislation. We built in a high degree of flexibility because we want to facilitate innovation in service provision and we need to get away from an approach which is based on rules for everything. There is no need for us to specify everything on the face of the Bill. We need flexible legislation which can evolve as good practice emerges and as we extend the boundaries of how public services can best be modernised.

In relation to particular examples of where Clause 15 might be used to amend existing legislation, my colleagues in another place suggested three areas in which we are considering the early use of the powers of Clause 15. The first is to enable local authorities which at present have an individual unilateral responsibility to pool their assets and resources in particular projects, to second staff and so on in order to achieve closer working with other public bodies and authorities in order to deliver services. The second is to enable authorities to form companies to deliver service with others, particularly in the private and voluntary sectors. The third is to extend the power of local authorities to provide goods and services to others working with local government in order to deliver key public services. The Government have already produced a full note on these points and we have started to embark on consultation with local authorities.

Our approach to parliamentary scrutiny on this front is also important. We have indicated that the affirmative resolution procedure would be adopted were we to go down that road. We would hope that by the time we came to Parliament with the provisions they would be based on a consensus with local authorities. Any orders the Secretary of State would wish to make would therefore have to be approved by both Houses.

There has been general support for the concept of best value; the concern is primarily about the powers of the Secretary of State. I hope that I have said enough to

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indicate that those powers will be used sparingly and in circumstances where other means of persuading local authorities to operate in the best interests of their electorate have failed.

The noble Baroness, Lady Maddock, raised a particular point about best value in relation to housing. That area is slightly complicated and it might be better if I write to her. However, it is the case that my department and the Housing Corporation are working closely together to ensure that there is a maximum read across in the best value arrangements which apply to other registered social landlords. We expect housing associations and other registered social landlords broadly to follow the same features as we require of local authorities both in terms of the process and the outcome.

I turn to CCT, which has drawn a slight division of opinion within the House. The noble Baroness, Lady Hamwee, and my noble friends Lord Bassam and Lord Harris of Haringey welcomed the abandonment of CCT. However, the noble Lords, Lord Bowness and Lord Hanningfield, spoke at least in part in defence of the CCT system. Clearly, there were certain cost benefits from the CCT regime, particularly in its early stages, but they were not necessarily cost effectiveness benefits. In many cases, there was a serious decline in services to some detriment to the communities and those most at risk. The point about CCT was that it excluded in many circumstances an effective in-house solution. We want to test the market in these circumstances and to give local authorities the ability to find the best means of delivery, whether in the public or private sector, or by some combined approach, but we do not want to prescribe it in the detailed, fossilised approach to procurement that CCT came to represent. We put the emphasis on partnership and dialogue.

The noble Baroness, Lady Hamwee, asked particularly about the transition from CCT to best value in relation to the unitary authorities. Transition is always difficult to manage and there has to be a clear break. We have given the abolition date of 2nd January 2000. That means that local authorities, in so far as they have systems that come up for review prior to that, have to operate under the current law; they cannot prematurely abandon the CCT tendering exercise. It is difficult to have a tapered approach, and therefore we have given a date. It allows the new unitary authorities to put in place competitive arrangements. It allows them some time to do so and it means they are being treated in the same way as other authorities up to that date and, under the new regime, beyond that date.

The final area is council tax regulation, about which there was not total unanimity. Best value should promote considerable efficiency gains, but the Government are not prepared to abrogate the role of central government in providing local financial accountability. I regret that the Liberal Democrat Benches have stated their categorical opposition to the second part of the Bill, which has been reflected to some extent in the contributions from the Conservative Benches. We need to protect national tax payers. That is the intention behind the Bill.

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My noble friend Lord Harris indicated that the pre-existing capping regime distorted the relationship between local authorities and their own ratepayers, taxpayers and electorates. It may be that in the long term a national government will not need these powers. For the moment, we continue to need them as a fall-back, kept in reserve. That is why we are taking these new reserve powers. They are far more flexible and enable a decision to be made over a period, not related to a particular council tax hike in a particular year. We hope that we will not have to use the powers, but they are there so that we can protect local taxpayers from irresponsible increases by irresponsible councils and the national taxpayers from the consequences.

The noble Lord, Lord Hunt, asked why the principles governing the use of the reserve powers are not on the face of the Bill. That is a question of flexibility. We have set out in our White Paper the types of factor that will be taken into account when using reserve powers, but it is important that they should be used in response to changing circumstances. If we put the principles on the face of the Bill in too great detail, they might prove to be a serious limitation in the future. That is why the guidance is vital if we are to make clear in what circumstances the powers might be used and upon what principles.

I welcome the intervention of my noble friend Lord Harris in relation to his views on the reform of the SSA and grant distribution. We intend to conduct a fairly lengthy discussion to prepare a fairer, simpler and more robust system. He graphically demonstrated the deficiencies of the past system. It is not easy to get a system which is right and on which there will be complete consensus. Some adjustments have been made in our approach this year, but we have now given greater stability to local authorities over the next three years. A review will take place over that period. At this point, I should not wish to say how either Haringey or, indeed, the City of Westminster will emerge from that review. But equity and fairness are intended to be the hallmarks.

Part of the new council tax regime is the council tax benefit subsidy limitations. I understand the concern of noble Lords about that. However, it is important that we remember the underlying principle of the scheme; namely, that the national taxpayer should not bear the council tax benefit costs resulting from local decisions to make large increases. It is right to protect the national taxpayer.

At the same time, it is the case also that local authorities, which are disproportionately dependent on council tax benefit subsidy, are protected because they tend to be the poorer councils for obvious reasons. They are treated as though they would have received the average proportion of council tax and in our view, that will strike the right balance between them being disproportionately hit and there being some sanction if local authorities go over the limit to a substantial degree.

I have dealt with most of the points raised in the debate. I hope that noble Lords will recognise that the intention of the Bill is to give back to local authorities powers to make their own decisions within a new and modernising framework. Above all, it is aimed at

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delivering to the populations covered by local authorities quality of service at a price which is appropriate. At the end of the day, local authorities will be judged by their own electorates. We need to take some reserve powers to ensure that they behave in a way which recognises the needs of their electorates and to protect the position of the national taxpayer.

I repeat that this is not a centralisation measure. It restores not only new scope for decision-making within local authorities and a new system of management for them, but it provides also new opportunities for local

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authorities to make their own decisions and to deliver services which meet the needs of their own electorates. In that sense, it is a framework Bill. It will no doubt be filled out in Committee and by guidance which we shall issue under the Bill. At the end of the day, it will be for the local authorities themselves to deliver for their own people the objectives of the Bill. I commend it to the House.

On Question, Bill read a second time and committed to a Committee of the Whole House.

        House adjourned at one minute past 10 o'clock.

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