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Page 17, line 4, leave out ("sections 15 to 17 or section 26") and insert ("any of sections (Inspections: housing benefit and council tax benefit), 15 to 17, 23 and 26")

On Question, amendment agreed to.

[Amendment No. 34 not moved.]

Lord Whitty moved Amendment No. 35:

Page 17, line 10, at end insert--
("( ) Section 14(5A)(a) shall apply to Wales as if the reference to a function conferred on the Secretary of State were a reference to a function conferred on the National Assembly for Wales or the Secretary of State; but the Assembly may not make regulations under section 14(5A) which relate to a function conferred on the Secretary of State without his approval.")

On Question, amendment agreed to.

[Amendment No. 36 not moved.]

Clause 29 [Limitation of council tax and precepts]:

Baroness Hamwee moved Amendment No. 37:

Page 17, line 16, at end insert--
("(2A) Schedule 1 shall cease to have effect on 1st April 2005 unless previously extended by order made by statutory instrument and laid in draft before, and approved by resolution of both Houses of Parliament.
(2B) An order laid under subsection (2A) shall not apply for a period exceeding five years.
(2C) If an order laid pursuant to subsection (2A) is approved, Schedule 1 shall cease to have effect on the date specified in the order subject to any subsequent order or orders approved by both Houses of Parliament none of which shall extend its effect for more than five years.")

The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 38 and 40, which are tabled in my name and that of my noble friend Lady Miller. This grouping also contains Amendment No. 39 in the name of the noble Lord, Lord Dixon-Smith. With these amendments we move to the question of council tax capping and the substantive amendment in this group, although the Minister may think that knocking out Clauses 29 and Schedule 1 is

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pretty substantive. However, the point I want to address in particular is what one might call the sunset clause which, at this time of night, is perhaps appropriate.

We have received assurances that the capping powers retained by the Secretary of State in respect of local authority expenditure are very much reserve powers, but we have made no secret of the fact that we are against capping. If any powers are to be retained, we want to test how necessary they are. We are moving into a regime for local authorities of best value and increasingly, as I have said several times this evening, of partnership. It is possible that there may well be new experiences over the next few years.

At the last stage of the proceedings, the Government said that they were not confident that their modernisation programme would be completed by the year 2005, which was when we proposed that the provisions for capping should sink without trace and with no possibility of being continued. On reading that comment, it seems to me that that may imply that local authorities are dependent on central government to modernise. I do not think that that is so; indeed, we all know of examples where local authorities are very much making the running and are doing some very admirable things. Although the extent to which we admit it may vary, we all know that the concern is about a limited number of rather old-fashioned authorities. I have said before in another context that I think it is a matter for the electorate to decide the way that it responds to such authorities.

In Amendment No. 37 we propose that the capping provisions should cease to have effect after 2005 unless they have been extended by affirmative resolution of both Houses; in other words, the testing of whether the reserve powers are necessary will be a matter for Parliament. The proposed subsections (2B) and (2C) would provide for a rolling five-yearly extension, if necessary. It seems to me that it would be illogical in the year 2005 to allow the powers to be extended without limit. Therefore, I have simply sought to replicate the five-year provision.

I believe that the existence of the capping powers itself constrains what local authorities want to do and not in a positive or helpful fashion. The very impact of the threat of a cap can constrain innovation and good practice. I think we are all agreed that best value is not necessarily cheapest value. We all seek good value for money but that may not be achieved by the expenditure of the lowest amount. I beg to move.

Lord Dixon-Smith: My Lords, Amendment No. 39, which is included in this grouping, would of course be a trifle unnecessary if the House were to take a decision at some point to accept Amendment No. 40. However, having said that, my amendment was tabled to give me the opportunity, so to speak, to explore the mind of the Secretary of State through the words of the Minister sitting opposite on one or two matters.

The first and most simple one is the issue of whose view is the most important as regards local expenditure and the budget of local authorities. Is it the view of the Secretary of State, or should it not rather be that of the

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local electorate, provided always, of course, that they have no power to commit the Secretary of State's expenditure? That is an important proviso.

Recently, it was drawn to our attention that a local referendum was held in, I believe, Milton Keynes. The local community voted for a particular level of precept increase. Nonetheless they were issued with a "yellow card" warning by the Secretary of State; they were told in effect that they might be going too far and that any further misbehaviour might result in a "red card." That may be the way the system works but I wish to explore why that is so. In the great, wide macro-economic world I have long held the view that current expenditure is current expenditure whether it is undertaken by a local authority or by private individuals. If the council tax rises, all that happens to the volume of current expenditure is that private individuals spend less and the public authority spends more. The impact on macro-economic expenditure is neutral.

That has been a belief for which I have not had supporting evidence in the past. However, I now have in my hands a paper which supports that view. The paper is written by Mr Peter Watt, senior lecturer in economics at the Department of Local Government Studies, University of Birmingham, and by Mr John Fender, professor of economics at the same university. The study was commissioned by the Local Government Management Board.

I shall not bore the House with all the details of the report as that would take an interminably long time. It would be unbearably rude to do so at this hour of the night. However, it may be worthwhile drawing attention to the beginning and the end of the document. It starts by saying that there is a tension with regard to local expenditure,

    "between a desire to remove control and a desire to retain it". The study states that that,

    "is evident in the drafting of the Comprehensive Spending Review". That is a well-established and well-known document. The study continues,

    "Crude and universal capping will no longer constrain local government finance. But ... the Government will protect people from excessive council tax increases ... Given this strong desire to retain controls over expenditure, it might be expected that there are strong macroeconomic arguments to support such controls. However, this briefing paper argues that this is not the case".

As one would expect of a good academic paper, the study describes the arguments for, and the arguments against the measure. The study concludes:

    "We have surveyed a range of arguments for central control of locally financed local government expenditure put forward by the Treasury firstly to the Layfield Committee and in subsequent years. The overall conclusion from this paper is that the government has not established sound macroeconomic arguments for the control it has imposed over many years on local government self-financed expenditure". That is an interesting paper to read in view of my prejudice. Therefore I would like to explore with the Minister why he believes that the Secretary of State--I understand entirely why he should wish to support him--has right on his side in feeling that his opinion in these matters has greater validity than that of the locals who will have to pay the bill.

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9.45 p.m.

Baroness Miller of Chilthorne Domer: My Lords, we on these Benches share the sentiments of the noble Lord, Lord Dixon-Smith. In the light of all that has been said about public consultation and how best value will move authorities much further towards delivering the kind of things their communities wish, and for all the reasons that the noble Lord has said, this amendment is very much in line with that objective.

Lord Whitty: My Lords, some interesting matters have been raised in the debate. As to the Liberal amendments--the Liberal Democrat amendments--Amendment No. 37 is a sunset clause which would end the powers in 2005. One could probably term Amendments Nos. 38 and 40 as total eclipse clauses; they wipe out the powers entirely.

It is probably too late at night for me to discuss principles of public finance and macro economics with the noble Lord, Lord Dixon-Smith, much as I would like to do so. At one level he makes an arguable point; no doubt the papers will illuminate that.

Both financially and politically it is very important to recognise that even locally financed expenditure by local government has an impact on the national taxpayer and that the national government have a responsibility to protect the local taxpayer. We take both responsibilities seriously. We believe therefore that we must have reserve powers in that regard. We do not believe that, in extreme circumstances, national government should be without powers to constrain an increase in the local taxpayers' burden. We obviously expect and hope that all local authorities will behave sensibly and prudently; that is why we have removed crude capping measures and why we did not use this year the powers that we have under the existing legislation.

We believe that we need some reserve powers. We are making clear that we wish to change the system of financial control of local authority expenditure and to give more freedom to local authorities. We said quite explicitly in our manifesto that we needed reserve powers for precisely such an eventuality. If local authorities act responsibly and reasonably the powers will not be used.

Amendment No. 37 would require us to have a kind of abstract debate every five years as to whether we needed the powers. Under the provisions of the Bill, in every instance when the Secretary of State invokes these powers--and we hope that such instances will be extremely rare--the affirmative procedure will ensure that we have a debate on the particular circumstances in which the Secretary of State decides to set a cap on a local authority.

At the beginning of the debate I was deeply in sympathy with what the Liberals were after--the Liberal Democrats, I beg your pardon--even if I could not accept the way they were going about it. In this they are pushing too far the issue of local authority autonomy. These are powers we do not wish to use but, nevertheless, they are powers that any responsible government must maintain.

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As to the amendment of the noble Lord, Lord Dixon-Smith--Amendment No. 39--it effectively says that where there is a referendum supporting what would otherwise be seen as an excessive council tax, that should exempt the local authority concerned from that provision. Milton Keynes was under the old regime, but under the new regime the Secretary of State will very strongly take into account the outcome of such a referendum.

But of course a referendum is not the only kind of consultation with local people; there may be other kinds. As your Lordships will know from other debates, all kinds of issues arise as to how a referendum is put--the questions, the options, the turn out and so on--before a decision is taken that will always result in non-intervention by the Secretary of State. However, I can assure the noble Lord that a referendum result would be taken very strongly into account, as would the results of other kinds of consultation with local people. We recognise that in most circumstances local people are best able to judge the precise level at which the tax would be raised and at which they would continue to elect their existing authority. However, we need those powers in extreme circumstances. The result of a referendum is only one aspect of how such extreme circumstances would be judged by the Secretary of State.

With that assurance that we would take such a result into account, I hope that the noble Lord will not pursue his amendment. I hope also that the noble Baroness will see fit not to pursue her amendment, although I understand her commitment to this dramatic change in local authority financial regimes.

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