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Baroness Hanham moved Amendment No. 17:

Page 2, line 36, at end insert—

"( ) No regulation made under this section shall apply to any local authority that has been assessed as "good" or "excellent" in its most recent comprehensive performance assessment."

The noble Baroness said: In the past two or three years, local government has gone through the extraordinary process of the comprehensive performance assessment. Each local authority has now been branded with a category of performance. Presumably, at some stage, those categories may change. A few authorities are within the "good" and "excellent" categories, which, as I understand it, means that they are more than competent to manage their own affairs, and that they have also demonstrated an ability to do so.

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There are many critics of the system, including authorities who have been assessed as being in the higher categories. Some of the criticism will be maintained if the freedom or flexibility that those authorities expect to gain as a result of achieving the upper echelons of performance are not met. The Bill, which has been lauded as giving freedom and flexibility, needs to ensure that it does just that.

We have discussed the regulations put forward in Clause 3(5) and (6) and the code of practice. But it would be fair to say that the local authorities view further regulations with some dismay. It would not be unreasonable to suggest that there should be a light touch in regulating borrowing by good or excellent local authorities. The amendment would place those local authorities in the sort of category that they expect, and which has been made out as one of the advantages of being in those upper echelons. It would begin to mark out the fact that good and excellent authorities were deemed to be able to manage in a good and excellent way. I beg to move.

Baroness Hamwee: I put it on record that, although we believe that external assessment is useful, we do not regard it as the appropriate indicator or permit for the exercise of rights and freedoms. We could not support the amendment.

Lord Rooker: The noble Baroness, Lady Hanham, said that there would be a light touch. The problem is that there would be no touch, as I will seek to explain. The amendment would prevent such regulations applying to any authority assessed as "good" or "excellent" in its most recent comprehensive performance assessment. As I made clear, we envisage using the regulations to require authorities to have regard to the CIPFA prudential code. So the amendment would mean that good or excellent authorities would have no statutory obligation to consider the CIPFA guidelines.

The amendment appears to be based on the assumption that a high-performing authority can be trusted to act prudently and thus merits the reward of being exempted from the statutory controls. Compliance with the CIPFA code is a factor that will normally be taken into account in performance assessments once the new system is in operation. Good and excellent authorities will therefore have an established track record of prudent borrowing.

However, we must face the fact that authorities may change for the worse as well as the better. Much could happen after an authority gains its good rating and before it is assessed again. Without the prudential controls, local taxpayers would be exposed to a considerable risk. A single unwise borrowing transaction could ruin many previous years' exemplary financial management.

I do not believe that high-performing authorities seek that apparent freedom. I am not aware of any high-performing authority that wishes to opt out. The prudential code merely records borrowing and treasury management practices that any good authority will already be following. It allows

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individual authorities considerable discretion about the specific application of the general principles it lays down. Removing the statutory duty to have regard to the code would confer no practical benefit on high performers; it could work to their disadvantage. Good authorities will wish to demonstrate to their electorate that they are borrowing prudently. In the absence of the statutory duty to have regard to the code, the soundness of their borrowing practices will be much less apparent to the public. That loss of transparency would be regrettable.

Good and excellent authorities would continue in their good and excellent role anyway. They have everything to gain from being part of the system whereby they must have regard to the statutory regulations. If the authorities were cast out on their own, there would be unacceptable risks between the comprehensive performance assessments. In any event, the loss of transparency would probably be more regrettable than some other risks. I hope that, with those assurances, the noble Baroness will not press her amendment and that the explanation is satisfactory.

Lord Hanningfield: In spite of what the noble Baroness, Lady Hamwee, says, we have the CPA regime whether we like it or not. The Bill legitimises the regime, so we will have to live with it. We therefore have in this country a system of categorisation of authorities. I declare an interest as the leader of a "good" authority that narrowly missed being deemed "excellent".

I think that the Minister missed the point. Surely, the idea is to give authorities, after they have gone through the hoops, the freedom and flexibility promised by the Government. Obviously, they will abide by the principles. As the Minister said, they would not be good or excellent authorities if they had not abided by the principles. I must have misread many of the purposes of categorisation and this Bill. It was intended to give more freedom and flexibility to the authorities that have gone through the hoops. Amendment No. 17 would give those authorities one of the freedoms or flexible measures of which we would like to see more.

Although the Minister gave a technical answer, he missed the point as regards what could be seen as adding to the advantages of being "good" and "excellent" authorities. Can he clarify the point? Yearly changes could apply in the context of granting good or excellent local authorities any of the freedoms or flexible measures, such as freedom from inspection. But if authorities changed category, they would lose their freedom and flexibility as provided in the legislation. Will the Minister rethink on the amendment? It would provide one more type of freedom or flexibility that the Government could offer the authorities.

Lord Rooker: Yes, one more. There is a classic argument: give them a foot, and they will want to take a mile. I am not the Minister for Local Government and the Regions, and I do not read all the papers dealt

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with by my colleague Nick Raynsford, but I see some of them. Many areas of form-filling, reporting and accounting have been lifted from good and excellent authorities.

But this amendment would have no practical effect on the authorities concerned. We are not asking them to do anything more. The code would not place on them an onerous burden, because they adhere to the principles anyway. It would be counterproductive to move local authorities out of the regime, leaving them vulnerable to attack. It would result in a lack of transparency. I cannot see the point that the noble Lord makes. Local authorities won many freedoms because of the assessment. Under this amendment, we would be asking them to depart from best practice, which they adhere to anyway, and which is not a burden in the first place. I genuinely believe that the amendment would have no practical benefit to any good or excellent authorities. They receive a raft of benefits—I am not sure how many—and do not have to carry out lots of tasks that they would otherwise have to do. We have lifted burdens, which is important. The code does not place on them a burden, so there is no burden to lift.

As I know, the noble Lord strives to lead an excellent authority to do even better. But we are not placing on it any extra burden. The idea that he would say that he does not want to be subject to the code of practice—

Lord Hanningfield: The point is the philosophy behind the regime. To return to the point made by the noble Baroness, Lady Hamwee, we live by the regime as enshrined in the legislation; therefore, it is very important that all authorities recognise that and strive to become good or excellent. My noble friend and I were asking to have that point recognised in this little part of the Bill. We will return to the point as we deal with other aspects of the Bill. Although good and excellent local authorities have freedoms from inspection, other small burdens could be removed from local government through more freedom and flexibility. We shall return to the matter, even after my noble friend's comments on the point.

Lord Rooker: My answer to that is to ask, "Where is the burden on the good and excellent authorities in what we propose? Where is the burden that we are being asked to lift?"

Lord Smith of Leigh: I can speak on the matter as leader of an excellent council.

It is an apparent freedom. As my noble friend the Minister said, we would always carry on a prudential regime in a "good" or "excellent" authority. We could not exercise a freedom. I am not sure that I agree with my noble friend's view that a raft of freedoms is coming our way, but this one is apparent. I have chaired the meetings of excellent councils, and no one has asked for that freedom. We are asking for a lot, but that is not one of them.

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