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Baroness Hanham: I thank the Minister for his reply, and I thank other noble Lords who intervened, particularly my noble friend Lord Hanningfield.

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The regulations that seem to be apparent in Clause 3 seem to be in addition to the normal regulation to which any local authority would have to adhere. Given what the Minister said, it may be that that is not the situation, but I will consider the matter further. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

5.15 p.m.

Clause 4 [Imposition of borrowing limits]:

Baroness Hanham moved Amendment No. 18:

    Page 3, line 3, after "the" insert "aggregate level of"

The noble Baroness said: If caps on individual borrowing are to be set for reasons of prudent macro-economic management, it is the aggregate level of borrowing that is important. It is the total debt that will have an impact on the bigger economic picture. The amendment would make that point explicit, by making sure that local authorities' aggregate borrowing was the target of Clause 4(1). I beg to move.

Baroness Hamwee: We tabled Amendment No. 19, which is in this group. It skins the cat in a slightly different way by proposing that any regulations under Clause 4(1) should relate to the borrowing of money by all local authorities. We should make it clear that there is no distinction between local authorities, as regards the powers under the clause. We would be content with an assurance from the Minister to that effect and will not move our amendment if he can give such an assurance.

Lord Bassam of Brighton: The amendments relate to Clause 4, which gives the Secretary of State the power to set borrowing limits for local authorities. Amendment No. 18 would change Clause 4(1), which empowers the Secretary of State to make regulations for national economic reasons setting limits on the borrowing of money by local authorities. If amended, the clause would refer to the setting of limits on the "aggregate" level of borrowing by authorities.

It may help if I explain first how we see a national limit operating. As Clause 4(1) makes clear, such a limit could be set only for national economic reasons. The need for a limit might, for example, be triggered by a sudden downturn in the international economy. The Government would form a view on the maximum increase in local government borrowing that was sustainable. Even then, a national limit would be formally set only if there were strong evidence that the acceptable level of borrowing was likely to be exceeded without some form of intervention. In that case, for any individual authority, the limit would be likely to take the form of a maximum amount by which their borrowing could be increased over the coming financial year. The limit need not be expressed as an absolute sum but could be a formula, reflecting such factors as previous borrowing, budgets and commitments.

Whatever formula was used at individual authority level, it would be calculated to produce the right aggregate result nationally. We are satisfied that the

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idea of an aggregate level of borrowing is already implicit in the clause. In a sense, we are already taking on board the noble Baroness's point. For us, the amendment would add little and would not provide any further clarification. That might seem a bit rude, but that is the case.

Amendment No. 19 would also change Clause 4(1). If amended, the clause would refer to the setting of limits on the borrowing of money by all local authorities. That idea is already implicit in the clause and need not be stated. The formula setting the national limit need not produce exactly the same result for every authority. It could be sensitive enough to take some account of different local needs and circumstances. For a few local authorities, perhaps, the impact might be minimal. However, the limit would be imposed through secondary legislation, which, I am sure, would need to apply generally to all authorities. For those reasons, the amendment seems unnecessary.

I hope that, with those assurances, the noble Baroness will feel able to withdraw the amendment.

Baroness Hamwee: I am not sure that I fully understood the Minister. In describing how the regulations would work, was he saying that, although the decision would be taken looking at the aggregate, there would be a different application authority by authority? Would it be the same proportion across authorities or the same cash amount? Should I ask the question in a different way?

Lord Bassam of Brighton: I am trying to avoid the necessity to write.

It would depend on the circumstances of each local authority. We would have to take into consideration the circumstances that prevailed at the time. That probably does not answer the point that the noble Baroness is probing at, but if she reads again what was said earlier, she will find that it probably does.

Baroness Hanham: The only word that I heard that sank deeply into my soul was that aggregate was "implicit" in what is proposed. There are other considerations about the borrowing limits, and the fact that the word "aggregate" is implicit will be helpful in the discussions that we will have on the remaining amendments on the clause.

Having had the assurance that that is what the clause means, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 19 not moved.]

Baroness Hanham moved Amendment No. 20:

    Page 3, line 3, at end insert—

"( ) No regulation made by the Secretary of State under subsection (1) may reduce the overall borrowing limit set for local authorities in any year in which the Government is planning to increase the level of borrowing by central government departments or their agencies."

The noble Baroness said: This is the beginning of a small group of amendments that deal with Clause 4 in various ways. It will not have escaped the Committee's

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notice that I have had several goes at various different aspects. If, in due course, I moved the amendments on Report and pressed them to a vote, I would be in considerable trouble. I shall not do that, but I shall go through them one by one, as they all raise slightly different points. If one of them is agreed, I shall probably be in trouble with some of the others.

Amendment No. 20 would ensure that central government could not use the pretext of national economic reasons to squeeze local authority borrowing, while increasing the borrowing of central government departments and agencies. We are looking for a level playing field, if there is a problem over borrowing. The amendment would protect the budget planning of local authorities against possible unfair action to squeeze their borrowing while increasing the Government's borrowing. It is a question of whose priorities will come out on top.

It is understandable that, in certain circumstances, the Government might wish to reduce the overall level of public sector borrowing, as happens reasonably often. In those circumstances, it would be reasonable to expect local government to play its part. It would not be reasonable to make local authorities alter their budgets and borrowing plans, leading potentially to cuts in school programmes and discretionary services such as social services for which local authorities would take the blame, while central government planned to continue expanding borrowing for short-term reasons of their own.

The amendment would protect local authorities against the threat of such one-sided interference, which, some authorities feel, does happen. It would also remove the temptation for government to try to do it. If the Government want to make local authorities virtuous in such circumstances, they must be virtuous themselves. I beg to move.

Lord Bassam of Brighton: Amendment No. 20 relates to Clause 4(1) and would stop the Government imposing a reduction on local government borrowing in any year in which central government borrowing was allowed to increase. That would be the impact.

In response to the former Select Committee on Transport, Local Government and the Regions, which considered the draft Bill, we have made it clear in the Bill that the reserved power could be exercised only for national economic reasons. Those are the circumstances in which it would be exercised, and they would have to be serious, if they were to justify a national limit. There might, for example, be a sudden and significant downturn in the international economy. Such a situation would demand restraint from the public sector as a whole, not just local government, and it is unlikely that central government borrowing could increase significantly, if local government borrowing were curtailed.

Central government is the major lender to local government. Much of our borrowing is undertaken purely to fund the loans that we make to local authorities through the Public Works Loan Board. That reflects the fact that local government capital

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expenditure represents about 50 per cent of the national total of such expenditure. We would expect local borrowing constraints to feed through to the national level.

The amendment implies that the constraints should always be exactly the same for central and local government. I am sure that, on reflection, the noble Baroness will see that as being somewhat unrealistic. The Government will have to consider carefully how any borrowing capacity should be distributed, taking account of central and local needs and their different priorities. The amendment would remove that flexibility. The Bill is about providing greater flexibility, but the amendment would remove our flexibility to make a proper decision on that issue in the light of prevailing circumstances.

I hope that, with that assurance that the power might be used in connection with difficult international and national circumstances, the noble Baroness will feel confident and able to withdraw the amendment.

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