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Baroness Hamwee: I apologise to the Minister for making life more difficult; I thought I was doing the right thing. However, in my defence, my only comment on the draft list was made by e-mail at about midnight, although I do not expect anyone would have been there at that time to deal with it. It was to put two amendments together in the hope of slightly speeding up business, rather than moving them apart.
I shall read what the Minister has to say. It sounds right, but these are technical areas, and one has to be fully assured. I thank him for his explanation and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hamwee moved Amendment No. 29:
- After Clause 4, insert the following new clause—
The noble Baroness said: The amendment provides for the Secretary of State to make regulation, as based on the code for fiscal stability in Section 155 of the
Section 155 gives the Treasury the duty of preparing a code for application to the formulation and implementation of fiscal policy and the policy for the management of the national debt of the principles of transparency, stability, responsibility, fairness and efficiency—all admirable principles.
The code is almost as brief and straightforward as Section 155. For instance, paragraph 65 says:
The purpose of the amendment is, in part, to probe whether the five principles underlie Clause 4(1) and how that clause and the Secretary of State's assessment of the national economy relate to the code. The term "national economic reasons" is very broad. Regulations under Clause 4(1) would have to be clear about the borrowing limits set, but not why. I suppose it could be said that the new clause would provide the same sauce for the goose of central government and the gander of local government.
In another place, one of the Minister's objections was that there should not be a statutory requirement for parliamentary approval before setting a national limit. We touched on that this afternoon, but it seems questionable whether regulations would not even be subject to being prayed against. Another objection was that in any event, the Government would be implementing policies on public expenditure which had already had parliamentary scrutiny as part of the code. It seems to me that there would be no problem in confirming that in the context of the Bill. He also said that it would not be practical to specify in the Bill detailed methods for assessing national economic interests. The code, however, sets the principle—it does not set the detail. Furthermore, he said that one cannot anticipate the circumstances. I assume that that is why the code is about principle, not detail. Indeed, paragraph 11 says:
The Minister also said that the new prudential regime might prompt a sudden surge of borrowing. I read that sentence twice, because if this is regarded as both likely and a problem, one wonders why the Government are not, at this point, proposing, for instance, a gradual release of the restriction. I am not suggesting that we would support that—we want the wholesale release—but if that is a real issue, would it
Lord Rooker: The new clause would require the Secretary of State to follow much more elaborate procedures than are provided for in the Bill. Regulations could be made only to prevent a breach of the code of fiscal stability. Parliament would have to approve a report on the potential breach, and the views of the Treasury and the Comptroller and Auditor General would also be needed.
As I have pointed out, there would have to be a serious set of circumstances to justify a national limit, such as a sudden significant downturn in the international economy. We do not believe it is practicable to specify on the face of the Bill detailed methods for assessing the national economic interests in those circumstances. The Code for Fiscal Stability lays down very broad financial principles, which would not be particularly helpful in this context.
Along with Ministers in another place, I am not persuaded of the need for specific parliamentary approval. Any limit would be in accordance with policies on public expenditure that had already received parliamentary approval. Economic circumstances serious enough to demand national borrowing constraints inevitably would be the subject of extensive parliamentary debate.
Parliament has never been involved in scrutinising the allocation of local authority borrowing limits, which, every year since 1990, the Government have set by the issue of credit approvals. Earlier I reminded my noble friend beside me that, when I arrived in another place in 1974, it was not normal to debate the rates before grant settlement. They were never debated; they simply whizzed through. Although I do not use that as a reason to pray in aid, things evolve over time. Where problems arise, Parliament will debate them in the circumstances that would cause this to come into operation; that is, Clause 4. Furthermore, extensive public debate would take place outside Parliament. Under the new system, a national limit would achieve exactly the same result as that under the system which has been operating since 1990. Therefore I see no need for a statutory requirement for parliamentary approval of the process.
Also, the appropriate audit authority for local government is the Audit Commission, which we would certainly involve in discussions on any possible national limit. The appropriate independent body would be involved in the discussions to set a national limit, but there is no need for a statutory duty for such consultation.
I hope that, with those reassurances, the noble Baroness will withdraw the proposed new clause. I understand the motives for tabling it, but one has to say that the circumstances under which such a clause would operate would not be normal.
Baroness Hamwee: No, but Clause 4(1) does not say that. While I appreciate that it is difficult to find a point on the spectrum, what I am trying to achieve here is for the legislation to specify how serious a situation might need to be and that it needs to be serious. Clause 4(1) does not address that. Common sense might say that a certain situation would bring Clause 4(1) into effect, but we do not know that. The Minister has found it difficult to cite an example. We must show good faith if we leave the subsection as it is.
What I propose in the new clause is more elaborate, but it is also more transparent. That point lies at the root of the new clause. For example, Clause 4(1) would allow the Secretary of State to take the relatively easy way of achieving a reduction in borrowing by saying to local government: no more, or much less, rather than addressing the detail in central government. That could be a temptation. Whether or not this is the right way to deal with the point, what circumstances might cause Clause 4(1) to be applied by the Secretary of State is a matter that we shall have to come back to at a later stage. For the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 [Temporary borrowing]:
Baroness Hanham moved Amendment No. 30:
The noble Baroness said: No doubt the Ministers opposite will be pleased to note that broadly we welcome this clause. Giving local authorities the power to make temporary borrowing arrangements for managing their in-year cash flows is wholly sensible.
The formula for establishing the limit on such temporary borrowing is based on the amount due to the authority within the period that it has not yet received. As it stands, however, the provision does not take into account the fact that in practice some of the money will not be collected. We fear that it would be imprudent for local authorities to be able to borrow money on the assumption that in the future they will receive 100 per cent of council tax and, not only this, also assume that they can collect all of the housing revenue account arrears and council tax arrears from previous years. It is worth noting that some local authorities receive only around 60 per cent of the moneys owed to them.
We believe that is a sensible way to approach borrowing for in-year cash-flow management purposes; it must be based on real anticipated receipts, not nominally receivable amounts that in practice everyone understands will not be received in full. I hope that the Minister will accept the amendment or undertake to deal with the issue in another way. I beg to move.
"BORROWING LIMITS
(1) The Secretary of State may by regulations set limits in relation to the borrowing of money by a local authority.
(2) The Secretary of State may only make regulations under subsection (1) if the code for fiscal stability, as provided for in section 155 of the Finance Act 1998 (c. 36) (code for fiscal stability), would otherwise be breached in any way.
(3) Before the Secretary of State may make regulations under subsection (1), the Treasury must prepare and lay before Parliament a document which shall be subject to approval by a resolution of the House of Commons explaining how the code for fiscal stability would otherwise be breached if limits were not set in relation to the borrowing of money by local authorities.
(4) It shall be the duty of the Comptroller and Auditor General to examine the Treasury's document published under subsection (3) and report to the House of Commons on his findings."
"The principle of responsibility means that the Government shall operate fiscal policy in a prudent way, and manage public assets, liabilities and fiscal risks with a view to ensuring that the fiscal position is sustainable over the long term".
"The Government may depart from its fiscal objectives and operating rules temporarily, provided that it specifies:
a. the reasons for departing from the previous fiscal policy objectives and operating rules;
b. the approach and period of time that the Government intends to take to return to the previous fiscal objectives and operating rules; and
c. the fiscal policy objectives and operating rules that shall apply over this period".
6.15 p.m.
Page 3, line 28, after "relates" insert "and is reasonably expected to be received within that period"
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