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Baroness Hamwee moved Amendment No. 54:

The noble Baroness said: In moving Amendment No. 54, I wish to speak also to Amendment No. 55. These amendments seek to remove the prohibition on charging property as security for borrowing and to allow charging on any asset of a local authority.

Under Clause 6, lenders are protected in that they are not required to inquire whether an authority has power to borrow. I tabled these amendments to inquire whether it is not inconsistent not to allow lenders to have the protection of being able to enforce security. I appreciate that in the world that we are talking about having no security may be less important than when an individual or a company with limited liability and perhaps few assets borrows as local authorities tend to have quite a lot of money. But is it in the best interests of council tax payers to have this prohibition? It might be argued that that is the very point of it but I should be interested to understand the Government's attitude here. This again is a centralising provision. It does not allow the local authority to take its own decision as to whether or not it is appropriate to give security for money borrowed. I beg to move.

Baroness Maddock: There was considerable discussion about this issue in another place. Clause 13 retains the principle that all local authority debt is deemed to be secured on the totality of the assets and revenue streams of the local authority. Questions were asked in another place about whether the Government had carried out an analysis of the impact of the total cost of borrowing if any changes occurred in the financial arrangements that I described in my opening remarks. We still believe that the Government should examine other options. There are lessons to be learnt from PFI and from the experience of other countries where lower tiers of government have wider freedoms than the tier that we are discussing. Will the Minister

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indicate whether, given the discussion that took place in another place, the Government's mind is still totally closed to a wider consideration of the matter?

Lord Bassam of Brighton: As both noble Baronesses said and clearly understand, Clause 13 makes provision about the security that local authorities are to offer for the money they borrow.

Amendments Nos. 54 and 55 would remove the long-standing ban on the mortgaging of local authority property. I understand that the ban goes back to 1933. Therefore, I believe that one could make the valid argument that it has worked well for—

Baroness Maddock: I think that that precisely makes my point. If a regime has been in place that long, is it not time that we considered something else?

Lord Bassam of Brighton: The Government constantly consider such matters. However, I make the simple point that the ban has worked well since 1933 and we see no reason to change it. We do not think that that is necessary.

Authorities will still be able to borrow from the Government via the Public Works Loan Board (PWLB), which never seeks such security. In accordance with Clause 13(3), a local authority's borrowing will continue to be secured on its entire revenue income and that is all that is ever necessary. Such security should also be perfectly adequate if authorities choose to borrow in the market. The fact that authorities can occasionally get loans from the private sector on favourable terms compared with the Public Works Loan Board demonstrates that it is not necessary for them to mortgage their assets to do so. And in any event the potential for private sector lenders to seize authorities' property would pose an unacceptable threat to services. I am sure that that is not at the forefront of Liberal Democrat thinking.

As I say, we do not consider that the amendment is necessary. The noble Baroness, Lady Maddock, asked whether any work had been done to assess the impact of removing the ban. No systematic work has been carried out but some thought obviously has been given to the matter. We see no benefits or savings being gained if local authorities were allowed what might be described as the additional flexibility that the two noble Baronesses have tried to recommend. They have said nothing which convinces us to change our mind. We believe that we have the measure right and that the current system works very well indeed. I hope that with those reassurances the noble Baroness will withdraw the amendment.

Baroness Hamwee: After a few years in your Lordships' House one becomes accustomed to seeing a Minister read the words, "Nothing that the noble Baronesses have said today has convinced us".

Lord Bassam of Brighton: That was not in the brief.

Baroness Hamwee: The Minister makes the point that the Public Works Loan Board does not seek

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security. However, it could not do so because, as the Minister explained, there has been a ban on doing so since 1933. Of course we are not suggesting that services should be prejudiced. However, we ask whether it is appropriate that this should be a matter for central control. We believe that it is not. Local authorities may well not want to go down that route. However, the Minister did not, for instance, suggest that borrowing might become more expensive to those who do not offer security. It is very difficult to judge the position. I have not written, "Nothing the Minister has said has convinced me", although it may be written in invisible ink. I hear what the Minister says and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 55 not moved.]

Lord Hanningfield moved Amendment No. 56:

    Page 6, line 19, leave out "two" and insert "three"

The noble Lord said: We are concerned that these provisions do not allow local authorities sufficient flexibility to repay, or possibly challenge, a debt before the intervention of the High Court and the appointment of a receiver.

Will the Minister assure us that two months will allow sufficient time for local authorities to raise the necessary sums or challenge the debts? Although we accept the need for the safeguards Clause 13 provides, we should prefer to see the time limit extended to three months to allow for greater flexibility.

We accept that this is a matter of practical judgment rather than a philosophical or political difference. We should be grateful, therefore, if the Minister could share with us what evidence has led the Government to set a time limit on the repayment of large debts at two months. I beg to move.

Lord Bassam of Brighton: Amendment No. 56 relates to Clause 13(5). This provides that if the principal or interest owed to a lender is overdue by two months, the lender may ask the courts to appoint a receiver with power to oversee the management and distribution of the authority's revenues. So there is a common agreement and understanding of what the clause does. As the noble Lord said, Amendment No. 56 proposes that this period of two months should be extended to three.

The amendment is clearly meant to help local authorities. However, we believe that it could have the opposite effect. The measures in Clause 13(5) may seem stringent but they provide the assurance demanded by lenders. Any weakening of this protection to lenders could adversely affect local authorities. We know that private sector lenders are very much aware of the existing provisions, which have been in force for a considerable time. They have acted as a guarantee for a very long time. Even a minor change could send entirely the wrong signals to the market. I am sure that the noble Lord is well aware of the sensitivity of the market to such messages which would be very unwelcome. The effect could be to make it more difficult or more expensive for authorities to

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borrow. I do not think that that is desirable and I do not believe that the noble Lord thinks that that is desirable. We do not want to encourage such a situation which would not be helpful to local authorities.

I suggest that the noble Lord reconsiders the amendment and perhaps takes some further advice from lenders.

Lord Hanningfield: I thank the Minister for that reply. There are two ways of looking at the matter. I accept that, as the Minister said, we want lending to be at favourable rates and to be secured. I shall reflect on the amendment. It is not a terribly important amendment, but we sought the Government's reasons for wanting a period of two months. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hanningfield moved Amendment No. 57:

    Page 6, line 29, leave out "10,000" and insert "50,000"

The noble Lord said: In moving Amendment No. 57, I wish to speak also to Amendment No. 58.

We have concerns that these provisions set the threshold too low for the intervention of the High Court and the appointment of a receiver.

As I hope that I made clear in the previous amendment, we agree that there is a need to set safeguards of some kind, but we should be grateful if the Minister would share with us what evidence led the Government to set the thresholds at these levels. From our side, they seem too low.

We also seek some clarification as to why it should be necessary for the Secretary of State to have the power to alter this threshold by order. Can the Minister clarify whether the power is likely to be used to lower the threshold further, and under what circumstances it might be employed? I beg to move.

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