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Lord Rooker: Amendment No. 59 seeks to delete paragraph (a) of Clause 15. That would result in all guidance issued by the Secretary of State having to be in the form of regulations. However, there are well-established precedents for Secretaries of State to issue statutory codes of guidance without any requirement for regulations. We are not trying to circumvent parliamentary scrutiny, far from it. We are thinking of using the power in paragraph (a) mainly to give clear and simple guidance on prudent investment practice. Local government representatives themselves have agreed that such an approach is preferable to the present one which requires complex regulations about investments.

In those areas where we need to introduce regulation we shall do so, subject to parliamentary scrutiny. However, in other areas guidance will be issued following well-established precedents. Frankly, it would be a complete and utter waste of Parliament's time to force the Secretary of State to issue regulations in every case and would make the matter ever more complex. I hope that I have reassured the noble Lord.

Lord Hanningfield: I accept what the Minister said. At a later stage of our debates on the legislation we shall need to make clear that the regulations will be scrutinised by Parliament. As I said earlier, the new regime to which both Ministers have referred is totally new and, therefore, people will want to see the detail of it. I shall withdraw the amendment at this stage but we shall want to return to this theme as the Bill progresses through its stages. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 60 not moved.]

Clause 15 agreed to.

Clause 16 ["Capital expenditure"]:

Baroness Hamwee moved Amendment No. 61:

The noble Baroness said: In moving Amendment No. 61, I wish to speak also to Amendment No. 62.

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Amendment No. 61 could perhaps have been more elegantly phrased by inserting "relevant" before rather than after the word "proper". But I hope that inelegance will not impede the Minister giving a satisfactory reply. I have tabled the amendment in order to probe the meaning of the measure in the Bill. I assume that the words "proper practices" refer to accounting practices. I assume that accounting practices—perhaps I have too much faith in the profession—will be proper. It is unlikely that they would be improper practices, if I can put it that way. Perhaps more seriously, Clause 21 seems to cover the position thoroughly, so I am unclear as to what is imported by this one word.

Amendment No. 62 would delete the power of the Secretary of State to make regulations providing that expenditure is or is not capital expenditure. We particularly oppose Clause 16(2)(b), as do the Conservatives, which provides that expenditure of a particular local authority is or is not capital expenditure. We have had, and no doubt will go on having, arguments about whether particular local authorities should have the powers that, in general, this Bill grants and whether there should be distinctions between authorities as to whether or not they can exercise powers. For the Secretary of State to be able to say, "Well, in your case, that expenditure on a particular matter is capital but in your case expenditure on the same matter is not capital", seems to be odd at the least and, certainly, a control too far.

Having missed part of today's proceedings, I am unsure whether reference has already been made to the Hackney factor. Perhaps this is due to the Hackney factor. But we question the appropriateness of this in the context of the economy of local authorities about which we have talked from this side of the Committee. In another place, the Minister said that this was a "continuation" of an existing direction-making power. Is not the existing power adequate? Why is it necessary to continue it? If it is an extension, how is it an extension? Is it simply an extension because it goes into a new clause in a new Bill? And, of course, why? I beg to move.

5.30 p.m.

Lord Rooker: Amendments Nos. 61, 62 and 63 relate to Clause 16 which defines the term "capital expenditure". Amendment No. 61 focuses on the basic definition in Clause 16(1).

Lord Hanningfield: The Minister has referred to Amendment No. 63. That has not been moved.

The Deputy Chairman of Committees (Baroness Turner of Camden): It is in the group of Amendments Nos. 61, 62 and 63. The noble Lord can speak in this group if he wishes.

Lord Hanningfield: Perhaps I may speak to this amendment to add to what the noble Baroness, Lady Hamwee, said. This is an odd clause because it particularly wants to define the capital expenditure for individual authorities. That obviously could be done for political, for favouritism, or for some particularly

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odd reason. Clause 16(2)(a) already provides for the Secretary of State to define "by regulations" what should constitute capital expenditure for local authorities, and we accept that. In fact, we started the day by defining capital expenditure.

But the most appropriate way to maintain transparency in local authority finance is to ensure that local authorities are treated equitably. We understand that the provision to define capital expenditure by local authorities by regulations is a necessary safeguard. However, given this provision, can the Minister explain under what circumstances it might be necessary for the Secretary of State to have the power of direction to make a different provision for an individual local authority, along the lines outlined by the noble Baroness, Lady Hamwee?

If this provision is intended to deal with anomalies or grey areas in the finances of a particular authority, can the Minister give us a better understanding of what these might be and how this provision will be applied? When will it be necessary to capitalise parts of a particular authority's expenditure and what types of expenditure will qualify for this treatment? Our concern is that this measure may raise doubts about the equitable treatment of different authorities and the transparency of local authority finance. Is the Minister able to assure us otherwise?

Lord Rooker: I certainly hope so. I shall start again, but I am sorry if I pre-empted the noble Lord. Amendments Nos. 61, 62 and 63 relate to Clause 16, which defines the term "capital expenditure". Amendment No. 61 seeks to replace the words "proper practices" with the phrase "proper relevant practices". That would make the provision unworkable. I draw the attention of noble Lords to Clause 21(2) in which the expression "proper practices" is defined. Therefore, the terminology in the two clauses must be kept fully consistent.

More significantly, Clause 21 makes the amendment unnecessary because it enables relevant accounting codes to be identified in regulations. We have placed the draft capital finance regulations in the Library in which Regulation 21, dealing with proper practices, names the statement of recommended practices, which is in draft form issued by the Chartered Institute of Public Finance and Accountancy (CIPFA). Local authorities will therefore be in no doubt where to look for relevant guidance on such concepts as that of capital expenditure.

Amendment No. 62 seeks to remove the whole of subsection (2) which provides two powers to vary the definition of capital expenditure. One is a power to do this by regulations applying generally to authorities and the other is a power to make variations for individual authorities by directions. Amendment No. 63 seeks to remove only the direction-making power. I understand why these amendments have been tabled, but both powers are basically continuations of ones we already have, which are much appreciated by local government.

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By classifying expenditure as capital expenditure, we increase authorities' flexibility to apply their resources. Capital expenditure can still be met out of revenue resources, if authorities wish, but they have added options. They may use their capital receipts; alternatively they may borrow the money, subject to keeping within the limits applicable at the time.

In the draft regulations that I mentioned, Regulation 19 illustrates how we expect to use the first power. We want to continue to allow authorities the flexibility to treat computer software development costs as capital expenditure. A similar provision exists under the present system and, we believe, anticipates likely developments in standard accounting practice. We also want to ensure that when making loans and grants towards capital expenditure by other bodies, authorities may draw upon their own capital resources. That freedom exists under present legislation and it seems a sensible modification of accounting practice since authorities are, in effect, undertaking capital expenditure by proxy.

The direction-making power is also important. It enables us to define items of expenditure as capital expenditure on a one-off basis for individual authorities rather than having to make a regulation generally applicable to all authorities. We have used the power, for example, to help authorities cope with substantial redundancy costs and pension fund deficits that would otherwise have been unaffordable. The power was, of course, introduced by the previous Administration in 1990, which used it in much the same way as we have since.

Under the new system, the power would be exercised as of now. That means we would continue to issue capitalisation directions only in exceptional cases. Without the power, we could not offer quick assistance to local authorities facing serious financial difficulties borne out of these types of examples. I hope, with those reassurance, that noble Lords are assured and will withdraw their amendment.

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