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Baroness Hamwee: Obviously we need to think the matter through. Without asking to be spoon-fed, it was helpful to receive materials including copies of draft regulations during the Recess—even if there was only one set per party, as I think it was. Many of us do not spend the whole working day in this building. May I request that, in accordance with normal practice, Front-Bench Members are informed if items are put into the box? It is simply not practicable to check. I entered the building at 8 a.m. today to collect the Marshalled List before going on to City Hall for 8.20 a.m. I do not intend to whinge; it is just a fact of life.
Lord Hanningfield: I did not make clear initially the following point about what would happen if we were to have the reserve powers. At the beginning of the year, we take advice from our treasury officer in setting the budget and projecting the level of reserves expected at the end of the year. That is public knowledge and it is included in the budget. During the year, a letter from the auditors might say that the reserves should be higher. That would be a public document that all members of all parties would be able to debate. It seems odd, then, that the Government want to take retrospective action once the reserves have gone right down. That is akin to shutting the stable door once the horse is out. If the Government wanted to have such powers, they should make controls at the beginning of the year when they can see problems arising.
When the Government step in, the problem will have already arisen. That will cause chaos in the authority. Under the proposed system, the Government's power would not have stopped the problems that arose in Hackney and Walsall. That is the point that we have been trying to make. Therefore, the prudent authorities that try to manage themselves well and that take notice of the Audit Commission and other bodies must still make their own local judgments. The information is all there. It is the Hackneys that go dramatically wrong. The Government would be coming in afterwards. That is one of the problems of this whole area of legislation. I ask the Government to look both at the principle and their proposed approach. If we want to catch the Hackneys, they must come in at the beginning of the
year, when the problems start. The legislation is inadequate even if it is going to be used.
Lord Rooker: That is the point that I made earlier. The action would not be retrospective. If the outcome of a year's budget decisions gave cause for concern, the Government would consider whether to make regulations that would apply to the following year's budget round. That would give time to consult the authorities on the minimum reserve to be set, in accordance with the undertakings in the White Paper, which I have already quoted. It would also allow regulations to be made in good time to be taken into account in authorities' budget-setting processes. The regulations would set out how the minimum for each authority was to be calculated. The method would be a matter for consultation at the time but it is likely to take the form of a prescribed percentage of the budgeted expenditure of the authority. Different percentages might be prescribed for different types and sizes of authority.
I have already said it, but I shall say it again for completeness: the minimum will apply to controlled reserves, which will be defined by the regulations made under Clause 26(3). The regulations will be made only if a minimum is imposed. The intention will be to exclude reserves that are not subject to adjustment as part of the setting for the authority's call on council tax. The examples that I gave are the housing revenue accounts and school balances.
In drafting a precautionary clause, we are now accused of doing so after the horse has bolted. In that sense, it makes it more important to draft it; at least it will have been done within a year. I do not know the details of the Walsalls and Hackneys, but they did not occur all in one year. The problems arose, and I know from being in the department the difficulty of sometimes taking action. As a Minister, one is very reluctant to take action against democratically elected local government. By and large, one would say, "No—they have been elected, so let them sort it out. They know what the rules are and what the law is". Sometimes that is not possible and we have to go to the wire.
Some local authorities are in extreme difficulty. Central government sometimes needs powers to send in commissioners, for example. It is highly contentious to ask people to go into an authority to overrule elected councillors and sort problems out. Of course we leave that until the problems have arisen. In a way, that is the difficulty. However, as soon as the problem is identified as serious, we have to be able to take action. We could not take it retrospectively—that would be wholly unfair—but we must be able to sort a problem out.
I shall ask my officials, but if anything else is in the box that is likely to be of note on the parts of the Bill on which there is division between us, I shall draw the attention of Members of the Committee to it, and if need be get them copies. The issue is important and, in
some ways, the single sheet from which I have quoted probably should have been in the pack with the letter. It should been referred to at least, so I apologise.
Baroness Hamwee: I thank the Minister for that, and I do not intend to wind him up further.
Lord Rooker: I am perfectly all right; I know where I am coming from.
Baroness Hamwee: Me too. I need to be clear that, when the Minister refers to the regulations under Clause 26 that will be made only if there is a need for them, that applies both to the regulations under subsection (3) that define what a controlled reserve is and to those that deal with the minimum amount. We need to know what the controlled reserve is before the minimum amount is specified. I would like to understand whether it is intended to deal with all those in a compendium of regulations, or to define the controlled reserve beforehand so that one at least has a playing field.
Baroness Hanham: We have been discussing the whole of Part 2 as though it were a reserve power, and one that, if I understand what the Minister said, would be used in only the most exceptional circumstances. My reading of Part 2 is that it is a generalised part that does not apply only to a poorly run authority. It cannot do so, given its terms. It refers to Sections 32 and 43 of the Local Government Finance Act 1992. Section 32 deals with the,
- "calculation by billing authority of budget requirement for financial year",
- "corresponding provision for major precepting authority".
Lord Rooker: What is the answer to that? It is an important question, and I cannot find the answer. Somewhere towards the end of the Bill, there will be a procedure to operate the clauses. We are debating Clause 26; I shall not go on to the others at the moment. We do not want to operate Clause 26. The Government would choose to operate it at a specific time. To that extent, it is reserved. There will be commencement orders and all kinds of stuff at the back of the Bill about when provisions come in and how the Government operate the clauses. If the clauses were not operated, the rules and regulations would not
apply, and therefore we would not publish any regulations under Clause 26. It is our intention not to use the powers under Clause 26 and not to publish regulations. We hope to do it by consent. That is the general answer to the question asked by the noble Baroness.
Lord Hanningfield: We have had a long and somewhat lively discussion on this issue. Although we are having plenty of discussion, certainly there are good parts of this legislation which are welcomed by local government.
Lord Rooker: The noble Lord remembers that?
Lord Hanningfield: I remember that. I am trying to be nice now. I know that the Minister has good intentions on that. As he understands now from Members of the Committee, this is probably the most contentious part of the legislation. I am sure that we all want to free up local government so that it can do its job. It has a difficult time when it is told that it must give a certain amount of money to schools or that it must keep its council tax down. For local government to believe that another regulation is being proposed which will stipulate the level of reserves is a nightmare. That is why we are having this rather difficult discussion.
The Minister says that it is going to be a reserved power and I accept that. But local government is frightened that if this power is in the Bill, suddenly a Secretary of State will come along and say that local government has to keep 3 per cent of its money in reserves. I do not mean this Secretary of State, but local governments are frightened that a future Secretary of State or Government might implement this power, saying that it is sitting on cash rather than providing services.
That is why we should like the Government to think again on this issue. I am sure that the Government can obtain what they want to deal with the Hackneys and Walsalls. We all accept that perhaps commissioners have to go in and give assistance. In the local government world we have the IDA to try to self-help those types of organisations. I hope that the Government might think again on this issue. Obviously, we shall return to this matter at later stages in the Bill.
Clause 26 agreed to.
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