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Lord Smith of Leigh: The Minister misunderstood my question. I was saying that presumably any authority that is carrying out duties under Clause 28, on monitoring budgets, would pick up any changes in levels of reserves. Clause 27 is therefore in a sense redundant. I return to the Minister's old days. If one looks at where expenditure has gone, one has presumably paid for the expenditure in some way. If one has not cut other budgets, presumably it has come out of reserves. That information is made available to

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members as part of any sensible, proper budget-monitoring process. The question was whether Clause 27 duplicates requirements that any good authority would follow in relation to duties under Clause 28.

3.45 p.m.

Lord Bassam of Brighton: It is not a matter of repeating those matters; I think they work in compensation for each other. They work together to ensure that members have that information.

Lord Hanningfield: We will come on to Clause 28 again in a moment. At present, the CPA looks at part of the audit system, there is the auditors' management letter and rigorous processes are in place. This part of the Bill, including the level of reserve for this clause and Clause 28, is restrictive; it looks as if the Government wish to nanny local government unnecessarily instead of giving it the freedoms that the Bill is supposed to provide.

I repeat what I have said and I will carry on repeating it. Whatever party is in power, we, as a Parliament, do not want to restrict local government too narrowly. Other countries do not—indeed, my continuing campaign in life is for us to treat local government as it is treated in other countries. I am sorry to have to say all that again, but I am sure we will come back to this matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 75 to 79 not moved.]

Clause 27 agreed to.

Clause 28 [Budget monitoring: general]:

On Question, Whether Clause 28 shall stand part of the Bill?

Lord Hanningfield: I shall use some of the arguments we have used on previous clauses in speaking against Clause 28 standing part of the Bill.

Clause 28 requires authorities to monitor their budget position and take action where they think the budgetary situation is deteriorating. I will repeat what has just been said—if that happens, what does the Secretary of State think people do all day in local authorities? All of us have very competent financial teams which report to the members. I assure him that a lot of these staff monitor the budgets. Does the Minister really believe that some local authorities do not monitor their budget position during the year?

I repeat what I said a while ago. I have had some involvement, through the LGA, in some authorities that have not done so well, such as Hackney. The situation has been transparent; members have known about it, but they have not taken the decisions. Officers provided the information in Hackney, but the members did not take the right decisions to rectify the position. Therefore, these provisions do something that is not necessary. If we could legislate to make competent members, that would be a different matter.

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In its comments on this issue, the Select Committee said that the provisions would have no real impact. I hope that this clause does not stand part of the Bill.

Baroness Hanham: I think these provisions are about teaching your grandmother to suck eggs. I found it very hard when we discussed it last time to understand why Part 2 has been included. After all, local authorities are already controlled by financial legislation, financial regulations and their members. I appreciate that some buck the trend, but normally it is well understood that they have to work within financial regulations and that the chief finance officer has a very significant and important role to play.

I am struggling with the whole of Part 2 to understand why this particular bit has been picked out. Why do we not have entirely new financial regulations going across the whole gamut of local authority responsibilities if the Government are so concerned about it? Why pick out these particular aspects which, under normal circumstances, as my noble friend said, we would expect local authorities to deal with properly?

Chief finance officers' reports have been wilfully ignored in some instances, and I guess Hackney fell into that situation. But that, surely, does not require three major clauses in a new local government Bill. The provisions have to be picked out of the Bill rather than kept together with all the other financial controls and areas that are monitored.

It is also fair to say that the Audit Commission or the district auditor comment specifically on the reserve. My recollection is that those management letters always had a comment on reserves—whether they were perceived to be adequate, too many, too few, whether they were opaque and whether they should be there in the first place. It is not as if local authorities are not advised about reserves—they are. It is a very specific part of the monitoring process.

I simply fail to see what justifies the inclusion of these clauses, given all the other aspects of financial control which it is so important that local authorities maintain and consider. I support my noble friend in not wanting Clause 28 to stand part of the Bill. It might be helpful if the Minister gave us some indication as to why the focus has fallen just here. I am sure there are many other parts of local government finance legislation and regulations that could be included in the Bill, if required or necessary. However, it would be equally sensible to leave it all out and leave everything under one piece of legislation or control.

Baroness Hamwee: I think we are agreed that a competent or even moderately good chief finance officer and even moderately diligent members will have regard to these matters. Perhaps I could frame my support for the points being made by asking two questions. First, what in the provision will, in real life, ensure that a chief finance officer does the job if he is not otherwise inclined to? Secondly, what is the sanction for not complying with the clause?

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The Minister of State, Office of the Deputy Prime Minister (Lord Rooker): The noble Lord, Lord Hanningfield, started by saying that he would repeat some of the remarks he made on the previous amendments. In part of my answer, I shall repeat part of what my noble friend said in responding to the amendments, as he quoted some parts of the Explanatory Notes on Clause 28.

I realise this is upsetting to Opposition Members, but, in all sincerity, I guarantee that these clauses would have been included in a Bill introduced by a Conservative government. I suspect that the same arguments I am about to make would have been made by Conservative Ministers. The point is that they would be in such a Bill because they are wholly justified; they are not there to waste time; and it is not because we do not trust local government.

The noble Baroness, Lady Hamwee, referred to chief finance officers and, I think, half-diligent members. Some members of local authorities are less than diligent, and this clause places a duty on members rather than officers.

All well managed authorities monitor their budgets during the year, and if problems are identified they take action. We have to have this longstop—that is all it is—because financial difficulties that have affected some authorities recently have been exacerbated by delays in picking up budgetary problems or by failures to report them to members once officers knew about them. I repeat that this is, in effect, a duty on members. Our hope is that this will be confined to a few authorities, but to be honest, these problems should not be happening anywhere.

The monitoring process is one of the most fundamental aspects of effective financial management. A duty to monitor the housing revenue account budget during the year has been a statutory requirement since 1990. This clause will impose a similar duty for the general fund budget. Our aim in this clause has been to ensure that the process is carried out, but—and this is the important point—to leave the details and decisions to be taken to the authorities. It is not being prescribed by central government or Parliament. The clause requires that reviews are made from time to time—the frequency is for the authority to decide in the light of its own circumstances and the professional advice of its officers. If a deterioration is identified, it is for the authority to decide what action to take, if any. If the deterioration is minor or has been allowed for in setting the reserves, the authority may decide to use its reserves. In other circumstances, it might decide that remedial action is necessary. Either way, it is for the authority to decide. The purpose of the clause is to ensure that the reviews are done and that they are then considered by the councillors in that authority.

The clause works by requiring an authority to review the calculation of the budget requirement that it made when deciding its call on council tax. If the review produces a higher budget requirement than when the council tax was set, this constitutes a deterioration, and the duty to consider action to deal with the situation is triggered.

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The rather technical-looking subsection (2) simply ensures that any changes in income and expenditure identified in a review are not absorbed by transfers to or from the reserves. Freezing the assumptions on reserve transfers means that predicted changes in income and expenditure carry through to the overall net figure. I think this is wholly reasonable in the circumstances. It is not designed to cause onerous problems for local authorities. It is confined to only a few, but, frankly, these problems should not be happening in any authority. It does not place a burden on the authorities; it certainly puts a duty on members. If there are any half-diligent, or less than fully diligent councillors, this clause will point out to them what their responsibilities were when they were elected to office in the first place.

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