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Lord Hanningfield moved Amendment No. 193:

"( ) The power under subsection (1) does not apply to best value authorities that have been placed in the top tier of classification in accordance with the provisions set out in section 100."

The noble Lord said: We continue with the same theme. There is no question but that Clause 95 will discourage local authorities from making use of the

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Clause 94 power. In order for that power to be used effectively, there must be some stability in the system. Local authorities setting up the new services and new charging systems that we discussed could incur considerable one-off costs. They will not do that if there is the possibility that the Government will suddenly remove these powers. Nor will partners from the private or voluntary sector sign up to working with local authorities on that basis.

We are opposed to that power in general. We are particularly opposed to it in relation to CPA excellent authorities. Obviously the Minister will have some views on that. We want CPA excellent authorities to be excluded from the scope of the clause.

The Government have introduced a system of classification at great expense. They have identified councils that they consider to be excellent and have promised them extra freedoms. Without those freedoms, there is no justification for the whole CPA exercise. So we are entitled to expect that where there is the scope to extend freedoms, the Government should do so.

We would prefer the clause to be abandoned altogether. But if that is not to be, we want excellent authorities to be excluded from its scope.

There is no doubt that invoking the clause has the potential to cost local authorities money and to damage their relations with the community. It is important that the Bill should make it clear that the Government will take into account the financial impact on a local authority of the exercise of that power and that existing arrangements will enjoy a measure of protection.

I hope that the Minister will carefully consider Clause 95. Without the safeguards that I have suggested, it threatens to undermine the thrust of the Government's policy.

6.15 p.m.

Baroness Hanham: The Minister has not leapt to his feet. He has been carrying the banner of excellent authorities all the way through the Bill, and I am stunned that he is not supporting the amendment. Perhaps in this particular area he does not want the excellent authorities to intervene.

It is a question of what we mean by all the efforts that have been put into the CPA and their outcomes. The amendment would ensure that excellent authorities were seen to have gained some benefit. It is interesting that the amendments tabled by the noble Lord, Lord Smith, and by us about recognising the excellent authorities have all been turned down by the Government. I very much hope that we will see an exception this time.

Lord Bassam of Brighton: This is a re-run of the previous debate. I am sure that noble Lords who are interested in the issue know that this is a reserve power and that it would be used only in extremis. There will be well defined circumstances in which that might be the case, particularly where an authority was undertaking unauthorised trading activities. The

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provision would enable an intervention where it would not be in the public interest for a best value authority to charge for a particular discretionary service. I am sure that we can all think of such circumstances. For example, an authority might seek to use an excessive charge to discourage the use of a service and undermine its long-term effect. In those circumstances, it would be justifiable to have an intervention.

Amendment No. 193 would fetter the discretion of the Secretary of State, so that he could not disapply the power to charge for discretionary services from authorities adjudged to be in one of the top tier of performance categories, by virtue of their categorisation under Clause 100. The reference to "top tier" makes that amendment flawed, as the concept does not exist in statute in any event.

The amendment would prevent the Government from taking any action and would prevent the removal in the public interest of the power to charge for a particular service from a top tier—perhaps inappropriately named—authority.

Amendment No. 194 would prevent the Secretary of State from using the power to disapply the charging power from existing arrangements. We can well understand concerns that arrangements entered into lawfully should not be made unlawful by the exercise of the power. But Clause 122 provides for transitional provisions to form part of any orders made under the Bill, and we would include such arrangements in any order made.

The effect of Amendment No. 194 is also wider than has been described. It would prevent the Secretary of State from making an order to disapply the charging power from any existing arrangements. By definition, any services for which charges were made under the new charging power would become "existing arrangements". And, equally, any service where there was evidence of misuse, perhaps because it involved unauthorised trading, would be an "existing arrangement". So the Government would be unable to withdraw the charging power for the very services and from the very authorities that the power at Clause 95 is designed to address.

Amendment No. 195 would require that the Secretary of State have regard to the financial impact on an affected authority. Clause 122 provides for transitional arrangements to form part of any orders made under the Bill. In any such orders, we would include arrangements, for example, to cover the status of agreements previously entered into prior to the withdrawal of the charging power, so that they could run their proper course.

When considering withdrawal of the charging power, we would always ensure that there was full consultation with the authorities affected and consider the impact of withdrawing the power. We are committed to the new burdens procedure which requires us to reimburse local authorities for any additional costs they might face as a result of charges introduced by us, such as the withdrawal of a power. We would give authorities the opportunity to rectify

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their situation and discuss with affected authorities any proposals we may have for intervention before acting.

I hope that that explanation provides a better understanding of how we would seek to use the power. We would use it as sensitively as possible and only where we felt that there was abuse and a failure to recognise the importance of the public interest.

Lord Hanningfield: I thank the noble Lord for that answer. It still does not explain why one could not exclude excellent authorities—they would clearly not be misusing those trading powers; if so, they would not be excellent authorities.

I suspect that we will return to this theme of the real value of being an excellent or good authority. We have not discussed the CPA process. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 194 and 195 not moved.]

Clause 95 agreed to.

Clause 96 [Power to trade in function-related activities through a company]:

Baroness Hamwee moved Amendment No. 195ZA:

    Page 51, line 39, leave out subsection (4).

The noble Baroness said: I shall speak also to Amendments Nos. 196ZB, 196A, 196B and 203A. However, I do not recognise Amendment No. 195A in this group. Our Whips' Office cannot trace my asking them to table it. Yesterday, I asked for it to be withdrawn, along with other amendments, but it is still there. So someone is very keen on it, but it is not me. I cannot even find what Clause 18(5), to which it refers, is about. That was to do with an amendment that CIPFA asked us to table some time ago.

Amendment No. 195ZA would leave out Clause 96(4), which requires that the power to trade shall be exercisable only through a company in which the local authority has an interest. I believe that that was not in the draft Bill and I tabled the amendment to probe why it is now included. Amendment No. 196ZB, which would leave out subsection (3), is tabled because of our continuing distaste for the Secretary of State's ability to distinguish between authorities.

Amendment No. 196B refers to the provisions on exercise by reference to authorities' performance categories. We tabled it because we disagree with the use of performance assessment as a basis for granting powers, a point that we have made consistently throughout the Bill's proceedings. Clause 101 could be applied retrospectively, which particularly concerns us. What happens if a local authority drops a performance category? The councils will be reassessed periodically, and although one hopes that "continuous improvement" will mean just that, some authorities may move into lower categories.

I understand that there is to be some provision for transitional arrangements if this is to happen. While that is helpful, it is not a complete answer, because it is not clear whether a particular trading agreement can continue in that situation. A council entering into a

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commercial agreement needs to be certain, as does everybody else, that that will stick. It would be very helpful for the legislation to deal with the issue.

Amendment No. 203A applies the same restriction to Clause 101 itself. Amendment No. 196A is consequential, even though it appears earlier. I beg to move.

Lord Hanningfield: I should like to speak to Amendment No. 196. These provisions give the Secretary of State sweeping powers to interfere in any commercial function undertaken by a local authority. The powers do not seem to be restricted to the new powers set out in the Bill but cover anything that the local authority has the power to undertake for a commercial purpose or anything that it does for a company. If that is not the intention of these provisions, is it not better to make it clear on the face of the Bill that these provisions refer only to the Clause 96 powers?

Even if the powers were so restricted, we would still take issue with them. Under what conditions could the Secretary of State impose these powers? How would they be applied and under what circumstances? As the noble Baroness, Lady Hamwee, said, authorities could enter into a commercial transaction and withdrawal could cause chaos.

These questions need to be answered. The power is far too general and will deter many commercial organisations and voluntary bodies from entering into a partnership with local authorities. It will make it harder for local authorities to make full use of the powers set out elsewhere in the Bill.

6.30 p.m.

Lord Rooker: I hope I will be able to justify the contents of the Bill, and I hope I have kept track of the amendments that have appeared from nowhere so that I do not waste my time answering them. We agree with the thrust of the concern expressed in Amendments Nos. 196B and 203B, but believe that the issue can be dealt with through secondary legislation.

Amendment No. 195ZA would remove the requirement for the trading power to be exercised through a company within the meaning of Part 5 of the Local Government Act 1989. It would remove the overriding requirement that the proposed power to trade in function-related activities may only take place through a company. This would remove the very important safeguards we built into the provisions and is simply not acceptable.

We consider it essential that the new power for local authorities to trade with private bodies and persons for profit should be exercised through a company structure. We are allowing local authorities to behave in a commercial way; it follows they should be subject to the regulation of commercial bodies, for example on taxation. This will help ensure a level playing field in the private sector. I cannot believe that that is not an acceptable explanation.

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Amendment No. 196 relates to Clause 97, which provides an order-making power to impose conditions on the exercise of any trading power by a best value authority, including where the trading activity is undertaken through a company. Best value authorities are also required to have regard to any guidance that may be issued about the exercise of their trading powers. The effect of the amendment would be to remove the power of the Secretary of State—or, in Wales, the National Assembly—to impose conditions in an order and issue guidance on the use of trading powers by best value authorities. This would mean that authorities would be left entirely free to make their own decisions about the exercise of the trading powers.

We believe for many reasons that it is necessary for us to have the ability to impose conditions and issue guidance. These include providing the necessary safeguards for taxpayers, local service users and businesses. We also need to ensure that councils do not distort markets through the provision of inappropriate subsidies to trading companies or the arrangement of preferential terms and other forms of unfair competition.

We also intend to impose conditions which will require the preparation of a business case approved by the authority before it embarks on any trading venture. A draft order has been placed in the Library of the House and has been sent also to Members of the Committee. We also propose to issue guidance which will cover the use of these new powers and the potential implications of competition legislation and anti-competitive practices. The amendment would undermine our ability to provide adequate safeguards to small businesses and others that might be affected. It will hinder our objective of ensuring that authorities exercise the power to trade in a commercially responsible manner.

Amendments Nos. 196ZB and 196A would remove a number of safeguards that we have provided in relation to trading powers. Trading would not be regulated through a company in the same way as it is for other commercial bodies—for example, as regards taxation. Removing the link with performance categorisation would mean that all authorities would be in receipt of the trading powers. It would lead to greater risk as trading would no longer be related to existing strong performance. These important safeguards must be retained.

Amendments Nos. 196B and 203A address the question of what happens to existing freedoms and flexibilities—for example, trading powers—if an English local authority undergoes recategorisation and is no longer able to exercise the power to trade by virtue of falling into a lower performance category. The amendments seek to prevent the Secretary of State from removing regulatory controls on authorities or granting additional powers linked to a particular performance category where the effect would be to make unlawful trading arrangements which were previously lawfully made. We agree with the thrust of the concern but this issue can be dealt with through secondary legislation.

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This is an unnecessary amendment—what a good phrase! Clause 122 of the Bill makes provision for transitional arrangements to form part of any orders made under the Bill, and we would include such arrangements in any order made under the provisions identified in subsection (2).

In the light of these explanations—inadequate though they may be and repetitive though they may have been—I hope that the noble Baroness will withdraw the amendment.

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