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Baroness Hamwee: My Lords, I am grateful for the explanation and, particularly, for the example. I am sure that the Minister will agree that it would be good if parliamentary counsel could come up with something that, more or less, said "for highly technical legal reasons" and not "as a general matter".

It was useful to have that little exchange. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18 [Local authority companies etc]:

Lord Hanningfield moved Amendment No. 33:

"(5) A local authority may make and issue a guarantee in respect of membership of a company incorporated under the Companies Acts either operating in its area or operating as a local authority association."

The noble Lord said: My Lords, in moving the amendment, I would like, first, to thank the Minister for his helpful remarks in previous debates and in correspondence since then on the subject.

The amendment relates specifically to parish councils. I am grateful for the clarification, in Committee, that the power of well being in the Local Government Act 2000 is the appropriate power for such activity by the principal authorities.

Companies limited by guarantee are often used as the corporate vehicle in the voluntary sector and for other partnership working under a number of regeneration funding schemes. Membership of such a company is available only to those persons—legal persons as well as individuals—that are capable of giving a guarantee that, in the event of insolvency and winding-up, they will contribute a stated sum.

Unlike a share where the cash is paid when the share is originally purchased, the guarantee is payable only in the last resort. The inability to give a valid guarantee therefore rules all parish and town councils out of full membership of such companies. Such companies include local regeneration partnerships, some local strategic partnerships which are taking the formal corporate structure and the many local charitable bodies such as rural community councils, councils for

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voluntary service, citizens advice bureaux and similar. Many parish councils support these active charities in their area and find it somewhat patronising not to be able to take the further step of achieving membership and voting rights. Parish councils are already required to manage risk in accordance with the Accounts and Audit Regulations 2003.

I understand that the Minister is concerned that the sums involved may be significant. In most cases, the amount of guarantee will be of the order of 1, 5 or 10. Even in the case of larger parish councils, the total would be unlikely to reach more than 1,000. The amendment recognises that an overall limit might be appropriate, perhaps based on the size of the relevant electorate.

The additional situation that the amendment also addresses is the problem of the legal capacity of the national and county local government associations which, as unincorporated associations, face some difficulty in carrying out their daily business. As I am sure noble Lords can imagine, it is not easy to explain the legal structure of an unincorporated association of corporate bodies when trying to open a business account with a high street supplier of, say, computer equipment and consumables. The paperwork assumes an individual or an incorporated company.

I hope that these fairly technical remarks have been helpful in clarifying the purpose and effect of this amendment. I am trying to help the parish councils. I hope that the Minister will confirm that he is willing to look at a more detailed submission on this subject from the relevant bodies, with a view to consider making the necessary changes. I beg to move.

Lord Rooker: My Lords, I hope that I can be helpful in respect of this amendment. Amendment No. 33 seeks to add a new subsection at the end of Clause 18 which would give authorities powers to issue guarantees in respect of companies, subject to certain safeguards.

In Grand Committee, on 4th June, the noble Lord, Lord Hanningfield, moved a similar amendment to Clause 18 about the power of local authorities to become involved in companies limited by guarantee. That debate helpfully clarified that the intention was to assist parish councils. It is not always possible for us immediately to discern the exact purpose behind an amendment. That is a genuine issue. It is not always possible, partly because of protocol, to pick up a telephone in order to clarify the purpose. That Grand Committee debate clarified the intention behind that amendment. However, as the intention was not evident from the wording, my reply did not deal specifically with parishes.

Since that debate, we have, as the noble Lord said, had an opportunity to consider the proposal further. I have written to noble Lords about that. We are clear that the amendment raises important questions about the role and powers of parishes. However, before deciding on legislation, we would need to explore the full implications in consultation with parish councils and their representative associations. I hope that noble

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Lords will appreciate that, at this late stage in the Bill's progress, it would be impossible to complete that work in time to include a new provision. However, we would be happy to consider separately any further views that noble Lords or parish councils might wish to put to us.

Local government Bills are like buses—one is always coming along. I have no idea what is in the Queen's Speech, but we can be certain that another local government Bill will be coming along fairly soon. I hope that with those reassurances the noble Lord will withdraw his amendment.

Lord Hanningfield: My Lords, I thank the Minister for those comments. I think that the position has been clarified, and we appreciate the help that has been given. I am sure that there will be further discussion, particularly between the local authority associations which represent parish and town councils and other small bodies, so that the position can be clarified in future legislation for their benefit. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.15 p.m.

Clause 26 [Minimum reserves]:

Lord Hanningfield moved Amendment No. 34:

    Leave out Clause 26.

The noble Lord said: My Lords, as noble Lords will appreciate from previous discussions in Grand Committee, this is a very important part of the Bill, about which all parts of local government have very strong reservations. This clause gives the Secretary of State the power to set a minimum level of reserve for a local authority. It is a power that it is wrong in principle for the Secretary of State to seek to take and it is a power that will be ineffective in practice.

Ministers have said that they are seeking this power as a reserve to enable them to deal with a small number of authorities. I will return to the issue of a reserve power in a moment. First, however, I want to address the question of whether this power will actually do anything to prevent local authorities from getting into financial difficulties in the future.

The Select Committee did not think that these powers would prove effective. It said:

    "We did not receive any evidence that had these particular measures been in place they could have prevented financial imprudence".

It would be interesting in the light of that to hear from the Minister under exactly what circumstances these powers might be exercised. However, I note from the ODPM's memorandum to the Select Committee on Delegated Powers and Regulatory Reform that these circumstances,

    "cannot be foreseen at present".

So the Secretary of State is taking power which no expert thinks will work, which local authorities and the LGA oppose, and which he is not quite sure how to exercise.

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The memorandum to the Select Committee stated that the exercise of this power would be through the negative resolution procedure,

    "as the powers might have to be exercised rapidly".

However, as an examination of the Bill reveals, these powers cannot be exercised rapidly.

The Bill does not prevent an authority from running down its reserves to a level below that set by the Secretary of State during the course of a year. The Bill refers only to an out-turn position at year's end. By that time the damage will have been done. We might then have a situation in which local authorities required to meet a statutory obligation at year's end have to scramble around to make the necessary savings. It is conceivable that, under those circumstances, the focus will be on meeting the short-term target and not on the long-term implications for the community or the financial health of the authority.

One can see some extremely painful decisions being taken by local authorities—such as the closure of elderly people's homes, the withdrawal of grants to voluntary bodies, reductions in services—simply to meet a figure stipulated by the Secretary of State. In the long term, breaching this minimum level of reserve might actually save an authority money if the alternative is to take drastic action in the short term to meet it.

That is why reserves are a highly sensitive local issue—a point recognised by CIPFA in its evidence to the Select Committee on the Bill. I wonder how the Secretary of State is going to set the level of reserve and whether he will take into consideration and take responsibility for the effect on services that having to meet this requirement could mean. Local people will find it extremely hard to understand why homes are being closed and services cut because the Secretary of State believes that the authority should keep a certain amount of money in the bank.

Finally, I should like to clarify the Minister's intention in introducing this provision. In Grand Committee the Minister said that this was a reserve power that he hoped would never have to be used. However, he then went on to refer to an Audit Commission paper that suggested that something like 20 per cent of county councils and 30 per cent of metropolitan councils had inadequate reserves. The Minister stressed the word "inadequate". They were, he said, not low levels of reserves but inadequate levels of reserves.

The Minister suggested that the Government would be acting irresponsibly if they did not act on this finding of the Audit Commission in the Bill. If we take at face value those comments from the Minister, then it seems to me that a very large number of authorities are likely to be affected by this provision and that these powers are not reserve powers at all. One thinks of rate capping; it was introduced for one or two authorities but eventually we were all rate-capped. Perhaps he can confirm that having an inadequate level of reserve, as identified by the Audit Commission, will not be the

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trigger for invoking these powers, in which case it is hard to see how the Government can meet the concerns of the Audit Commission.

I hope that the Minister has listened to the representations I know he must have received from experts on this issue and that he will think again about the need for the clause. I beg to move.

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