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Lord Hanningfield moved Amendment No. 35:

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The noble Lord said: My Lords, this clause lays down in statute a requirement on a local authority to have regard to a report from its chief financial officer when making decisions on the level of its reserves. That takes us back to the argument that we have just had. As I said at the last stage of the Bill's proceedings, of course a local authority will have regard to the views of its chief financial officer on such matters. That is why we employ chief financial officers. We would not employ someone in that role whose advice we did not seek and respect. Frankly, to lay this down in statute seems ridiculous.

I cannot see how these provisions can possibly be effective or warranted in principle. In a spirit of open-mindedness, however, we have put down amendments that seek to work with the Bill and clarify how these provisions will operate in practice.

In Committee, we had a helpful discussion about how the Government intend Clause 27(2) to act as a mechanism for retrospectively reporting on the previous year's finances. However, I remain unconvinced of the need to make this a statutory requirement. The idea that this will not form part of the normal budgetary monitoring process seems naive.

We must also take into account the fact that, putting to one side sensible budgetary monitoring, the level of reserve for a previous financial year may have no bearing on the level of a reserve that the authority intends or needs to set for the forthcoming financial year. I reiterate the point that I made in Grand Committee. If we are to have this provision, why is it not directed at the levels of reserve that the authority intends to set? I beg to move.

Lord Bassam of Brighton: My Lords, as the noble Lord said, this is an argument that we have been around before, and it is no less relevant because of that. It has a great deal of bearing on the previous debate.

The purpose of Clause 27 is to establish a degree of accountability for responsible budgeting by authorities that have been made subject to a minimum reserve requirement under Clause 26. As my noble friend Lord Rooker explained, that power will be used very rarely indeed. We have already explained that a Clause 26 minimum applies to the budgeted reserves of an authority. The authority is free to make use of those reserves in the year if circumstances require, even if the reserves fall below the minimum.

All that Clause 27 requires is that if, when the authority is deciding on the following year's budget, the chief financial officer predicts that actual reserves in the current year—the year to which the minimum applies—will fall below the minimum, he must report the reasons to the authorities. The purpose is so that the authority can understand the reasons why it has not been able to maintain reserves above the minimum, when it had budgeted so to do. It is a check on those authorities that might deliberately set a budget which will require the use of reserves.

Clause 27 reports will, we believe, be rare events. They should be rare events if the authority is well financially managed. Only authorities subject to a

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Clause 26 minimum would be required to make them, and so they should be very few. Even then, a report will be needed only if actual reserves at the end of the current year are predicted to fall below the minimum.

The collective effect of the amendments is to require the chief financial officer of every authority to consider whether the reserves for the coming year are inadequate and, if so, to report to the authority. Unamended, the duty in the clause will apply to very few authorities; amended, it applies to every authority. Frankly, I think that is barking mad, and I am sure that noble Lords opposite would see it as utterly pointless. It would duplicate in any event the content of the report that the chief financial officer is required to make under Clause 25. So the provision is there already—the amendment would be replicating something. It is unnecessary, pointless and, in any event, because of the effect of Clause 26, it will not apply to more than a few authorities at any given time.

Having heard the explanation for at least the second time, I hope that the noble Lord will withdraw his amendment; he really should do so.

Lord Hanningfield: My Lords, we continue to have this debate. The noble Lord, Lord Bassam of Brighton, who was leader of a local authority, will remember how involved he was with his financial officers in drawing up reserves for that authority. I repeat: it is common practice. It does not seem right to legislate for something that is common practice. This goes back to our previous debate—the Government are trying to introduce something into legislation which local authorities find unnecessary and more regulatory than helpful. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 36 to 40 not moved.]

Clause 28 [Budget monitoring: general]:

Lord Hanningfield moved Amendment No. 41:

    Leave out Clause 28.

The noble Lord said: My Lords, although we are going over familiar ground, I wish to move this amendment. This clause requires authorities to monitor their budgetary position and take action where they think their budgetary situation is deteriorating. In my authority, Essex, we have a large number of experienced staff who work in our finance and performance department. What does the Secretary of State think these people do all day? I can assure him that at least some of them are monitoring the budget.

As I understand it, one purpose of the clause is to ensure that members are fully apprised of their responsibilities regarding the setting of budgets. But I can assure noble Lords that councillors take their responsibilities very seriously and that local authorities already have competent financial teams that report regularly to members.

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I would be extremely surprised if the Minister could name a single authority where there was not regular financial reporting to members. Does he really believe that these days there are local authorities which do not monitor their budgetary position during the year?

We accept that there may be financial problems in some authorities. We do not accept that these problems are caused by ignorance of the budgetary position. That is breathtakingly simplistic. The Bill's provisions are purely cosmetic. As the Select Committee noted, they will have no real impact.

Where local authorities find themselves in financial difficulties, that is largely the result of the interaction of a number of different factors. In some cases, there may be a problem with the processes of financial monitoring, but the Bill does not address such problems. Often the problem is not awareness of the budgetary position, but a lack of political will to take quick and decisive decisions to sort the situation out—perhaps because an authority is hung, for example. I challenge the Minister to name a single authority that has found itself in financial difficulty as a result of no financial monitoring at all.

It is the tone of the clause that is so wrong in a piece of legislation that is supposed to be so wonderful for local government. The Government are passing down their wisdom to local authorities, which actually adopted those practices many years ago. The Government do not need a legislative peg on which to hang good practice guidance. Local authorities are amenable to examples of good practice. We are prepared to take on board new ways of working. Local authorities welcome the opportunity to work with authorities that are not as strong as their own where that is for the benefit of local communities.

Perhaps the Minister is not aware that the authority of my noble friend Lady Hanham was recently awarded a triple A credit rating by Standard & Poor's. That basically puts the financial stability of Kensington and Chelsea on a par with the Bank of England. Yet the Government seem to feel that they have to legislate to ensure that local authorities monitor their budgets regularly. I wish that local authorities could legislate so that the Government monitored their own budgets regularly.

Local authorities operate sophisticated financial systems. They are big multi-million pound—in some cases billion pound—businesses. If the Government really believe that this measure will have any effect whatever in ensuring financial stability, they are mistaken. Rather than building on the lessons of the past, the measure ignores them. I beg to move.

6 p.m.

Lord Peyton of Yeovil: My Lords, I should just like to echo what my noble friend has said. If an authority was remotely responsible and competent, this clause would not be necessary. If, on the other hand, an authority was really slap-dash and very, very careless

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indeed, I do not think that the clause would have much effect on it. I refresh the noble Lord's memory of subsection (3) of Clause 28 which states:

    "If as a result of carrying out a review under subsection (1) it appears to the authority that carried out the review that there has been a deterioration in its financial position, it must take such action, if any, as it considers necessary to deal with the situation".

Presumably, the situation by that time is fairly serious. But, nevertheless, so far as I can see, there is nothing effective that the authority could do. Perhaps the noble Lord will spend a little time explaining to me how useful that subsection would be.

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