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Baroness Hanham: My Lords, I can and I do, and this is the third time that I have said that. I used very similar arguments in my speeches about this matter on other occasions. "Redistribution" is a word that probably falls better from the Minister's lips than from mine, as does "pooling".

The Minister's case for redistribution is that the money goes to authorities with greater need, but we would argue about where that is. In these days, local authorities need key workers, and key worker accommodation. There are many areas that are perhaps not quite as destitute as others, but where key worker housing is absolutely imperative. It is important that they have the capital for that and we would expect to see capital receipts used for that purpose.

The measure removes a flexibility. It removes the flexibility for authorities that have receipts to use them for affordable housing for specific needs. I am almost certain that, under the Deputy Prime Minister's mantle—his sustainable communities—everything in the future will go one way. The decisions about where key worker housing goes will have little to do with individual local authorities and everything to do with the Deputy Prime Minister. The little pot of gold that might helpfully be used by local authorities would be taken away by paragraph (b).

I disagree with the Minister about some authorities being more dilatory than others, because some authorities never promoted the right to buy and the sale of housing stock. It should have been promoted, because many people needed the issue to be put before them so that they could consider it. Some authorities are still not as energetic as others. Sometimes that is with good reason—blocks of flats, for example. Some authorities have not been as assiduous as others. They have not recouped the capital receipts that they might otherwise have done.

We have trotted round this field now on three occasions. All that I can do is to seek the opinion of the House on this matter.

3.38 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 133; Not-Contents, 118.

Division No. 1


Aberdare, L.
Addington, L.
Alderdice, L.
Allenby of Megiddo, V.
Alton of Liverpool, L.
Anelay of St Johns, B.
Ashcroft, L.
Astor of Hever, L.
Barker, B.
Beaumont of Whitley, L.
Biffen, L.
Blatch, B.
Bridgeman, V.
Brooke of Sutton Mandeville, L.
Brougham and Vaux, L.
Burnham, L.
Buscombe, B.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Carlisle of Bucklow, L.
Carnegy of Lour, B.
Carrington, L.
Clement-Jones, L.
Cope of Berkeley, L.
Courtown, E.
Crathorne, L.
Deedes, L.
Denham, L.
Dixon-Smith, L.
Dundee, E.
Eden of Winton, L.
Elles, B.
Elliott of Morpeth, L.
Elton, L.
Erroll, E.
Ezra, L.
Falkland, V.
Feldman, L.
Fookes, B.
Fraser of Carmyllie, L.
Geddes, L.
Gilmour of Craigmillar, L.
Goodhart, L.
Hamwee, B.
Hanham, B.
Hanningfield, L.
Harris of Richmond, B.
Henley, L.
Higgins, L.
Hodgson of Astley Abbotts, L.
Holme of Cheltenham, L.
Hooson, L.
Howe, E.
Howell of Guildford, L.
Hunt of Wirral, L.
Hurd of Westwell, L.
Hylton, L.
Jellicoe, E.
Jenkin of Roding, L.
Kimball, L.
Knight of Collingtree, B.
Laing of Dunphail, L.
Lamont of Lerwick, L.
Lane of Horsell, L.
Livsey of Talgarth, L.
Lucas, L.
Luke, L. [Teller]
McColl of Dulwich, L.
MacGregor of Pulham Market, L.
Mackie of Benshie, L.
McNally, L.
Maddock, B.
Mar and Kellie, E.
Marsh, L.
Masham of Ilton, B.
Mayhew of Twysden, L.
Miller of Chilthorne Domer, B.
Molyneaux of Killead, L.
Montagu of Beaulieu, L.
Mowbray and Stourton, L.
Moynihan, L.
Murton of Lindisfarne, L.
Noakes, B.
Northesk, E.
Northover, B.
Norton of Louth, L.
O'Cathain, B.
Palmer, L.
Park of Monmouth, B.
Parkinson, L.
Pearson of Rannoch, L.
Peyton of Yeovil, L.
Phillips of Sudbury, L.
Plumb, L.
Plummer of St. Marylebone, L.
Quinton, L.
Rawlings, B.
Reay, L.
Rennard, L.
Renton, L.
Roberts of Conwy, L.
Rodgers of Quarry Bank, L.
Rogan, L.
Roper, L.
Rotherwick, L.
Russell, E.
Ryder of Wensum, L.
St John of Fawsley, L.
Sandberg, L.
Seccombe, B. [Teller]
Selsdon, L.
Sharman, L.
Sharp of Guildford, B.
Sharples, B.
Shutt of Greetland, L.
Skelmersdale, L.
Smith of Clifton, L.
Soulsby of Swaffham Prior, L.
Stevens of Ludgate, L.
Stoddart of Swindon, L.
Strathclyde, L.
Swinfen, L.
Thatcher, B.
Thomas of Gwydir, L.
Tordoff, L.
Trumpington, B.
Tugendhat, L.
Ullswater, V.
Wakeham, L.
Walmsley, B.
Williams of Crosby, B.
Willoughby de Broke, L.


Acton, L.
Allen of Abbeydale, L.
Archer of Sandwell, L.
Armstrong of Ilminster, L.
Ashley of Stoke, L.
Ashton of Upholland, B.
Barnett, L.
Bassam of Brighton, L.
Berkeley, L.
Bernstein of Craigweil, L.
Billingham, B.
Blackstone, B.
Boothroyd, B.
Borrie, L.
Bridges, L.
Brooke of Alverthorpe, L.
Campbell-Savours, L.
Carter, L.
Christopher, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Cohen of Pimlico, B.
Corbett of Castle Vale, L.
Crawley, B.
David, B.
Davies of Coity, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Dixon, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Falconer of Thoroton, L. (Lord Chancellor)
Farrington of Ribbleton, B.
Filkin, L.
Finlay of Llandaff, B.
Fyfe of Fairfield, L.
Gale, B.
Gavron, L.
Gibson of Market Rasen, B.
Golding, B.
Goldsmith, L.
Gould of Potternewton, B.
Graham of Edmonton, L.
Greengross, B.
Greenway, L.
Grocott, L. [Teller]
Harrison, L.
Haskel, L.
Haskins, L.
Hayman, B.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Howie of Troon, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L.
Islwyn, L.
Janner of Braunstone, L.
Jay of Paddington, B.
Jones, L.
Judd, L.
King of West Bromwich, L.
Kirkhill, L.
Lea of Crondall, L.
Lipsey, L.
Lofthouse of Pontefract, L.
McCarthy, L.
Macdonald of Tradeston, L.
McIntosh of Haringey, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Mason of Barnsley, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Mitchell, L.
Morris of Aberavon, L.
Morris of Manchester, L.
Nicol, B.
Orme, L.
Patel of Blackburn, L.
Pendry, L.
Peston, L.
Pitkeathley, B.
Puttnam, L.
Ramsay of Cartvale, B.
Rendell of Babergh, B.
Richard, L.
Richardson of Calow, B.
Rooker, L.
Sawyer, L.
Sheldon, L.
Simon, V.
Slim, V.
Smith of Gilmorehill, B.
Smith of Leigh, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Temple-Morris, L.
Thornton, B.
Tomlinson, L.
Turnberg, L.
Turner of Camden, B.
Varley, L.
Walpole, L.
Warnock, B.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Williams of Elvel, L.
Williams of Mostyn, L. (Lord President of the Council)
Williamson of Horton, L.
Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

10 Sept 2003 : Column 308

3.48 p.m.

Clause 15 [Guidance]:

Lord Rooker moved Amendment No. 3:

    Page 7, line 7, at end insert—

"( ) The power under subsection (1)(b) is not to be read as limited to the specification of existing guidance."

On Question, amendment agreed to.

Clause 21 [Accounting practices]:

Lord Rooker moved Amendment No. 4:

    Page 9, line 28, at end insert—

"( ) The power under subsection (2)(b) is not to be read as limited to the identification of an existing document."

On Question, amendment agreed to.

10 Sept 2003 : Column 309

Lord Hanningfield moved Amendment No. 5:

    Before Clause 25, insert the following new clause—

The provisions of this Part may only be applied to those local authorities that have been identified by the Audit Commission as at risk of overspending their total budget by more than 10 per cent."

The noble Lord said: My Lords, we object to Part 2 because it potentially applies to all authorities, although the problems it would address affect a tiny minority. The amendment would restrict the potential effect of Part 2 to those authorities identified by the Audit Commission as likely to overspend their budgets by more than 10 per cent. According to the Audit Commission's latest report, Stewardship and Governance, that would bring 6 per cent of local authorities into the possible remit of these provisions. The amendment does not say that these provisions will apply to those 6 per cent of authorities; it says that these provisions can only apply to those 6 per cent of authorities.

I should like to remind your Lordships of some of the reasons as to why we are so concerned about Part 2. Throughout the passage of the Bill we have argued against the inclusion of these provisions. We have argued on the basis of principle; we have argued on the basis of practice. Both those lines of approach have failed to make any impact on the Ministers opposite, who have refused to recognise the disastrous message that this provision sends out to local authorities. If Ministers do not believe that to be the case, perhaps I may quote from the evidence of the Society of Local Authority Chief Executives to the Select Committee on the draft Bill.

    "The prevailing attitude of mistrust of local government, however, is revealed once again in the Bill's clauses on financial administration".

In previous debates, the Minister went so far as to describe as irresponsible the suggestion that this provision should be challenged. He said that it was irresponsible of the noble Baroness, Lady Hamwee, to suggest that just because an authority does not get into trouble does not mean that it should not have a higher level of reserves. I refer your Lordships to Hansard, 16th July 2003, col. 901.

But that is precisely what it means. That is why we argue that these are local judgments. In its evidence to the Select Committee, the Chartered Institute of Public Finance and Accountancy (CIPFA)—to which the noble Lord, Lord Bassam, referred in his first amendment—stated:

    "specifying a 'minimum level of reserves' for local authorities is impracticable and should be left to local judgment and good professional practice".

In making that statement it was well aware of the findings of the Audit Commission. The point was directly addressed in evidence to the Select Committee. CIPFA stated:

    "I think the latest Audit Commission figures which have come out show that approximately 90 per cent of local authorities have adequate balances, the other ten per cent are judged by the auditors to have inadequate balances. However, when you look at the pattern of local authority spending . . . between 20 to 40 per cent of local authorities do overspend on individual directorate

10 Sept 2003 : Column 310

    levels in a year, virtually none of the local authorities actually end up having to reduce services as a result i.e. they have enough in their balances to cover those in year differences against actual budget".

Whether what is defined by the Audit Commission as an inadequate reserve actually leads to problems in practice is not relevant; it is key. The evidence is that in the vast majority of cases there are no problems. That is the evidence given by CIPFA. But it is not just CIPFA that has a problem with this provision. The Society of County Treasurers, in its evidence to the Select Committee stated:

    "The proposals for the Secretary of State to specify that local authorities maintain their reserves at a minimum level would seem to be particularly problematic and unnecessary".

What about the Audit Commission? Surely, it must be in favour of this power. Its evidence to the Select Committee stated:

    "To date Auditors have resisted making recommendations about minimum levels because it is rightly the responsibility of local authorities to determine this for themselves based on a risk assessment of their operational and business models".

Remember those words from the Audit Commission:

    "rightly the responsibility of local authorities to determine this for themselves".

On these Benches, we agree with the Audit Commission. On these Benches, we agree with the Chartered Institute of Public Finance and Accountancy. On these Benches, we agree with the Society of Country Treasurers; we agree with the Society of Local Authority Chief Executives; and we agree with the Local Government Association.

We have tried a number of lines of argument with the Government. Most of the time they have failed to address the specific arguments that we have put forward. For example, in Committee and on Report, we suggested that the provision in Clause 26(2) would be ineffective because it only enables intervention at the end of a financial year—after the damage has been done. The Government have not addressed that.

We also queried the suggestion that the powers would be held in reserve. How does that commitment square with the insistence of the Government that they are taking these powers to deal with a large number of authorities identified by the Audit Commission as having inadequate reserves? If the powers have been taken to address that particular problem, surely they will be deployed against a large number of authorities, even if we know that, in practice, the vast majority will come to no harm.

We put the argument that making short-term decisions to protect a level of balances could cost local authorities an enormous amount of money in the long term. Ministers have not addressed that. There are so many arguments against this provision that we could come up with new ones all day.

Clause 26(2) states:

    "In the case of a controlled reserve, it shall not be regarded as appropriate for the balance of the reserve at the end of the financial year under consideration to be less than the minimum amount determined in accordance with regulations made by the appropriate person".

10 Sept 2003 : Column 311

Throughout the debates on these clauses, Ministers have insisted that local authorities must have adequate reserves to meet unforeseen problems that might emerge during the year. But what they are committed to here is a minimum level of reserve at year end. Why do they need a minimum level of reserve at the end of the year? What if local authorities decided that problems over school funding were so severe in a year that they wanted to do something about it? They may have no particular spare cash, but they may have money in reserves which they may want to give to schools during that year. However, as the year progresses, the risk declines and they do not have to call on their reserves. Therefore, at the end of the year, if they chose to, some money could be given to schools from reserves. That is the freedom for local government. Whose judgment should it be that that money is better kept in councils' coffers than spent on services that they are there to deliver?

In our previous debates, the Minister said that this provision will come into play only where an authority ignores the advice of its chief financial officer. But it is quite within the bounds of possibility for that to happen. A chief financial officer's duty is to protect the financial standing of the council. A leader's duty, for example, with regard to children's services, is to ensure appropriate levels of funding. Money is extremely tight. These judgments are finely balanced. At the end of the day, because the Government lay different responsibilities on councils, they might reach different views.

I am trying to be helpful by showing that these issues are not quite as black and white as they are presented. We think that this clause should be removed. We disagree with it fundamentally. It is against local authorities of all parties. This is Third Reading and the amendment would put in the Bill a restriction on the possible scope of the exercise of this provision. People in local government object to the breadth of a power that even the Government admit they do not wish to apply generally. Why not limit the scope of the power to those authorities that are on course to overspend? On that basis, on the latest Audit Commission figures, that would bring about 6 per cent of authorities within the scope of these powers.

Ministers opposite have a great deal of experience and political wisdom. I hope that they will accept the amendment in the spirit in which it is tabled. It moves the argument forward in a practical way and makes the best of a bad job. I beg to move.

4 p.m.

Baroness Hamwee: My Lords, we support this amendment. The noble Lord listed those organisations and individuals with whom his Benches agreed in their criticism of the provisions. I would add to that list the noble Lord, Lord Smith of Leigh. I am sorry he is not in his place. At an earlier stage of this Bill he asked whether the Government really wanted this power because it would be so difficult to exercise. However, difficulty for the Government is not one of the problems I seek to address in supporting the amendment and opposing the provision in the Bill

10 Sept 2003 : Column 312

which it seeks to dilute. I said at Report that autonomy in local government, as elsewhere, requires capacity building. The more provisions in place which say, "Here is your freedom and flexibility but we retain a reserve power to take it away", the more that undermines autonomy. It undermines the capacity of individuals whom we seek to attract into public service which as we know, is a huge issue.

Chief finance officers do not get where they are through being irresponsible. If anything, they are a pretty cautious breed. I prefer to see authorities relying on the judgment not just of the politicians but also of the professional officers—I use the term professional in every sense of the word. I am surprised that the noble Lord, Lord Hanningfield, thinks that as many as 6 per cent of authorities might be on course to exceed the 10 per cent limit. I thought that this was a pretty smart clause because it will probably mean that almost no authorities will come within it. This is based on my limited experience of observing other authorities. This amendment is an interesting and fruitful way to reduce the impact of this clause, with which we, the LGA and CIPFA do not agree. We support this amendment.

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