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In short, the provisions will update, rationalise and simplify legislation. They are not, as the noble Lord suggested, an example of control freakery because we are enacting existing legislation. Now that the new prudential borrowing regime is in place, financial control of local authority entities no longer relies on Part 5 of the 1989 Act. We wanted to achieve the same alignment.
I am told that the beauty of the provisions in Part 12 is that they provide for future-proofing against any new legal vehicle. They will also enable an order to be made to define the references in other legislation which replace the definitions in the 1989 Act; that is controlled and influenced, which we are trying to move away from with the new provisions. We will consult on the content of the proposed orders.
The amendmentI am sorry that I have taken so long to come to itwould remove the terms requires and prohibits from Clause 213. Its effect would be that the Secretary of State would be able only to regulate the actions of entities connected with a local authority. That would stop the whole process in its tracks.
It might be helpful to explain why. Most of the proprietary controls in the companies order impose either requirements on companies, such as requiring a company to provide information to the authoritys auditor, or prohibitions, such as prohibiting a payment to a director who is a member of an authority that is in excess of that to which he is entitled as a member of an authority. The effect of the amendment would be that, in the examples I and others have given, we could not require a company to provide information to the authoritys auditor or prohibit excessive payments. That is what the terms of the order are designed to deliver and why regulate is insufficient for the purpose. The proprietary controls set out important safeguards in terms of openness and fairness, as well as checks and balances.
Clause 214 brings trusts connected with a local authority and trustees of relevant trusts within the provisions that can be made under Clause 213. The noble Lord, Lord Livsey, asked about the purpose of controls at Clause 214(2)(c). The power will be used in a very limited way. It exists simply to stop potential abusefor example, officials or members being paid too much when working for a trust. We have made special provision for trusts and trustees because a trust is a purely equitable obligation and does not easily fall within the consideration of an entity. While it counts, we have had to make special provision for it. Under any obligation as a trustee, a local authority could be exposed to the risk of potential losses arising from it. Therefore, we wish to ensure that trusts can be brought within the scope of the provisions should we wish to do so.
Our intention is to use the powers at Clauses 213(1) and 214(2) to enable the existing proprietary controls in the Act to apply to trusts as part of the wider range of bodies. Amendment No. 238CA would remove the term requires in relation to trusts, thereby diluting the provision in the same way as the previous amendment by leaving just the term regulate.
I do not know whether I have addressed all the questions raisedit is a complex matterbut I hope that, having been given the narrative behind the clause, the noble Lord will understand it a little more and that the noble Baroness will feel able to withdraw her amendment.
Lord Greaves: I think that I am grateful for that. It certainly means that I can throw away one of the books that I had planned to take on holiday and look at this instead. I am grateful to the Minister for her long explanation. It was very helpful to have the position set out.
I am not clear about the scale of the organisations, entities and trusts which will be brought within the scope of the regulations and are not covered at the moment. Will there be any unintended consequences of doing this? Does she have any idea of the scale of increase in number of organisations and bodies that will be brought within the legislation?
Baroness Andrews: We do not have any idea of the number of entities. It varies enormously according to the size of the authority, its financial arrangements and the way in which it chooses to deliver its services. I gave some details of the categories of entity which might come within the scope of the regulations, but their number will clearly be significant because it is growing all the time.
If the noble Lord will leave that matter with me, I may be able to come up with information quantifying the scale. This process has been in train for a long timesince the capital financing legislation in 2003so the noble Lord can rest assured that its implications will have been thoroughly examined.
Lord Greaves: Okay. I am not sure that I ever rest assured about anything until I see it in black and white, but I am grateful for that. It would be very helpful if half a dozen sample authorities of different sorts could be provided as evidence and we could know whether they think that it is a problem or not. There may be no problem at all about this, and all these organisations and trusts may all be operating the impeccable financial and other arrangements that will be set out already in the regulations. If they are, I am not sure why we need the regulationsbut they will not make any changes. But there must be a potential problem that in some cases really good projects, schemes or trusts will be halted in their tracks and have difficulties as a result of the need to comply. I have no idea, but I am asking the question.
The Minister said that the new regulations will enable the proprietary controls to operate on a tiered basis according to the degree of control that the local authority has. That sounds sensible, but I put it to her that it might be a good idea, instead of looking at the degree of control, to look at the degree of financial liability, which might be different. I speak from knowledge of a joint venture company, which I assume will come within these regulations, between a local authority and a private sector company. The degree of control is 50:50 but the financial liability is more like 30:70 to the local authoritys advantage. In other words, the local authority is putting in 30 per cent and the private sector 70 per centand that 70 per cent will probably grow over time. That is a specific technical question for the Minister to considerwhether financial liability is more relevant in some cases than control.
As I explained under previous amendments, Part 12 currently enables proprietary controls to be applied to an entity connected with a local authority, with the description of entities to be based on any document. Our intention is to align proprietary control definitions with definitions used for accounting purposes, which are currently contained in the Code of Practice on Local Authority Accounting in the United Kingdom: A Statement of Recommended Practice, or SORP. It is worth repeatingand the Local Government Association was very keen for us to do this. Provision is also made to enable proprietary controls to be applied to trusts.
Our Amendments Nos. 238C to 238K address this recommendation by narrowing the definition of document and make necessary technical amendments. Previously, the clause was very broad and enabled reference to be made to any document identified by order. In response to the DPRRC recommendation we now propose to restrict this to certain documents, as I will now explain.
As noted, our intention is to align definitions for entities with those already in use for accounting purposes, known as proper practices. Currently, the SORP is one of the documents identified as proper practices by regulations made under Section 21 of the Local Government Act 2003. There is a caveat to this. It is possible that the SORP may not always be a document identified as proper practices, or its name might change following a reissue, which may happen annually. Should the clause be limited to refer to the SORP as the DPRRC recommended, the Government could not continue to align proprietary controls with definitions used for proper practices without needing to amend primary legislation. Therefore, Amendments Nos. 238C and 238D respectively remove the subsections that
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Amendment No. 238E allows that an order made under Clause 213 may provide that a description of entity or trust may be made by reference to an expression used in a document, but that the reference to a document is now limited to a document which has been identified as proper practices by regulations made under Section 21 of the Local Government Act 2003. Amending the legislation in this way will allow the Government to continue to align propriety controls with proper practices without needing to amend primary legislation should the SORP no longer be used for proper practices.
Amendment No. 238H ensures that consequential amendments made to secondary legislation following the repeal of Part 5 of the Local Government and Housing Act 1989 may make reference to a document that is identified as proper practices similar to that in Amendment No. 238E.
Amendments Nos. 238J and 238K similarly ensure that when the Secretary of State or Welsh Ministers define terms for descriptions of entities used in primary legislation, the descriptions may make reference to a document identified as proper practices. I beg to move.
Baroness Hamwee: The Minister may have answered my question: once one uses identified one has to find a way of defining ita document so identified by virtue of Section 21(5) of the Local Government Act 2003, which relates to documents not yet existing. With not much excitement, I went to Section 21 of that Act to find that the power under subsection (2)(b) is not to be read as limited to the identification of an existing document. There must be an easier route to a migraine.
The noble Baroness said: The answer to my questions may lie in the Ministers earlier explanation of what an entity is and why these provisions are needed; I apologise if she has already covered the point. Clause 216 provides that the Secretary of State or Welsh Ministers can,
My amendments question the particularity of the particular entity or the particular trust. As with a rather similar amendment discussed earlier today, I can see that there might be a need to deal with entities which fall within the same broad group of trusts, but can the Minister tell me in what circumstances the Secretary of State or Welsh Ministers would exempt one entityone trust? I beg to move.
Article 4 of the Local Authorities (Companies) Order 1995 requires regulated companies to mention on their documents the fact that they are controlled or, as the case may be, influenced by a local authority, and to list the relevant authorities. In 2006, the Secretary of State was approached by Local Authority Building Control for an exemption from this requirement. With membership open to over 300 authorities, it was considered impractical for the company to name every authority on all relevant documents. The Secretary of State agreed that such a requirement was impractical and a direction was issued to exempt the company from that
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The point is as simple as that. One can only imagine a letterhead listing 300 companies. The provision addresses practical issues, and if we accepted the amendment, we could not prevent those issues being brought into play.
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