HL Deb 12 June 1985 vol 464 cc1317-30

8.35 p.m.

Report received.

Clause 1: [Supply of goods and services through further education establishments]:

Baroness David moved Amendment No. 1 Page 2, line 5, leave out subsection (3) and insert— (" (3) For the purposes of this Act educational activities are—

  1. (a) the provision of teaching or industrial or vocational training;
  2. (b) the carrying out of research;
  3. (c) the exploitation of inventions or new techniques relating to further education;
  4. (d) any other activity which may be advantageous to further education; or
  5. (e) any activity incidental or ancillary to any activity mentioned in paragraphs (a) to (d) above.").

The noble Baroness said: My Lords, I put this Amendment down again simply because the noble Earl at Committee Stage of 14th May (at col. 1099 of Hansard) said: I acknowledge that in places the phraseology of this Bill is somewhat opaque to the layman's eye. For this reason, the department will after consultation with the local authority associations and others concerned,—I am glad to say the first meeting will be held later this week, and it will be the first in a series of consultations—be issuing guidance, including examples of commercial activities arising under the Bill and distinguishing them from existing powers."—[Official Report, 14/5/84; col. 1099]. What I want to hear is the result of the consultations of the local authority associations which took place between Committee and Report stages. Also the Minister took little notice at Committee stage of the substitution of "or" for "and" in subsection 3(a) which the local authorities wanted. I wonder whether he has given that matter any more thought and if he had any information to give about the meeting that took place and the opaque phraseology of the Bill. I beg to move.

The Earl of Swinton

I explained at Committee stage why the Government opposed this amendment; it would remove too many activities from the ambit of the Bill and make it difficult to distinguish normal educational activities carried on under authorities' existing powers and activities empowered by this Bill. Obviously I did not convince the noble Baroness the last time around so I must try to do a little harder today.

We cannot use this Bill as an excuse to redefine LEAs' existing powers. These are set out in existing legislation—notably the 1944 Education Act and the 1964 Industrial Training Act. In neither of these statutes is exploitation of inventions regarded as an educational activity and it cannot suddenly become one merely by its inclusion in what is a definitional clause in this Bill. The Government believe that exploitation of inventions is a desirable activity in further education establishments—indeed this is one of the main reasons for this Bill. But it is a commercial activity not an educational one, and it is accordingly catered for under the general phrase, Ideas of a person employed at it, or one of its students". which appears in Clause 1(1)(c) and Clause 1 (2)(b) rather than under the definition of existing educational activities in Clause 1(3). Incidentally, this wider definition is intended to encompass not only inventions but other types of intellectual property as well, such as copyright rights in computer software, design know-how, and so on.

The Government share the concern expressed by the noble Baroness that this Bill might inadvertently affect some goods and services provided by students at present as an integral part of their education and training. Therefore the Government, in response, has brought forward their own amendment—Amendment No. 6 on the Marshalled List—to remove such activities from the requirement that they be charged for at full cost or open market value. I hope that this is a reply which will satisfy the noble Baroness. As far as the meeting with the LEA is concerned, I understand that it went very well, and the association is left in a happy state of mind.

The noble Baroness has also explained why she feels that changing "and" to "or" wherever it occurs in Clause 1(3) will serve to clarify the provision, by establishing that each of the activities listed separately constitutes an educational activity. But it is implicit in the expression "any activity" in subsection (3)(c) that the activities listed are alternatives and not part of a cumulative whole. In the Government's view changing "and" to "or" at best makes no difference and at worst introduces an element of confusion by its grammatical inaccuracy. I hope that in the light of these reassurances and with the reference I have made to Amendment No. 6 the noble Baroness will feel able to withdraw the amendment.

Baroness David

My Lords, I thank the noble Earl for the further explanation and I think I shall have to be satisfied with it. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Powers of local education authorities]:

Baroness David moved Amendment No. 2: Page 2, line 17, at end insert ("or for initiating it").

The noble Baroness said: My Lords, at Committee stage I moved an amendment inserting the word "facilitating" in line 15 of Clause 2(1)(b), with the aim of making sure that the local authorities and their institutions would be as free as possible in pursuing the new activities. The Minister had some objections to this, partly because of the different definitions of "facilitating" in his dictionary. We are now trying a different approach, inserting the words "or for initiating it" at the end of line 17, so that subsection (1)(b) would read: to lend money for the purposes of such an agreement to a body corporate in which they have a holding such as is mentioned in subsection (8) below or for initiating it". I think this would give greater freedom and flexibility to LEAs than would the Government's Amendment No. 8, which I think we are bound to discuss a little with this one.

Pump priming could happen rather more easily with our amendment. The Government's amendment presumes an intended agreement. The authority might wish to act at an earlier stage and, supposing no agreement was finally reached and someone wanted to challenge the authority for having lent the money and there was no current agreement, he might have valid grounds for that challenge.

As I said, the Minister's amendment presumes that an agreement will be made and will come to fruition. Ours would provide for the possibility of it not coming to fruition and would prevent any fear of awkward consequences if no agreement was ever made. I think that my amendment is perhaps a little neater and less cumbersome than that of the Minister, but I shall wait to hear what he says about it. I beg to move.

The Earl of Swinton

My Lords, I do not think there is really a great deal between the noble Baroness and myself on these two amendments. As she rightly says, they both try to achieve the same purpose, which is of course to permit a local authority to lend pump-priming money to companies in which they own 20 per cent. or more of the shares, the loan being used to initiate an agreement to supply goods and services but being advanced before this agreement is made.

The noble Baroness has explained why she thinks that her amendment is better. I think that ours is better because it seeks to achieve the same object, though in a slightly different manner. In particular, the scope of the Government's amendment is wider in that it covers all loans which are permitted by the Bill, whether they are to companies owned by the local authority itself under Clause 2(1)(b), or to assisted establishments or their companies under Clause 2(2).

As I say, I do not think there is a great deal between us, but perhaps the Government's amendment is slightly wider. The noble Baroness may reflect upon this, and again I would invite her to withdraw this amendment and to support the Government's amendment, No. 8.

Baroness David

My Lords, I should like to reflect on it, but of course I presume a decision will have to be made on the Government's amendment very shortly. Even so, I should like to think about this and therefore I will beg leave to withdraw my amendment. I shall come back again on this at Third Reading.

Amendment, by leave, withdrawn.

8.45 p.m.

The Earl of Swinton moved Amendment No. 3: Page 2, line 29, leave out ("such an agreement") and insert ("an agreement under subsection (1)(a) above").

The noble Earl said: My Lords, this is purely a drafting amendment, consequential to the amendment moved by the noble Baroness, Lady David, which I accepted on behalf of the Government at the Committee stage. I beg to move.

On Question, amendment agreed to.

Baroness David moved Amendment No. 4: Page 2, line 31, leave out ("full") and insert ("reasonable").

The noble Baroness said: My Lords, in speaking to this amendment, I should like also to speak to Amendments Nos. 5 and 12. Amendment No. 5: Page 2, line 31, leave out from ("authority") to end of line 33. Amendment No. 12: Clause 8, page 5, line 32, at end insert ("and this Act and the Education Acts 1944 to 1981 may be cited as the Education Acts 1944 to 1985. (2) This Act shall be construed as one with the principal Act.").

I appreciate that the Government have taken steps to improve the Bill since Committee stage and I am grateful to the noble Earl for the letter that he wrote to me. I am also grateful for his efforts in putting down amendments to the Bill, which will make a difference and will relieve some anxieties. However, I have to say that even with this improvement we are not happy that "full cost" should be left in Clause 2, line 31. We think there will be problems, particularly in view of the noble Earl's reply to the noble Viscount, Lord Simon, (at col. 1104, of Hansard) on 14th May 1985, when the noble Viscount asked: whether … the word 'full' is meant to imply that a proper assessment should be made of the proportion of overheads such as rent, rates, salaries of the principals, and so on". The noble Earl's reply, in the same column, was Yes, the idea is that it should be the full market value". The cost, if that is so, is going to be very difficult indeed to assess. Calculations of costs on this basis would be open to all sorts of difficulties and would appear to contradict the comments which the noble Earl made in col. 1103, where he said: This Bill will enable local authority colleges to set up trading enterprises on the back of their existing establishments, drawing upon all the facilities, buildings, equipment and staff expertise which have already been provided at public expense". Again, a little further on in the same column he says: Although a polytechnic may very well be able to carry out a piece of work at relatively low cost since it is using existing buildings and equipment necessary for its teaching purposes, nevertheless it would be quite wrong if it were able to put private sector enterprises out of business by charging only the marginal costs involved".

It seems to me that perhaps there is a slight contradiction between the various statements that he made. For example, that does not seem to go along with the comment made to the noble Viscount, Lord Simon, which I have already quoted. I fear that if institutions have to make these elaborate calculations they may well decide that the effort is hardly worth while, and that would defeat the purpose of the Bill. Therefore, my new proposal is to replace the word "full" with the word "reasonable" and to delete the words "or their open market value". That would place a duty on LEAs and colleges to put a proper price, in their estimation, on goods and services and might allay the fears of the private sector, which are perfectly understandable. It seems to me a happy solution, falling somewhere between "marginal" and "full".

There is one other point I should like to make. It concerns public sector institutions being on the same footing as the universities. The Minister, in his letter to me dated 6th June, for which, as I say, I am very grateful, made a point of the different constitutional status of polytechnics and universities. He continued: The intention is indeed that a higher education institution should in practice be on the same footing: universities have received very similar guidance about pricing to that which will be issued to polytechnics and local authority colleges when the Bill becomes law. But I think the statutory distinction needs to be maintained in order to preclude the possibility of an authority using this Bill for deliberate subsidisation of commercial enterprises (for whatever reason) at the ratepayers' expense, and with the possible result that private sector enterprises are forced out of business".

Although the letter stresses the need to maintain the distinction between institutions, I want to stress again that the Bill, as it stands, fails totally to put polytechnics and other maintained further education institutions on all fours with universities or, indeed, with other competitors. The LEA-maintained establishments alone would have a requirement in law to apply rigid costings criteria. Even with the guidance to the universities to which the Minister referred in his letter, the universities have no such requirement thrust on them and competition between the two publicly-funded sectors will be totally unfair.

I suppose that I had better repeat the last sentence that I read out from the Minister's letter: but I think the statutory distinction needs to be maintained in order to preclude the possibility of an authority using this Bill for deliberate subsidisation of commercial enterprises for whatever reason at the ratepayers' expense with the possible result that private sector enterprises are forced out of business". I think that that portrays an all too common suspicion held by the Government about the way in which local government behaves, and it is almost offensive. The comment that LEA activities might force the private sector out of business is a little extreme and I doubt whether it can be justified. So for all these reasons—ease of working, fairness, wanting the activities to happen and to succeed—I propose that the word "reasonable" should replace "full".

Amendment No. 12 is consequential. It puts this Bill, when it becomes an Act, as one with the principal Act. The reason for doing this is that the Secretary of State will thus he provided with reserve powers, so that he would be able to invoke Section 68 of the 1944 Act if he thought that local authorities were acting unreasonably. I hope that this will make Amendment No. 4 more acceptable. My Lords, I beg to move.

The Earl of Swinton

My Lords, I have listened with great interest to what the noble Baroness, Lady David, has had to say about pricing and I am afraid that it will take me a little longer to answer this amendment than the others. Of course, I can only repeat what she said—that the Government have tabled their own Amendment, No. 6 on the Marshalled List, which, if passed, will go some considerable way to meeting her difficulties by removing completely from the constraints of subsection (3) all supplies which are made in the normal course of teaching and industrial and vocational training.

This leaves activities which, though drawing upon a common stock of physical assets and intellectual expertise, cannot be said to arise as an integral and necessary part of the establishment's teaching activities. The noble Baroness quoted a letter that I wrote to her. This is my chance to get a little of my own back and quote a little from the noble Baroness's Second Reading speech, when she said: The first duty of local authorities is to provide mone to their establishments for the education of students—not for research and not for consultancy. Losses on the college budget could be borne only at the expense of students, and that would be deplorable. Are there to be any safeguards to prevent that happening?"—[official Report, 25/4/85; col. 1225.] It is precisely to prevent cross-subsidisation between the educational budget and the accounts for estalishments' commercial activities that this full cost provision has been included. It aims to make it impossible for an establishment's commercial activities to be subsidised at the expense of its academic provision, by requiring that the establishment calculate the price at least at full cost, including an appropriate share of overheads and depreciation or capital service charges.

The noble Baroness's amendment—to require LEAs to charge only the "reasonable" costs for products supplied under the Bill—will, I fear, make matters worse rather than better. I gather that the intention is that any person who considered that an LEA was acting unreasonably in its pricing practice could complain to the Secretary of State, who would, if satisfied that unreasonable conduct had taken place, use his powers under Section 68 of the Education Act 1944 to give such directions as appeared to him to be expedient. Unfortunately, this will not work.

In administrative law generally, and in Section 68 in particular, the expression "unreasonable" as descriptive of a public body's actions bears a very specialised meaning. In the words of the noble and learned Lord, Lord Diplock, it means, conduct which no sensible authority acting with due appreciation of its responsibilities would have decided to adopt". In the Government's view such a provision as Section 68, concerned as it is with actions, cannot be made to apply to matters such as costs and pricing easily, if at all. And, even if it could be, the Government would not wish the Secretary of State to be able to intervene and, in effect, to re-open bargains struck between an authority and an individual. These are commercial matters which are not best resolved by the arbitration of a Government Minister whose functions lie in the sphere of education.

The noble Baroness has also questioned whether the Bill's pricing provision would put polytechnics at a disadvantage to universities. I acknowledge that there is a legal distinction here, but it is one which the Government believe it is essential to maintain because of the very different constitutional status of polytechnics as compared to universities. Universities are separate corporate bodies, receiving state funding through a cash-limited vote. Any subsidy which they give to industrially-sponsored research can come only from their UGC and other general income. I believe that all universities now recognise that this sort of cross-subsidy does not serve their academic interest. Maintained polytechnics, in contrast, are wholly integrated into their parent local authorities, in the sense that they are legally part of them. They therefore have, in theory at least, access to the virtually unlimited resources which an authority can raise through its rating powers. As was said in what the noble Baroness quoted from my letter—and I stick by this—the intention is indeed that polytechnics and local authority colleges should in practice be on the same footing as the universities.

The most important function of the rule whereby supplies under this Bill must not be made at less than their open market value—and this is very much the principal theme of this part of the Bill—is to serve as a protection to private sector traders who may be operating in a competitive market. The Government are quite determined that no businessman shall be able to say that his livelihood has been damaged because he has been unfairly undercut by his local polytechnic or college, which has access to vastly superior resources acquired at public expense. The Government's own amendment to subsection (4)—Amendment No. 6 on the Marshalled List—acknowledges that for certain types of supply, where the goods are produced or the services supplied by students undergoing training, the quality of the product or the risk inherent in its enjoyment are such that it may not be able to stand the test of open-market pricing. Student hairdressing salons and catering restaurants are both cases in point.

In 90 per cent. or more of cases the product will be of excellent quality, but in a few instances something may go wrong, and the price must reflect this. This is a long-standing practice, and competitors in the private sector recognise that the benefit resulting from the supply of qualified entrants to the profession outweigh any marginal loss of income which they may suffer as a result of this pricing policy. But the same cannot be said of consultancy, advisory or testing services, or commissioned research and development which forms no part of a student's teaching or training. In this case Parliament has a duty to protect the livelihood of the trader in the private sector.

I do not see any difficulty in the definition of open market value contained in subsection (7) which is borrowed from VAT law, where it has been the subject of scrutiny in a far more contentious and litigious field than this. Where there is a large market, comprising many suppliers and many customers, establishment of a market price presents no great difficulties, and an aggrieved competitor will need only to produce price lists of other firms to show whether or not the college is indulging in unfair competition. Where the work is more specialised, the definition adopted allows a great deal of flexibility. Provided that the bargain is struck at arm's length, the price negotiations will produce an acceptable middle point between the maximum that the customer is prepared to pay and the minimum at which the college, fully conscious of its financial responsibilities, is prepared to sell.

I will not pretend that the question of pricing for supplies under this Bill is an easy one. And I shall certainly examine most carefully the arguments which the noble Baroness has put forward, to see whether there are better ways for the Government to express their intentions than those which currently appear in the Bill. The fundamental difficulty is how to convert the economic concept of opportunity cost—which is the value of resources consumed when these resources are deployed in the best available way—into statutory form. Suffice it to say for tonight that I regret that the solution put forward by the noble Baroness today does not, in the Government's view, solve this problem. I think it is probably unworkable and I urge the noble Baroness to withdraw the amendment.

Baroness David

My Lords, before the noble Earl sits down, may I ask him about one phrase which he used? He said that an appropriate share of overheads would be taken into account. Presumably, this means not quite the total amount of overheads. I wonder whether he can clear that up.

The Earl of Swinton

My Lords, I do not think there is much that I can add to what I said. I cannot find it in my speech. I think the point that I made, that somebody who feels he is aggrieved can then produce a price list, should take account of that.

Baroness David

My Lords, it was a long answer and, quite clearly, I shall have to read and study it. The Minister has a rather curious idea about the wealth of local authorities, with all this money which they wield everywhere, when we know that they are all in a good deal of difficulty at the moment. However, I shall possibly come back to this at Third Reading, because it is a very difficult part of the Bill and I am not at all sure that it has been got right, even with the Government's amendment. But I shall certainly consider what the noble Earl has said and possibly come back at Third Reading with yet another suggestion. My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 5 not moved.]

9 p.m.

The Earl of Swinton moved Amendment No. 6: Page 2, line 35, at end insert ("where the goods are produced, or the goods or services are supplied, in the normal course of any of the educational activities mentioned in section 1(3)(a) above, or where the supply is").

The noble Earl said: My Lords, we have already had the debate on this amendment this evening. The Government have brought it forward in answer to many of the questions which the noble Baroness has raised tonight. As I said at the Committee stage, it is not the intention of this Bill that services such as hairdressing for OAPs should have to be charged at full cost or open market value. This amendment will exempt from the full cost or open market value rule goods or services provided by students as a normal, integral part of their education or training. I think we have discussed it long enough, and I beg to move.

Baroness David

My Lords, this is an improvement on the Bill as it was at the Committee stage, and for that we are grateful. I am not quite sure that it goes far enough, but we are content with it as far as it does go.

On Question, amendment agreed to.

[Amendment No. 7 not moved.]

The Earl of Swinton moved Amendment No. 8: Page 3, line 26, at end insert— ("( ) Money may be lent under this section for the purposes of an agreement either before the agreement is made or during its currency.").

The noble Earl said: My Lords, the purpose of this amendment is to meet the concern expressed by the noble Baroness both during the Committee stage and this evening as to whether under Clause 2 of the Bill authorities would have the power to lend "pump-priming" money to companies. I explained at that time why I felt that her amendment, which simply inserted the word "facilitating" before the words "an agreement", was unnecessary, and indeed might narrow the scope of Clause 2(1)(b). However, I am as anxious as the noble Baroness that there should be no doubt about an authority's power to lend money to a company before an agreement is actually made.

The noble Baroness asked about the position if an agreement breaks down. The power is to lend "for the purposes of an agreement". Provided that an agreement is proposed or intended at the time of the loan, it is within the scope of the power even if, as it turns out, no agreement is ultimately concluded. I hope that that satisfies the noble Baroness. I beg to move.

Lord Rochester

My Lords, I rise to say that it seems to me as a somewhat dispassionate observer on this occasion that perhaps the amendment which the noble Earl, Lord Swinton, has moved, Amendment No. 8, is to be preferred to Amendment No. 2, earlier moved by the noble Baroness, not simply because it goes a little wider in seeking to meet the points which she raised earlier but because, if I may say so, I find it rather more intelligible than the amendment moved by the noble Baroness. I say that with all respect, but I hope it may mean that when, as she said she proposed to do, she comes to reconsider her Amendment No. 2 with a view to determining whether or not she should come back to it at Third Reading, my opinion, for what it is worth, may help to ensure that she does not raise it again.

Baroness David

My Lords, I think the Minister has in fact put one of my worries at rest, about whether, if no agreement ever happened, there could be trouble eventually, and so I am very pleased to support the amendment.

On Question, amendment agreed to.

Clause 3 [Financial and accounting provisions]:

Baroness David moved Amendment No. 9: Page 3, line 30, leave out subsection (1) and insert— ("(1) Where it appears to the Secretary of State that any loan made under this Act should carry interest at a rate not less than such rate as he may determine with the consent of the Treasury, and that it is expedient in the interests of the local education authority that such a rate should be determined, he may be order make such provision as appears to him to be just and expedient for the purpose.").

The noble Baroness said: My Lords, in speaking to Amendment No. 9 I should also like to speak to Amendment No. 10: Amendment No. 10: Page 3, line 40, at end insert— ("( ) Before making any order under this section in respect of any loan the Secretary of State shall afford to the local education authority an opportunity of making representations to him with respect thereto, and in making any such order the Secretary of State shall have regard to all the circumstances of the local education authority and the circumstances for which the loan is to be made.").

Clause 3 of the Bill has caused some dissatisfaction, and my noble friend Lady Lockwood moved some amendments at Committee stage. This amendment tackles a slightly different matter which is still causing anxiety within the local authority associations. They are not enamoured of enabling legislation which leaves final decisions to the Secretary of State. Subsection (1) leaves the rate of interest on any loans used for the purpose of this Bill to be fixed by the Secretary of State. The discussion paper Commercial Activities in Further Education Establishments suggested that the rate might most conveniently be linked to a published rate such as the three-month inter-bank rate, or the Public Works Loan Board rate.

It goes on to say that the basis on which the Secretary of State's powers in this regard might be exercised will be the subject of further consultation. I do not know if that has happened, but if so the consultation has not been very productive because what is in the Bill is not popular. Why should the Secretary of State need to set a minimum interest rate? Presumably there is a fear that authorities may make loans at preferential rates which in turn would give the companies an unfair edge in any competition with the private sector. If there is to be a defined minimum rate, the authorities' own loan pool rate would be appropriate. If it has to be set by reference to an external source we would suggest the Public Works Loan Board 10-year quota rate.

In any event, the authorities should be free to charge such higher rates as they feel appropriate in specific circumstances. If the activities are commercial then the fund should be raised commercially and not from local authorities. It is yet again a matter of the Secretary of State trusting the local authorities as responsible authorities. In the amendment, the words, it is expedient in the interests of the local education authority that such a rate should be determined", are the important words.

This leads me on to Amendment No. 10, which makes an addition to subsection (2) of this clause. This would mean that the Secretary of State, before deciding on a rate for a loan, should give the local authority an opportunity to make representations to him and to make their point of view perfectly clear, and the reasons for their feeling as they do. As the amendment says, the Secretary of State shall have regard to all the circumstances of the local education authority and the circumstances for which the loan is to be made". If central Government can find it useful for them to insist that local authorities consult among themselves—the provisions for the new ILEA in Clause 21 of the Local Government Bill which we shall be discussing tomorrow is just one example—surely they should be prepared to accept similar consultation on a matter of vital interest to LEAs. I beg to move.

The Earl of Swinton

My Lords, perhaps I may say immediately that the Government are not at all opposed to the idea of consulting with local authorities before determining loan rates under the Bill. Indeed, we have already had one consultation meeting with the local authority associations, who seemed generally content with the proposals put to them. With their agreement, the proposals have now been put to the Chartered Institute of Public Finance and Accounting for technical appraisal.

It may be helpful at this point to say a little about what is actually being proposed so that noble Lords and Baronesses can be reassured that the arrangements will be quite modest in scale. It is envisaged that the Secretary of State will simply establish a number of minimum rates of interest—perhaps just two—to be applied to all LEAs according to the circumstances of the loan, depending essentially on the degree of risk or lack of security entailed. I should emphasise that the Secretary of State will simply lay down minimum rates; this might answer one of the difficulties mentioned by the noble Baroness. It will be entirely within the discretion of local authorities to charge higher rates than those if they wish, reflecting the particular circumstances of the company in question. Our objective is to devise a simple and flexible system.

Against that background, I am rather surprised by the first of these amendments, since it seems to provide for each loan to have its minimum rate determined individually. I do not know whether that was the intention of the noble Baroness. If so, it is surely rather cumbersome. I do not believe that either my right honourable friend or his officials want the power to intervene individually in interest rate determinations—except perhaps in the case where a single loan is so unusual as to constitute a whole new category on its own. Indeed, I should be rather surprised if local authorities themselves would want to have to apply to the Secretary of State, having heard what the noble Baroness has said.

I fear that these amendments represent a sledgehammer to crack a nut. I am particularly concerned that the first of them appears to have the effect that minimum interest determinations would only be made where, in the Secretary of State's view, it is expedient to do so in the interests of the local authority. In all other circumstances, the authority would not be restricted by the Bill in deciding to charge whatever rates of interest it might choose. This arrangement would not be acceptable to the Government, however it were expressed, since it would negate the underlying purpose of this provision.

The Government believe, for the same reasons as apply to the full-cost pricing rule, that no authority should be permitted artificially to subsidise its companies by providing them with working capital at unfairly low rates of interest.

As I have said, however, the Government have already begun consultations with local authority associations on this subject and are therefore already complying with the condition which the second amendment serves to introduce. In these circumstances, I seriously question whether it is necessary to provide for such consultation on rates of interest on loans determined under Clause 3 in the statute itself. I know—as the noble Baroness expressed very forcibly this evening, and not for the first time—that in some areas local authorities' suspicion of my right honourable friend's powers is deeply rooted.

In those circumstances and at this late hour, to show some goodwill—although there has been plenty, on this Bill, shown to the noble Baroness—I can say that the Government will be happy to bring an amendment forward at Third Reading, perhaps in a slightly simpler form than the amendment proposed tonight. With that undertaking, I hope that the noble Baroness will be happy and will withdraw her amendment.

Baroness David

My Lords, I take it that the Minister's undertaking relates to Amendment No. 10.

The Earl of Swinton

Yes, my Lords. With the leave of the House, my undertaking is that this is to build some form of consultation procedure into the Bill.

Baroness David

My Lords, I am of course very grateful to the Minister for that undertaking. I shall have to read what he said about Amendment No. 9, concerning rates of interest and so on. He probably has provided some reassurance but I shall certainly need to read his remarks before I can be absolutely certain on that point. I beg leave to withdraw Amendment No. 9.

Amendment, by leave, withdrawn.

[Amendment No. 10 not moved.]

Baroness David moved Amendment No. 11. Page 4, line 1, leave out subsection (3) and insert— (" (3) A local education authority who exercise powers under this Act shall in respect of their exercise keep such accounts or statements of account as they are required to keep by virtue of section 23 of the Local Government Finance Act 1982.")

The noble Baroness said: My Lords, this amendment attempts to improve the unsatisfactory subsection (3) of Clause 3. My noble friend Lady Lockwood moved an amendment at Committee stage to delete this subsection, which gives the power to the Secretary of State to direct LEAs on the way in which they keep their accounts. That proposal did not find much favour at Committee stage. The noble Earl tried to give a reassurance that: The Government do not intend to use the powers to which these amendments relate in order to create voluminous and burdensome regulations or accounting arrangements, and that the local authority associations and other interest groups, including notably the CIPFA—the local Government accountants' professional body—and the Audit Commission will be fully consulted before the regulations envisaged are issued. What we are concerned to secure, however, in the light of the consultations, is the establishment of a responsible financial regime for the activities permitted by the Bill within the framework of the existing accounting regime for local authorities".—[Official Report, 14/5/85; col 1109.] The existing accounting regime is of course what the local authorities want to use, and not have something else imposed upon them. That is all very well but it still leaves the offending passages in the Bill. Therefore we are suggesting a new way round that, which is to leave out subsection (3) and insert: A local education authority who exercise powers under this Act shall in respect of their exercise keep such accounts or statements of account as they are required to keep by virtue of section 23 of the Local Government Finance Act 1982". This attempts again to remove the imposition of centralist control on the accounts maintained by local authorities and their colleges. Local authorities believe that they do keep proper accounts and that the requirements of Section 23 of the Local Government Finance Act 1982 are sufficient to govern these new activities.

I am told that at least three authorities have said that if the clause is passed in its present form they will have to amend their standing orders and regulations to meet its effects. Surely the Government do not want them to have to undertake that unnecessary labour. In any event, the Government are normally reluctant to duplicate existing legislation. This clause, as drafted, not only does that but extends their powers in one specific area where they do not at present exist.

The statutory accounting framework that the Minister said was essential for the proper regulation of the new powers granted under this Bill already exists under Section 23 and should be sufficient to allow authorities to determine the basis on which they comply with subsection (5). I hope, once again, that the Government will feel able to trust local authorities to act responsibly. I beg to move.

The Earl of Swinton

My Lords, the noble Baroness is quite right in what she quoted me as saying at Committee stage, and I agree with that. Consultations are taking place with the local authority associations and with CIPFA, the audit commission, and other interested bodies.

That said, the Bill's accounting provisions form the central plank of the Bill's regulatory framework, affording as they do a responsible financial regime for authorities' commercial activities in further education establishments. There are two objectives in this. First, it is to enable consistent monitoring of authorities' commercial endeavours. This requires the uniform presentation of information compiled on a standard basis between one authority and another. The second objective, which is no less important, is reflected in the drafting of subsection (4) of this clause, whereby authorities are required to use their best endeavours to secure a surplus.

It is a fundamental principle that the financial transactions arising under the powers granted by this Bill are separable from those of the LEAs' normal educational activities. This is important both to ensure that educational resources are not diverted, however inadvertently, to the commercial activities, and to guarantee that where the establishment is offering goods or services on a competitive footing it does so on a fair basis, without hidden subsidy.

The noble Baroness has made a great point that this is different from their normal accounting principles and that it might require a change in standing orders in three authorities. I do not think that is a terrible hardship. That, after all, is what all companies have to do for the benefit of their shareholders. When the local authorities come into this trading situation they will be more analogous with a company reporting, in this case, to their ratepayers as a company doe, to its shareholders.

Proper accounting ensures strict adherence to this principle. The accounts referred to in Clause 3 of the Bill are thus the cornerstone of the whole financial regime under which it is proposed LEAs will undertake their commercial activities. It would be quite wrong therefore if the keeping of these accounts were to be a matter prescribed not on the face of the Bill but dependent upon the exercise by the Secretary of State of a discretionary power in regulations, as would be the case if reliance were to be placed in Section 23 of the 1982 Act.

Again, I hope I have convinced the noble Baroness and I should like her to think about authorities being treated more like companies with shareholders where they have to submit accounts in broadly similar form. Having heard that, I hope that the noble Baroness will withdraw the amendment.

Baroness David

My Lords, I thank the Minister for that explanation. I should like to consult on this with some of the people to whom I have talked in the local authority associations to see whether they are satisfied with what has been said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 12 not moved.]