DIRECT WORKS

HC Deb 10 May 1976 vol 911 cc65-78

Any power to execute works which is conferred on a local authority by this or any other enactment may only be exercised if—

1. (a) direct works undertakings are treated as trading services,
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2. (b) tendering is adopted for 80 per cent. of the value of all works,
3. (c) all costs are accounted for, including the costs of central administration, subcontracting, materials, plant and labour.'— [Mr. Speed.]

Brought up, and read the First time.

Mr. Speed

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this we may discuss new Clause 7—[Commercial and trading activities of local authorities.]

We may also discuss the following amendments:

No. 184, in title, line 7, after 'areas', insert: 'and otherwise to modify those powers'.

No. 186, in title, line 9, after 'enactments', insert: to extend the powers of local authorities to carry on business'.

Mr. Speed

When we were debating, on Clause 26, the Question, That the clause stand part of the Bill, in Committee, the Under-Secretary of State made it clear that the clause was effectively a consolidation measure which did not extend powers in the way certain hon. Members and people outside had envisaged on Second Reading. I was pleased to hear that and I underlined it so that the world would know what the clause was about. I tried to suggest to the Government that it would be helpful to have a much clearer and tighter control of accounting for direct works undertakings. The Chair quite properly ruled me out of order and I was not able to complete what I wanted to say.

In the new clause, we intend to incorporate, in a general and non-controversial way, the recommendations of the report of the Chartered Institute of Public Finance and Accountancy. It is nearly a year since that report was published and it is nearly two years since the work on it was completed. The various debates in recent weeks on local government and direct labour have shown that on this side of the House at least, and outside in the building and contracting industries, as well as in local government itself, there is a wide understanding and appreciation of the fact that the present accounting procedures based upon various manuals in the past are, to put it mildly, totally inadequate. Therefore, we seek to incorporate some of the main suggestions that came out of the CIPFA report: first, that direct works undertakings should be treated as trading services, which is one of the main recommendations that CIPFA made: secondly, that tendering is adopted for 80 per cent. of the value of all works, and this is because we believe that competitive tendering is the best method, as the ratepayer will have to foot the bill for any mistakes, and by this method he can be sure that he is getting value for money.

Where this level of competition in tendering does not take place, one is bound to have the gravest suspicions. From time to time the Government have argued—and, indeed, I have been inclined to agree—that there are direct works undertakings which may be efficient. The trouble is that none of us really knows, because there is not a proper national accounting base, and so at best it can be only a hunch or a "guesstimate".

I am not a chartered accountant, and my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), who is, will support me when I say that there are different ways in which accounts can be presented, and particularly that in direct trading all kinds of overheads can be lost in the accounts to give all kinds of different figures. CIPFA was composed of experts, including the director of finance for Newhaven, the assistant director of finance for Reading, the assistant city treasurer of Salford, the assistant secretary of CIPFA himself, the assistant treasurer of Sheffield and the assistant county treasurer of Gloucestershire. I do not know, nor do I care, what are the political persuasions of those gentlemen, but I do know that they are experts in this matter. They are not elected members with an axe to grind, and they expressed a view with which I found myself in considerable agreement.

Looking at the component parts of this clause—that direct works undertakings should be treated as trading services, that tendering should be adopted for 80 per cent. of the value of all works, and that there should be proper accountability for costs, including the costs of central administration, sub-contracting, materials, plant and labour—we are not seeking in any way to abolish direct labour. We wish to ensure that wherever it is carried out it is done on a proper accountable basis. Any outside contractor or building firm which is efficient and which is to get the sort of work that local authorities put out will accept that such work has to be done in competition. We want to see efficient contracting in all these works because at the end of the day all of us as ratepayers and taxpayers will reap the benefit thereby.

I have little hope that the Government will accept the clause because in certain circumstances it could be regarded as controversial. I suppose, certainly by some hon. Members below the Gangway, and I realise that it is probably not precedented. Nevertheless, it would be valuable to have the Under-Secretary's views. I well know the views of the Minister for Housing and Construction and we have not shifted him one inch. I hope that with a new Secretary of State and a new Under-Secretary we shall get a more sympathetic response.

A departmental committee has been set up to look into these matters, but that departmental committee is concerned with only one side of the problem and comprises no outside contractors or professional advisers at all. We do not know when the committee will report, and obviously the Government cannot commit themselves to the report in advance.

5.15 p.m.

I would happily drop the new clause if the Under-Secretary could say that as an interim measure—and I stress this before the report comes out—he will commend and recommend the CIPFA recommendations to the local authorities. If he cannot do that, we shall continue to raise this matter. I must tell him that many of the new local authorities which were elected last Thursday, with which I am having discussions, intend to adopt the main recommendations of the CIPFA report. I certainly want to see that come about.

May I say a brief word or two on new Clause 7 which is being discussed with this clause. It is 180 degrees the other side of the coin. Just as I shall be surprised if the Government accept my new clause, I shall be equally surprised if they accept new Clause 7. I am sure that the Under-Secretary, who is not partial in the matter, will reject both proposed new clauses. New Clause 7 is where we were a few months back, on one heady evening when we had the Chrysler debate and things went wrong and the Government lost, and then we had the debate on the West Midlands County Council Bill. The new clause paraphrases all that the Labour West Midlands County Council sought to do. This is as objectionable to us now as it was on that evening when the House rejected the West Midlands County Council Bill. It is objectionable for a number of reasons.

I am a great believer in local government but in local government doing what it ought to do. That is certainly not extending its activities into a wide range of trading operations without proper accountability and certainly with the prospect of losing money, extending its powers and costing more money; and there is not enough expertise going spare among the officers and councillors that they can extend their activities in this way and thereby ignore some of the desperate problems which local and indeed central government face.

I am a great believer in efficient officers and councillors, but they have enough to do without moving into the realms of trading activities, engaging in any undertaking which, in their opinion, is likely to achieve a profit over any period of five years ". That is as wide a power as one could wish to see.

There were two principal factors in the elections last week, in which there were local as well as national factors. One was the sale of council houses and the other was direct labour and municipal trading. In places such as the West Midlands, Birmingham, Dudley and elsewhere, the electorate have decisively rejected any extension of local government powers in this way. They believe that they should concentrate their abilities and efforts on doing what they should be doing at the moment. Therefore, we on this side of the House totally reject the concept of new Clause 7. Since it is unprecedented and apparently controversial, I have no doubt that the Government also will do so.

Mr. Ivor Clemitson (Luton, East)

I wish to speak to new Clause 7 in the name of my hon. Friend the Member for Chorley (Mr. Rodgers) and myself. Reference has been made in this debate and in an earlier debate to the events of last Thursday. It may seem, after the events of last Thursday, an inappropriate time to reintroduce a provision about municipal enterprise. However, if the new Conservative-controlled councils are as opposed to municipal enterprise as their leagues are in this House, surely there is no harm in passing such a clause because it is purely permissive and presumably they would not wish to take advantage of these powers.

Not all Conservatives on local authorities are so opposed to the idea of municipal trading as some Conservative Members. For example, many of our seaside resorts which have not been controlled by the Labour Party are considerable exponents of municipal trading. Historically, much municipal enterprise was initiated and conducted by politicians whose political evaluations and ideas were far from creeping municipal Marxism, the phrase used by the hon. Member for Ashford (Mr. Speed) in an earlier debate on this subject. That is a concept which obsesses the minds of Conservative Members.

I do not want to take up too much of the time of the House. As the hon. Member for Ashford rightly said, we have rehearsed the arguments several times in the past year. The wording of the clause antedates the West Midlands Bill. It is word for word the wording of the Ten-Minute Bill which I introduced in April last year. I was given permission to introduce it by a considerable majority of Members.

The clause is permissive and not mandatory. The control of municipal enterprise is firmly in the hands of democratically elected councils and, therefore, ultimately in the control of the electorates which they represent. In an earlier debate this afternoon the hon. and learned Member for Southport (Mr. Percival), was concerned to emphasise the power that correctly lies with the electorate in the ballot box. It is ironical that when the gas and electricity industries were taken into public national ownership after the war, the criticism heard from the then Opposition was that democratic local control was being replaced by bureaucratic, national, centralised control. How attitudes change!

The charge that municipal enterprise means a heavier burden on the hard-pressed ratepayer is neither supported by experience not encouraged or supported by the wording of the clause. I have no intention of going through a long list of examples of successful municipal enterprise. I merely refer to Luton Airport in my constituency, which has been a highly successful example of municipal enterprise. It is once more making a profit despite the trauma of the lapse of Court Line, which so exercised the mind of the House some 18 months ago.

The clause is designed specifically to encourage municipal enterprise so that it will not be a burden on the ratepayer. Reference has already been made to the wording of subsection (1)—namely, likely to achieve a profit over any period of five years. In subsection (2) it is specifically provided that any losses would not qualify for rate support grant. Subsection (3) provides for the proper auditing of accounts.

I remind the House of the recommendations of the Redcliffe-Maud Report regarding the limitations of the powers of local authorities. The report was very much in favour of their removal. I would have hoped that its recommendations would be followed in that respect and in others.

It is surely an absurd, costly and outdated procedure for local authorities to have to seek special powers to conduct municipal enterprises. It displays a contempt for the ability of local councillors and those who elect them and a distrust of the operation of the democratic principle. We hear much of the need for power to be at a level that is understood, comprehended and participated in, yet in many ways the powers of local authorities are inhibited. The authorities carry the can for a great deal for which they are not responsible, for matters which are not even within their power. The authorities should be given every possible encouragement to be enterprising and to show initiative, and the clause is intended to be a contribution to that end.

Mr. George Rodgers (Chorley)

I am pleased to add my support to new Clause 7, which has been so ably spoken to by my hon. Friend the Member for Luton, East (Mr. Clemitson). I am surprised that there should be apparent opposition from Opposition Members. Joseph Chamberlain would turn in his grave were he aware that his political successors were abandoning municipal enterprise on such a scale. I honestly think that the clause should appeal to all who are prepared to do rather more than pay lip service to local democracy and local enterprise.

I believe that the terms of the clause would enable the resources of local authorities to be utilised on behalf of the local community and, at the same time, provide an additional source of revenue to relieve the stricken ratepayer. For far too long local authorities have been expected to provide projects that cost a great deal to the local community, even though they are highly desirable. For example, public baths, public parks, and public libraries are very expensive to construct and maintain. Private enterprise is not interested in such ventures. That is understandable as its purpose is to secure a profit, and there is no profit in the undertakings that I have mentioned.

It seems sensible that we should introduce a balancing factor to enable local authorities to provide a useful service and, at the same time, to improve the financial standing of municipal treasurers. I should like to see the abilities of town hall surveyors and solicitors made available to the public—the public who in a real sense contribute to the cost of providing town hall officers.

I see no good reason for machines and equipment belonging to local authorities not being hired out to local residents. The staffs of parks and gardens, who include some of the most able horticulturalists in the country, could well set up stalls and provide a service to the public in their district. Perhaps that would have the effect of combating the potato famine.

It has already been demonstrated that in many sectors municipal trading has been enormously successful. The seaside resorts make a fortune from deck chairs. Many authorities are in public markets, and many provide restaurant facilities. The urban district council of which I was once a member was very successful as a result of manufacturing and selling a fertilizer which emerged from the local sewerage works. This brought a benefit to the local rate fund.

The clause seeks to extend the area of trading. It contains substantial protection for those who are concerned to prevent the abuse by local authorities of their right to undertake business ventures. Any such enterprise would be subjected to annual audit. No public money would be at risk.

The likelihood is that a programme of municipal enterprise would generate local prosperity. It is self-evident from previous successes that it is a valuable form of trading. It also offers advantages to those who seek to attract people with business efficiency and know-how to serve on local government. I am confident that this modest clause would secure widespread approval throughout the country as well as in the Chamber.

5.30 p.m.

Mr. Cecil Parkinson (Hertfordshire, South)

I am sorry to have to disappoint the hon. Member for Luton, East (Mr. Clemitson), but as I listened to him make the case for his new Clause 7, I felt compelled to intervene in the debate although I had not originally intended to do so.

As my hon. Friend the Member for Ashford (Mr. Speed) said in introducing his new Clause 4, speaking at the same time against new Clause 7, local authorities already have a great many duties and are finding it extremely difficult to carry them out. There are many duties which they and they alone can perform and, if they were to concentrate on those matters in which they alone have responsibility, they would already have enough to do.

The hon. Member for Chorley (Mr. Rodgers) told us that subsection (1) of his new clause, which provides that any enterprise must be likely to make a profit within five years, guarantees that no ratepayers' money could be involved. I thought that naöve in the extreme. Speaking as a chartered accountant, I cannot think of anyone whoever set up in business without thinking that he would be likely to make profits, yet this year alone thousands of business people will go bankrupt and firms will go into liquidation because, although they hoped and expected to make a profit, they found on getting the business under way that they were wrong.

We should never forget the difference between those people and the local authorities and councillors who would be covered by new Clause 7. Those to whom I have just referred will lose either their own money or the money of people whom they persuaded to back them and who went into the enterprise with their eyes open, knowing that they were taking a commercial risk. The people covered by new Clause 7, on the other hand, the local councillors, would know that at the end of the day, if their ideas were wrong, the loss would not be theirs but it would be the ratepayers' money which would disappear.

I am, therefore, astonished at the suggestion that that small subsection in the new clause would protect ratepayers from loss. Perhaps the hon. Gentleman imagines that those councils which will decide to go into business are likely not to be as naöve and wet behind the ears commercially as he obviously is, but I can only say that I regard his new clause as no sort of defence against large losses.

Mr. George Rodgers

Will not the hon. Gentleman concede that there is abundant evidence that local authorities which are already trading have been enormously successful and have, in fact, contributed to the rate fund?

Mr. Parkinson

I do not want to make a long speech, but I was surprised to hear the hon. Member for Luton, East talk about Luton Airport. I used to live under the airport flight path, so I admit to having rather jaundiced views about it, but if Luton Airport has made an overall profit from the date of its inception up to now I shall be amazed. I should be delighted to hear it, but I suspect that, even if it has now started to make a profit, overall, since it began, there have been some thundering great losses totted up for the local ratepayers to bear.

Mr. Clemitson

I cannot go back to the year dot, but all I know is that for a considerable number of years the airport has made a profit. My point is that, despite the lapse of Court Line Limited, that shining star of private enterprise, the Luton local authority, which until last Thursday was Labour-controlled, has very successfully attracted business to the airport, and the airport has in a very short time started making a profit again.

Mr. Parkinson

As we are busy exchanging a lack of information with one another, I see no great point in pursuing the argument, but I have a strong suspicion that, if the losses and profits were totted up since they went into the business, the ratepayers of Luton would find themselves on the minus side. However, the hon. Gentleman does not know whether I am right or wrong, and we could spend a long time discussing the matter without coming any nearer the truth at the end of the day.

There have been references to Court Line. I do not see the lapse of Court Line as an argument for extending municipal trading. On the contrary, I see it as a warning about the dangers of going into commercial enterprise. I see the Court Line affair as an illustration of how easy it is to lose money in ventures which, in the words of subsection (1), look likely to make a profit within five years.

Local authorities already have huge obligations, and day after day now they are finding it difficult to meet their present obligations. If local councillors have any spare energy, they should concentrate on carrying out their statutory obligations, without entering into ventures which are "likely to achieve a profit" within five years. All the indications are that the new clause would be a recipe for increased rates and further dissatisfaction among ratepayers. One thing which the country is not short of, I suggest, is people who are prepared to go into business and take up ventures if there is a profit to be made.

Mr. Peter Bottomley (Woolwich, West)

I shall address myself to subsection (1) of new Clause 7, which would provide that any council may carry on any business or engage in any undertaking which, in their opinion, is likely to achieve a profit over any period of five years". My hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) spoke of those who are willing to go into business and take risks. I shall speak about those who are already in business and who take risks. What opportunity would there be for someone who ran a taxi service, a grocery shop, a newsagent's shop or a tobacconist's shop—or, for example, someone working for the Royal Arsenal Co-operative Society in my constituency—if he realised that the local council could set up in one of these businesses or services and run it without making a profit for a period of up to five years, although it was thought that there might be opportunity to make a profit five years further forward?

No local authority in the country has been elected on the ground that it should take powers of that kind, and I hope that the Government will resist new Clause 7.

Mr. Guy Barnett

The hon. Member for Ashford (Mr. Speed), who moved his new Clause 4, challenged me, so to speak, to express new views on the subject of direct labour departments. I do not imagine that he expected me to do that, especially in the context of this debate, and, although I listened with interest to all that was said, I see two reasons why it would be a great mistake for me to give any definitive views either on new Clause 4 or on new Clause 7, the clause presented by my hon. Friends the Members for Luton, East (Mr. Clemitson) and for Chorley (Mr. Rodgers).

The Bill is composed of provisions which are precedented and accepted, and to accept either of the new clauses would be to accept provisions which are unprecedented and therefore outside the scope of the Bill as presented to the House. I shall, however, comment briefly on both new clauses.

New Clause 4, as the hon. Member for Ashford made clear, has been tabled in response to recommendations in a report published by the Chartered Institute of Public Finance and Accountancy on direct works undertakings accounting. The main recommendations in the CIPFA report were that local authority direct labour organisations should be treated as a trading service, that competitive tendering should be adopted for the great majority of major works contracts, and that charges to spending committees should be based on valuation rather than on cost of work done. As I have said, it is obvious that recommendations of this kind would be unprecedented and, therefore, could not find a natural place in the Bill.

The hon. Member for Ashford referred to the working party which my right hon. Friend has set up to study this matter. Whatever the hon. Gentleman may say, I must emphasise that it is a complicated and difficult subject, and technical issues are involved. It is simply not possible to accept a new clause of this kind at the present stage or, indeed, until my right hon. Friend has had opportunity to consider the report of the working party and come to a decision upon it. If the hon. Gentleman had not suspected that already, I think that he might have gained the same impression from the CIPFA Report itself, for it recognises that there would almost certainly be practical difficulties. In particular, the use of the valuation-based figures rather than actual cost will affect the charging of service accounts and in turn affect the calculating of specific grant, housing subsidies, loan sanctions, etc. Inevitably, there will be problems should it be decided to act upon the basis of the CIPFA Report, and I am sure that the hon. Gentleman accepts that it would be wrong for me to attempt in any way to prejudice or anticipate any statement or decision of policy which my right hon. Friend would need to make on the issue.

The new clause of my hon. Friend the Member for Luton, East, supported by my hon. Friend the Member for Chorley, deals with municipal trading. As I have explained before, it would be unprecedented in local law and therefore lies outside the scope of the Bill. But I want to give my hon. Friends a certain amount of assurance and to do that I can do no better than to quote my predecessor, who said: local authorities should be given as much independence and freedom as possible—and that that independence and freedom should be given a purpose and a means to support that purpose.—[Official Report, 26th January 1976; Vol. 904, c. 165.] The Government are not unsympathetic to the principle of municipal trading, but we believe that trading powers should be extended only where appropriate. That must mean that the locality should benefit from the provision of the services proposed and that the local authority is the right body to provide it. Where municipal trading would be in competition with private training, accounts must balance year by year and there should be no subsidising of that trading by ratepayers. Such subsidies would be unfair to ratepayers and other trades in the area. The new clause fails to meet those provisos.

In a period of retrenchment in local government expenditure and of close scrutiny of expenditure by local authorities, it would be inappropriate to indulge in such extensions of their powers. For those reasons I must reject both new clauses.

Mr. Speed

On the basis that new Clause 7 is equally unacceptable to the Government, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.