HC Deb 10 May 1976 vol 911 cc45-58

'The following section shall be substituted for section 161 of the Local Government Act 1972:—

"161—(1) Where an audit of any accounts under this Part of this Act is carried out by a district auditor and it appears to him:

  1. (a) that any item of account is contrary to law and has not been sanctioned by the Secretary of State; or
  2. (b) that any person has failed to bring into account any sum which should have been so included and that the failure has not been sanctioned by the Secretary of State: or
  3. (c) that a loss has been incurred or deficiency caused by the wilful misconduct of any person;
he shall issue a certificate specifying every such item, sum, loss or deficiency and the amount thereof and naming the person or persons whom he considers to be responsible for the same and each of them.

(2) The said certificate shall be sent by the district auditor to the body in question and to each person named in it and shall be accompanied by a statement by the district auditor of his reasons for reaching the conclusions expressed in the certificate.

(3) Within 28 days of making the certificate required under subsection (1) above the district auditor shall apply to the court for such order or orders as the Court may think fit to make as hereinafter provided in respect of the said certificate and against any person or persons named in it.

(4) On an application under subsection (3) above the Court may confirm, vary or quash the said certificate and, if it confirms or varies it. May

  1. (a) order that any person named in the said certificate as confirmed or varied shall pay to the body which incurred the expenditure so held to be contrary to law or which suffered loss due to the failure to bring into account any sum or sums or which suffered loss or deficiency due to the wilful misconduct of any person, such part as the court thinks fit but not exceeding £1,500 of the sums for the expenditure or failure to bring into account or loss or deficiency of which such person was responsible;
  2. (b) subject to subsection (5) hereof whether or not it makes an order for the payment of any part of such expenditure or losses or deficiency if the total thereof exceeds £2,500 and any person responsible for authorising or incurring them is or was at the time of his so doing a member of a local authority shall order him to be disqualified for being a member or elected to a local authority for a period of five years unless there are special circumstances connected with the relevant 46 transactions to be specified by the Court which in the opinion of the Court justify the remission of the whole or part of any such disqualification.

(5) The Court shall not make an order under subsection (4)(a) or (b) above if the Court is satisfied that the person authorising or incurring the expenditure, loss or deficiency in question acted reasonably or in the belief that his action was authorised by law, and in any other case, before making an order under subsection (4)(a) above, shall have regard to all the circumstances, including that person's means and ability to pay and the degree to which in the opinion of the Court he was guilty of wilful default.

(6)(a) Where any person has made an objection under Section 159(3) above the district auditor shall send to such person a copy of any certificate issued by him relating to any of the matters or persons to whom such objection related and of his reasons for so certifying or, if he decides not to issue any certificate relating to those matters or persons or any of them shall so inform him stating in writing the reasons for his decision.

(b) Any such person who is aggrieved by a failure or refusal of the district auditor to issue a certificate relating to any matter in respect of which he made objection or to any person whom he alleges to be responsible therefore may apply to the court.

(c) On any such application the court may confirm, vary or quash any relevant decision of the district auditor and give any certificate which he could have given and a certificate so given shall be treated for the purposes of subsection (4) above and the following provisions of this section as if it were a certificate given by the district auditor and confirmed by the court.

(7) The body in question and any person in relation to whom an order may be made in proceedings under any of the foregoing provisions of this section shall be entitled to appear and be heard in such proceedings.

(8) The courts having jurisdiction for the purposes of this section shall be the High Court except that, if no sum specified in the certificate given under subsection (1) above exceeds the amount over which county courts have jurisdiction in actions founded on contracts, the county court shall have concurrent jurisdiction with the High Court.

(9) Any expenses incurred by a district auditor in complying with the foregoing provisions of this section shall so far as not recovered from any other source be recoverable from the body from the audit of whose accounts such expenses arose unless the court otherwise directs.

(10) In this section 'local authority' includes the Common Council".'—[Mr. Percival.]

Brought up, and read the First time.

Mr. Ian Percival (Southport)

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

Mr. Speaker

We shall take at the same time Amendment No. 183, in Title, line 9, after 'enactments' insert 'to amend the law relating to the powers of district auditors and the court'.

Mr. Percival

I echo the good wishes to the Under-Secretary of State expressed by my hon. Friend the Member for Ashford (Mr. Speed) and I add the hope that the first clause I have the opportunity to debate with the hon. Gentleman will meet the same fate as the first clause he has debated with my hon. Friend.

There is more than an echo in new Clause 2 of the Clay Cross affair. I think that the whole country must have felt great satisfaction in the fact that last week all those who behaved in a manner which received such scrutiny in this House as recently as last August were swept from office by the electors, both in Clay Cross and in the North-East Derbyshire District Council, because that is the best way of all to treat those who do not carry out their job as councillors.

I refer to Clay Cross, but it should be remembered that the story includes others who acted similarly to the Clay Cross councillors but who sought shelter at the expense of the Clay Cross councillors and received succour at the hands of the Government, through Section 1 of the Housing Finance (Special Provisions) Act 1975. A great many of these came from Birmingham and the surrounding areas, and although we do not know their names because we have not had the rent loss certificates—the hon. Gentleman may know what has become of them—it is plain that in that area the swing against the party which permitted its councillors to act in that way was also very heavy. Many of us will think that to have been no coincidence.

I stress this because I believe that the ballot box is the best way to deal with those who betray the trust put in them by their electors. But, of course, we must have other methods of dealing with them as well, and as I want to keep this matter entirely non-controversial, I now pass on to other methods suggested for dealing between elections with people who act in that way.

Two questions are raised by new Clause 2. I think that we would all agree that provisions are needed for dealing with councillors who err or who wilfully dis- obey the law. But that brings us face to face with the questions whether the existing provisions are satisfactory, and, secondly, whether, if it is claimed that those existing provisions could do with improvement, new Clause 2 would secure that improvement. I ask the first question particularly to acknowledge the fact that the provisions we seek to replace by new Clause 2 are very recent, and in such circumstances it might be quite a good argument simply to say that since those provisions were introduced only a year or so ago we should wait and see how they work out.

But in the circumstances of the Clay Cross affair, we have to consider the subject of how one deals with what used to be surcharges and disqualifications. The Clay Cross affair led to us in this House discussing that subject at much greater length and in greater detail than, I should think, had ever been the case before. It caused many of us to look at the provisions of Section 161 of the Local Government Act 1972, because although they did not apply to the Clay Cross councillors, that was through an accident of timing, and there is the argument that such cases should not be dealt with by antiquated provisions simply by accidents of timing.

We concluded, therefore, that even if those provisions are fairly recent and have not been tested at great length, a good deal of what is contained in them has been discussed in considerable detail by the House, and what we put before the House now is intended to be a constructive suggestion flowing from those discussions. It is a somewhat touchy subject, but I do not think that it is nearly as difficult as some people tend to think. I will put it as simply as I can.

We are dealing here with three kinds of entry which appear in accounts. The first is the kind of entry in the accounts which is contrary to the law; the second is the failure to include an entry, or the failure to enter something which should have been entered; the third is the loss or deficiency resulting from neglect or any particular wilful misconduct.

These classifications are a very respectable antiquity, and one day there may be further classifications. But for the purposes of the present discussion, and the provisions proposed to the House, I am retaining these three divisions. There is a good deal to be said for retaining them, because everyone has got used to them, has some idea how they work, or do not work, and knows how to approach them.

In Section 161 of the 1972 Act, which I hope to replace with this new clause, one approach was adopted in relation to the first of these categories of accounting items and a different approach was adopted in relation to the second and third. What we have done here is combine the best of both approaches that were introduced in Section 161 and then we have combined with them the constructive suggestions which emerged from the debates on the Clay Cross affair. incorporating, in addition, a number of amendments to our proposals which were made in another place. That has produced what the House may feel is a worthwhile solution, or, at least, a solution which will merit detailed and continuing discussion in order to bring about some such changes soon, even if not now.

This does not mean that I am withdrawing in any way from my attempt to get the House to accept the new clause now, but, in attempting to draft these provisions without the assistance of a Department or a parliamentary counsel, I admit that there may be technical difficulties that we have overlooked. I have an open mind on that possibility and shall give consideration to what the Minister says if he claims there are difficulties of this kind.

The House should make these changes only if it is sure that there are advantages to be secured by doing so. What, then, are the advantages? First, if this provision were introduced, the consequence would be that all who err—and I use this word purposely because it is not always wickedness; it may be just a plain mistake—would be dealt with in exactly the same way. The same flexibility would be available for dealing with every case, the same procedure would be used, and the same considerations borne in mind.

Secondly, all these people would be dealt with by the courts, and I place tremendous importance on this. What we all learned as a result of Clay Cross—and one should try to learn something from all such matters—was the need for flexibility, the need to give someone dis- cretion. One cannot have a flexible provision unless discretion is given to someone to deal with the matter. What emerged clearly was that in highly political matters such as Clay Cross, such discretion as exists is exercised by politicians, which makes the whole thing immediately suspect and open to grave criticism.

The Clay Cross affair was difficult for us in this House, difficult for the Executive and also for the public. These difficulties are removed entirely, at the drop of a hat, by leaving the decisions to the courts. Once one has accepted that fact, one can give effect to it because one is no longer worried by the proposition of giving too much lattitude to politicians.

I suggest to the Minister and to hon. Members—because at this stage I do think that I am discussing not a party matter but a matter of considerable interest to all hon. Members and all those who serve in local government—that one advantage of putting discretion and responsibility with the court is that it immediately opens up much greater possibilities for dealing with the matter in a flexible way. Surely that must be right as a first step.

4.15 p.m.

I can anticipate one of the arguments which probably will be put up against the clause. The Minister probably will say that it will cause a great deal of work and delay. That is fiddlesticks. Surely there would not be a great number of such cases. In fact, I do not think any of us ever heard of such a case until the Clay Cross affair. Therefore, the number we are dealing with will be small. Would such cases take any length of time? If people are concerned about that they can forget about it because, contrary to the general view, if something needs doing in a hurry, the courts will do it in a hurry. When there is delay it is almost invariably delay on the part of the parties concerned and not on the part of the courts. Therefore, there need be no appreciable delay in dealing with the small number of cases likely to arise.

What about the time taken in the hearing itself? Would it put a burden on the court or would it prove very expensive? There is the kind of case where there is no dispute about the facts, and the courts will be called upon to exercise their discretion. It is difficult to see such a case taking more than half a day. Someone would have to give the court an outline of the facts leading to the parties being there, and make suggestions to the court as to what course of action should be taken and how the court should exercise its discretion. It is difficult to see such a case taking any appreciable length of time. It is the sort of situation with which the courts, and those who work in them, are familiar.

What about the contested case? That would take some time, but, then, we hope that it would. It is right that it should take time in the one place above all others which is best armed, best experienced and most suitable to determine contested facts. If there is a contest on the facts, the High Court or, if appropriate, the county court is by far the best place for issues of that kind to be decided. The issues are taken out of the political arena, and that is important. But even more important, that is the task which those courts exist to carry out. It is to that end that all their training, experience and traditions have been directed.

There are further advantages in the proposals compared with the existing law. Perhaps I may demonstrate them by explaining what the court can and cannot do. The combined effects of subsections (4) and (5) are that the court cannot make an order either for the repayment of money or for disqualification if it is satisfied: that the person authorising or incurring the expenditure, loss or deficiency in question acted reasonably or in the belief that his action was authorised by law". That is, in its simplest form, the concept that has been contained in legislation on these matters for some time and which emerged quite clearly from our debates on Clay Cross as one we should like to see enshrined in the law. The provision gives total protection to anyone who acts reasonably or believing that his action is authorised by the law.

We have prescribed in subsection (5) that before making an order for repayment of money the court shall have regard to all the circumstances including the person's means and his ability to pay. There was no such discretion in the provisions we considered in the Clay Cross affair. Under Section 161 of the 1972 Act, there is such discretion in relation to moneys arising from an item which is contrary to the law, but there is no such discretion in relation to sums arising under either of the other two heads. The district auditor's certificate has to cover the whole amount. The court may reconsider the auditor's decision but can make only the same orders as the auditor could have made.

The clause goes on to say that the court must have regard to the degree to which in the opinion of the Court he was guilty of wilful default". Therefore the whole provision becomes much less rigid. One can imagine the difference between one case and another where one involves the absolute minimum of culpabality and the other a high degree of culpability and that a penalty which may be disastrous for one person may not be disastrous for another. It is therefore surely right that this flexibility should exist, not merely in relation to items which are contrary to the law but in relation to proceedings concerning items under any one of the three categories.

There is another way in which the provisions are much more flexible and merciful. They prescribe a maximum amount which the court can order to be paid. I have specified £1,500. Last year we were talking about £1,000. The increase takes account of the fall in the value of money under the Government's policies in the last 12 months. I am not wedded to the figure however. I have increased the disqualification figure from £2,000 to £2,500, and I would have thought that these amounts were probably on the right track.

The other respect in which the provisions are much more merciful and flexible is that there is no automatic disqualification in any instance. There is the provision that the court shall disqualify for a period of five years where the amount in question exceeds £2,500, unless certain conditions obtain. Under Section 161 the court could impose disqualification for more than five years, but with our new proposals we feel that five years is long enough. After that the electors would have their opportunity to express a view through the ballot box, and that is the best way for electors to deal with people who betray their trust. The court does not have to make a disqualification order, or if it thinks it just and fit to disqualify for a lesser period than five years, it may do so, provided that it states its reasons on either count.

It seems inconceivable that any Government would or could do what this Government did for councillors who defied the law. It is even more unlikely that that will ever happen again, because even the most insensitive must blush a little upon looking back on what was done last year. That, however, is all the more reason for taking the opportunities available to us for improving the machine that we want to be used. If people do not take the law into their own hands but are prepared to lest the matter be dealt with under the proper machinery laid down by the House they are entitled to expect that machinery to be efficient, just and flexible. The other side of the coin is that if we provide such machinery, it is that much more likely that they will permit matters to be dealt with in the proper legal way and not take the law into their own hands.

We believe that the new clause would make a significant contribution in all those fields. In the highly charged atmosphere of Clay Cross, the proposals that similar provisions should be introduced to deal with that situation failed by only 14 votes. I hope that in the cooler atmosphere of the House now, they will be accepted.

4.30 p.m.

Mr. Guy Barnett

I thank the hon. and learned Member for Southport (Mr. Percival), first for his very kind remarks about myself, and secondly, for the very moderate way in which he has moved the new clause. I began to wonder about it when he started to refer to events of last week, but he quickly got off that subject and on to the advantages, as he sees them, of his new clause.

There is one general point that I ought to make at the outset because it is relevant to other new clauses that we may be debating later, and that is the nature of the Bill. I ought to make it clear to the House in general—though I am sure that the hon. and learned Gentleman appreciates this—that in Committee it was very clearly agreed that the Bill has two objectives. The principal objective is to allow the continuation in effect of provisions that have existed in local Acts, prior to the reorganisation of local government, which would otherwise have been repealed by virtue of Section 262 of the 1972 Act.

Therefore, the Bill in essence is a consolidation measure in general legislation. It contains things that are valuable and generally well precedented—I should like to stress the words "well precedented"—provisions from the mass of local private Acts which will otherwise lapse in 1979, in the case of metropolitan authorities, and 1984, in the case of others.

To reduce the size of private Bills and to save the time of local authorities and this House, the Department has scrutinised all well-precedented local Act provisions to determine which are of sufficient merit to justify general enactment. Some already are in recent public Acts, others are in this Act, and some are under consideration for later, more specialised legislation.

The Bill was amended very much in Committee. Certainly some new clauses are for consideration on this occasion. However, I think that in every case I can say that it was fairly well precedented. I must also accept that there are subsidiary purposes of this Bill in connection with the Public Health Acts, but that is in preparation for future consolidation.

The trouble with the new clause, as the hon. and learned Gentleman will well know, is that it is not well precedented. I could also be described as controversial—though I must say that after the description of the new clause as a fitting after-event of the events of last week, I am surprised to see such a relatively small number of Members sitting on the benches behind the hon. and learned Gentleman. Nevertheless, the new clause is to a degree controversial. In that sense one would not normally consider it to be suitable as part of the legislation that we are considering.

I want to deal with certain criticisms of the new clause that ought to be made. I think that what I am about to say was implied by the hon. and learned Gentleman. That is that the audit system in local government was reviewed and changed by the Administration that he supported, in the 1972 Act, resulting in Section 181. As the House knows, that Act has been operative only from 1st April 1974. The first accounts which have, as it were, been affected by that Act, have been from 31st March of last year, so they have been in operation for only barely one year. Here the hon. and learned Gentleman is proposing a new clause which would amend that Act, a part of that Act which has been in operation for only one year—and his Act rather than our Act. I do not think that it shows very much confidence in the Act that his party put on the statute book to come along to the House and to propose a new clause which would make quite a considerable change to legislation that has so recently come into operation.

I also ought to comment on the district auditor system as a whole. There is no question that it is highly valued and respected. I want also to emphasise that it is independent—whatever the hon. and learned Gentleman may have said in his speech. It has been independent and has earned and gained that respect over a period of 100 years.

Mr. Percival

I am sure that the record will show that I said nothing to reflect in any way upon the district auditors. I was not talking about the exercise of discretion by them. It is the exercise of discretion by politicians in relation to their certificates after they have been made. I am grateful to the hon. Gentleman for allowing me to make it perfectly clear that nothing I said was in any way intended to reflect on the district auditors.

Mr. Barnett

I am grateful for that correction. I am sorry if I misunderstood what the hon. and learned Gentleman said.

At any rate, to some degree the new clause would derogate from the kind of situation that has so far existed. The consequences would probably be a substantial increase of work for the courts. The hon. and learned Gentleman suggested that it would not be very great. Nevertheless, he will know from his own experience—as I am afraid I do not know from mine—that the courts are at present over-burdened and that there are delays there, and that there could be public expenditure consequences arising from his proposals. I am not certain, even, that we have not got a very satisfactory system as it stands, and I see a number of dangers that could arise from the proposals in the new clause.

Before the Local Government Act 1972 was enacted, the district auditor had even wider powers than he has now. If he found that an item of account was contrary to law, he could surcharge the officers or members of the local authority who were responsible for incurring the expenditure in question and he could surcharge the amounts of any loss or deficiency caused by negligence or misconduct. The 1972 Act made some changes to this. In particular, the district auditor no longer surcharges expenditure which is contrary to law. Instead, he goes to the court for a declaration if he contends that expenditure is contrary to law, and the process of recovery follows from what the court finds.

That seems to me to have been a wise change to make, because the court—it will often be the High Court that is involved—is the body most suited for deciding such a matter. But the 1972 Act left with the district auditor the duty of recovering the losses or deficiencies in other cases. Again, this seems to me to be the best course. Most of the cases in question are what would usually be described as frauds, and the amount of loss will usually be revealed in the auditor's examination of the account. He, after all, is best qualified in such cases to get the wheels of recovery in motion.

I do not think that I need to dwell for long on the nature of the office of district auditor. For over a century district auditors have been responsible for surcharging losses, having a firmly-established code by which the conduct of their proceedings is regulated. Their decisions are and always have been subject to appeal to the High Court, and the court—and as far as I know, everyone else—has always accepted that their proceedings are conducted in the proper judicial manner. I am not surprised that the 1972 Act left this matter in their hands, and for the reasons I have mentioned I am convinced that this would not be an opportune moment to change the situation as it now stands.

Mr. Percival

To a large extent I expected the Minister's comments and I shall not repeat what I said. It is, however, Section 161, not Section 181. It received very little, if any, discussion during the passage of the Bill, because it was an enormous measure and there were other things that interested people more—things that they understood—and that was understandable.

I do not think that we should wait long before further considering this matter, because we have had more discussion on it during the last 12 months than there was in the previous 12 years and during the passage of the Bill. In addition—and I stress this and have said it before—we now have the experience to draw on of the Clay Cross affair which made many of us give considerable attention to the kind of remedy about which we are now talking and which most of us will admit had taken very little of our time prior to those events.

I put forward the new clause as an attempt to build on what was then left. It is not intended to reflect upon the district auditor or to derogate from his powers. There was a derogation in the 1972 Act, as the Minister said, because in the case of an item contrary to law instead of surcharging then and mere the district auditor goes to the court. I do not think that in these proposals there is any further derogation. It is simply that instead of issuing a certificate which then has the effect set out in Section 161 —when he has issued his certificate the effects are different—that certificate is referred to the court and the court makes the necessary order. I do not think it makes any difference to the extent of the district auditor's powers. It is certainly not intended to reflect any lack of confidence in either his ability or his approach to the matter.

I shall in a moment ask the leave of the House to withdraw the new clause because I very much agree with the spirit of what the Minister said in reply to the case that I put to the House. This measure is designed to contain general powers which need not then be repeated in private legislation. I speak now from a legal rather than a policy point of view, though there is an element of policy here as well. It is enormously important that we do not allow ourselves to slip back into the position where there are hundreds of private Acts. This measure is a first step towards avoiding that—that was the Minister's point with which I agree—but this is only a. miscellaneous provisions Bill. Would that it were a general powers Bill containing far more than this and containing all the non-controversial things.

I say to the Minister now that, from the lawyers' point of view, any approach designed to take this a stage further by including other non-controversial matters in a general powers Bill—and it has to be non-controversial because there will not be time in the foreseeable future in the timetable of legislation for a highly-controversial Bill—will be welcome. Any move to extend the number of provisions that can be agreed and included in a non-controversial general powers Bill will meet with a ready response from this side of the House.

Because I appreciate that the new clause does not fall into that category, anti because I appreciate the strength of the point made by the Minister and the desire to follow it up and do something constructive in this connection, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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