PRESCRIBED EXPENDITURE UNDER PART VIII (Hansard, 15 July 1980)

§ Mr. Gordon Oakes (Widnes)
I beg to move amendment No. 230, in page 129, line 5, at end insert: 3.—(1) Expenditure in connection with a trading undertaking of an authority to which this Part applies is not prescribed expenditure for the purposes of this Part of this Act if it is financed from the proceeds of that undertaking. (2) In sub-paragraph (1) above "trading undertaking" means—

(a) any railway, light railway, tramway, road transport, water transport, canal, inland navigation, ferry, dock, harbour or pier undertaking;
1378
(b) any telephone undertaking;

(c) any aerodrome;

(d) any market undertaking;

(e) any undertaking for the provision of entertainments under section 145 of the Local Government Act 1972 or any local enactment;

(f) any undertaking for the supply of district heating; or

(g) any civic undertaking.'.

§ Mr. Deputy Speaker
With this it is convenient to take amendment No. 291, in page 129, line 5, at end insert: '2A. Notwithstanding the provisions of section 59(3)(b) above, expenditure incurred in the acquisition of an interest in land other than the freehold interest therein shall not, to the extent that the acquisition relates solely to the provision of any industrial building or to the land reasonably necessary in connection with the provision of such building, be prescribed expenditure for the year in which the acquisition is made, but shall count as prescribed expenditure at the end o' the third year following the year of acquisition, but only for a proportion of the calculation of the money consideration in accordance with the provisions of section 59(3)(b) above in relation to the value of the land as at the actual date of acquisition, which is equal to the proportion by which the expenditure made in relation to the land by the acquiring authority in that third year exceeds the income received by the acquiring authority from the same land in the same year, and if in that third year the income received by the acquiring authority in relation to the land equals or exceeds the expenditure made by the acquiring authority in relation to the same land then no amount shall count as prescribed expenditure.'.

§ Mr. Oakes
I shall be brief. However, that does not diminish the importance of the amendment. I hope that my brevity will be rewarded by some concessions from the Government. All three local government associations strongly support the amendment.
Under part VIII of the Bill any capital that is gained by an authority, whether under a trading undertaking or not, counts as part of the capital allocation of that authority. The amendment simply seeks to say that the categories of trading undertakings listed in the amendment should be excluded from the total amount of capital to be spent by the authority. Therefore, if an authority makes a profit on a particular undertaking, it can apply part of the capital to the advancement of that undertaking.
1379 The Conservative Party believes in trading, whether by a municipality or by a private individual who seeks to make a profit. If the Government do not accept the amendment they will discourage trading organisations from making a profit and from applying part of the profit to the development of the undertaking. Railways, transport undertakings and tramways are obvious examples. Let us suppose that Blackpool makes a profit on its trams, and that it wants to apply part of that profit to the development of the tramway. Should that money come out of its capital allocation? It has made the profit. It does not represent any burden on public expenditure. It wishes to expand the undertaking. Why should it not do so? That is an obvious example from paragraph (a).
I believe that there is only one telephone exchange in Hull. If Hull wants to spend capital on its telephone exchange out of its profits—I understand that the telephone exchange is unique and profitable—why should the citizens of Hull be deprived of their capital allocations for schools, houses and roads because money has been spent on that telephone exchange?
An aerodrome is an obvious example and would apply to Manchester, Luton and many profitable aerodromes that are run by local authorities. If they make a profit, the amendment would allow them to apply it without that amount being subtracted from the sum available to the authority. I hope that the Minister will not use the argument that we had last week about the viability of capital. I hope that he will not argue that if a local authority wants to spend money on any undertaking from its capital allowances it can do so. That does not apply in this case.
Let us suppose that an authority decided to use its capital allocation for schools on a new runway for its airport. There would be utter uproar. It is nonsense to suggest that that should take place. I said that I would be brief. However, that does not mean that the amendment is not important. All three local authority associations strongly desire the House to accept the amendment. I hope that the Minister will say something about the amendment that will make it acceptable to the House.

§ Mr. R. B. Cant (Stoke-on-Trent, Central)
I wish to speak to amendment No. 291, which is being taken with amendment No. 230. I really have to screw up my courage here because I wrote to the Under-Secretary and he began the final paragraph of his reply to me with the words "I should warn you".
I shall be even briefer than my right hon. Friend the Member for Widnes (Mr. Oakes). Where a local authority co-operates with a pension fund in order to build factory units or to develop an industrial estate, the pension fund insists that the local authority takes the head lease of the development. The difficulty that arises is that the local authority cannot guarantee, in effect, to let the development. The point at issue is that the Government are insisting that this capital sum is deducted from the capital expenditure allocation.
We made the point in Committee that the only reason why the Government are adopting this stance is that they are concerned about the public sector borrowing requirement. We made it quite clear to them that, as the financial operation would be quite outside the PSBR—in other words, through funds provided by the pension fund—the effect would be nil. Quite apart from this, we now have a publication—an eminent occasional paper—by the two distinguished Bank of England Keyesian economists who have proved that the PSBR is now in real terms negative. Therefore, the economy needs a fillip.
The most important point is that anyone who is associated with local government knows that local authorities are becoming increasingly dedicated to trying to help small businesses. The way in which they feel that they can help the small businesses more effectively is by developing the small industrial estates or nursery units which are taken up almost immediately they are built.
Although the Under-Secretary has intimidated me a little in these matters, I still think that the Government should encourage what is, in many ways, a new dimension in local authority action, by not being so transfixed by the esoteric concept of the public sector borrowing requirement. The local authorities are taking a massive initiative in this area 1381 and they are receiving wonderful financial support from the insurance companies and the pension funds. I should have thought that this happy marriage should be allowed to bear rich fruit in this form. The Government should not step in and say "We are sorry, but we must put this obstacle in your way". However, as I have said, I am totally intimidated by the Under-Secretary, and on the basis that half a loaf is better than none at all, I shall not press my amendment.

§ Mr. King
The right hon. Member for Widnes (Mr. Oakes) talked very eloquently about profit. But that is not what his amendment says. It says: financed from the proceeds of that undertaking. That means any takings at the port, airport, theatre or whatever undertaking is referred to in the amendment. That is a very different matter. Despite the right hon. Gentleman's eloquent tribute to the need for profitability, his amendment does not follow that line. I do not want to quibble about that because the right hon. Member addressed himself to a serious point and I am sure that he will recognise that there is a technicality here. I am sure that he spotted it immediately. The word "proceeds" is capable of different interpretations.
There are problems in trading activities. The right hon. Gentleman gave the example of a runway. We recognise the regional airport problem. There may also be a problem with regard to ports, which are major trading activities with major capital investment requirements. It is possible to deal with the matter by regulation under schedule 9. We are considering the matter.
For technical reasons I could not accept the amendment, but, in any case, I would not wish to write such a provision into the Bill. However, the right hon. Gentleman has raised a valid point, which we shall consider. We are discussing the matter to see how we can meet the point under regulation. I give no undertaking about the totality of the matter, because the amendment covers all sorts of different activities. However, we are considering regional airports, and a number of hon. Members are also concerned about ports.
1382 I was all ready to reply to the hon. Member for Stoke on Trent, Central (Mr. Cant). We could not get through the Report stage without hearing the authentic voice of Stoke. However, the hon. Gentleman said that he would not press his amendment. I could have threatened the hon. Gentleman much more effectively than my hon. Friend. His amendment is in the wrong place. It should be in clause 67. There was a mistaken reference to section 59(3)(b). It should be section 69(3)(b). The drafting of the hon. Gentleman's amendment leaves much to be desired. There are 14 lines, uninterrupted by so much as a semicolon.

§ Mr. Cant
On a point of order, Mr. Deputy Speaker. I had decided not to move my amendment, and therefore the Minister's comments are out of order.

§ Mr. King
I have some good news. I entirely agree with what the hon. Gentleman said about the efforts being made by many local authorities in the field of industrial activity and in helping towards employment. However, we do not feel that the hon. Gentleman's amendment is the best way to tackle the matter. Amendment No. 144 to clause 62 goes some way towards meeting his point. It allows a local authority to treat as a capital receipt the value of land sub-let. Therefore, where authorities are able to let the land, they will get the capital receipt. That is an immediate exemption under the capital provisions, and will give considerable help to local authorities. I hope that the hon. Gentleman feels that I have responded positively to his amendment.

§ Mr. Oakes
I am grateful to the Minister for what he said. Although I used the word "profits", I was seeking to establish that the trading undertaking should be treated separately from the other authority duties. It is a commercial undertaking, which may not necessarily involve profits. An authority may need to borrow to extend a runway.
The right hon. Gentleman mentioned airports. But I believe that telephone exchanges, such as in Hull, and transport undertakings are also important.
However, as the Minister says that he will look at the matter, and recognises that there is a problem, I beg to ask leave to withdraw the amendment.