RATE FUND REVENUE ACCOUNTS: FURTHER PROVISIONS

HC Deb 21 January 1987 vol 108 cc946-71

Mr. Allan Roberts

I beg to move amendment No. 33, in page 3, line 6, leave out second 'the' and insert 'any'.

The Second Deputy Chairman

With this it will be convenient to take the following amendments: No. 34, in page 3, line 6, after second 'practices', insert '(which may be practices which are alternatives to each other, which authorities may elect to use and which have been approved by an authority's auditors)'. No. 35, in page 3, line 6, leave out from second `practices' to end of line 10 and insert `to be observed in compiling accounts at the date the debit or credit is to be made.'. No. 36, in page 3, line 6, after 'practices', insert 'for the time being'.

No. 37, in page 3, line 7, leave out 'for the year beginning in 1986'. No. 38, in page 3, line 8, leave out from 'items' to 'in' in line 9.

No. 39, in page 3, line 9, leave out from 'accounts' to end of line 10.

Mr. Roberts

The title of clause 2 is Rate fund revenue accounts: further provisions"— an ominous title. The fact that the title is ominous leads one to inquire in some detail about the implications of the clause, especially in the light of the fact that its provisions follow those in the 13 pieces of local government legislation to deal with housing and local government finance which have been introduced by the Government since 1979. We have been promised a 14th only next week. The Government have still not got it right.

I want to know when reading Rate fund revenue accounts: further provisions", what those further provisions are. The history of legislation under this Government has been one of trying to impose central Government's will on democratically elected local government to force them to cut services and make people redundant and one of central Government taking powers to interfere even in the minute details of local government finance and the way in which local authorities organise their accounts and financial affairs. This clause is no exception. The amendments try to do something about that.

We are again considering "proper practices"—the new concept dreamed up by the Government to enable them to impose their will on the way in which local authorities keep their accounts. Not only the whole of local government, whether Conservative, Labour or alliance authorities, but professional people involved in local government finance—auditors and others—are worried about this.

The Government's stated purpose in clauses 1 to 3 is to change the method of calculating relevant and total expenditure for rate support grant purposes to bring the law into line with the practices followed since 1981. The Minister has again spelt that out. Transfers of cash from the rate fund revenue account to other accounts or special funds are classed as expenditure and transfers from such accounts back to the rate fund revenue account are classed as income.

However, clause 2(4) goes well beyond that purpose, just as every aspect of the Bill goes beyond the purposes that the Government claim for it. It gives the Secretary of State unfettered powers—once again—now and in the future to specify what will count as income and expenditure for rate fund revenue account purposes. The Government are taking unto themselves, outside Parliament's control, the power to specify what will count as income and expenditure for every local authority. As we heard in the previous debate, that includes giving the Secretary of State the power to look at the smallest type of account kept by local authorities as well as the rate fund revenue account.

One of the creative accountancy devices that local authorities have used commonly in recent years, rightly, to keep their expendiure above the level required by the Secretary of State while avoiding massive penalties—there is nothing wrong with that as long as it is within the law—has been the transfer of money to special accounts for use in special years. It is good housekeeping to save up this year so that one can spend the money next year. If a householder did that, the Prime Minister and the Minister would compliment him on being prudent and on thinking of the future, but if a local authority does that it will now be penalised. This subsection could be used to block off those devices, prevent local authorities saving for the future and could force authorities to impose massive rate rises, if they can, or, if they are rate-capped, to make cuts.

7.30 pm

The powers that are sought in the subsection go well beyond the stated intention of the Bill and the Government should come clean about the legislation and admit what they are doing. This is another piece in a long line of 12 pieces of legislation to control and to take more powers over local government. The powers are subject neither to parliamentary scrutiny nor to consultation with authorities. We were at least given those assurances by previous Secretaries of State for the Environment when they passed their rate-capping and other legislation.

The powers are left totally at large and it is not clear whether internal transfers of cash from account to account are caught by the procedures specified in clause 2(4). It is clear that transfers of cash from an external source to the rate fund revenue account are caught in that way, if the Secretary of State says they are.

The legislation does not just validate what has happened in the past. It alters the way in which things happened because it gives the Secretary of State power to alter the practices of the past and to prevent local authorities from taking advantage, as they have been able to in the past, of those transfers, which were legal, and had been validated, but which will now be made illegal if the Secretary of State so determines, not if Parliament so determines. On Second Reading, the Under-Secretary of State for Scotland hinted that some internal transfers "may be caught". However, it appears that all internal transfers will be caught, if the Secretary of State so deems.

Income from external sources to the rate fund revenue account often emanates from sources that may be treated, in professional accountancy terms, as capital or revenue. There are a number of different professional practices on that issue. The power that the Secretary of State is taking under clause 2(4) holds out the possibility of him making unlawful only a certain number of the professional practices that are currently used. That is bad legislation, because it is unclear from the Bill what use the Minister will make of those sweeping powers. By ministerial diktat, many local authorities could be deprived of many millions of pounds of revenue income. If the Secretary of State has total discretion, and if past performance is anything to go on, he will deprive Labour local authorities of millions of pounds of income and turn a blind eye to Conservative local authorities, or even to some hung councils and Labour local authorities in areas in which some of his hon. Friends have marginal seats. The Minister should give clear assurances as to how that power will be used.

Amendments Nos. 33, 36, 38 and 39 deal with the new concept of "proper practices", which will be used to enable Ministers to interfere in even more detail with local authority financial activities. The amendments seek to restore some discretion to local authorities. Any true believer in local government and in the need for people to be able to alter the nature of and the way in which their local authority is run by voting in a local election should support the amendments. We are restoring discretion to local authorities in relation to accounting practices which are heavily circumscribed by clause 2(3). That subsection fails to give a fair definition of "proper practices".

My hon. Friends and I have asked the Minister four or five times, in Committee and on Second Reading, to define the words "proper practices". We still have not received that definition. The subsection still fails to give a clear definition, although it seeks to describe those practices as being applicable to the entry of the sort of income and expenditure that the Bill requires to be charged against a rate fund revenue account. What on earth does that mean? The Government should clarify the meaning of those practices, and our amendments give the Government that opportunity.

The amendments would also broaden the definition to cover any practices applicable for the time being for the entry of items of account into such a fund. In other words, local authorities would be allowed to continue acting, in the same way as in the past, which has been legal and proper, and which internal and external auditors have already validated. That would give local authority treasurers some opportunity to exercise professional judgment in the application of accounting practices in areas that are covered by the Bill.

Amendment No. 37 is significant because it would remove the retrospective element from the definition of "proper practices". Retrospective provisions and retrospective legislation are, all other things being equal, bad legislation. If the legislation validated the previous custom and practice as legal—as everyone believed—and merely corrected that, as my hon. Friends and I have said earlier, there would not be a problem. However, it does not. The retrospective elements concerning the definition of "proper practices" introduces an entirely new concept.

At present, clause 2(3) applies the rather vague definition of the practices as being for the year beginning in 1986"— or, in other words the financial year 1986–87. Amendment No. 37 would remove those words, with the result that the definition of requirements flowing from it would take effect from the date of Royal Assent. Therefore, the retrospective nature of the legislation would be removed, without any detriment to local or central Government.

We do not see any reason why there should be retrospection when it is not necessary, or even why it should be applied at all. It is not designed to prevent the retrospective validation in law of what has happened, nor does it alter the difficulties that central and local government now face in paying out rate support grant if the Bill becomes an Act. On the contrary, it seeks to further certainty in local government finance by preventing the retrospective application of proper practices. The authority requirements of clause 1 are intended to take effect from 1987–88 onwards. The Government should explain why those proper practices should take effect from 1986–87 when there is no need for the entirely new concept that has nothing to do with validating what has previously happened.

Opposition Members, and, I am sure, some Conservative Back Benchers, are amazed at the nature of the legislation and at the outrageous statements that Ministers are making to justify it. Ministers have staggered from one disaster to another. Unless they take on board the intent of our amendments and accept some of the constructive points made by Opposition Members, and if the legislation reaches the statute book without serious amendment, Ministers will be setting themselves up for another series of disasters and will be in the same difficulties in future as they are now.

As I have said, that all goes to prove that central Government cannot run the affairs of local government as well as the locally elected councillors and their chief and other officers.

Mr. Meadowcroft

I shall concentrate briefly on two amendments in this group. I agree entirely with the hon. Member for Bootle (Mr. Roberts) that amendment No. 37 contains no requirement whatever for retrospection. The subsection concentrates on the issue of proper practices, which seems to be an obsession with the Government. As there is no requirement for the validation of the £70 billion of local government expenditure to have retrospection in relation to proper practice, I accept the terms of amendment No. 37.

One issue that has been hardly touched on by hon. Members either on Monday or today is that the profession of the auditor appears to be called into question by the way in which the Government have presented the legislation. In that context, amendment No. 34 is extremely important. I have a high regard for the internal audit of local government. In my time in local government, I have known many auditors employed by the local authority who exercised their authority to point out bad practices and to ensure that they were rectified without fear or favour from departments within the local authority.

The provision also demeans the practice of external auditors. It does not matter whether they are professional or district auditors: the fact is that the external audit of local government is held in high regard and should not be diminished by the Government's proposals.

The way in which the Government take powers to themselves says to auditors, "We do not trust you and we alone will be the arbiters of what is proper practice; we will set the one route down which you must go." It is saying to the external auditors, "We do no even accept your high standards."

As I said in an earlier debate, the distinction between what is legitimate accounting, which seems to make the cost advantageous use of local authority resources, and what I would regard as improper practice, is whether a course of action can be sustained within the policies of the Government of the day. If it cannot and it has to be rescued by some future Government, then I would regard it as improper. The interesting thing is that case after case that has fallen into the latter category has been picked up by external audit. It is not something that has been hidden. It has been pointed out, and some cases have gone to the courts. The report to which the hon. Member for Lancashire, West (Mr. Hind) referred, however badly or incorrectly, has come into the public eye. It was not hidden.

The present practices and methods of audit have all served to expose that which ought to be exposed. There is no necessity for the proposals on proper practice in clause 2. That is why amendment No. 34 is important. It accepts the professional standards of the auditors and says that there can be alternative practices, as long as they are approved by the auditors. That is where the responsibility properly lies. It should not lie prescriptively with the Government to say that there is one narrow road down which we must go and that there is no diversion from it. Therefore, the important aspects of this group of amendments are that they remove retrospection, which is not necessary, and trust the powers and professional standards of the auditors.

Mr. Pike

These amendments are important. They seek to bring the position as close as possible to that which we understood to be in existence prior to the legislation being introduced. The way in which the clause is worded could lead to a retrograde step. It challenges not only the political judgment of local authorities, of whatever party, but the professional judgment of officers, whether the chief executive officer, the borough treasurer, the internal audit system or, as the hon. Member for Leeds, West (Mr, Meadowcroft) pointed out, even the external audit system. It is left solely to the Government to decide what they determine to be "proper practices". I wonder why we should believe that the Government are the only people who have the ability to determine what is proper practice. It is the wrong direction in which to be moving.

7.45 pm

The phrase "proper practice" appears in the clause on several occasions. It is very vague and does not say what the Government mean. However, we know that the Government are trying to prevent what they see as creative accountancy. However, creative accountancy has come into being only because of the actions of the Government and the way in which they have dealt with local government in recent years. I have been connected with local government for many years in one way or another. Ten years ago the phrase "creative accounting" had not even been heard of. I am sure that many people who served on local councils never got to know what the phrase meant.

I have always accepted that, at the end of the day, the Government have the right to determine how much money they are prepared to give to local government. I believe that the House and local government have the right to argue about whether that amount is sufficient to meet the needs of local areas. I believe that the Government have gone wrong by failing to make sufficient money available. I accept, although I do not like it, that they have the right to determine that figure. However, they have tried to deprive councils of the freedom to raise locally what people are prepared to pay in additional income to the council to enable it to provide the services that are required.

I believe that when councils provide the necessary services they are looking responsibly at the needs and requirements of the communities they represent, whether that be domestic ratepayers, industry or commerce. All councils know that if their areas are to survive they must maintain industry and commerce. No council puts up rates deliberately to punish industry or anybody else. Domestic ratepayers have a direct say in whether they are satisfied that the council is doing its job correctly and meeting the needs of the community.

As councillors we found it difficult every year. We knew what we wanted and needed to do to meet the needs of the community, but that had to be balanced by what we could do and by what we could ask the ratepayers to pay. If the clause is not amended it will limit the power of councils to try to get the best possible deal for the people they represent. It is the duty of councillors, from whichever party, to do their best for the people in their communities. That is not only the responsibility of the councillors, but it is the task of the officers. As long as councils work within the law and are acting in the interests of the community I believe that they will be using "proper practices" to protect the interests of those they represent.

While I was the leader of the council I had to take the chairmanship of the local authority finance committee for a year because the chairman of finance became the mayor of the borough. We set up a fund to finance a project to convert an existing listed building next to the town hall into an arts centre and theatre. That opened last year. The officers said to the leaders of the council that if we put a certain amount into a special fund we would incur penalities because we would spend more than the Government would permit. However, they said that we would receive grant at a higher level then the penalties. Therefore, we decided to put money into the fund because that was in the best interests of the people we represented. I am sure that the Minister will say that we were wrong to do that. However, I would argue that we were acting in the best interest of the community by putting the money to one side, benefiting the ratepayers in future years by the equivalent of a penny rate.

If the clause stands in its present form, I am sure that the Government will be able to decide that what we did was not proper practice and that it would be outside the provisions of this legislation. That is just one example. I could give many others, but I do not intend to do so because we wish to make progress.

If the Government are not prepared to accept one or more of the amendments and to try to move in the direction that we seek, it will be yet another blow to local government, another restriction, another limitation on the ability of local authorities to meet the requirements of the people whom they represent. At the end of the day, it is local government that knows what is best for the people in the area. Before 1979, the Government said that they would give freedom to local government, which has been referred to many times in earlier debates. Everything that the Government have done has been in the opposite direction.

We believe that local authorities should have more powers and the ability to finance what they do, although I accept that, while we may argue strongly about the figure that the Government say they are prepared to put in, the Government have the right to determine exactly what they wish to pay. The clause should not remain as drafted. It was unnecessary for the Government to draft it in that way to deal with the problem that has arisen as a result of their own legislation. The Government are wrong, yet once again they are striking a blow at local government.

Mr. Clelland

It is not only unreasonable and unfair but unnecessary for the Government to impose these further restrictions on local authorities. After all, in their accounting practices and finances, local authorities are more open than any other organisation, probably including even central Government. Local government accounts can be scrutinised by electors and auditors. They are run in a professional manner by the treasurers and finance officers who are responsible for them. Therefore, one must ask why the Government feel it necessary to introduce the concept of "proper practices" into rate support grant law.

We know that "proper practices" are already exercised by the auditor, or at least he has to see that the authority has observed proper practices in compiling its accounts, but apparently the Government now wish to apply the concept also to rate support grant law. It is not as if that was the only thing that the Government were doing. Apart from imposing the concept of proper practices in the clause, they intend to provide the Secretary of State with yet more power to specify expenditure or income that is to be regarded as of a revenue nature. Thus there is a double-pronged attack on local authorities. The Opposition think that that is unnecessary. The Minister should explain the necessity for the provision, if the Government feel that it is necessary.

A full explanation would be appreciated, particularly in the light of the Government's record of explaining their decisions. The Minister will recall that I have had considerable correspondence with the Department about the reason why Newcastle city council was refused disregards. I appreciate the reply that I received yesterday to a letter that I wrote to the Department in October last year. The reply has taken a long time to come to me; it arrived yesterday and tells me no more than what the Minister's predecessor told me, which is that the Minister will not tell me anything. If that is the practice that will be adopted, not only will local government have to observe proper practices that are not defined, but it may not even be given an explanation of why it is in breach of proper practices that were not defined in the first place, after the Minister imposed them. That is the ridiculous maze that local government finance is entering.

I support the amendment. I hope that, in his reply, the Minister will explain to the House a little more fully exactly what the proper practices are intended to be.

Mr. Tony Banks

I wish to speak to the various amendments on proper practices. I should like, first, however, to take the opportunity to correct something said by the hon. Member for Lancashire, West (Mr. Hind) when he spoke in the clause stand part debate. It relates to the financial practices of local authorities. He said that the Audit Commission chief, John Banham, had suggested that Labour local authorities in London were heading towards bankruptcy. In justification of that accusation, he quoted a story in an edition of the London Evening Standard in December. He could have gone on to quote a story that appeared on Sunday in the Sunday Telegraph, a newspaper that I have been keeping about my person since the debate started, drawing some comments from the Minister for doing so.

We must get the record absolutely straight. The stories that have appeared in the Tory newpapers such as the London Evening Standard and the Sunday Telegraph bear little relation to what John Banham actually said. We know that the stories are all part of the generalised Tory onslaught on Labour local authorities. In particular, inner London Labour-controlled authorities have found themselves virtually sinking below the financial waters because of Government policies, loss of rate support grant and so on—all the things that we keep discussing in the House. In various ways they have tried to mitigate the impact of Government policies, and in doing so have become involved in several accounting practices that the Government now wish to proscribe.

It must be said that none of the things that local authorities have done in creative accounting have been declared illegal. That is the important point. It is the Secretary of State's practices that have been effectively declared unlawful or illegal, hence the need for the Bill. Before one starts throwing accusations around about the special accounting practices of Labour-controlled authorities, one should bear it in mind that at no stage has anyone been able to say that those are illegal practices.

Following the story that appeared in the London Evening Standard, councillor Margaret Hodge, who chairs the Association of London Authorities, wrote to John Banham and asked him for his comments. The hon. Member for Lancashire, West used the comments in the London Evening Standard as a rerun of his speech on Second Reading and of that which he delivered on the First day of the Committee stage. He has only one speech, and I suspect that we shall hear it time and again before we reach the end of the Bill.

Mr. Martin M. Brandon-Bravo (Nottingham, South)

The hon. Gentleman has only one speech.

Mr. Banks

My speeches vary.

Mr. Brandon-Bravo

Only marginally.

Mr. Banks

My speeches vary in content and pitch, and in the general level of boredom, hysteria, humour, intelligence or whatever, so at least I can say that I vary the pace somewhat. But the hon. Member for Lancashire, West has a line and he sticks to it. He ain't ever going to give way to anyone. He is deliberate in his policy. Obviously, he pursues a policy of cerebral hygiene. He does not want to be given information, so he ploughs on. I am prepared to give way to any Conservative Member who wishes to intervene.

I return to the article that the hon. Member for Lancashire, West quoted from the London Evening Standard and the comments ascribed to John Banharn, the chief of the Audit Commission. Mr. Banham described the report as "inaccurate", and said: My paper made it clear that the commission was not in favour of privatisation as a universal prescription. At no time did I suggest that there was any possibility of local authorities in London or anywhere else becoming technically bankrupt. Indeed I made the point explicitly that borrowing ratios in local government were relatively modest by private sector standards. That is what John Banham said in response to the stories that appeared in the London Evening Standard. Some hon. Members might have heard the erudite speech by my hon. Friend the Member for Vauxhall, who probably has a far greater grasp of economics than anybody else in the House. He made precisely the same point. The Secretary of State laughs. He is not the person to go around bragging about his economic prowess. I suggest that if he wants to challenge my hon. Friend the Member for Vauxhall to a debate about economics, he will get the whipping of his life.

8 pm

Mr. Meadowcroft

The hon. Gentleman rightly referred to what Mr. Banham said and the correction that he made. The hon. Gentleman is also aware that I am no lover of the line purveyed in this Chamber regularly by the hon. Member for Lancashire, West (Mr. Hind). Does he accept that Councillor Mrs. Hodge has also written a long article in the current edition of New Socialist in which she refers explicitly to the accounting practices of Islington and makes the point very straightforwardly that unless a future Labour Government were to do something retrospectively about money, the so-called dented shield that she and her colleagues in the Labour party have been urged to hold up would be unable to survive? The accounting practices in Islington have fallen on the wrong side of the division to which I referred earlier and cannot be sustained within the philosophy of the Government of the day. To my mind, therefore, they are improper.

Mr. Banks

The hon. Gentleman is correct in part. Local authorities that have attempted to defend jobs and services—they are probably the most hard-pressed local authorities in the country—have been caught up in a major problem. In attempting to defend jobs and services they have involved themselves in financial accounting practices that would be difficult to sustain if there were another Conservative Government.

Labour local authorities, in particular Labour local authorities in London, are doing certain things upon the assumption that there will be another Labour Government. I do not believe that the structure of local authority finance can survive another Conservative Government. Those local authorities have taken a risk. It is a high risk strategy, but it is justifiable in terms of what they are seeking to do. I am very honest and straightforward about what is going on in local authorities in London, and their high risk strategy requires a Labour Government. If we do not have another Labour Government, local authority finance will be destroyed. It will be the Government's baby.

I have suggested that we should say to the Government, "It is impossible for us financially to manage this local authority; the Government must now take over the running of the local authority so that the people in the area will see who is truly responsible for the impact on the services within the area." One of the problems that the dented shield philosophy poses for Labour authorities is that they are blamed by the local electorate for the decline in the standard of services, although the blame should be laid firmly at the Government's door.

Mr. Ridley

Is the hon. Gentleman aware that his hon. Friend the Member for Copeland (Dr. Cunningham) and the leadership of the party to which he belongs have made it clear that they will not bail out the Labour authorities? It is indeed an extremely high risk strategy. If it is not right for the Labour party to bail out these authorities, why does the hon. Gentleman suggest that the Conservatives should bail them out? If all parties—including, I believe, the party of the hon. Member for Leeds, West (Mr. Meadowcroft)—are of this opinion, the risk is so high that it must have been absurdly reckless to undertake it.

Mr. Banks

No, I do not agree. It does not greatly surprise me that my views and those of my hon. Friend on the Opposition Front Bench are different. I am not aspiring to high office. Therefore, I can preserve the degree of personal candour that perhaps cannot be retained by others—[HON. MEMBERS: "Oh."] I make that point in a friendly and amicable fashion, but I can stand up and speak my mind in this place without fear or favour.

It is not a question of bailing out the local authorities. I understand that a Labour Government will restore the relationship between centrally funded services and locally funded services. They will return the rate support grant to the point where it bears some relationship to the position that existed before 1979. That would solve the majority of the financial problems that are now faced by Labour local authorities.

It goes much further than that. Labour local authorities are not involved merely in trying to get round this or that specific Act in terms of their accounting practices. They also have to deal with the impact on their local communities of central Government policies across the whole spectrum. For example, the Government's economic policies have a major national impact on unemployment.

The Chairman of Ways and Means (Mr. Harold Walker)

Order. The clause relates to accountancy methods, not to how the money is counted. We are now talking about the amount of money and how it is distributed. We ought to return to the clause.

Mr. Ridley

The hon. Member for Newham, North-West (Mr. Banks) is now suggesting that a future Labour Government would restore rate support grant to the 64 or 65 per cent. level of 1979.

Mr. Banks

It was 61 per cent.

Mr. Ridley

Very well, 61 per cent. I could not remember the exact fgure. I wonder whether the Opposition Front Bench would confirm that suggestion. It is important that the local authorities should be aware of precisely what the position is.

The Chairman

Order. Important though it may be, I do not think that its importance is related to the substance of the clause that is before the Committee. I hope that we shall return to accountancy.

Mr. Banks

Indeed, Mr. Walker. I am exploring the areas of broader concern and interest in order to explain why local authorities have become involved in special accounting practices. I take your point that that relates to counting the money. However, one needs to know how much money one has before one starts to allocate it. Local authorities find that they do not get the same sort of money as they used to get from central Government. I am as interested in the reply to that question as is the Secretary of State: whether the next Labour Government will be taking rate support grant, in terms of central Government contribution, back to the percentages that were achieved during the period of the last Labour Government. I shall willingly give way to my hon. Friend the Member for Blackburn (Mr. Straw) if he wishes to confirm the point.

I rose merely to correct a very misleading newspaper story that was quoted by the hon. Member for Lancashire, West. I am afraid that it will be necessary on a regular basis to correct the distortions of Conservative Members about the policies and the financial practices of Labour local authorities. They are staying within the law. That is why the law keeps being changed. If the local authorities were acting unlawfully, the district auditor would be able to move in on them, the ratepayers would be able to take them to court and they could be accused of not fulfilling their fiduciary duties in respect of rate-borne expenditure. None of that has happened. It is the Secretary of State, not Labour local authorities, who is in the dock. Therefore, it is absolutely misleading and incorrect for Conservative Members to start pointing the finger at Labour local authorities when the real lawbreakers, the real recidivists, are sitting on their own Front Bench tonight.

The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope)

We have had two debates on this group of amendments. The latter debate, initiated by the hon. Member for Newham, North-West (Mr. Banks), gave us a fascinating and candid insight into the debate taking place in the Labour party about the extent to which inner London councils run by that party are already bankrupt or about to become bankrupt, and about the extent to which any future Labour Government would be prepared to bail out those councils. We have also heard about the philosophy of the dented shield. The hon. Member for Blackburn (Mr. Straw) ought to reply to that debate and I hope that in due course he will have an opportunity to explain where he stands on the important issues raised by the hon. Member for Newham, North-West.

Probably much less interesting to hon. Members but nevertheless important for people outside who are trying to follow the proceedings on this Bill has been the main debate on this group of amendments which was initiated by the hon. Member for Bootle (Mr. Roberts). I noted that most of his remarks were addressed to clause 2(4) which is the subject matter not of this group of amendments but of the next group. For that reason I hope that he will forgive me for not replying in detail to the points that he made. He said that clause 2 was ominous. It is ominous only to someone who does not understand it. With the indulgence of the Committee, I shall read some quite lengthy notes on what clause 2 is all about.

These amendments relate to the rate revenue account, and it may assist the Committee if before dealing with the detail of the amendments I explain the general approach that we are adopting in the Bill to the rate fund revenue account.

Clauses 1 and 2 of the Bill set up in statute the rate fund revenue account for the purposes of the new statutory definition of relevant and total expenditure which is in keeping with the current approach that in practice we have adopted for relevant and total expenditure. Although not required to do so by statute, local authorities have in general kept an account of their main revenue transactions—an account which has often been known as the rate fund revenue account. Current practice on relevant and total expenditure, as distinct from the statutory provisions in the Local Government, Planning and Land Act 1980, has been to calculate relevant and total expenditure by reference to these traditional rate fund revenue accounts, Therefore, the provisions in the Bill, which are designed to maintain the status quo on relevant and total expenditure, introduce into statute the concept of the rate fund revenue account.

I must stress that this concept is introduced solely for the purposes of providing a statutory definition of relevant and total expendiure. It is not an attempt to control local authority spending, nor is it an attempt to regulate local authority accounting. As mentioned in earlier debates in Committee, my right hon. Friend already has powers under section 23 of the Local Government Finance Act 1982 to make regulations about such matters as the form of accounts and statements of accounts. I remind the Committee that my hon. Friend the Minister for the Environment, Countryside and Planning, when he was Minister for Local Government, announced on 28 February 1986 that we had decided not to make new regulations on local authority accounts, but to invite the local authority associations in conjunction with the Audit Commission and accountancy bodies to set up their own arrangement for dealing with accounts. This remains the Government's position, and I am pleased to tell the Committee that the Chartered Institute of Public Finance and Accountancy together with officers of the Audit Commission have now prepared a draft code of practice on local authority accounts on which they are currently seeking comments from local government and other interested parties.

The provisions of the Bill are designed so that the statutory rate fund revenue account which authorities will be required to keep for 1987–88 and subsequent years will be very similar, if not the same, as the traditional non-statutory rate fund revenue accounts which authorities have in general been keeping. The starting point is that in clause 1 the rate fund revenue account is identified as the account to which all revenue expenditure and income must be debited or credited—with the exception of that revenue expenditure or income which is properly debited or credited to certain other accounts. The revenue expenditure and income to be excluded is not simply that which is properly debited or credited to any other account kept by the authority, since expenditure and income included in memorandum accounts—such as the account for section 137 expenditure—should also be included in the rate fund revenue account. This is the way the non-statutory rate fund revenue account has traditionally been kept. The main accounts, the expenditure and income of which are to be excluded from the rate fund revenue account, are specified in schedule 1. The power for my right hon. Friend to make specifications under clause 1(6)(b) will enable us to cope with any other such accounts, including any such accounts established by local Acts.

8.15 pm

In addition to revenue expenditure and income, other items of account can be included in the rate fund revenue account, such as contributions to special funds or certain capital expenditure, where this conforms to proper accounting practices. Clause 2 provides that these practices are any practices drawn from the practices applicable to the traditional non-statutory rate fund revenue accounts in 1986–87, but taking into account variations in practice occurring from time to time. I should say something about proper practices. Local authorities prepare their accounts according to proper practices and a local authority's auditor is required to satisfy himself under the Local Government Finance Act 1982 that proper practices have been observed in the compilation of the accounts. These practices are not set out in statute, and accountants and auditors—in particular the professional accountancy institutes—have developed, and continue to develop, accounting practices which are considered proper for local authority accounts. The Bill does not specify precisely what the proper practices are. As I have already made clear, it is not our intention to interfere with local authority accounting. Clause 2 of the Bill provides that the practices to be applied to the statutory rate fund revenue accounts are those applicable in 1986–87 to traditional non-statutory rate fund revenue accounts, but will take account of variations of practice occurring from time to time.

Mr. Meadowcroft

Has the Minister seen the draft code prepared by CIPFA? It looks at the points that we have been debating about the difference between reserving money and providing for committed expenditure. The Minister talks about things being included in the rate fund account and ordinary practice, but they are already contained in the code. I am baffled as to why he has to go through this great rigmarole when what has been proposed and sent out for consultation covers the points that he is making.

Mr. Chope

I shall come to the point about why it is necessary to set out in this clause the relationship with proper practices. I have not read the detail of the substantial volume that has been produced as a code of proper accounting practice. If in this clause the Government were defining one sort of proper practice and saying that no local authority could adopt any other practice, perhaps even one which had hitherto been regarded as proper, then local government would have cause for complaint.

In order to emphasise that the status quo has been maintained we say that anything which has been proper accounting practice can be taken into account. We say that when the authority compiles its rate fund revenue account for 1987–88 it can select such practices as it considers appropriate from the body of practices that were applicable in 1986–87. That is why amendments Nos. 33 and 34 are unnecessary. I ask the Committee to reject them.

Allegations were made that amendments Nos. 35 to 39 were sinister because they were retrospective. I hope that I can demonstrate to the Committee that the only way in which they are retrospective is that they refer back to proper accounting practices being used at present. If we do not refer back to those practices it is hard to know what they are when we talk about defining them in the Bill.

Amendments Nos. 35 to 39 seek to remove any connection between the practices to be used for compiling statutory rate fund revenue accounts with the practices applicable in 1986–87 to non-statutory rate fund revenue accounts. The result of that would be that the practices to be used for compiling the new statutory rate fund revenue accounts would merely be practices properly applied to that new account.

As the statutory account is a new entity, no one would know what these practices are. The point that the Opposition have made is that by the issue of these accounts we are creating a situation whereby local authorities will not know where they stand. If the amendments proposed by the Opposition were to be passed, local authorities would indeed be able to complain that they were in the dark, because no one would know what the practices were.

If the statute is to provide for the new rate fund revenue account to be like the traditional rate fund revenue account, we must refer to the practices that apply to that traditional account. This is best done by referring to the practices that are applicable to the traditional non-statutory accounts kept for 1986–87, which is the last year before authorities are required to keep the new statutory accounts, and take account of variations in practices occurring from time to time.

This is a complicated subject, but it has been made more complicated by the failure of Opposition Members to understand what it is about, and their attempts to raise the spectre that this is introducing something sinister. This clause is designed to help local authorities prepare for the new definition set out in this Bill, and I hope that the Committee will reject the amendments.

Mr. Allan Roberts

What a tangled web we weave. The purpose of this complicated legislation, in the words of the Minister, is to enable local authorities to know where they stand. The Minister's explanation was about as lucid and illuminating as the clause itself. If, after reading it in Hansard and studying the clause, local authorities know where they stand I shall be amazed.

In this clause, the Secretary of State is taking powers unnecessarily to legislate retrospectively. As he is to interfere in the day-to-day detail of local authority accounts this complicated plethora of measures is needed to hedge everything about, to make this or that account clear, to put in to legislation, so that the Government can validate their own mistakes, what local authorities do now anyway. The clause and speech of the Minister are hallmarks of the Government's approach to local government. All of this is needed because the Government have decided that they can run local government better than the people who know their own communities and who are accountable to their own electorate.

We shall not push these amendments to the vote. The Minister has attempted to some extent to explain what the Government mean by proper practices. He has said that local government is carrying out proper practices. If that is so, why do we need this legislation? We need this detailed, interfering legislation because the Government want to control the details of local government and interfere. I honestly believed, when some Conservatives said that they did not believe in bureaucracy, that they meant it, but I am beginning to doubt that.

Amendment negatived.

Mr. Straw

I beg to move amendment No. 40, in page 3, line 11, after 'any', insert 'initial or intermediate'.

The Chairman of Ways and Means

With this it will be convenient to take the following amendments: No. 41, in page 3, line 11, after 'year', insert 'commencing not less than twelve months after the date of specification.'. No. 42, in page 3, line 11, leave out subsection (4) and insert— '(4) The Secretary of State may specify in respect of any initial or intermediate year, kinds of expenditure or income from an internal source which are to be regarded as of a revenue nature for the purpose of debiting or crediting items of account to a rate fund revenue account.'. No. 43, in page 3, line 11, leave out subsection (4).

No. 45, in page 3, line 12, leave out 'are to' and insert `in his view should'.

No. 47, in page 3, line 14, at end insert 'and a local authority shall have regard to any specification made under this subsection in determining whether or not to debit or credit items of account to its rate fund revenue account'. No. 49, in page 3, line 14, at end insert 'but any such specification shall not override any decision by a local authority as to any expenditure or income regarded by it as of a revenue nature for such purpose where that decision is in accordance with the practices mentioned in subsection (3) above.'. No. 50, in page 3, line 14, at end insert 'and any authority shall have regard to any such advice from the Secretary of State in determining the form in which to maintain its account'. No. 53, in page 3, leave out line 16.

No. 56, in clause 3, page 3, line 46, at end insert 'commencing not less than twelve months after the date of specification'. No. 73, in page 4, line 14, at end insert 'commencing not less than twelve months after the date of specification.'. New clause 6—Consultations— 'No specification under section 2 above shall be made before the Chartered Institute of Public Finance and Accountancy and the local authority associations are consulted.'.

Mr. Straw

These amendments relate to the powers of the Secretary of State to specify income and expenditure items. The amendments seek to circumscribe the power given to the Secretary of State in clause 2(4) to specify the kinds of income or expenditure that are to be regarded as revenue for the purposes of the rate fund revenue account. Some authorities fear that that power may lead the Secretary of State to take measures by use of the specifications to restrict special accountancy techniques to maintain spending levels.

Ministers have come to Parliament over the last couple of years and given notice that they consider that a particular arrangement should no longer apply. I recollect that that was the case with section 7 of the Rate Support Grants Act last year. As I recall—I stand to be corrected—we did not object to that clause. Do the Government intend—the Minister can inform us when he replies—to deal with special or creative accountancy techniques? I hope that the Minister will make that clear, because, while he may take exception to some of those techniques, they have been accepted by auditors and the district auditor as legitimate in the past, and it is important that authorities should understand their position.

The problems of local authority accounting techniques have changed in the last seven years. They have changed out of all recognition, not just because of the cuts in the absolute level of rate support grant from 61 per cent. to 47 per cent., but because of the impact of target and penalty and the penalty-related block grant that authorities receive.

Once they spend over a certain level they get less rather than more. That has meant that what is brought into account on the revenue side in any given year is of far more critical importance to its revenue than it ever was in the past, when the amount of grant that they received was only broadly related to their expenditure, as was the system before 1980. Marginal changes in given revenue expenditure did not produce the dramatic differences in income through block grant that the system now produces. I hope that the Minister takes that point on board. It is the introduction of these penalty systems—not just the changes of absolute income—that has led authorities to search for other devices to transfer revenue expenditure into forms of capital expenditure.

Amendment No. 41 would impose a 12-month period on any specification issued by the Secretary of State. That is to enable local authorities to have some warning of the terms of any changes in the rules—a point that I have just referred to. It is important that authorities are given breathing space and given notice of the effect that new technical accounting specifications may have on their levels of real income, and therefore expenditure.

Amendments Nos. 45 and 49 would remove the mandatory nature of a specification by the Secretary of State, and in its place he would be entitled to issue advice, which local authorities would have a duty to regard. The Minister will recall that when he was a humble Back-Bencher during the course of proceedings on the Local Government Bill in 1985 there was a lengthy debate—I think it was that Bill and not one of the other endless pieces of local government legislation to which it has been my lot to devote the last four years—[Interruption.]

Mr. Tony Banks

My hon. Friend has done very well.

Mr. Straw

I wish to place on record, for the avoidance of any doubt, that my hon. Friend the Member for Newham, West (Mr. Banks) says that I have done well. I take the compliment in the manner in which it was intended.

We have had many discussions about the nature of a "have regard" duty upon authorities. It is not a light duty. It may not be mandatory, but if anybody ignores a duty to have regard to some requirement in the law, that is actionable. An obvious case is the "Highway Code", to which every driver must have regard, and the code which will be provided at some stage under the Local Government Act 1985.

8.30 pm

A "have regard" duty under amendments Nos. 45 and 49 would not make the Bill unenforceable, but would provide some flexibility so that authorities would have regard to what the Secretary of State was asking, but they would, at the margins, be allowed some freedom of choice in allocating, for example, financial transactions between capital and revenue spending. However, if they went beyond that margin, their decision could be challenged by the auditors and ultimately in the courts.

The hon. Member for Leeds, West (Mr. Meadowcroft) has tabled amendment No. 48, but that has not been called so I shall deal with the other amendments. Amendment No. 49 would provide an opportunity for councils to resist a specification. Councils would not be obliged to regard a specification as overriding where their previous decision on whether an item of expenditure or income was revenue was in accordance with the proper practices as defined in the Bill.

Amendment No. 50 would preserve Ministers' opportunities to make specifications, but would only require a local authority to have regard to any specification in determining what to count against its rate fund revenue account.

New clause 6, to which the hon. Member for Leeds, West will no doubt address himself, is designed to provide for consultation with the Chartered Institute of Public Finance and Accountancy and local authorities. He will no doubt also wish to speak on amendment No. 73.

To return to the point that I made at the outset, all of us wish to see local authority accounts, as with company accounts or any other institution's accounts, in proper order. There is a clear distinction between some capital expenditure and some revenue expenditure. A major housing scheme is plainly capital expenditure. Refuse services are plainly a revenue expenditure. However, many items of expenditure do not have a clear dividing line. For example, at what point does a repair to a property become a major repair which enhances the capital value of a property and could reasonably be regarded as capital expenditure? There are many other areas in which there should be some flexibility.

There is also the matter of into what year certain expenditure should be put. Again, local authorities should be allowed some discretion in that matter, just, as the Minister will know, people who pay tax under schedule D are allowed some discretion, particularly on the opening and closing of a business, as to which year income should be brought into account.

We seek to improve and to introduce greater flexibility into the scheme proposed in clause 2.

Mr. Meadowcroft

I want—as my warm-up man, the hon. Member for Blackburn (Mr. Straw), said earlier— to comment on amendments Nos. 56 and 73, in my name and the names of my hon. Friends, and new clause 6 on consultation.

The first two amendments deal with timing. Those of us who are worried about local government structure and methods of working are anxious to protect the integrity of local government and to assist it to make the changes which will be forced on it by the Bill. I am surprised that the Minister, who has had a long career in local government, is not prepared to accept the need to move slowly from one system to another. There is no way in which it is possible for local authorities suddenly to switch course in midstream and to change their accounting practices—to change the way in which they organise their rate fund revenue accounts. There is no way that they can accommodate such matters simply by diktat overnight. It is arrogant of the Government to say that they do not care about that and will simply order that it be done.

Our amendments, like some of those moved by the hon. Member for Blackburn, seek to say that, if the Government are to force this measure on local government, at least they should give some breathing space during which time local government can organise its accounting practices to cope with the pressures created by the Government. If adequate time is not given to local authorities to make such changes, there are likely to be problems within local authorities, not caused by some malevolent view from within local authorities, but caused by the pressures put on them to make the changes too hastily. We are talking about bodies which spend vast sums of money and employ large numbers of people. Therefore, it is important to make sure that they can carry out such changes in their practices and that due regard is taken of the time it will take.

New clause 6 on consultations is straightforward. The Bill, as now drafted, has consultation with local authority associations written into it. The new clause seeks only to put into a particular part of the Bill, and also to include in the consultation written into the Bill, the Chartered Institute of Public Finance and Accountancy. I think that there is a misspelling but that is of no crucial importance. It seeks to put CIPFA into that process as a body specifically engaged in accountancy and the practice of accountancy within local authorities. If we do not recognise the status of the profession, we do a disservice to the whole practice of local government. Therefore, it is our wish to write into the Bill the principle of consultation with local authority associations at that point, together with CIPFA. I hope that the Minister, with his experience of local government, will accept the new clause.

Mr. Chope

Amendments Nos. 40 to 43, 45, 47, 49, 50, 53 and 56 all relate to clause 2(4). They all seek to modify or delete the provisions in the Bill relating to my right hon. Friend's powers to make specifications that certain kinds of expenditure and income are to be regarded as of a revenue nature and hence are to be included in the rate fund revenue account unless they should be included in accounts referred to in schedule 1 or specified under clause 1(6). I recommend that all the amendments should be rejected and it may assist the Committee if I explain the background to clause 2(4).

The purpose of these powers is to enable my right hon. Friend to specify that some item of expenditure or income is of a revenue nature where there may be some doubt. For example, all rate income is normally credited to the rate fund revenue accounts which authorities traditionally have kept. We might wish to see that practice continued even though it might be argued that that part of rate income used to pay for capital expenditure is not of a revenue nature. In those circumstances, a specification might be made stating that all rate income is of a revenue nature. We would need to do this for each year for which it is intended that further supplementary reports should be made, as well as for 1987–88 and subsequent years.

The powers of clause 2(4) do not permit my right hon. Friend to specify that some item of expenditure is not revenue—that is, that it is capital—nor do they provide for specifications about items which are not expenditure or income, such as transfers between accounts. I can assure the Committee that my right hon. Friend has no intention of attempting to say that something is revenue which the whole world thinks is capital.

Mr. Straw

Will the Minister explain the example that he gave a moment ago—I realise that it is rather technical—of expenditure that is paid for out of the rate fund in support of a capital scheme? Did he say that that would count as revenue or as capital? How would the specification work in those circumstances?

Mr. Chope

I said that if rates were levied to finance a capital project, it might be argued that the rates were income of a capital nature. That power would enable the Secretary of State to specify that all rate income was of a revenue nature.

We propose to make specifications simply to clear up doubts in such a way as to ensure that all new statutory rate fund revenue accounts will be in the form in which authorities have kept their traditional revenue accounts. I urge the Committee to reject these amendments.

We are also debating amendment No. 73 and new clause 6. Amendment No. 73 would prevent us from making specifications in relation to total expenditure for 1984–85 to 1986–87 in Wales and for 1983–84 to 1986–87 in England and for 1987–88 in both countries. To maintain the status quo, we need to make specifications for those years that will reflect directions we have made on total expenditure under the existing statutory provisions for 1986–87 and previous years. I therefore recommend the Committee to reject amendment No. 73.

Mr. Tony Banks

Would a local authority have recourse to the courts for a decision taken by the Minister under this subsection of clause 2?

Mr. Chope

This clause does not restrict the right of any individuals to seek their remedies in the courts, as they have always sought to do and regularly do. Normally, the courts decide that the Government have exercised their discretion reasonably and properly.

New clause 6 would add CIPFA to those to be consulted before a specification is made under clause 2(4). That would be inappropriate. Although I recognise the professional expertise of CIPFA, that institute does not represent the local authorities that are affected by block grant. The authorities and their associations have the necessary expertise to respond to any consultation on the matter. Moreover, the consultation provisions in the Bill relating to specifications are in line with all the other consultation provisions relating to rate support grant.

We would not wish, nor is there any need, to change well tried precedents. I recommend that the Committee rejects new clause 6.

Amendment negatived.

Mr. Allan Roberts

I beg to move amendment No. 54, in page 3, line 16, at end add— 'An item of account shall not be held to be contrary to law for the purpose of section 19 of the Local Government Finance Act 1982 by reason only of its being debited or credited to any account of a local authority where by virtue of this section it is required to be debited or credited to another account of that authority.'. I shall speak briefly about amendment No. 54 as it relates back to a previous debate about what the Government are generally trying to do in this clause. This amendment is designed to give protection to local authorities that continue to make up their accounts in ways other than those prescribed in the Bill. As the Minister has already said that the legislation is not intended to do anything but prescribe what is already local authority practice, there is no reason why he should not accept this amendment, which writes his statement into the clause.

The provisions in the clause are mostly unnecessary, except for the validation of previous practice that has been deemed to be unlawful. As we have said, the provisions are necessary only because the Government now have, and want even more, detailed control of local authority expenditure.

8.45 pm

We want to know what is wrong with the present position—what is unlawful in items of local authority accounts and why the legislation is necessary. The law is clear, and deals with the misuse of money. Without this legislation, expenditure may have been unlawful because the local authority had no statutory power to incur it or because it was incurred as a result of an abuse of discretion. A particularly fine distinction in law has already been drawn between items of account that are on their face unlawful and those items that the council may lawfully incur, but which in a particular case might be tainted by illegality. An example is Beacham v. Metropolitan Auditor in 1976, where the Divisional court upheld the auditor's refusal to declare unlawful the expenditure incurred by an authority for demolishing some buildings, notwithstanding the argument that the demolition had required planning permission that had not been obtained. The court held that an item of account would be unlawful only if, by law, it should not have appeared in the accounts. That is an item of expenditure that the council has no power to incur.

The present position is that an item of account need not relate only to expenditure; it may be an item of either expenditure or income. An item of income might be unlawful because, for example, it came from an illegal source or it was for an illegal purpose.

If there are any "crooks"—the word used by the Conservative party chairman on television last night—in local government or in the City of London, they should be brought to book and prosecuted. Labour Members are totally against people behaving illegally and corruption in local government. The Labour party has more to lose from corruption and inefficiency in local government because it is the party that believes in local government, public expenditure and local authority public services. Therefore, we believe that such things should be adequately and forcibly dealt with.

We do not understand why the present law needs amending. What is wrong with the present definition of legality and illegality? We should like to put into the legislation protection for local councillors and local authority officers to carry on with the accounting practices in the way that they have done according to the current law of the land. As the Minister said previously that the Government's intention is to allow existing practices to continue, that must be in keeping with the thrust of that argument. I commend the amendment to the Minister.

Mr. Chope

I hope to persuade the Committee that the amendment is unnecessary. In answer to the point made by the hon. Member for Bootle (Mr. Roberts)—if it is unnecessary there is no harm in including it—I must point out that if we were to include it, it would make things worse for local authorities. The amendment seeks to provide that where an item of account is debited or credited to an account contrary to the provisions of clause 2, it is not to be held contrary to law for the purposes of section 19 of the Local Government Finance Act 1982.

Section 19 of the 1982 Act is all about ultra vires expenditure—surcharge and disqualification. It deals with those circumstances where an authority has incurred expenditure without the power so to do, or which it has incurred through an abuse of its powers by acting unreasonably.

I am advised that reference to items of account that are contrary to law under section 19 would not include references to items of account that have simply been debited or credited to a different account from that to which statute provides they should have been debited. Accordingly, as I have said, the amendment is unnecessary and I recommend the Committee to reject it.

Were the amendment to be carried, it would cause problems because it would suggest that any other expenditure that should have been shown in some other account, such as an account under section 137 of the Local Government Act 1972, would be contrary to law for the purpose of section 19 of the 1982 Act if not shown in that account. I hope that with that explanation the hon. Gentleman will withdraw the amendment.

Amendment negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Allan Roberts

As none of the amendments has been accepted—and, therefore, the clause stands unamended—I urge the House to reject the clause. As I said in my opening remarks, Rate fund revenue accounts: further provisions still sounds ominous, despite the Minister's attempts to reassure us. The clause still contains major pieces of retrospective legislation that we believe to be unnecessary. It introduces new provisions as well as validating past practices. It still includes the provision of extra powers that the Secretary of State will be able to exercise dictatorially without the scrutiny of Parliament and without consulting local authorities through their associations or individually.

These powers are being given to the Secretary of State in a clause that we consider to be bad legislation. This proposed legislation seeks to enshrine into law more powers to enable the Government to be involved in the detailed running of local authorities' internal affairs and internal accounting procedures. The clause is opposed by Labour in local government, by alliance councillors, independent councillors and, even more significant for the Government, by Conservative councillors and those who help the Conservative party in local government through their local authority housing associations.

Beyond that, the clause is opposed by the Chartered Institute of Public Finance and Accountancy and by others who are involved professionally in dealing with local authority accounts. In short, it is bad legislation. It flows from previous pieces of bad legislation, and this is the 13th Local Government Finance Bill that the Government have introduced. At each stage, they have assured us that their purpose is to clarify the law in protecting local government and simplifying procedures for it. At each stage, however, the law has become less clear, more complicated, more bureaucratic and more centralist. Clause 2 is no exception to that process.

We tried to amend the clause in a way that would have prevented the need to vote against it. Our amendments sought to give more rights and freedoms to local democratically elected councils. We sought to amend it in a way that would prevent state interference with one of Britain's finest democratic institutions—local government. Our intention was to amend it in a way that would make retrospection unnecessary. If our amendments had been accepted, it would not have been necessary for Ministers to say, "We are seeking to set out in legislation the good practices that local government already observes." Local government follows those practices and has done so for many years.

If these good practices exist, why do we need to introduce bureaucratic legislation on to the statute book? Unfortunately, it is necessary to take that course because the Government find themselves in a mess through their own desire to interfere. They wish to cut services and to cause local authorities to make their employees redundant. The Government find themselves in a mess because of their attempt to reduce services and public expenditure through cutting local authority expenditure. They have had to erect a panoply of legislation to enable them to interfere.

The clause will not clarify the issue, nor will it simplify it. If it becomes part of an Act, it will prove to be as unworkable as every other piece of local government legislation that the Government have introduced. Every piece of their previous legislation has been circumvented because of local government's ingenuity. As that has happened at every stage, the Government have introduced another Bill, but local government chief officers and treasurers have been able legally to defend jobs and services in their areas. They have circumvented previous legislation and they will circumvent the Bill. Further legislation will be needed, especially as the Bill has been hurried and is ill thought out. It is not understood even by the Secretary of State for the Environment, let alone by local government. I hope that the Committee will reject the clause.

Mr. Chope

I hope that the Committee will allow clause 2 to remain in the Bill. It is an important clause. I note that the Opposition did not have the courage of their convictions to call a Division on any of their amendments. Perhaps they were not quite sure whether any of them were adequate.

Mr. Allan Roberts

If we receive challenges of that sort, we shall vote on every amendment. We are well aware that the Government have a majority, that the Government Whips are on and that the payroll vote is in the House of Commons. By voting against the clause standing part of the Bill, we are dividing on a matter of principle. We had hoped that by reasoned argument we would persuade the Government to accept some of our amendments.

Mr. Chope

My right hon. Friend the Chancellor of the Duchy of Lancaster has pointed out to me that perhaps—

Mr. Walter Harrison (Wakefield)

On a point of order, Mr. Walker. If the Minister wishes to challenge the Opposition, we can divide on all our amendments and every Government amendment. The ability to do so was illustrated in 1971, and that illustration can be repeated. If the Minister provokes the Opposition, he will get that irrespective of what the Opposition Front Bench says. Let the Minister know that.

Mr. Chope

I would not wish to pick an argument with someone who has had the experience of being an Opposition Deputy Chief Whip. I am advised by my right hon. Friend the Chancellor of the Duchy of Lancaster that perhaps the Opposition have not voted on their amendments to clause 2 because they do not have their troops here. I do not know whether there is any truth in that piece of advice.

The clause, along with clause 1, introduces into the Bill the concept of the rate fund revenue account so that relevant and total expenditure can be defined in statute and the new statutory definition is that which in practice has been adopted since 1981.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 240, Noes 178.

Division No. 65]	[8.55 pm
AYES
Aitken, Jonathan	Brinton, Tim
Alexander, Richard	Brittan, Rt Hon Leon
Alison, Rt Hon Michael	Brooke, Hon Peter
Amess, David	Brown, M. (Brigg & Cl'thpes)
Ancram, Michael	Browne, John
Ashby, David	Bruinvels, Peter
Aspinwall, Jack	Bryan, Sir Paul
Atkins, Robert (South Ribble)	Buchanan-Smith, Rt Hon A.
Atkinson, David (B'm'th E)	Buck, Sir Antony
Baker, Rt Hon K. (Mole Vall'y)	Budgen, Nick
Baker, Nicholas (Dorset N)	Bulmer, Esmond
Baldry, Tony	Burt, Alistair
Banks, Robert (Harrogate)	Butcher, John
Batiste, Spencer	Butterfill, John
Bellingham, Henry	Carlisle, John (Luton N)
Bendall, Vivian	Carlisle, Kenneth (Lincoln)
Benyon, William	Cash, William
Best, Keith	Chapman, Sydney
Bevan, David Gilroy	Chope, Christopher
Biffen, Rt Hon John	Churchill, W. S.
Blackburn, John	Clark, Dr Michael (Rochford)
Body, Sir Richard	Clark, Sir W. (Croydon S)
Bonsor, Sir Nicholas	Clarke, Rt Hon K. (Rushcliffe)
Boscawen, Hon Robert	Colvin, Michael
Bottomley, Peter	Conway, Derek
Bottomley, Mrs Virginia	Cope, John
Bowden, Gerald (Dulwich)	Corrie, John
Boyson, Dr Rhodes	Couchman, James
Brandon-Bravo, Martin	Crouch, David
Bright, Graham	Currie, Mrs Edwina

Dicks, Terry	Knight, Greg (Derby N)
Dorrell, Stephen	Knight, Dame Jill (Edgbaston)
Douglas-Hamilton, Lord J.	Latham, Michael
Dover, Den	Lee, John (Pendle)
Dunn, Robert	Lennox-Boyd, Hon Mark
Durant, Tony	Lester, Jim
Edwards, Rt Hon N. (P'broke)	Lloyd, Sir Ian (Havant)
Eggar, Tim	Lloyd, Peter (Fareham)
Evennett, David	Lord, Michael
Eyre, Sir Reginald	MacKay, John (Argyll & Bute)
Fairbairn, Nicholas	McQuarrie, Albert
Fallon, Michael	Malone, Gerald
Farr, Sir John	Mather, Sir Carol
Favell, Anthony	Maude, Hon Francis
Fenner, Dame Peggy	Mawhinney, Dr Brian
Fletcher, Sir Alexander	Mayhew, Sir Patrick
Fookes, Miss Janet	Monro, Sir Hector
Forman, Nigel	Moore, Rt Hon John
Forsyth, Michael (Stirling)	Morris, M. (N'hampton S)
Forth, Eric	Moynihan, Hon C.
Franks, Cecil	Neubert, Michael
Fraser, Peter (Angus East)	Newton, Tony
Freeman, Roger	Nicholls, Patrick
Gale, Roger	Norris, Steven
Galley, Roy	Pattie, Rt Hon Geoffrey
Gardiner, George (Reigate)	Pollock, Alexander
Gardner, Sir Edward (Fylde)	Portillo, Michael
Garel-Jones, Tristan	Powley, John
Glyn, Dr Alan	Price, Sir David
Goodhart, Sir Philip	Raison, Rt Hon Timothy
Goodlad, Alastair	Rathbone, Tim
Gower, Sir Raymond	Rees, Rt Hon Peter (Dover)
Grant, Sir Anthony	Rhys Williams, Sir Brandon
Gregory, Conal	Ridley, Rt Hon Nicholas
Griffiths, Sir Eldon	Rifkind, Rt Hon Malcolm
Griffiths, Peter (Portsm'th N)	Rippon, Rt Hon Geoffrey
Grist, Ian	Roberts, Wyn (Conwy)
Ground, Patrick	Roe, Mrs Marion
Gummer, Rt Hon John S	Rossi, Sir Hugh
Hamilton, Hon A. (Epsom)	Rost, Peter
Hamilton, Neil (Tatton)	Rowe, Andrew
Hampson, Dr Keith	Sackville, Hon Thomas
Hanley, Jeremy	Sainsbury, Hon Timothy
Hannam, John	Sayeed, Jonathan
Hargreaves, Kenneth	Shaw, Giles (Pudsey)
Harris, David	Shaw, Sir Michael (Scarb')
Harvey, Robert	Shelton, William (Streatham)
Haselhurst, Alan	Shepherd, Richard (Aldridge)
Havers, Rt Hon Sir Michael	Silvester, Fred
Hawkins, C. (High Peak)	Sims, Roger
Hawkins, Sir Paul (N'folk SW)	Skeet, Sir Trevor
Hawksley, Warren	Smith, Tim (Beaconsfield)
Hayes, J.	Soames, Hon Nicholas
Hayhoe, Rt Hon Sir Barney	Speller, Tony
Hayward, Robert	Spencer, Derek
Heathcoat-Amory, David	Spicer, Jim (Dorset W)
Heddle, John	Spicer, Michael (S Worcs)
Henderson, Barry	Stanbrook, Ivor
Hickmet, Richard	Steen, Anthony
Hind, Kenneth	Stern, Michael
Hirst, Michael	Stevens, Lewis (Nuneaton)
Holland, Sir Philip (Gedling)	Stewart, Allan (Eastwood)
Holt, Richard	Stewart, Andrew (Sherwood)
Howard, Michael	Stokes, John
Howarth, Alan (Stratf'd-on-A)	Stradling Thomas, Sir John
Howarth, Gerald (Cannock)	Sumberg, David
Howell, Rt Hon D. (G'ldford)	Taylor, John (Solihull)
Howell, Ralph (Norfolk, N)	Taylor, Teddy (S'end E)
Hubbard-Miles, Peter	Tebbit, Rt Hon Norman
Hunt, David (Wirral W)	Temple-Morris, Peter
Hunt, John (Ravensbourne)	Terlezki, Stefan
Hunter, Andrew	Thomas, Rt Hon Peter
Irving, Charles	Thompson, Donald (Calder V)
Jackson, Robert	Thompson, Patrick (N'ich N)
Johnson Smith, Sir Geoffrey	Thorne, Neil (Ilford S)
Jones, Gwilym (Cardiff N)	Thornton, Malcolm
Jones, Robert (Herts W)	Thurnham, Peter
Jopling, Rt Hon Michael	Townsend, Cyril D. (B'heath)
Joseph, Rt Hon Sir Keith	Trotter, Neville
King, Roger (B'ham N'field)	Twinn, Dr Ian

van Straubenzee, Sir W.	Wheeler, John
Viggers, Peter	Whitfield, John
Waddington, Rt Hon David	Whitney, Raymond
Wakeham, Rt Hon John	Wolfson, Mark
Walker, Bill (T'side N)	Wood, Timothy
Waller, Gary	Woodcock, Michael
Ward, John	Yeo, Tim
Wardle, C. (Bexhill)	Young, Sir George (Acton)
Warren, Kenneth
Watts, John	Tellers for the Ayes:
Wells, Bowen (Hertford)	Mr. Richard Ryder and
Wells, Sir John (Maidstone)	Mr. David Lightbown.

NOES
Abse, Leo	Foster, Derek
Adams, Allen (Paisley N)	Foulkes, George
Alton, David	Fraser, J. (Norwood)
Anderson, Donald	Freeson, Rt Hon Reginald
Archer, Rt Hon Peter	Garrett, W. E.
Ashley, Rt Hon Jack	George, Bruce
Atkinson, N. (Tottenham)	Gilbert, Rt Hon Dr John
Bagier, Gordon A. T.	Godman, Dr Norman
Banks, Tony (Newham NW)	Golding, Mrs Llin
Barron, Kevin	Gould, Bryan
Beckett, Mrs Margaret	Gourlay, Harry
Bell, Stuart	Hamilton, James (M'well N)
Benn, Rt Hon Tony	Hancock, Michael
Bennett, A. (Dent'n & Red'sh)	Hardy, Peter
Bermingham, Gerald	Harrison, Rt Hon Walter
Bidwell, Sydney	Haynes, Frank
Blair, Anthony	Heffer, Eric S.
Boyes, Roland	Hogg, N. (C'nauld & Kilsyth)
Bray, Dr Jeremy	Home Robertson, John
Brown, Gordon (D'f'mline E)	Howell, Rt Hon D. (S'heath)
Brown, Hugh D. (Provan)	Howells, Geraint
Brown, N. (N'c'tle-u-Tyne E)	Hoyle, Douglas
Brown, R. (N'c'tle-u-Tyne N)	Hughes, Robert (Aberdeen N)
Bruce, Malcolm	Hughes, Roy (Newport East)
Buchan, Norman	Hughes, Sean (Knowsley S)
Caborn, Richard	Janner, Hon Greville
Callaghan, Jim (Heyw'd & M)	John, Brynmor
Campbell, Ian	Jones, Barry (Alyn & Deeside)
Campbell-Savours, Dale	Kaufman, Rt Hon Gerald
Carlile, Alexander (Montg'y)	Kirkwood, Archy
Carter-Jones, Lewis	Lambie, David
Clark, Dr David (S Shields)	Lamond, James
Clarke, Thomas	Leadbitter, Ted
Clay, Robert	Leighton, Ronald
Clelland, David Gordon	Lewis, Terence (Worsley)
Clwyd, Mrs Ann	Litherland, Robert
Cocks, Rt Hon M. (Bristol S)	Livsey, Richard
Cohen, Harry	Llyod, Tony (Stretford)
Coleman, Donald	Lofthouse, Geoffrey
Conlan, Bernard	McCartney, Hugh
Cook, Frank (Stockton North)	McDonald, Dr Oonagh
Cook, Robin F. (Livingston)	McGuire, Michael
Corbett, Robin	McTaggart, Robert
Cox, Thomas (Tooting)	McWilliam, John
Craigen, J. M.	Madden, Max
Crowther, Stan	Marek, Dr John
Cunningham, Dr John	Marshall, David (Shettleston)
Davies, Ronald (Caerphilly)	Martin, Michael
Davis, Terry (B'ham, H'ge H'l)	Mason, Rt Hon Roy
Deakins, Eric	Maynard, Miss Joan
Dewar, Donald	Meacher, Micheal
Dixon, Donald	Meadowcroft, Michael
Dobson, Frank	Michie, William
Dormand, Jack	Millan, Rt Hon Bruce
Dubs, Alfred	Mitchell, Austin (G't Grimsby)
Dunwoody, Hon Mrs G.	Morris, Rt Hon A. (W'shawe)
Eadie, Alex	Morris, Rt Hon J. (Aberavon)
Eastham, Ken	Nellist, David
Evans, John (St Helens N)	Oakes, Rt Hon Gordon
Fatchett, Derek	O'Brien, William
Field, Frank (Birkenhead)	O'Neill, Martin
Fields, T. (L'pool Broad Gn)	Park, George
Fisher, Mark	Parry, Robert
Flannery, Martin	Patchett, Terry
Foot, Rt Hon Michael	Pendry, Tom
Forrester, John	Pike, Peter

Powell, Raymond (Ogmore)	Spearing, Nigel
Prescott, John	Steel, Rt Hon David
Randall, Stuart	Stewart, Rt Hon D. (W Isles)
Raynsford, Nick	Stott, Roger
Redmond, Martin	Strang, Gavin
Rees, Rt Hon M. (Leeds S)	Straw, Jack
Richardson, Ms Jo	Thomas, Dr R. (Carmarthen)
Roberts, Allan (Bootle)	Thompson, J. (Wansbeck)
Roberts, Ernest (Hackney N)	Thorne, Stan (Preston)
Rogers, Allan	Torney, Tom
Rooker, J. W.	Wainwright, R.
Ross, Ernest (Dundee W)	Wardell, Gareth (Gower)
Ross, Stephen (Isle of Wight)	Wareing, Robert
Rowlands, Ted	Welsh, Michael
Sedgemore, Brian	White, James
Sheerman, Barry	Wigley, Dafydd
Sheldon, Rt Hon R.	Williams, Rt Hon A.
Shields, Mrs Elizabeth	Wilson, Gordon
Shore, Rt Hon Peter	Winnick, David
Short, Ms Clare (Ladywood)	Woodall, Alec
Short, Mrs R.(W'hampt'n NE)	Young, David (Bolton SE)
Silkin, Rt Hon J.
Skinner, Dennis	Tellers for the Noes:
Smith, C.(Isl'ton S & F'bury)	Mr. Allen McKay and
Soley, Clive	Mr. Lawrence Cunliffe.

Question accordingly agreed to.

Clause 2 ordered to stand part of the Bill.