HC Deb 11 March 1987 vol 112 cc419-26

Lords amendment: No. 1, in page 3, line 18, at end insert— (4A) Before making a specification under subsection (4) above the Secretary of State shall consider the practices mentioned in subsection (3) above, but such a specification may override those practices.

12.15 am
Mr. Jack Straw (Blackburn)

I beg to move, as an amendment to the Lords amendment, amendment (a), in line 4, leave out 'but such a specification may override those practices'.

We are told that the Conservative party knows about money, that it has experts on money and that many people on the Conservative Benches are professionals when it comes to accounting for money. Although the amendment may sound technical, it raises a crucial issue of financial probity and accounting practices.

Under the Bill as drafted, local authorities must follow accounting practices that are laid down. The Secretary of State is taking powers under the Bill to provide for what are described as specifications, which are rules relating to accounting practices. There was much debate in the other place about how those requirements would interact with other requirements of the Bill. Labour and other Peers tabled amendments to require the Secretary of State, in laying down the specifications, to have regard to proper accounting practices. Those amendments were withdrawn after promises were made by the Minister in another place that, later in the proceedings, amendments which encapsulated the principles of the Opposition amendments, but which were better drafted, would be tabled.

What happened was that, only yesterday—such is the haste with which the Bill has been forced through—the Minister tabled this extraordinary amendment, which reads: Before making a specification under subsection (4) above the Secretary of State shall consider the practices mentioned in subsection (3) above, but such a specification may override those practices. The Secretary of State is taking to himself powers to override good accounting practices or, indeed, any accounting practices.

The Chartered Institute of Public Finance and Accountancy is highly respected by hon. Members on both sides of the House as being completely non-political and concerned wholly with professionals in local authority and public service accountancy. It wrote to our colleagues in the Lords to express serious reservations about that amendment and said: The institute is deeply concerned that the Secretary of State should have such freedom to override proper accounting practices. Although the Secretary of State may not intend to abuse these powers, the wording of the amendment would allow the Secretary of State to undermine the integrity of all or any local authority's accounts. Surely it cannot be right that a Secretary of State can direct a public body to do something which he knows to be inconsistent with 'proper practice'. Yet this is exactly what the amendment would enable him to do. I hope that Conservative Members who take an interest in these matters are as concerned as many noble Lords were about the implication of the amendments.

The Minister sought to get himself out of a tight corner. He said: There has been some misunderstanding that the Government amendment would also give my right hon. Friend powers to override proper practices. It is not the Government amendment which provides for this; it is the Bill itself. That is extraordinary.

Mr. Tim Smith (Beaconsfield)

I do not think that that is extraordinary at all. Is that not the effect of clause 2(5)?— [Interruption.] The point is that the Bill already provides what the hon. Member for Blackburn (Mr. Straw) is suggesting that the amendment adds to the Bill. Clause 2(5) already provides an overriding power.— [Interruption.]

Mr. Straw

I am pleased to see that the hon. Member for Crawley (Mr. Soames) who, like my hon. Friend the Member for Liverpool, Walton (Mr. Heffer), has a nice line in braces, has awoken from his slumbers. He will be wholly familiar with the revisions of clause 2(5) which states: Subsection (1) shall have effect subject to subsection 1(3) above and to any specification under subsection (4) above. I can read as well as the hon. Member for Beaconsfield (Mr. Smith).

The issue is whether it is right that the Bill or the Government amendment should override proper practices. We say that that is wrong. Ministers have to provide a far better explanation of what they are doing before anybody should accept that.

It was not only Labour Peers who objected to that but those on the Cross Benches and those who have had years of experiences in interpreting the law. For example, the noble and learned Lord, Lord Denning said that the ideas encapsulated in the Government amendment seem to be entirely contrary to principle. In a sense, an auditor is like a judge; He is a judge of accounts in the same way as an ordinary judge is a judge of men. As with a judge, it is the duty of an auditor to be impartial and independent of authorities. He also referred to section 15 of the Local Government Finance Act 1982 which expressly refers to proper accounting practices: an auditor shall by examination of the accounts and otherwise satisfy himself … that proper practices have been observed in the compilation of the accounts."— [Official Report, House of Lords, 10 March 1987; Vol. 485, c. 941–42.] When the Minister replied on this matter in the other place, he tried to draw a distinction between the responsibilities of the auditor and the accounting practices of the local authority. However, that is a distinction without a difference for these purposes, because the requirement of section 15 is for the auditor to ensure himself that the local authority has observed proper practices in the compilation of the accounts, not that the auditor has observed proper practices.

Mr. William Cash (Stafford)

Is the hon. Gentleman not raising the point as to whether, in the conduct of their professional practice, auditors have engaged in what has amounted to creative accounting? I described that the other day, without disrespect to the chartered body concerned, as practices which have grown up which are inimical to good accounting practices as they apply to local authorities.

Mr. Straw

The hon. Gentleman is more confused than ever.—[Interruption.] I am glad to see that I have some approbation for that from behind the hon. Gentleman. The auditors have not engaged in any sort of creative accountancy practices. We shall debate that tomorrow morning on clause 1 of the next Local Government Bill. If there has been any creative accountancy, it has been by the local authorities. It has all been lawful. Much of it, as we shall discuss tomorrow, has been undertaken by Conservative authorities.

The question is whether the accounting practices have been proper. The hon. Gentleman may be alleging that accounting practices have been improper—

Mr. Cash

I am.

Mr. Straw

If they are improper, of course, we should be the first to say that no auditors should follow them. We are talking about the observance of proper practices. The hon. Gentleman says that he dislikes improper accounting practices. He had better realise when he votes on our amendment that he will be voting to give any Secretary of State, who may not always be the right hon. Member for Cirencester and Tewksbury (Mr. Ridley), the right to specify improper accounting practices and to have them enshrined in the law. That is the simple but serious issue.

I cannot for the life of me see why the Government have decided to draft their amendment in the way that they have. So far as we can see, it does not provide them with any needed protection. It appears to put a Secretary of State in a position where he can endorse improper accounting practices. In the words of the Chartered Institute of Public Finance and Accountancy: the wording of the amendment would allow the Secretary of State to undermine the integrity of all or any local authority's accounts. That is a serious charge by CIPFA against the Secretary of State and Ministers. Unless there is a convincing answer to that charge, we shall vote for our amendment and against the Lords amendment. I hope that we will be joined in the Lobby by many other hon. Members.

The Minister for Local Government (Dr. Rhodes Boyson)

I beg to move, That this House doth agree with the Lords in the said amendment.

The hon. Member for Blackburn (Mr. Straw) referred to the debate in the other place. An undertaking was given there, which we believe was carried through to the letter. It was given on Report and the amendment was brought forward on Third Reading. So we fulfilled the obligation that we took on.

Mr. Straw

The Minister is on the wrong amendment.

Dr. Boyson

I am not.

The question has been asked how the provisions permitting specifications to override the requirement of clause 2(1) to observe the proper practices in clause 2(3) interact with the provision in the Local Government Finance Act 1982, which requires a local authority's auditor to satisfy himself that the authority has used proper practices in the compilation of its accounts. I welcome the intervention by my hon. Friend the Member for Beaconsfield (Mr. Smith).

Section 15 of the 1982 Act requires the auditor to satisfy himself not only that proper practices have been observed in the compilation of accounts but that the accounts are prepared in accordance with regulations made under section 23 of the 1982 Act and comply with the requirements of all other statutory provisions applicable to the accounts. In other words, the auditor must satisfy himself that the accounts comply with the law. Once a specification is made, it is the law, and the auditor must satisfy himself that it is complied with.

As to proper practices, section 15 of the 1982 Act does not refer to any particular practices and describes them as proper. It simply requires auditors to satisfy themselves that proper practices have been observed, but they must also satisfy themselves that the law has been complied with. They would not be able to discharge their duty by ignoring the law and simply looking at proper practices. The proper practices must reflect the law. Something required by law cannot be improper. There is therefore no conflict.

Mr. Straw

If there is no conflict between proper practices and a specification, why have the Government used the words that appear in the amendment— such a specification may override those practices."? That clearly suggests that it is in the minds of Ministers that a specification would be contrary to a proper practice and therefore would override that proper practice.

Dr. Boyson

It is up to my hon. Friend to say what is proper. That is what I said and it was extrapolated brilliantly by my hon. Friend the Member for Stafford (Mr. Cash) in a way which could be understood throughout the House. I shall repeat the last three sentences. They would not be able to discharge their duty by ignoring the law and simply looking at proper practices. The proper practices must reflect the law. Something required by law cannot be improper. There is therefore no conflict. That seems perfectly clear and I invite the House to accept amendment No. 1 and to reject amendment (a).

Mr. Michael Meadowcroft (Leeds, West)

I support amendment (a). What always alarms me about Conservative Members and the Minister is their dismissive attitude to the whole of local government practices which at one time they professed to support. The Government appear to regard local government finance legislation as some kind of political adventure playground in which they can lash out wildly in all directions and encourage parliamentary draftsmen to produce ever more wild catchall phrases in order, somehow, to prevent local government from getting round the legislation.

In this case the Government seem to be worried that their legislation still has loopholes. Because they are worried about that, they suddenly put in a phrase so that if local government appears to be circumventing what the Government want, they can simply determine by order what the law shall be. The Government do not want local government to be responsible. If they did, they would enhance the role of the Chartered Institute of Public Finance and Accountancy rather than denigrate it in this way.

I doubt whether anybody would seek to undermine the professionalism and intregrity of the people in the institute who have worked hard to produce a code of practice that is acceptable throughout local government. That code has no political bias—it is a professional code of practice. The institute has put it forward for consultation and the Minister has not even told us whether he is passionately in favour of what the institute has produced. I presume that, if he is not, he will be able to suggest improvements and have negotiations with the institute. The institute would be happy to have such negotiations.

No doubt the Minister knows that the institute has written to hon. Members saying that it is not unduly concerned about the provisions of the Bill because it believes that the code of practice that it has worked on would stand. What happened when the Bill reached the other place? Suddenly, Lord Skelmersdale came along with amendment introducing a catch-all phrase which undermines the work done by the institute. That is not the kind of legislation that this House should ever support, because it is a case of the Government casually setting aside the work carried out by professional bodies.

The sort of thing that is happening here is precisely what Government Members have always criticised on the Left of the Labour party when in the past Labour has suggested that when in office it will pass an enabling Bill. The Labour party has said that it will introduce an enabling Bill giving powers to correct things by order, and that there would be no possibility thereafter of those things coming back to the House. The Government have rightly criticised that and said that it is undemocratic, but now what do they bring forward, but an enabling Bill?

The Government say, "Here is the legislation, and if it does not work the Secretary of State can set down anything he wants in order to overturn what is set out in previous legislation." This is a disgrace to the House and is far more significant than some of the proposed legislation that has come before us. The fact that we are debating an amendment to a Lords amendment at 12.30 in the morning is immaterial. We are dealing with a significant constitutional point. The House should not accept the Lords amendment, but should agree to amendment (a).

Mr. Tim Smith

I come to this legislation rather late in the day, but yesterday I was alerted by a Member of the other place, who is also a chartered accountant, to the fact that the legislation contained a point of concern for the accountancy profession.

The Government are proposing that a specification should be able to overrule an accountancy practice. I understand how this has come about, but it is an unfortunate development. The clause is designed to determine with more precision what is relevant expenditure and therefore what is eligible for rate support grant. I hope that I have got that right.

It is unfortunate that we must dictate to local authorities how they go about constructing their accounts to define what is or is not eligible for rate support grant. There should be a better way. In most cases, there will be an agreed practice, but in some cases it will be possible for a particular transaction to be dealt with by one or more practices. I suppose that some local authorities have been irresponsible and have presented a transaction in a way that will enable it to qualify for the maximum of grant.

Accountants and auditors who work in local government are concerned that we are reaching the point where little discretion will be left to professionals and that the content of accounts will be largely dictated by the Department of the Environment.

Mr. Straw

With permission, Mr. Deputy Speaker.

The Minister said that the amendment that had been brought forward in the Lords was consistent with undertakings given by the noble Lord Skelmersdale to the Labour and other Peers who supported the amendment in Committee in the Lords.

I wish to make it clear that the Labour and Cross-Bench Peers who moved the amendment in Committee were horrified when they saw this amendment. Baroness David said: When the Minister said that he would accept the amendment in principle and come back with his own amendment on Report, I thought we would get a real improvement. However, I find the reverse."— [Official Report, House of Lords, 10 March 1987, Vol. 485, c. 941.] In no sense is the amendment an improvement on what was sought in Committee in the Lords. As Baroness David said, it is quite the reverse. It increases confusion and puts arbitrary power in the hands of Ministers, and we intend to press the amendment to a vote.

Question put, That the amendment to the Lords amendment be made:—

The House divided: Ayes 151, Noes 197.

Division No. 117] [12.40 am
Adams, Allen (Paisley N) Dormand, Jack
Anderson, Donald Dubs, Alfred
Archer, Rt Hon Peter Duffy, A. E. P.
Ashton, Joe Dunwoody, Hon Mrs G.
Atkinson, N. (Tottenham) Eastham, Ken
Banks, Tony (Newham NW) Evans, John (St. Helens N)
Barron, Kevin Faulds, Andrew
Beckett, Mrs Margaret Fields, T. (L'pool Broad Gn)
Bell, Stuart Fisher, Mark
Benn, Rt Hon Tony Forrester, John
Bennett, A. (Dent'n & Red'sh) Foster, Derek
Bermingham, Gerald Foulkes, George
Boyes, Roland Fraser, J. (Norwood)
Brown, Hugh D. (Provan) Freeson, Rt Hon Reginald
Brown, N. (N'c'tle-u-Tyne E) Freud, Clement
Brown, Ron (E'burgh, Leith) Gilbert, Rt Hon Dr John
Bruce, Malcolm Godman, Dr Norman
Buchan, Norman Golding, Mrs Llin
Caborn, Richard Gould, Bryan
Callaghan, Jim (Heyw'd & M) Hamilton, James (M'well N)
Campbell-Savours, Dale Harrison, Rt Hon Walter
Canavan, Dennis Hart, Rt Hon Dame Judith
Carlile, Alexander (Montg'y) Haynes, Frank
Clark, Dr David (S Shields) Heffer, Eric S.
Clarke, Thomas Hogg, N. (C'nauld & Kilsyth)
Clay, Robert Holland, Stuart (Vauxhall)
Clelland, David Gordon Home Robertson, John
Clwyd, Mrs Ann Howell, Rt Hon D. (S'heath)
Cocks, Rt Hon M. (Bristol S) Hoyle, Douglas
Cohen, Harry Hughes, Sean (Knowsley S)
Coleman, Donald Hughes, Simon (Southwark)
Cook, Frank (Stockton North) Janner, Hon Greville
Cook, Robin F. (Livingston) John, Brynmor
Corbett, Robin Kaufman, Rt Hon Gerald
Corbyn, Jeremy Kennedy, Charles
Cox, Thomas (Tooting) Lamond, James
Craigen, J. M. Leighton, Ronald
Crowther, Stan Litheirland, Robert
Cunliffe, Lawrence Lofthouse, Geoffrey
Cunningham, Dr John Loyden, Edward
Dalyell, Tam McDonald, Dr Oonagh
Davies, Ronald (Caerphilly) McGuire, Michael
Davis, Terry (B'ham, H'ge H'l) MacKenzie, Rt Hon Gregor
Deakins, Eric McNamara, Kevin
Dewar, Donald McWilliam, John
Dixon, Donald Madden, Max
Martin, Michael Sedgemore, Brian
Maxton, John Sheerman, Barry
Maynard, Miss Joan Sheldon, Rt Hon R.
Meacher, Michael Shore, Rt Hon Peter
Meadowcroft, Michael Short, Ms Clare (Ladywood)
Michie, William Silkin, Rt Hon J.
Mikardo, Ian Skinner, Dennis
Millan, Rt Hon Bruce Smith, C.(lsl'ton S & F'bury)
Miller, Dr M. S. (E Kilbhde) Smith, Cyril (Rochdale)
Morris, Rt Hon A. (W'shawe) Smith, Rt Hon J. (M'ds E)
Morris, Rt Hon J. (Aberavon) Snape, Peter
Nellist, David Soley, Clive
Oakes, Rt Hon Gordon Spearing, Nigel
O'Brien, William Stott, Roger
O'Neill, Martin Straw, Jack
Orme, Rt Hon Stanley Thomas, Dr R. (Carmarthen)
Park, George Thorne, Stan (Preston)
Parry, Robert Tinn, James
Pendry, Tom Wallace, James
Pike, Peter Wareing, Robert
Powell, Raymond (Ogmore) Weetch, Ken
Prescott, John Welsh, Michael
Randall, Stuart Williams, Rt Hon A.
Raynsford, Nick Winnick, David
Redmond, Martin Woodall, Alec
Rees, Rt Hon M. (Leeds S) Wrigglesworth, Ian
Richardson, Ms Jo Young, David (Bolton SE)
Roberts, Ernest (Hackney N)
Robertson, George Tellers for the Ayes:
Robinson, G. (Coventry NW) Mr. Tony Lloyd and
Rooker, J. W. Mr. Allen McKay.
Rowlands. Ted
Alexander, Richard Colvin, Michael
Ancram, Michael Conway, Derek
Ashby, David Coombs, Simon
Atkins, Robert (South Ribble) Cope,John
Atkinson, David (B'm'th E) Dickens, Geoffrey
Baker, Rt Hon K. (Mole Vall'y) Dorrell, Stephen
Baker, Nicholas (Dorset N) Dover, Den
Baldry, Tony Dunn, Robert
Banks, Robert (Harrogate) Dykes, Hugh
Batiste, Spencer Edwards, Rt Hon N. (P'broke)
Bellingham, Henry Eggar, Tim
Bendall, Vivian Evennett, David
Benyon, William Fairbairn, Nicholas
Best, Keith Fallon, Michael
Bevan, David Gilroy Forman, Nigel
Biffen, Rt Hon John Forsyth, Michael (Stirling)
Biggs-Davison, Sir John Forth, Eric
Blackburn, John Franks, Cecil
Blaker, Rt Hon Sir Peter Gale, Roger
Body, Sir Richard Garel-Jones, Tristan
Bonsor, Sir Nicholas Hamilton, Neil (Tatton)
Boscawen, Hon Robert Hargreaves, Kenneth
Bottomley, Peter Hawksley, Warren
Bowden, A. (Brighton K'to'n) Hind, Kenneth
Boyson, Dr Rhodes Howard, Michael
Brinton, Tim Howarth, Alan (Stratf'd-on-A)
Brittan, Rt Hon Leon Howarth, Gerald (Cannock)
Brooke, Hon Peter Jenkin, Rt Hon Patrick
Brown, M. (Brigg & Cl'thpes) Key, Robert
Browne, John Knowles, Michael
Bruinvels, Peter Lamont, Rt Hon Norman
Bulmer, Esmond Latham, Michael
Burt, Alistair Lawler, Geoffrey
Butcher, John Lawrence, Ivan
Butler, Rt Hon Sir Adam Lee, John (Pendle)
Butterfill, John Leigh, Edward (Gainsbor'gh)
Carlisle, John (Luton N) Lennox-Boyd, Hon Mark
Carlisle, Kenneth (Lincoln) Lilley, Peter
Carlisle, Rt Hon M. (W'ton S) Lloyd, Peter (Fareham)
Cash, William Lord, Michael
Chapman, Sydney Lyell, Nicholas
Chope, Christopher McCurley, Mrs Anna
Churchill, W. S. Macfarlane, Neil
Clark, Dr Michael (Rochford) McLoughlin, Patrick
Clark, Sir W. (Croydon S) Madel, David
Clarke, Rt Hon K. (Rushcliffe) Malins, Humfrey
Malone, Gerald Silvester, Fred
Maples, John Sims, Roger
Marlow, Antony Skeet, Sir Trevor
Mates, Michael Smith, Tim (Beaconsfield)
Mather, Sir Carol Soames, Hon Nicholas
Maxwell-Hyslop, Robin Spencer, Derek
Mayhew, Sir Patrick Spicer, Jim (Dorset W)
Merchant, Piers Spicer, Michael (S Worcs)
Meyer, Sir Anthony Stanbrook, Ivor
Mills, Iain (Meriden) Stanley, Rt Hon John
Miscampbell, Norman Steen, Anthony
Moate, Roger Stern, Michael
Montgomery, Sir Fergus Stevens, Lewis (Nuneaton)
Morris, M. (N'hampton S) Stewart, Allan (Eastwood)
Morrison, Hon P. (Chester) Stewart, Andrew (Sherwood)
Moynihan, Hon C. Stradling Thomas, Sir John
Nelson, Anthony Sumberg, David
Neubert, Michael Taylor, John (Solihull)
Nicholls, Patrick Temple-Morris, Peter
Norris, Steven Terlezki, Stefan
Osborn, Sir John Thomas, Rt Hon Peter
Ottaway, Richard Thompson, Donald (Calder V)
Page, Sir John (Harrow W) Thompson, Patrick (N'ich N)
Page, Richard (Herts SW) Thorne, Neil (Ilford S)
Parkinson, Rt Hon Cecil Thurnham, Peter
Patten, J. (Oxf W & Abgdn) Townend, John (Bridlington)
Pawsey, James Trippier, David
Peacock, Mrs Elizabeth Twinn, Dr Ian
Porter, Barry Vaughan, Sir Gerard
Portillo, Michael Waddington, Rt Hon David
Powell, William (Corby) Wakeham, Rt Hon John
Price, Sir David Waldegrave, Hon William
Proctor, K. Harvey Wall, Sir Patrick
Raffan, Keith Waller, Gary
Raison, Rt Hon Timothy Ward, John
Rathbone, Tim Wardle, C. (Bexhill)
Renton, Tim Warren, Kenneth
Rhodes James, Robert Watts, John
Rhys Williams, Sir Brandon Wells, Bowen (Hertford)
Ridley, Rt Hon Nicholas Wells, Sir John (Maidstone)
Ridsdale, Sir Julian Wheeler, John
Roe, Mrs Marion Whitfield, John
Rossi, Sir Hugh Whitney, Raymond
Rowe, Andrew Wiggin, Jerry
Rumbold, Mrs Angela Wilkinson, John
Ryder, Richard Winterton, Mrs Ann
Sackville, Hon Thomas Wolfson, Mark
Sainsbury, Hon Timothy Wood, Timothy
Sayeed, Jonathan Young, Sir George (Acton)
Scott, Nicholas Younger, Rt Hon George
Shaw, Giles (Pudsey)
Shaw, Sir Michael (Scarb') Tellers for the Noes:
Shelton, William (Streatham) Mr. David Lightbown and
Shepherd, Richard (Aldridge) Mr. Francis Maude.
Shersby, Michael

Question accordingly negatived.

Lords amendment No. 1 agreed to.

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