GUIDANCE AND CONSULTATION ABOUT PROMOTION OF ECONOMIC DEVELOPMENT (Hansard, 6 November 1989)

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

§ Mr. Deputy Speaker (Sir Paul Dean)
With this it will be convenient to discuss Lords amendments Nos. 14 to 19, 309 and 310.

§ Mr. Hunt
These amendments bring us to part III of the Bill, which is concerned primarily with providing a new economic development power for local authorities and tidying up the scope of their existing discretionary spending power under section 137 of the Local Government Act 1972.

§ Mr. Paul Murphy (Torfaen)
The Opposition generally welcome the amendments on economic development, especially in so far as they affect voluntary organisations and advice services. We are worried because all these changes can come into effect only if the Secretary of State does not use all the powers that are enshrined in the Bill. Clause 33 in particular gives the Secretary of State extremely wide powers under which he can cap economic development expenditure. The clause effectively says that areas with unemployment above the national average will be unable to use economic development power for financial assistance purposes. We believe that this obscures local pockets of unemployment.
We hope that the Government will announce that the regulations will be used flexibly in future years and will be subject to the widest possible consultations with local authorities and the private sector. This is especially the case on amendments Nos. 13 and 14 where local commercial interests are to be consulted. I should be grateful for the Minister's comments.

§ Mr. David Mudd (Falmouth and Camborne)
Although the Bill has gone a long way towards improving answerability to ratepayers about discretionary spending, it still does not seem to cover a worrying anomaly. The Government, in their response to the Widdicombe report, reaffirmed their faith in the local ombudsman system of answerability and referred in paragraph 6.20 to exploiting the strengths of the current arrangements rather than making fundamental changes which may weaken the system as a whole. However, one of the weaknesses of the present system is that it can sometimes, by denying ratepayers a chance to argue their complaints, equally deny a local authority the opportunity to clear itself against allegations. In December 1984 and January 1985, Carrick district council passed a minute—No. 1218℄which agreed: as a matter of principle the Council support an officer's legal costs in any libellous or slandrous actions taken; and that the chief excecutive. in consultation with the chairman and vice-chairman of the council, he authorised to approve such actions where the actions arose from the pursuance of an officer of his official duties". Between this controversial minute being passed by the committee in December 1984 and the whole council in January 1985, the words the council support an officer's legal costs were strengthened to the council finance an officer's legal costs". In effect, a council official could merrily proceed with litigation in the knowledge that the ratepayers would have to foot the bill. This possibility led to the unusually high number of cases which were subsequently initiated and which, the then district auditor noted, clearly gave "cause for concern".
Despite repeated submissions from the ratepayers about the legality of minute 1218, the council maintained its faith in it for four and a half years. I do not know how many times it was triggered, although I am advised that when one Cornish newspaper published a reader's letter which was mildly critical of Carrick district council, both 800 the newspaper and the letter writer received letters from the council's legal department suggesting that correspondence should now cease.
In July 1987, a group of ratepayers approached me to complain about certain alleged financial and other irregularities involving the council. I was then asked to request my right hon. Friends the then Home Secretary and the then Secretary of State for the Environment to investigate, as the complainants feared that proceedings would be initiated against them under minute 1218 if they persevered with their complaints by using usual channels.
I established that Devon and Cornwall constabulary was already investigating these matters and that since the creation of the local ombudsman service in 1974 the Secretary of State for the Environment seemingly no longer had powers of independent investigation.
In 1987, the complainants, believing that they could present prima facie evidence of malpractice, found themselves in an impotent, nightmarish and frustrating Catch 22 of monumental proportions. There was no way in which they could go public through Ministers or the media due to the existence of minute 1218. As manifestations of alleged maladministration affected all, as opposed to a few, of Carrick's ratepayers, the local ombudsman could not act. As the allegations of financial malpractice were being investigated and processed by the police, they in turn had become sub judice.
At Truro Crown court in April 1989, the Crown Prosecution Service offered no evidence when a district council official appeared charged with financial offences. It was not until July 1989—four and a half years after accepting minute 1218—that Carrick district council sought and accepted the opinion of leading counsel that the minute was ultra vires and should not be invoked further.
It was estimated that this exercise had cost the ratepayers £2,437. However, it is suspected that that item of discretionary spending may refer only to specific legal advice to officers as opposed to the internal administration charges of the council at various stages of pre-litigation.
As it was clearly a matter of discretionary spending, the complainants tried to persuade the Audit Commission to re-examine Carrick's books for the disputed years. But the commission then declined to reopen accounts after an audit had been completed.
The so-called strengths of the current system for investigation and remedy, so warmly supported in the Government's response to Widdicombe, are of dubious value when we consider this experience of ratepayers challenging discretionary expenditure. An ultra vires minute kept a council's officers and a critical public on an unequal basis for four and a half years. Members of the public were thus prevented from defending themselves against attack from the council chamber by or on behalf of council officers.
The existence of the minute inhibited certain persons from making statements to the police. The district auditor was unwilling to investigate because of the passage of time since the completion of the most recent financial year. The local ombudsman would not investigate because all, rather than individual, ratepayers were potential sufferers from this action. When matters had dragged on for several years, the Audit Commission found itself unable or unwilling to reinvestigate.
I am aware that an ability to challenge such discretionary expenditure exists under section 22(2) of the 801 Local Government Finance Act 1982, under which the Secretary of State may require an extraordinary audit. Perhaps my right hon. Friend will, on this occasion, exceptionally agree to receive and consider a submission from the complainants. In the meantime, under the existing tried, trusted and strong local government ombudsman system, vilification—rather than vindication —will continue to sour the air of Carrick. The complainants will go unheard and, above all, the council will be denied the clearance from the outstanding accusations that it believes it deserves.

§ Mr. David Hunt
I have always been immensely impressed by the diligence and vigour with which my hon. Friend the Member for Falmouth and Camborne (Mr. Mudd) has represented his constituents' views. I have listened carefully to what he has said, and I am aware that he has raised a number of serious issues. As he has already said, the question whether expenditure is lawfully incurred is a matter for the Audit Commission, and it is not for me to intervene in the commission's decisions. The case that my hon. Friend has cited shows that electors who are concerned about any item of local authority expenditure should act promptly.
I ought to preface my remarks by saying that I am certain that most local authorities are scrupulous about the propriety and legality of their expenditure. Where illegality is suspected, there is a perfectly adequate regulatory system. Electors can draw to the local authority auditor's attention any item of expenditure which, in their opinion, has been incurred unlawfully by their council. The auditor can choose to look at any such item brought to his attention and can rule it to be unlawful expenditure under part II of the Local Government Finance Act 1982. If the expenditure is unlawful, the auditor can seek a declaration from the court to that effect and the court may surcharge the expenditure on those who authorised it.
My hon. Friend has raised matters that go back some considerable time. I therefore propose to ask the Audit Commission to let me have a report on the case and if my hon. Friend will agree to it I shall come back to him when I have made further inquiries.
The hon. Member for Torfaen (Mr. Murphy) asked about the capping reserve power. Clause 33 permits the capping of economic development, but we have made it clear that the power to cap such expenditure is very much a reserve power. We have made it absolutely clear that at present there are no cases in which we would regard it as reasonable to use the power. On the question of flexibility, I remind the House that we have issued a consultation paper. We have received many comments and we are now studying them. We have every intention of using the powers conferred in the Bill flexibly within the overall aim of ensuring that resources are concentrated on the areas that most need assistance. I hope that that reassures Opposition Members.