HC Deb 08 July 1997 vol 297 cc830-9
Mr. Burstow

I beg to move amendment No. 3, in page 4, line 15, at end insert—

'(3A) Before making a determination under subsection (3), a court shall have regard to the consequences for the parties to the contract of such a determination arising from provision made in any relevant discharge terms relating to the contract.'. I shall be even more brief on this amendment, but I look forward to hearing the Minister's detailed response. I raised this matter in Committee in the clause stand part debate, and I remain concerned about it. It concerns a court's power, and what the court will take into account, when considering contracts and whether they are ultra vires, and the consequences for local authorities and therefore council tax payers if the discharge clause comes into effect.

The discharge clause in the Bill could place on local authorities a heavy burden, which would be passed on to council tax payers. The amendment would include in the Bill a provision requiring judges to take the impact on council tax payers into account when assessing whether a contract should be allowed to continue to operate. Although I listened to, and later read, the Minister's comments in Committee, I am not yet convinced that judges will be able to act as I hope. I want an assurance that the amendment is not necessary, but I believe that it is.

Ms Armstrong

As the hon. Gentleman noted, the Bill deals with the possibility that, in the unlikely event of a contract being subject to audit review because it has been successfully challenged, a heavy burden will be placed on council tax payers. It is precisely for that reason that the Bill has been drafted as it has. The Bill makes it clear that, before entering into a contract, a local authority must have assured itself that it will be acting within its powers. The Bill is constructed so as to ensure that that happens.

I appreciate that the hon. Gentleman wants to be helpful and that he seeks to ensure that, in the unlikely event of a certificated contract being subject to audit review, a court, when considering the setting aside of a contract, is required to act as on judicial review and therefore take full account of all the circumstances. Clause 5(3) already requires a court to act as it would on judicial review and the court will take account of all circumstances and arguments that can be presented to it about the contract and its effect on the parties if it is set aside.

There is a danger that, if one factor, such as that emphasised in the amendment, is stated in the Bill, it will have the opposite effect and raise doubts about what the court should consider in the contract. We are trying to ensure that the court properly considers what the contract contains and what, in the context of the case, is proper for the court to consider. We therefore want to ensure that the Bill properly addresses that. We shall continue to listen to and hear representations, but the hon. Gentleman's intention is accounted for in the Bill. The amendment could make matters more difficult rather than ease the path.

I wish to be helpful to the hon. Gentleman. Had I been assured that the amendment would improve the Bill, I would have been much more sympathetic. We cannot accept the amendment because it would probably make matters much worse. The judge would have to address that specific issue rather than the context within which the contract had proceeded, and therefore the common-sense view of what the contract sought to do and what was in the best interests of the council tax payer.

Mr. Barstow

I am grateful to the Minister for that full response. My intent is to improve the Bill, not to stop it or wreck it, and certainly not to create a situation in which a judge's hands would be more tied than necessary. However, I welcome the fact that the Minister is willing to consider how the intention of my amendment could be given effect. I hope that, perhaps in another place, the Government will take the opportunity to introduce wording that they find acceptable and that would achieve the intention of my amendment. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Order for Third Reading read.

7.40 pm
Ms Armstrong

I beg to move, That the Bill be now read the Third time.

It is with great pleasure that we come to the Third Reading of what I admit is an exceptionally complex Bill. None of us is certain that what we want from the Bill is what we will end up with. Unfortunately, that is the nature of such legislation. The previous Government had much experience of that with a Bill on the national health service and the private finance initiative. In the week in which the election was called, they admitted that that Bill did not meet the needs that they had intended it to meet. We are now considering a further Bill relating to that.

It is important to restate what the Bill does and what it does not do. Its purpose is to remove an obstacle to successful local authority public-private partnerships.

The Bill does not change the fundamentals of the law. It does not add to local authorities' existing powers. Equally, there can be no question of it rendering ultra vires transactions that have always been within authorities' powers. It merely makes explicit what was already implicit: that local authorities can enter into contracts in pursuance of their functions.

Mr. Tony Colman (Putney)

May I declare an interest as chair of 4 Ps—the Public Private Partnerships Programme—and ask my hon. Friend whether she would support an experiment, a pathfinder project, for the use of PFI in HRA housing. I believe that that could lead to best value, and 4 Ps has established that there is support from financial institutions. Would my hon. Friend support such an experiment?

Ms Armstrong

I am grateful to my hon. Friend, who probably has more experience than any other hon. Member of the matters covered by the Bill. I should be happy for the Government to work with 4 Ps on a pathfinder project for housing. We are always looking for ways in which we can draw in private sector money to increase housing capacity. I thank my hon. Friend for his constructive suggestion.

The Bill deals with a certification procedure, which does not permit authorities to act ultra vires. It does not give them immunity from challenge in public law by a taxpayer for entering into deals that are outside their powers. It does not restrict the auditors' right of challenge.

The certification procedure enables authorities to say to contractors, and to financiers who are backing deals, that, to the best of the authority's knowledge and belief, the deal in question is within powers.

The Bill also provides contractors and financiers with the assurance that if, at some later stage, there are proceedings to enforce the contract, the authority will not then be able to claim that the deal is ultra vires. However, should the deal none the less be found to be ultra vires, the authority will have to recompense the other parties to the contract.

For those reasons, the Bill has been welcomed by the finance community. The other partners are also extremely important.

What is in the Bill for local authorities? First, it provides a valuable clarification that statutory powers carry with them a power to enter into associated contracts for assets or services, or both.

Secondly, the Bill means that authorities will be able to give assurance to potential partners in innovative partnership schemes that if, after certification of a scheme and in the unlikely event of the scheme nevertheless being found to be ultra vires as a result of a challenge in public law, the provider and the bank will be protected. The local authorities understand that. They know that they will have the responsibility to ensure that schemes that they enter into are within their powers.

It has been suggested that certification will be too burdensome, and will entail additional requirements. We do not believe that it will be complicated or burdensome. It should reflect the process of considered assessment that an authority will have to go through in any case, and which an authority should undertake before entering any partnership agreement.

The certification process will focus specifically on powers. For that reason, it is not the appropriate vehicle for giving assurance about other matters, important though those may be. It need not be cluttered up with details of risk transfer, procurement processes, planning matters and so on. The authorities should address those issues, but in another context.

We do not believe that certification adds to officers' liability. I know that that has been a particular concern of local government officers and of Liberal Democrat Members. On the contrary, by clarifying authorities' powers, the Bill is likely to reduce the risk that officers entering into contracts, especially innovative partnership deals, might inadvertently act ultra vires. Signing the certificate carries no more liability than signing the contract to which it relates.

There is every reason why local authority officers will act in good faith in going about their business. If they act in good faith, honestly and without malice, they will have nothing to worry about.

I welcome the hon. Member for Brentwood and Ongar (Mr. Pickles) to the Dispatch Box, and apologise for not doing so earlier. It is one of the better innovations of the new Conservative party that Back Benchers are being encouraged to join Front-Bench teams on appropriate occasions. This is such an occasion. It is a pity that the hon. Gentleman has been left on his own—no, I see the that hon. Member for Eastbourne (Mr. Waterson) is also present, and I welcome him. I am sure that his support is of great encouragement to the hon. Member for Brentwood and Ongar.

It might seem entirely reasonable for parties to contracts to agree not only to the issue of certificates, but to their content. However, any amendment along those lines, although apparently innocuous, would destroy the Bill's good effect. If contractors and banks had to agree that schemes were intra vires, rather than just relying on the authority's opinion, they would be tied into the decision-making process. They would have to form a view, when they would prefer not to do so. Not only would contractors and banks not be well placed to form an opinion, but they would have to exercise due diligence in expressing a view. The Bill aims to protect financiers and contractors in the unlikely event of authorities' making a mistake about whether contracts fall within their powers.

I believe that the Bill will achieve the stated aims of all hon. Members. We want to engender confidence in the contracts that local government will sign with the private sector. This is a very important development for local government, because it is about the future of local services to local taxpayers. I commend the Bill to the House.

7.50 pm
Mr. Eric Pickles (Brentwood and Ongar)

I thank the Minister for her kind remarks. I forgive her for not making them earlier—no doubt she was struck dumb by the sight of me at the Dispatch Box. I also thank the hon. Lady and the Minister for London and Construction for the courteous way in which they conducted business in Committee.

I agree with my hon. Friend the Member for Christchurch (Mr. Chope): it is a great pity that we have not heard much from Government Back Benchers in this debate. It is also a pity that the hon. Member for Putney (Mr. Colman) did not serve on the Committee. Committees are often stuffed to the gills with people who know nothing, and care even less, about the subject under consideration. The hon. Gentleman is an expert on whom we could have leaned. We could have listened to his advice, and probably concluded our deliberations much sooner. I hope that he will speak on this subject in the future—in fact, I look forward to hearing from him in a few moments.

This is an uncontroversial Bill, and we shall not divide the House on it this evening—although it is not terribly wise to send Labour Members home just yet. The debate on the Bill was quite exciting. At times, I expected to see great shafts of light issuing from the ceiling and cherubim and seraphim dancing in it, because this is the stuff of the road to Damascus. The Government have a new enthusiasm for private finance initiative projects. In the past few years, I have listened to Labour Members of Parliament and parliamentary candidates describing the wickedness of the PFI, which they called a waste of taxpayers' money.

However, there is now a new enthusiasm for the PFI. PFI projects worth about £7 billion are in the pipeline, thanks to the Conservative Government. I recall Labour Members' cynicism about the PFI and the vitriol that they aimed at it—but that was then, and this is now.

The Government have embraced existing legislation that was prepared for a Conservative Government, which complements perfectly the 1997 local government capital finance regulations. Hon. Members referred to several high-profile court cases that sent a shiver down the back of the banks and financial institutions. Partnership agreements were found to be unenforceable and banks suffered losses, seriously harming confidence in local authorities as serious risks.

We have heard a little about the Waltham Forest and Allerdale cases. Contracts that had been entered into were found to be null and void because the local authority lacked the necessary credits. The repercussions were quite serious. The company had no recourse to legal action, and was saddled with considerable bad debts. The company in the Allerdale case is pursuing individual councillors as company directors. I have some sympathy—as do Labour Members—for those councillors who sought professional advice and were badly let down by their advisers.

The Bill provides clarity where there was doubt, and parties now know where they stand. The public will know where they stand, thanks to a concession secured by my hon. Friend the Member for Christchurch that will ensure that documents are open for inspection.

I have referred to the road to Damascus, but perhaps it might be better to regard the legislation as the manifestation of a crate culture in the Labour party. Hon. Members will recall that, during the second world war, the American air force parachuted crates on to remote Pacific islands in order to look after their fliers who might be stranded there. The islanders created a new religion from that activity, and the same sort of thing is happening with the PFI. The PFI is being bandied around the Chamber as the solution to every problem: if we need a new hospital, call for PFI; if we need a new tube network or a new school, call for PFI. The scheme seems to have no limitations.

However, the PFI has limits. It transfers the risks, and offers the opportunity of new finances for public services. That risk transfer allows the release of provisions that were needed in order to deal with that risk. However, although the PFI brings new finance, it certainly does not bring new funds for local authorities. It is simply a rescheduling of debt. New funds can be created only through the release of real resources—and the PFI does not do that.

During the recent debate on the future of the London underground, I likened the PFI process to that of a person buying a home: the building society provides the finance, but the purchaser provides the funds. Companies that enter into contracts with local councils will be seen to enjoy a special relationship. We must consider carefully the way in which the Bill will operate in practice. We must be absolutely certain that no special favours are shown to those who enter into contracts with local authorities.

When that issue was considered in Committee, the hon. Lady referred to local authorities as having the powers of planning authorities and of those who enter into contracts. She seemed to suggest that that situation was well established. However, she has since retreated from that position. In her winding-up speech today, she said that there was no need to consider the situation, as it was well established.

I have read her remarks in Hansard, and I believe that we will have to re-examine the matter in another place by way of certification and through greater openness because of problems with planning gain. The situation is slightly different from that suggested by the hon. Lady. Earlier this year, the Department of the Environment issued a circular, which made it clear that, To retain public confidence, such arrangements must be operated in accordance with the fundamental principle that planning permission may not be bought or sold. This principle is best served when negotiations are conducted in a way which is seen to be fair, open and reasonable". What better way to achieve to achieve that than in the process of certification?

I have the smallest criticism of the previous Government, because one point was left open on planning problems. I am sure that the Minister would like me to mention it.

When an important company cosies up to a local authority, officers from the council and the company will inevitably get to know one another, and in many ways the arrangement almost becomes an extension of the council. The recent case of Tesco v. the Secretary of State for the Environment shows that, if an authority decides not to follow the guidance, and the application is not called in, the local authority does not have to follow Government guidelines. Perhaps we shall have to come back to the important—

Ms Armstrong

I should like to help the hon. Gentleman. He may know that Lord Nolan has today published his third report on local government. He makes recommendations about how planning decisions are made and handled. We shall consult widely on that in the light of the report, and will therefore be able to return to some of the issues that we discussed in Committee. I do not believe that those issues need detain us at the moment, but we shall take any recommendations seriously and consult on them.

Mr. Pickles

That is most helpful. In Committee, the hon. Lady said that the issue was one of certification, and had nothing to do with planning. If she is moving from that position, that is marvelous.

Ms Armstrong


Mr. Pickles

I hope that the hon. Lady is not going to disappoint me by retracting.

Ms Armstrong

I am trying to be helpful. What I have just said does not interfere with what I said about certification. We shall deal with any concerns about planning issues through consultation and our response to the Nolan committee. I do not want the hon. Gentleman to run away with the thought that we are not serious about that, but nor do I want him to think that we shall have to come back to the Bill with subsequent amendments. The Bill deals adequately with the situation. Planning issues will have to be dealt with in the other way.

Mr. Pickles

I cannot imagine the hon. Lady being anything other than helpful. She claims that what she has just said does not interfere with what she said in Committee, but it slightly contradicts some of what she said before.

The public would expect to know about the state of planning in certification. I cannot put that better than Mr. Charles Kirkman did. He is quoted in the Nolan report, setting out the problem that we are asking the Minister to address. He said: I appreciate that this is a difficult problem to solve but it does appear in principle wrong, that councils should determine planning applications, in which they themselves have a strong financial interest. Even if a theoretical division of development and planning functions were introduced, it would be difficult to implement under a single Chief Executive. I share that view. I recognise that the hon. Lady will want to return to the Nolan recommendations, but we must consider the issue. We all felt deep shame when we read this morning about the problems of Doncaster council. The problem is not just the level of corruption in Doncaster, but the apparently cosy relationships between developers and councils.

I repeat that we do not intend to press for a Division, but we expect the Government to look carefully at the difficult issues of conflicts of interest.

8.4 pm

Mr. Tony Colman

I congratulate the Government on the speed with which they have brought the Bill forward. We must remind ourselves that it is still only 68 days since the general election. As chairman of 4 Ps, I know that there was no Bill ready to inherit. For some time, 4 Ps had been asking for one, representing local authorities and the private companies working on PFI projects. Bringing the Bill forward so rapidly shows the Government's determination to do business and to ensure that public-private partnerships flourish between local authorities and the private sector.

I was surprised to hear the hon. Member for Brentwood and Ongar (Mr. Pickles) talk about a Damascene conversion. That conversion has really been on the other side. My right hon. Friend the Member for Hull, East (Mr. Prescott) started down the road towards the private finance initiative back in 1991. It is important to remember that it is a Labour party idea. We are now going to demonstrate properly how it can be carried into local government and other areas.

I am pleased that the Opposition do not want to press for a Division, and that they support the Bill. I hope that the slight threats issued by the hon. Member for Brentwood and Ongar do not presage possible changes in another place. I am concerned, because the private sector and local government want to get on with the projects. We want to give local government and the private sector the assurances in the Bill.

Credit is due to officials at the Department of the Environment, Transport and the Regions and at the Treasury, as well as to the 4 Ps legal forum. In particular, I pay tribute to the work of Paul Bryans and Peter Fanning, the new chief executive of 4 Ps, for their work in preparing the Bill. We have had to concertina the consultation, but local government and private sector lawyers were fully involved. There were 24 Government amendments in Committee, showing how those views were taken into account. As a humble Back Bencher in the Government party, I take pride in the Bill, which I believe will be acceptable to those to whom it will apply.

Clifford Chance—one of the largest legal practices in the United Kingdom and a member of the 4 Ps legal forum—has welcomed the Bill, calling it a quick fix response to current uncertainties about local authority powers and an improvement on the present position. Many other legal practices, including Evershed, have echoed that strong endorsement of the Bill as a way forward.

The Bill has clear, limited objectives, addressing the concerns of private companies wishing to do business with local authorities. Those objectives were drafted against an extremely complex framework of local authority legislation and regulation. As a former leader of a local authority, I can vouch for the difficulties that the Bill has had to confront to fit in with that legislation. Some Opposition amendments could not be taken on board.

The Bill appears to meet its limited objectives admirably. However, the private finance initiative is a new and developing approach for local government. It would be imprudent to rule out the possibility of further legislation being needed should gaps emerge as ideas for public-private partnerships develop. I have every confidence that the Government will be ready to act if the need arises.

8.8 pm

Mr. Burstow

I shall try not to detain the House too long, but I should like to raise several points that were mentioned earlier but remain of concern.

First, I should like to pick up one or two of the comments by the hon. Member for Brentwood and Ongar (Mr. Pickles). He remarked on the Government's Damascene change of attitude on the PFI. We seem to have witnessed two roads to Damascus this evening, as he made some refreshing and honest comments on the validity and value of the PFI as a significant way of levering private finance into local government. I was grateful to witness two Damascene changes of belief tonight.

Secondly, the hon. Gentleman referred to our discussions in Committee about the need to be concerned about conflicts of interest that might arise in determining planning applications. I agreed with the Minister's comments in Committee, and raised concerns that accepting an amendment that would effectively put an obligation on an authority to have regard to its planning decisions in its contracting arrangements could be construed as fettering the discretion of elected members of local authorities in discharging their planning responsibilities. I would not wish that to be included in the Bill in any way, shape or form.

The hon. Gentleman and the Minister referred to the third report of the Committee on Standards in Public Life, and particularly to the section dealing with potential conflicts of interest. I draw attention to the conclusion of that section of the report, which states: Our conclusion is that the balance struck at present between local autonomy and central guidance and supervision is broadly correct. The Department of the Environment must however be kept fully informed and show due diligence. It must not hesitate to step in if public disquiet is clear. Respect for local autonomy is a good principle, but it has led the Department to fail to respond to serious local concerns in the past. The report then makes two specific recommendations, to which I am sure the House will return.

The question of autonomy goes to the heart of what the Bill should have been about. It has been our contention throughout its passage that an opportunity has been missed to pursue something in which we believe passionately, and which we thought, in a measured way, the Government also supported—the idea of extending to local authorities a power of local competence or, as the Labour party calls it, a power of local initiative. We were hoping that the Bill would provide an opportunity to engage with the Government on how we might achieve that end.

We do not agree with the view advanced by Ministers and shadow Ministers that a power of general competence is an illusion, and is simply symbolic. In evidence for that belief, we point to the many examples of powers of general competence that operate in other European countries that cherish and protect their local government in a clearer constitutional framework than ours.

I was grateful to the Minister for giving us on Report assurances in respect of the potential for exposing officers to liability for negligence. However, we regard the Bill as something of a red herring. That is not just because we believe that a power of general competence would address many of the issues that have caused concern in the business community in terms of the ability to enter into binding contracts with local authorities.

We also believe that the Government have slipped into the same habit that the previous Government had, of imposing duties on local authorities rather than giving them discretions. We fear that, although the Minister has told us that the Bill imposes no new duties, we should have done one of two things tonight. Either we should have implemented a power of general competence, or we should have sought to clarify the law in respect of the powers and duties of local authorities. The Bill forces the obligation on to local authorities, and creates a cumbersome and bureaucratic procedure.

Like the official Opposition, we have no intention of dividing the House as we believe strongly that although the Bill is imperfect, it provides some reassurance to the private sector and in that sense it represents a useful safeguard. However, if the Government are serious about building a new relationship with local government over the next few years, as I am sure they are, because they have many friends and colleagues in local government—they probably want that relationship to extend beyond the Labour party—they have to engage in a serious discussion about what a power of general competence might mean, as many in local government—not just from the Liberal Democrats but across all parties—believe that it is an appropriate next step.

Mr. Deputy Speaker (Mr. Michael J. Martin)

Order. The hon. Gentleman should not be discussing next steps. On Third Reading, he should discuss only what is in the Bill, and not what should be done in future.

Mr. Burstow

I am still on a learning curve in respect of the procedures of the House, Mr. Deputy Speaker. Please forgive me for not being aware of that.

In conclusion—[HON. MEMBERS: "Hear, hear"]—I thought that those words would be popular. We still regard the Bill as a rather crude and dirty measure. We do not believe that it achieves everything that is necessary, but we see it as a stop-gap that we hope will reassure the private sector. However, given the comments by Ministers that they are uncertain whether it will provide all the necessary assurances, we have our doubts. We remain to be convinced that we will not need to make further amendments to the legislation to provide further reassurance to business. That seems to be entirely the wrong approach.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

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