§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Hanson.]
2.30 pm§ Mr. Gareth Thomas (Clwyd, West)Denbighshire county council is one of the smaller unitary authorities in Wales. It is a creature of the Local Government (Wales) Act 1994 and local government reorganisation. Its birth and early years have been particularly difficult as a result of local government reorganisation, and the disastrous legacy of debt that Denbighshire inherited from one of its predecessor authorities, Rhuddlan borough council.
Many of my constituents live within Denbighshire county council's area. It is a diverse county embracing a large rural hinterland, which includes the historic markets towns of Denbigh and Ruthin, the latter being in my constituency. It also has a populous coastal belt centred on the seaside town of Rhyl, so vigorously represented by my hon. Friend the Member for Vale of Clwyd (Mr. Ruane), who unfortunately cannot be present today. However, I know that he would support fully the case that I propose to put on behalf of Denbighshire county council. My colleague, the Assembly Member for Clwyd, West, Mr. Alun Pugh and Mrs. Ann Jones, the Assembly Member for Vale of Clwyd, would also wholeheartedly support my case, as would the Chairman of the Select Committee on Welsh Affairs, my hon. Friend the Member for Clwyd, South (Mr. Jones), part of whose constituency includes an area of Denbighshire.
I am sure that the Minister will know that my hon. Friend the Member for Vale of Clwyd and I have been actively involved in this vexed issue since we were elected in 1997. He will also know that the Rhuddlan legacy has been the subject of an inquiry by the Select Committee on Welsh Affairs. Minutes of evidence of that inquiry have been published, and the report is awaited. The subject has also been dealt with by the district auditor on a number of occasions. A public interest report has been produced in view of the grave public disquiet about the matter. That report has, itself, been subject to a review.
I have met the Minister several times to discuss this matter. He has given a positive and helpful response to the crisis—I call it a crisis—with which Denbighshire has had to deal. However, a bad position has got markedly worse in recent weeks.
The purpose of this debate is, first, to spell out just how serious Denbighshire county council's financial position now is, especially in the light of fresh evidence of mismanagement of European regional development funds by Rhuddlan borough council.
Secondly, on behalf of my constituents, I shall underline the practical effect this problem has and will have on the services that Denbighshire county council provides, particularly in relation to schools, highways and other essential features of the work of a local council. Thirdly—I suppose that this was my main purpose in raising the issue—I invite the Government, in the form of both the Welsh Office and the Welsh Assembly, to give renewed and urgent attention to the need to devise a long-term solution to the county's problems, so that its finances can be put on a sustainable basis. I emphasise "long-term".
1487 The problem concerns the allocation of capital, rather than revenue. There is concern in Wales about what is described as the formula for allocation of revenue support grant, but I am not concerned with that today. The council has inherited what its chief executive, Mr. Huw Thomas, has rightly described as a "crushing and unexpected" burden of debt.
I am not talking about Denbighshire's position in absolute terms, or its position in the league table of local authority debt that the Minister may have in his possession, which might put a rather less damaging gloss on the situation. I am talking about the position of what, on any view, is a small county with a small capital base: a county that is experiencing serious repayment difficulties. I am just as concerned about the manner in which the debt is expected to be repaid as I am about the size of that debt.
At present, it seems that the debt inherited from the predecessor authority may well be as much as £10.7 million. It is unrealistic to suppose that that will not have a disastrous effect on the council's functions. This is how the debt is made up: Rhuddlan's capital deficit in 1995–96 was £3.9 million, and the carry-over payments for its capital schemes amounted to £3.3 million; Ffrith beach's clawback in regard to the European regional development fund—the amount that is now due—is £0.8 million. A further amount of £0.3 million is likely to be payable on the scheme. According to a report produced by Deloitte and Touche the accountants, at the behest of Denbighshire county council, there is likely to be further ERDF grant clawback totalling £2.3 million. The total inherited debt therefore amounts to £10.7 million.
Those figures should be seen in the context of Denbighshire's basic credit approval and its power to raise and spend capital: about £6 million per annum. However, when ring-fenced elements such as housing revenue accounts and housing improvement grants have been taken into consideration, the general element of the basic credit approval—in other words, what is available to finance capital expenditure—is £3.29 million. That is the starting point.
From that amount, Denbighshire must find money to finance highway repairs, school refurbishments, council house repairs and so forth. Moreover—crucially—it must find money for an increasing array of schemes provided by various grant agencies that are in a position to give the county much-needed capital resources, but only if the council can match the funding. That is an increasing feature of the way in which capital is provided for county councils. A small local authority unit with a modest BCA—on any view, even without inherited problems—would be hard pushed to maintain an adequate capital programme.
I commend to the Under-Secretary the minutes of evidence of the Welsh Affairs Select Committee's inquiry into the Rhuddlan legacy for a fuller account of the funding gap that arose shortly after the reorganisation, when it became apparent that Rhuddlan had overspent to the tune of £3.9 million—which is the first element of the legacy.
About two years ago, after lobbying by my hon. Friend the Member for Vale of Clwyd and me, the Welsh Office responded to the gap by devising a package through a 1488 special credit approval enabling Denbighshire to borrow an extra £2.5 million. The important point is that this money is repayable from Denbighshire's basic credit approval—its core capital and spending power—at the rate of no less than £500,000 per annum for five years, commencing in 2001–02. That is the major concern.
In the light of subsequent events, the repayment schedule is untenable. I ask the Minister, most earnestly, to take on board that fact. I should also add that Denbighshire county council has dealt with the balance of the overspend by recyling housing grants and by other action.
The second element of the legacy is what has been described as the carry-over of excess capital liabilities inherited from Rhuddlan, amounting to £3.3 million, and representing bills due that were incurred by Rhuddlan—which had led Denbighshire officials to believe that they would amount to no more than £400,000. As time wore on, however, the full scale of the carry-over became apparent.
I pay tribute to the officers of Denbighshire county council, particularly its chief executive, Mr. Huw Thomas, and its finance director, Mr. Nigel Thomas. I have no quarrel at all with them, but am entirely supportive of their efforts to do the best of a very bad job. They have sought to regularise Denbighshire county council's accounts, and have taken valiant steps to do so by devising ingenious methods of diverting capital resources, maximising resources and managing payments. The £3.3 million carry-over is being dealt with by such methods. Consequently, however, Denbighshire has had to forgo pursuing many of its objectives, and to concentrate largely on servicing its inherited capital commitments.
The third element of the legacy—as if all that were not serious enough—is the dire problems that have arisen as a result of the gross mismanagement of ERDF funds by the predecessor authority, putting Denbighshire in the invidious position of having to repay moneys to the ERDF by way of grant clawback. In the light of the new circumstances, the real fear is that unless there is a creative package of aid or—quite frankly—debt relief, that grant clawback will have to come out of basic credit approval.
Denbighshire county council needs to be able to repay the clawback from its revenue accounts through a special credit approval, payable not through the BCA over a short period, but over a much longer period, thereby putting its affairs on a much more sustainable basis.
The Minister is well aware of the problems associated with the Ffrith beach development. The council now considers it likely that the full extent of the grant—£1.1 million—will be repayable. I spoke to the chief executive recently and he feels that that is almost inevitable. However, the Deloitte report was referred to in Denbighshire's evidence to the Select Committee. It indicated that further steps would be taken to assess the size and extensiveness of the problem of the mismanagement of EU funds. The report was published last month. It is likely that no fewer than three schemes are not capable of being signed off or certified as conforming with the original grant claims. I refer to the children's village, the Rhyl station gateway and the Rhyl high street pedestrianisation. Consequently, there is a very real prospect that £2.3 million will have to be paid back by way of grant clawback.
1489 In my view and that of the chief executive, this latest development puts the council in a critical position. There are issues as to how the predecessor authority could ever have got itself into a position whereby EU funds and grants from other agencies were mishandled, misspent and abused. I shall not pursue it now, but in my view there is certainly a moral and political case that the Welsh Office should be held liable to Denbighshire because it can reasonably be argued that inadequate control was exercised over the manner in which Rhuddlan and other councils in Wales administered ERDF funds. I may wish to pursue that point at a later stage, but at the moment I am more interested in the way forward.
It is important for the public to know that Denbighshire finds itself in an invidious and difficult position not as a result of its own actions, but as a result of actions taken by the predecessor authority, because in law the successor authority stands in the shoes of the predecessor authority. I am asking the Minister—and the National Assembly—to give the most sympathetic consideration to that point.
The size of the capital debt problem is beyond what is reasonable for an authority to manage alone, especially when it is not responsible for its inheritance. I am not expecting the Minister today to give me any firm indications as to what he or certainly the Welsh Assembly would propose to do. First, I am seeking an indication that the Government realise the exceptional nature of Denbighshire's predicament. As far as I am aware, no other authority in England or Wales has experienced similar problems. Secondly, in due course I hope to have meetings with the First Secretary and other Secretaries of the National Assembly, together with fellow Members of Parliament and Assembly Members representing Denbighshire, to discuss the issue. I seek a way forward to relieve the pressure on Denbighshire's basic credit approval by allowing a flexible package whereby an SCA could be granted to cover the debt, particularly in relation to the clawback.
The original rescue package is totally inadequate in the light of the new evidence. I am making a plea on behalf of my constituents. I have been provided with a long list of capital projects that the county would like realised. It amounts to £26 million of much needed work. There is an enormous backlog of highway repairs and council house repairs. I am particularly concerned about the state of the fabric of Brynhyfryd school in my constituency. The pressures on its resources are greater because it is a bilingual school. It does excellent work, but the physical environment is disgraceful. Little can be done for the school unless the pressure on Denbighshire's capital budget is relieved. I hope that my hon. Friend the Minister will take that on board and will carry the message to Cardiff and the National Assembly.
The Parliamentary Under-Secretary of State for Wales (Mr. Jon Owen Jones)I congratulate my hon. Friend on securing the debate. Today was almost his last chance to raise the subject here, because within six days it will be a matter for the National Assembly for Wales.
I recognise the importance of the issue. From the moment that it became evident, after the reorganisation of local government in 1996, that Denbighshire county council would be facing financial difficulties as a result of the capital spending of the former Rhuddlan borough 1490 council, the Welsh Office began to work closely with the council. By early 1997 it was clear that the council had inherited a substantial, unanticipated debt, although its precise level is still unclear.
On the basis of the figures that I have looked at, the outstanding loan debt of Denbighshire is in the lowest third of all Welsh unitary authority debts. All Welsh unitary authorities inherited debts. That relative position takes into account the council's relative size. It is difficult to accept that the problem is particularly acute in Denbighshire in an absolute or a relative sense. However, I sympathise with my hon. Friend on the potential and uncertain increase that could confront the authority as a result of possible clawback that may be required by the European Commission owing to the apparent poor control exercised by the former Rhuddlan borough council.
Those problems are highlighted by the fact that the district auditor had considerable difficulty in tracing papers relating to the accounts. Denbighshire was offered a financial package that helped the authority to service its capital debt and to minimise the effect on service provision and the level of council tax. The package allowed the council to use £1 million of supplementary credit approval, originally issued for home renovation grants, for unfinanced capital expenditure. The package also gave the authority an additional SCA of £1.5 million towards unfinanced expenditure. That SCA was issued on the understanding that the authority would repay it by accepting a reduction of £500,000 a year in its basic credit approval over three years, starting in 1998–99.
In August 1997, following the publication by the district auditor of a public interest report, the then Under-Secretary, my hon. Friend the Member for Bridgend (Mr. Griffiths), authorised an enhanced financial package, which included a supplementary credit approval of £2.5 million, with a repayment period of five years beginning in this financial year.
Because of the particular circumstances surrounding the financial position of Denbighshire and the public interest that it evoked, the Welsh Affairs Committee has been investigating the problems caused by the inherited debt, and has sought to establish what lessons could be learned for the future. The Committee is expected to issue its report in a few weeks' time.
In giving oral evidence to the Committee, Denbighshire's chief executive took a positive approach, saying that now that the authority has
brought the Rhuddlan accounts into Denbighshire's and obtained assistance from the Welsh Office, we can actually put this behind us and create something new for Denbighshire.The district auditor, in summarising his evidence, said:Given Denbighshire's positive approach, the assistance provided by the Secretary of State and the Council's position relative to other Welsh authorities, if further problems do not arise, with careful planning and monitoring, Denbighshire should be able to manage its financial position.The financial packages had been offered against a background of uncertainty as to the precise extent of the debt. Earlier this year, my right hon. Friend the Secretary of State issued Denbighshire with a further supplementary credit approval to enable the council to complete a review of its capital programmes, and particularly the capital projects that it had inherited from Rhuddlan. This review, 1491 conducted by Deloitte and Touche, has recently been completed, and highlighted various matters that needed to be addressed.Among those matters—as my hon. Friend the Member for Clwyd, West (Mr. Thomas) has indicated—are certain issues concerning four European regional development fund projects sponsored by Rhuddlan borough council. My officials have already held informal discussions with chief officers of Denbighshire about these projects, and are now urgently considering in greater detail the various options that might be open to us to handle the apparent difficulties.
The Commission has also become aware of the review and the possible implications for its ERDF investment, and has been sent a copy of the report. Arrangements have been made for my officials to meet the Commission on Monday to discuss the report and its possible implications.
This is not the only ERDF-related issue facing the authority. In October 1997, the European Commission informed the Welsh Office that it was considering, under article 24 of the co-ordination regulations, reducing, suspending or cancelling assistance to the Ffrith beach project on the basis that there had been a significant modification of the conditions on which the grant was awarded to it.
Having consulted Denbighshire about this approach, the Welsh Office responded to the Commission that, as action by the authority to attract private investment to the site was continuing, it was not unreasonable to expect substantial progress towards meeting the project outputs by 31 December 1999 so action under article 24 was inappropriate.
1492 The Commission does not at this stage appear to be convinced by that response and is currently seeking the repayment of £768,000 of ERDF grant, with the caveat that it is prepared to leave the remaining £357,000 with the authority until 31 December 1999—the programme's closure date. At that point, it will wish to consider whether the original outputs have been achieved. The Commission will decide at that time whether or not to seek repayment of the £357,000 from Denbighshire.
Both we and the authority are continuing to resist the Commission's demands over Ffrith beach, but whether we will ultimately be succesful is impossible to predict. To provide the authority with the wherewithal, if necessary, to make any repayments, we have agreed with Denbighshire that if the Commission reclaims grant, we will reduce the amount of supplementary credit approval that the authority has to repay.
I trust that it will be evident to my hon. Friend the Member for Clwyd, West that I fully recognise the gravity of the financial position confronting Denbighshire and that we have done all that is possible and reasonable to assist the authority either to avoid potential repayments or, where those are inescapable, to assist, as far as we can, with the necessary resources to facilitate the repayments. My hon. Friend will realise that the Welsh Office has to be seen to act fairly with Denbighshire, but also with other local authorities.
From next Thursday, these responsibilities will pass to the National Assembly for Wales, which I am sure will continue to work closely with Denbighshire to help it resolve its problems.
Question put and agreed to. Adjourned accordingly at Three o'clock.