DUTY TO DETERMINE AFFORDABLE BORROWING LIMIT (Hansard, 15 September 2003)

§ Mr. Raynsford
I beg to move, That this House agrees with the Lords in the said amendment.

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
With this it will be convenient to consider Lords amendments Nos. 4 and 5.

§ Mr. Raynsford
These Government amendments to clauses 3, 15 and 21 were made on Third Reading in the other place. All three clauses include powers for the Secretary of State to make regulations referring to published codes of practice and requiring authorities to have regard to them. [Interruption.]

§ Mr. Deputy Speaker
Order. I am sorry to interrupt the Minister. Hon. Members who are not taking part in the debate should leave quickly and quietly, as they are disturbing the order of the House.

§ Mr. Raynsford
Thank you, Mr. Deputy Speaker.
The provisions are crucial to our aim of basing the new capital finance system on independent codes of practice and accounting standards. The Lords amendments will ensure that any revised editions of such codes are covered by the regulations.
Clause 3 will establish the prudential borrowing system. Authorities will be required to determine their own affordable borrowing limits and in doing so may be required to have regard to codes of practice specified in 638 regulations. We have of course specified the prudential code for capital finance in local authorities, which is being specially prepared by the Chartered Institute of Public Finance and Accountancy.
The regulations under clauses 15 and 21 also refer to CIPFA codes. Clause 15 provides a power to specify general guidance and, in this case, we have named CIPFA's Treasury management code. The code is already widely used by authorities and sets out practice in areas such as investment and the management of debt.
Clause 21 deals with the accounting practices to be followed by authorities. It will enable the Secretary of State to specify proper practices, and the regulations identify two other well-established CIPFA codes—the statement of recommended practice and the best value accounting code—which together lay down the basis of local government financial management and accounting.
We always intended that the regulations should refer automatically to new editions of those codes as they were published. It would be undesirable to have to make amended regulations whenever one of the codes was reissued, as that could create uncertainty about the legal status of a new edition of a code. Also, the need for each revised edition to be approved by Government might cast doubt upon our commitment to accounting practice as the basis for the capital finance system. Our approach in that respect has the full support of local government and was endorsed in Committee.
On reviewing the drafting of those three clauses, we considered that the treatment of new editions should be clarified. These technical amendments therefore expand each clause to state that the references to codes are not limited to the existing editions.

§ Mr. Hammond
I wonder whether I am the only hon. Member who is completely unenlightened by the reference, used in the title of this group in the provisional groupings list, to "ambulatory references" in part 1 regulations. I have no idea why a provision that allows a regulation to refer to future versions, rather than just the existing version, should be thought an ambulatory reference, but, no doubt, some civil servant with a first class honours degree—in classics, probably—was responsible for the title and will enlighten the Minister in due course, and perhaps he will then enlighten me when the opportunity arises.
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The amendments clarify the power to make regulations. The Minister talked about clarifying the scope of the regulations, but the regulation was clear. The draft regulation was already before the Committee when we looked at the matter, and it clearly included the phrase: shall have regard to any current prudential code for capital finance". The Minister is therefore clarifying the power of the Secretary of State to make the regulation that he intends to lay by ensuring that the Bill says clearly that a regulation can embrace future changes to a code. The Minister played down the issue and said that the Government always intended it in that way. 639 The Minister's noble Friend Lord Bassam said in the other place that the amendment merely clarified the original intention. I must question slightly that interpretation of events. It is my understanding that the Minister of State is the lead policy Minister in this area. We had an exchange in Committee in which the Minister said in answer to a question: The code will be issued under regulation, so a revision to the code would require the same procedure. I queried that response, saying: as the CIPFA code was introduced by regulation, it would be appropriate for any amendment to that code to be introduced by regulation. Surely, that is incorrect, because regulation 2 states that a local authority should have regard to any current prudential code for capital finance … I understand that to mean that if CIPFA revises its code, in the absence of a regulation de-specifying it, that code will automatically be incorporated." The Minister, who has lead policy responsibility, replied: The hon. Gentleman may well be right. I will look further into the matter and give him a detailed response."—[Official Report, Standing Committee A, 21 January 2003; c. 63–64.] That suggests to me that it is not clear that it was always the Government's intention.
I am happy, however, that we now have on the same page the idea that CIPFA will define from day to day the code of practice that is in force and to which regard must be had, although of course we would expect CIPFA to liaise with the Government to ensure that the code met everybody's requirements. Via this rather tortuous ambulatory route, however, we are at last back to where I thought we were in Committee. I am pleased that the Secretary of State's power to make the regulation that he intends to make is now enshrined in the Bill beyond any reasonable doubt, and we have no problem with the amendment.

§ Matthew Green
This amendment is a straightforward clarification and makes a great deal of sense. I see little point in saying a great deal more about it other than that we support it.

§ Mr. Redwood
I hope that when the Minister replies he will clarify some of the uncertainties in my mind and in the minds of some of those who work in local government.
I understand that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) agrees that this legislation should allow the House to grant that local authorities must have regard to regulations and guidance that have not yet been formulated, and I understand that the Minister wants to avoid coming back to this House in the event that guidance needs to change. The power that we are granting is therefore quite wide-ranging. Before the House grants the power, would it not be wise to make sure that we know what the Minister thinks "having regard to" means? How strong is it? Is the Minister saying to local government that it should read it, discuss it and put something on file to show that it knows it exists, but that it does not have to follow every dot and comma—that it can exercise its judgment? Alternatively, are the Government saying that under this wide-ranging power they will in future be 640 able to set out prescriptive guidance that effectively gives them detailed control over important parts of local authority activity?

§ Mr. Hammond
My right hon. Friend probably knows from having looked at the debates on this subject in the other place that Lord Simon of Glaisdale was quoted as opining that the phrase "having regard to" meant precisely nothing.

§ Mr. Redwood
I did not know that, but it is one possible interpretation. I suspect that with this Government it means rather more than nothing. I think what the Government have in mind is to have more and more influence over local government by means of guidance. We are asked in these amendments to strengthen the Government's hand, and to bind local government in this rather vague way in three different types of guidance, and we are asked by the amendments to say that any future guidance should be covered by this legislation, even though the House does not have the advantage of foresight and does not know exactly what future guidance that might be. It is an all-embracing power, if the Government wish to use it in that way. I heard the Minister in the previous debate make it clear that he would like to be a liberalising Minister, leaving local government freer. That is where I become suspicious.
It would help the debate on these amendments if the Minister were to make it clear that a local council can properly have regard to guidance but ignore it—that it can properly say that it has met and considered it, that it thinks that it is very interesting and fine guidance, but that on this occasion it wishes to deviate from it, ignore it or do something better, because it believes that it is in the interests of its council tax payers and of the public that it serves that it does not follow the guidance on this occasion. If the Minister is saying that "having regard to" is strong, and that all the actual and future guidance must be followed almost to the letter, it is a prescriptive measure, and I would not share my hon. Friend's ease and comfort in welcoming it.

§ Mr. Raynsford
We have had a short and interesting debate. I am pleased to tell the hon. Member for Runnymede and Weybridge (Mr. Hammond) that the word "ambulatory" was inserted at the instigation of parliamentary counsel, who clearly understand the significance of these forms of Latin, which, I suspect, elude most Members. As the hon. Gentleman rightly pointed out, the need for further regulations was debated in Committee, and it is true that as a result of reflecting on the exchanges that we had in Committee, we felt that there was a case to clarify and to take beyond all reasonable doubt the fact that future editions of codes would be covered without the need for new regulations, which I feared might be necessary. I am grateful to the hon. Gentleman for highlighting the point in Committee, and I am pleased that he agrees with the approach that we have now adopted.
The right hon. Member for Wokingham (Mr. Redwood) raised the interesting question of the meaning of "have regard to". He will know as a former Secretary of State that a great deal of government is based on the concept of having regard to. He will know that the nuance of that phrase lies between the absolute 641 requirement of a direction, which requires someone to do something, and the entire discretion to do whatever they wish. Clearly, it would not be appropriate for an authority to act without considering the message contained within the relevant guidance. It is generally understood good practice that when an authority that is subject to a duty to have regard to something chooses not to follow any specific advice, it must have good reasons for doing so. That is normally understood. It does not, however, require the authority in all circumstances to follow the guidance precisely to the letter if it has good reason for departing from it.
That is my understanding of the general framework, and I notice that the right hon. Member for Wokingham is nodding and probably has a similar understanding of the force of that particular phrase. It is certainly our wish that this guidance should be considered carefully by local authorities, not as a straitjacket but as helpful advice to ensure good administration. On that understanding, I hope that the hon. Member for Runnymede and Weybridge and his right hon. and hon. Friends can agree to the amendments. I am grateful for the support of the Liberal Democrats.