HL Deb 17 June 2003 vol 649 cc223-86GC

(Sixth Day)

Tuesday, 17th June 2003.

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Baroness Gould of Potternewton) in the Chair.]

Clause 78 [Statutory revaluation cycle]:

The Deputy Chairman of Committees (Baroness Gould of Potternewton)

If Amendment No. 169 is agreed to, I shall not be able to call Amendment No. 170 by reason of pre-emption.

[Amendment No. 169 not moved.]

The Earl of Caithness moved Amendment No. 170: Page 40, line 33, leave out "tenth" and insert "fifth

The noble Earl said: This simple amendment seeks to find out why the Government want revaluations. I recall our discussions on a Local Government Bill in the early 1990s on this. At the time, the whole point of the revaluation and setting the hands was to avoid the hassle of future revaluations, but the Government want to change that. They seek now a revaluation every 10 years.

What is the point of doing a revaluation in the first place and, furthermore, what is the point of revaluing every tenth year rather than every fifth year? I beg to move.

Lord Smith of Leigh

In speaking to Amendment No. 171, I want to state clearly that I believe that revaluation does matter. Yesterday evening we touched on the matter of change in property values which distorts valuations and the need to value new properties. The impact of that is very important on the resource equalisation grant. Money going to local authorities reflects council tax valuations and the SIGOMA authorities, of which I am the vice-chairman, have calculated that some £250 million is being lost to those authorities because of the lack of a revaluation.

It goes without saying that house prices rise more rapidly in the most prosperous areas. Therefore, the areas which are most deprived are the ones that lose out on the resource equalisation grant. So this does matter.

I understand why my noble friend has set a period of 10 years for revaluation, because of the labour costs and administrative difficulties associated with doing it on a more frequent basis. Furthermore, as we touched on yesterday, politics and public reactions come into this, which leads to further delays and a certain amount of resistance.

If we keep to the 10-year cycle of revaluation and if the current rate of house price inflation is sustained over that period, then by the end we could see differentials in value of between 60 per cent and more than 150 per cent of current values. Those differentials matter because, as I said, in turn they will impact upon grant.

My amendment proposes a very simple process of refreshing house price valuations on a regular, annual basis. These days data on changes in house prices can readily be made available. That data from the private sector is available locally and on a regional basis. Indeed, it could be used as a guide to changes in house price values. I fully accept that this may be something of a rough guide for individual properties, but then as I pointed out at Second Reading, the whole process of council tax valuation in the first place was hardly an exact science.

Over the 10-year cycle, we will be able to correct for any minor amendments that have taken place. if a system of annual refreshments were established, I think that we would have a much smoother and more publicly acceptable change and, of course, any such changes would be small.

I hardly dare mention this, but some years ago, after moving an amendment to a Finance Bill in another place, my noble friend on the Front Bench earned a place in political history for recognising the importance of making tax systems reflect inflationary pressures. Obviously he thought that was extremely important. I hope that he will now think carefully about whether we could do something similar in terms of property taxation.

Baroness Maddock

I have a certain amount of sympathy with the noble Lord particularly given our debate yesterday and the fact that, without any fixed time for revaluing, whether a long time or a short time, one ends up with huge problems. It is never the right time to do it. This morning I was interested to read in the newspaper yet again what has happened to house prices. The newspapers seem able to say one week that house prices are falling, and the next that the situation has stabilised and the market is on track—as the reports told us this morning. If we can be given that information each week in the newspaper, there is some evidence to back up the noble Earl's proposal that we should revalue more regularly.

My only point, which I suspect the Minister will address in his reply, is on the problem with people appealing against valuations. When I first entered another place the first council tax valuations were being done. My caseload in surgeries was very heavy with people appealing against which band their house was going into. Perhaps we could deal with the problem more effectively by means of modern technology; I do not know. However, that is the big question that we will have to solve if we are going to go along with the noble Earl's amendment.

Lord Bassam of Brighton

I am grateful to noble Lords for stimulating this discussion about the revaluation periods. We set out our policy in the White Paper. In that we said that there should be a 10-yearly cycle of revaluations with the first one taking effect in 2007. The Local Government Finance Act 1992 made some provision for changing the valuation bands and the ratios between them, but there was no provision for replacement of the valuation list or a statutory cycle of revaluation. Presumably for their own reasons the government of the time thought that that was not a wise thing to do. We think that it is necessary. That is why we have the clauses before us and why we seek approval for them.

Amendments Nos. 169, 170 and 171 look at the issue of frequency. Amendment No. 169 would require the valuation list to be updated annually from 1st April 2007, based on an index of housing prices for the local authority area. Amendment No. 170 would require the tax revaluation to be at least every five years, compared with the current Clause 78 which requires them to be every 10 years. Amendment No. 171 seeks to overlay Clause 78 with a requirement to have an annual revision of the valuation list by the billing authority.

We have carefully considered the frequency issue. It is not necessary for a council tax revaluation to be as frequent as every year—although I recognise the point that house prices constantly vary—because council tax is based on a broad valuation principle. So revaluation is to be used effectively but sparingly at the right time. It is worth reminding ourselves how large the volume of revaluations would be—some 20 million domestic properties. That is a massive exercise. It might be good for those carrying out the valuations, but not necessarily so good in terms of keeping data in place, up to date and timely.

The proposal for a 10-year cycle means that council tax revaluation will follow two years after every second business rate revaluation, so the work would be staggered. We think that that strikes the right balance and does not put an unacceptable burden on the Valuation Office Agency which is to undertake both revaluations.

We accept that with greater use of computer-aided valuation techniques it may be possible to undertake valuations at a much lower cost. So it is possible that a future government might wish to have a shorter cycle of revaluation. That is why Clause 78 has been drafted to allow the period between revaluations to be less than 10 years.

We believe that the amendments, which require annual reassessments, would be unduly inflexible, especially as our clause allows for the possibility of revaluations more often than every 10 years. Given the position of the Government on the 10-year cycle and the flexibility that it gives to a future government, Clause 78 seems right and appropriate. I suggest that the noble Earl may wish to withdraw his amendments.

Lord Smith of Leigh

Obviously I cannot tempt my noble friends to make a contribution on this matter in view of its history, but never mind.

I understand that a revaluation is expensive and involves many people. However, I have checked with my treasurer, who feels that a fairly junior officer could put a simple multiplier on house valuations in a couple of days each year, in about September. That could be embraced within the new council tax valuations which we normally announce in December. So it is not such a problem in terms of administration.

I recognise that the Government want a fundamental revaluation. The Minister said that they would look at a more regular revaluation to avoid some of the political difficulties that governments have got into in the past. Even the noble Earl, Lord Caithness, said that the previous government brought in the poll tax as a way of re-evaluating the old rate system. So we can see what kind of political difficulties governments can get into over revaluation. Having said that, I will not press my amendment.

The Earl of Caithness

I agree with the noble Lord, Lord Smith of Leigh, that the Government will get themselves into a right tangle on this. To delay revaluation to every tenth year will involve a load of agony. By the time 2007 comes along my noble friend Lord Hanningfield will be the Minister in charge and taking the flak in regard to revaluation.

I was interested in what the noble Baroness, Lady Maddock, said. I should caution her, in the best way that I can, not to believe what she reads in the press about house prices. I could never correlate what the press was saying with what was happening in our estate agency. I did not understand from where the press got its figures. Yes, you can get some quite accurate figures from certain mortgage companies and the RICS, but they reflect general trends. As she will know, house prices can vary significantly from one end of a street to the other and to a greater degree within a larger area.

As regards my Amendment No. 170, the Minister did not give any good justification for having a 10-year revision cycle. He briefly mentioned the question of costs, on which I thought he would concentrate, but he then said that there would be computer-assisted mass appraisal techniques and that costs could come down rapidly. With the enhancement of computer technology, that is something that could be done and could reduce the costs.

I hope that the Minister will give further consideration to this matter between now and another stage. The 10-year revaluation will be problematical for local authorities and individual owners. Would the Minister like to add to what he said? It would appear that he does not.

Lord Bassam of Brighton

I wish only to say that yesterday the noble Earl, Lord Caithness, was refreshingly frank about the problems that confronted his own government. We are determined not to get into that kind of tangle.

The Earl of Caithness

The noble Lord will get into exactly that tangle with a 10-year revaluation cycle. I beg leave to withdraw the amendment for the time being.

Amendment. by leave, withdrawn.

[Amendment No. 171 not moved.]

3.45 p.m.

On Question, Whether Clause 78 shall stand part of the Bill?

Lord Hanningfield

We had a long discussion about this last night. When we started the debate, I questioned the need for a revaluation at all. When the council tax was introduced, the idea was that it would not need revaluations. We have heard various arguments in favour of revaluations because of the change in property values.

The reason for introducing the community charge was because the rates became unacceptable and there had been revaluations. I remember it quite well—it was in my early days in local government. There were a lot of horror stories about the original revaluation in Scotland, leading to the introduction of the community charge which, because it was unpopular, eventually led to the council tax. Perhaps the Government wish to go down the road of unpopularity. As I said, governments tend not to win elections immediately after a revaluation, although perhaps it might be good to have one in that it would provide good ammunition for Conservatives in future general elections.

I believe this part of the Bill will cause a lot of people a lot of anxiety. Therefore it is unnecessary. I object to the Question that Clause 78 stand part.

The Minister of State, Office of the Deputy Prime Minister (Lord Rooker)

I will respond briefly because we can come back to this at another stage if a vote is required. Many Conservative councillors in some of the northern towns and cities, where they won a lot of seats recently, will greatly benefit from revaluation for their communities simply on the grounds that the ratios have become wrong over a period of time because house prices do not rise at the same level across the country. It is quite a selfish approach to say that the level that has been set should take no account of the changes in values.

We have a property tax system. If we had a local income tax system, the effect would be the same. We need a regulator. This is like the old rating system in that it is fixed, but the idea that nothing should change is barmy. As my noble friend says, we will handle the new system with great care. It will be handled with discretion, transparency, fairness and inclusivity to make sure it appeals to this one nation. I think there are some one nation Tories still about.

This property tax is implicit in the system introduced by the previous Conservative administration but we must take account of changes in property values. I realise that this could lead to a significant political battle. We have done it before and, being a responsible government, we will not flinch at taking on the forces of unfairness and those who seek an advantage for the few rather than the many. All the tried-and-tested slogans will be brought out; we have done it twice and will do it a third time.

It is very unfair simply to argue that there should not be a revaluation to take account of changes. You could not make the same argument for non-domestic rates in terms of changes in rent for office buildings. I do not know much about that area but there are massive variations across the country due to location and region. This is taken into account in the commercial sector. In this case, it is very important, in terms of fairness for local authorities, to have a system that takes account of change.

I know the argument which asks: why 10 years, why not eight or 15? Ten years has been agreed—this is nothing new, as I said yesterday. There has been a Green Paper, a White Paper and a draft Bill. This is no surprise to anybody.

Lord Hanningtield

I should like to deploy this argument now, as it is very relevant to the next set of amendments as well.

The Minister said several times that the council tax is a property tax. But it is not just a property tax. When we had a property tax; it was in the form of rates, which became very unpopular. As a young councillor. I remember the then Leader of the Opposition, Margaret Thatcher, pledging to thousands of people, at some meetings, to abolish this unpopular tax. Rates had risen to a very high level for some people, particularly elderly people who have been living in their own home for a long time. She pledged that, and that is why we ended up with the community charge, which was basically a tax on the individual. If it had been introduced gradually, over some years, it would probably still be in place. But it was introduced in a rather ham-fisted way and was therefore very unpopular in some parts of the country.

We then had a combined tax—the current council tax. I remember Kenneth Baker, then a junior Minister and now a Member of your Lordships' House, explaining the changes to us. It was part property tax, part individual tax. It was not just a property tax when Michael Heseltine—now also a Member of your Lordships' House—introduced it.

One must therefore be careful, because the way that revaluation is going, together with the next series of amendments dealing with bands, will make it much more of a property tax. The worst will come upon the government who do that. Property taxes are very unpopular. The Minister said two or three times that it was a property tax; I dispute that. It was never designed as entirely a property tax; it was designed as part individual tax for services and part property tax. I dispute what he said.

Lord Rooker

I have only one point to make. I suspect that in the good county of Essex, thousands of people will during the past few years have looked at the equity that they had in their property and thought, "I will have some of that for the holiday, the car, or the daughter's wedding". So they are quite happy in those circumstances to say, "Yes, we have a bigger increase in property values than anyone else; we will have some of that equity out, thank you very much".

But then the noble Lord says that they are not prepared to pay their fair share, based on that increase in property value, a little of which they have taken out, to put it into the community kitty for libraries, for old folks' meals on wheels, for local services or for having the gutters cleaned or the snow cleared away. That is what it is all about. When we make those sort of connections, I think that I can appeal more to people's natural community instincts than to the naked, selfish, party-political interest pushed by the noble Lord.

Lord Hanningfield

We shall return to the argument under the next clause, so I shall not oppose the Question.

Clause 78 agreed to.

Clause 79 [Power to change number of valuation bands]:

Lord Hanningfield

moved Amendment No. 172: Page 41, line 32, at end insert "provided that such change does not alter the ratio between the top and bottom band. ( ) The power under subsection (4A) shall not be used to alter the ratio between the top and bottom bands set out in subsection (1). The noble Lord said: We return to the issue, because the clause gives the Secretary of State power to change bands. I shall be told straight away that the amendments do this or that and should be worded differently, but we can always reword them and return to them later. Giving the Secretary of State the power to change bands is a big issue in the Bill.

Returning to what I said earlier, and to respond to the Minister, more people in Essex are not taking equity out of their houses; they are having a job to pay their mortgages, because they are having to pay high prices for houses. Essex is now a place with many young people who work in London, all of whom have bigger mortgages than they can really afford. They may have a very nice, expensive house—that is what you have to pay in the South East—but they cannot afford their mortgages. Therefore, to say that there will be a higher band and that they will pay a higher council tax will be very unpopular.

We therefore totally dispute that there is a need to change many bands. I appreciate that my amendment would move beyond the original 1992 legislation by imposing a limit on the band differentiation. That is why I propose this safeguard. I repeat: council tax is part property tax and part tax on services. It would not be right, or in conformity with the principles under which council tax was established, simply to replicate in council tax ratios the difference in banded house prices. The fact that council tax pays in part for services must act as a drag on the growth of bands or the increase of ratios between them. As the Minister said, it pays for services—clearing snow, social services and everything else.

Local citizens are contributing the majority of their council tax to education and social services. They are by far the largest services provided by local authorities. For example, in Essex, expenditure on those services is probably responsible for 60 per cent of the average council tax bill. As I said, young people living in expensive properties, perhaps sending their children to private school and paying privately for the care of their parents, may not benefit from those services at all. That is fine; that is their choice. But we cannot have a tax that is part service-based and ask some members of the community to pay five or six times what other members of the community pay, regardless of their level of service use. That would do nothing to promote the cohesion of local communities.

We are also in an age in which mortgage companies seem to be prepared to lend more and more money against smaller incomes. I repeat: people living in large houses are carrying relatively high levels of debt. From several angles, the value of a property seems an unsafe proxy for the ability to pay. We should be cautious about changing the structure of the tax system.

I am not absolutely wedded to the existing ratio. However, it would be helpful if the Government were to introduce a ceiling on the ratio mechanism. When there is already so much unrest about levels of council tax, it would be helpful if the Minister could reassure people that there will be no move to increase the existing band ratios.

I repeat, we are in danger of the council tax becoming as unpopular as the rates. I know that we are looking at new ways of funding local government, but why do so by making the council tax as unpopular as the rates were in, say, 1979? I beg to move.

Baroness Maddock

I do not have a great deal of sympathy with the amendment being moved or the amendment that was spoken to. When it comes to paying council tax, I am more concerned about people at the bottom end of the scale than I am about people at the top end of the scale.

I am pleased that the Government will have the ability to change the bands, particularly for those who pay council tax on park homes and mobile homes, or whatever you want to call them. Often they are used by elderly people on very low incomes who have chosen to live in park homes on sites partly because they are very safe places for elderly people to live. These people often have to live on quite low incomes, and yet they have in the past ended up with their property being a good deal lower than band A. It is not quite the same now but it is important that the Government should have the ability to change the number of bands.

Those at the very top end of the scale—although not absolutely; I must be careful about this—are, on the whole, in a better position to pay the tax than others.

As to the question of whether or not this is a property tax, it is quite clearly a property tax. It cannot be anything else. It is based on the band value of your property—and that is it.

Having listened to the exchanges between the Conservative Benches and the Government, I am even more convinced about the rightness of local income tax. It is based on people's ability to pay, which is the important criteria. All taxation should be fairly based on people's ability to pay. The council tax has become incredibly unpopular—I believe it has become as unpopular as the poll tax—particularly with people on low incomes and elderly people. This is because of the connection between the amount of money that the Government give to local government in various grants and so on and the gearing effect between that and the amount of money that councils can raise from local tax. That is one of the reasons why the council tax has become unpopular.

I do not agree with the noble Lord, Lord Hanningfield, that this is not really a property tax, nor that it is popular. It has become a very unpopular tax and I hope that it will be replaced. If it is not to be replaced, I would support measures to ensure that it operates in a fairer way than it has done, particularly in regard to helping people on low incomes who have to pay a very high council tax.

4 p.m.

The Earl of Caithness

Purely in property terms there is a case for the Government's argument because of the bunching at the top end and at the bottom end. Certainly there are areas where the current spread of bands works well, but it does not work well in every area. I agree with my noble friend Lord Hanningfield that, by opening this Pandora's box and giving local authorities the right to have varying and different bands—which inevitably will be used—the council tax will become the rates.

I should say to the noble Baroness, Lady Maddock, that the council tax was not intended to be purely a property tax when we introduced it. One should not fall into the same trap as was the case with rates of believing that people who live in large houses automatically have the ability to pay large sums of money.

Baroness Maddock

I did qualify my comment; I did say that it is not always like that. The point that I was making is that that is likely to be the case with the very top band.

The Earl of Caithness

Wherever we draw the line, wherever the top band, the second top hand or the third top band is, there will be cases of hardship. This was the problem with rates. I remember it so well from the mid to late 1980s. We will have exactly the same problem with council tax. Once we have opened this Pandora's box and we start to tinker and spread the bands, the same will happen and there will be a huge outcry. I say that to the Government once more in the hope that they will listen to me.

Baroness Hanham

I support my noble friend's amendment. It is worth reminding ourselves about several things in regard to the introduction of the council tax. First, it is true that it is not entirely a property tax. It is based on two people living in a property, as are the discounts thereafter. The whole premise was that there would be two people living in a property. Thereafter, other people would not be charged and there would be discounts based on that premise.

We need to remind ourselves that at quite a late stage in the implementation of council tax another band—band H—was introduced at the last minute to take account of the higher value of property. It is true that property values have risen, but they have risen in all bands and in most parts of the country. Where they have not risen, it does not matter. The whole purpose of the way in which the council tax was constructed—my noble friend knows more about this than I do—was that there should be a mid-point, bands C and D, and a ratio between that mid point and other hands which would go down or up according to the value of the property. So, effectively, although revaluation may take place, the ratio should not change; the same amount should be paid in the lower bands and the same amount should be paid in the upper bands.

Once one begins tinkering with that, one begins calling into question the amount that is raised under council tax. One begins to call into question all that the Chancellor has done to ensure that council tax increases—and he certainly has increased the whole ratio of council tax to grant during his years as Chancellor.

But throughout there has been a continuity of expectation of how much one would have to pay. It is right that we are beginning to look at what people used to be paying in rates. At Band H level, people are paying £2,500 to £3,000 as their council tax contribution. One may say that that is fine, but the problem outlined by the noble Baroness, Lady Maddock, then arises; that some people in the upper bands are not well off and the increase in their property value has not been reflected in their income.

The noble Lord, Lord Rooker, mentioned equity release schemes. I would be most cautious about getting involved in those arid talking about their value and purpose. They are a dubious entity. One has only to read the money pages in the newspapers to discover what has happened to elderly people who have taken equity release schemes to pay for their daughter's wedding or whatever. It is not a form of investment to which anyone is attracted and it is a poor rationale for suggesting any justification for an increase in council tax bands.

It is probably true that the percentage increase in property has not been the same across all bands. However, the justification for the original thesis that there would be a ratio between the bottom and the top, that it would be recognisable annually, and that only a certain proportion of the local authority's money was to be raised from council tax needs to be preserved. However, it is not likely to he preserved under these clauses. That is the rationale behind our amendments. I can see that the Minister will not agree with them, but we shall not want to drop the matter.

Lord Smith of Leigh

I do not like to intervene too much in the debate—I like to leave it to my noble friend to reply—but must do so on this occasion. I have even less sympathy for some of the views which have come from the other side.

Let us remember that the council tax was the quick fix to get rid of the poll tax. The poll tax was probably the most unpopular measure ever to he introduced in this country since the Second World War and the Conservatives were desperate to get rid of it. They had to put something in its place. That was a property-based tax with certain amendments about numbers in properties and so forth. Clearly it is a step-tax so the more valuable the property the more one pays.

Members of the Committee opposite do not seem to understand the negative aspects of what they are saying. If we do not make the changes proposed by the Government and reform council tax banding, the people in the lowest council tax bands will be paying more than their fair share of council tax. That is exceedingly the case. In my authority, 70 per cent of properties are currently in bands A and B. The number in the current Band H is so minuscule that it does not register.

That is the case in many other areas; we are not unique. If we do not reform the tax and raise more money from those who can afford to pay because they can afford to buy the larger properties, people in smaller properties will be paying a disproportionate amount of the council tax.

The other mistake the Government made with the council tax—and this went back to the poll tax—was to make the amount of money which local authorities raise so small as a proportion that there is no connection between what a local authority does financially and the change in its council tax. I am sure that the noble Lord, Lord Hanningfield, was saying just that.

The Government have therefore begun their balance of funding review, which is right. If we are to have a sensible form of local government in which the local authorities are accountable for what they do and the people understand that the council tax increases because their decisions are important, we need to shift the balance between central to local taxation. I do not believe that the council tax is capable of paying a larger proportion.

My key message to the Government is that they must continue because a revaluation without reform is not good enough to support the poorest people in this country.

Baroness Hamwee

Council tax was a quick-fix but it is becoming unfixed, as everyone is saying. On Friday evening, I was listening, although not with 100 per cent attention, to "Any Questions?". A throw-away line from someone about council tax being such a bad tax seemed to receive the biggest round of applause during the whole programme. However, not every area is like that which the noble Lord, Lord Smith of Leigh, knows so well. The top band, which people no longer regard as the top—Band H—covers an enormous variety of house prices and values. I have noticed that Members of the Committee have been speaking without notes. We all feel so strongly about it and I will try to resist the temptation to speak at length. As usual. I agree with my noble friend Lady Maddock that the sooner council tax comes to an end and we achieve a sensible system of local income tax the better.

I want to throw one other issue into the mix. I am not wholly sure of my facts and I am sure that others will know them. I believe that the council tax benefit relief scheme goes up only to bands F or G. However, there are issues surrounding whether the relief is available in the top bands. A leader of a London council mentioned it to me recently. Regard must be given to the fact that occasionally occupants of homes at the top end are not only strapped for cash but have a low income and ought to qualify.

Lord Rooker

I shall stick to my notes in order to be brief. Like the noble Lord, Lord Hanningfield, some of the points I made in respect of other amendments apply to this matter.

Amendment No. 172 would restrict the powers to change the ratio of 3:1 between the top and bottom bands. I do not know how many people in a town at the top of Band A (£40,000) realise that those at the bottom of Band H (£320,000)—eight times the amount—pay only three times the amount of the council tax. I guarantee that no one in a town would know that unless they were a local government cognoscenti or aficionado, with their eyes glazed over when they see all the local government balance sheets and think they are wonderful. But there is sheer ignorance because people believe that as band H is eight times higher than band A they must be paving more than three times the amount of council tax.

Baroness Hanham

Every year the annual statement from the council which goes to council tax payers informs what people are paying in band A and band H. I am sure that the education system of this country just about enables people to work out the differential between the top and the bottom. It is by no means secret information and anyone who reads it cannot possibly be in ignorance about it.

Lord Rooker

They see a table of figures but they do not know how it comes about. People read their own tables. It is not stated on the documents that the figures are artificially depressed because of the requirement of the 3:1 ratio. That is not set out. That was a deliberate fix and it was introduced so that the Hoogstraatens of this world—and he cannot be a Tory voter because he is in prison at the moment, so I do not want to attack anyone in particular for having a mansion—

Baroness Hanham

I would be grateful if the Minister would withdraw that comment. It was my council which got Hoogstraaten and he was not a joke. He was a very, very serious crook. The noble Lord, Lord Bassam, may recognise that he is not someone to be even moderately joked about in terms of council tax. He was against all his tenants, not the council. The Minister's comment was ill-advised.

4.15 p.m.

Lord Rooker

If [ have upset the noble Baroness, I withdraw my comments without equivocation. I am thinking of the photographs of the vast mansion that is being constructed. It is a huge project and will be worth heaven-knows-what when it is finished. The idea that it would be in the upper band and the owner pay only three times what would in some respects be a modern hovel—a badly looked-after dwelling in whatever band—worth perhaps £20,000 and much less than £40,000, belies common sense. That is not set out. agree that the figures are set out—I would argue that not everyone reads them—but they are artificially constrained because of the 3:1 ratio.

I want to make it clear that we have not yet decided whether there will be changes in the ratio, but it does not make sense to limit our powers in this area, especially as we know that the existing ratio does not reflect the relative spread of values.

I remember the debates when the measure was introduced and the reason for the 3:1 ratio was naked. It was so that the big mansions—houses worth millions 10 years ago—did not pay a fairer share. I accept that the fairer share depends on where one is standing, but it was so that such people did not pay a run-away amount of money. The amount was artificially constrained and there were big rows about the 3:1 ratio when it was introduced. I do not believe that Michael Heseltine—now the noble Lord, Lord Heseltine—was modest and contrite about the reasons why he fixed it that way. In bringing in a new tax based on property values, he had to be careful for those at the top. There was a concern about that and it was a quick-fix to replace the poll tax. Therefore, it is a crude ratio because it bears no relation to the spread of values.

We have no plans for changing the ratio but Amendment No. 172 would unnecessarily restrict any future attempt to do so. Any changes in the ratios, like the changes in the bands, that are wholly unreasonable and not properly explained would reap the whirlwind of the ballot box. There is no question of that. I know that the council tax can be unpopular but it is not quite so unpopular as the rates. As regards the rates, unlike the council tax, no one understood how a rateable value was fixed. With more than 50 per cent owner occupation, it made no sense to talk about notional rental values with figures from history. No one understood it. I accept that there is a greater degree of understanding of the council tax because it was based on a valuation, however crude, as a ready-reckoner value. But we all know that every house was not visited.

Amendment No. 174 would also restrict the ability of the Secretary of State to exercise the powers to change the number of valuation bands. It would mean that no dwelling could be placed in a valuation band higher than it would have been if the bands had simply been uprated in line with movement in an index of house prices. That means that the Government could not make any significant reforms to the banding scheme. It would limit how we could uprate the bands and prevent the creation of new hands at the top end. For that matter, it would probably prevent the creation of new bands at the bottom end. I have been in northern towns where the housing market has collapsed with values of £10,000 and less. There are serious issues.

My memory is good, but I have discovered that it gets worse as you get older. I was convinced that the previous government changed the number of bands. I was adamant to officials about that. I remember an issue about the number of bands but I could not remember the context. It is interesting to note that when the council tax was first invented and brought forward by the then Michael Heseltine, there were only seven bands in the paving Bill. The top band was £160,000. However, when the Bill came forward setting up the council tax there were eight hands, the top one at £320,000. I knew that there had been a change from the original plan. In that respect, there was movement between the draft plan and the Bill. The Government did not therefore change the scheme once it was introduced with eight hands. The eight bands existed when the legislation was introduced but that was not part of the original plan. Even then there was an attempt to say, "Hang on, we have been a hit unfair and we need to do something about it. Have an extra band at the top level". There was an acceptance even then that something needed to be done.

I understand Members' concern about the exercise of the power, but they are needlessly trying to constrain its exercise. I can assure them that any attempt to try to change the bands and the ratio will be subject to affirmative procedure and could not be slipped in by the backdoor. Everyone would know about it because it would he a major change. We believe that the appropriate parliamentary scrutiny of the exercise of power exists if ever a government wanted to make a change.

I repeat that we have no plans for changing the current system. I suspect that until there has been a national revaluation to examine the distribution curves of valuation changes between 2005 and 2007 as compared with 1990–91 one cannot even begin to debate the issue. There are not facts on which to do so and one would not want a debate on the basis of a hunch or prejudice. We have no plans for changing the system. I suspect that the matter will return to us but I hope that the noble Lord will feel able to withdraw his amendment.

Lord Hanningfield

I thank the Minister for that response. We have had an interesting debate. Obviously, the world in the South East is greatly different from the world described by the noble Lord opposite. In the South East values have changed dramatically.

In most of the counties around London, probably everyone living in houses worth more than £400,000 votes new Labour and everyone living in houses worth less than that votes Conservative or Liberal Democrat. If the Government were to introduce the new bands, they might be losing their seats in the South East on which they depend for their large majority. We might then return to more traditional voting patterns.

Joking apart, we will return to the matter at a later stage and in the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees

Before calling Amendment No. 173, I should inform Members of the Committee that the Chairman of Committees has said that if they wish to take their jackets off they may do so.

Lord Hanningfield moved Amendment No. 173:

Page 41, line 32, at end insert— ( ) Any order made under this section may apply to a billing authority or any number of billing authorities."

The noble Lord said: The amendment needs to be considered in the context of caveats incorporated in other amendments on the council tax band structure. Its purpose is to enable the Secretary of State to exercise greater flexibility when changing the banding structure to reflect local diversity.

The amendment would allow the Secretary of State to take account of local variations in the housing market—we have referred to them a great deal—by enabling him to apply measures under this clause to particular billing authorities, or to groups of billing authority in a particular area.

We all know that the housing market in different parts of the country may operate in different ways—we have not had a house valued at £40,000 in Essex for many years. A power to reflect that in the banding structure would introduce a measure of flexibility into the system that could more accurately take into account this local diversity.

We welcome provisions within this Bill to enable local authorities to respond to the needs of the local community and we would like to see this extended to the valuation bands on the property. Any assurance that the Minister can give that local needs will not be neglected in the formation of a new system of council tax band would be most welcome. I beg to move.

Lord Rooker

We resist the amendment not because we oppose it but because it is unnecessary. The powers already exist. The powers to change council tax bands or the proportions between them are covered in an order under Section 5 of the Local Government Finance Act 1992. Section 113(1) of that Act makes it clear that powers to make orders under provisions of that Act, including Section 5, may be so exercised as to make different provision for different cases or different descriptions of cases, including different provision for different areas or for different authorities". In short, translated into English, that covers the point that the noble Lord has raised. The capacity already exists but I am informed that the power has never been used. I believe that that answers the noble Lord's point.

Lord Hanningfield

That is an interesting answer and we shall study it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 174 not moved.]

On Question, Whether Clause 79 shall be agreed to?

Lord Hanningfield

I shall not go into the long and interesting debate we had on the power of the Secretary of State. I am sure that we shall repeat it on the Floor of the House several times during later stages of the Bill. At this stage, I put on record my objection to Clause 79 standing part of the Bill.

Lord Rooker

I rise simply to say that we oppose that objection.

Clause 79 agreed to.

Clause 80 [Transitional arrangements]:

Lord Hanningfield moved Amendment No. 175: Page 42, line 13, leave out "different from" and insert "lower than

The noble Lord said: As the Bill stands, the Secretary of State has the power to alter the council tax bands, and dwellings may move up or down the bands as a result of revaluation. This clause makes provision for the Government to phase in changes to council tax bills following revaluation. In contrast to the previous system where, as I understand it, tax payers could pay less only during transitional arrangements, under this legislation tax payers might have to contribute more during the transitional period to offer relief to those who will be worse off. This amendment would ensure that a householder's council tax liability cannot be higher in the transitional period than it would otherwise have been before the revaluation.

We accept that the precise detail of the transitional arrangements will depend upon the outcomes of the revaluation. However, it is important that we have some clarity on how these provisions will work. As I understand the wording of the Bill, it would allow for what is known as "downward phasing". That is that where a person's tax liability has gone down relative to the average, he does not benefit immediately and in full from the corresponding reduction in council tax. Instead, part of the money that would have come off his council tax bill is used to offset the rise for the others in their council tax bills. It is a complicated issue and I hope that people understand it.

Of course we support transitional arrangements to cushion the effect of tax changes in council tax liability. Our amendment is compatible with the existing system of transitional payments which does not permit taxpayers to pay more during a transitional period than they did before revaluation. We believe that this principle should be maintained under the new system. I should be grateful for the Minister's views on this and I beg to move.

4.30 p.m.

Lord Bassam of Brighton

We have said in Committee on a number of occasions that the system works best when it is the simplest, and we subscribe strongly to that principle. However, as we set out in our White Paper, there has to be a transitional relief scheme following council tax revaluation. We are committed to ensuring that that is self-financing in much the same way as the transitional relief scheme will be for business rate payers. We are firmly of the view that the gainers should contribute towards the costs of the losers for that transitional period.

I take the point made by the noble Lord, but again the principle I have outlined is worth sticking to. The amendment would prevent that balance in the transitional scheme. The noble Lord said that he would like to see more detail on the kind of scheme we are likely to introduce. It is a little too early to specify exactly how it will work. Obviously we must hold detailed discussions, not least with the Local Government Association and other representative local government bodies, the professionals in the business and so forth. So we have to resist this amendment because it would take away the flexibility to change and perfect exactly what we want to do.

Obviously we are in the business of perfecting this through the process of consultation and by taking careful professional advice. Thus, some of the fears expressed by the noble Lord about how the scheme will operate may be ill-founded. I hope that he will accept that there will be plenty of scope and opportunity for detailed consultation.

Lord Hanningfield

What the Minister has said is important: the Government will consult and listen to those involved. This is a very complicated matter, but the transitional arrangements will be extremely important. I hope that, as the Bill progresses, the Government will continue to give assurances that they will listen to representations made about the transitional arrangements. Big changes could arise after the revaluation and I repeat what I said earlier about the problems that that could cause. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hanningfield moved Amendment No. 176:

Page 42, line 25, at end insert— ( ) No order under subsection (5) shall be made unless a draft of the order has been laid before and approved by resolution of the House of Commons."

The noble Lord said: This clause accords the Secretary of State power to alter social security benefits in accordance with the transitional arrangements which will follow revaluation, reflecting a point made in the last amendment. The purpose of this amendment is simply to clarify with the Minister what opportunity Parliament will have to scrutinise any changes to social security benefits that may be consequent on these changes to council tax.

Can the Minister give an indication of the Secretary of State's intention with regard to this power, and how the transitional arrangements following revaluation may impact on current social security benefits? We would be grateful for clarification on this. I beg to move.

Lord Bassam of Brighton

I do not have a great deal to add to what I said in response to the previous amendment. Having submitted a paper to the Select Committee on Delegated Powers and Regulatory Reform, we believe that the negative resolution procedure provides the appropriate level of scrutiny and that committee did not disagree. In fact, it made no comment at all.

I believe that the noble Lord is seeking a form of reassurance on the details of the transitional relief scheme with regard to benefit payments and so forth. Again, I have to urge some caution here because we are at the earliest stages of working out all these issues. I repeat what I said when we discussed the previous amendment: there will be plenty of scope for discussion and consultation with those who will want to make representations in order to get the scheme right. Obviously a certain amount of cross-governmental work will come into that.

Representations and consultation will be very important to the process we shall go through even before we reach the point where we introduce a scheme by order.

Lord Hanningfield

Again I hear what the Minister has said. He has just pointed out that we are at a very early stage of working out the transitional relief scheme and how social security benefits will be affected. I thank the noble Lord for his response and take note of his remark that there will be wide consultation. Obviously one will want to make certain that that happens. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 80 agreed to.

The Earl of Caithness moved Amendment No. 176A:

Before Clause 81, insert the following new clause—

"APPEALS In section 82(4) of the Local Government Finance Act 1992 (c. 14) (appeal procedure) for "on a point of law to the Court of Session" there is substituted "to the Lands Tribunal""

The noble Earl said: This is a simple amendment. At present, if there is a dispute, the council tax payer can go to the valuation tribunal and, from that valuation tribunal, has an expensive and difficult time when going to the High Court. It would be much more sensible if, instead of going to the High Court, the person went to the Lands Tribunal. That is the purpose of this amendment and I beg to move.

Lord Rooker

I am not clear about this. The noble Earl said that this is a simple proposal, but he did not mention that he was trying to legislate for Scotland in the amendment. Have I misunderstood something? The amendment applies exclusively to Scotland. The noble Earl is attempting here to legislate for Scotland, but as a part of the devolution arrangements it is agreed that we shall legislate for Scotland only at the request and with the agreement of the Scottish Executive. It does not support this amendment, nor does the Office of the Deputy Prime Minister. However, the noble Earl did not mention Scotland in his brief remarks. There is no Court of Session.

This deals with Scotland, because that is the area covered by Section 82(4) of the Local Government Finance Act 1992. Again, have I misunderstood the noble Earl?

The Earl of Caithness

On re-reading the amendment, I think that the noble Lord probably has not misunderstood me. I sought to focus on the position in England and I did not mention Scotland specifically. However, I believe that the error must be entirely at my end and is related to the wording. I hope that the noble Lord will consider this as it relates to the English position, on which I sought to focus, rather than Scotland.

Lord Rooker

I am glad that we are clear about it. I say that because Section 82 of the Local Government Finance Act 1992 provides for the appeal procedure for council tax in Scotland. It has nothing to do with England.

On the substance of the issue, when it comes to points of law, we think that the best place to decide such matters is a court. That is what happens now in Scotland and it is also what happens now under different legislation in England and Wales. We think that this should continue and we do not consider that a change to the Lands Tribunal would be appropriate. This should continue in court, both in Scotland—if I can say that because the Executive has not asked for a change—and in England. However, that is provided for under different legislation. I make the point simply because I did not want to misunderstand the noble Earl.

His point of substance, that of transferring these issues to the Lands Tribunal, whether in England or England and Wales, is one that we do not accept. A point of law should be dealt with by a court, not by a tribunal.

The Earl of Caithness

I understand what the Minister is saying, but one of the consequences of my amendment would be to allow appeals on matters other than points of law. I know how highly restrictive the process is at present. A great advantage of going to the Lands Tribunal is that, not only is it a cheaper procedure, but it is possible to raise other issues. Broadening that remit would be a consequence of accepting my amendment.

Lord Rooker

My briefing relates to the amendment before us. If there are other issues that do not relate to a point of law, then if the noble Earl would care to drop me a note about them, I would be happy to write to him in response. That would be preferable to going through the process of tabling amendments. However, I am afraid that I cannot expand on what I have said.

The Earl of Caithness

I am grateful to the Minister. I shall certainly take up his offer. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 81 to 83 agreed to.

Clause 84 [Major precepting authorities: combined fire authorities]:

Lord Hanningfield moved Amendment No. 177: Page 44, line 8, leave out subsection (2).

The noble Lord said: Clause 83 adds combined fire authorities to the list of major precepting authorities in Section 39(1) of the Local Government Finance Act 1992. The constituent authorities that make up a combined fire authority currently contribute to its expenses in proportion to their council tax base. Under the proposed arrangements, a combined fire authority could issue a precept for each financial year to the billing authorities in its area.

The purpose of this amendment is to seek clarification from the Minister as to why CFAs should be treated differently in England and Wales. We would prefer to see equitable powers maintained for England and Wales, along with the equitable treatment of CFAs.

Can the Minister explain why the National Assembly for Wales should be accorded the power to amend primary legislation by adding CFAs in Wales to the list of precepting authorities in Wales? I beg to move.

Lord Rooker

Clause 84 deals with the means by which fire authorities draw their revenue funding. At present, combined fire authorities in both England and Wales are funded by contributions from their constituent local authorities. Under the proposals in Clause 84(1), combined fire authorities in England will become major precepting authorities, which means that they will issue a precept under the financial billing authorities in their area, under Section 40 of the 1992 Act.

The Welsh Assembly consulted on whether the combined fire authorities in Wales should become major precepting authorities in its policy statement entitled Freedom and Responsibility in Local Government, published in March 2002. The view which emerged from the consultation was that the present arrangements in Wales are working satisfactorily, reflecting the differences in local government, which is all-unitary in Wales, and the revenue funding distribution. Therefore, no change should be made.

The enabling power set out in Clause 84(2) would allow the National Assembly for Wales to make an order to add Welsh fire authorities to the list of major precepting bodies, should circumstances change. Clause 84(3) provides that any such order would be subject to prior consultation by the National Assembly with representatives of local government interests in Wales.

I hope that the noble Lord is reassured that the provisions of the Bill are in keeping with local views, after consultation in Wales. Given that, we see no reason to vary the outcome of a decision reached in Wales itself.

Lord Hanningfield

I accept the Minister's explanation of the position and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 84 agreed to.

Clauses 85 to 87 agreed.

Clause 88 [Housing strategies and statements]:

Baroness Hanham moved Amendment No. 178:

Page 45, line 30, at beginning insert "Subject to subsection (5),"

The noble Baroness said: In moving Amendment No. 178 I shall speak also to Amendment No. 179. The amendments refer to Part 7 of the Bill dealing with housing finance. I am sure that noble Lords are aware that, at the moment, while local housing strategies are currently prepared by local housing authorities, there is no statutory provision specifically requiring local housing authorities to have such strategies. Clause 87 introduces just such a statutory provision.

I am not sure whether this brings welcome clarity and uniformity or whether it is an overly bureaucratic, overly regulatory, controlling and centralising scheme. Can local housing authorities not be trusted to devise their own housing strategies as they have always done?

Amendments Nos. 178 and 179 do not challenge the fundamentals of this new housing strategy provision. What they do is to require the Government to pay for the cost of devising the strategy. The Minister replied to the same amendment moved in another place by saying that such an amendment, might have been appropriate if we were imposing a new burden on local authorities".—[Official Report, Commons Standing Committee A, 11/02/03; col. 492.]

He went on to point out that local authorities already have to provide housing strategies and housing revenue account business plans, but that the clause merely made them a statutory requirement.

I have a few problems with the approach of the Minister in another place. This clause may mean that a local housing authority has to reassess its approach to housing strategy. Implementing a statutory strategy as set out in the Bill might well end up imposing a larger burden on local authorities and requiring an overhaul of the current system of dealing with housing. This would mean extra financial burdens in administrative costs.

Our amendments suggest that it would be appropriate for the Government to provide a grant to fund any costs incurred by the changes in housing strategy which these clauses in the Bill introduce. On what basis do the Government believe that the proposed new system will be cost neutral? I beg to move.

Lord Bassam of Brighton

Amendment No. 179 would require the Secretary of State, or in Wales the National Assembly, to pay a grant to each local housing authority required to have a housing strategy equivalent to the cost of preparing that strategy.

The amendment might have been appropriate if we were imposing a new burden on local authorities. However, housing strategies and housing revenue account business plans are already produced by authorities, although of course they are non-statutory. In Wales, authorities are already being asked by the National Assembly to produce local authority housing stock business plans. The move to place them on a statutory basis simply reflects the importance that the Government attach to them, and the general agreement that robust strategies and business plans are essential to the effective delivery of local authorities' housing responsibilities. Moreover, they have a key role to play in informing and engaging partners and other stakeholders in that process.

Far from placing additional burdens on local authorities, the legislation will give them the flexibility to meet those and other existing statutory duties to produce housing-related plans. Local authorities will be free to rationalise the current plan requirements by addressing them within a single document rather than a series of multiple documents.

With an understanding of how the clause is intended to work and the benefits that it will bring in terms of flexibility, I hope that the noble Baroness, Lady Hanham, will feel able to withdraw her amendment.

4.45 p.m.

Baroness Hanham

I thank the Minister for that reply. I have a nasty feeling, born of long and bitter experience, that anything that is required by local government eventually becomes extremely expensive. First, guidelines are issued on how something is to be introduced, then guidelines provide for who is to be consulted, how many pages long the report must be and so forth. I am bound to say that I think that this will be far more costly than the strategies and business plans that have had to be produced up to now.

I understand that the Minister does not agree with me. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Maddock moved Amendment No. 178A:

Page 45, line 36, at end insert— ( ) The matters specified under subsection (1) shall include home energy reports under the Home Energy Conservation Act 1995 (c. 10).

The noble Baroness said: This is a probing amendment aimed at obtaining assurances from the Minister about the priority that should be given to certain duties of councils to report a variety of strategies to central government. This amendment refers to the Home Energy Conservation Act 1995, which applies only to housing authorities. However, I also have concerns about homelessness strategies.

The Explanatory Notes accompanying the Bill make it clear that, in future, the local housing strategy document will form the overarching framework within which an authority should consider and formulate other policies on more specific housing issues. The Bill also gives local housing authorities the freedom to include within the local housing strategy some or all of the other material that would otherwise be set out in separate documents. Does that include matters which are duties under the Home Energy Conservation Act 1995? I presume that that includes homelessness strategies, the idea being that a council should produce a single document if it is appropriate to the local circumstances.

Some reassurances on homelessness strategies were given in the debate in another place, but people are concerned that some of the important issues may be subsumed. One area in which I have a particular personal interest is that surrounding the Home Energy Conservation Act. The amount of information under the provisions of that Act which has been obtained from local housing authorities has not been a happy tale. Many authorities have still not reported and we still await information for 2001–02, let alone last year.

I understand that in the summer of 2001 further guidance was going to be produced for authorities to ensure that they fulfilled their duties under the Act. However, I understand that while an advisory committee aided by external experts reported to Defra at the end of 2001, nothing much has transpired. I wonder, therefore, whether the Government have it in mind that this should provide a vehicle to ensure that authorities produce their reports and strategies under the Home Energy Conservation Act. Furthermore, I seek a reassurance from the Minister that the provision will not prevent the Government from pursuing important issues such as energy conservation and homelessness, simply because an overarching strategy will be put in place.

The other question I wish to put to the Minister is this: because this concerns reporting to central government, how does it fit in with the new housing regime, under which duties will be given to the regional assemblies, other regional bodies and, it is hoped, elected regional assemblies? Although the information is to be directed to central information, much of it will be relevant to those regional bodies which will administer the finance on housing matters and make suggestions as regards how it is to be spent. It seems to me that this information could be valuable to those bodies. What mechanisms will be put in place to ensure that information that is sent to central government is then distributed to the interested regional bodies?

I hope that the Minister will be able to answer some of my queries which arise from what is in reality a probing amendment. I beg to move.

Lord Bassam of Brighton

The noble Baroness provided us with an interesting commentary on the amendment, which perhaps went a little wide of its starting point. Nevertheless, it has promoted some useful thoughts to be exercised on the issue. I do not know whether the noble Baroness will accept this point, but I can recall when I was chair of our housing committee and the leader of the authority, we did seem to have to produce many strategy documents which impacted in some way on housing issues. I remember signing off quite a lot of them. However, we were always left with an abiding thought: "Hold on, have we not already told them this and isn't that information already included in that document over there?". It was rather an irritating process and I was never sure whether we were actually saying the right things when bidding for HIP money and so forth.

When I read through the speaking notes for the amendment, I found myself thinking that it makes good sense. On the one hand, I can see that the provision might look like yet another statutory burden, but on the other hand, I would argue that it provides for a sensible rationalisation and a streamlining of the process so that all those housing-related documents are pulled together.

We are fully committed to rationalising the plan burden on local authorities, but we believe that imposing this framework on all local authorities is not the right way forward. What we have sought to do is set out clearly in the Explanatory Notes, to which I have just referred again, that all local authorities will have the option to rationalise housing-related plans such as the home energy conservation report, the homelessness strategy and the housing strategy within a single document.

We believe that that will give authorities the flexibility to address centrally mandated plan requirements, but to do so in ways that will suit their local circumstances rather than the Government adopting a top-down and prescriptive approach, which would unnecessarily increase rather than ease the plan burden on local authorities.

The noble Baroness also asked about homelessness strategies and home energy conservation plans. Yes, they will be included within the single approach.

Turning to the issue raised by the noble Baroness about regional housing boards, I think that she may be getting a little ahead of herself here, but yes, of course we shall have to ensure that those important regional housing bodies are effective and able to work well with local members.

I hope that that response satisfies the points made by the noble Baroness.

Baroness Maddock

I am grateful to the noble Lord for that clarification. I accept the purpose behind this part of the clause, as I accept that we are always passing legislation requiring local authorities, in particular local housing authorities, to do a variety of different things. It is sensible to bring all those matters together so that they can interact properly. However, my main concern turned on whether we shall still place the right emphasis on the points of policy that we want to pursue and which require the information contained in these reports. I say that because it is quite clear that, under the old regime—certainly as regards the provisions of the Home Energy Conservation Act—the information was not produced as had been intended. It was on that point that I sought reassurance.

I am not entirely certain that I have received the reassurance, but I have no problem with the intention behind the clause. I am concerned that we will be able to ensure that the matters we would want to emphasise ultimately may not he given the right emphasis. If the Government have not thought about how they are going to distribute such information to the regional bodies, then it is about time that they did so. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 179 not moved.]

Lord Smith of Leigh moved Amendment No. 179A:

Page 46, line 8, at end insert— ( ) The provisions of this section shall not apply to those authorities identified as "excellent" under the provisions of sections 100 and 101.

The noble Lord said: First, I must declare my interest as the leader of an excellent council. One of the freedoms the Government have announced for excellent authorities is that there will be no need for them to fill in a number of strategic plans that they have in mind. This probing amendment seeks to test whether such a freedom is to apply to authorities falling into the "excellent" category. I beg to move.

Baroness Maddock

My noble friend Lady Hamwee has explained several times why we are not really in favour of distinguishing between local authorities. In this case I am particularly concerned. We have just debated how important these strategies are, and if the best performing authorities do not send in the information, I shall be even more worried about how local housing boards are to be able to distribute the money if they do not know what the best performing local authorities are doing.

Lord Rooker

I welcome the fact that we have reached another amendment from my noble friend Lord Smith of Leigh which enables him to give himself a damn good and well-deserved pat on the back as the leader of an excellent authority. Obviously it is a very well managed authority with good delegation of powers and authorities. I pay tribute to all those involved in achieving the "excellent" category award.

Amendment No. 179A would mean that the requirement to produce a housing strategy could not be applied to those local authorities identified as "excellent". We have already announced that we shall not require excellent authorities or authorities that have produced fit-for-purpose documents to submit housing strategies or housing revenue account business plans.

In the case of the remaining authorities, we are no longer subjecting their strategies and plans to annual assessments, but instead taking a more targeted approach in which the Government Offices will continue to work with local authorities to address weaknesses in their planning processes and service delivery.

Amendment No. 179A would have been appropriate if we were legislating to place a statutory duty on all local housing authorities to produce a housing strategy and we needed to specify any exceptions to that rule. But that is not the case. Clause 88 has been deliberately drafted so that it does not apply universally to all housing authorities. The duty will not apply to any authority until triggered by the appropriate person. This allows us to take a tailored approach to plan requirements and assessment which will depend on local authorities' circumstances. We will therefore not apply this provision to authorities that are either "excellent" or have produced fit-for-purpose documents.

The legislation as currently drafted already allows us to take a flexible and constructive approach that is entirely consistent with the wider policy to rationalise the plan burden on local government.

I hope that, with what I firmly believe are good reassurances, my noble friend will withdraw his amendment.

Lord Smith of Leigh

I thank my noble friend for that response. Just before I reply, perhaps I may say to the noble Baroness, Lady Maddock, that I do believe that this is an important document because housing is such an important matter. But those authorities that think comprehensively might consider housing as part of a wider strategy and not just on its own.

In view of the comments made by my noble friend to the effect that this is not a duty on "excellent" councils, and provided that we do provide information about what we intend to do in some form, I am delighted to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 88 agreed to.

Clause 89 agreed to.

Clause 90 [Housing Revenue Account subsidy: payment and calculation]:

[Amendments Nos. 180 and 181 not moved.]

Clause 90 agreed to.

[Amendment No. 181A had been withdrawn from the Marshalled List.]

5 p.m.

Clause 91 [Housing Revenue Account subsidy: negative amounts]:

Baroness Maddock moved Amendment No. 182:

Page 48, line 35, at end insert— (6) The Secretary of State or the National Assembly for Wales shall keep for each financial year an account (to be called a "negative housing subsidy account") and—

  1. (a) the Secretary of State or the National Assembly for Wales shall keep each account in such form as the Treasury may direct, and
  2. GC 249
  3. (b) the Secretary of State or the National Assembly for Wales shall at such time as the Treasury may direct send copies of each account to the Comptroller and Auditor General.

(7) The Comptroller and Auditor General shall examine, certify and report on any account sent to him under subsection (2) above and shall lay copies of the account and his report before each House of Parliament or in the case of Wales before the National Assembly for Wales.

(8) For each financial year, sums received by the appropriate person in the year under subsection (1)(b) above shall be credited to the account kept for the year.

(9) For each financial year, payments made by the Secretary of State, or in the case of Wales the National Assembly for Wales, in the year under subsection (11) below shall be debited to the account kept for the year.

(10) Before a financial year begins the Secretary of State, or in the case of Wales the National Assembly for Wales, shall estimate—

  1. (a) the aggregate of the items of account that will be credited to the account kept for the year, and
  2. (b) the aggregate of the items of account that will be debited to the account kept for the year under subsection (9) above.

(11) The Secretary of State or the National Assembly for Wales shall make payments to the housing revenue accounts of local authorities.

(12) The aggregate of the payments made under subsection (11) above shall not be less than the estimate made by the Secretary of State or the National Assembly for Wales under subsection (10)(a) above.

(13)The Secretary of State or the National Assembly for Wales shall determine a scheme for the payments to local authorities, and the scheme shall take account of the need for investment in the housing owned by that authority.

(14) In this section "local authority" means—

  1. (a) in relation to England—
    1. (i) a district council,
    2. (ii) a county council that is the council for a county in which there are no district councils,
    3. (iii) a London borough council,
    4. (iv) the Common Council of the City of London, or
    5. (v) the Council of the Isles of Scilly;
  2. (b) in relation to Wales, a county council or a county borough council.""

The noble Baroness said: A similar amendment was moved in another place, where there was some discussion about it. Since then some of the figures given by the Minister in another place have been looked at. I am grateful to the Local Government Information Unit for its briefing. I understand that the surpluses accruing from the housing revenue account to several local housing authorities will go directly to the Treasury for the Secretary of State. Concerns have been expressed that the Bill really proposes that one method by which housing revenue accounts subsidise the Treasury—when rent rebates and their subsidies were within the housing revenue account—is being substituted for another, whereby rents and any surpluses from the housing revenue account are taken back to the centre.

Part of the Minister's response in another place was that the housing account is a national housing account and that they did not want to create a situation in which allegations of unfairness could be made because council tax payers complained of paying a subsidy towards tenants in their areas. That partly addresses the issue whereby council tenants subsidised others through the council tax benefit system. However, my main concern is that the provision is very centralising and that reassurances given in another place show that it does not help council tenants very much.

When the Minister answered in another place, he talked about what happens at present under the housing revenue accounts. Surpluses are offset against rent rebate expenditure to produce the net subsidy figure which is met by the Department for Work and Pensions. The total cost to the Treasury consists of payments to local authorities towards rent rebates plus a housing element subsidy. When that was worked out for the present system in 2000–01, the rent rebate expenditure totalled some £3 billion; the housing revenue account surpluses totalled about £1.5 billion. leaving net rent rebates subsidy of about £2.5 billion plus a housing element of £447 million.

Under the current system the net gain to the Treasury was a little over £1 billion from the surplus housing element subsidy. Under the new system there will be no rent rebate subsidy to the housing revenue account and housing revenue account surpluses will be paid into the pool which pays housing element subsidy. I think that is the central housing revenue account about which the Minister was talking.

Therefore, had the new system been operating in 2002–03, the Office of the Deputy Prime Minister would have paid something like £943 million in housing element subsidy to local authorities but £660 million would have to be met through the housing revenue account surpluses and only £283 million would be supplied by the Treasury instead of the £943 million under the current system. So I am still concerned that this is very much a centralising project. I seek further assurance that this money will be spent on housing. I am very concerned that it is going back to the centre, rather than local authorities having the ability to organise their finances. Yet again in the Bill we think that matters are getting better and that local authorities are to have more ability to manage their own finances but, ultimately, there is a central grip over those moneys from local government. I beg to move.

Lord Bassam of Brighton

I am grateful to the noble Baroness for raising these issues. In making some of her comments, she is perhaps reading too much into the Government's intentions. I shall take a little time to go through this significant and complex issue.

The removal of rent rebates and rent rebate subsidies from HRAs will create surpluses on the housing revenue accounts of many English and Welsh authorities. Clause 91(1) provides that these will be paid directly to the Secretary of State or the National Assembly, as appropriate.

Amendment No. 182, which requires the Secretary of State and the National Assembly to keep separate ring-fenced accounts of the amounts paid to them, and to pay those amounts into local authorities' housing revenue accounts, is not necessary. We think it will add an extra layer of bureaucracy.

The Government agree that it would be wrong for council housing either to subsidise or to be subsided by the general council tax payer. The Minister in another place made a clear commitment that the resources captured through the pooling of HRA surpluses should and will he used for housing purposes.

We have repeatedly made the point—we made it clear in November 1999 through our consultation paper The Handling of Rent Rebates under Resource Accounting; again in the Local Government White Paper in December 2001: and in the Explanatory Notes to the Bill—that our intention is to use the pooled surpluses towards providing HRA subsidy to those "deficit" authorities in England whose assumed expenditure on their housing stock exceeds their assumed rental income.

Section 80(2) of the Local Government and Housing Act 1989 means that those 18 English authorities which at present have a housing element surplus exceeding their rent rebate subsidy entitlement currently have to transfer an equivalent amount to their general fund. By repealing Section 80(2), Clause 91 will ensure that, subject to any transitional arrangements to protect council taxpayers, such authorities will pay the surplus into the pool. Once the transitional arrangements are ended, none of the notional HRA surplus will be paid into the general fund. That will stop the current subsidy of the council tax by council tenants. So it creates a fire wall.

There is no need to provide a separate mechanism for the payments of these amounts to local authorities housing revenue accounts because the surpluses will be paid to authorities as part of their HRA subsidy, which is paid into the housing revenue accounts. As the housing revenue account is ring-fenced, this will prevent such resources simply being absorbed into the general council budget.

The requirement to account separately under Clause 91 for the sums paid by authorities to the Secretary of State or the National Assembly for Wales is an unnecessary bureaucratic burden which would increase administrative effort at no advantage to local housing authorities themselves.

Amendment No. 182 would also require the Secretary of State to pay out to local authorities' housing revenue accounts for a year an amount not less than an estimate made before the start of the financial year. I am sure the noble Baroness will appreciate that the final amounts of HRA surpluses to be collected will not be known with certainty until final audited data are available from authorities after the end of the financial year. The amounts due to those authorities in deficit may also change during the year—for instance, as interest rates change. Tying payments to authorities to estimates made before the beginning of the year would not be a sensible or prudent way to proceed. It could disadvantage authorities and the national taxpayer.

I hope that, with those assurances and the reassurance that we are committed to using the sums paid to the Secretary of State or the National Assembly for Wales, the noble Baroness will feel able to withdraw her amendment.

[The Sitting was suspended for a Division in the House from 5.8 to 5.22 p.m.]

Baroness Maddock

I thank the Minister for taking time to respond. I still have a query. Under the new regime the Treasury seems to be getting a greater proportion of money to do with what it wants.

Lord Bassam of Brighton

I am not quite sure how the noble Baroness works that out. I have given a very clear explanation as to how the mechanism will work. I need to hear a little more on how the noble Baroness sees it working.

Baroness Maddock

I did my best to explain as we were going along. If the Minister would like to look again at what I said, it may be that he can clarify the point further. However, the provision seems to replace one system with another from which the housing revenue account will not necessarily benefit, but in which the Treasury's element changes. The calculations supplied to me, which use figures supplied by the Government, show that the Treasury will still get something like £660 million, with which it can do what it wants. I understand that it is a problem. I understand what the Government are trying to do and that they do not want anything too bureaucratic. We were assured when this issue was debated in another place that all the figures will be there at the end of the year, and audited, and one could look at them. I hope that the Minister will be able to look again at this matter and to give me some further information, perhaps in a note afterwards. Meanwhile. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 91 agreed to.

Clause 92 [Housing Revenue Accounts etc: adaptation of enactments]:

Baroness Hanham moved Amendment No. 183:

Page 49, leave out lines 19 to 27

The noble Baroness said: I speak to Amendments Nos. 183, 185 and 186. They deal with Clause 92, about which we have considerable concerns. We believe that the new changes to be made in Part 6 of the Local Government and Housing Act 1989 are drawn too widely. Our fears are further consolidated by the report of the Select Committee on Delegated Powers and Regulatory Reform. It commented: Clause 92(1) inserts a new section 87A in Part 6 of the 1989 Act, which enables the Secretary of State/the Assembly to amend. repeal or re-enact any provisions of Part 6 and to make incidental and similar provision (including amendments of Acts). Orders by the Secretary of State are subject to affirmative procedure. There is no limitation or indication in the bill as to the purposes for which the power is to be used. The reason given for the provision in the Explanatory Notes accompanying the bill, paragraph 241, is that it will, 'provide a mechanism whereby … changes to the HRA may be made as and when required to reflect new circumstances or to improve the financial arrangements for local authority housing'. The ODPM's memorandum provides little further explanation (paragraphs 110 and 111). The Committee considers that this delegation is too wide and that it would be appropriate only if its extent were limited on the face of the bill to specific provisions in Part 6".

I welcome the slight limitation which government Amendment No. 184 proposes to these powers and I thank the Minister for giving at least some consideration to the comments and recommendations made by the Select Committee. However, will the Minister convince me—and I need convincing—that curtailing these wide-ranging powers to apply specifically to Sections 74 to 76, 78 and Schedule 4 to the 1989 Act is a sufficient amendment? It does not go as far as we believe it should. Again, I fear that wretched word "flexibility" will be thrown back at me in reply. We have mentioned it a couple of times already. But I should like to remind the Government that there may be a time when the Minister in question is not a Labour Minister and that they may come to repent the numerous ministerial powers that are enshrined in the Bill in the name of "flexibility".

Amendment No. 185, in a similar vein, seeks to probe the wide-ranging powers set out in Clause 92(4) in relation to orders made under Section 87A of the 1989 Act. In particular, I would welcome some comments from the Minister on the purpose of paragraph (b). It could encourage inconsistency and a lack of uniformity in the Government's approach to housing finance. On what basis does the Minister intend to make different provision for different cases or authorities, and under what circumstances? Our Amendment No. 186 seeks to limit the latter to "classes of authority" rather than "authorities" in general. We believe that orders made regulating housing finance could, appropriately, differ for different classes of authority.

We do not believe, however, that it is justifiable to have different provisions within individual authorities themselves. As I said previously, we believe in equal financial measures for all so as to ensure a consistent approach and to avoid any discrimination against successful authorities in the interests of those who consistently fail to achieve. There is a delicate balance to be maintained. I look forward to hearing from the Minister that the Government recognise and appreciate the need for a uniform approach to housing finance. I beg to move.

5.30 p.m.

Lord Bassam of Brighton

I shall not read out the first paragraph of my brief because the noble Baroness did so for me. She perfectly described the score, so we shall pass on that, but it is worth raising some points that will address her issues of especial concern.

The 16th report of the Select Committee on Delegated Powers and Regulatory Reform considered that that delegated power was too wide and recommended that its extent should be limited to specific provisions within Part 6. We have carefully considered that recommendation. As we made clear in another place, there are no plans immediately to use the new Section 87A powers, but we considered that a broad power was right, with suitable parliamentary safeguards. Had those powers been available four years ago, when the Government first made a commitment to removing rent rebates from the housing revenue account, we could have put the proposal before Parliament straight away, as local government—and, perhaps more importantly, tenants' groups—wanted.

By limiting the power to specific provisions in Part 6 of the 1989 Act, we run the risk of restricting what can be achieved in the future, even if there is general agreement that change is necessary. However, in view of the Select Committee's concerns, we are prepared to accept that the new Section 87A powers introduced by Clause 92 should be limited. The amendment means that they will extend only to Sections 74, 75, 76 and 78 of and Schedule 4 to the 1989 Act. We believe that that is the minimum necessary to accommodate as quickly as possible desirable changes to the housing revenue account in future—subject, as appropriate, to parliamentary approval.

Amendment No. 183 would prevent the Secretary of State or the National Assembly for Wales from making modifications by order. Amendment No. 185 would prevent the appropriate person from including in such an order any consequential, incidental provisions as necessary to other Acts. As I mentioned, the Select Committee on Delegated Powers and Regulatory Reform recommended that the extent of the powers should be limited to specific provisions within Part 6. We propose to do so. The committee did not think it necessary to recommend that their extent be limited to Schedule 4 only.

We believe that it is necessary to retain powers to amend the above mentioned sections of Part 6, in addition to Schedule 4, and that will enable us, for example, to make such provision as may be necessary to give effect to the proposal for new, self-financing, arm's-length management organisations, which was announced in the sustainable communities plan.

It is not yet possible to say for certain what that proposal may require, but it may be that changes to the statutory provisions under which authorities are required to keep a housing revenue account will be needed. It may also be necessary to make different provision for budgeting and accounting by such authorities. It also likely that there will be implications for HRA subsidy, but currently we believe that we can manage with existing and proposed provisions in the Bill—in particular those in Clause 90.

Amendment No. 186 would prevent the Government making modifications by order to Part 6 of the Local Government and Housing Act 1989 for individual authorities. It would restrict different provision for different cases or classes of authority.

The amendment would hamper our power to deal flexibly with authorities in especially difficult situations. I appreciate that Kensington and Chelsea and Essex are not authorities with difficult problems—at least, not of the kind that we here seek the flexibility to handle—but other authorities may well get into difficulties and fall into dire and extreme circumstances. In such circumstances, it is right that we have maximum flexibility to consider special provision and enable intervention. It may be necessary to amend, for instance, the items to be credited or debited to the housing revenue account.

Part 4 of Schedule 4 to the Local Government and Housing Act 1989 already provides a power to direct that the provisions of Part 6 be excluded or modified in relation to specific authorities—so the provision already exists—or specific houses or other property within the housing revenue account. That already gives us some of the flexibility we require.

The new powers contained in Clause 92 are broader, allowing, for instance, new items to be specified for credit or debit to the HRA, giving us the maximum possible flexibility when dealing with those few extreme situations. The existing direction-making power is not subject to parliamentary scrutiny, whereas the new order-making power would be subject, in England, to scrutiny by affirmative resolution of each House of Parliament. So we have built in more safeguards.

I hope that that provides the necessary reassurance sought by the noble Baroness, Lady Hanham. She chided me earlier by saying that in the future we might have cause to repent, but presumably she envisages an alternative to a Labour government only in the form of a government from her party. I cannot believe that her party would cause us to repent in those circumstances, or that she would expect it to put us in such a position.

Baroness Maddock

Is the Minister saying that the clause will enable the Government to allow certain local authorities—he referred in particular to those that may set up arm's-length management companies—not to have housing revenue accounts? Was that what he implied? He is receiving mixed messages from behind him.

Lord Bassam of Brighton

I think the nods are now in the one direction, so the answer is yes.

Baroness Hanham

I heard the word "flexible". I thought that I would; that is wonderful.

Lord Bassam of Brighton

I will bring my thesaurus next time.

Baroness Hanham

No, that was good; I do not like to be disappointed.

There was a great deal of detail about the provisions in Part 6 of the 1989 Act, which I do not have immediately before me. I want to read carefully what the Minister so ably read out. I am not sure whether his grasp of Part 6, Section 87A, and so on, is deep; mine is not. I am worried that the provision still leaves too much to the Government's discretion, which is precisely what the Select Committee was trying to hinder. I shall reconsider that and, if necessary, return to it later. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Rooker moved Amendment No. 184:

Page 49, line 20, leave out from first "of" to end of line 21 and insert "sections 74 to 76 and 78 of, and Schedule 4 to, this Act;".

[Amendments Nos. 185 and 186 not moved.]

Clause 92, as amended, agreed to.

Clause 93 [Local housing authority houses: rents]:

Baroness Hanham moved Amendment No. 187:

Page 50, line 8, leave out subsection (1)

The noble Baroness said: Our Amendments Nos. 187 and 188 focus on Clause 93, which concerns local housing authority rents. The point of subsection (1) is to limit Section 24(3) of the Housing Act 1985 so that it applies only in relation to Wales and not to England as well. Subsection (2) allows, at some later date, for Section 24(3) to be repealed by order by the National Assembly.

According to the Explanatory Notes, Section 24(3), requires authorities, when setting their rents, to have regard to the principle that rents of houses of any class or description should bear broadly the same proportion to private sector rents as the rents of houses of any other class or description". They continue that the reason that that is to be changed is because, in certain circumstances, the requirements of section 24(3) might make it difficult for authorities to comply in the longer term with the Government's rent restructuring policy in England".

The amendments are designed to be probing only. Can the Minister shed light on the Government's longer term rent restructuring policy? On what basis has it changed or will it change from previous policy? I understand that subsection (2) is intended to take into account the devolved status of Wales, but what will be the effect of having a change only in England but not in Wales on cost and revenue?

Furthermore, can the Minister explain in detail why he thinks that Section 24(3) is obstructive? My honourable friend Philip Hammond commented with considerable foresight on Report in another place when he stated: My understanding of section 24(3) … is not that uniform rentals—or fixed percentages for public-sector rents by comparison with private-sector rents—have to apply across the country, but that there should he an equivalence of proportionality, in a local authority area, between public sector and private sector rents across different types of dwelling. That is surely sensible".—[Official Report, Commons, 5/3/03; col. 857.]

I agree wholeheartedly with my honourable friend's stance. The approach in Section 24(3) seems to be commendable in terms of balance and proportionality. Can the Minister explain why it sits uncomfortably with the Government's longer term rent restructuring policy?

I notice that in answer to Mr Hammond in another place, the Minister, Nick Raynsford, stated that to remove Clause 93 would be to stop the removal of an obstacle to the policy of rent reform. I look forward to hearing the reasons why Section 24(3) is an obstacle to rent reform and what alternative the Government intend to put in its place. I beg to move.

Lord Rooker

I hope that I can give a satisfactory explanation. When we consider the grand scale of things, we may think that the provision is about nit-picking lawyers trying to deal with every little nuance that may arise. But in the context of the rent restructuring policy—which is not a five-minute job, of course, it is a job for a decade—I hope that I can explain the reasons for the clause.

As the noble Baroness said, Amendments Nos. 187 and 188 both relate to the policy of encouraging local authorities and registered social landlords to restructure their rents in line with a national formula, announced in The Way Forward for Housing in December 2000. Prior to the introduction of rent restructuring, in some areas rents being charged by neighbouring councils for similar properties—in fact, identical properties; I can think of roads divided by the local authority boundary in which the dwellings on both sides of the road were originally built by the same builder and are exactly the same—varied by a third or more, while housing associations were able to charge over half as much again as councils for similar properties in the same area.

In time, the rent restructuring policy will produce a coherent pattern of rents across England. That will send the right signals, enabling social tenants to make real choices about where they live while keeping rents affordable.

In contrast, if social rents were allowed to approach market levels, some housing providers in areas of low demand would be unable to operate, while in areas of high demand, such as London, those on modest incomes would be priced out of the market altogether.

Amendments Nos. 187 and 188 together would effectively remove Clause 93, which deals with a potential obstacle to our policy of rent reform in England. Clause 93(1) effectively repeals Section 24(3) of the Housing Act 1985 in England. Section 24(3) requires local authorities in England and Wales, when setting rents, to have regard to the principle that rents of houses of any class or description should be broadly in the same proportion to private sector rents as the rents of houses of any other class or description.

Section 24(3) does not require local authority rents to be the same as those in the private sector—local authority rents are of course generally well below market levels. Section 24(3) requires local authorities, in setting rents, to have regard to the proportions between rents for different types of property in the private sector.

Some local authorities have suggested to us that the requirement in Section 24(3) might make it difficult for them to follow our policy of social rent reform in England, particularly towards the end of the 10-year restructuring period, as their rents might approach the Government's national rents formula. That is because the pattern of formula rents in an area might differ from the pattern of private sector rents in that area. Clause 93(1) is intended to address those local authority concerns by removing that potential obstacle to achieving social rent reform. So, first, it is a potential obstacle and perceived that it may be a problem towards the end of the rent restructuring programme—which is, of course, some years away.

Amendment No. 188 would remove subsection (2), which allows the National Assembly for Wales by order to repeal Section 24(3) as amended by subsection (1)—that is, in Wales only—if it wants to do so in the future. Colleagues in the Welsh Assembly are currently undertaking research into social rent levels in Wales. Following that, the Welsh Assembly will want to decide its social rents policy for Wales, and to have the flexibility to remove Section 24(3) in Wales should it become a similar obstacle to reform, as it is perceived to be in England, some years away. So it is really giving the Welsh Assembly that flexibility.

Before anyone else points this out, I am aware that in the border areas between Wales and England, the same problems may arise as exist between local authorities in England. That is a highly technical point and no one is saying that it is a major problem that we must deal with tomorrow. However, the potential problem has been spotted and it is right to take the opportunity of the Bill to provide the facility to deal with it, if it becomes a major issue. I hope that that explanation satisfies the noble Baroness.

5.45 p.m.

Baroness Hanham

I thank the Minister for his explanation. I am slightly surprised that the provision is advanced at this stage of the rent restructuring process—there are a good few years to go before it is complete. I am sure that there will be another local government Bill before then, into which it could have been inserted.

Lord Rooker

I nearly said that.

Baroness Hanham

It is amazing how they turn up at four-year intervals.

I thank the Minister for his comprehensive reply, which I shall of course study carefully to decide whether we need to return to the matter, but this was a probing amendment designed to elicit that response, so I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 188 not moved.]

Clause 93 agreed to.

Clause 94 [Power to charge for discretionary services]:

Lord Hanningfield moved Amendment No. 189: Page 50, line 28, leave out subsection (3)

The noble Lord said: It is not at all clear to me why the Government believe it necessary to stop local authorities charging the market rate for their services through the exercise of this power. Many local authorities will be dismayed that, having been granted a general power to charge for discretionary services, they are to have their hands tied through this unnecessarily restrictive caveat. My amendment would remove that restriction.

We understand that that power is to be exercised primarily to promote the economic, social and environmental well-being of our communities and is not to be seen as a money-spinner. That is fine.

However, in order for local authorities to be able to provide a service and to raise their standards of service provision, it is clear that on occasion they might want to over-recover their costs in order to invest in service improvements. To be prevented from doing so is likely to lead to a gradual deterioration of service.

Will the guidance on the exercise of that power allow over-recovery for the purpose of re-investment? Having glanced through the draft, it is not clear to me that that would be the case. Furthermore, where a local authority chooses to enter the marketplace, is it not obvious that it should do so on a commercial basis? Businesses will not welcome the provisions, which will distort local markets.

I appreciate that the Minister will probably take the view that the purpose of the powers is to enable local authorities to step in to provide services where the local market cannot or will not do so. That may, in many cases be true, but should we not also consider the powers as an opportunity to stimulate local markets? That will not be the effect of having a large, uncommercial player taking part. I beg to move.

Baroness Hamwee

We, too, want to probe Clause 94(3). The grouping includes not only Amendment No. 189, but Amendment No. 190, to which our names are attached—well, mine is; I am not sure why that of my noble friend Lady Maddock was left off—Amendment No. 190A, also in our names, and Amendments Nos. 191 and 192, to which I am not sure whether the noble Lord, Lord Hanningfield, spoke, which stand in his name.

I almost feel that I should declare an interest in that when I chaired the planning committee of the London Borough of Richmond upon Thames in the mid-1980s I had a rather entrepreneurial deputy chair who thought that we ought to be charging developers for the valuable advice being given to them entirely free by planning staff. We did, for a bit. We charged only £25—probably below the real cost, but I hate to think how much we cost the authority, because McCarthy and Stone brought us all the way to this House. Since then, I have been looking forward to local authorities having the power to charge, because that is entirely proper. So I begin by welcoming the provision.

However, like the noble Lord, Lord Hanningfield, I wonder why Clause 94(3) is required. Indeed, starting from the McCarthy and Stone case, which concerned whether local authorities have the vires to charge, I am worried whether including the provision would enable another McCarthy and Stone to state that authorities were not able to do what they wanted to, because they were not balancing income and expenditure over a period. That may be technical, but it could be a real problem.

In the draft guidance from the ODPM, we read that the Government want to allow for the uncertain costs of setting up, which is why the guidance suggests taking one year with another. Like the Minister, I feel the need of a thesaurus here, because I have written, "surely more flexibility than that is required", but it is required. For instance, an assessment of the take-up may need to be made over a period.

Amendment No. 190A is intended to define the costs of provision. I have used a fairly well-tried formula, which includes the direct and incidental costs of provision; it does not allow people to bung in everything that they can think of and call it a cost, but, quite properly, it extends to costs beyond those narrowly associated with the provision.

Lord Rooker

Talking of bunging-in, reading through my speaking notes, there is a lot of bunging-in in them. I know that this is an important set of amendments and that there are a lot of them, But I shall try to keep my explanation brief and understandable.

Within this group are attempts by two separate routes not just to allow but to push an authority into unrestricted commercial activity in discretionary service provision, irrespective of that authority's performance. That is a real worry and the number one reason why we cannot accept the amendments.

The effect of Amendments Nos. 189, 191 and 192 is to allow authorities to engage in unrestricted commercial activity in discretionary service provision irrespective of that authority's performance. The general power to charge in Clause 94 applies to all best value authorities. Best value authorities include not just local authorities, but also police and fire authorities, national parks and certain town and parish councils. The Government do not intend that that general power should be linked to performance.

The purpose of providing a new general power to enable best value authorities to charge for discretionary services is to encourage them to enhance their existing services and develop new ones that will help to improve the service they provide to their community. We do not intend through the new power to provide a new source of income for authorities, but to allow them to cover their costs.

As I said, the provision on charging in Clause 94 is not about allowing authorities to enter into commercial activity in their discretionary service provision. The Government are not opposed to authorities engaging in commercial activity—I want to make that absolutely clear. Indeed, we are proposing new powers for best value authorities to enter into commercial activity by trading with private sector organisations. Those proposals are set out in Clauses 96 and 97, to which we shall presently turn. But we believe that such commercial trading should he carefully controlled, including that the trading should be undertaken through a company and that it should be available only to those authorities which have demonstrated a high level of performance.

Under the charging power that we propose, an authority will not be required to charge for a service and may charge some recipients more than others, as long as, overall, it complies with the duty that the noble Baronesses and the noble Lord seek to remove. But it is not intended that authorities should as matter of policy cross-subsidise services between recipients— for example by deliberately charging some recipients more than it costs to provide a service and others less—while, overall, charging no more than the costs incurred over a period of years and thus complying with the duty. That would be a recipe for disaster and we do not want to go down that route.

Amendment No. 189 would remove the duty in Clause 94(3). That would mean that charges under the power would no longer be limited to cost recovery. That would be contrary to the purpose of the charging power. Importantly, it would also interfere with and undermine the controls proposed under the powers to trade, to which I have already referred, which are provided in Clauses 96 and 97. That is because all best value authorities would as a result be able to engage in unrestricted and uncontrolled trading activity in discretionary services through the general charging power.

Amendment No. 190 also attempts to allow uncontrolled commercial activity in discretionary service provision, and is similar to an amendment proposed but not debated when the Bill was considered in another place. But the effect of Amendment No. 190 is not, I fear, what was intended.

I have already explained that the purpose of providing a new general power to enable best value authorities to charge for discretionary services is to encourage them to enhance their existing services and to develop new ones.

The key effect of Amendment No. 190 is that it would alter the relationship between income from charges and costs of provision. In the Bill, the duty placed on best value authorities requires them to secure that the income from charges does not exceed the costs of provision. That means that the income from charges must be equal to or less than the costs. The constraint here is on the income from charges.

But Amendment No. 190 turns the duty around, so that costs of provision do not exceed the income from charges. That means that costs of provision must be less than or equal to the income from charges. Here, there is no constraint on the income from charges. Indeed, accepting the amendment would sanction commercial activity under the charging power and would allow authorities to set charges at any level, as long as the income from the charges for discretionary services remained greater than the costs of providing those services. As I have already described, that would be contrary to the purpose set out in Clauses 96 and 97.

Amendment No. 190A defines the meaning of, the costs of provision", in Clause 94(3) as: all costs of, and incidental to, the provision of the service".

I am sure that the amendment is intended to make the provision easier for authorities to interpret. It seeks to define the term "costs of provision", and thereby to interpret for authorities what they may include within such costs when assessing charges to be made for a particular discretionary service. However, in doing so, it does not offer any practical definition.

In Clause 94, "costs of provision" is deliberately not defined so as to give authorities maximum discretion and flexibility in its interpretation, both now and in future. Authorities should be free to establish their own robust methodology for assessing the costs of providing a discretionary service.

Clause 94(6) provides that best value authorities should have regard to guidance that the Secretary of State or the Welsh Assembly may issue. We have recently consulted on draft guidance, a copy of which has been provided to the Committee. The consultation period closes at the end of this month. In the guidance, we have suggested that authorities should draw on existing and familiar principles set out in CIPFA's best value accounting code of practice for establishing the costs of providing a discretionary service.

In the light of this explanation, I hope that noble Lords will withdraw the amendments. I can see why they were tabled but their consequences are such that we could not possibly accept them.

6 p.m.

Baroness Hamwee

I have been wondering whether to come back at the next stage with an amendment to Clause 94(3) stating that the income will not exceed the approximate costs, or something like that. In other words, if a local authority is a penny or two out. it will not be caught out. Can the Minister comment on that today? I can table such an amendment for the next stage, but I am trying to save time.

Lord Rooker

I am all in favour of trying to save time. I would hate to think that a local authority would fall foul of some crazy interpretation of the Bill and that because its costs turned out to be a little lower than it thought and it made a profit of a quid, that nullified the whole exercise. I would hate to think that the system was so stupid that that could occur. I am not looking for nods from my officials, and I am not getting any. Obviously, if the noble Baroness tables such an amendment I will be happy to give her a considered response to it.

Lord Hanningfield

I would like to question the Minister a bit more. Towards the end of his response, he seemed to indicate that local authorities could include some of the costs, as they saw fit, such as the cost of the democratic process in local government and the costs of council buildings. It is sometimes difficult to work out what the actual council costs are. Running committees and so forth have a cost. They could be interpreted as part of the on-cost. I should like to give an example.

Lord Rooker

Surely the examples the noble Lord has given do not cover discretionary services.

Lord Hanningfield

The cost of democracy goes across the whole council. For example, because of the problem with the redirection of revenue support grant, we are having to massacre our discretionary services. We have 40 archaeologists, as Colchester is the oldest town in the United Kingdom. Every plot that is dug up in every bit of Colchester has to be photographed or reserved. If we could make ordinary market rate charges for archaeology, we could probably keep our team. As we cannot, we will probably not have many archaeologists at all, because we cannot charge the cost that would be asked by outside people. So we will probably decimate our archaeology team.

It is not just a question of the cost of the team but of the democratic process. There is a cabinet member responsible for that area of work and a committee looking at it, resulting in substantial cost overheads. That cost is to do with the democratic process in local government, not just with providing the service. It costs about £4 million to run our county hall in Essex. As the noble Baroness, Lady Hamwee, said, it all depends on the interpretation of costs.

The Minister seemed to indicate that we could include some of those costs in the overall costs that could be recovered, which might enable some discretionary services to continue. If we just charge the actual costs of the archaeologists, the service might go, but if we could include the other costs, it might be able to continue.

Baroness Hamwee

Before the noble Lord argues a case that could be to local authorities' detriment, I draw to his attention the draft guidance from the ODPM, which suggests that there are two options to establish the cost of provision, one of which is to include an appropriate contribution to costs relating to corporate and democratic core and unapportionable central overheads. I am a bit worried that the longer the noble Lord goes on talking, the more he will talk himself out of including such costs.

Lord Rooker

The noble Baroness has answered the question, in a way. There is a degree of latitude. I do not know why we keep talking about Essex; I do not know what it pays its chief executive, but some of the runaway costs might be objected to by those on the receiving end of the charges. So there is a warning for you.

Lord Hanningfield

I can assure the Minister that the leader has to work a lot harder than the chief executive, but does not get anything like the recompense. With that—

Lord Rooker

Stop digging.

Lord Hanningfield

Yes. We will consider this important area. Obviously we welcome the new power but we want to make certain it helps to keep some of the discretionary services in place. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments Nos. 190 to 192 not moved.]

Clause 94 agreed to.

Clause 95 [Power to disapply section 94(1)]:

Baroness Hamwee moved Amendment No. 192A: Page 51, line 13, leave out paragraph (a).

The noble Baroness said: I shall speak also to Amendment No. 192B. Clause 95 provides the power to disapply the clause we have just been debating. Amendment No. 192A would remove the power from the Government to disapply Clause 94 with regard to particular descriptions of best value authorities or particular best value authorities. Amendment No. 192B is similar, with regard to particular kinds of service other than those which apply for all best value authorities—for the reasons that we gave quite a few times when debating that clause. We do not like the distinctions made between authorities.

As I understand it, the Government said that the charging power should be available to all authorities. I assume that this clause is, at least in part, about the CPA categories. The consultation draft to which I referred in the previous group of amendments says that the provisions were scrutinised by the House of Commons. Well, not these provisions, which is why I tabled the amendments.

Paragraph 8 of the draft refers to encouraging the improvement of services. I am unclear how that is covered or regulated by the Bill. In particular, paragraph 18 says that the power can be removed, which means that the Government could take action in the event of unfair competition—for example, where an authority was undercutting local private sector suppliers of a service and especially where substantial numbers were given discounts on charges.

Even leaving aside whether it is proper to try to control things from the centre in that way—and although we may not be as much in favour of the free market as the noble Lord, Lord Hanningfield, we believe that the market tends to regulate matters to some extent—I cannot see how that is necessary if we retain Clause 94(3). Perhaps the Minister can help me on that. I beg to move.

Lord Bassam of Brighton

We cannot support the amendments, and I will explain why.

The power in Clause 95 is a reserve power, which we expect to use only very exceptionally. But it means that the Government could take action if an authority were to misuse the power to charge. An example might be where it became clear that an authority was not complying with the duty in Clause 94, to secure that, taking one financial year with another, the income from charges under that subsection does not exceed the costs or provision". If, as a result, the authority was effectively undertaking unauthorised trading activities, Clause 95 would enable the general power to charge to be withdrawn from that authority.

The power in Clause 95 might also be used if it became clear that it was riot in the public interest for any best value authority to charge for a particular discretionary service. Clause 95 enables the Government to take action in either of these circumstances, if Parliament is content.

I should draw attention to the combined effect of the two amendments. The charging power could only be disapplied from all best value authorities and only for a particular kind of service. So it would not be possible to withdraw the power to charge from an individual authority in the event that it was misusing the power—something of a blunderbuss.

I am afraid that the amendments might even be an invitation to some authorities to abuse the power to charge and to act beyond their reasonable use of the powers. We think that this could happen if the Government had no power to intervene in the case of misuse other than to withdraw the charging power from all authorities, which would unnecessarily penalise those that were acting properly and within their powers.

Amendment No. 192A would prevent withdrawal of the power to charge from an individual authority or from groups of authorities. It would not prevent disapplication of the power per se because it would leave in place the power to disapply the charging power in relation to particular kinds of service by those authorities. I take it, therefore, that the noble Baroness acknowledges that the power to disapply is needed. But disapplication of the power on a service-by-service basis would result in a lengthy and time-consuming process for Parliament, which would have to consider it, since every possible discretionary service that an authority might undertake would need to be identified and disapplied separately. I am sure that, on reflection, the noble Baroness would agree with me that that would not be a sensible use of parliamentary time.

Amendment No. 192B would mean that any disapplication under Clause 95 must apply to all best value authorities. That would prevent the Government from withdrawing the power from a particular authority if it misused the power. The combined effect of the amendments would mean that the charging power could only be disapplied from all best value authorities.

I hope that, with that explanation, the noble Baroness will feel able to withdraw the amendment.

Baroness Hamwee

The noble Lord is on a winner because he knows that I have to withdraw my amendment today. I do not agree with the reasons he has given for the necessity for the clause. For it to be disapplied because it might not be deemed in the public interest to charge for the service seems questionable. What happened to freedom and flexibility?

Perhaps that one is an exception, but I think I will at the next stage go back to my question about why it is necessary to be able to remove the power to stop an authority making a commercial return if Clause 94(3) is in place. It does not seem necessary to me. If we really are talking about freedoms and flexibilities, giving a freedom and retaining the power to withdraw it needs to be justified. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 192B not moved.]

Lord Hanningfield moved Amendment No. 193: Page 51, line 20, at end insert— ( ) The power under subsection (1) does not apply to best value authorities that have been placed in the top tier of classification in accordance with the provisions set out in section 100.

The noble Lord said: We continue with the same theme. There is no question but that Clause 95 will discourage local authorities from making use of the Clause 94 power. In order for that power to be used effectively, there must be some stability in the system. Local authorities setting up the new services and new charging systems that we discussed could incur considerable one-off costs. They will not do that if there is the possibility that the Government will suddenly remove these powers. Nor will partners from the private or voluntary sector sign up to working with local authorities on that basis.

We are opposed to that power in general. We are particularly opposed to it in relation to CPA excellent authorities. Obviously the Minister will have some views on that. We want CPA excellent authorities to he excluded from the scope of the clause.

The Government have introduced a system of classification at great expense. They have identified councils that they consider to be excellent and have promised them extra freedoms. Without those freedoms, there is no justification for the whole CPA exercise. So we are entitled to expect that where there is the scope to extend freedoms, the Government should do so.

We would prefer the clause to be abandoned altogether. But if that is not to be, we want excellent authorities to be excluded from its scope.

There is no doubt that invoking the clause has the potential to cost local authorities money and to damage their relations with the community. It is important that the Bill should make it clear that the Government will take into account the financial impact on a local authority of the exercise of that power and that existing arrangements will enjoy a measure of protection.

I hope that the Minister will carefully consider Clause 95. Without the safeguards that I have suggested, it threatens to undermine the thrust of the Government's policy.

6.15 p.m.

Baroness Hanham

The Minister has not leapt to his feet. He has been carrying the banner of excellent authorities all the way through the Bill. and I am stunned that he is not supporting the amendment. Perhaps in this particular area he does not want the excellent authorities to intervene.

It is a question of what we mean by all the efforts that have been put into the CPA and their outcomes. The amendment would ensure that excellent authorities were seen to have gained some benefit. It is interesting that the amendments tabled by the noble Lord, Lord Smith, and by us about recognising the excellent authorities have all been turned down by the Government. I very much hope that we will see an exception this time.

Lord Bassam of Brighton

This is a re-run of the previous debate. I am sure that noble Lords who are interested in the issue know that this is a reserve power and that it would be used only in extremis. There will be well defined circumstances in which that might be the case, particularly where an authority was undertaking unauthorised trading activities. The provision would enable an intervention where it would not be in the public interest for a best value authority to charge for a particular discretionary service. I am sure that we can all think of such circumstances. For example, an authority might seek to use an excessive charge to discourage the use of a service and undermine its long-term effect. In those circumstances, it would be justifiable to have an intervention.

Amendment No. 193 would fetter the discretion of the Secretary of State, so that he could not disapply the power to charge for discretionary services from authorities adjudged to be in one of the top tier of performance categories, by virtue of their categorisation under Clause 100. The reference to "top tier" makes that amendment flawed, as the concept does not exist in statute in any event.

The amendment would prevent the Government from taking any action and would prevent the removal in the public interest of the power to charge for a particular service from a top tier—perhaps inappropriately named—authority.

Amendment No. 194 would prevent the Secretary of State from using the power to disapply the charging power from existing arrangements. We can well understand concerns that arrangements entered into lawfully should not be made unlawful by the exercise of the power. But Clause 122 provides for transitional provisions to form part of any orders made under the Bill, and we would include such arrangements in any order made.

The effect of Amendment No. 194 is also wider than has been described. It would prevent the Secretary of State from making an order to disapply the charging power from any existing arrangements. By definition, any services for which charges were made under the new charging power would become "existing arrangements". And, equally, any service where there was evidence of misuse, perhaps because it involved unauthorised trading, would be an "existing arrangement". So the Government would he unable to withdraw the charging power for the very services and from the very authorities that the power at Clause 95 is designed to address.

Amendment No. 195 would require that the Secretary of State have regard to the financial impact on an affected authority. Clause 122 provides for transitional arrangements to form part of any orders made under the Bill. In any such orders, we would include arrangements, for example, to cover the status of agreements previously entered into prior to the withdrawal of the charging power, so that they could run their proper course.

When considering withdrawal of the charging power, we would always ensure that there was full consultation with the authorities affected and consider the impact of withdrawing the power. We are committed to the new burdens procedure which requires us to reimburse local authorities for any additional costs they might face as a result of charges introduced by us, such as the withdrawal of a power. We would give authorities the opportunity to rectify their situation and discuss with affected authorities any proposals we may have for intervention before acting.

I hope that that explanation provides a better understanding of how we would seek to use the power. We would use it as sensitively as possible and only where we felt that there was abuse and a failure to recognise the importance of the public interest.

Lord Hanningfield

I thank the noble Lord for that answer. It still does not explain why one could not exclude excellent authorities—they would clearly not be misusing those trading powers; if so, they would not be excellent authorities.

I suspect that we will return to this theme of the real value of being an excellent or good authority. We have not discussed the CPA process. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 194 and 195 not moved.]

Clause 95 agreed to.

Clause 96 [Power to trade in function-related activities through a company]:

Baroness Hamwee moved Amendment No. 195ZA: Page 51. line 39, leave out subsection (4).

The noble Baroness said: I shall speak also to Amendments Nos. 196ZB, 196A, 196B and 203A. However, I do not recognise Amendment No. 195A in this group. Our Whips' Office cannot trace my asking them to table it. Yesterday, I asked for it to be withdrawn, along with other amendments, but it is still there. So someone is very keen on it, but it is not me. I cannot even find what Clause 18(5), to which it refers, is about. That was to do with an amendment that CIPFA asked us to table some time ago.

Amendment No. 195ZA would leave out Clause 96(4), which requires that the power to trade shall be exercisable only through a company in which the local authority has an interest. I believe that that was not in the draft Bill and I tabled the amendment to probe why it is now included. Amendment No. 196ZB, which would leave out subsection (3), is tabled because of our continuing distaste for the Secretary of State's ability to distinguish between authorities.

Amendment No. 196B refers to the provisions on exercise by reference to authorities' performance categories. We tabled it because we disagree with the use of performance assessment as a basis for granting powers, a point that we have made consistently throughout the Bill's proceedings. Clause 101 could he applied retrospectively, which particularly concerns us. What happens if a local authority drops a performance category? The councils will be reassessed periodically, and although one hopes that "continuous improvement" will mean just that, some authorities may move into lower categories.

I understand that there is to be some provision for transitional arrangements if this is to happen. While that is helpful, it is not a complete answer, because it is not clear whether a particular trading agreement can continue in that situation. A council entering into a commercial agreement needs to be certain, as does everybody else, that that will stick. It would be very helpful for the legislation to deal with the issue.

Amendment No. 203A applies the same restriction to Clause 101 itself. Amendment No. 196A is consequential, even though it appears earlier. I beg to move.

Lord Hanningfield

I should like to speak to Amendment No. 196. These provisions give the Secretary of State sweeping powers to interfere in any commercial function undertaken by a local authority. The powers do not seem to be restricted to the new powers set out in the Bill but cover anything that the local authority has the power to undertake for a commercial purpose or anything that it does for a company. If that is not the intention of these provisions, is it not better to make it clear on the face of the Bill that these provisions refer only to the Clause 96 powers?

Even if the powers were so restricted, we would still take issue with them. Under what conditions could the Secretary of State impose these powers? How would they be applied and under what circumstances? As the noble Baroness, Lady Hamwee, said, authorities could enter into a commercial transaction and withdrawal could cause chaos.

These questions need to be answered. The power is far too general and will deter many commercial organisations and voluntary bodies from entering into a partnership with local authorities. It will make it harder for local authorities to make full use of the powers set out elsewhere in the Bill.

6.30 p.m.

Lord Rooker

I hope I will be able to justify the contents of the Bill, and I hope I have kept track of the amendments that have appeared from nowhere so that I do not waste my time answering them. We agree with the thrust of the concern expressed in Amendments Nos. 196B and 203B, but believe that the issue can be dealt with through secondary legislation.

Amendment No. 195ZA would remove the requirement for the trading power to be exercised through a company within the meaning of Part 5 of the Local Government Act 1989. It would remove the overriding requirement that the proposed power to trade in function-related activities may only take place through a company. This would remove the very important safeguards we built into the provisions and is simply not acceptable.

We consider it essential that the new power for local authorities to trade with private bodies and persons for profit should be exercised through a company structure. We are allowing local authorities to behave in a commercial way; it follows they should be subject to the regulation of commercial bodies, for example on taxation. This will help ensure a level playing field in the private sector. I cannot believe that that is not an acceptable explanation.

Amendment No. 196 relates to Clause 97, which provides an order-making power to impose conditions on the exercise of any trading power by a best value authority, including where the trading activity is undertaken through a company. Best value authorities are also required to have regard to any guidance that may be issued about the exercise of their trading powers. The effect of the amendment would be to remove the power of the Secretary of State—or, in Wales, the National Assembly—to impose conditions in an order and issue guidance on the use of trading powers by best value authorities. This would mean that authorities would be left entirely free to make their own decisions about the exercise of the trading powers.

We believe for many reasons that it is necessary for us to have the ability to impose conditions and issue guidance. These include providing the necessary safeguards for taxpayers, local service users and businesses. We also need to ensure that councils do not distort markets through the provision of inappropriate subsidies to trading companies or the arrangement of preferential terms and other forms of unfair competition.

We also intend to impose conditions which will require the preparation of a business case approved by the authority before it embarks on any trading venture. A draft order has been placed in the Library of the House and has been sent also to Members of the Committee. We also propose to issue guidance which will cover the use of these new powers and the potential implications of competition legislation and anti-competitive practices. The amendment would undermine our ability to provide adequate safeguards to small businesses and others that might be affected. It will hinder our objective of ensuring that authorities exercise the power to trade in a commercially responsible manner.

Amendments Nos. 196ZB and 196A would remove a number of safeguards that we have provided in relation to trading powers. Trading would not be regulated through a company in the same way as it is for other commercial bodies—for example, as regards taxation. Removing the link with performance categorisation would mean that all authorities would be in receipt of the trading powers. It would lead to greater risk as trading would no longer be related to existing strong performance. These important safeguards must be retained.

Amendments Nos. 196B and 203A address the question of what happens to existing freedoms and flexibilities—for example, trading powers—if an English local authority undergoes recategorisation and is no longer able to exercise the power to trade by virtue of falling into a lower performance category. The amendments seek to prevent the Secretary of State from removing regulatory controls on authorities or granting additional powers linked to a particular performance category where the effect would be to make unlawful trading arrangements which were previously lawfully made. We agree with the thrust of the concern but this issue can be dealt with through secondary legislation.

This is an unnecessary amendment—what a good phrase! Clause 122 of the Bill makes provision for transitional arrangements to form part of any orders made under the Bill, and we would include such arrangements in any order made under the provisions identified in subsection (2).

In the light of these explanations—inadequate though they may be and repetitive though they may have been—I hope that the noble Baroness will withdraw the amendment.

Baroness Hamwee

The Minister's reply deserves re-reading quietly. I am left with a question about the retrospective effects of secondary legislation, not only in principle but because I am working through Clause 101 to establish what secondary legislation there may be which would enable the Secretary of State to deal with the concerns we all have. I shall not take up the time of the Committee by going through it orally but it does not seem to have the necessary scope. I should like to know how it will be possible because the order-making powers referred to do not seem relevant to the issue. Perhaps the Minister will deal with that matter on Report.

Lord Rooker

Leave it with me. I shall take further advice and. if need be, I shall write to the noble Baroness.

Lord Hanningfield

I agree with what the noble Baroness, Lady Hamwee, said about retrospection, which does not seem to apply to this Bill but to previous legislation and previous activities of local government. We are not sure why that should be so. I agree that we should explore the issue further. Perhaps the Minister will clarify the matter before we reach further stages of the Bill. I shall not move my amendment.

Baroness Hamwee

I beg leave to withdraw whatever amendment I started with.

Amendment, by leave, withdrawn.

[Amendment No. 195A not moved.]

Clause 96 agreed to.

Clause 97 [Regulation of trading powers]:

[Amendment No. 196 not moved.]

[Amendment No. 196ZA had been withdrawn from the Marshalled List.]

[Amendments Nos. 196ZB to 196E not moved.]

Clause 97 agreed to.

Clause 98 [Power to modify enactments in connection with charging or trading]:

Lord Rooker moved Amendment No. 197: Page 52, line 40, after "made)" insert ", other than section 94(2) or 96(2),

The noble Lord said: In moving Amendment No. 197, I shall speak also to Amendments Nos. 198 and 199 and set out why I oppose Amendment No. 198A.

Amendments Nos. 197, 198 and 199 seek to implement recommendations made by the Delegated Powers and Regulatory Reform Committee's 16th report in relation to Clause 98, which provides the power to modify enactments—including future enactments—that may prevent or obstruct best value authorities from charging or doing things for commercial purposes.

Amendment No. 197 seeks to implement the Committee's recommendation that it would not be appropriate for the power to be used to repeal Clauses 94(2) or 96(2) of the Bill. Amendment No. 198 is prompted by the Select Committee's comment that future enactments were not expressly covered in Clause 98(2) whereas they were in Clause 98(1). The amendment rectifies that situation by bringing the two subsections in line with each other. Amendment No. 199 also follows a recommendation of the Select Committee and seeks to bring the drafting of Clause 98(9) in line with that for order-making powers elsewhere in the Bill. It will ensure that no doubts could arise as to how Clause 122(5), as proposed to be amended by government Amendment No. 223—which we shall discuss later—applies in relation to instruments under Clause 98.

Amendment No. 198A is not acceptable. It seeks to prevent Clause 98 from being used to modify Section 50 of the Disability Discrimination Act 1995. However, Section 50 of the 1995 Act was repealed with effect from 25th April 2000 by Section 14(2) and Schedule 5 to the Disability Rights Commission Act 1999.

I am aware that some disability groups are concerned that Clause 98 might be used so that, for example, the requirements of the Disability Discrimination Act 1995 would be disapplied in relation to the charging and trading powers set out in Clauses 94, 96 and 97.

First, as the Committee will be aware, any proposals to use Clause 98 to modify an enactment would initially be subject to consultation with any person who appears to be representative of the interests likely to be affected by such proposals. If following consultation the proposals were to be implemented, they would then be subject to the rigorous scrutiny of both this House and another place as set out in the affirmative procedures contained in Clause 99 of the Bill.

Secondly, the Government have no plans to use Clause 98 to modify the Disability Discrimination Act 1995. In fact the Government are seeking to improve the position of disabled people, not to disadvantage them.

We are committed to comprehensive and enforceable civil rights for disabled people. Much of the Disability Discrimination Act is already in place and in October 2004 we will be implementing the final phase of Part 3 of the Act. This requires service providers to tackle the physical barriers to access which might otherwise make it impossible or unreasonably difficult for disabled people to use their service. In addition, subject to parliamentary approval, we will introduce significant new rights under the employment provisions of the Disability Discrimination Act using secondary legislation. Indeed, draft regulations were debated and approved by the House on 10th June.

The Secretary of State for Work and Pensions has also announced his intention to publish a draft disability Bill later this year with measures to further extend civil rights for disabled people.

Accordingly, I hope that the Committee will agree that Clause 98(10) should not be removed from the Bill and that there is no need for Clause 98 to be restricted in relation to the enactments to which it may apply. With those reassurances, I hope that the noble Baronesses will be content and not move their amendment, which they have so far not spoken to. I beg to move.

Baroness Hamwee

The Minister referred to Amendment No. 198A, which I was requested to bring forward by a disability organisation. In its briefing it stated that such a power could be very dangerous in the hands of the wrong Minister. The organisation did not mean the noble Lord, Lord Rooker.

Baroness Hanham

How do you know?

Baroness Hamwee

It would have said so more strongly. The Minister circulated a letter in regard to withdrawing certain amendments—we have not yet come to them—in which he referred to my Amendment No. 199A. He explained the error of my ways in tabling the amendment. I spotted that yesterday, which is why we have withdrawn the amendment. We just about got there in time. The amendment is in this group and that is why I refer to it now.

On Question, amendment agreed to.

Lord Rooker moved Amendment No. 198: Page 53, line 2, after "enactment" insert "(whenever passed or made)

On Question, amendment agreed to.

[Amendment No. 198A not moved]

Lord Rooker moved Amendment No. 199: Page 53, line 28, after "the" insert "statutory instrument containing the

On Question, amendment agreed to.

[Amendment No. 199A had been withdrawn from the Marshalled List.]

Lord Bassam of Brightonmoved Amendment No. 200: Page 53, line 32, leave out paragraph (a).

The noble Lord said: Amendment No. 200, along with Amendment No. 202, would make subject to the affirmative procedure orders which extend orders removing barriers to charging and trading to individual authorities or particular descriptions of authorities.

When originally considered, the amendment was designed to match one of the Delegated Powers and Regulatory Reform Committee's recommendations. Having brought it forward, we are now in the embarrassing position of wanting to withdraw the amendment and also Amendments Nos. 202, 205, 206, 207, 208 and 209, which we believe are unnecessary and would mean significant delays to local authorities benefiting from new freedoms and flexibilities.

We are in the odd situation where we thought we were being helpful—in fact we were being helpful technically—but, on reflection, we have ended up putting ourselves in a position where we are running counter to the overall thrust of the legislation to provide freedoms and flexibilities.

If the Committee are content for me to withdraw Amendment No. 200, I will not move the other amendments at this stage.

Lord Hanningfield

I am content to accept the noble Lord withdrawing the amendment and not moving the others.

Amendment, by leave, withdrawn.

6.45 p.m.

Lord Hanningfield moved Amendment No. 201: Page 53, line 41, leave out "authorised, but" and insert "not prohibited from providing and

The noble Lord said: The purpose of this technical amendment is to ascertain the extent of the powers provided in this clause. Does the definition of "discretionary service" in Clause 98(11) mean that this power can apply to any service that local authorities have not expressly been prohibited from supplying? Or is the definition narrower?

If the definition is regarded as being narrower than that, can the Minister give examples of services that fall outside the definition? If he cannot, will he accept that to all intents and purposes the two definitions are the same?

While speaking to the amendment on this clause, can the Minister say how far the Government are likely to go in exercising the discretion in Clause 98 to modify or exclude current restrictions on trading in legislation? We have heard many promises about such freedoms but we have seen a good deal less action. For example, is it the Government's intention to free up the system to enable Essex County Council to market its social services equipment stores regionally, including directly to the public, with a view to making a profit? That would enable us to support further social care needs throughout the county generally.

If the Minister can say today that it is precisely such freedoms that the Government have in mind, and if he can say that there is a will across government to make this happen, it will be welcomed by all local authorities. I beg to move.

Baroness Hamwee

I have added my name to the amendment. Put simply, the question the noble Lord has asked is: does the term "authorised" extend to the well-being power? It suggests something more specific.

Lord Bassam of Brighton

I am not sure that the answer to the question is in my notes. The problem with the amendment is that it would dilute the definition of "discretionary services". I do not know whether that is what the amendment is intended to do, but it would do so in a way that would ensure that a discretionary service would be one that an authority was not prohibited from providing and not required to provide. That is why we have problems with the amendment.

First, the amendment would amend the definition of "discretionary service" only in respect of orders made under Clause 98. However, that which constitutes a "discretionary service" under Clause 94 remains unaltered. In the Bill, a "discretionary service" has identical meaning under Clauses 94 and 98. Amending the definition in Clause 98(11) would create confusion as to what is meant by the term "discretionary service".

Secondly. Amendment No. 201 would widen the scope of discretionary services in relation to orders under Clause 98. That could mean that the power to modify enactments through orders under Clause 98 could be used for a far wider range of services than envisaged; not only those where an authority had a power to provide a particular service.

Thirdly, the drafting of Amendment No. 201 runs contrary to the way in which legislation relating to best value authorities, particularly local government legislation, is constructed. It is that large body of legislation, developed over many years, that provides authorities with the necessary powers, either expressly set out or implied, to undertake certain functions and provide certain services. So authorities must first identify a relevant power to rely on, before they can say that they are authorised to provide a particular service. I am sure that we are all familiar with that.

The amendment is flawed because it is based on the incorrect premise that an authority has the power to provide anything it pleases, unless it is prohibited from providing it or is otherwise required to provide it. Is the Committee following this?

Baroness Hanham

No. But carry on anyway. We shall read it later.

Lord Bassam of Brighton

It makes sense when you read it. Authorities are constrained to act within the powers conferred on them by Parliament—after all, I was always told that local authorities are there as creatures of statute—and the amendment might encourage local authorities to provide services that are ultra vires—and no one wants to see that happen.

I take the noble Lord's point that a particular part of an excellent service provider—for example, the social services department—may want to trade across boundaries and so on. Subject to reasonable common sense, that is what we want to facilitate. We do not want to stop that. We want to allow local authorities to innovate. I shall not respond to each and every example because it is not right to legislate by example. We have to set out the proper categories, and that is what the legislation seeks to do. That is probably what I was trying to say.

Lord Hanningfield

I was happy with what the Minister said at the end, rather than trying to understand what he said during the course of his response. Obviously that is the point we were trying to make. We referred earlier to totally discretionary services such as archaeology. Here I was talking about social services equipment that could be marketed in a wider way. That is what I was trying to clarify. At the end of his response the Minister said that he wanted to make sense of the legislation so that it would help communities and local authorities.

We will have to read exactly what the Minister said in order to understand it. I do not know whether t he noble Baroness, Lady Hamwee, wishes to comment further but obviously we will withdraw the amendment today. I note what the Minister said but we need clarity in this whole area.

Lord Bassam of Brighton

I understand the nervousness. This is an extremely good opportunity for local authorities and they want to grasp it. But they also want to understand where the boundaries are. They hope that those boundaries will have the flexibility to enable the system to work so that when they have got something with which to trade they can make good use of that trading. We understand that.

Lord Hanningfield

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 98, as amended, agreed to.

Lord Smith of Leigh moved Amendment No. 201 ZA: After Clause 98, insert the following new clause—


(1) The Secretary of State may make regulations to authorize—

  1. (a) public airport companies,
  2. (b) companies associated with public airport companies, to engage in a type of activity, specified in the regulations, in which the controlling authority of the public airport company concerned has no power to engage.

(2) The following shall not apply to any activity authorised by regulations under this section—

  1. (a) section 17(4) of the Airports Act 1986 (c. 31) (control over constitution and activities of public airport companies),
  2. (b) any condition imposed on any direction given by the Secretary of State under—
    1. (i) section 68 (companies controlled by local authorities and arm's length companies), or
    2. (ii) section 69 (companies subject to local authority influence), of the Local Government and Housing Act 1989 (c. 42), if the condition has the same or substantially the same effect as the said section 17(4).

(3) In considering whether to make regulations under this section, the Secretary of State may take into consideration transport policy, the business of the airport as a commercial undertaking and the potential benefit to the economy of the implementation of the powers to be authorised by the regulations.

(4) In this section — company associated with a public airport company" means—

  1. (a) any company of which the public airport company is a subsidiary,
  2. GC 277
  3. (b) any other company which is a subsidiary of a company of which the public airport company is also a subsidiary,
  4. "controlling authority" and "public airport authority" have the same meanings given by section 16 of the Airports Act 1986 (public airport companies and their controlling authorities),
  5. "subsidiary" has the meaning given by section 736 of the Companies Act 1985 (c. 6) ("subsidiary", "holding company" and "wholly owned subsidiary").

The noble Lord said: And now for something completely different, as they say. Before I move the amendment I should declare an interest as an unpaid director of the Manchester Airport Group. It was very difficult to register that interest in the House because no one could understand the concept of being a director and not receiving a salary for it. But I am not paid.

The Manchester Airport Group is 100 per cent local authority controlled. Section 17(4) of the Airport Act 1986 limits the activities of airports to those of their controlling local authorities. So we cannot do more in airports than the local authorities have the vires to do. This severely damages the commercial development and operational capacity of airports such as Manchester. I remind the Committee that Manchester Airport Group now controls four airports—Manchester, East Midlands, Humberside and Bournemouth—and handles 21.3 million passengers a year. So it is second only to the BA Group. It is subject to utility regulation by the CAA but Section 17(4) places unfair and uncompetitive restrictions on the airports.

Section 2 of the Local Government Act 2000 lays out the broad principle of social, economic and environmental well-being but, as that legislation specifically states, it does not override other legislation. Therefore Section 17(4) of the Airports Act still applies to local authorities.

The Committee may be wondering why I am moving the amendment here. I tried in July 2000 to move a similar amendment to the Transport Bill that was then going through the House. At the time the Minister, the noble Lord, Lord Macdonald of Tradeston, stated: We have told Manchester Airport in correspondence that we are sympathetic to the principle of much of what the airport company is seeking to achieve through this clause".—[Official Report, 10/7/00; col. 115.] He then advised me that it was not appropriate for insertion in a transport Bill and to wait for an appropriate Local Government Bill to come along in which to move the amendment.

I hope the Minister will clarify the position. I hope that the Government still support the principle and, if he is not going to ease the restriction of Section 17(4), perhaps he will advise me how I should proceed in future to change the legislation.

[The Sitting was suspended for a Division in the House from 6.55 to 7.6 p.m.]

Lord Rooker

It might be worth putting on the record part of my speaking notes. They state: This is the second time Lord Smith of Leigh has attempted an amendment of this kind. He raised the issue previously on the Transport Bill 2000 and at that time the line was that this should be addressed in a Local Government Bill. However, the issue has gone quiet since then". My noble friend is going to get the brush-off, but it is a legitimate brush-off. The Government are sympathetic to the proposal, and there are some nice words at the end of my brief, but I appreciate that he received nice words in 2000 as well. That is the problem.

We cannot accept the amendment as drafted because it goes too wide. It would allow airports to participate in airport activities abroad, which would not be an acceptable extension of their powers. Before introducing any such power we would have to ensure that we had examined all the issues.

The Bill has not arrived by accident; it has been the subject of a good deal of consultation. It was considered in another place, but this is the first time that the issue has been raised again. I know that Manchester is a red hot authority but, as I said, the issue has gone quiet in the meantime. The position might have been different if it had been raised a bit earlier. The Government also need to answer for some lethargy as the implication was apparently that the issue did not need to be raised because we would address it in a Local Government Bill. It may be six of one and half a dozen of the other.

The long and short of it is that I cannot accept the proposal today. However, we are sympathetic to the principle of giving additional freedoms to local authority companies. I am very pleased to note that Manchester's local authority airport company has survived all the pressure to get rid of such companies. Obviously it used very good tactics of delay and procrastination during those long dark years.

As I understand it, we have given a concession to six companies with an established record of profitability by exempting their investment from the normal public expenditure controls. However, for the reasons I explained, I must ask my noble friend to withdraw his amendment. In return, however, the Government would be happy to take work forward on this issue outside the Bill to see what more can be done to give airport companies increased freedoms, with a view to legislating when a suitable opportunity occurs.

The following bit is not in my speaking note. I am translating the above as a firm commitment that the Government will stay awake and do something about it. In other words, it should not now be left to my noble friend Lord Smith to come along for a third time to be told, "We are sympathetic but you have not quite got it right". So I see this as a commitment.

In all honesty, there is no way that we could have amendments drafted in time for inclusion in this Bill. At this time of year the pressure on parliamentary counsel is enormous and we just could not have done it. It will happen outside of this Bill. I cannot say whether it will be done in this Parliament, by the DETR or by my department. However, I am speaking on behalf of the Government. My notes say that the Government will do it. The Government will not go to sleep or be as lethargic as we obviously have been over the past couple of years during which it all went quiet. I genuinely mean that. This is something we want to do and something that the local authority airport company wants to happen. For some reason we have not done anything over the past two years to make it happen.

The good will is there. I know that Ministers come and Ministers go, but this is a firm commitment on behalf of the Government. Immediately after the amendment is withdrawn, I hope that we will set in train the necessary action to bring about a happier conclusion than the one I can offer today.

Lord Smith of Leigh

I thank the Minister for most of his comments. I should perhaps mention that the Minister who gave me the last assurance was left out in the reshuffle. I hope that that will not happen to my noble friend. However, I think that he went as far as he could to indicate that the Government realise they have to address this outstanding issue. It is a problem that must be dealt with if airports such as Manchester are to be competitive. We did not intend the amendment to allow us to do anything of which the Secretary of State did not approve. I hope that the amendment is seeking a national airports policy that promotes what the Government feel that airports should achieve.

Baroness Hamwee

Before the noble Lord seeks leave to withdraw the amendment, I hope that he will consider introducing a Private Member's Bill when the pace is a little more relaxed and after consultation with the Government. I cannot say that we would support every dot and comma of it, but we would certainly support the principle of using parliamentary time for that purpose.

Lord Smith of Leigh

I thank the noble Baroness for that helpful comment. However, the Minister said that there will be discussions between the Government and Manchester Airport on the way forward. Perhaps we can find a way forward through those discussions. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 99 [Procedure for orders under section 98]:

[Amendments Nos. 201A to 202 not moved.]

Clause 99 agreed to.

Clause 100 [Categorisation of English local authorities by reference to performance]:

Baroness Hamwee

moved Amendment No. 202A: Page 54, line 36, leave out "must" and insert "may The noble Baroness said: In moving Amendment No. 202A I shall also speak to Amendments Nos. 202B and 202C.

We now come to Clause 100, which deals with performance categories. The title of the clause says it all: Categorisation … by reference to performance". I do not need to amplify our position at length. We think that performance assessment is useful. Indeed, in my days in local government I used very much to welcome Audit Commission reports and the whole process of what was then called "performance review". As these things are a matter of buzz phrases, I am sure that the terminology has moved on. However, we do not agree that rights should flow from that categorisation. I am therefore proposing that the Bill's wording should be changed from, The Audit Commission must from time to time produce a report on its findings in relation to … performance", to, The Audit Commission may … produce a report". I am also arguing that we should remove the provision in Clause 100(2) requiring the report to categorise local authorities and remove subsections (4), (5) and (6), which are also about categorisation. It would allow the Secretary of State to correct clerical and typographical errors, as subsection (5) provides, subject to removing other parts of the subsection. I beg to move.

7.15 p.m.

The Deputy Chairman of Committees (Lord Lyell)

I should advise the Committee that if Amendment No. 202C were agreed to I could not call Amendments Nos. 203 and 204.

Lord Hanningfield

I support the amendment. We will be moving our own, more detailed amendment later—although it will not be moved if this one is agreed to.

The CPA process has taken a tremendous amount of time and resources out of local government. I am not sure exactly what benefits we will get out of it. In moving her amendment, the noble Baroness, Lady Hamwee, said that she did not like the categorisation process. I do not like the whole process. Local government is now governed by inspection. In the past few years, the sums spent on inspections have increased, I gather, towards £1 billion. That money could be much better spent. I am aware of the sums that we spent in Essex county on the CPA process. We came out of the process well, but I should have preferred for that effort to be spent on providing better services. I will be interested to see how the Minister justifies the CPA process. I think that the process will be around for a year or two and then disappear. We support the amendments dealing with this matter.

Lord Bassam of Brighton

I am nonplussed at the thrust of these amendments. I believe that they would take the rigour out of the system.

Amendment No. 202A, for example, would remove the requirement for the Audit Commission to produce a report of its findings on the performance of English local authorities in exercising their functions. I think that the Audit Commission has done incredibly valuable work. Both in this Committee and certainly on the Floor of the House we have discussed the importance and value of audit in enabling local authorities to conform to the financial disciplines that are so important in determining how they create good value for money, equate their performance in a way that the public can understand and measure and compare. All of that is very important indeed. The wording of the amendment would leave the decision on whether to produce reports to the discretion of the commission. I do not think that that is right. I think that there has to be an understood, clear-cut and no-nonsense reporting process.

Amendment No. 202B would remove the requirement on the Audit Commission to place councils in categories according to their performance in exercising their functions. I heard the noble Lord's remarks about the CPA process. However, councils have benefited from the process. Indeed, much of the thinking behind CPA was driven by local authorities that were trying to raise their game and improve the quality of their performance. If we were to go along with this particular amendment it would undermine the whole process and remove a whole chunk of activity that is designed to drive up the performance of those authorities and make them provide the very best public service in their locality, as we all expect.

I think that the categorisation system has focused the minds of local authorities in seeking to provide the best for their local populations. It certainly does that in my area. We were not in the "excellent" bracket, but we were "good". I was very pleased about that.

Amendment No. 202C would prevent the Secretary of State from making orders listing local authorities by categories of performance assessed through CPA. I think that that would be counterproductive. Contrary to the intention of those who tabled the amendment, I think, the amendment would hinder the provision of the freedoms and flexibilities that we are championing in this legislation and that have been volubly supported in this Committee. For all those reasons—and a whole load more which I could read out but would probably lose the Committee's interest—I think that these amendments are dangerous in terms of what the legislation seeks to achieve.

Lord Hanningfield

I should like to raise a point which I omitted to make earlier. One of the aspects of the process that local government most dislikes is that local government had to go through the process before there was legislation. It is like a creeping disease. I think that it demonstrates the executive's disregard. The legislation was considered in another place one or two months ago and it has now come to this House, but the CPA process has been under way for one year. We particularly dislike that aspect. If the Government want to change the way that they deal with local government, they should have the courtesy to discuss such proposals in both Houses before implementing them.

The "excellent" and "good" authorities were already doing good work. I do not think that they have been changed at all by the CPA process. Perhaps we need to do something about the poorer authorities. Perhaps something can be done to help them. However, I do not think that the "excellent" and "good" authorities change very much.

Lord Bassam of Brighton

Perhaps I can rephrase the question. If you do not have a system of categorisation and measurement and do not operate forms of inspection, how will you know whether an authority is performing well? On such a basis you would have only a woolly construct whereby there was no obligation on the Audit Commission to perform a proper inspection and analysis of the local authority. There would be no obligation on the commission to produce reports and no system whereby you could analyse who is or is not doing well.

Lord Smith of Leigh

Before the noble Lord responds, may I just say that I think that there have been changes in local authorities placed in the "excellent" category and probably also in the "good" category? The process has given confidence and released a lot of creativity. We are beginning to think outside of the box and we are having a proper dialogue with government about how to change the relationship between local authorities and central government. That may currently be true of local authorities which are classed as excellent, but we hope that it will eventually be true of all local authorities. There have been some real changes, including change in the relationship between the Government and local government.

Lord Hanningfield

The Minister asked me a question. District councils have not yet been through the CPA process. However, without the CPA process we have identified many district councils that need help and support. The Audit Commission does that. I am involved in helping some district councils to improve. We do not need the CPA process to identify authorities that need help. We can do that through the processes that we already have. I say to the Minister that we can help authorities that need help without the CPA process. It is already happening.

Baroness Hamwee

The noble Lord is absolutely right: it is government by inspection. I did not criticise the work of the Audit Commission or audits themselves. I made it quite clear that my criticism was about categorisation and its outcome.

Clearly we are going to have the long version of this argument on Report. I should say now, however, in answer to the Minister's question about how we will know how authorities are doing, that we will know because of auditors' letters which are discussed publicly and very thoroughly, and we will know because of the outcomes of elections. I beg leave to withdraw the amendment.

[Amendments Nos. 202B and 202C not moved.]

Lord Hanningfield

moved Amendment No. 203: Page 55, line 12, at end insert— ( ) The Secretary of Stale may, following an application from an authority subject to this section, extend the period specified in an order made under subsection (4). The noble Lord said: We have had a discussion about the CPA process. I shall not repeat it. The amendment is more about detail. Let us concede that we must live with the CPA. Having resigned ourselves to that fact our objective must be to make the best of it. The purpose of the amendment is to introduce more flexibility into the system.

We have seen various provisions tied to an authority's CPA classification throughout the Bill. I am concerned about the effect of a sudden reclassification of an authority; about the financial impact of such a reclassification; and about the effects on partnerships that such a reclassification will have.

Some suggestions that have emerged from the innovation forum require significant shifts of resources and ways of working, as the noble Lord, Lord Smith, told us. The delivery timeframe for these proposals is way beyond the three-year horizon of the CPA process. I am concerned that there should be sufficient flexibility in the system to prevent damaging reclassifications that fall simply as a consequence of the ending of the timeframe set out in the original order. It may be that, in order to enable innovative and constructive work to go forward for the benefit of a local community, an authority will need to retain its CPA status.

I am quite sure that this amendment is not technically right. Perhaps the noble Lord could comment on that. Does the Minister concur with my concerns about the effects of reclassification? What safeguards does he think are necessary to reassure local authorities and potential partners of local authorities? I beg to move.

Lord Bassam of Brighton

I congratulate noble Lords opposite on the innovation. Obviously, the spirit of local government innovation is working its way through to the amendments. That is to be applauded.

Amendment No. 203 would provide a situation in which an application can be made to the Secretary of State for an authority to extend its period within a performance category. I shall pass on the fact that the noble Lord does not like performance categories. Effectively, it would establish a right of appeal on categorisations delivered by the Audit Commission.

The independence of the Audit Commission's judgments is essential to the credibility of the process and the assessments. A right of appeal could potentially mean that the Government were delivering conflicting judgments on individual councils and could lead to a protracted process of submissions from authorities as well as practical difficulties in responding on an individual basis to the 150 single-tier and county councils and the 238 district councils.

Potentially, that seems to be a recipe for a great deal of chaos and unnecessary hard work. What then happens if the local authority is unhappy about the appeal to the Secretary of State? Does it seek to challenge it within the courts because there is an important issue of principle or a right that it thinks has been overlooked? I do not think that this is the right way or an acceptable way to proceed.

While I understand the noble Lord's disdain for the categorisation process, we have also talked about its virtues. The amendment would run very firmly against the principle that the Audit Commission should have the responsibility for delivering categorisation based on performance. I cannot believe that he was serious in moving the amendment. I think that he understands the difficulties and confusion that it would create for the local authorities.

Baroness Hanham

Perhaps we may pursue this point a little. My noble friend Lord Hanningfield has identified what will be a serious problem. If, for example, the Audit Commission recommended that an authority should go from—and it would not be the "excellent" to "good" categories, as that would be all right—"good" to "fair", that might have serious implications for what it was then able to do against what it was currently doing. It might have implications for other organisations. It might have financial implications. It would be interesting to know what sort of testing has been done in regard to what might happen to local authorities in such situations. It is great if one is going up the ladder, but quite a different matter if one is doing a "snakes" down it and wriggling.

I am sure that my noble friend Lord Hanningfield will suggest that we may want to return to this issue. We need perhaps to have a longer discussion on the implications for authorities moving between categories.

Lord Hanningfield

I agree with my noble friend Lady Hanham; the Minister has been rather contradictory. First, he was claiming how important it was to agree with the amendment. Now, he has not really answered the question: what happens when you pull a little and suddenly have thrown out everything you are doing? We must address that issue. I do not know whether the Minister wants to deal with it today or whether we should return to the matter on another occasion.

Lord Bassam of Brighton

I shall certainly reflect on the comments and observations made. I accept that there are as many implications for those authorities that go down the categorisation as there are for those that go up it. My understanding of the CPA process—and I may be wrong, not having been involved in local authority for a few years—is that there will he early warning signs that something is amiss within the local authority and that there are issues to be addressed.

My view is that it is an iterative process and that will probably help the local authorities. It is, after all, a way of ensuring that the authority concentrates on improving the quality of its services. That is why the whole CPA process has been put in place. So, yes, I accept that there is an issue; there may well be some implications; and that those issues need to be addressed. We shall obviously want to consider the matter. However, that is somewhat wide of the specific issue raised in the amendments, which is that there should be a right of appeal to the Secretary of State.

Lord Smith of Leigh

I can confirm to the noble Lord, Lord Hanningfield, that the issues raised in his amendment have been discussed in the innovations forum, particularly between the "excellent" authorities. Obviously, we shall ensure that any partnerships entered into have a long-term commitment. I think that the Government understand that in this case. However, as my noble friend said, having established a benchmark position for local authorities through the CPA, which is a very wide and comprehensive view of a local authority—we are not considering a particular area of their activities—the continuing oversight of the district audit will ensure that authorities do not move suddenly from one category to another. There will be signs and authorities will obviously have an opportunity to put those matters right.

Baroness Maddock

An important point has been raised—in particular, about housing matters. Local authorities often work with voluntary sectors to provide particular services for people who are homeless and those with acute housing needs. If we discuss the issue again on Report, I hope that we will get some answers on how the Government view that and whether there are safeguards. It would be dreadful if some of the services for the least well off and the least able to look after themselves in society fell away for lack of funding because of changes in the categories.

That would obviously not affect many authorities, but, clearly, it could happen. We need to understand from the Government that there are safeguards to ensure that the most vulnerable in society do not suffer when such things happen.

Lord Hanningfield

I thank the Minister for his reply and other Members of the Committee who have participated. I am sure that we shall return to the matter at a later stage in the Bill. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 100 agreed to.

Lord Rooker

This may be a convenient moment for the Committee to adjourn until Monday at 3.30 p.m.

The Committee adjourned at twenty-seven minutes before eight o'clock.