§ 4.55 P.m.
§ The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk)
My Lords, I beg to move that this Bill be now read a second time. This is a very short and simple Bill. It does no more than restore to 25 authorities powers which had been available to them up to the end of March this year. Under the general legislation, the direct labour organisation of a local authority is able to carry out both new construction and maintenance work for its parent authority. It may also undertake maintenance work for other local authorities and a wide range of public bodies. But a direct labour organisation does not have power to undertake new construction work for another local authority.
One of the effects of the local government reorganisation was to pose problems for a number of direct labour organisations since the scope for their employment was seriously affected when functions were transferred between the different types of authority. In particular, this meant that the direct labour organisations of the county boroughs, which were taken over by the new district councils, were no longer able to carry out new construction work on highways and education as those functions were transferred to the county councils.
Temporarily, this situation was dealt with by orders under the Local Government Act 1972. These orders enabled the direct labour organisations of 25 specified district councils to enter into agreements, up to 31st March 1977, to carry out new construction work for 492 another local authority within the former county borough or borough area concerned. I should make it quite clear that each of these is wholly within the area of the particular district council, and there is absolutely no case of a direct labour organisation being permitted by the orders to do work outside the administrative area of its authority.
It obviously makes sense to continue these arrangements. For example, where a county council wishes to erect a school in the district council's area, the DLO of the district council may well have built a school for the former county borough council before local government reorganisation, and therefore have the experience and capacity to undertake the work. In these circumstances, it would surely be right for the county council to continue to have the opportunity to engage the DLO of the district council, if it wished to do so. To act otherwise could well be wasteful of resources.
Since the order powers expired at the end of March, the 25 district councils have not been able to enter into fresh agreements—although they have been able to carry on with work already started —and unless the Bill is enacted speedily there could be unnecessary redundancies in these organisations. The one substantive clause in this Bill does not extend the frontiers of direct labour; it simply makes the temporary orders permanent. Direct labour organisations account for only 8 per cent. of all construction output, and employ about 173,000 people. Most of their work consists of repairs and maintenance.
The Government's policy is to encourage efficient direct labour organisations. In this context the Government would have implemented in essence the recommendations in the report of June 1975 by the Chartered Institute of Public Finance and Accountancy. Separate accounts of DLO activities would then have been required. Charges would not have been limited to actual costs as at present, but could be based on original tenders, so that the extent of profits and losses would be known. All appropriate overheads would have had to be taken into account, including a return on capital employed. A local authority would have been under a duty to avoid making 493 a loss, and powers would have been taken to close down activities where an organisation failed consistently to meet the financial objective.
This Bill today is concerned simply with 25 authorities, and even then with only a small part of the DLO activities of those authorities. It does not deal with new construction and maintenance work which a DLO may carry out for its own authority, nor with maintenance work which may be undertaken for a wide range of public bodies, including other local authorities; that is, client authorities.
To apply a new accounting system for the work covered by this Bill would mean that these 25 authorities would have to operate two different accounting systems, which would be both confusing and inefficient. It would therefore be unacceptable to include accounting provisions in this narrow, limited Bill, since it needs a far more comprehensive measure of the kind the Government originally intended to introduce. But, even without new accounting provisions, I roust stress that the client authority will itself be concerned to ensure that its work is undertaken as effectively and economically as possible. The safeguarding of the ratepayers' interests will he of particular concern to the authority in deciding the arrangements by which it gets its work done.
The Government will continue their work on improving procedures for direct labour organisations so that these can be embraced by subsequent legislation. Meanwhile, a Departmental Working Party has been concentrating on detailed arrangements on accounting, charging and tendering for new construction work in the light of the recommendations of the Chartered Institute of Public Finance and Accountancy. Its report on this is expected during the summer. The Working Party will then turn its attention to maintenance work, on which a further report by the same body is expected in the autumn. My right honourable friend the Minister for Housing and Construction has already undertaken to issue a consultation document when he has received the reports of the Working Party. My Lords, what we are concerned with today, therefore, I repeat, is a simple but necessary measure which deals with problems stemming from local government 494 reorganisation, and I strongly recommend it to the House. I beg to move.
§ Moved, That the Bill be now read 2a.—(Baroness Birk.)
§ 5.2 p.m.
§ Baroness YOUNG
My Lords, I should like to thank the noble Baroness, Lady Birk, for introducing this Bill to us this afternoon, and for her explanation. She says, quite rightly, that it is a short Bill, but, nevertheless, it is not quite as simple as I think she would lead the House to believe. As she has said, the Bill puts in statutory form the former orders allowing 25 district councils to carry out works for their county councils and neighbouring district councils in specified areas. These powers lapsed on the 31st March, and the Bill puts the orders in statutory form. This means, in fact, that the orders are permanent, as they are part of a statute; and, of course, as we know, there is a Scottish Bill to follow which takes the legislation into Scotland in a way in which it has not been taken before. So I think it would be wrong to suggest that there is no extension of powers, either in this Bill or, indeed, in the one that accompanies it.
However, what I think is disturbing to us on this side of the House is that, both on Second Reading and certainly on Third Reading, the Government Minister, the right hohourable Mr. Freeson, indicated that in fact a more comprehensive measure should follow; and if I heard the noble Baroness correctly, I think she repeated this statement. At any rate, on the 27th June, at column 132 of the Official Report of the proceedings in another place, Mr. Freeson said:As I indicated on Second Reading, I hope that before too long we shall be able to introduce the comprehensive measure that we had originally intended".So I think there is no doubt at all that this is simply a forerunner, or holding measure, to something of the nature of the Bill originally intended by the Government.
I was therefore surprised to hear that the Government believed that we should have no objections to this, and that it would have a straightforward passage through this House. I think I should make it clear right at the outset that we are in principle opposed to direct labour departments in local authorities, and we are 495 certainly opposed to any extension of this form of direct labour because it is, in effect, the nationalisation of the building industry by the back door. It is, I believe, very difficult to make out a case for direct labour building departments as such. I think it is perfectly possible for a local authority to have some direct labour for certain jobs which it would be extremely difficult to get done in any other way than by a local authority. The kind of jobs I am referring to are the gritting of roads in the winter time, and the rather unusual but difficult jobs that have to be done at particular times. But to have building works departments which are in direct competition with private industry seems to us absurd.
It is particularly absurd at a time when local authorities are under such acute financial pressures and when they already have enormous responsibilities which they must undertake. District councils, after all, have very considerable environmental responsibilities, frequently recreational responsibilities, responsibilities for museums and libraries, and so on. To undertake work which could be done by private enterprise seems an absurd way to spend public money.
Furthermore, at this particular time it is a very depressing state of affairs. There are now 204,000 unemployed in the building industry in this country, and I believe this constitutes one-fifth of the total unemployed in this country. It is true that there has been a very slight drop in the figures from February. This is almost inevitable, of course, as figures for construction work always alter in the summer time. Nevertheless, the figures indicate that the unemployment in the building industry is more than just a seasonal matter, and is therefore a very serious matter indeed for the country as a whole. At the same time, over the last two years there have been 2,500 company failures in the building industry, brought about by the general recession. I do not believe anyone can take any pride, either in the unemployment figures or in the business failures. They both indicate the sorry state to which this country has been reduced. What I think underlines them is that it is only by the support of private firms, of private enterprise, that wealth is created in this country to support the very services which local authorities must 496 and, indeed, do run. To take away from them by setting up in competition, often in unfair competition, is not a sensible thing for the country to do and is not something which ought in any way to be encouraged because, of course, in almost every case it is a most wasteful exercise.
Many examples have been given of waste by direct building departments, but perhaps I might just say that the fact that there is absolutely no incentive for a direct labour department to be efficient, as of course it cannot go bankrupt, is one of the major difficulties which they are up against. If one considers the fact that last year, for example, the Government-supported National Building Agency produced a report showing that the Camden Borough Council may have lost up to £1 million because of the work done by its direct labour department, this, I think, is a deplorable and shocking event—and this particular example can be repeated time after time in the country. A report in the Evening News only two days ago indicated that, in Wandsworth, repairs to one house have cost the council thousands of more pounds than was necessary, and questions are obviously being asked in that council as to what is going on.
The reason why all this arises, of course, is that there is no suitable accountability for direct works departments. I was very interested to hear what the noble Baroness said on this point. I was interested that there should be a Working Party on accountability, and interested to know that this working party is expected to report later on this year. Nevertheless, I find quite unconvincing the argument that, when the Chartered Institute of Public Finance and Accountancy have published a report in which they make a number of recommendations on accounting procedures, so that it can be shown publicly to the council and to ratepayers whether direct work departments are producing as efficient and as economical a service as private enterprise firms can, when we have all these recommendations before us and when the Government believe them to be right in principle and would like to incorporate them into a larger Bill, they feel unable to incorporate them in this small Bill. Surely it is better to make a start in a small way, even if they cannot be included in something larger, than not to make a start at all, when it is in 497 the interests of the local authorities themselves that their accounting procedures should be seen to be publicly appropriate and it is very much in the interests of the ratepayers that they should know that they are getting value for money.
Finally, my Lords, I think there is evidence to show that not all the 25 authorities covered by this Bill are at present making use of their powers, and that some of them would like to have their names taken off the list. This, again, is a matter to which we shall refer in Committee, and I do not intend to go into it further at this stage of the afternoon. Nevertheless, we on this side of the House feel there is no point at all in giving these powers to authorities which neither make use of them nor wish to make use of them.
The noble Baroness said that this was a short Bill; and many of the matters that I have referred to this afternoon will undoubtedly be raised again at the Committee stage. There is no use blinking at the fact that this is simply a forerunner to a larger Bill. In fact because of widespread concern by the building industry up and down the country that the Government, following their statement in the gracious Speech, intended to introduce a larger Bill which would have had the effect of nationalising the building industry, this Bill is the only thing that the Government were able to get through.
It is one that we are opposed to in principle. We believe it is the kind of Bill that encourages inefficiency and wastes public money at a time when the Government, and particularly local government, are short of money. It encourages Departments that are not publicly accountable. Now that the noble Baroness has said that the Government are not at this stage going to include the CIPFA recommendations, I think that this is all the more unfortunate. It is a Bill that we regard as completely unnecessary, and I am sorry that the Government have seen fit to bring it in.
§ 5.11 p.m.
§ Lord O'HAGAN
My Lords, we are debating a strange little Bill with a strange Long Title: Local Authorities (Restoration of Works Powers) Bill. It sounds like something major and important and when 498 we look inside we find that there is almost nothing there. But I would submit to your Lordships that it is important because behind the few, small clauses of the Bill are some major assumptions which have a wider significance.
The first question I should like to ask the noble Baroness, Lady Birk, is this. It follows from something that my noble friend Lady Young has said. Do we need this Bill at all? The noble Baroness read quickly from her brief the case for this legislation; but is it really necessary? And is it necessary to make it permanent? Do we need the whole apparatus of legislation going through both Houses of Parliament if all that is needed is the mere extension of some lapsed powers in a Bill? Can the Government assure the House that this is not a matter that could be done in some other way? Is legislation the answer for something that the noble Baroness said is really an attempt to correct an administrative oversight?
There are other wider questions which this Bill raises. Most of them have already been brought to your Lordships' attention by my noble friend Lady Young, but I should like to underline one or two. Those of us who study this subject know that the Minister for Housing and Reconstruction is a disappointed man. He wanted—and, from all reports still wants—a much wider, more fundamental, more radical Bill than the one now before the House. He was hoping to establish a permanent, far-reaching system for direct labour departments in local authorities to work outside the boundaries of those authorities. He and the Government went further. They intended to widen the scope of the work which direct labour departments are entitled to undertake. Where does this Bill fit into that scheme? Is this merely the forerunner of what the Government originally intended to do and had to withdraw at the last minute? I should like to ask the noble Baroness whether the original intentions of the Government remain the same. Have they withdrawn from them or will that previous Bill be reintroduced when the Parliamentary situation permits?—as it was put in another place. When the situation becomes easier for the Government, will they dust off that old Bill, take it out of the pigeonhole and attempt to ram it through both 499 Houses? It seems that the Government are pursuing this Bill merely because they have to give a hint and a promise to their supporters of what they will do when they have the full chance to do so.
This is not a minor or narrow partisan matter; it is something of significance for any of us interested in local government. Local government has many tasks which it is called upon by central Government to do. To carry out those tasks we pay as ratepayers or as taxpayers through the rate support grant. It is very important that Parliament should impose upon local government only the tasks for which local government is qualified; therefore, if direct labour departments are to be extended in their scope and powers at some future time by this Government, we will pay if things go wrong; and we want to know how far the Government's intentions as originally expressed still stand.
There is another matter on which I should like to ask the noble Baroness for more information. It seems to me that what she was saying was self-contradictory. On the one hand, she laid great emphasis on the Government's enthusiasm for proper financial accountability and control of direct labour departments. She mentioned—and my noble friend Lady Young referred to this, also—that a Working Party had been set up and was, I believe, to report later in the summer. Yet both in the other place and here today the Government are saying, "If you had allowed us to go along with our original Bill, our wider Bill, we had a whole range of new techniques for controlling the expenditure of direct labour departments all ready to put on the Statute Book. We were going to make direct labour departments more accountable." I want to ask the noble Baroness this: if those new procedures were ready to be introduced into a Bill, why are they not in this Bill? If they are ready, why is there a Working Party? It seems to me that the Government are having it both ways at the moment. I understand that the Chartered Institute of Public Finance and Accountancy issued its report in 1975. There has been ample time to study these matters. If the Government have studied them and were going to introduce these proposals into the original Bill, why cannot that be put before the House now?
500 There is another matter that I must bring up in this House. I hope that I am not going to awaken the noble Lord, Lord Banks, from a quiet slumber; but what about the Liberal Party? Do they not care about the future of direct labour departments? What is their attitude in this matter? There is no Liberal spokesman down to speak. We want to know where they will stand in this matter. We must presume that silence means consent and that, in contrast to the other place, the Liberal Party in this House is in favour of this Bill and that, although Liberal spokesmen claim the credit for some of the things that happened to the original Bill, in this House they say nothing and care less.
I am in favour of short speeches, especially on short Bills and I will sit down very quickly indeed; but there are many detailed questions to which we must return in Committee because this small Bill has some larger matters concealed within it. Any noble Lord who looks into the question of direct labour organisations can find hosts of detrimental stories. I have a file of them but I will not weary your Lordships with all that I have learned and read. I want to know this from the Government. There are 25 local authorities mentioned in this Bill. I understand that only seven of them make regular use of their powers. What is the point of this Bill if it is for under one-third of the small number of local authorities for which it is designed? Is it really necessary? Or is it not a waste of Parliamentary time and merely a token flag waving to conceal the fact that the Government have had to withdraw the more fundamental measure to which they are still fully committed?
§ 5.19 p.m.
§ Baroness BIRK
My Lords, the noble Baroness, Lady Young, did not feel able to agree with me that this was a short Bill and quite a simple one. I am always optimistic and I had hoped that everybody would see it the way I saw it. I appreciate that there is a fundamental difference of opinion about whether or not there should be direct labour organisations. That is one basic point. There has been constant doctrinaire opposition to this. There is no use my pretending that there is not a great gulf in this whole 501 area. The Government have never claimed—and I certainly would not—that direct labour organisations are always perfect or that there is no room for improvement in their operations. On the other hand, I do not think that the noble Baroness or anybody else could argue that every private building operation is perfect, does not make bad errors or always conducts its business properly. There are occasions where the DLO has been used because the private building contractor has gone bankrupt. It is true that the district auditor's report is often quoted to point out failings in DLOs. The district auditors have also pointed out from time to time that there are savings which DLOs achieve, but these and also the occasions when DLOs have to take over jobs because firms have gone into liquidation, do not receive the same publicity.
There are many direct labour organisations throughout the country which provide an effective and efficient service for the authorities and also the ratepayers. Where work can be undertaken more economically and effectively by a DLO, because of continuity and local knowledge—and much of the work is on maintenance—it is in the ratepayers' interest that it should do so. The noble Baroness was not correct about Scotland. This Bill applies only to England and Wales and no temporary orders were made for Scotland. The Scottish measure simply seeks to regularise the activities of certain authorities which had been working for the predecessor authorities without the necessary powers to do so. That was just righting the situation.
If I may take up the basic points which cover some of the noble Baroness's comments as well, the noble Lord, Lord O'Hagan, asked about the need for the Bill. I repeat that it is required because the Local Government Act 1972, which reorganised local government, failed to deal with the situation of DLOs. The problems were dealt with initially by transitional orders under that Act, but our legal advice now is that the Act is not wide enough to enable the continuation of the powers to be achieved by further orders. If it had been possible to do so, we would certainly have not gone through the time-consuming work of introducing this Bill—and the noble Baroness and the noble Lord, Lord O'Hagan referred to that.
502 Of the 25 authorities covered by the orders, 12 have used the powers. In these instances, the total value of work undertaken was nearly £3½million in 1975–76 and over £3½ million in 1976–77. While the use of the powers has been limited, their continuation is important for a number of the authorities. If they were not continued there would be significant redundancies. The noble Baroness is wrong regarding unemployment. I have gone into this matter because I considered the same questions. If one is unemployed, whether one is put out of work because there is no DLO for a local council, or because one worked for a private builder, the effect of unemployment is exactly the same on the individual. It is not right to say that to undertake work which could be done by private enterprise is absurd.
That brings us back to the tremendous gulf between us on that basis and which I do not think can be bridged. What is important for me to try to make clear once again is the difference between this small measure, which is trying to correct the present situation because the orders cannot be continued, and the far more comprehensive measure which the Government had in mind. It is true, as my right honourable friend has said in another place, that that measure in some form or other is still part of Government policy. Noble Lords opposite may dislike this intensely, but that is the situation and we can go on arguing about it till Doomsday. This is a difference in approach and view.
The important point which I tried to explain in moving the Second Reading is why the financial and other accounting provisions cannot he attached to this Bill. The reason is that this Bill applies only to the 25 authorities which were affected by the change in boundaries; and if these provisions were applied to them, they would be in a position of having two sets of accounting to do. It would apply only so far as these functions are concerned. Therefore not only would there be clumsiness but confusion, and an unbearable burden would be put on the local authorities.
§ Baroness YOUNG
My Lords, I am extremely sorry to interrupt the noble Baroness while she is in the middle of her argument, but is not the point that it would be perfectly possible for a local authority to introduce the CIPFA recom- 503 mendations for those parts covered by this Bill, and in the other parts of its direct works department not covered by this Bill? There is nothing to prevent it doing that. Until the CIPFA recommendations are implemented—and this is important—we shall never know whether any direct works department has ever been more efficient than private enterprise because the basis for its accounting is different.
§ Baroness BIRK
My Lords, where a local authority can introduce any of the proposals, recommendations or advice, where it does not need legislation, there is nothing to stop it working on that basis. What cannot be done is to introduce into this narrow and restricted Bill a whole concept of a different form of financing, accounting and charging, which would require legislation. This legislation is being delayed in order to deal with the whole subject of DLOs. When that happens, the Secretary of State will have the added sanctions which will cover the points which the noble Baroness made regarding when the work of a DLO is not satisfactory. It will also mean that the terms of competition with private contractors are still more clearly laid down and more severely structured.
What seems to be forgotten is that this is not compulsory. No authority or county council has to go to the district council in order to avoid doing its own work; it only does so—and this Bill gives it power to do so—where it is obviously economically and financially beneficial so to do. The authority can still use outside contractors and many do. If authorities—and there are some— do not wish to make use of these powers, then they do not have to do so. It would have introduced hybridity into the Bill if any authorities out of the 25 had been omitted from this legislation.
This legislation keeps a status quo which was there before the 1972 Act and which has been continued by order. I would have thought noble Lords opposite would welcome this, grab it with two hands and say: "Thank goodness! it has not gone so far as we feared anything like this would go". What is going to happen in the future we shall have to leave for legislation. The fact that a Working 504 Party is looking into this in great depth to try to get a better balance is a matter for congratulating the Government rather than "bashing" them. But whatever is said about it, and whatever Amendments the noble Baroness and her friends move in Committee, it would not alter the purpose of the Bill, as I have explained it; nor can they turn it into a larger, more sinister animal—which in fact it is not.
§ Lord O'HAGAN
My Lords, I shall not detain the noble Baroness, but should like simply to put the question which I put to her before; that is, if there were new and improved proposals for accounting procedures in direct labour organisations ready for the original Bill, where are they now? I know that the Long Title of this Bill may be restrictive —we have heard about that—but where are these proposals now? Were they not, in fact, ready in the first place?
§ Baroness BIRK
My Lords, the proposals would have been contained in the legislation which in fact was not proceeded with and was not published because of the Parliamentary situation in another place. That is the situation, as the noble Lord knows very well; it would have taken a very much more comprehensive look at the whole subject. This, as I keep repeating, is just to bring into line the 25 authorities, because the orders have now lapsed. If we do not do this, there will be redundancies and nothing will have been gained. But, nevertheless, it is not a compulsory measure. The comprehensive Bill, about which the noble Lord, is speaking would have set down the main principles of accounting and also the statutory framework for the detailed controls. The reason why the Working Party is still considering this is that they are still advising on the detailed arrangements. They have already advised on the broad arrangements, but this needs another Bill. I think that the comments addressed by the noble Lord to the Liberal Benches were probably better addressed to them than they would have been to me. I think he is probably right about that.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.