LOCAL GOVERNMENT, PLANNING AND LAND (NO. 2) BILL

HL Deb 07 October 1980 vol 413 cc189-271

3 p.m.

The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Lord Bellwin)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, that the House do now resolve itself into Committee.—(Lord Bellwin.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clause 7 [Regulation of functional work]:

[Amendment No. 38 not moved.]

Clause 7, as amended, agreed to.

Clause 8 [Accounts relating to construction or maintenance work]:

Lord SANDFORD moved Amendment No. 38A:

Page 10, line 33, at end insert— ("(7) Notwithstanding the obligation in this clause and associated regulations to maintain separate accounts for each type of work specified in subsection (2), if in any year no more than fifty operatives at any time were engaged on any particular class of work, then the authority may at its discretion choose in the subsequent year to account for work of that description, together with work it may undertake of a different description.").

The noble Lord said: The Committee will see that Clause 8 requires authorities to keep separate accounts for general highway works, minor new works, other major new works over £50,000 and other maintenance works undertaken by their direct labour organisations. I have no argument with that and I see the point in so prescribing. But it will often be the case that the activities in one or other of those categories of work will be so small in the case of a particular authority as not really to justify the maintenance of a separate set of accounts. A typical instance would be where a district council employed, say, 100 workpeople, a sizeable force, for the maintenance of its housing but only 30, 40 or fewer people in respect of highway maintenance as part of an agency agreement with the highway authority. In such cases I submit that the district council would be put to unnecessary expense, which we all want to avoid, in maintaining separate sets of accounts for very little purpose. My view is that the de minimis principle should apply and that at some point an authority should have discretion to include a small area of activity within the accounts of the larger one, and something along the lines of the amendment would give a choice to the authority. I am not particularly wedded to the exact form of the amendment and would be happy if the Government on reflection were to introduce one like it. I believe the view I have expressed is shared by the other associations of local authorities.

Lord BELLWIN

We have a great deal of sympathy with the objective behind the amendment, which offers the chance of a useful minor simplification at the cost of no real relaxation of the accounting disciplines. I cannot, however, accept the amendment as its stands, for not only is it defective in its drafting, but it also sets at 50 employees a limit which is far too high to distinguish genuinely de minimis activity which does not need to be accounted for separately. In our own new clause implementing our promise to provide a de minimis exemption, we have settled on 30 employees as the appropriation level. It is obviously essential that no relaxation of the accounting procedures of the sort proposed here should go beyond that. Nevertheless, I do not reject my noble friend's amendment out of hand; it is a worthwhile suggestion which we shall examine further, and I trust that with that explanation he will withdraw it.

Lord SANDFORD

I am grateful to my noble friend, and on that understanding beg to withdraw that amendment.

Amendment, by leave, withdrawn.

Clause 8 agreed to.

Clause 9 [Contents of accounts relating to construction or maintenance work]:

Lord DAVIES of LEEK moved Amendment No. 38B: Page 11, line 5, at end insert— ("( )(a) Expenditure on the employment of indentured apprentices shall be excluded from any account prepared under this section provided that the expenditure so excluded shall not exceed one-fifth of the total expenditure on employees otherwise chargeable to that account.").

The noble Lord said: I apologise to the Committee for this being a manuscript amendment and at the outset I wish to thank the Table for their help; I need only say that sheets of paper went astray. I hope that without my needing to divide the Committee the Minister will consider this amendment in depth and give a satisfactory answer. Clause 9 is succinctly headed: Contents of accounts relating to construction or maintenance work".

I am pleading on behalf of apprentices. In recent years the number of apprentices taken on in both the private and the public sector of the construction industry has been falling. The Regional Joint Training Committee for the building trade recommends that the ratio should be one apprentice to five tradesmen, but that level is not being met. Indeed, the private sector average is one apprentice to 18 tradesmen, and the general manager of Bovis has said: My board has had to limit the number of new apprentices in the past few years because of financial restraints".

We understand that. Local authority direct labour organisations have been able to maintain a reasonable number of apprentices up to now, but if Clause 9 is enacted in its present form they will be forced to make drastic reductions.

The Committee has a great deal of work before it and I will therefore be brief, and I certainly will not bore noble Lords by quoting many figures. I must however mention a few figures for some inner London boroughs. In Southwark, the latest intake of apprentices has been 25, giving a total of 78, the ratio being one to 10, not the suggested one to five. In Tower Hamlets, 29 apprentices have recently been taken on, giving a total of 68, a ratio of one to five, which is just on the mark. In Lewisham 27 apprentices were taken on, giving a total of 67, a ratio of one to seven. I will not give detailed figures for more boroughs, save to mention that the ratio in Lambeth is one to three and in Greenwich one to 10. All those boroughs have confirmed that this legislation will force a cutback in the number of apprentices in the next few years whatever political party is in power or whatever colour the council may be.

The training of apprentices is of vital importance to Britain, not only to combat unemployment but to help provide a properly skilled workforce for the future. The amendment would encourage all direct labour organisations as well as the private sector to maintain apprentice training. In this period of growing unemployment, apprenticeships are essential to create the craftsmen we need. That is not to denigrate the academic side; the greatness of Britain depends not only on the greatness of our academics but on the quality of our engineers and the opportunities given to them. Nothing would do more to eliminate the terrible "cowboys" operating in society today than to give young men the opportunity of a first-class apprenticeship subsidised by the local authority and helped by an intelligent Government. According to the Minister, that is what the present Government are; he said a few minutes ago that everything the Tories stood for was good. If that is the case, he should accept the amendment.

On a BBC phone-in programme this afternoon it was pointed out that, instead of having youngsters walking the streets, it should be realised that every youngster given an apprenticeship was a youngster who would be a credit to Britain as a qualified craftsman, and we shall need qualified craftsmen of all types in the future. What is more, since the party opposite believes in private enterprise, let these skilled young men have in their hands a craft that they may have learned the hard way through going to the technical colleges, the polytechnics or working under craftsmen. They will then have some skill and they may take the great initiative that is worshipped by the party opposite and become independent little businessmen on their own account rather than "cowboys" robbing people for jobs ill done. The point is made. To add any more to it would bore both sides of the Committee. I do hope we can get an answer that will enable me to withdraw my amendment, because there is some promise from the Minister. I beg to move.

Lord EVANS of CLAUGHTON

May I say, in spite of the lateness of the amendment, which is unavoidable as I understand it, that I do support it very much on two separate but overlapping grounds. One is the point that the noble Lord, Lord Davies of Leek, made—the importance of continuing apprenticeships and creating skilled craftsmen. In my part of the world, in the North of England, one of the great problems related to the high unemployment we suffer is the very high incidence of unskilled labour. Many of the private sector organisations, for one reason or another—presumably because of the difficulties they are suffering during the recession—are taking on fewer and fewer apprentices. In local government generally, I suppose—again, this is what we are finding in Merseyside and I am sure it is true of other parts of the country—with the cuts the Government are imposing and which local authorities are having to make, there is a problem about taking on employees. That is one point, and I think every encouragement must continue to be given in the public sector, because of the difficulties the private sector is suffering, to create a skilled workforce.

There is the second point that the Government are exhorting local authorities to give employment to young people and provide employment for young people. If the cost of the provision of that employment is going to be part of the cost of tendering, then, of course, the direct labour organisations will have inflated tendering procedures and will not be competitive because of including the cost of training. Therefore it would seem to me that the fairest course would be to take the cost of training apprentices out of the direct labour organisation side and put it in the training budget of the local authorities so that the direct labour organisations' budget would not be falsely inflated by doing what everyone is exhorting the Government to do. So I should have thought there were two very good grounds there for supporting or at least giving a general indication of approbation to the noble Lord's amendment.

3.12 p.m.

Lord BELLWIN

I am not sure how much importance one really attaches to a manuscript amendment put down literally seconds before one has a chance to consider the facts. I should have thought that anything that was really of great moment ought to go down as soon as possible so that we on this side—the Government—have a chance to consider it in depth. But having said that, can I say, so far as this amendment is concerned, that I very much appreciate, as I always do, the eloquence with which the noble Lord, Lord Davies, makes his point, and I sympathise very much with the motivations behind it. But I think I would have to say that if one considers the implications carefully, they are that if one took out any part of the cost of training apprentices from a DLO's costings, that would mean that unless the private sector were in some way able to do the same thing—and I do not see how they would do that—they would be at an immediate disadvantage when being competitive and when tendering.

I think that the way to make a contribution to the problem which concerns the noble Lord in this amendment is surely to look at the general spending on training. Local government makes a contribution to the Training Board of which I think the noble Lord, Lord Greenwood, is still the chairman. He is not here now, but I am sure he will be here soon. While this whole matter of training, as the noble Lord, Lord Davies, rightly said, is one that has to concern us, particularly at this moment in time, I do not think that this is the way to do it.

I do not say that because the amendment comes in the form of a manuscript amendment, although I think that does rather put it out of court. In general, on the point itself, I feel we could not accept it as such. Of course, we will talk about it later. Certainly I could not accept it now and I am sure that in its present form I will not be able to accept it later, but I sympathise with the point made, because who would not be concerned about training generally at the present time?

Lord DAVIES of LEEK

I should like to explain that it was not because of any remissness on my part. Documentation was put in. I do not want to blame anybody. I am grateful for the help the Table gave me in getting it in as a manuscript amendment. So it was not neglect or a misunderstanding.

We will skip that. I am trying to interpret the mind of the Minister. He said he wants to help in some training. I do not want to delay the Committee at this juncture because in another part of the Bill perhaps we will get an opportunity. But I would point out that even private enterprise gets some subsidy with the apprenticeship system, with grants to technical colleges and polytechnics. Let us get it on the record. I think I will have to divide the Committee. I do not know. There may be an opportunity later on. The Minister did make some suggestions, and perhaps he can give me a note. Consequently, I will withdraw, and we might have a look at it on Report. Would that help the Committee?

Lord SANDFORD

Before the noble Lord withdraws that amendment, and not knowing at all what the circumstances were which led him to feel that he had to table a manuscript amendment, I wonder whether I might read the standing order on manuscript amendments. It says: This practice has great disadvantages, in that other Members of the House will not have had an opportunity of considering the terms of such amendments and may be deprived of the opportunity of moving amendments to them". That is certainly the case: Whenever possible, therefore, notice should be given … Occasionally a manuscript amendment is justified, as, for instance, in order to correct an amendment already tabled, or when an amendment under consideration is objected to, and it is clear that with slight alteration of language it would become acceptable to the Committee". Whatever may or may not have happened, I should have thought that the circumstances which normally justify a manuscript amendment have not been met, and perhaps it would be better, certainly if the noble Lord is thinking of forcing a Division, to return to it at the next stage when everybody has had time to consider it.

Lord DAVIES of LEEK

I have been in this House and in the other place for 35 years and I know what I am doing. That does not have any influence at all on me. But I will give notice in time for the Report stage. Out of courtesy to the Minister, who found himself a little bit at sea because of the speed, I will withdraw it at this juncture. We will see how the debate goes and there will be a chance on Report. I will do it in time.

Lord RHODES

Does the Minister realise what he has said? Does he realise how much money other Government Departments are pouring into job creation schemes and all kinds of schemes for young people? Surely he would back up the virtue of what has been proposed? Does he realise how long it takes one to get a ceiling done at home because of the lack of skilled operatives? I have been waiting for six months for a ceiling that a good plasterer could do.

This situation is making a contribution to inflation because these people can charge what they like. They are paid in cash; and it goes on like that. If more men were to be properly trained in their craft there would be some competition, which would satisfy Conservative principles and would satisfy people who at present are having to pay through the nose for repairs.

Lord BELLWIN

I understand exactly what I am saying and the reason for saying it. I wonder whether the noble Lord opposite in his turn realises the implications of what is being suggested beyond the mere training question. The training issue is one on its own. The impact upon the costs of direct labour organisations, and therefore their ability to compete on equal terms with the private sector, is also a factor to be taken into account. Yes, I understand exactly what I said, and why I said it.

Amendment, by leave, withdrawn.

Clause 9 agreed to.

Clause 10 [Annual balance sheet etc.]:

3.21 p.m.

Lord BRUCE of DONINGTON moved Amendment No. 39: Page 11, line 35, leave out ("each description of").

The noble Lord said: I beg to move the amendment that stands in my name. Since we are coming to the stages of the Bill that deal with matters of account, it is, I feel, proper that I should declare a personal interest in the subject matter of many of the clauses that follow, in that it is quite possible that my own firm, Halpern and Woolf, who are accountants, may be called into consultation by local authorities on certain aspects of the Bill. Therefore I think it wise and only fair that that declaration should be made.

Matters of account are not really conducive to sparkling after-dinner conversation. They are generally regarded as unstimulative and dry, and very often at best obscure, and I must ask the indulgence of the Committee, if, when dealing with this particular clause and some of the amendments that follow, I have to pursue these matters in some detail. In conjunction with, I think, all Members of your Lordships' Committee, I hold that the function of this Chamber is to examine meticulously the proposed legislation that is laid before it with the objective of making it as tidy and as intelligible as possible.

The profession of accountancy is a comparatively young one. My own institute, the Institute of Chartered Accountants, has its centenary this year, but it is relatively young in comparison with the legal profession. However, as a result of experience over many years, which has shown the members of the legal profession that accounting advice should not be taken lightly, I hope that what I have to say this afternoon may find favour with Members of your Lordships' Committee.

The amendment before us deletes from the clause the words "each description of". Under the clause every local authority is mandated to produce not later than 30th September in the financial year following that year a balance sheet, a revenue account, and a statement of rate of return, as is stated in subsection (2).

Subsection (3) states: The balance sheet must show a true and fair view of the state of affairs of the local authority or development body, at the end of the financial year to which it relates, in respect of each description of construction or maintenance work undertaken by them in that year". The amendment that I have put down deletes the words "each description of", and therefore the local authority would be required to produce a balance sheet only in respect of the DLO as a whole. The reasons for that are as follows. It is quite impossible for a balance sheet to be prepared in respect of each description of work. As Members of your Lordships' Committee will be aware, there are covered here general highways work— that is one description; works of new construction over £50,000, which form the second description; work of new construction under £50,000, which is the third description; and maintenance work, which forms another description.

If the clause is left unaltered, a balance sheet must state the assets belonging to each division of work. That would be quite impossible and quite impracticable. As they are at the moment, DLOs have a number of assets, including perhaps a yard, an office, or a warehouse, with plant and machinery, such as cranes, earth-moving equipment, trenchers, hammers, scaffolding, and compressors. Some DLOs may have a joiners' shop incorporating very expensive plant and machinery. They may have moulders, cross-cuts, band saws, routers, sanders, and a whole array of equipment. All these items are under one direct labour organisation. They are the assets of the whole of the direct labour organisation. DLOs also have stocks, such as bricks, cement, timber, sand, steelwork and the like, all of which in the normal way would be under the total control of the DLO as a complete entity.

How can one apportion the asset itself? —shall we say a crane which may be used in works of new construction costing over £50,000, or which in part may be used in work amounting to under £50,000 and in part may be used in highways or, in remote circumstances, perhaps even on maintenance work. Exactly the same applies to the stocks. Is the DLO required to divide the tons of sand in its possession in order to share it out among the four categories of work, in respect of each of which an individual balance sheet is to be prepared? That would be quite impossible and quite impracticable. In this view I am fortunate enough to have the support of my own institute, the Institute of Chartered Accountants, and of CIPFA, the Chartered Institute of Public Finance and Accountancy. It would be quite impossible to do this.

There is no reason at all why a revenue account cannot be produced in respect of each division of work. That is quite practicable. As we shall see when we discuss later clauses, a statement of rate of return may present considerable difficulties, but to have a balance sheet for each particular section simply is not feasible. I am well aware that parliamentary counsel may well take the view that the matter is all covered, or that it can be segregated in a code of practice, or that possibly at a future date it can be covered by regulation; or that possibly it is not even the intention of the Government that each department should produce a balance sheet covering each particular description of work. But the only way we can deal with it in this House is simply to accept the amendment that I put forward, because without it the clause simply makes no sense.

I am well aware that there may be among your Lordships a certain impatience with such refined descriptions, but I call in my aid in support in this House, on whatever side of the Committee they may sit, those of your Lordships who have had any experience in commerce, in finance and in industry. Moreover, the question is not of academic importance. As will be noted from the later stages in this Bill, when Clauses 13 and 14 come to be discussed, the real significance of this may be seen. I beg to move.

Lord BELLWIN

The certainty with which the noble Lord, Lord Bruce, presented his case almost convinced me that we should take an opposite course of action to that which we had decided to take, namely, to accept his amendment. He nearly talked me out of it, but I shall resist. We hold to the principle of separate accounting for each of the four distinct areas of direct labour activity set out in Clause 8(2). It is essential that an authority should keep clearly in mind the purposes for which it runs a direct labour organisation and should not think of itself as a general building contractor. If certain sorts of work can be done more cheaply and effectively by private contractors, councils should not attempt to carry them out by direct labour, subsidising losses by transfers from more efficient operations in other sectors. Thus the separation of the accounts according to the four types of activity should ensure that ratepayers and councillors can see where there is danger of this happening, and the provision in Clause 13 that a rate of return has to be earned separately on each activity should check it when it does.

However, besides these requirements for separate accounting and separate justification, the requirement of this clause for four separate balance sheets is relatively unimportant. We accept that as long as the requirement for separate calculation of the rate of return remains in Clause 13 little will be lost in the way of clarity or informativeness of the annual financial statements if authorities are allowed to prepare a single overall balance sheet covering all their construction or maintenance activity. The single balance sheet would still have to show a true and fair view of the authority's position, and those who wanted to examine it more closely would be enabled to do so by means of the separate statements of rates of return earned on the assets listed in that balance sheet. In fact, the amendment might even save authorities a minimal amount of work; therefore we accept the amendment.

On Question, amendment agreed to.

Clause 10, as amended, agreed to.

Clauses 11 and 12 agreed to.

Clause 13 [General financial duty: treatment of surpluses and deficits]:

3.35 p.m.

Lord BELLWIN moved Amendment No. 40: Page 12, line 41, at end insert ("work").

The noble Lord said: This amendment requires little explanation. It is necessary to put right a printing error and insert the word "work", so bringing this sentence into line with similar references to construction or maintenance work throughout Part III of the Bill. I beg to move.

Lord BRUCE of DONINGTON

In a mood of reciprocal courtesy, may I draw the noble Lord's attention to the rubric, which is almost opposite his new amendment, which is to insert the word "work", and point out that the rubric at present reads: General financial duty: treatment of surpluses and deficits". May I suggest that he eliminates the words "surpluses and", because this was disposed of in another place and is no longer relevant. Surpluses are no longer in this Bill.

Lord BELLWIN

I am grateful to the noble Lord for that observation and we will pass it forward.

On Question, amendment agreed to.

Lord BRUCE of DONINGTON moved Amendment No. 41: Page 12, leave out from beginning of line 42 to end of line 3 on page 13.

The noble Lord said: Clause No. 13 deals with the financial duty of local authorities to produce a rate of return on capital employed. The amendments that I put down, Nos. 41 and 42, may possibly be taken in conjunction with Amendment No. 44, which embodies the same principle, and it may be convenient to the Committee and save time if I endeavour to discuss all of them together.

The clause as it stands requires a rate of return for each description and also provides that each description of work shall show a positive rate of return on capital employed. I think, and I am supported by the profession in this, that this is going to be most difficult of accomplishment, precisely because it is not possible to divide the assets out over the various descriptions of work, the four descriptions of work I have described. It is a matter of some difficulty to determine the capital which is applicable to each particular section. The Government's point of view, I think, is expressed in its consultation paper, Local Authority Direct Labour, where it says: The requirements on a DLO to earn a real rate of return on capital employed will help authorities to identify the true cost of the organisation and to decide whether it should make better use of its resources by disbanding its DLO and applying the capital to other purposes".

This, in view of the provisions of Clause 14, is a little odd, to say the least of it, because it is quite clear within the context of the Bill that it is not going to be for a local authority to decide whether it is going to make better use of its resources. The real purpose of the Bill and of the clause itself is to give that power precisely to the Secretary of State himself, rather than to the local authority.

Then it says: The method of calculating the return will have to be simple and capable of universal application". Then: The Government proposes the following formula, which has been tested and has proved workable". It then sets out its formula for the various deductions from gross trading income before charging interest on borrowing, and it says that after the various deductions have been made from gross trading income it should be divided by the total capital employed including working capital, with land and other assets valued at current market value after being written down for physical depreciation.

I point once again to the impracticability of determining exactly what the capital employed is in each description of work, and I gave these, as I say, when we were discussing the previous amendment. Moreover, the view that I have expressed is supported by the Institute of Chartered Accountants, which points out in its letter to the Minister dated 20th March the terrific difficulties that in fact arise. My institute said in its letter to the Minister: Clause 13 also requires a real rate of return to be earned on each of the DLO's activities. This will require a separate revenue account and a separate balance sheet for each activity". Then there is this masterly understatement by a professional body, which I have expressed in slightly terser terms: This does not appear to be an entirely realistic requirement so far as concerns the balance sheet, i.e., capital employed. In many cases it may be impossible, except on an arbitrary and therefore possibly meaningless basis, to allocate an asset—for example, a yard or an office or a warehouse—proportionately to the activities for which it is used".

There are more reasons, aside from the technical reasons. There is also the complete unreality of trying, on the assumption that a rate of return on capital for each division of work could in fact be determined, to set a standard rate for them all. Surely, to put it in its least offensive terms, it is really nonsense to do something as completely artificial as that, bearing in mind the concession already made by the Government that they are going to permit, outside some of the customary restrictions that they have imposed, work on emergencies. If one particular local authority has a series of emergencies which involves the expenditure of social labour as distinct from profit-earning labour—the social labour that is held in such disregard by the party opposite—it means that when the local authority acts in its maintenance by reason of community interest, by reason of compassion, by reason of emergency, it is bound to incur a social cost, which cannot be measured in profitable terms.

What point is there, therefore, in trying to standardise a rate of return on capital for each division of work? It may well be that in one year our highways might yield a certain return, but it is by no means certain. It depends upon the phasing of work; and this applies uniformly throughout the private enterprise building sector, of which I have some personal experience. It is not always possible to aspire to an equivalent return on capital regardless of the type of work that is involved, and this is particularly true, for the reasons that I have stated, in relation to maintenance work.

Now it may be considered desirable that a rate of return on capital on the DLO as a whole should be sought. I have my own reservations on that. I still have the old-fashioned notion, which seems to be rapidly dying, that it is the principal job, task and dedication of a local authority to serve its citizens; that not always does there have to be, as Marx once said (though this has now been taken over by the Conservative Party), "the naked cash nexus 'twixt man and man". Within a local authority with compassion, with a sense of urgency and with a sense of public duty it is not always possible for it to conduct every one of its activities, even in a direct labour organisation, on the basis of naked profit alone. But on the assumption that it is possible and on the assumption that it is desirable—and these are large assumptions for the reasons I have already stated—it is quite unrealistic to endeavour to impose such a condition on each division of work.

I observe from the consultative document that it has been generally agreed that, having regard to the performance of private industry contemporaneous with the time when this notional figure was determined, 5 per cent. is the desirable figure. I have to draw the attention of the Committee to the fact that at the time the consultations took place and it was agreed, more or less, that 5 per cent. should be the desirable figure, that was indeed so in private industry; but today the figure is l½ per cent. So, in the light of the contemporaneous performance of industry, which is running at 1½ per cent. return on capital employed owing to the introduction of policies upon which at this stage I would desire to pass no further comment, can we have the Government's assurance that the required rate of return will now be amended to 1½ per cent., bearing in mind that in the construction industry recently returns on capital of 0.97 per cent. have been produced?

I am well aware that when I express my views I tend to express them with some force, on the basis that if a belief is held it ought to be held strongly, anyway, and articulated in a similar way; but I sincerely hope that the noble Lord will not allow the incisiveness with which I have sought to present the argument to inhibit him in taking the completely commonsense attitude towards this and accepting the amendments that I venture to lay before the Committee. I beg to move.

Lord HARMAR-NICHOLLS

I think it might help if I could follow on from the last words of the noble Lord opposite. I hope my noble friend will not let the Dr. Jekyll and Mr. Hyde personality of the noble Lord who has moved the amendment interfere with the force of the arguments that he has put on one part of it. When he was talking as an accountant, he was well worth listening to and his words ought to be heeded. When he brought in that little bit of extreme party political flavour of his, then that ought to be disregarded. We are at the Committee stage, where that does not count; it does at Second Reading, if you like, but not Committee stage. However, I should like to say to my noble friend that on reading this clause it looks as though, just as he recognised in the case of the last amendment that he accepted, this can be simplified a great deal and that the procedure could be worked with greater ease than would be the case if the words were left just as they are now.

I understand the problem of the feelings about direct labour organisations. I agree they have been abused in the past, and we have got to see that they are not abused in the future. But, if we are going to deal with them, let us deal with them through the front door and not try to strangle them by putting into Bills connected with them such words as ensure that they are virtually asphyxiated. All I am going to ask is that my noble friend will do the same with these amendments as he did with the last, and say that he will look at them again to see whether the accountancy advice which came from both the noble Lord and his institute is well substantiated by the sources available to the Government themselves. It looks as though it can be simplified without interfering with what is wanted. If it can be, it ought to be, and I hope that what was said by the noble Lord will not stop my noble friends looking at it with sympathy, from the accountant's point of view.

3.50 p.m.

Lord AVEBURY

These are amendments which have had support from an unexpected quarter indeed. The noble Lord, Lord Harmar-Nicholls, is not someone I would have expected to see giving support to the Opposition Front Bench. It must be a unique occasion in this House for him to have done so. It is a tribute to the noble Lord, Lord Bruce of Donington, and the forcefulness with which he put the amendments, that the noble Lord, Lord Harmar-Nicholls, has been so convinced by them. The noble Lord, Lord Bruce of Donington, did himself an injustice when he said it was very difficult in dealing with these accounting matters to make one's speeches interesting. Both on the last amendment and on this one I found everything he had to say interesting and of great importance, not only to the local authorities themselves but to the ratepayers who have to study these matters and try to make some sense out of them.

As I understand what has been said, both on the last amendment and on this one—and I confess I am only a humble engineer and not an accountant—if one has knocked out the provision which we dealt with in the last amendment, requiring local authorities to keep separate capital accounts for each of the undertakings mentioned in Clause 8, then it is no longer possible to measure the separate rate of return upon each one of them, as is provided for by Clause 13. One therefore has to look at the rate of return on the capital employed in the direct labour organisations as a whole. We would be perfectly justified in doing that, and in calling local authorities to task, if they were negligent in this matter or if the returns which they sought to achieve were not in any way comparable with those achieved in the private sector with which they are competing.

The noble Lord, Lord Bruce of Donington, also had a valid point when he suggested that the return on capital employed in the private construction industry had gone down drastically since the consultative document was produced. Whether it is now any longer 1½ per cent., or, in the light of the most recent report we have had from the construction industry, it may not now even be negative, is a matter we might look at before the Report stage, if the noble Lord the Minister does not accept this amendment.

It would be altogether too inflexible a procedure to mention a figure in advance and then require local authorities to adhere to it. In private industry, which I am used to, we certainly aim at a given rate of return on the capital that we employ, but we are not always successful in achieving it. To tie local authorities down in this way and to say that they must achieve such positive rates of return on the capital employed as the Secretary of State may direct is being totally unrealistic. It is quite fair to ask the local authorities to aim at a given rate of return as we do in private industry, but to force them into this strait-jacket of Clause 14 is not on. It would create enormous headaches for the local authorities. I do not see what is the point of having it there, unless there is some kind of enforcement. If there were some enforcement, with penalties for non-achievement of that rate of return, then a burden is being imposed on local authorities that their private competitors do not have to bear. For these reasons I hope that the Minister will be as accommodating on this amendment as he was on the previous one by the noble Lord, Lord Bruce of Donington, particularly as it attracted support from all three parties in the Committee.

Lord LEATHERLAND

I find myself uttering the same kinds of words as those spoken by my noble friend on the Front Bench. We have to beware of asking councils to take on more and more paperwork. I say that with a quarter of a century's experience as a member of a county council, as the leader of my party on it for 15 years, as the vice-chairman of the county council for several years and as the county council's chairman. I also speak from the experience—it was well over 60 years ago, when I came out of the Army—as the person in charge of the costing system of a very important department of the Birmingham corporation.

This proposal in the Bill is an unnecessary requirement. It will mean a great deal of extra work for council departments. They have to specify each description of work—that is a quote from the Bill. They have to deal with every separate activity. This surely means more and more officials, filling up more and more pieces of paper, and it means extra expense for the ratepayers. This is a quite unnecessary suggestion.

Lord BELLWIN

To take first the last point that the noble Lord, Lord Bruce of Donington, made asking me not to be adversely influenced by the way in which he puts the matters, may I say to him that it is not easy, but I will do my best! First, I too gladly speak to the three amendments together (Nos. 41, 42 and 44). This amendment seeks to blur the focus of the scrutiny to which direct labour organisations will be exposed by removing the requirement to calculate a separate rate of return for each of the four broad categories of construction work, as set out in Clause 8. This amendment would allow authorities to conceal inefficiencies and to ignore the true costs of continuing to maintain direct labour establishments in areas of activity where their involvement is uneconomic.

We can imagine, for example, an ineffective house building section and an efficient maintenance organisation within the same authority. We can imagine that the new house building section is faced with keen competition from private contractors. Unless we require that that new building section justifies itself in relation to its own real costs, including the costs of its capital assets, we can imagine the temptation to allow some of the capital burden to be assumed by the authority's maintenance section, which might be under less pressure, and then to permit the new billed prices to be lowered to what are fundamentally uneconomic levels. In those circumstances everyone would lose; the contractors, who were unable to match unrealistically low charges and lost the job; the council, whose ratepayers would be paying more than they need, both for their new housing and for repairs to existing stock.

The Bill's requirements for the separate calculation of the rate of return is designed to prevent such covert cross-subsidisation and to provide the means for a critical analysis of the effiectiveness of each category of direct labour activity, together with a rational assessment of the benefit to be derived from it. There would be difficulties in doing it: in apportioning the capital assets; in sharpening up estimating and pricing policies. But effective management is not easy in any circumstances, and the difficulties in many cases will be essentially those of doing for the first time what perhaps should have been done long ago.

The four categories set out in Clause 8 reflect real distinctions in types of activities. It is essential that authorities should be able to justify their involvement in each of them separately and should be able to assess their performance in each of them separately. The rate of return test—the essential yardstick the Bill provides for their measurement—must therefore be applied to them separately.

The Government want to prevent the risk of cross-subsidisation or even the risk of the accusation of cross-subsidisation. We want to have information available in as clear and specific a form as possible, in order to enable councillors and ratepayers to see just where these operations are succeeding and where they are failing. Once the rate of return has been calculated separately for each of the four areas of activity, then there can be no possible argument for not reporting the results of those separate calculations.

There is another argument which might appeal to noble Lord's opposite. It is simply this: whereas a notification of failure to earn a rate of return in one particular branch of activity, which is what the clause presently demands, might invite the Secretary of State to consider closing down or curtailing the activity of that branch, a notification of failure expressed in overall terms, which is what Amendment No. 44 would require, casts immediate doubt on the validity of the whole organisation. I would therefore have thought it much better for all concerned if the notification does pinpoint the trouble spots straight away.

It is important to bear in mind exactly what happens when an authority does not achieve that which is set down. This puts the 5 per cent. and 1 per cent. argument into perspective. What actually happens? The first year failure to achieve this leads to notification. The second year it leads to notification; the third year it leads to notification. The Secretary of State, it is true, can call at any time for a special report regarding any of the sections. That is fair enough. We have to bear in mind what happens if they do not achieve. What happens is that the matter is highlighted for the knowledge and information of everyone concerned within the authority, the citizen not least. That is no bad thing. If it were to say that immediately upon notification of failure to achieve a 5 per cent. return or whatever it meant that the Secretary of State steps in and closes it down, that would be different. We are not talking about that. This is about accountability. The local authorities that I know—and know many of them—in the main may be concerned, as the noble Lord, Lord Avebury, said, about the ability to achieve a return at certain times; but no one should object or would object to the principle of having it known that they had failed so to achieve. If the circumstances in which failure to achieve were reasonable—and there can be some where that would be so—so be it. The people should know what is happening. This is the nub of this particular proposal.

I find it not only no bad thing, but it is right; it is better for local government that they should have all their affairs in the open and that everyone knows what it is that they are doing. I think the responsible ones, the vast majority, will not mind. They might argue about the point of the 5 per cent. It is an argument; but I would answer it by saying that these things change. The better times will come but one cannot have a Bill that goes up and down like a yo-yo with 5 per cent. this time and 1 per cent.

next. The 5 per cent. is there. By itself, it does not impose any special function or penalty on an authority; it is there as a bench mark to be used. I fear that the noble Lord's points about the social labour and the social cost were side issues. I respect the points that he was making and I know the importance that the noble Lord attaches to them by themselves; but in the context of what we are talking about in this clause, I do not think they are relevant. I hope I did not get him wrong when he was talking about naked profit as if it were a dirty expression. I am sure that it could not be that to him, as an accountant.

Lord BRUCE of DONINGTON

The noble Lord will forgive me but I did not say "naked profit". I said "naked cash nexus".

Lord BELLWIN

With respect, I wrote it down as the noble Lord said it and I am sure that Hansard will show that it was said. But that is not the crux of my argument. I think I would stand by saying that the Government cannot accept the amendment on the very important principle of saying why it is that we have this clause and what we are seeking to do. I have explained it, and for that reason—

Lord AVEBURY

Before the noble Lord sits down, he said a few minutes ago that there would be difficulty in apportioning capital assets but that it would not be impossible. The amendment that he accepted just now was one which relieved the local authorities of the obligation to show certain capital assets separately under each of the headings and therefore it becomes impossible, not difficult, for them to measure the rate of return.

Lord BELLWIN

It is one thing compelling or asking or obliging them to show; it is another, expecting, within prudent accountancy, that they would have the apportionments themselves.

Lord MORRIS

I think that my noble friend was a little unfair to the noble Lord, Lord Bruce. As I understood his argument, which has considerable merit, he was in no way condemning the need for the accountability of local government but purely the method of accountability—which is a different issue. I do not think that the views of the consultative committee of the accountancy bodies should be given anything other than great weight. They have serious reservations in regard to this part of the Bill and I think that they should be listened to with great care. I should like to ask the Minister whether the accountant body of those people who work in local government (whose name at the moment escapes me) are in line with the Government view on this matter or not.

There is one other point. I must confess that I was surprised to see in the body of the Bill that the Government have considered, I am sure with great care, the use of the current cost convention as opposed to the historic cost convention. As the Government themselves admit, and as is the case, the current cost convention takes account of inflation. I have always been of the opinion that the present Government are determined, if not to eradicate inflation to get it down to so low a level as to be of little importance. For them to presume in the body of this Bill that inflation is here to stay, I find rather strange.

Lord BELLWIN

On the latter point it seems that one cannot win. If one does not put it in then it is said that one is making no allowance for it, and if one does put it in then it is said to be rather strange. Knowing that my noble friend is always helpful in matters like this and that he, too, is a member of the same honourable profession as the noble Lord opposite, one would have to be concerned and to listen carefully to what has been said on their professional side outside their position within this House. The basic point is still the fundamental one; that is, what are we trying to do with this? Because we conceded the previous amendment on the capital side of it should not be held against us in that in trying to be helpful there we recognise what we try to seek at the end of the day, and that is the accountability, the bringing into the open of what is happening. That is the important thing that should concern us. I understand the point on how SIFCA feel about it. To the best of my knowledge—I hope I am putting it right—they suggest that this can work. In discussions we have had with them I would not want to say that they were expressing great enthusiasm; but they have said it can work. Beyond that I am not sure how much further I can go.

I should like to be able to say that because of the reservations expressed we ought to consider the points again. Perhaps we might. Noble Lords will recognise that I am thinking aloud; and I apologise for that. It is important that we do not fall into the trap of taking back amendments for Report stage and building a massive list of Report stage situations as we did in a previous Bill with which I was involved—and I do not mean the Transport Bill. If we do that we shall get bogged down at Report and be in difficulties. On the other hand, one must draw a balance, and where a matter ought to be considered, then it must be so. That is the priority. With that in mind, I would say (thinking aloud) that at least we ought to look at it again—even if I am still firmly of the opinion that I expressed previously. I think the importance of those who have spoken on the matter is such that we would look at it again. Beyond that I cannot go.

Lord BRUCE of DONINGTON

I am grateful to the noble Lord for having agreed to reconsider this matter. I cannot help feeling that after mature considerations have taken place with all the interested bodies we shall be able ultimately to arrive at a framing of this part of the Bill which will be reasonably satisfactory to all concerned. Having said that, and on the basis of the noble Lord's undertaking, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 42 not moved.]

4.10 p.m.

Lord BRUCE of DONINGTON moved Amendment No. 43: Page 13, line 12, leave out ("current") and insert ("historic").

The noble Lord said: This particular question has already been touched upon by the noble Lord, Lord Morris, and it deals with that part of the clause which makes it obligatory when calculating a rate of return on capital employed to have it determined on the basis of current cost accounting. This is the first time that the term "current cost accounting" has appeared in an Act of Parliament. It is perhaps a little noteworthy that no definition of it appears in the definition clause. With the leave and the indulgence of the Committee—although there must be many present who are familiar with the term "current cost accounting"— may I explain what this means?

The normal and traditional accounting methods employed in business and commerce over many centuries have produced accounts in terms of a trading profit and loss account and a balance sheet at the end of a particular period based on the money values that record the individual transactions that have taken place during that year. Book-keeping and accounting consist of records of money spent or received in the money units in which these are expressed, the indebtedness that is actually incurred in terms of the money units in which this is expressed, and also the credit extended to others on the basis of the money units which are the record of that particular credit transaction. This is known as the historic cost method of recording and accounting in this country.

It has been found that although accounts produced on a historic cost basis (which is the traditional method of accounting in this country) are a very acceptable measure, indeed the only accurate measure, of the profitability or otherwise of a company, during times when inflation is running at imperceptible levels, or shall we say acceptable levels—and, of course, the value of money has depreciated very considerably over the past 100 years at rates which have varied 2 per cent. to 3 per cent. or 5 per cent.—there has been a general consciousness by the commercial and business community that although this progressive diminution in the value of money is to be regretted, nevertheless it need not influence profoundly the way in which ordinary accounts prepared on a historic cost basis are considered.

This is not so when inflation is running, as it has been, at over 20 per cent. or, as even now, at something like 17 per cent. It means that when one has circumstances of that kind, and before one makes objective and business judgments on the basis of accounts produced on the historic cost basis, one has to take account of the fact that the assets recorded in the balance sheet, when they come to be replaced, will have to be replaced at a far higher cost. It does not take into account the fact that when stocks of ordinary trading commodities come to be replaced, or come to be re-bought, they may have to be replaced at a significantly higher cost. It does not take into account the fact that by the time the debts owing to a company or corporation recorded on historic cost terms come to be settled, the money will not be worth the same as when the debts were originally incurred. Of course, the converse takes place in regard to credit incurred.

It is for that reason that the accountancy profession, in collaboration and conjunction very often with Government departments, have developed a code of adjustments to historic cost accounts which reflect the particular trends which I have described. Indeed, this is only as it should be. It would be an imprudent management that did not take account of the developments that had taken place since the balance sheet date, that failed to take account of the very high rate of inflation, the operation of which would tend to distort. For management purposes it is indispensable that some kind of current cost accounting adjustment should be made. It is also, incidentally, convenient for managements who do not like to have excessive dividend claims by shareholders on the basis of the historic cost profits, when they are likely to demand more in dividends than the company's projected cash flow will permit it to pay. It is also additionally convenient for them, of course, when dealing with trade unions. Much of the current cost accounting covention has been directed to all those three probably wholly admirable aims.

Although these developments are desirable from the management standpoint, and as long as they do not detract from the basic historic cost accounting methods of recording individual transactions, it has to be borne in mind that they are not mandatory by law on any part of private enterprise. They are comprised in the current cost accounting convention put out by the Institute of Chartered Accountants and the other bodies in what is called SSAP16, which means the Statement of Standard Accounting Practice.

It is made quite clear in SSAP16 that this applies only to a very limited extent in British industry. I must emphasise that this is not law. This is only recommended standard accounting practice, which of course for practical purposes for those it affects means that those in the professions whose function it is to audit and present accounts become bound by the codes of their own institute. Therefore, professional accountants dealing with those companies that come within the convention would be bound to obey that convention.

But let us see where this limited power does not apply. It does not apply to any commercial, financial or industrial concern which does not have share or loan capital listed on the Stock Exchange. So all those companies that are not listed on the Stock Exchange are not bound by this current cost accounting cost convention, provided that they meet at least two of the following three criteria: they have a turnover of less than £5 million a year; their balance sheet total is less than 2½ million; or the average number of their employees is less than 250. Incidentally, also excluded from the current cost accounting convention are the wholly-owned subsidiaries of companies where the parent is registered in the United Kingdom, authorised insurers, property investment and dealing companies and investment trust companies.

Therefore, there is a whole section of British industry and commerce to whom this voluntary convention, which is put into operation only by the exercise of professional discipline, does not apply. Yet, in this Bill it is made mandatory for local authorities to adopt current cost accounting. That seems to be a little odd.

The noble Lord has said that the principal object of the clauses that he was discussing is to throw everything up into the light of day. Mind you, there have been slight undertones from time to time that local authorities might have the option, or, as we shall see, that the Minister may make a direction that direct labour organisations shall not be entitled to carry out certain work.

Then there has always been the inference that there must be no unfair competition with private enterprise. But practically all the private contractors who may consider themselves to be in competition with DLOs for building work in local authority areas are, in fact, exempt from current cost accounting provisions. Their auditors are not required to prepare their accounts and state the return on a current cost accounting basis. But inevitably in times of very high inflation the amount of return on capital on a current cost accounting basis will be less than that shown by the historic cost. So there we have what I imagine the noble Lord would call a fair comparison.

Here we have the private builders, some sections of whom, I am reliably informed, are devout supporters of the party opposite, both locally and nationally, whose accounts are produced on a historic cost basis, and there we have a return by local authorities which is required to be on a current cost accounting basis and which, inevitably, in times of high inflation, will show a lower rate. I do not think that that quite accords with the ordinary notion of fairness.

But, taking the noble Lord at his word and now trying to seduce him a little into agreeing with me, on the basis that all he wants to do is to throw everything open to the local electorate, to the local councillors, with a view to seeing the efficiency of a local authority, may I remind him of the existence of a body called the district auditors? The district auditors are responsible to the inspectorate of audit in the noble Lord's own department. There are 12 district auditors and their numbers are supplemented by private accountants in various parts of the country who are engaged by local authorities to do their auditing work for them. Indeed, if I may say so, the present Minister has encouraged this trend. I have in my files here many reports of district auditors.

Why, then, is there this sudden requirement for the open display of information, so that everything may be made freely available to everybody, when—and the noble Lord himself will confirm it—this has been the case all along? District auditors report to the councils. I have their reports and I have seen the depth of their reporting on DLOs. But, moreover, they are responsible to the inspectorate of audit itself, which, as I say, is in the noble Lord's own department and is fully capable. It is on the third floor of St. Lawrence House, 29/31 Broad Street, Bristol, and it is directly responsible to the Minister.

On the basis that all that was required was a more informative and standardised form of accounting, various clauses in this Bill which we have already discussed have much to commend them. But why are the other provisions also required, when the Minister's own audit inspectorate, on the basis of the accounts produced, can already supply him with the information?

Of course, the reason why the Minister wants it in the Bill, and why he has had to draft it accordingly, is that he is concentrating not so much on information being freely available—because the information always has been freely available—as on being able to enforce the powers of closure which he has under Clause 14 of the Bill. Bearing in mind that the Minister can obtain this information, bearing in mind the comparisons that are to be made in regard to current cost accounting with returns produced on the basis of historic cost, and bearing in mind the fact that all this extra work in the estimation of the accountancy bodies involved will put another 4 per cent. on to the book-keeping and accounting staffs of local authorities, I trust that he will do the sensible thing and accept the amendment, especially since current cost accounting has never been in a statute before and is not explained.

There are further considerations. Later on this year or early next year, the House will be called upon to consider the fourth Directive of the EEC on company accounts. Noble Lords may take it from me that there is no mention whatsoever of current cost accounting in that Directive. There is another point which has already been touched upon by the noble Lord who spoke from the Liberal Benches. If inflation is to continue at its current high rates, there may be a case for the Department of Trade to step in and make arrangements for company accounts as a whole to be prepared on a current cost accounting basis. However, as I understand the position—I do not want to reargue the economics here—the Government's position is that the intensity, veracity and ingenuity of their policies is going to bring down inflation, anyway. If that be the case, why is it necessary to enshrine current cost accounting in the Bill? I beg to move.

4.30 p.m.

Lord AVEBURY

Could I add one or two words to what the noble Lord, Lord Bruce of Donington, has just said? To take up his final point as to whether the Government should legislate to compel limited companies to adopt current cost accounting, this would be a fundamental departure bearing in mind that these are matters which in the past it has been thought fit to leave to the accounting professions to decide and to make recommendations to their clients about. Ultimately they have to satisfy themselves that what is presented in the company's accounts is a true and fair picture of the company's affairs as at the date of the balance sheet and over the accounting period concerned. If the accounting profession felt that in order to give a true and fair picture the CCA should be universally adopted, then they would have made such a recommendation. They have not done so. They have said that it is a recommended practice in the private sector. No one, however, has ever had their account qualified for their failure to adopt current cost accounting and there is no suggestion that for some time to come we should go any further than we have already gone in this field in the private sector.

I think that what the Government ought to do, if I may respectfully suggest it to them, is to make provision for the introduction of current cost accounting at some future date so that if it does become obligatory in the private sector it can also be required of local authorities. So my suggestion to the Minister is that he should accept the amendment of the noble Lord, Lord Bruce of Donington, but that he should come back at Report stage with another amendment giving to the Secretary of State power at some future date to introduce current cost accounting for this purpose if and when that practice has been universally adopted in the private sector. Then we should be sure that proper comparisons could be made. I take the point entirely that the Minister has made on previous amendments: that we want to ensure that there is a fair comparison between the direct labour organisations and the private sector. Let us do so by ensuring that the accounting practices of both the public and the private sectors follow closely on one another and by giving the Minister the power to introduce this change in the future but not to do so while the private sector has not yet reached that point.

Lord BELLWIN

There seems to be some confusion about what we are trying to achieve by asking for these rates of return. The calculation will yield an economic measure of DLO performance. We are not simply trying to make DLOs earn some kind of artificial profit at the expense of other departments of the authority. That would be pointless. We are not even trying in this proposal to even up the competition between public and private building organisations by loading DLO charges with an element to balance the private firms' need to allow for a profit margin.

What we are interested in is more fundamental. We want to look at the allocation of resources, and we want every authority to keep its own DLO under scrutiny to see whether the resources it is consuming might be put to better use elsewhere. This means examining all the assets employed by the DLO (which in most cases will be depot land, plant and stocks of materials) and comparing the return on those assets with the return available generally across the whole range of economic activity in the country. Accordingly, we need to look at the real value of assets and for this purpose taking their historic costs is not good enough.

We believe therefore that the rate of return must be calculated on a basis which takes account of inflation. Only in that way will the calculation show whether the resources are being sensibly allocated. That is the purpose of this particular exercise. The accounting profession has now agreed that of the various forms of inflation accounting, current cost accounting is the most satisfactory and the accounting standard (SSAP 16), which the noble Lord also quoted, has now been published. It is therefore right to require the rate of return calculation to be made on a current cost basis. This can be managed without keeping the whole of the DLO's accounts on that basis, though there would be no objection to that. All that is needed is an end-of-year adjustment for this particular purpose. This is not a particularly arduous exercise, and we are not imposing a major new task on local authority treasurers. In the interests of the sensible allocation of resources, we consider that it is well worth the effort.

Turning to some of the points made, because of the extra explanation I have just given as to the extent of the requirement, I imagine that the noble Lord, Lord Bruce of Donington, will not stick to his figure of 4 per cent. additional staff required. I would argue all the way down the road with him against that.

Lord BRUCE of DONINGTON

If I may interrupt the noble Lord in order to correct him, I did not seek to imply—and I must apologise if I did—that the effect of merely ascertaining these particular figures would result in an increase of 4 per cent. I said that the new accounting arrangements taken as a whole—in other words, the entire accounting requirements of this part of the Bill—would necessitate an increase of 4 per cent. in the book-keeping and accounting staff of local authorities.

Lord BELLWIN

I accept that entirely, because it is not the main thrust of the points I am trying to make. I thought that the noble Lord's point about the district auditor was interesting, but the role of the district auditor has been discussed and questioned and has been the cause of some concern for a long time—concern not so much about what they do but about what they do not do, not by way of not examining, because that they certainly do, but by way of not bringing out into the open all that is going on. The noble Lord may know that this is the subject of a great deal of discussion so that we can enhance the role of the district audit service, perhaps working it together with other bodies which are looking at value for money exercises and so on. I do not want to go into that just now. Certainly it is an area which has been looked at very carefully, but in no way would I consider that it would replace that which we are requiring local authorities to do.

So I say again that I fear this is an amendment which I cannot accept. I am trying to be very helpful in this section because I recognise that it is technical and specialised, but at a time when we have to say that all is not as it should be, that we all want to see things not only done better but to be seen to be done better, if they are not up to the mark then it is in everybody's interests that they should be up to the mark. I fear I cannot accept this amendment.

Lord WEDDERBURN of CHARLTON

Before the noble Lord resumes his seat, having heard him say that in this respect the only proper way of ascertaining the best allocation of resources, the real value of resources and the rate of return is current cost accounting, no doubt he therefore takes the same view of companies engaged in similar work registered under the Companies Acts. When do the Government intend to make it mandatory upon these companies, in his view there being no other proper way of obtaining a true and fair view of the allocation of resources?

Lord BELLWIN

I have not the slightest intention of being drawn into that area. I am dealing with this matter which is the one upon which I have spoken. If the noble Lord wishes to raise his other point in other ways, I am sure that he has many opportunities to do so.

Lord BRUCE of DONINGTON

I am very disappointed that the noble Lord has not seen fit to accept this amendment. The noble Lord will be aware that it is quite impracticable to take this particular step and that it is unfair to do so. Moreover, he must know that it is completely unnecessary. The provisions that have already been passed in this Bill are uncontested. They provide that each division of work, and there are four, shall provide a revenue account and a statement of return. There is no reason at all why there should be all this contortion to produce a completely artificial figure that cannot be determined precisely because the capital involved in each particular department cannot be ascertained. If the noble Lord had said that the department as a whole should adopt current cost accounting

it would have been more reasonable but it still would not have been necessary, nor would it have been fair.

I cannot help feeling that the noble Lord has rather underestimated the role of the district auditors. The district auditors are quite capable—and indeed I have many of their reports with me—on the basis of the accounts that are produced now and certainly on the basis of the accounts that are going to be produced on a more standardised basis covering separate revenue accounts, of determining the efficiency or otherwise of a particular DLO.

This also begs the question as to who is principally concerned. I would venture to suggest that it is the local authorities themselves, responsible as they are to their own electorates, which are principally concerned. There is no evidence to show—and I do not think the noble Lord can produce any—that there is any dissatisfaction among local authorities in any part of the country with the services that are provided by district auditors or by private firms of auditors that do audit work. There is no evidence of that. This part has been inserted in the Bill as an extra twist by Mr. Heseltine for purposes that are connected more with the enforcement provisions in Clause 14 than for any other reason.

I am very sorry that the noble Lord cannot accept the amendment and, in view of the sheer illogicality of the views that he has put before us, I have no alternative but to insist on the amendment and to ask the Committee to divide upon it.

4.42 p.m.

On Question, Whether the said amendment (No. 43) shall be agreed to?

Their Lordships divided: Contents, 100; Not-Contents, 150.

CONTENTS
Amulree, L.	Briginshaw, L.	Davies of Leek, L.
Ardwick, L.	Brockway, L.	Davies of Penrhys, L.
Avebury, L.	Brooks of Tremorfa, L.	Denington, B.
Aylestone, L.	Bruce of Donington, L.	Donaldson of Kingsbridge, L.
Bacon, B.	Byers, L.	Elwyn-Jones, L.
Balogh, L.	Cledwyn of Penrhos, L.	Evans of Claughton, L.
Banks, L.	Collison, L.	Fisher of Rednal, B.
Beswick, L.	Congleton, L.	Gaitskell, B.
Birk, B.	Cooper of Stockton Heath, L.	Gardiner, L.
Blyton, L.	Cudlipp, L.	Gladwyn, L.
Boston of Faversham, L.	David, B. [Teller]	Gosford, E.
Greenwood of Rossendale, L.	McNair, L.	Sefton of Garston, L.
Grey of Naunton, L.	Maelor, L.	Simon, V.
Hale, L.	Maybray-King, L.	Stedman, B.
Hall, V.	Melchett, L.	Stewart of Alvechurch, B.
Hampton, L.	Melville, V.	Stewart of Fulham, L.
Hatch of Lusby, L.	Meston, L.	Stone, L.
Hayter, L.	Mishcon, L.	Strabolgi, L.
Henderson, L.	Morris of Grasmere, L.	Strauss, L.
Hunt, L.	Noel-Baker, L.	Taylor of Blackburn, L.
Irving of Dartford, L.	Northfield, L.	Taylor of Mansfield, L.
Jacques, L.	Oram, L.	Thurso, V.
James of Rusholme, L.	Paget of Northampton, L.	Underhill, L.
Janner, L.	Parry, L.	Wallace of Coslany, L.
Jeger, B.	Peart, L.	Wedderburn of Charlton, L.
Kaldor, L.	Phillips, B.	Wells-Pestell, L.
Kilbracken, L.	Ponsonby of Shulbrede, L. [Teller]	Whaddon, L.
Kilmarnock, L.		Wigg, L.
Kinloss, Ly.	Reilly, L.	Wigoder, L.
Leatherland, L.	Rhodes, L.	Willis, L.
Listowel, E.	Rochester, L.	Wilson of Radcliffe, L.
Llewelyn-Davies of Hastoe, B.	Ross of Marnock, L.	Winstanley, L.
Loudoun, C.	Rosslyn, E.	Young of Dartington, L.
Lovell-Davis, L.	Sainsbury, L.
NOT-CONTENTS
Ailesbury, M.	Ferrier, L.	Marley, L.
Airey of Abingdon, B.	Forester, L.	Massereene and Ferrard, V.
Alport, L.	Fortescue, E.	Middleton, L.
Ampthill, L.	Fraser of Kilmorack, L.	Minto, E.
Armstrong, L.	Freyberg, L.	Monk Bretton, L.
Auckland, L.	Gage, V.	Monson, L.
Avon, E.	Gainford, L.	Mottistone, L.
Balerno, L.	Gainsborough, E.	Mowbray and Stourton, L.
Bellwin, L.	Gowrie, E.	Murton of Lindisfarne, L.
Belstead, L.	Gray, L.	Netherthorpe, L.
Berkeley, B.	Greenway, L.	Northchurch, B.
Bessborough, E.	Gridley, L.	Nugent of Guildford, L.
Birkenhead, E.	Grimthorpe, L.	O'Hagan, L.
Boardman, L.	Haig, E.	Onslow, E.
Bradford, E.	Hailsham of Saint Marylebone, L. (L. Chancellor.)	Orkney, E.
Braye, L.		Orr-Ewing, L.
Brentford, V.	Halsbury, E.	Porritt, L.
Bridgeman, V.	Hankey, L.	Radnor, E.
Broadbridge, L.	Hanworth, V.	Redmayne, L.
Cairns, E.	Harmar-Nicholls, L.	Renton, L.
Caithness, E.	Harvington, L.	Ridley, V.
Campbell of Croy, L.	Hastings, L.	Rochdale, V.
Cathcart, E.	Hatherton, L.	Rollo, L.
Chelwood, L.	Henley, L.	Romney, E.
Clwyd, L.	Hereford, V.	St. Aldwyn, E.
Cockfield, L.	Hill of Luton, L.	St. Germans, E.
Colville of Culross, V.	Hillingdon, L.	Saint Oswald, L.
Cork and Orrery, E.	Holderness, L.	Sandford, L.
Cottesloe, L.	Home of the Hirsel, L.	Sandys, L. [Teller]
Croft, L.	Howe, E.	Savile, L.
Cromartie, E.	Hylton-Foster, B.	Selkirk, E.
Cullen of Ashbourne, L.	Kemsley, V.	Sharples, B.
Daventry, V.	Keyes, L.	Skelmersdale, L.
de Clifford, L.	Kimberley, E.	Soames, L. (L. President.)
Denham, L. [Teller]	Kintore, E.	Somers, L.
Digby, L.	Knutsford, V.	Spens, L.
Dormer, L.	Liverpool, E.	Stanley of Alderley, L.
Drumalbyn, L.	Lloyd, L.	Strathclyde, L.
Duncan-Sandys, L.	Long, V.	Strathcona and Mount Royal, L.
Dundee, E.	Lothian, M.	Swansea, L.
Ebbisham, L.	Lucas of Chilworth, L.	Swinfen, L.
Elibank, L.	Luke, L.	Trefgarne, L.
Ellenborough, L.	Lyell, L.	Trenchard, V.
Elliot of Harwood, B.	McAlpine of Moffat, L.	Vaux of Harrowden, L.
Elton, L.	McFadzean, L.	Vickers, B.
Emmet of Amberley, B.	Mackay of Clashfern, L.	Vivian, L.
Evans of Hungershall, L.	Macleod of Borve, B.	Waldegrave, E.
Exeter, M.	Mancroft, L.	Watkinson, V.
Faithfull, B.	Mansfield, E.	Westbury, L.
Falkland, V.	Margadale, L.	Willoughby de Broke, L,
Ferrers, E.

Resolved in the negative, and amendment disagreed to accordingly.

Clause 13 agreed to.

Clause 14 [Rates of return: powers of Secretary of State]:

[Amendment No. 44 not moved.]

4.52 p.m.

Lord SEFTON of GARSTON moved Amendment No. 45: Page 14, line 16, leave out ("if he thinks fit") and insert ("where a local authority has failed to conform with the appropriate statutory provisions").

The noble Lord said: ft may be for the convenience of the Committee if I speak to Amendments Nos. 45 and 46 together. They are related and they both strike at the problems that face local government in regard to this Bill. This may seem to merit the description used earlier by the noble Lord, Lord Bellwin, that this is of small consequence, but in fact the consequences of this part of the Bill for relationships between local government and national Government could be very severe indeed.

The amendment merely seeks to make clear that no local authority is to be called to task for committing an offence that they did not even know existed. It may be that the noble Lord, Lord Bellwin, will say that that is not the situation. Never-the less a responsible body of which he and I were once members believe that it could be; they believe that the words in the Bill "if he thinks fit" give a wrong power to the Secretary of State, and they think it should be altered. This amendment seeks to alter it in such a way that their fears will be removed.

It may be that the wording of the amendment is not the wording the noble Lord would pick if he wished to make it clear that it was not treating the local authorities unfairly. He said earlier that discussions had taken place with all the associations, that the door was still open and would be until this became law, and I suppose even after that on points of clarification. I am very worried. In fact my opinion right at the beginning was that it would have been much better to have a Bill of this sort sent to a committee; then the to and fro could have taken place without any restriction, the intervals between committee meetings could have been used to have discussions with interested parties, and at the end of the day there could have been an agreement or a compromise struck between the various associations and the Government.

It is not my wish or intention to divide the Committee on an issue that I think could have been settled in another way. Before I formally move Amendment No. 45, may I ask if there is any indication in the Minister's mind that he would have talks with the AMA to see if this matter could be resolved amicably and would report back at Report stage on some new wording which might well meet the problem? I think it is vitally important that nobody should seek to make political capital out of a division between local government and central Government, when the important issue will not be the powers of the Secretary of State but restore the faith of local government in central Government which has been badly eroded recently, I admit by both parties. If the Minister could give some indication whether he would prefer to do that it might save time today.

Lord RENTON

First, as to Amendment No. 45, it does seem to me that the words "if he thinks fit" are quite unnecessary and from a purely drafting point of view should come out. This subsection (4) gives power to the Secretary of State to direct a local authority or a development body to submit to him a special report. Well, he is not going to use that power unless he thinks fit. Therefore to write into the Statute "if he thinks fit" is quite absurd.

Lord SEFTON of GARSTON

If the noble Lord would give way, it was not my intention to conclude the debate there from my point of view. Perhaps it may be my ignorance of the procedure. It was my intention to sit down while the Minister responded to my question.

Lord BELLWIN

Perhaps I could cover that point and then the noble Lord could continue. Of course consultations have taken place. I myself was not a party to them, so I cannot say what they were about. But it is always open in any case at any time for there to be discussions with the AMA, indeed separately with the AMA; I see no reason why there should not be discussion with any local authority association. It does not always have to be together; their interests are not always the same. I should think that, for the purpose of the business of the Committee, we shall have to discuss this now as it is, but that would not prevent any further points being made at any time. I can assure the noble Lord that despite what we decide now, if after this the AMA or any other association would like to come and talk, of course we will always listen.

Lord SEFTON of GARSTON

I accept that, of course. Let me then try to express some of the fears of those peope who have spent the greater proportion of their lives working in local government, attempting to ignore party divisions in governments of all sorts and attempting to get the best out of central and local government for the good of the community.

During the earlier part of the debate on this Bill several Members opposite posed the question, were direct labour organisations frightened of fair competition? They asked what was wrong in expecting direct labour organisations to reveal their figures, to show how they were working, and let judgment be taken on the basis of those figures. I repeat again something that was said on this side of the Committee: no direct labour organisation is, in fact, frightened of fair competition. But, that poses the question: what is fair competition? Already there has been mention today of the different things in which the private sector can become involved but in which a local authority is prevented from becoming involved. During the Second Reading debate, which unfortunately I was unable to attend, the noble Lord, Lord Bellwin, said: At the end of the day the people who will decide will be those who are on the receiving end—the user, the customer. They are the best ones to decide". —[Official Report, 5/8/80; col. 1461.] I could well imagine that the noble Lord, Lord Boyd-Carpenter, would have accepted that, but I do not think on reflection that the noble Lord, Lord Bellwin, would accept it when he thinks of the consequences of applying a purely monetary factor to determine where we spend our money in regard to the building trade.

I am sure that there is no need for me to remind the noble Lord, Lord Bellwin, that perhaps one of the most disgraceful practices that existed in the building trade was the way in which the private sector used lump labour. There will be no requirement at all, there will be no prosion in the Bill, that if, in fact, the private sector acts unfairly and therefore poses problems for local government which it cannot get over, the private company should be barred from submitting further tenders. Or is it the Government's intention to insert a provision at a later stage?—because if fairness were the key note, certainly no private sector company should be allowed to continue tendering if in fact it has practised that iniquitous process. As an aside, it is amazing that on the question of tax evasion the Sunday Times should make such a fuss about tax evasion in regard to the Vestey family, when one remembers the Mickey Mouses and the presidents of various states that were paid money out of the Sunday Time coffers in order to avoid taxation there—

Lord NUGENT of GUILDFORD

Will the noble Lord give way? This is the Committee stage of the Bill and there is an obligation to keep to the business of the amendment and not to go wider, as the noble Lord might in a Second Reading speech.

Lord SEFTON of GARSTON

I can well understand noble Lords on the other side being concerned about points like that being made, but it is very pertinent to this clause. Indeed, it is pertinent to this clause for the simple reason that this is the clause that really lays down the powers for the Minister to penalise a direct labour organisation if, in fact, it is failing in what the Government say is fair competition. So, it is perfectly pertinent to raise the question of whether the fairness contained in this clause really is fair. It is on that basis that I deal with it and I make no apology at all for dealing with it. I attempted to see whether, in fact, we could get meaningful discussion between the Government and the AMA with a view to resolving the problem in a form of words that would meet the problem, but the Minister did not want me to do that.

There is another aspect. If, in fact, the statements to be made by local authorities under this clause of the Bill are to deal only with the direct labour organisations, is that fair when one considers that a subsidiary in a private building trade can continue being unprofitable for years and years and submit tenders on that basis, competing with local authorities and all the while be subsidised by the activities of a parent company which, in fact, is making vast profits? Would a local authority he put on the same basis as the private sector and be allowed to compete with the private sector and use the profits from a land sale in order to sustain the direct labour organisation?—of course, not! The Government would be horrified to think that anybody should suggest that they would do so. May I say that local authorities would also be horrified to suggest it and would not do it. Nevertheless, the fact is that the private sector does just that, and many times runs the building section of its activities on a loss-making basis and again competes unfairly with the local authority.

So, for all those reasons—and there are many, many more—if the Government are serious and want to establish fair competition they should bring in a provision that allows these people, if found to be carrying out certain unfair practices, to be banned from further tendering. If they do not, it is quite evident that the Government are attempting to penalise direct labour organisations to such an extent that they will no longer exist.

Amendment No. 46 to which I should like to speak, deals with the number of years—the testing period. As regards that, the same point that I made in relation to the ability of the private sector to sustain a building section arises. What number of years is the right number of years? I do not think that that matter has been sufficiently discussed. Certainly the AMA does not consider that it has been sufficiently discussed in order to arrive at the right number of years. There would be no harm at all if the Minister did that.

The clause with which I am concerned deals with the requirement for a special report. No details are given, and perhaps I may refer to the Notes on Clauses which are very significant. The notes say that there may be special circumstances which explain an unsatisfactory performance or there may be a need to retain a small direct labour force to deal with certain sorts of work; for example, winter highway maintenance in remote areas for which no contractors can be found. That is what the notes say. It is not "for which no contractors can be found"; it is "with which no contractors would be bothered!", because it is a service to the community and it is not a profit-making exercise. That is the real reason. If, in fact, these kinds of statements occur, then do not be upset and do not be amazed that local government, generally speaking, should mistrust the Bill. Therefore, that is another reason why these discussions should take place—meaningful discussions—with a view to hearing both sides, not discussions that merely shove this debate to another part of our discussions on the Bill during Report stage. There should be a deliberate, meaningful attempt by the Government to meet the local authority associations to deal with all these points.

The Notes on Clauses make great play of establishing—and this is important—parity between the private sector and the local authority sector. How on earth can we establish parity between the private sector and the local authority sector? It is an impossibility and I suggest that the noble Lord, Lord Bellwin, knows that full well. I have heard him express the point of view that the difference between local authorities and the private sector is that local authorities have something to do with service as a first priority. Everybody agrees on this side of the Committee that when providing that service there should be great respect for accountability and there should be great regard given to efficiency.

Private firms allow various sections to be subsidised by the activities of the parent company. The Government will not allow a very essential service of a direct labour organisation to be subsidised by the other activities of the local authority—oh no! When they call for a special report, would it be possible for that special report to call for a report on the establishment and maintenance of a timber workshop where windows and doors are manufactured for the use of the direct labour organisations? Would it be possible for the Minister to call for a special report on that particular facet of the direct labour organisations' work and then judge that particular section on the viability or otherwise of that? Because if they did, it would strike at the roots of efficiency of a building organisation; it would hive-off one particular part of it. And if we were to suggest that that should happen in the private sector, then the private sector would laugh us out of court. Yet that is the suggestion that is being made in the Bill.

I do not believe that it is possible to institute fair comparison between the private and public sector and I have good experience that tells me that I am right. Let me tell noble Lords what happened in Liverpool. When the property boom came into existence after the war, we in Liverpool also had suffered bomb damage; and we in Liverpool also had a tremendous price to pay for the bombing, just like London and Coventry. Did we find the private sector willing to come to Liverpool and to put the same amounts of capital investment and building activity into Merseyside? Oh no! Where did they go? They flooded the South-East, Coventry and the Midlands, because that is where the profit was. In Merseyside we were compelled to enlarge and strengthen our direct labour organisation because of the failure of the private sector to step in and give us the service.

Perhaps I can bring the point home with a more recent example. It is not long ago that, as the leader of Liverpool City Council, I sat down with the National Federation of Building Trades Employers on Merseyside and listened to a heartrending plea from them that their problems stemmed from the fact that cuts were being made, albeit under a Labour Government. We were being compelled to make cuts in the building field. They really could not manage; they could not sustain themselves unless public investment was stepped up and they were allowed to work on behalf of the local authority.

Having had a reputation at one time for being a rabid Left-winger, one would not have suggested that I should have agreed with them, but I did. I said that I thought there must be co-operation between the private and the public sectors. I made this offer to them: that we would even approach the Home Office to make sure that we could build our police headquarters a little in advance of time because of the unemployment problem that we were suffering; that the buildings would go out to private tender, because that was the right thing to do. The private trade would then get £x million worth of work on Merseyside. Could I ask for a quid pro quo? Could I ask that the private sector accepts some responsibility as a duty to the community? I said that as we had responded to their invitation—and we did, for they got the law courts and the police building—could they find some way, among the countless amounts of money they had within the building industry as a whole, through a federation, perhaps to invest in the public sector 25 per cent. of the money that they were receiving from the buildings that we were giving them, and so provide Merseyside with some speculative office development, for we had just lost 300 jobs because we did not have a spec office in the centre of Liverpool ready to pick up an organisation being set up. Their reply was that they would certainly do that provided that we guaranteed them the letting. That is what they call speculative office development. They do it in London and they do it in Manchester because they know that the return is guaranteed.

This strikes at the very root of the Bill. In fact, the Bill is another extension of the political philosophy of the Tory Party. Quite frankly, as was said earlier on this side of the Committee, it is the philosophy that everything in the public sector is wrong and everything in the private sector is right, with which I am sure the noble Lord, Lord Boyd-Carpenter, would agree. That is just not good enough either for this Committee or for the rest of the country. I return to my theme at the beginning of my remarks. It is certainly not good enough for the AMA. I am dying to give some more examples of the private sector that flowed away from Merseyside because the return was not sufficient. This efficient private sector flowed to the Barbican, and the Barbican became an example of the most inefficient kind of organisation that has ever been seen anywhere in the world. That organisation was the private sector building industry of this country. I can give a few more examples of that up and down the country.

The real truth is that this Bill has provided a chasm so great between central and local government that I am frightened that it will not be bridged. I am also frightened on one other point, and conclude on this note. I am frightened that some of the points I have made may have made that chasm a little wider. I cannot help it. I was compelled to make them because the Minister would not give me an assurance beforehand that he would have discussions with the AMA. I should now like to express the hope that we shall get back on to an even keel, that we really will try to restore the relationships that used to exist between local government and central Government, have meaningful discussions with them and resolve this problem once and for all. I beg to move.

Lord SANDFORD

I wonder whether we could return to Amendments Nos. 45, 46 and 49 in Clause 14. I should like to take up the last point on which the noble Lord, Lord Sefton of Garston, left us after that excursion. It is undoubtedly true that extreme views are held in this Committee about the merits and virtues of direct labour organisations. We have just heard one and yesterday, if I may say so, we heard another from my noble friend Lord Boyd-Carpenter. But this is not what we are dealing with at this point in the Bill. I think there is much more consensus—it is not a view held only by the AMA; it is also held by the Association of District Councils and the Association of County Councils, and I would think by Parliament—that at this point in the Bi11 my right honourable friend the Secretary of State is asking for powers too sweeping to achieve what he wants to achieve and more sweeping than it would be proper for Parliament to accord him. Therefore, would hope that my noble friend would respond to the suggestion made by the noble Lord, Lord Sefton, not for discussions only with the AMA, but for discussions with all the associations to see whether we cannot arrive at a formula which achieves what the Secretary of State needs in order to do what is required in this Bill, but which does it in a way more appropriate to what Parliament ought to allow a Secretary of State to do.

Lord MISHCON

I wonder whether I might follow—possibly in the hope of shortening this debate—in the same spirit as the noble Lord, Lord Sandford. Yesterday we had some excursion, if again I may borrow that phrase from the noble Lord, in regard to the relative merits of direct labour and private building contractors. I hope that the Committee will agree that it is not a useful excursion this afternoon.

In this clause we are dealing with—and I re-echo the words of the noble Lord, Lord Sandford—not an excursion into direct labour but an excursion into ministerial powers that are far beyond those that Parliament ought ever to accord. On Clause 13, the noble Lord the Minister said in a very piquant phrase that he was talking to himself in front of the Committee. I want it recorded for posterity that I, personally, found his discussion with himself extremely courteous; I also found it extremely helpful and reasonable, and I want to ask him, if he would, to have a discussion again with himself when he rises to his feet and to adopt precisely the same sort of temperamental reaction as he did on the previous occasion. I say it for this reason.

Let us take it for granted for one moment that it is perfectly right—I think the Committee feels this—that all the information that can reasonably be required of a local authority in connection with its direct labour organisation should be given. Let us take it for granted that the electorate (this is a democracy, and we are talking about democratic government) ought to be allowed to react to information which is so given and which shows the local authority to be acting without due diligence, because it is keeping on a direct labour organisation which is inefficient and uneconomic for good reason—and I am not saying for good social reasons; that would not be my point. It ought to be allowed to say what it thinks at the next election about the type of authority that allows this to be carried on.

I am asking the Minister—and I think this too is in the spirit of the remarks of the noble Lord, Lord Sandford—to look in this spirit at these amendments and the powers given by this clause. I can paraphrase them, but if the Committee feel that they want me to delay them further (and I do not think they will) by using the exact wording of the Bill, I will do so. The noble Lord, Lord Renton, in a short intervention, said it was unnecesssry to say that the Minister, if he thinks fit, can call for a special report. This clause—and it is unique in my humble experience in regard to ministerial powers—says that the Minister can call for a special report. He can lay down the time within which it is to be given and then, without anything further by way of default shown by the local authority or its direct building organisation, under subsection (4) can direct that the direct labour organisation shall, for a period which he shall direct, on conditions that he shall lay down in regard to piecemeal cutting off of the direct labour organisation, be made to cease to exist.

It is almost the powers that Providence takes upon itself but in its mercy does not exercise. At least the Government ought to have some limit to the dictatorial powers that they want to exercise in regard to a limb of the democratic life of this country if they expect any sort of decent officers or citizens to serve as members of local authorities. No Secretary of State, no Minister, should have the power, willy-nilly, to say, "I demand a report. I will look at the report. Whatever that report says, I am going to decide that this department should shut down."

The noble Lord, Lord Renton, saw that with his usual wisdom and with his usual sense of equity and justice, and put down an amendment, as your Lordships will see, which at least tries to limit the Minister's power, and says this: "At least you can do it if the direct labour authority did not reach the percentage that was supposed to be reached if it was to be deemed to be economically run". That was going some part of the way, but the noble Lord, Lord Renton, will I am sure, concede that not even in his amendment does it say in respect of which period: whether it is to be for one year that it did not, two years that it did not, whether it was the last year it did not, or whether it was three years ago it did not. The amendment does not say that.

What I am pleading for—and I believe it is a plea echoed throughout the Committee; from the Liberal Benches we have already heard it from a distinguished member of local government—is that if we are not to have a Division which will rid this Bill of the whole of the clause, then I ask the Government to be sensible and reasonable in looking at the amendments that have been put down in order to try to make this clause less dictatorial and less unique in its offensiveness to local government and to the constitutional life of this country.

5.24 p.m.

Lord EVANS of CLAUGHTON

Having been given an invitation to express a Liberal view—unless the noble Lord, Lord Mishcon, thought I had already expressed it-I shall now come to my feet and thank the noble Lord, Lord Renton, for giving way because he has been trying to finish a speech which I think he is half-way through. It is a genuine pleasure to speak in a debate initiated not by my noble friend but by my old friend Lord Sefton of Garston. If you had been sitting opposite him for many years in local government, as I was, you would know that he can be much more fierce than he has been in your Lordships' Committee today.

What concerns me is the words "if he thinks fit". I gather that in another place the Minister's right honourable friend suggested that if an aggrieved local authority that had been called upon to make these reports felt that the Minister was behaving unreasonably, the Minister would need to show good cause for calling in the direct labour organisation. I should like—and this is important—an assurance of some kind that he would in fact have to show good cause to an aggrieved local authority.

Frankly, I believe the words "if he thinks fit" are much more narrowly defined than the noble Lord's right honourable friend suggests. I think that a local authority would be left with no way of challenging the Minister unless they could show that the Minister had been unreasonable, had behaved in had faith or fraudulently. Although I do not have all that much affection for Her Majesty's Government, I cannot see that they will be likely to behave fraudulently or in had faith. Therefore, I think "unreasonableness" would be the only way of following that.

It seems to me that that gives an aggrieved local authority an extremely narrow basis for challenging a Minister in court. The trouble then is that once the Minister has obtained the report he can then, having seen this report, bring subsections (4) and (5) into operation which could effectively close down a direct labour organisation, which would be extremely serious and have far-reaching effects on that local authority and would put them in extreme difficulty.

According to what the AMA said, once he has received a report he is entitled to direct that the DLO ceases to operate on the basis of the same broad discretion as set out at the beginning of this clause. That is the view of the Association of Metropolitan Authorities. If, then, in some minor way the DLO had transgressed, he could bring them to a close. That is the way I read it. It seems to me important that we should have some statement from the Minister that he would need to show good cause if the wording is retained as set out in this clause, otherwise he has an unfettered right to close down direct labour organisations virtually at will.

May I deal briefly with Amendment No. 46, which we are asked to discuss at the same time. I think it is reasonable that "five" should be inserted instead of "three" knowing, as I do through my occupation and my activities as a councillor, that there is a considerable series of ups and downs and enormous variations in the building trade. You could not in a 3-year period decide whether the organisation was carried on successfully and correctly. A 5-year period is a much more effective one.

As the noble Lord, Lord Sandford, has said, it is not just the Association of Metropolitan Authorities which feel unhappy about this clause as it stands at present. You might say because it is Labour-controlled that it is behaving politically. But it is not. In fact the Association of County Councils feel this way. They say quite clearly, in a slightly different context, that as at present drafted the Bill gives the Secretary of State unfettered power to close a DLO. They say: While the Association have no doubt that the present Secretary of State"— well, they had to say that, did they not?— will use his powers in a manner acceptable to local government, a future encumbent of the post might not be so minded"; and I think I know what they are talking about. Whatever party one represents here, we must be very concerned about the way in which the clause is drafted and beg the Government to reconsider the matter along the lines which universally they have been requested to do.

Lord RENTON

I hope I shall not be thought stuffy if I refer briefly to Amendments Nos. 45 and 46, both of which are amendments to subsection (4), which merely gives the Secretary of State power to direct a local authority to make a special report on the matters specified in sub-paragraphs (a) and (b). It seemed to me until I heard the noble Lord, Lord Evans of Claughton, that the words "if he thinks fit" were quite unnecessary, because one cannot conceive of a Secretary of State using a power to make an order or give a direction unless he thought fit to do so.

Speaking with such knowledge of the law as I have, which is long, it does not seem to me that the addition of the words "if he thinks fit" necessarily require the Secretary of State to show cause. I therefore go back to my original proposition that those words are, from a drafting point of view, in any event unnecessary, and to that extent, and to that extent only, I have sympathy with the noble Lord, Lord Sefton, and those who have supported him. When we come to the further words in Amendment No. 45, however, where he wants to add: where a local authority has failed to conform with the appropriate statutory provisions it seems that those words could only cause confusion, first because the appropriate statutory provisions have not been specified, and if he is referring to the whole of the provisions in Part 3, then he is placing a burden on the Secretary of State which he should not be asked to assume.

However, there is a much greater objection to those words; namely, that if the Secretary of State has to decide whether the local authority has failed to conform at that stage, or if a court has to decide it if the matter is brought before the court at that stage, there will be a need to prejudge the decision which the Secretary of State will eventually have to make under subsection (5), to which the noble Lord, Lord Mishcon, referred and to which we shall have to come in due course. I would therefore not expect the Minister to accept that part of Amendment No. 45 because, as I say, it would cause confusion and mean prejudging.

As for Amendment No. 46, having listened carefully to the noble Lord, Lord Sefton, I am surprised in view of what he said that he should want to place on a local authority the burden of providing information going back five years instead of the more modest period of only three years which the Government suggest, and therefore I do not expect Amendment No. 46 to be recommended for acceptance.

5.35 p.m.

Baroness DENINGTON

It might be helpful to the Committee if I made my contribution on Amendment No. 49 now because it is all on the same theme. The particular note I have made about this provision is that it is the tone of the whole clause that is so disturbing and thus, surely, unacceptable. It is the tone of the proposal that we are trying to amend. The AMA assure me that the powers being taken in the clause are without precedent. My experience is not wide enough to know whether that is so, but the AMA, with their wide knowledge, must know, and I therefore accept that the powers being taken here by the Minister are without precedent, powers to close down—after calling for a report which he may or may not have had or on which he has or has not made any comment—a direct labour organisation. I cannot really believe that is what the Government want to do, but that is what they are saying in the clause.

It has been pointed out that the local authority is democratically elected and is responsible to its electorate. We have already agreed earlier in the Bill that the local electorate will have made available to it all the information on this and other subjects that could possibly be required. That being so, surely in the end it is up to the local authority to be persuaded that it should or should not close down its direct labour department. Surely this is all after the Minister has had the report and after his representative has gone there to examine the situation with the local authority to see what is wrong, and it should be their task to help sort the matter out.

As I have said before, central and local government must work in partnership. That is part of the set-up in this country and, on that theme, perhaps the Committee will permit me to extend the discussion because it might help to explain why I and others are so deeply disturbed by the tone of the clause. I find in it a strong tendency to undervalue—to deny the proper status, might be a better way of putting it—local government; not to trust those who are working in local government and giving of their time, people who have an effection for their constituents and who want to do the best they can for them. There is a tendency on the part of the present Government, and particularly the Secretary of State, to promulgate too many instructions to limit the activities of local government, and that is not a healthy tendency.

Local government has a basic and important part to play in our democracy, and that is the theme I wish to develop. If we are not vigilant, democracy in this country may be in danger of being eroded both from the extreme Left and Right. We must heed the signs, particularly those of us who have the privilege of sitting in your Lordships' House able to discuss these issues. It must not be condoned or permitted in however slight a form. This might be described as a slight form, but we must not let it creep in.

In my time in local government it has suffered as a result of reorganisation. It is not as clearly rooted in its particular locality as it was, and I think that is a loss. It is beginning to be too remote from the village society—I mean town and country villages, because big cities are villages—and we really must watch it. The present tendency of the Secretary of State to control local government through regulations, which we saw in the Housing Act and now see in this Bill, surely must give cause for concern to us all, particularly those of us who watched the weakening of local government in Germany in the 'thirties. It started or was seen in Germany, and we know where that led us. It is for these basic reasons that we on this side, and, I am sure, many if not all in this Committee, object to the arbitrary and unprecedentedly wide powers that the Secretary of State wishes to take on to himself and which are so obvious in this clause which we are seeking to amend. Therefore, we must totally oppose it.

Lord BRUCE of DONINGTON

Before the noble Lord the Minister indicates that he is quite willing to reconsider all the matters raised in these two amendments, I would venture to put one or two considerations in his mind. The amendment that has been moved so ably by my noble friend Lord Sefton, supported by my noble friend Lady Denington, seeks to question the right of the Secretary of State to have unfettered discretion to require the local authority to deliver a report. If the purpose of demanding a report is merely to ground the action to which my noble friend Lord Mishcon referred in subsection (5), then at least we understand where we are. We know that this request for more information, for a detailed report, is not really required for the information it contains; it is required, in effect, as an excuse to take action under subsection (5). Taken on its own merits, the noble Lord's department has no need to ask any local authority for a report of this kind.

I have already referred to the activities of the district auditors, who, as I have said, are responsible to his own inspectorate of audits. There are already in being proposals for the setting up of a commission to deal with the whole question of district audit. The Minister is to be invited to set up a new organisation employing 700 people to take over the work of the district auditor service and audit inspectorate. One does not know whether the noble Lord's department is going to adopt this report, but the indications are that Marsham Street does tend to place an increasing reliance on the various audit services that exist. The Minister can get any reports that he needs from the district auditors if they are of sufficient import within the financial context within which this Part of the Bill has been framed. They are the people who know; he already has them under his own control. Therefore, why does he have to require the local authority to submit a separate report?

I believe that with the silent consent of the Committee we are also dealing with Amendment No. 49, to which my noble friend Lady Denington spoke with the assent of the Committee. If I may, I should like to address myself to that one also. I am quite sure that I am not alone in believing that this is really the crunch clause of the whole of Part of the Bill, and indeed is a crunch clause in principle, comparable with the decisions that we shall have to make at a later stage in this Bill as to who knows best and as to the extent to which central Government shall be permitted to tell local authorities exactly what they shall do. It is one thing for the central Government to insist in certain circumstances that local authorities shall operate within certain financial constraints, and indeed the Government themselves have made a lot of pretence of granting individual local authorities far greater freedom to operate within the financial constraints that they seek to place on them. I repeat that the Government are entitled to expect reasonable conformity with their own macroeconomic policies if for any reason they should go seriously out of line, although I am bound to say that on the basis of experience local authorities have kept far better financial discipline than the Government themselves.

But the question we have to consider here, and the question that has been raised so ably by my noble friend Lady Denington and was also raised yesterday by my noble friend Lady Fisher, is the extent to which, on specific matters involving specific areas of local government decision, the Minister should be allowed to have a diktat in specific instances. Possibly I am not speaking in sufficiently dulcet tones to command the support of the noble Lord opposite, Lord Sandford—

Lord SANDFORD

No, you are not.

Lord BRUCE of DONINGTON

— but I feel that the noble Lord himself will be fully sensible of the issues involved here. It is really the issue of a specific local activity on which local councillors are fully informed, on which they have been advised by district auditors. The councillors are subject to the will of the local electorates, who are fully informed on these issues and will be more informed if certain sections of this Bill are passed. The issue is whether the central Government are entitled to take over the power to say to a local authority, in regard to a specific area of its activity, "You shall stop" This is the issue, and I sincerely hope that when the chips are down the real friends of local government, those who really believe in local democracy as distinct from shedding crocodile tears over it or paying lip service to it, will know where their real allegiance lies.

5.50 p.m.

Lord BELLWIN

I said earlier that it was not easy, did I not? Let us get a few things straight about this matter. First, these amendments, Nos. 45, 46 and 49, seek to limit the power of the Secretary of State to call for a special report to those circumstances explicitly set down under the Bill or its orders or directions. This is too narrow. There could be other circumstances where the spirit, if not the letter, of the legislation is being broken. For example, there could be a persistent failure to choose the lowest tenderer under Clause 7(4), or, taking another example entirely, there could be such a margin of failure by a DLO that a special report became imperative before matters got out of hand.

We are living in a world where waste cannot any longer be allowed to go unchecked, and the Secretary of State must be given discretion to step in and ask for an explanation; and that is what this is about. But this is not an unfettered power. There is protection at all times in the courts. If it is found that the Secretary of State has exercised his power for an improper purpose, or even on legally irrelevant grounds, the court can order such action to be quashed; and in the end, providing that a report is not a punishment, except in a peculiarly narrow sense, it gives an authority an opportunity to explain itself. But it is also a warning—

Lord MISHCON

I wonder whether the noble Lord the Minister, with his usual courtesy, will give way. He has just said, very correctly, that a power can be challenged in the courts. I am sure that he would be the last person, together with all Members of this Committee, who would wish to leave a clause, relating purely and simply to local government and national government, based on fighting in the courts. In the remainder of his very interesting and useful speech will the noble Lord kindly indicate, if he can, whether there is any limitation that he would himself be prepared to impose upon the Minister before this power—which I have called "dictatorial"—is exercised? If the noble Lord can do that, and if he promises to bring forward at the Report stage an amendment with a sensible limitation and safeguard, he would I think find a sympathetic Committee.

Lord BELLWIN

If I may continue—and as I go along I shall try to come to the point that the noble Lord has mentioned. I have listened for I think an hour and a half to the debate on this matter, and I feel that the Committee would expect me to reply in the manner in which I wish to do so. The fact is that the Government cannot permit any chipping away of the three-year period—and for the moment I am sticking to the amendments, even though the debate has ranged much beyond them—over which a DLO's performance should be judged. We are here speaking of ratepayers' money tied up in a DLO—risk capital, you might say, involuntarily collected and applied. The period must be as short as reasonably practicable. Shareholders in a company would be asking their directors to report if things went wrong in a shorter time span than that. Of course it would be open to a local authority to include such mitigating circumstances as it thought fit, and that is why the reports are being asked for before the Secretary of State would consider any stiffer action. But surely three years is long enough.

I listened with some fascination to the opening remarks of the noble Lord, Lord Sefton of Garston. He and I are old colleagues, old not in the sense of years, but rather in the sense of being longstanding colleagues on the AMA. I have always had, and still have, a great regard for him personally and for his great attachment to local government. The fact that I disagree with most of what he says is beside the point. What the noble Lord said was, I thought, expressed with his usual great sincerity and considerable eloquence, which in no way has diminished in all the time that I have known him.

The noble Lord spoke most of all about unfair practices. He knows it well enough, goodness knows!, but I ought to remind him that when local authorities appoint sub-contractors—the private sector—to do work that the direct labour departments do, all the authorities that I know draw up an approved list of suppliers and contractors. If people fail to come up to the required standards, they simply do not get on the list. While it is absolutely true—my goodness! I have experienced this as well; the noble Baroness, Lady Denington, made the point yesterday—that there are times when contractors let one down, there are also times when one's own direct labour organisation lets one down. That is not a reason for saying that all contractors are bad, or that they all go out of business, or that they all fail to come up to the standards—not so. They need fail only once or twice before the chances are that they are off the list. So there is very much the discipline of the approved list, which I believe is an important aspect of the criticism against private contractors. I think that that ought to be said.

The noble Lord spoke about parity between the public and the private sectors. Well, of course, this is the debate that goes on all the time, and it may well be that there is an imbalance one way as against the other. However not only is there no harm in trying to get the balance right, but it is I believe essential that we get it right. What we are talking about here is competition. The noble Lord was anxious that fair competition should mean what it says, it should be fair. All right, of course I accept that it should be fair, and if there are aspects of it which he thinks would be unfair one way, then fine, let us by all means talk about that. There would be no harm in that at all.

But basically we are setting out here in certain aspects of the Bill to redress an imbalance, because it has not always been fair. I shall not bore the Committee by going into all of the many ways—and I know many ways—in which the accounts are made up, in which a direct labour organisation tenders for work, often in competition, gets the order, and then invoices out what it costs to the customer department. The customer department then simply gets that back from the ratepayer, and on the accounts it looks as if the direct labour department has not lost anything at all on that particular order. That is but one of a whole series of examples that I could give and that I suspect the noble Lord, Lord Sefton of Garston, from his considerable experience also could give.

There is no point in trying to go back from there. We are talking about parity. Let us try to get a better basis, and that is what this part of the Bill about direct labour organisations is wanting to do. It is not setting out to try to strangle DLOs, as was suggested yesterday—not at all. All it requires is that they should be efficient, good and effective in their use of public money. And there is a difference between the use of public money and the use of private money. If a contractor fails to make a profit, that is his affair, and he will suffer the consequences. But this is public money that we are talking about. Direct labour organisations receive their money to operate from ratepayers and from Government, and that is why it is important that there must be accountability, competition and fairness all round.

Many comments have been made and I want to try to cover them all. I wonder whether I might touch on the point made by my noble friend Lord Renton. The noble Lord, Lord Evans of Claughton, to whose remarks I want to return in a moment, also spoke about the words, "if he thinks fit". Yes, this point was debated in another place, on I think 2nd July, when my right honourable friend the Minister for local government and environmental services was at some pains to explain that the exercise of the power was restricted by the context of the Bill. He made again the point that it could be challenged in the courts—and I shall come in a moment to what the noble Lord, Lord Mishcon, said. It so happens that the Opposition in another place felt that what my right honourable friend said was a sufficiently reasonable explanation and in fact they withdrew their amendment.

The noble Baroness, Lady Denington, touched upon some other matters. Incidentally, may I say to the noble Lord, Lord Mishcon, that, yes, of course I am always very courteous when talking to myself. I sometimes try to be especially so in those circumstances. It is not usual that I do it aloud, but I did say that I hoped that it was with the indulgence of the Committee and your Lordships. Frankly, I do not think that it adds much to the debate on these amendments if we start to drift off into discussions about democracies in danger of being eroded.

My goodness me! when I see and hear about me the things I have seen and heard in the last week or two, then I fear desperately for the future of democracy. I do not fear for it because of what is in these amendments.

Yes, I am worried about democracy—we ought all to be worried about democracy—but not just because of what is in these amendments, believe me. Yes, the future of local government, the relationship between central and local government is a matter of considerable concern, and I have no doubt that we shall be talking very vigorously on all sides about that aspect when we come to the other parts of the Bill. But I would ask noble Lords opposite to accept that the passion and the fervour and the belief, on these aspects, are no less firmly held on this side of the Committee than on the other side.

The noble Lord, Lord Bruce, may I say, not disrespectfully, has been as provocative as ever. He talked about diktats. That, I felt, was not going to get us very much further. I have to answer him by saying that the need to submit a report is a discipline, and that it is what happens beyond that that one has to be concerned about. He said that it was not for central Government to say to local government, about a specific service, "You shall stop. You cannot go any further". Well, I will give an instance of when they did. The 1947 Civic Restaurants Act did exactly that. If an authority for three successive years lost money then it had to show reason to the Secretary of State why it should not be closed down. I well remember this, because one of the first things in my time on the Leeds City Council was seeing that the Civic Catering Department which had lost money for many more years than that, did close down; so that really did come home to me.

My noble friend Lord Sandford talked about further discussion, and as I come to the end of my remarks I will touch on that again; but perhaps the most interesting, most constructive, of all, if I may say so, was the point that the noble Lord, Lord Evans, made when he referred to subsections (5) and (6), which my noble friend Lord Renton also mentioned.

I cannot accept these amendments, for the reasons I have given, and others as well; but I feel that the points made by the noble Lord, Lord Evans, and my noble friend are valid We ought to have a look at the actual wording of those two subsections. Yes, I think we ought to do that, and that we will certainly do. The amendments and much of what has been said about them are something which I cannot accept because the fact is that at the end of the day the Secretary of State—and it is any Secretary of State—must have power to act to end a waste of ratepayers' money and the nation's resources if failure persists. We expect public opinion to play its part. Local democracy is important in this respect, and Clause 15 provides that information has to be publicly available; but without an ultimate sanction and when all else has failed an awkward DLO might still cock a snook and carry on in its unreformed way. We are therefore talking about a weapon of last resort.

So, before I sit down, I say to the noble Lord, Lord Mishcon, on the point about the courts, that of course it is the last thing one wants to have to do, or to expect to do; but I was being challenged on the point as to where this would take us, and that is why the courts were mentioned, not as a major point.

Lord MISHCON

Before the noble Lord the Minister sits down, I think the Committee will be grateful to him—I personally am; I have no right to speak for the Committee—for what I thought was the conciliatory attitude in regard to the subsections that worried my noble friends and myself, namely, (4) and (5), more than anything else in this clause. Nobody is endeavouring to claim a victory, because I think many of us have said the same thing, but if, in answer to the speeches made on all sides of the Committee, he is saying that in regard to the Secretary of State's powers to close down a direct labour organisation he is thinking again of the wording in the section which gives that power, in order to see whether there should be some limitation put upon it, then I believe the Committee knows what he has said and will be grateful for it. But I should like him to be so kind as to say whether that is what he was saying, because that is what I invited him some little time ago to do.

Lord BELLWIN

Yes, that is exactly what I am saying. I am not going to go over it all again. I think your Lordships know that my own views are not in accord with many of those expressed. I believe that what we are seeking to do in this part of the Bill is absolutely essential and must be done; but if we are talking about that aspect of it, then, yes, of course, I say that, and that I will do.

Baroness DENINGTON

Regarding the amendment I moved—my noble friend will speak for himself—on the undertaking given, we can look at it at Report stage. It is the tone—I use that word again—and the intention, perhaps quite wrongly, conveyed by the tone, which is very offensive to local government. If we can get the tone right and the Minister is able to come back satisfactorily, then we can all be happy together.

Lord SEFTON of GARSTON

In relation to Amendment No. 45, certainly the offer made by the Minister is exactly what I sought at the beginning. I make no apology for the fact that I dealt in my speech purely with the question of whether or not, in relation to the carrying out of Amendment 45, there would be deferment. I still say that was a viewpoint that must be held and must be considered. Previous assurances have been given by the Minister that his door is open to the associations, and naturally I assume now that they will now be taken into consultation in regard to this clause. I would have been prepared to save the Minister an hour and half long ago, if he had said "Yes". In relation to what was said by the noble Lord, Lord Renton, I mentioned five years instead of three merely because I thought that was a better period in which to assess the viability of a direct works department. Three years is too short. I beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendment No. 46 not moved.]

6.8 p.m.

Lord RENTON moved Amendment No. 47: Page 14, leave out lines 30 to 33.

The noble Lord said: If your Lordships will look at these lines it will be seen that they contain two phrases which are, I suggest, quite unnecessary, because they cancel each other out. Therefore they are a meaningless nullity and it is far better that we should not have them in the Bill. I beg to move.

Lord BELLWIN

I feel we cannot accept this amendment. It is essential that the Secretary of State should exercise his powers to restrict a DLO's activities only after he has given them a fair chance to explain themselves and to justify their operations as far as they can. This amendment would remove the requirement that the Secretary of State should give an authority that chance and would allow him to close down a DLO on the sole grounds that the target rate of return had not been met. Failure to earn the proper return will always be serious, but it will not always be the only criterion.

Lord RENTON

I accept what my noble friend says, but it does not seem to me that the words in lines 30 to 33 really meet his point, and as he says he is going to have a look at these two subsections again I trust that he will look at those phrases. They do cancel each other out. On that understanding I would be glad to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord RENTON moved Amendment No. 48: Page 14, line 33, at end insert ("the rate of return on the capital employed is less than the required rate").

The noble Lord said: I should point out that this should be prefaced by a small "c" in brackets if paragraph (b) is to remain or by a small "b" in brackets if it is to go out ultimately. But that is no matter, because this is the sort of point which is corrected by the Clerk of Public Bills before the Bill is reprinted for the Report stage.

The reason why I am moving this amendment is that it is surely necessary to make it clear—because this is the fundamental subsection of this clause and, indeed, of this part of the Bill—that it is only where the rate of return on capital is less than the required rate that the Secretary of State can direct that the local authority or other body shall cease to have power to carry out direct labour work. From the earlier discussion one might have thought that direct labour is going to be brought to an end in a great many circumstances almost automatically, but that is not so. It is only where the rate of return is not adequate in accordance with what has been described earlier in the Bill as "required" that the Secretary of State will be able to make an order in those terms.

The Explanatory Memorandum, on the front page of the Bill, makes it clear in paragraph 4, where it says in relation to Part III that it enables the Secretary of State to deprive authorities of the power to maintain direct labour organisations"— and these are the operative words— where a prescribed rate of return on capital has not been achieved". We really should make it clear in subsection (5)—which, as I say, is the important subsection—that it is only where that prevails that the direction can be given. Accordingly, I beg to move.

Lord BELLWIN

If my noble friend would feel able to withdraw his amendment, I think we ought to look at this wording generally to see whether in fact we can cover what I must say sounded to me to be the very fair points that were being made. I am not sure, because we are now speaking concerning the legal niceties, as to whether or not I can in fact come back with something different, but I think the points made have, as they seem to me, sufficient validity for me to be able to say this, and that I do. If my noble friend is able to withdraw his amendment, I in turn will undertake to have a look at this wording to make sure that we are covering these aspects.

Lord RENTON

I am much obliged to my noble friend. I would simply add that it is rather strange when the Bill itself does not carry out what is said in the Explanatory Memorandum.

Lord MISHCON

The Minister, by his generous remarks, has saved himself and the Committee a further speech from me.

Amendment, by leave, withdrawn.

[Amendment No. 49 not moved.]

On Question, Whether Clause 14, as amended, shall stand part of the Bill?

Lord BRUCE of DONINGTON

There is an amendment down in my name to leave out Clause 14, which I beg to move. I do not know whether that is in order. I am very sensible of the constructive attitude which has been displayed by the noble Lord in dealing with the vital amendments which are incorporated, or ought to have been incorporated, within Clause 14. I accept in good faith that he intends to look at the whole thing again, and also to look at the form of words in relation to the two very strategic amendments which were so ably moved by my noble friend Lord Sefton and by my noble friend Lady Denington.

Lord BELLWIN

If the noble Lord would be so kind as to give way, I do not want to mislead the Committee at all. I said I could not accept the amendments in question. I said, in relation to the specific subsections which referred to the powers of the Secretary of State, that I felt we should look at that wording, but I did not say that I accepted the amendments at all, and I should not like the noble Lord to be under a misapprehension.

Lord BRUCE of DONINGTON

I am sorry; I did not intend to imply that the noble Lord had agreed to the amendments, but that in both cases he was going to look at the powers again. That leaves us with Clause 14 unamended, and I am bound to say that this still leaves a situation in which, in the first part of it, we are faced with an almost impossible technical position, arising from the loss of Amendment No. 44, in which local authorities are required to report, those circumstances in respect of any description of work where the rate of return now expressed on a current cost accounting basis falls below the specified amount". As I have already explained to your Lordships, this presents an impossibility. It would be quite impracticable for the technical reasons which have been explained both by me to the Committee, with your Lordships' indulgence, and also by the professional bodies concerned.

But I myself cannot conceive of any kind of powers, however expressed in this clause when it is reconsidered on Report, that are going in any way to eliminate the Government's determination that the Minister shall retain the power to direct, in one form or another, what the local authorities shall do in this regard and in certain circumstances. It is this power that we on this side of the Committee must challenge. The noble Lord expressed himself on Second Reading as not in any way trying to undermine the DLOs. In his reply on Second Reading, at column 1459, he repudiated the accusation by those who contend that the Government are launching an attack on direct labour, and he said at column 1460: I know some splendid direct labour organisations in different parts of the country, and I hope that I left one behind me". Then he said somewhat modestly: Perhaps I should not have said that". There will be many on this side of your Lordships' Committee who are convinced of the noble Lord's complete sincerity in this matter. The noble Lord had a distinguished record in local government, and I believe that if he had been the sole arbiter of the matter this question could have been dealt with very much more reasonably in Westminster as a whole than it has been so far.

There is also another requirement in Clause 14 which has not been the subject of amendment but which makes it still objectionable and shows which way the bias lies, because the statement of return has got to be made within six months of the end of the financial year. Indeed, in another part of the Bill certain accounts and documents are required within six months of the end of the local authority year. Once again you get the unfairness, because under the Companies Act 1976 we find that private companies have 10 months in which to deliver their accounts to the Registrar of Joint Stock

Companies, and others have seven months. The Government are even shortening that period in so far as the statutory requirements are concerned.

Lord MORRIS

I do not believe that that is a fair analogy at all. The difference is that a company is funded by shareholders; a local authority is funded by the ratepayer. That is a very different thing.

Lord BRUCE of DONINGTON

I do not feel very strongly about it. So far as the noble Lord's remarks are concerned, the difference is not great but, in my view, it is a straw in the wind as to which way the Government's mind is going. If there remained any doubt as to the real purpose of Mr. Michael Heseltine in this matter, let us take the words of his colleague, Mr. Norman Fowler, speaking on 3rd October last when he said: It is central to this Government's policy that the public sector should handle only those functions which it alone can and must". That is the real essence of the Government's policy and of the whole content of Clause 14. That is why we on this side of the Committee ought to stand up and be counted, with or without the support of those of your Lordships who believe in the future of local government, who believe in the local democratic process—who will have to stand up and be counted too. We think that your Lordships should be afforded an opportunity of nailing your colours to the mast in this matter, and consequently we shall divide.

6.23 p.m.

On Question, Whether Clause 14, as amended, shall stand part of the Bill?

Their Lordships divided: Contents, 145; Not-Contents, 71.

CONTENTS
Airey of Abingdon, B.	Birkenhead, E.	Congleton, L.
Aldington, L.	Boardman, L.	Cork and Orrery, E.
Alport, L.	Boyd-Carpenter, L.	Cottesloe, L.
Amory, V.	Brabazon of Tara, L.	Croft, L.
Armstrong, L.	Bradford, E.	Cromartie, E.
Auckland, L.	Bridgeman, V.	Cullen of Ashbourne, L.
Audley, L.	Brownlow, L.	Daventry, V.
Avon, E.	Cairns, E.	de Clifford, L.
Balerno, L.	Caithness, E.	Denham, L. [Teller.]
Bellwin, L.	Cathcart, E.	Denman, L.
Belstead, L.	Chelwood, L.	Digby, L,
Berkeley, B.	Cockfield, L.	Dormer, L.
Bessborough, E,	Colville of Culross, V,	Drumalbyn, L.
Dundee, E.	Kinloss, Ly.	Redmayne, L.
Elibank, L.	Kintore, E.	Renton, L.
Ellenborough, L.	Knutsford, V.	Ridley, V.
Elliot of Harwood, B.	Lindsey and Abingdon, E.	Rochdale, V.
Elton, L.	Liverpool, E.	Rodney, L.
Evans of Hungershall, L.	Long, V.	Rollo, L.
Exeter, M.	Loudoun, C.	Romney, E.
Faithfull, B.	Lucas of Chilworth, L.	Rosslyn, E.
Ferrers, E.	Lyell, L.	St. Aldwyn, E.
Ferrier, L.	McAlpine of Moffat, L.	St. Germans, E.
Forester, L.	McFadzean, L.	Saint Oswald, L.
Fortescue, E.	Mackay of Clashfern, L.	Sandford, L.
Gainford, L.	Macleod of Borve, B.	Sandys, L. [Teller.]
Gainsborough, E.	Mancroft, L.	Savile, L.
Geddes, L.	Mansfield, E.	Sharples, B.
Gisborough, L.	Margadale, L.	Skelmersdale, L.
Gowrie, E.	Marley, L.	Soames, L. (L. President.)
Gray, L.	Massereene and Ferrard, V.	Spens, L.
Gridley, L.	Melville, V.	Stamp, L.
Haig, E.	Middleton, L.	Stanley of Alderley, L.
Hailsham of Saint Marylebone, L. (L. Chancellor.)	Minto, E.	Strathclyde, L.
	Monk Bretton, L.	Strathcona and Mount Royal, L.
Hanworth, V.	Monson, L.	Swansea, L.
Harmar-Nicholls, L.	Morris, L.	Swinfen, L.
Harvington, L.	Mottistone, L.	Teviot, L.
Hastings, L.	Mowbray and Stourton, L.	Tranmire, L.
Hatherton, L.	Murton of Lindisfarne, L.	Trefgarne, L.
Henley, L.	Netherthorpe, L.	Trenchard, V.
Hereford, V.	Northchurch, B.	Trumpington, B.
Hill of Luton, L.	Nugent of Guildford, L.	Vaux of Harrowden, L.
Holderness, L.	O'Hagan, L.	Vickers, B.
Home of the Hirsel, L.	Onslow, E.	Vivian, L.
Hylton-Foster, B.	Orkney, E.	Waldegrave, E.
James of Rusholme, L.	Orr-Ewing, L.	Watkinson, V.
Kemsley, V.	Radnor, E.	Yarborough, E.
Keyes, L.	Rawlinson of Ewell, L.
NOT-CONTENTS
Ardwick, L.	Gladwyn, L.	Parry, L.
Avebury, L.	Glenamara, L.	Peart, L.
Bacon, B.	Gosford, E.	Phillips, B.
Balogh, L.	Hale, L.	Pitt of Hampstead, L.
Banks, L.	Hall, V.	Rhodes, L.
Beswick, L.	Hampton, L.	Rochester, L.
Blyton, L.	Hatch of Lusby, L.	Ross of Marnock, L.
Boston of Faversham, L.	Hooson, L.	Segal, L.
Bowden, L.	Houghton of Sowerby, L.	Simon, V.
Briginshaw, L.	Hughes, L.	Stedman, B.
Brockway, L.	Irving of Dartford, L.	Stewart of Alvechurch, B.
Brooks of Tremorfa, L.	Jacques, L.	Stewart of Fulham, L.
Bruce of Donington, L.	Janner, L.	Stone, L.
Cledwyn, of Penrhos, L.	Jeger, B.	Strabolgi, L.
Collison, L.	Kaldor, L.	Taylor of Blackburn, L.
Cooper of Stockton Heath, L.	Kilbracken, L.	Taylor of Mansfield, L.
David, B.	Llewelyn-Davies of Hastoe, B. [Teller.]	Underhill, L.
Davies of Leek, L.		Wallace of Coslany, L. [Teller.]
Davies of Penrhys, L.	Lloyd of Hampstead, L.	Wells-Pestell, L.
Donaldson of Kingsbridge, L.	Lovell-Davis, L.	Whaddon, L.
Elwyn-Jones, L.	Maelor, L.	Wigoder, L.
Evans of Claughton, L.	Melchett, L.	Wilson of Radcliffe, L.
Fisher of Rednal, B.	Ogmore, L.	Winstanley, L.
Gaitskell, B.	Oram, L.	Young of Dartington, L.

Moved accordingly, and, on Question, Motion agreed to.

Resolved in the affirmative, and Clause 14, as amended agreed to accordingly.

6.30 p.m.

Clauses 15 and 16 agreed to.

Clause 17 [Interpretation of Part III]:

Viscount SIMON moved Amendment No. 50: Page 17, line 5, leave out ("subsection (2)") and insert ("subsections (2) and (3)").

The noble Viscount said: This is a paving amendment for Amendment No. 51. I hope it will be convenient to the Committee if I speak to the two of them together, and particularly to Amendment No. 51 which is the substantive amendment. After the discussions we have had on matters of very great importance, we come to a very small matter. It has been brought to my notice by the Port of Bristol Authority.

Bristol is a municipal port owned and operated by the local authority. The people at Bristol were afraid that the labour employed at the port, which is directly employed by the port authority, could bring the port operations within the scope of Part III of the Bill. I did not think it likely and they did not think it likely; but they felt, as I do, that although we all think we know what we mean by direct labour organisations, they are not very clearly defined in the Bill and it might be held that they included direct labour employed by a local authority for running a port. Since I put down this amendment, I have been given to understand that the Government agree that it is not intended to cover port labour. In those circumstances, I think the simplest thing to do to save time is to move this amendment formally and give the Minister an opportunity to tell us what the Government are going to do about it. I beg to move.

Lord BELLWIN

This amendment would exempt from Part Ill of the Bill those labour forces employed by local authority port undertakings. The argument is that these workforces are integral parts of the ports' operational staff, and that the undertakings as a whole are already subject to competitive stimulus and to the requirement to act as commercial businesses, and that the requirements of this part of the Bill are thus in substance already met as far as they are concerned. We accept that argument, and we therefore accept this amendment.

Viscount SIMON moved Amendment No. 51:

Page 18, line 13, at end insert— (" (3) Notwithstanding anything in subsection (1) above, in this Act "construction or maintenance work" does not include work undertaken by a local authority authorised by any enactment to carry on a dock or harbour undertaking if that work is undertaken for the purposes of or in connection with that undertaking.").

On Question, Whether Clause 17, as amended, shall stand part of the Bill?

Lord ROSS of MARNOCK

We have had quite a lot of talk about direct labour organisations and, I think without exception, in reference to local authorities. But that is not what Clause 17 says. Indeed, from Clause 6 through to Clause 14, which I was very happy to vote against, the reference is not just to local authorities but to a development body. Here, in Clause 17, we have the definition of a development body. In relation to England and Wales, I leave that to those who know something about England and Wales; I know nothing at all. But the clause reads: … in relation to Scotland … any body established under sections 3 or 5 of the Water (Scotland) Act". I hope someone will tell us what kind of organisations are concerned there. Then we come to: a development corporation established under the New Towns (Scotland) Act 1968 —and as far as I know about these new towns it will be their works department who will be the bodies which will be construed as direct labour organisations. All they do is maintain their own houses.

But we must get in the element of competition. I do not know whether the noble Lord, Lord Boyd-Carpenter, knows very much about new towns in Scotland but by the nature of new towns in Scotland there are very few building contractors in them. There are very few, if any; so that the element of competition is just not there. To suggest under Clause 7(3) that there could be regulations telling them before carrying on with the maintenance on their property that they must get tenders from three separate people who are nonexistent, is, I think, rather silly. I leave the new towns corporation to the many noble Lords who may have experience of them. I know of at least one noble Lord who was beside me for quite a time today who is the chairman of one such new town and others have been members. They will agree with me that whatever else has been said about the clauses covered by this definition, it should not apply to the new towns in Scotland.

The case which especially concerns me is that of the Scottish Special Housing Association. I do not know how many noble Lords know anything about the Scottish Special Housing Association. It was established by Act of Parliament over 40 years ago. We are interested here in competition. It was established to build houses when nobody else would build them. I suggest to the noble Lord, Lord Boyd-Carpenter, that he tries to look for a building contractor somewhere in the North of Scotland, in Argyll, in the Western Isles, to build what would have been a local authority housing scheme. He will find they are not there.

Lord BOYD-CARPENTER

I am deeply touched and flattered by the noble Lord's concern with my particular views on the intricacies of Scottish housing but might it not be more economical of the time of the Committee if he were to address his inquiries to Her Majesty's Government's Ministers who are responsible?

Lord ROSS of MARNOCK

I am hoping that they are alive and listening—although there is not a Scottish Minister there. He cannot blame me when there is not anyone there concerned with Scotland. I am glad that the noble and learned Lord the Lord Advocate is not here. He is not a Scottish Office Minister. This is one case in point. Why is there included in the clause the Scottish Special Housing Association?—which was set up to build where even the local authorities had not the resources to do it. When we established an aluminium smelter in the north of Scotland one could not expect the local authority, with its resources, to build houses so we gave the task to the local authority aided by the Scottish Special Housing Association. The same thing applied to different parts of Scotland—they were all in the North—which have been affected by North Sea oil.

The other point about the Scottish Special Housing Association is this. I listened very carefully to every word that the noble Lord, Lord Bellwin, said. He was determined that there was going to be open scrutiny; that people would know what was happening; the Ministers would know what was happening. It is the Minister who sets it up and appoints all the people to the Scottish Special Housing Association. He gives them the money year by year. He discusses with them exactly what they are going to do. I do not know where competition comes in here but they are invited to use experimental materials for building and use experimental designs. I can well imagine that that was essential in certain parts of Scotland. I remember Tom Johnson was concerned that they should use highland materials for highland houses. All this kind of thing was laid upon the Scottish Special Housing Association.

It is not the same as the great controversy which has ranged between one side and the other about the direct labour organisations. I doubt very much if there has been in your Lordships' House in the past 10 years a question about the efficiency or inefficiency of the Scottish Special Housing Association. I am perfectly sure there has not been one. Certainly there has not been one in the other House. It gives its report yearly to the Secretary of State. The Secretary of State can ask it to do anything. He has the power already so we do not need this legislation. Naturally, people are very worried because when considering Clause 14 its sole job is to build and maintain houses. It can ask private contractors to build houses in certain areas; but then the private contractors own them. So they help out local authorities.

Under Clause 14 I am perfectly sure that the noble Lord, Lord Bellwin, is going to retain the powers even if he changes the words. I think that is the implication of what he said; he is going to retain the powers but change the words and probably make them more relevant to the Bill itself. Clause 14 stands on its own as presently worded. I think that is the weakness of it. Under Clause 14 the Secretary of State can virtually disband the Scottish Special Housing Association. The very function for which it is there is to build houses and they can be told by the Secretary of State to stop it under a regulation. This is quite appalling!

What I am going to suggest is that between now and the Report stage the noble and learned Lord the Lord Advocate should tell the Secretary of State—if he is on speaking terms with him—or the Minister of State for Scotland, who is in this House but is not here at the moment, that he should consider removing first of all the Scottish new towns. I can understand if he desires to keep them there. He really ought to remove the Scottish Special Housing Association from this part of the Bill.

Lord BELLWIN

I am not going to say too much on this. We have had such a lot of debate on this whole area that I am not going to go over it all again. I understand there are five new towns in Scotland and I confirm that the proposals apply to them. There is no reason why it should not be so. I do not know whether the noble Lord, Lord Ross of Marnock, has had the Notes on Clauses which we made available. That explains the definition of the development body.

Therefore there is not much I want to say having gone over this whole matter again and again. The Scottish Special Housing Association to which he refers is a Quango, and while much of Lord Ross's argument is correct, it is unjust that all public bodies should be excluded from competition. There is no need to respond to particular Scottish points. One would take this within the generality of everything else. The people concerned in Scotland would no more want to be excluded than anyone else. If they are as proud as I hope they are of their direct labour organisations—and those who have good ones are proud of them—they would say: "All right, fine; so be it."

The EARL of DUNDEE

I apologise to the noble Lord that I was not in my place when he began his very interesting speech. I am sure that he is aware that the Scottish Housing Association, which was begun by the late Walter Elliot when he was Secretary of State for Scotland about 40 years ago—some two or three years ago completed its 100,000th house. I cannot tell of course how many houses would have been built by other people if they had not done the job, but they are a very useful asset. They have played a great part so far in at least mitigating the difficulty of the Scottish housing problem.

Lord ROSS of MARNOCK

I am sure that the noble Earl will confirm what I have said that there has been no complaint at all about their inefficiency or slackness in respect of accounting. They have to account to the Secretary of State all the time and every year. Fancy the Secretary of State proclaiming his own ignorance by asking them to give a report of their accounting over three years when he himself gets a report every year!

From the point of view of the emergency work that they do, I remember when we were building houses around Fort William. The private firm, Logans, that was building them went "bust". It was not any other private firm that went in to complete those houses. We were very glad to have the Scottish Special Housing Association to go in and do it. The same thing has applied time and time again in relation to special jobs that had to be done where houses were needed for industry. To suggest that this is on the same level as the direct labour organisations of the local authority is just not true. I can excuse the fact that this is not Lord Bellwin's field. It is somebody else's responsibility and somebody else knows a little more about it. He says that we have talked long enough about the general field. I am not talking about the general field, I am asking: Why is the Scottish Special Housing Association in this? It is a particular field.

I am not going to pursue this at the present time. I can assure the noble Lord that from the inadequacy of the replies and from the support that I have had in regard to the worthwhileness of this organisation, and the fact that there has been no complaint at all about them in respect of their work, that I will put down amendments on Report stage.

Clause 17, as amended, agreed to.

Lord BELLWIN moved Amendment No. 52: Insert the following new clause:

("Exemption of small direct labour organizations from requirements of Part III.

.—(1) This Part of this Act does not apply to a local authority or development body in any year if they did not in the previous year at any one time employ more than thirty persons, other than persons excluded by subsection (2) below, who were engaged (whether wholly or partly) in carrying out construction or maintenance work. (2) The persons excluded by this subsection are persons engaged wholly or mainly upon the design, development or control of construction or maintenance work. (3) The Secretary of State may by order specify for the purposes of subsection (1) above a number of persons less than thirty. (4) The power to make an order conferred by subsection (3) above shall be exercisable by statutory instrument. (5) A statutory instrument containing any such order shall be subject to annulment in pursuance of a resolution of either House of Parliament. (6) The Secretary of State may direct that this Part of this Act shall not apply to a local authority or development body in any year if he is satisfied that the only reason why it would apply to that authority or body is that at some time in the previous year the number of their employees engaged in construction or maintenance work exceeded the relevant number because it was necessary to exceed that number in order to carry out urgent construction or maintenance work whose necessity could not reasonably have been foreseen by the authority or body. (7) In subsection (6) above "the relevant number" means thirty or such lesser number as may for the time being be specified for the purposes of subsection (1) above.").

The noble Lord said: This is a new clause which we are introducing to cover the undertaking that we gave in another place about the de minimis exemptions. It will be generally welcomed. It is a fair and sensible relaxation and will save the smallest authorities some work and ensure that safeguards are maintained on all the more significant direct labour organisations. I beg to move.

6.50 p.m.

Lord SANDFORD moved as an amendment to Amendment No. 52, Amendment No. 52A: In subsection (1), line 3, leave out ("thirty") and insert ("fifty").

The noble Lord said: I beg to move Amendment No. 52A and, at the same time, will speak to Nos. 52B and 52C. Like Oliver, I should very much like to welcome the amendment that my noble friend has just moved. It is something which the Association of District Councils, together with many others, was asking for. Also like Oliver, but conscious of the ill-treatment that his remarks provoked from his benefactors, I shall have the temerity to ask for a little more.

This threshold or limit of 30 employees will do good in sparing some—but only 16—district councils from the requirements of the clauses which we have been discussing in this part of the Bill. But by raising the limit to 50, as I have suggested, about 44 smaller district councils, with small direct labour organisations with an average of 35 employees, would also be released. I put it to the Committee that with small organisations such as these, held solely to undertake housing maintenance and to meet reserves for emergencies, the complex accounting provisions in the Bill will be largely irrelevant and certainly irksome, while the cost of introducing and maintaining accounting systems of this kind will be of the order of £20,000 per annum for each authority.

If my noble friend thinks that this is going too far, then I would fall back on Amendments Nos. 52B and 52C and ask him to consider that, at the very least, he might amend the new clause as I am suggesting, so that his right honourable friend would be able to raise the threshold—rather than being unable to do so, as he is at the moment—if, in the light of experience, it proved desirable to do what I am asking should be done now, but which may not meet with the Government's approval at this stage. I beg to move.

Lord BELLWIN

If I may, I will also speak to Amendments Nos. 52B and 52D. I have to say that the amendments are not acceptable because, first, No. 52B would permit an increase only in the number of operatives at which exemption was granted and would permit no tightening up. We can see no merit in this, as it is our view that 30 is the appropriate level at which exemption should begin. Although, once authorities have become used to operating the system, there may be some case for extending it to embrace more authorities, we foresee no circumstances in which we shall want to retreat. There should be no loosening of controls over DLO expenditure.

Amendment No. 52D, too, is not acceptable. It would enable local authorities to set up as general building contractors for other public sector bodies in an area stretching far beyond their own boundaries. There can be no justification for councils using their ratepayers' money—unwillingly subscribed money—as risk capital in speculative ventures, in competition with the private sector. The only reason for the existence of a direct labour capacity within any authority must be the discharge of its own functions. Authorities must first prove that direct labour is, indeed, the best way of doing that. They can do that by competing in their own area on their own building programmes. They must keep their accounts clearly on a trading basis, earn a return on capital and prove all this before they can think of expanding. I fear that I cannot accept these amendments.

Lord SANDFORD

I am grateful to my noble friend. I must not allow my disappointment over Amendments Nos. 52A, 52B and 52C to stand in the way of my welcome for what we have gained with Amendment No. 52. I beg leave to withdraw my amendment.

Amendment to the amendment, by leave, withdrawn.

[Amendments Nos. 52B and 52C not moved.]

Lord BRUCE of DONINGTON moved Amendment No. 52D:

After Clause 17, insert the following new clause: (" —(1) Notwithstanding anything in section 101(10) of the Local Government Act 1972, the Local Authorities (Goods and Services) Act 1970 or any other enactment, a local authority may enter into arrangements for the construction of buildings, or the carrying out of other works by them on behalf of an authority to which this section applies.

(2) This section applies to

1. (a) another local authority within the county or adjoining county
2. (b) the water authority
3. (c) the police authority
4. (d) the Passenger Transport Executive
5. (e) the Health Authority (within the meaning of section 128(1) of the National Health Service Act 1977) in the county.").

The noble Lord said: This amendment arises from deliberations that took place in the working party on direct labour organisations, with memberships that were drawn from all local authority associations, the district audit service and officials from the Department of the Environment itself, whose report was published in August 1978. That report recommended that DLOs should be permitted to work outside their parent local authority boundaries for other local and public authorities, as well as inside them.

There seems to be no reason why there should not be more flexibility in the scope of DLOs to work for other than their parent authority, should that be desired by both parties, particularly under the constrictions that are already imposed by Part III of the Bill that we have considered so far. The division of responsibility between various levels of local authority should not be allowed to prevent the responsible authority from getting any work carried out by the agency which it considers best able to do it.

Perhaps the best illustration here is highways work. As your Lordships are probably aware, the winding roads within the United Kingdom—at any rate, in certain parts of it—very often cross and recross local authority boundaries. It is for consideration—and, indeed, I should have thought it was a matter of common sense—that where there was a strip of road four or five miles long, or even longer, which crossed and recrossed local authority boundaries, those authorities should be empowered to agree among themselves which direct labour organisation should be entitled to do the work. There are other similar instances of that kind.

In view of the lateness of the hour, and the proximity of the time when, presumably, we shall be asking for the House to resume and then to adjourn during pleasure, I shall not press the matter further than that, because I believe that the noble Lord may already have given sympathetic consideration to this amendment. I have not had any prior consultation with him, unlike the noble Viscount, Lord Ridley, or the noble Lord, Lord Sandford, but I have every reason to suppose that the amendment will commend itself to the Minister's undoubted common sense. I beg to move.

Lord BELLWIN

When I spoke to the amendment of my noble friend Lord Sandford, I touched on this amendment. I fear that the noble Lord will be disappointed, because we cannot accept his amendment.

On Question, amendment negatived.

Clause 18 [Consequential repeal or amendment of local statutory provisions]:

6.58 p.m.

Lord UNDERHILL moved Amendment No. 53: Page 18, line 35, leave out from ("to") to end of line 36 and insert ("an affirmative resolution by both Houses of Parliament").

The noble Lord said: This clause empowers the Secretary of State by order to repeal a provision of any local Act, or to amend any such provision, which appears to him to be inconsistent or to have become unnecessary in consequence of Part III of this Bill. This, again, is a very sweeping and arbitrary power which is being given to the Secretary of State. In effect, it means the repeal or amendment of an Act which is on the statute book. I must draw your Lordships' attention to the fact—I do not know what will be in the Government's mind—that it could well be that this provision would cover the clause in the Greater Manchester Bill which was the subject of discussion in this House. Many of your Lordships will recall that occasion. If the Secretary of State so decided he could repeal that clause. A provision which has been approved by Parliament could be repealed by the Secretary of State.

During Question Time earlier today the noble Viscount, Lord Trenchard, said he was certain that the House would agree that we should not tamper with any Act passed by Parliament, yet this clause will permit the Secretary of State to tamper with an Act passed by Parliament. What is the effect? The alteration of existing legislation should not be left to the Negative Resolution procedure. Therefore we are asking in the amendment that this important provision to repeal an Act, or part of an Act, or to amend an Act, or part of an Act, must be by Affirmative Resolution so that, because one is changing legislation, the matter can have proper discussion.

7.1 p.m.

Lord BELLWIN

I invite the Committee to consider the purposes for which the order-making power under this clause are designed, and the conditions under which it may be used. It is very much a reserve power. It will allow the Secretary of State to repeal any part of a local Act of Parliament whose provisions are inconsistent with this one. This provision is a standard one. There is nothing unusual about this. It is in fact a perfectly proper way of ensuring that new requirements determined on by Parliament prevail over inconsistent provisions which may exist in local Acts.

In this case the orders will be used to amend or repeal local Act powers which are inconsistent with the provisions of Part III of this Bill. They will not remove any power to carry out work which may exist in local Acts but simply ensure that when carrying out such works, the financial requirements of this Bill bite just as they do on "works contracts" and "functional work". Even so, before the Secretary of State could make an order under this clause, subsection (3) would require him to consult the local authority concerned.

With this safeguard, and Parliament having signalled its approval of the requirements for competitive tendering and proper accounting set out in this part of the Bill, we believe that it is unnecessary to require specific parliamentary approval of every application of these principles to individual authorities. To do so would be an inappropriate use of Parliament's time, and we cannot accept the amendment.

Lord MISHCON

I wonder whether I may say just a few words in support of my noble friend Lord Underhill and elucidate something which happened yesterday. I regret that the elucidation takes place in the absence, I believe, of the noble Lord, Lord Renton, who pointed out yesterday the difference between an Affirmative and a Negative Resolution of the House. It was then said that it is a much more simple matter for the House to deal with any variation of a regulation, or making of a regulation, and so on by a prayer for annulment. And indeed it is by the Affirmative Resolution procedure.

I did not answer the noble Lord from my own experience of these matters because I wanted to check it before doing so. I once had the privilege of moving a prayer for the annulment of a certain regulation of this House and was answered, as always, effectively, by the noble and learned Lord the Lord Chancellor. I was advised then that although it is the tradition of this House—one can look back into history and find that this is borne out by the various examples that have occurred—to pray for annulment it is not the tradition of this House to divide on any ministerial regulation. Bearing in mind that tradition and having had, in any event, a courteous undertaking from the noble and learned Lord the Lord Chancellor, I did not pursue the matter to a Division.

As I understand it, that is not the situation with an Affirmative Resolution. I may be wrong, but my understanding of the advice that I was then given is that there is a difference between the two. If, therefore, I am correct I would not wish the House to be misled into thinking that it is a much easier matter to deal with delegated powers, or whatever, under the Negative Resolution procedure as against the Affirmative Resolution procedure.

The noble Lord the Minister has had no notice of what I have just said, and I would always wish to be as fair as he is. Whether the noble Lord or any other noble Lord is able to guide the Committee on the matter at this time I do not know. I shall well understand it if the Minister wishes to take guidance upon what I have said so that at least we may know what the proper procedure and tradition of the House is and therefore can make up our mind. If the Minister feels that he needs time to obtain guidance and if he is prepared to look at the matter at the Report stage so that the House may know what is the position, I should be willing to leave it at that.

Lord BOYD-CARPENTER

I do not always feel subject to an irresistible urge to support the noble Lord, Lord Mishcon, but on this occasion it seems to me that he is on to a reasonable point. I recall, as he does, the occasion when he moved a prayer to annul a Negative Resolution and was, I think very properly, advised that though it would be legally open to this House so to proceed it was contrary to long-established practice.

As regards the affirmative procedure, the noble Lord may recall that within quite recent memory the House has refused to approve an Affirmative Resolution. I refer to a fairly recent Rhodesia order in the unhappy days when sanctions were being applied to that singularly unhappy country, so I think that the noble Lord is on to a quite significant point.

I want to address one word to my noble friend. It is, it seems to me, quite a serious matter for a Minister to repeal part of a statute, be it a public or a local statute. As part of a legislative factory perhaps we owe a certain respect to our product, and statutes are very much a product. Although my noble friend in his normal, persuasive way said that it would only be when it was inconsistent with this Act that this power would be exercised, I am not sure that he is absolutely right. As I understand it, and he will correct me if I am wrong, it is when it appears to the Secretary of State to be inconsistent. I have complete devotion to all Secretaries of State but sometimes they err and it is not, with respect, for a Secretary of State in a matter of this sort to have a decisive position.

As the noble Lord, Lord Mishcon, says, this matter has been sprung on my noble friend and one does not want to press him, particulary at this hour. I wonder, however, whether my noble friend would look at it again. When one is repealing a statute there is an argument for the Affirmative Resolution procedure. When my noble friend says that it would be a waste of parliamentary time, I think that must depend, must it not, on the substance of the order. If the order is a purely technical and formal one, it is the experience of all of us that it goes, as it is called, on the nod. Unless this House is to indulge in the kind of practice sometimes carried on down the corridor, I think my noble friend is unduly apprehensive if he thinks other than that an amiable nod by himself would be required in the great majority of cases. I hope therefore that he will look at the matter again.

Lord BELLWIN

Talk about persuasiveness! My goodness me! In the light of what the noble Lord, Lord Mishcon, and my noble friend have said of course I will have a look at it. I cannot accept this as it is now, but we will have a look at it, read what has been said, think very carefully about it and see what we might or might not do.

Lord UNDERHILL

I am grateful for the intervention of the two noble Lords and for the promise of the noble Lord the Minister to have a look at the matter. May I make just two points which I hope he will consider. He made the point that the local authority concerned would be consulted. That is all it says. It does not say what will happen if a local authority still says, "No, we want our Bill to stand". The Minister will go straight ahead. That is why I believe that the authority of Parliament must be preserved. However, the Minister has said he will take a careful look at it, and on that basis I withdraw the amendment.

Amendment, by leave, withdrawn.

Lord SANDYS

I think it may be for the convenience of the Committee if the Committee stage were suspended until eight o'clock. In the meanwhile, the House will be prepared to accept further business. We have two Confirmation Bills on the Order Paper. Therefore I beg to move that the House do now resume.

House resumed.