HL Deb 18 December 1986 vol 483 cc273-5

11.6 a.m.

Lord Harris of Greenwich

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what action they propose to take following the statement by the Controller of the Audit Commission that the conduct of a number of London borough councils is leading to the risk of a collapse of public services similar to that experienced in the past by New York City.

The Parliamentary Under-Secretary of State, Department of the Environment (Lord Skelmersdale)

My Lords, my right honourable friend announced on 15th October that the exemption from prescribed expenditure of leasing would be ended as from 1st April 1987. Furthermore, legislation will shortly be introduced to control deferred purchase schemes. These measures will go a very long way towards reducing the scope for such authorities to store up financial commitments for the future. Nevertheless, it is for local authorities themselves to ensure that their spending is kept within their means.

Lord Harris of Greenwich

My Lords, I thank the noble Lord for that reply. I agree in particular with his last sentence. Is the noble Lord aware that this huge and entirely irresponsible borrowing is, in the case of a number of London borough councils, continuing against the hope of a future Labour Government? Is the noble Lord aware that the Labour Party leadership, I understand, has made clear that it is not prepared to bail out these local authorities? That being so, is it not right for the Government to consider any further action that can be taken in order to avoid the situation foreshadowed by the Controller of the Audit Commission: that, eventually, there could be a collapse of public services in many of these London boroughs, causing great damage to many deprived people in those boroughs?

Lord Skelmersdale

My Lords, the controller was talking about a report in draft, and no one knows what the final report will look like. Nevertheless, I agree with the noble Lord that the controller issued a timely warning as a result of the current considerations of the Audit Commission. As to what will happen, that is a hypothetical question. If local authorities sort themselves out, the situation will not arise. Like the noble Lord, I note that if the Labour Party were to form a government, the Opposition have made it quite clear that they have no intention of picking up the tab.

Lord Renton

My Lords, the Question refers to the conduct of a number of London borough councils. Will the Minister enlighten your Lordships as to the nature of that conduct?

Lord Skelmersdale

My Lords, in a nutshell, that conduct refers to creative accounting on the capital control accounts of the various local authorities in question.

Lord Graham of Edmonton

My Lords, has the Minister noted that part of the press report of the speech refers to the Government's rate support system giving credit to an Eastern European country and quite possibly wasting the equivalent of the total expenditure on the National Health Service? Will the Minister comment on that part of the speech? Will the Minister also take this opportunity to confirm that councils have never defaulted on loan repayments, and that interest payments and principal repayments are, and will continue to be, the first charge on any authority's rate income?

Lord Skelmersdale

My Lords, I am well aware of what was said. However, since a quarter of publicly-raised finance is spent by local authorities, any large increases are, by definition, inflationary. So the Government need to control expenditure anyway. It is disgraceful that some irresponsible authorities—almost all of them controlled by Left-wing councils—manipulate the system to run up huge debts which will eventually have to be met by the ratepayer. This must clearly be condemned.

Lord Peyton of Yeovil

My Lords, if I heard my noble friend correctly, he used the phrase "creative accounting". Is that not a somewhat opaque phrase to cover something very much more serious? Can the Minister not be a little more candid with the House? Will the Minister urge his colleagues to take really serious note of what he himself has described as the "timely warning" which the Government have received?

Lord Skelmersdale

My Lords, I hope that I have not given the impression to my noble friend, or to anyone else, that I am not taking this matter extremely seriously. As far as the opacity of the phrase "creative accounting" is concerned, I refer to two comments in my original Answer. The great difficulty is that until the precise financial mechanism which is occurring can be identified, it is impossible to do anything about it. I am comparing this situation with the loopholes in the private sector which continually have to be stopped through the annual Finance Acts.

Lord Williams of Elvel

My Lords, will the noble Lord explain what he meant when I think he said that the increases in local authority borrowing were "by definition" or "by nature" inflationary? Will the Minister also confirm the Government's position, as explained in a letter from a Labour Treasury Minister in 1975, to the effect that local authority borrowings are undoubted in status in the banking system?

Lord Skelmersdale

My Lords, if I heard the noble Lord correctly, I do not think that it is up to me to defend what a previous Labour Minister has said. However, in reply to the first part of the noble Lord's supplementary question, I was referring to any large increases, whether in local authorities or through the public exchequer, being inflationary.

Lord Gladwyn

My Lords, is it possible that these vast debts might one day be repudiated?

Lord Skelmersdale

My Lords, I hope not.

Lord Williams of Elvel

My Lords, I am sorry to press the noble Lord again, but I still do not have an explanation as to why these borrowings are necessarily inflationary. I still do not have the Government's view on whether local authority borrowings are undoubted as far as credit is concerned. Perhaps the noble Lord would comment on that.

Lord Skelmersdale

My Lords, the noble Lord asked a very technical second question on which I shall have to write to him. However, he knows as well as I do that large amounts of money swilling around the system cause inflation.