Local Government Finance Bill

HL Deb 23 February 1987 vol 485 cc11-64

3.4 p.m.

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

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 Skelmersdale.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clause 1 agreed to.

Schedule 1 agreed to.

Clause 2 [Rate fund revenue accounts: further provisions]:

Baroness David moved Amendment No. 1: Page 3, line 15, leave out subsection (4)

The noble Baroness said: This amendment calls for the deletion of subsection (4) of Clause 2, which empowers the Secretary of State to specify kinds of income expenditure to count against rate fund revenue account. I should like to say at once that this is by way of being a probing amendment.

Clauses 1 to 3 of the Bill put onto a legally robust basis the way in which relevant and total expenditure are calculated for rate support grant purposes. The need for Clauses 1 to 3 comes, at least in part, from a legal housekeeping exercise undertaken by the DoE following litigation by local authorities. One outcome of the exercise is to state in law things which authorities have been doing or things which are implicit in the Local Government, Planning and Land Act 1980. The concept of a rate fund revenue account is an example of this.

Clauses 1 to 3, in arriving at the construction of the rate fund revenue account—thus an authority's relevant total expenditure and thus its grant—have reference to three main criteria: first, the accounts specifically listed in Schedule 1 which are excluded from the rate of fund revenue account; secondly, proper practices; and, thirdly, the power of the Secretary of State to specify in respect of any year the kinds of expenditure or income to be debited or credited to a rate fund revenue account. Although there may be misgivings at leaving things in the hands of the accountancy bodies to define proper practices, it is the third item, the power of the Secretary of State to specify, which gives most cause for concern. It is for this reason that we propose its deletion from the Bill.

The Secretary of State seems to be taking powers to override proper practices. Why? In what circumstances will the Secretary of State not agree with proper practices as defined by local authority accountants and policed by local authority auditors? We should like to hear from the Minister on this. Is the key in the Explanatory and Financial Memorandum, where Clauses 1 to 3 are stated only broadly to reflect, what has been done in practice for past years"?

Will the Secretary of State be using the Clause 2(4) power to pick off authorities on the basis of accounting techniques that they might have employed even in accordance with proper practices? Perhaps it should be remembered that Clause 9(6) provides that use of the power in Clause 2(4) may be only, in accordance with principles to be applied to all local authorities".

It was the anxiety of the local authority associations which I quoted at Second Reading and I should like to repeat what I said at that point. The ACC said about Clauses 1, 2 and 3 that they, are of particular concern as they contain greater powers of interference and control than are necessary to achieve the objects of the Bill".

The ADC expressed its concern at the poor drafting. Its letter to me said that it was confused by the references in Clauses 1, 2 and 3 to proper practices juxtaposed with the proposed powers to enable the Secretary of State to specify certain types of expenditure. It also said: The Bill's main focus should be on validating past actions, not introducing new areas of political conflict".

There has been no satisfactory explanation as to why the Government believe they need this power, so we hope that the Minister will explain.

I apologise. In moving Amendment No. 1 I should have said that I should like it to be grouped with Amendment No. 2. Therefore I should now like to refer to Amendment No. 2. This amendment is another attempt to probe the difference between proper practices and the power of the Secretary of State to specify accounting entries to the rate fund revenue account. The effect would be to make the Secretary of State specify entries of the rate fund revenue account only in accordance with proper practices. It negates the plan of the Government in wishing to override proper practices by the powers given under subsection (4) of Clause 2. But when would the Government wish to make a specification that was improper?

I hope that the Minister can give us some further explanation. We may have to come back to this matter later. There was a bit of an exchange at Second Reading between the Minister and my noble and learned friend Lord Silkin. I therefore hope that the Minister may be able to enlighten us further on this matter. I beg to move.

Lord Skelmersdale

This part of the Bill—namely, Clauses 1, 2 and 3—is designed to define relevant and total expenditure, by reference to the rate fund revenue account, which is made statutory for the first time. It is therefore a revenue account and not a capital one—something we will discuss further later on today. Clearly then it is important that local authorities should know in precise terms what items are to be treated as income to and expenditure from that account.

I suggest to the Committee that our lives would be made considerably easier if we could agree that this is both necessary and right. This belief of mine is given some validity by the fact that we have just agreed to

Clause 1 and Schedule 1. Unfortunately accountancy is an art which is constantly changing. The state of the art is defined by the use of proper practices which vary from time to time. However, it is important that the Secretary of State retains a power of direction and it is regarding this power of direction that the noble Baroness is principally questioning me.

These amendments seek to delete or modify the provisions in Clause 2(4) of the Bill relating to my right honourable friend's powers to make specifications that certain kinds of expenditure and income are to be regarded as of a revenue nature and hence are to be included in the rate fund revenue account unless they should be included in accounts referred to in Schedule 1 to the Bill or specified under Clause 1(6).

The purpose of these powers is to enable my right honourable friend to specify that some item of expenditure or income is of a revenue nature where there may be some doubt. In such circumstances it is our intention to make specifications so that authorities must compile their rate fund revenue accounts in the form of the non-statutory rate fund revenue accounts which authorities in general have kept in the past. This is necessary if we are to fulfil our prime objective of maintaining the status quo for the calculation of relevant and total expenditure which in the past has been calculated by reference to these same traditional non-statutory rate fund revenue accounts.

Given the purpose of these powers, we also need to provide, as in Clause 2(5), that the general requirement for authorities to comply with proper practices should be subject to any specification made under Clause 2(4). This is not so that we can turn generally accepted practices on their head but simply so that the specifications can be used in situations of doubt as to what is required by proper practices.

An example of where we might make a specification is as follows. All rate income is normally credited to the rate fund revenue accounts which authorities traditionally have kept, and we would wish to see this practice continued even though it might be argued that that part of rate income used to pay for capital expenditure is not of a revenue nature. In these circumstances a specification might be made for each year stating that all rate income is of a revenue nature.

At this point perhaps I should say something about proper practices, if that would be helpful to the Committee.

Baroness David

Yes.

Lord Skelmersdale

Local authorities prepare their accounts according to proper practices and their auditor is required to satisfy himself under the Local Government Finance Act 1982 that proper practices have been observed in the compilation of the accounts. These practices are not set out in statute and accountants and auditors—in particular the professional accountancy institutes—have developed, and indeed are continuing to develop, a body of accounting practices which are considered proper for local authority accounts. The Bill also does not specify precisely what the proper practices are. As I have already made clear, it is not our intention to interfere with local authority accounting. What Clause 2 of the Bill does is to provide that the practices to be applied to the statutory rate fund revenue accounts are those applicable in 1986–87 to traditional non-statutory rate fund revenue accounts, but taking account of variations of practice occurring from time to time. And the clause also provides that on the key question of what is of a revenue nature there is a mechanism for dealing with situations where there is doubt.

Returning to the question of the specifications, if they had to be complied with only if they conformed with proper practices, this would mean that the specifications would be of doubtful effect in any situation where proper practices were unclear. But the very purpose of the specifications is to deal with situations where there may be some doubt as to what is required by proper practices. Making the specifications have effect only where they conform to proper practices would mean that the specification-making power could not be used in precisely those situations in which it is needed.

The powers we are seeking in Clause 2(4) are both appropriate and necessary, and I hope that with that explanation the noble Baroness will see fit to withdraw the amendment.

3.15 p.m.

Lord Silkin of Dulwich

The noble Lord the Minister has given an explanation of the necessity for specification. However, there remain two points which seem to me to be of importance as regards the drafting of Clause 2.

The first point is that under subsection (5) the provision is that subsection (1) is to have effect, subject to section 1(3) above and to any specification under subsection (4) above". I do not know how those two interrelate. The subsection does not tell us which is to have predominance in case of conflict between the two. I should have thought that in any event a provision which made that clear is necessary.

Coming to the more directly relevant point regarding the amendments before the Committee, of course we accept that proper practices may involve a difference of view between one possibility and another. Accountants may differ as to which is to be preferred, while agreeing that both are proper practices. If that he so, then I should have thought that it would be perfectly reasonable for the Secretary of State to specify which of the two practices should apply. Surely the Secretary of State must accept that what he cannot do is to specify something which is an improper practice and which would not be classed as a proper practice at all; that is to say, where it is not a matter of comparing two proper practices and selecting the more appropriate one, but rather of specifying something which is not a proper practice at all.

The Minister did not deal with that possibility. No doubt the Secretary of State, as a matter of his own practice, would not specify something which he regarded as improper. However, the Bill as it now stands does not say that. The Bill as it now stands appears to give him the power to specify in such a way as to override proper practices and also in such a way as to specify that which is not a proper practice, notwithstanding that by doing so he may override proper practices.

It is with that in mind that the second amendment has been put down, and the Minister has not really dealt with the fundamental basis for the amendment. I hope that he will either do so or accept that some change to the wording of this clause is necessary or desirable, even if he does not completely agree with the way in which we have done it.

Lord Skelmersdale

In looking after this Bill I want to be as accommodating as I possibly can be to noble Lords in all parts of the Committee. I take the point that the noble and learned Lord does not want my right honourable friend to specify what he calls an improper practice, yet another concept with which I suspect we shall have to grapple in a moment.

Before we get on to that point, as I hope we shall, the noble and learned Lord asked about the drafting of subsection (5) in lines 19 and 20: Subsection (1) above shall have effect"— that is right: we have agreed that proper practices do exist, should exist and need to exist— subject to section 1(3) above". Clause 2(3) defines as closely as it is possible to define in this uncertain accountancy world what proper practices are: The practices are the proper practices applicable to accounts … kept by local authorities for the year beginning in 1986". In other words, it is not accounts which may have varied in their make-up from 1981–82 onwards but we have defined a particular account on which to base the future regime, for the entry of items of the same kind as those falling to be entered in rate fund revenue accounts [which are set up by Clause 1], but taking into account variations of practice occurring from time to time", a phenomenon with which the noble and learned Lord did not find a problem.

With regard to improper practices, at Second Reading I repeated what my honourable friend the Parliamentary Under-Secretary of State said; namely, that we have no intention of specifying something to be revenue which the whole world sees to be capital. The noble and learned Lord was not quite satisfied with that because he suggested that nonetheless we could still specify what he called improper practices. I take the point that the whole purpose of this Bill is to provide certainty for local authorities in their dealings with matters financial, both their own and those of central government intervention. I shall most certainly look at what the noble and learned Lord calls improper practices.

Baroness David

I thank the Minister for his explanations. As I said, this is a probing amendment because there is still a great deal of uncertainty about exactly what is meant. It is a complicated subject and I should certainly like to read what he has said.

I should also like to consult the local authority associations to find out whether they are satisfied. As the Minister has just said, what they want is certainty. That is what we should aim for. If they are satisfied with what he has said we shall probably also be satisfied. I reserve my right to come back to this matter again at Report stage, but in the meantime I shall withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 2 not moved.]

Clause 2 agreed to.

Clause 3 [Meaning of local authorities' expenditure]:

On Question, Whether Clause 3 shall stand part of the Bill?

Baroness David

Clause 3 defines relevant and total expenditure, in Clause 3(1) and 3(7) respectively, and as such it is one of the clauses which should broadly be necessary in a Bill designed merely to correct the law. The other clauses are Clauses 1, 2 and 5 for England and Wales and Clauses 13 and 14 for Scotland. Very much more limited legal immunities would be required than those contained in Clauses 4 and 6.

The definitions are built on the structure of accounting set out in Clause 1. Relevant and total expenditure are included in the first instance by reference to debit and credit items charged to the rate fund revenue account with certain items being disregarded as accepted items. As such the definitions broadly endorse previous practice. However, we should like to raise certain questions in connection with the power of the Secretary of State to make adjustments to the accounts under Clause 3(7). This power was extended at the Committee stage in another place to include adjustments to relevant expenditure as well as total expenditure.

Under the Bill as published on 18th December there had been only a power to make adjustments in total expenditure. In moving the amendment at Committee stage to extend the power the Minister of State, Dr. Boyson, said that the wide power was necessary to exclude items entered contrary to proper practices and to exclude deficit financing of special funds. He stated that under the old system the DoE would have intended to exclude such items in the process of calculation. The new system was introducing formal specifications in such a case on which there would be consultation. Specifications would be introduced according to common principles.

We should like a word on how this would work. Can the Minister explain a little more about this? Will the local authorities have a proper opportunity to put their point of view? Will Parliament be alerted in any way before the Secretary of State can make specifications referred to in subsection (8) of this clause?

Lord Skelmersdale

This clause provides for 1987–88 and subsequent years a new method of calculating relevant and total expenditure by reference to the items of account debited or credited to the rate fund revenue account required by Clauses 1 and 2. The provisions of this clause are designed so that for these future years the method of calculating relevant and total expenditure will be broadly the same as that which has in practice been followed each year since 1981. This clause will enable us to fulfil our objective of maintaining the status quo on relevant and total expenditure.

The noble Baroness raised a particular problem over subsection (7). Perhaps I may introduce this by saying that subsections (6) and (7) are linked because they repeat the 1980 Act concepts and knit this Bill in with the current system. That is basically what they are there for. Subsection (7) provides that for the purposes of Part VI of the 1980 Act the total expenditure of a local authority in relation to any future year is the expenditure which is for those purposes the authority's relevant expenditure in relation to the year; first, reduced by the amount of any item of account which is credited to the authority's rate fund revenue account for the year and represents a relevant grant to the authority; and, secondly, adjusted by making such additions or subtractions or both as are specified in respect to the year concerned by the Secretary of State.

The noble Baroness also asked whether my right honourable friend the Secretary of State would "bounce" Parliament and local authorities in respect of specifications. I am advised that he must consult before acting.

Clause 3 agreed to.

Clause 4 [Validation for past and general provision for future]:

3.30 p.m.

Lord Silkin of Dulwich moved Amendment No. 3:

Page 4, line 32, leave out subsection (1) and insert— ("(1) Insofar as the Secretary of State may before the passing of this Act have done anything in relation to any of the initial years or intermediate years for the purposes of the relevant provisions which

1. (a) consisted of or was dependent upon a calculation of total expenditure or of relevant expenditure; and
2. (b) if it had been done after the passing of this Act in relation to a future year, would by virtue of the provisions of this Act have been lawfully done,

it shall be deemed to have been done in compliance with those provisions.").

The noble and learned Lord said: With the leave of the Committee, I shall take with this amendment Amendments Nos. 6, 12, 14, 16 and 18. These amendments are necessary to remove what we see as a major constitutional blemish from the face of the Bill. The legislation is highly complex. Perhaps I should add that it does not contain a great deal of what is these days sometimes referred to as sex appeal. I cannot undertake to provide the latter but I shall try to define the issue as simply as possible.

Over many years the Secretary of State has erred in his interpretation of past legislation, so he comes now to Parliament asking it to do two things: first, to enable him in the future to continue as he did in the past but lawfully instead of unlawfully; and, secondly, to regard his past unlawful acts as though they were lawful. We say that this second objective should be permitted but no more widely than the first. The Secretary of State says that Parliament should give a very wide effect to the second objective. In order to do that he has framed what I can only describe as a catch-all formula in Clauses 4(1) and 6(2).

In my speech on Second Reading I said: Retrospective legislation is always regrettable but is at times a necessary evil. At least it should be a plainly limited evil. If even potential ambiguity can be removed, it should be removed".—[official Report, 10/2/87; col. 585.]

The noble and learned Lord, Lord Denning, and I both criticised the width of the retrospective provisions in this Bill in indemnifying the Secretary of State. I said: As a matter of constitutional practice this House should insist, in the absence of the very strongest reasons to the contrary, that all retrospective legislation is specific and related to clearly defined errors".—[col. 584.]

There has been no dispute on that principle up to now. So how has it been followed in the Bill? The noble and learned Lord endorsed the comments of four eminent academics whom the noble and learned Lord quoted as saying: The breadth of protection afforded by this Bill is unprecedented, unnecessary and is contrary to the basic principles of executive accountability under law".—[col. 581.]

Therefore we have two criticisms of the retrospective provisions in the Bill: first, they are unnecessarily and unconstitutionally wide and, secondly, they are ambiguous in that there is no clear and specific limit to their retrospection.

To bear that out, let us first define the retrospection required by reference to the declared objective of the legislation. It is found in the first paragraph of the Explanatory and Financial Memorandum, which states: Relevant expenditure and total expenditure, which are essential elements of the rate support grant and rate limitation systems in England and Wales, have been calculated in a way which conflicts with the legislation concerned … The Bill is designed to deal with the situation which has thus arisen".

There one has a clearly defined objective.

We now examine the wording of the subsection concerned to see whether those criticisms which have been made are justified. Clause 4(1) reads: Anything done by the Secretary of State before the passing of this Act for the purposes of the relevant provisions in relation to any of the initial years or intermediate years shall be deemed to have been done in compliance with those provisions".

The relevant provisions are set out in subsection (2)—mainly Part VI of the 1980 Act but there are a number of sections in other legislation which are similar. As can be seen, they go quite widely into the fields of education and elsewhere.

That covers the initial and intermediate years. Clause 6(2) is in similar terms and covers the financial years beginning 1985 and 1986. Neither of those subsections expressly limits their retrospective operation either to the calculation of relevant and total expenditure or to the specific actions which, unlawful in the past, the Bill will make lawful in the future. In each case it is, Anything done … for the purposes of a wide range of legislation.

Anything so done, though unlawful, is to be deemed to have been done in compliance with that legislation. Therefore on the face of the Bill there is no limit to the retrospective indemnification so long as what is done is done for the purposes of the legislation. By the use of that language the Bill seeks to rule out any legal challenge, whatever its basis may be, for the actions of the Secretary of State in respect of any rate support grant decision since the year 1981–82 and any rate limitation decision since the year 1985–86, that being dealt with by Clause 6.

Therefore on the face of the Bill it is irrelevant whether those decisions relate or do not relate to the calculation of total or relevant expenditure. Immediately, therefore, we must put this inquiry. If all legal challenge is ruled out, what possible justification is there for that? However, if we are told that that is not what the subsections mean and that they mean something different from what appears on the face of the Bill, then what do they mean, what are the limitations and why are the subsections in such apparently wide terms?

Both in another place and here on Second Reading we sought to find out from the Government why this very wide and at best ambiguous language has been used. We have not sought to oppose the Bill in principle. We accept the need for it. However, we say that it should not go too far and we seek no more than to limit its retrospective width to what is really necessary and no more than that. There has been no clear explanation. In fact, there have been two quite contradictory explanations.

The first, given by the Secretary of State on 19th January last, was that the wording is sufficiently tight to exclude that which is extraneous. The Secretary of State said: if the matter is totally extraneous to total expenditure and is about something totally different like multipliers, which are not affected, it will be possible for the court to continue to determine the issue just as it is possible for a court to decide that I was not wearing a seat belt when I should have been".—[Official Report, Commons, 19/1/87; col. 644.]

Two days later the Secretary of State's seat belt seems to have become somewhat tangled because he then stated: total expenditure or relevant expenditure is endemic in all of the sections of those Acts that are quoted in the Bill. It is impossible to disentangle some parts of any conceivable court case from those parts that relate to total expenditure".—[col. 995.]

If that is so, one may ask: why not leave it to the courts to perform their normal task of disentangling what relates to total or relevant expenditure and what does not? Why should Parliament perform in advance what is the customary function of a court and so usurp the court's province? That second explanaton put forward by the Secretary of State is particularly striking. The very example given by him two days earlier of what would not be affected by the retrospection provisions being, as he put it, wholly extraneous to total expenditure, consisted of multipliers, and multipliers are calculated under Part VI of the 1980 Act, and so, on his second explanation, are not capable of being disentangled from total or relevant expenditure.

Under his first explanation one could go to the courts on a decision which related to multipliers; and under his second one could not. But multipliers are not the only matter. There are many other similar ones which arise under Part VI of the 1980 Act and the other provisions detailed in the subsections. Other provisions are equally capable of being disentangled from total or relevant expenditure. I can mention some of them: the Secretary of State's duty to consult local authority associations on certain matters; the determination of the aggregate amount of domestic rate relief grant; principles to be specified in the rate support grant report where the Secretary of State is required to set out the principles on which he is acting; the power of the Secretary of State to apply multipliers to the product of grant-related poundage and gross rateable value; the duty to frame guidance by reference to principles which are applicable to all authorities and not to discriminate between them. All those would apparently be covered by the immunity as the Bill now stands.

These examples will certainly not come as a surprise to the Government because the Opposition in another place specifically mentioned them. That is at col. 55 of Hansard. Unfortunately, the Secretary of State did not give any reply to the citing of those examples. However, in this House at Second Reading the Minister reiterated the Secretary of State's second explanation—and I am quoting from cols. 598 and 599 of Hansard for 10th February. He justified it by the argument that: Although the determination of the aggregate domestic rate relief grant is not in itself dependent on total or relevant expenditure, domestic rate relief grant is part of aggregate Exchequer grant, which the Secretary of State determines in the light of his view of relevant expenditure".

Although it is not dependent on it, it is part of a whole which consists of the aggregate Exchequer grant, and other parts of that whole are of course total and relevant expenditure.

What he appears to be saying is that if in order to calculate C, the Government have to add A to B, then if A is wrong—as is here conceded—then C also will be wrong. The Government's argument is that if you deem A to be right, you must necessarily deem both B and C to be right. That, in my view, is logic turned on its head.

The whole justification produced by the Minister (at col. 599 of Hansard) was: It is therefore quite wrong to suggest that these matters have nothing to do with total or relevant expenditures and therefore could be exempted from the validation proposed".

In saying that, he misunderstood and misstates arguments from this side. We do not say that these matters have nothing to do with total or relevant expenditure. Of course there is a connection. They have as much to do with it as, for example, the Secretary of State's view of the future economic situation, future interest rates, and so on, which may affect his final decision on the grant. The courts are entirely familiar with the tasks of disentangling the relevant error from the irrelevant error. It would be wholly undesirable and unjust if, because the Secretary of State has made relevant errors for which the statute pardons him, he should therefore be pardoned for irrelevant errors of which Parliament was wholly unaware when it passed the legislation—and that merely because in reaching his ultimate conclusion the Secretary of State erred not once but twice or more.

The purpose of these amendments—for which as the Committee sees I have distinguished cross-party support—is to disentangle what the Bill is about from what it is not about. It narrows down the retrospection to that with which the Bill is intended to deal, that which consisted of, or was dependent upon, a calculation of total or relevant expenditure such as to bring it fairly and clearly within the ambit of the Bill's provisions. It will then be for the courts, if it be necessary, to disentangle the unlawful which the Bill makes lawful from that which it does not.

The amendment I put forward as having the merits of certainty and clarity avoids improper words and ambiguity. Even if the Government think—wrongly, in my view—that it is not strictly necessary for reasons which they may explain, the amendment cannot possibly weaken the objective of the legislation. Indeed, I shall be wholly satisfied if the Minister says: "We think this is unnecessary, but it can do no harm and on that basis the Government accept it". I beg to move.

3.45 p.m.

Lord Denning

I should like to support this amendment. It raises an important constitutional question. The Government have undoubtedly made mistakes over the past five years. They made the first mistake when they passed the 1980 Act in which they purported to define the words "total expenditure" and "revenue expenditure".

To show what a mess they got into, I will read the definitions of those two sentences in the 1980 Act. I hope the Committee can follow Section 56(8). It is just the draftsmen again: 'Total expenditure', in relation to each such authority, means the expenditure which is relevant expenditure within the meaning of subsection (5) of section 54 above reduced by the amount of any grant to them mentioned in subsection (2) of that section and adjusted by the addition or subtraction of such descriptions of expenditure or receipts as the Secretary of State may direct". That is the definition of total expenditure. I am sure the Committee are no wiser!

Then I shall go to the next sentence. They refer back to Section 54(5): in this section 'relevant expenditure', in relation to any year, means the expenditure for that year falling to be defrayed out of the rate fund of a local authority—

1. (i) reduced by the amount of any payments of such descriptions as the Secretary of State may specify which fall to be made for that year into the rate fund; and
2. (ii) exclusive of the items of expenditure mentioned in subsection (6) below"

I have read those sentences in full so as to show they are completely incomprehensible. They are typical of our modern form of legislation. Thank goodness that when we get to this new amending Bill, the provision which we have passed already makes it clear. It says by definition what is to be included and what is to be excluded, specifying the items. That is infinitely better.

Let me tell you what happened as a result of the clauses in the 1980 Act. The Government put a wide interpretation on them but the local authority associations said that the Government had got it wrong, that such meaning was never intended and that there ought to be a narrower interpretation of those clauses. The Government replied, "Yes, you are right after all. We will proceed in the way you want things done and follow the method by which local government associations make up their accounts because we were wrong". So the Government gave in and adopted the viewpoint of the local authorities. The accounts were improperly prepared in the sense that they were not in accord with the statute; they were properly prepared in the sense that they were what the local authorities wanted.

What were the Government to do about it, since they had made that mistake all the way through? They had to admit that they had made a mistake and had done the calculation in a way that conflicted with the relevant legislation. So they admit the mistake and say, "This Bill is designed to deal with the situation that has thus arisen". They do not confine the remedy to the mistake which was the calculation that they agreed was wrong. They do not confine it to that. In Clause 4(1) they intend to give themselves a blank cheque, saying that anything that the Secretary of State has done wrong shall not be regarded as wrong but shall be regarded as right. Clause 4(1) reads: Anything done by the Secretary of State before the passing of this Act for the purposes of the relevant provisions … shall be deemed to have been done in compliance with those provisions". That means that it has been deemed to be done wrongly.

The provisions of Part VI of the 1980 Act cover 20 sections (Sections 48 to 68) and take up 18 pages of the statutes at large. Under these provisions the Secretary of State is entitled to do many things. He may determine this, he may order that, or he may say what is the grant. There are 101 powers in those 20 sections of the 1980 Act. The present clause proposes that anything done by the Secretary of State in pursuance or in purportive pursuance of those provisions shall be lawful. In other words, effectively the Secretary of State is saying, "Not only do we want to correct. that mistake that I made but I may also have made lots of other mistakes and we want Parliament to say that it does not matter. Furthermore, we do not want the courts to be able to say that it is wrong". That is the effect of subsection (3).

Over 20 sections of an Act of Parliament that declare what the Secretary of State can or cannot do, the Secretary of State is trying to establish a right to say, "I may have done many things wrong but Parliament says that they are deemed to be right. Parliament says that should the courts go into those matters and affirm that they do not like them, it does not matter what the courts say and they must be deemed to be right anyway".

For that reason I say that this measure is unconstitutional. The Government are asking Parliament to validate wrongful acts committed by the Secretary of State contrary to the law. I do not mind them invalidating the particular mistake that has been made—that is why the amendment has been put down—in so far as he has done wrong in regard to a calculation of total expenditure and so forth. That can be put right. Let the specific mistake be remedied. However, I object—and I hope that the Committee will object—to the Government giving the Secretary of State a blank cheque so that he can say, "What I have done under all those provisions" (and there are 20 sections of the relevant part of the Act covering 18 pages of the statute enabling him to do no end of things) "is lawful and is not for the courts to inquire into".

The Government are putting the Executive and the Secretary of State above the law. They are asking the Committee to put the Secretary of State before the law and to say that anything that the Secretary of State can do is to be regarded as lawful even when he has done it wrong. That is why I say there is an important constitutional matter involved. The amendment seeks to provide that we do not validate the 101 actions that the Secretary of State has in his power to perform but only to validate the one admitted mistake that has been made and to put it right. Therefore I support the amendment and, as a matter of principle, the last four or five amendments in this group.

Lord Lloyd of Hampstead

I should like to add my support for this amendment. Unfortunately I was not able to be present at the Second Reading of this Bill, but having read Hansard I saw the reference made by the noble and learned Lord, Lord Denning, to the letter that he had received from four distinguished academics in matters of law. In that letter they pointed out that the way in which this clause attempted to exonerate the Minister from unfortunate mistakes was, as they described it, constitutionally offensive. I agree with the trenchant judgment and acknowledge the admirable way in which the noble and learned Lord has developed that argument.

Of course one recognises that such mistakes arise. I think that it is very unfortunate, as the noble and learned Lord, Lord Denning, has just pointed out, that we seem to find it impossible to improve the general way in which drafting is carried out, notwithstanding the conclusions of the excellent Renton report which tried to teach some useful lessons about how we could improve it. Despite that, we still carry on in the same way, which is a very unfortunate state of affairs. Nevertheless, one recognises that mistakes are made and it is not unreasonable to ask that legislation be passed to exonerate Ministers from the unfortunate consequences.

It is true that this process involves retrospection. But retrospection in such administrative matters is generally regarded as acceptable. Indeed, we do not have any constitutional provision concerning retrospection because of course we do not have a written constitution. However, it is not like an attempt retrospectively to create a new criminal offence whereby people may be held guilty of a criminal offence when at the time they committed the act in question no such offence existed. That is objectionable in virtually every conceivable circumstance.

The present kind of retrospection is not so objectionable but it is subject to some constitutional conventions. It is not unconstitutional in the strict sense because we have no written constitution and so do not have the notion that provisions can be struck down because they are contrary to some parts of it. Nevertheless, "unconstitutional" has a recognised and very important meaning. It means that there are certain established conventions which should be adhered to strictly. Certainly one of those conventions which I think would be universally recognised is that where such unfortunate errors occur and not unnaturally the Government wish to secure their position, the remedy must be carried out on a very narrow front. The precise mischief that has arisen must be specified and legislation must be precisely directed toward correcting that error.

In the present case, unfortunately, the Government have taken the unusual course of trying to give themselves carte blanche for every conceivable error that may have arisen during the years that this legislation has manifestly been misinterpreted. Such a blanket is highly objectionable. Moreover, it is unnecessary because, as has been pointed out by the noble and learned Lord, Lord Silkin of Dulwich, the matter can be dealt with by suitable amendments. He has put forward amendments which enable that unfortunate situation to be corrected without covering the Minister with a mantle of total innocence for every conceivable mistake that may have arisen under a long series of complicated provisions in the original legislation. There is a strong case for the Committee to be invited not to accede to this blanket protection but, on the contrary, to specify it as narrowly as it can reasonably be specified.

I confess that I have attempted to understand the various explanations and justifications put forward by the Government as to why they have chosen this unusual course. So far as one can see, what their justifications amount to is that at the back of their mind they have an apprehension that various things, which they cannot at the moment anticipate, may arise and unless they express the protection in the widest possible terms, they may find themselves in the ignominious position of having to return to Parliament to ask for still further protection. That is naturally a course that they do not wish to contemplate.

With all respect, that is not good enough. It is up to the Minister, having come along contritely in a white sheet to say, "We have made these mistakes, and we ask Parliament to put them right", to state specifically what difficulties have arisen and ask Parliament to give the Government protection in regard to those specific matters and no others.

I endorse the view expressed in the letter to which the noble and learned Lord, Lord Denning, referred, that this procedure is constitutionally offensive. It flies in the face of established convention. It should not be supported by the Committee. As a convenient and satisfactory alternative has been put forward by the noble alnd learned Lord, Lord Silkin, and his colleagues, there seems to be an overwhelming case for the Committee to endorse the amendments rather than to accept what is, after all, a rather, if I may say so, shoddy expedient which is being pressed upon the Committee by the Government.

4 p.m.

Lord Campbell of Alloway

May I say a brief word in opposition to the amendment? I listened with great care to what the noble and learned Lord, Lord Silkin of Dulwich, said. It seems to me that the objection to the amendment, if he will allow me to say so, is that it inevitably leads to litigation. The merit of the government drafting is that it avoids that. Everyone accepts that there has been something of a muddle over the past five years. No one has understood the drafting. There is nothing unusual about that, but five years is rather a long time not to understand drafting.

It is said that the circumstances are wholly exceptional. It is dangerous to say circumstances are wholly exceptional. I accept that the Government will have to justify "anything" in Clause 4(1), but in a way it is justified in part by what the noble and learned Lord, Lord Denning, said. He has been through Part VI of the 1980 Act. He rightly says that the Secretary of State can do many many things. It is not possible practically to disentangle what is or what is not extraneous to total or relevant expenditure. It is accepted by the noble and learned Lord, Lord Silkin, that the matter should be left to the courts.

With the greatest respect to the Committee, I question that. I should have thought that the Government's approach is broadly right in an unfortunate and regrettable situation. It is, cry a halt to litigation.

Lord Foot

I intervene in this discussion with some hesitation on various counts, one of which is that I am totally ignorant of the mysteries of local government finance. But the debate on this amendment raises a matter which I think is within my comprehension and which is something that all Members of the Committee can comprehend and make a useful judgment upon. In one way what we are discussing today is the meaning of words. What do the words mean?

I suspect that there is agreement on all sides of the Committee upon certain aspects of this matter. They are ones to which the noble and learned Lord, Lord Silkin, referred. Firstly, I think it will be agreed that the Government are, with this Bill, introducing legislation to correct mistakes which were previously made. Secondly, there is probably no serious disagreement on the proposition that occasionally (this is one of those cases) retrospective legislation is necessary to cure an error.

The third matter upon which I hope there is agreement on all sides of the Committee is that such legislation is always regrettable. But if that is right, it follows that there are two corollaries to the proposition. The first is, as the noble and learned Lord, Lord Silkin, made plain, that the legislation should be not drawn more widely than is necessary to cure the error. The second, which I think follows from the belief that such retrospective legislation is always regrettable, is that the legislation should not inhibit or circumscribe the authority of the courts, except in so far as it is strictly necessary to cure the error which has been made.

I suspect, and indeed the Government made it clear on Second Reading, that they take the view that this Bill and this part of the Bill conform with those propositions and requirements. The opponents of the Bill and this part of the Bill say that they offend against both those propositions. The Government say that it is neither the intention nor the effect of the Bill so to offend. Who is right about that? The discussion is largely about the meaning of words.

Two observations therefore seem to be proper. The first is: why should we accept from the Government that this legislation is proper and right? Why should we accept from the Government that their interpretation is right when it was their misunderstanding of the earlier legislation that made the Bill necessary? Their judgment of the meaning of the words of this Bill is suspect on that account.

There is another good reason for believing that on this occasion the Government have it wrong. That is the matter to which both the noble and learned Lords, Lord Silkin and Lord Denning, have referred. If one looks at the declared purposes of the Bill in the Explanatory and Financial Memorandum, one finds what the object of it is. If one then looks at the amendment moved by the noble and learned Lord, Lord Silkin, one finds that the effect of it is precisely to accord with the Government's declared object of the Bill; whereas if one looks at the clauses as they are now drawn by the Government, it is perfectly clear—it was put beyond any doubt by what was said by the noble and learned Lord, Lord Denning—that the terms of this Bill go far wider than the requirements of putting the original error right.

Therefore, we are faced with the very odd situation that, when we come to divide the Committee, one of the issues will be what these words mean. Are we right on this side of the Committee in thinking that they go far too wide or are they within the limits of what is proper in the retrospective legislation, as the Government contend?

Will it not be very strange that we go into the Lobbies to decide not so much a constitutional issue—although there is a very big constitutional issue here—but to a very large extent what is the meaning of the words? I contend that it has been overwhelmingly explained that the words mean what the amendment of noble and learned Lord, Lord Silkin, says. Therefore, I think I am right in saying that the proposition of the noble and learned Lord will receive the overwhelming support of those on whose behalf I speak.

Lord Monk Bretton

My noble friend Lord Campbell of Alloway was quite right when he raised the important point that we do not want a great deal of legal difficulty arising from now on because of this mistake. However, I know there are those in local government of the same political persuasion as myself who are concerned that there may be extra powers in this Bill that should not be useable retrospectively upon the audited accounts of individual authorities. It is that worry and that worry alone which concerns me. If that is unlikely to happen, I am much more content with the Bill as it is than I should be otherwise.

4.15 p.m.

Lord Bancroft

I shall be brief though not quite as brief as the noble Lord who preceded me. I rise to support this amendment in the context of the connected amendments which the noble and learned Lord, Lord Silkin, mentioned when he introduced the debate. It has always struck me as something of a whimsical irony that this should be one of the most centralising administrations of all in my experience. The gap between the rhetoric and the practice can be greeted by shocked horror, as it frequently is—which I think is entirely inappropriate—or by a degree of courteous derision. Temperamentally I find the latter more acceptable.

I pass over in silence, as is only proper at this stage of the Bill, what has been done to the health service, what has been done to the central machinery of government and what has been done to the education service, whether the curriculum or the pay and conditions of teachers. I concentrate instead on this amendment in relation to local government.

In my view, it is an exaggeration, although a pardonable exaggeration, to say that the heart has been torn out of local government and buried somewhere in Marsham Street. In each case the Government have started out from a perfectly legitimate and understandable point. In local government there was the legitimate wish to curtail the extreme capers of some local councils, but it ended up with leaving the capital city without even a small elected government to oversee a narrow range of activity. It also ended up by giving central government unlimited powers—reserve powers, I accept—to cap the expenditure of every local authority in the land.

We have a similar feature here. What started off as a perfectly understandable and acceptable wish to correct a legal flaw has ended up as a tote bag of blanket powers for the Secretary of State and his officials. To watch this Administration, who are putting into practice what are in many ways the splendid Tory ideals of decentralisation, is rather like watching a toddler trying to plough a 10-acre field with a spoon and pusher. I think that this amendment is right in confining itself to correcting the specific mischief and not going wider. For that reason I support it.

Lord Bellwin

Let me pick up one or two points on what the noble Lord, Lord Bancroft, said when he rather took us away from the subject by his references to local government generally. Many of us on this side of the Committee, and I suspect even on the other side, would disagree very strongly with him on a number of things he said. For example, he referred to the Government having taken powers to cap rates on every authority in the land. It should be put on record that every authority in the land does not have its rates capped; it is only those that choose to spend far beyond what is reasonable. Indeed, the people who have to pay the rates and taxes within those authorities are thankful that there is such a measure.

One hesitates to enter into a debate with so many noble and learned Lords who quote so much of the legal side of a complex subject. Indeed, I should probably know that more than most, having been involved in the introduction of the 1980 legislation. I had to smile when the noble and learned Lord, Lord Denning, read out the definitions which were called for in the Act. Nevertheless, this has always been a complex matter.

When we talk of relevant expenditure and—the new term now to come in—revenue rate expenditure, aggregate exchequer grants and all the other terms, I am sure that most Members of the Committee wonder what on earth this is all about. That is understandable; it has always been a complicated matter. As I have said in this Chamber in the past, whenever one sets out to divide some £12 billion, £13 billion, £14 billion or £15 billion of money among some 430 or so authorities to take into account their respective needs and resources, it is bound to be a formula which will turn upon judgment and many different factors. It will never be simple and easy.

However, that is not the issue today. I do not see the issue, as does the noble Lord, Lord Foot, as a matter of interpretation alone. It is certainly that, but to me the issue is the simpler one of whether we stick to the narrow definition or go for the wider one which the Government prefer. What is the right thing to do? No one disputes that this has to be put right. If it were necessary to go into the reasons why it needs to be put right I should want to say much more. I suspect that it is not necessary; I therefore do not want to take up time in doing so. Should the definition be wider? Should the courts decide if we leave it too narrow. In many debates in this Chamber I have heard it said that we should try not to leave issues to the courts to decide, but should try so far as possible to cover such matters by legislation on the face of the Bill. That must be right wherever possible.

I am not without sympathy for the points that the noble and learned Lord, Lord Silkin, made so very ably. On a personal note perhaps I may say it is the first time that I have had the pleasure of listening to him in the Chamber. While I did not agree with everything he said, I hope I shall hear him on many more occasions. However, on balance I feel that the Bill should provide for the wider interpretation. I understand and recognise its shortcomings and the concern of those who feel otherwise. But I am bound to say, thinking as seriously as I can about a complex subject which is difficult for all of us, that on balance I very much hope that the Government will stick to their position and not accede to the amendment. I shall listen with much interest to what the Minister says.

Baroness Gardner of Parkes

I wish to oppose this amendment and support the Government mainly because of the report of the General Purposes Committee of the London Boroughs Association, which has considered this Bill quite carefully. The association expresses a number of concerns. In particular it is worried that in trying to control the bad people in local government one may damage the good ones. However, the sentence I wish to read to the Committee is from the association's minutes and I think it is highly relevant. It reads: In expressing the Association's concern we have urged the Secretary of State to be mindful of the uncertainty that might be created, and have asked him to use his anticipative powers with that in mind". I consider that that is what this whole debate is about: whether the Government should make the provisions wider and use these anticipative powers. The London boroughs are certainly hoping that the Government will do that. The original Bill supports that view but the amendment does not.

Lord Skelmersdale

No one who has read the papers over the last few weeks can fail to be aware that Clause 4(1), Clause 4(6) and Clause 6, which deal with the validation of past decisions on rate support grant and rate limitation have given rise to much misunderstanding, confusion and criticism. I observe that the noble and learned Lord, Lord Silkin, called this a major consitutional blemish; and the noble Lord, Lord Lloyd of Hampstead, followed that view, and said that it was constitutionally offensive.

This subject of validation is a very difficult area indeed. I believe that all noble Lords who have spoken have made that point. On the one hand the Government obviously do not want to validate more than is absolutely necessary. On the other hand the law must be as clear and effective as possible. We all heard the speech that my noble friend Lady Gardner of Parkes has just made. In spite of what the noble and learned Lord, Lord Silkin, said, nothing can be clearer than the word "anything" which appears not only in the Bill but in his own amendment. Unfortunately, the noble and learned Lord is clearly rather embarrassed by it because he backs away from it as fast as he decently can only two lines later.

All these amendments in one way or another seek to modify the provisions of the Bill relating to the validation of anything done before the passing of the Bill for the purposes of the provisions specified in Clause 4(2)—provisions dealing with rate support grants. In passing, I hope that I am right in my understanding that we are dealing not only with Amendment No. 3 but also with Amendments Nos. 6, 12, 14, 16 and 18.

Lord Silkin of Dulwich

Yes.

4.30 p.m.

Lord Skelmersdale

I am grateful for that confirmation. The Government did not produce this Bill lightheartedly or overnight. Each subsection was crawled over for days. Indeed, this crawling over was the reason for the Statement that I repeated last week which caused a certain amount of angst from the noble Baroness, Lady David. At an early stage in drafting the Bill we considered very carefully provisions that were not dissimilar to the amendments which we are debating today. However, for reasons to which I shall come in a moment, we decided that they simply would not do. I believe that what we have in the Bill is absolutely necessary to cover what needs to be validated properly. This is in the interests of all local authorities; and that is a statement which I now have to seek to prove to the Committee.

Amendments Nos. 3 and 14 go to the heart of the validation provisions. As I said, at an early stage in the preparation of the legislation this approach was considered carefully, but after a full examination we concluded that it did not achieve our objectives for a number of important reasons. First, there is the question whether all the matters which need to be validated are matters which consist of or were dependent upon a calculation of total expenditure or relevant expenditure.

The noble and learned Lord, Lord Silkin, had great fun commenting on what he said were two distinct explanations by my right honourable friend the Secretary of State in another place suggesting that he has confused the issue. This was miles away from his intention. My right honourable friend was particularly concerned in his second Statement to build on the words of his first Statement on 19th January. The previous words did not cover the whole position. His subsequent words did. I shall therefore have to have another go.

No one regrets more than I do the complexity of our local government finance legislation. However, a rate support grant report contains literally a myriad of decisions. The way in which these decisions are reached involves at some stage or another total expenditure or relevant expenditure considerations. however, the statutory provisions do not in all cases make express reference to those concepts. For example, grant related expenditures are figures of total expenditure and the principles for grant related expenditure have reflected the narrow interpretation of the rate fund revenue account. The relevant statutory provisons make no reference to total expenditure. The calculation of multipliers for certain purposes takes into account an authority's total expenditure, but again the relevant statutory provisions here do not refer to total expenditure.

Our view is that not all the matters which need to be validated consist of or depend upon total expenditure of relevant expenditure. In many cases there would be considerable room for legal argument as to whether a particular decision consisted of or was dependent upon a calculation of total or relevant expenditure.

Do Members of the Committee consider that the grant related expenditure principles consist of or depend on such a calculation? The principles for grant related expenditure depend on the interpretation of the rate fund which has been accepted in the past. Some of the components relate specifically to that interpretation: for example the grant related expenditure for contributions to special and capital funds. Under the wide interpretation of the rate fund such contributions are nothing more than internal transfers within the rate fund. Similarly the grant related expenditure component for the financing of capital expenditure incurred since 1981/82 has assessed all such financing costs, including the costs of financing internal loans; for example from a balance on the rate fund revenue account or from capital funds. Under the wide interpretation of the rate fund, these internal capital charges would not count as expenditure.

Does the Committee consider that the determination of the amount available for grants depends on a calculation of total or relevant expenditure? Under Section 54(4) of the 1980 Act my right honourable friend must take into account the latest information available to him as to the rate of relevant expenditure before determining the amount available for grant. What about close-ending adjustments under Section 62 of the 1980 Act? What about multipliers for the purpose now under Section 2(2) of the Rate Support Grants Act 1986?

We cannot afford for there to be any doubt whatsover over these important matters. It must be clear what we intend to validate. The amendment proposed would leave all the questions on these important matters unanswered. We do not want to provide a fertile field for litigation. My noble friend Lord Campbell of Alloway made this point very strongly and was backed up by my noble friend Lord Monk Bretton.

Another reason why the amendments do not work is that they validate things done only if they would by virtue of the provisions of the Bill have been lawfully done if they had been done after the passing of the Bill in relation to a future year. This ignores the fact that the Bill does not provide a complete definition of relevant and total expenditure for future years.

What the Bill does is to provide definitions with powers for my right honourable friend to specify adjustments. Under the 1980 Act there were also provisions for specifications under Section 54(5) in relation to relevant expenditure and directions under Section 56(8) in relation to total expenditure. Specifications and directions were made each year, usually in the rate support grant report for the year. The specifications and directions made for each year reflected different circumstances in that year.

The result has been that the definitions of relative and total expenditure have never been precisely the same in each year. Nor have they been the same as the provisions of the Bill provide for future years, as these provisions envisage specifications being made. All this means that none of the calculations of relevant and total expenditure in the past will have complied with the provisions of the Bill alone for the future. In short the amendment would mean that nothing was validated.

A general point has been raised in relation to the width of the validation provisions in Clause 4, and I assume by implication that this point also covers Clause 6. It has been suggested that the executive is putting itself above the law of the land. As I explained, this is simply not the case. If this Bill becomes an Act it will be the law of the land. Parliament and not the executive will have decided what the law of the land should be; the executive will have to comply with it and the courts will interpret it in the same way as any other Bill. The noble and learned Lord, Lord Denning, is quite right when he says that the Government have put a narrow interpretation on the matter in accordance with local authority wishes.

It has also been suggested that the Bill's provisions give a blanket indemnity to my right honourable friend. I have explained why it is absolutely necessary that the validating provisions should be as they are and why the amendments put forward do not cover them. These provisions deal only with decisions taken before the passing of the Bill. All future decisions will be reviewable by the courts in the normal way. Therefore it is not right to claim that the Bill takes away any obligation of my right honourable friend to remain accountable to law. This is why I dispute the suggestion that this is a constitutional outrage.

These provisions must be clear. As I said with reference to the last group of amendments, the Bill attempts to provide clarity and certainty. On the admission of the noble and learned Lord, Lord Silkin, the amendments would leave the position in certain circumstances to be determined by the courts. I must ask the Committee whether that provides the certainty for local authorities that is required. I suggest that the answer is no.

My noble friend Lord Campbell of Alloway was absolutely right when he took the view that such an approach would provide a fertile ground for legal argument as to whether a particular decision was consequent upon or depended upon such calculations. Under Part VI of the 1980 Act the Secretary of State has to take many individual decisions under the relevant statutory provisions. In many cases those provisions do not expressly refer to relevant or total expenditure but in one way or another they depend on the definition of total expenditure.

For example, although the duty of the Secretary of State to consult the local authority associations is not itself dependent upon total or relevant expenditure, he has consulted annually on proposals based on an erroneous calculation of total and relevant expenditure. To avoid arguments of the kind I have described, we concluded that it would be more satisfactory to validate clearly anything done for the purposes of relevant statutory provisions relating to rate support grant and anything done for the purposes of Part I of the Rates Act 1984.

I regret to say that these amendments provide only half the cure. In the light of this I urge the Committee to reject the amendments. They would be very much against the true interests of local government.

Lord Silkin of Dulwich

I have listened with a little surprise to the distinguished noble Lord, Lord Campbell of Alloway, deprecating the idea of asking the courts to decide those matters which customarily come before the courts; that is to say, matters which fall within the legislation and matters which fall outside the legislation. I listened with growing amazement to the explanation given by the Minister. It seemed very much to turn on its head the basic principles which I thought the Committee was considering.

The Minister told the Committee that the words "anything done" are clear and definite and at the same time that they are sufficiently wide to encompass anything which has a connection with the subject matter of this legislation. Therefore local authorities and others that may be affected by the actions of the Secretary of State would be deterred from litigation. I understand the Government's desire not to have more litigation than is strictly necessary. Without wishing to make a party point, this desire follows very much from the course of such litigation over the past few years which undoubtedly has embarrassed the Government.

That is not to say that wide wording should be deliberately used. Clearly, from what the Minister has said in this case it has been deliberately used. He told us how amendments which were somewhat similar to the amendment which I have moved were considered and rejected, and in the end this very wide wording was accepted. It does not mean that very wide words should be used where it is possible to define clearly what is intended.

Why can we not define clearly what is intended? As I understood it from what the Minister told the Committee, it is because, even though the Bill is about total and relevant expenditure, those terms are not terms of art which can be clearly expressed in legislation. In fact, they are expressed in Clause 3, which tells us what the terms mean specifically. It is difficult to see, therefore, why in Clause 4 a definition of what can properly be validated by reference to those very terms should be matters to which exception should be taken.

What I also found extremely difficult to follow was the Minister's explanation of the history of this matter, beginning with what he described as crawling over the drafting, the Secretary of State then giving an explanation to the other place of the reasons for this formulation, which he found it necessary—I think was the expression used—to build upon two days later. One would have thought that if the wording had been so carefully considered and the possible alternatives rejected for good reason, that would have been clearly shown to Parliament as soon as the matter was raised, if not indeed before.

When we come to the explanation today it departs even from the explanation given on Second Reading. It may be that the Minister believes himself to be building upon what he said. What he is now saying is that in order to avoid possible future litigation let us draw the indemnification widely enough to cover anything that may possibly be connected with the subject matter of this legislation, whatever the basis for it.

He cites as his instances of why that ought to be done a number of matters to which we have referred as matters which are plainly not within the terms of consisting of, or being dependent upon, a total or relevant expenditure. The noble Lord is quite bold about it, saying that certainly those matters are not part of total or relevant expenditure, nor do they depend upon total or relevant expenditure. Nevertheless they are all part of some enormous whole which may include both them and the definition of total and relevant expenditure, and so to avoid possible future litigation let us regard them as being validated, and so on.

Lord Skelmersdale

I am grateful to the noble and learned Lord for giving way. Having heard what he has just said, of course the bottom line of all this is the validating reports that have been made by my right honourable friends since 1981–82 and laid before another place. One cannot validate a report without validating the decisions that led up to the making of that report. It is this about which we are arguing. These, as the noble and learned Lord has himself just said, do not necessarily depend on the previously described total and relevant expenditure. Therefore one must, by definition, have a wide validatory provision, and that is what is found in the Bill.

Lord Silkin of Dulwich

Now we are going round in circles. My argument, and that of those noble and learned Lords and noble Lords, who support my amendment, is precisely the point that the Minister is making. There are many matters which are within the wording of the relevant provisions which are divorced from—which are not calculations of or dependent upon—relevant and total expenditure. Because they are separate, and because it is only total or relevant expenditure with which this Bill deals, they should not be validated if there were errors made by the Secretary of State relating to them. The Minister is saying that for that very reason they should be validated.

The issue between us is clear. I hope that the Committee will take the view—this is clearly a matter that must be put to the decision of the Committee—that it is highly desirable, whether the exact words of my amendment are accepted or not, that the words of the Bill should be narrowed down to no more than is absolutely essential. I stand upon that principle, and I ask the Committee to support it.

4.45 p.m.

On Question, Whether the said amendment (No. 3) shall be agreed to?

Their Lordships divided: Contents, 119; Not-Contents 123

DIVISION NO. 1
CONTENTS
Addington, L.	Kilmarnock, L.
Airedale, L.	Kinloss, Ly.
Amherst, E.	Kirkwood, L.
Ardwick, L.	Lawrence, L.
Attlee, E.	Listowel, E.
Ayleslone, L.	Llewelyn-Davies of Hastoe, B
Bancroft, L.	Lloyd of Hampstead, L.
Banks, L.	Lloyd of Kilgerran, L.
Beaumont of Whitley, L.	Lockwood, B.
Bernstein, L.	Longford, E.
Beswick, L.	Lovell-Davis, L.
Birk, B.	McGregor of Durris, L.
Blyth, L.	McIntosh of Haringey, L.
Bonham-Carter, L.	Mackie of Benshie, L.
Bottomley, L.	McNair, L.
Briginshaw, L.	Mitford, L.
Broadbridge, L.	Milner of Leeds, L.
Brockway, L.	Molloy, L.
Brooks of Tremorfa, L.	Morton of Shuna, L.
Bruce of Donington, L.	Munster, E.
Burton of Coventry, B.	Murray of Epping Forest, L.
Campbell of Eskan, L.	Nicol, B.
Carmichael of Kelvingrove, L.	Ogmore, L.
Cledwyn of Penrhos, L.	Phillips, B.
Collison, L.	Pitt of Hampstead, L.
David, B.	Ponsonby of Shulbrede, L. [Teller.]
Dean of Beswick, L.
Denning, L.	Porritt, L.
Diamond, L.	Prys-Davies, L.
Donaldson of Kingsbridge, L.	Rathcreedan, L.
Dowding, L.	Ritchie of Dundee, L.
Elwyn-Jones, L.	Robson of Kiddington, B.
Ennals, L.	Rochester, L.
Ewart-Biggs, B.	Ross of Marnock, L.
Falkender, B.	Seear, B.
Falkland, V.	Serota, B.
Fisher of Rednal, B.	Shannon, E.
Flowers, L.	Shaughnessy, L.
Foot, L.	Shepherd, L.
Gallacher, L.	Silkin of Dulwich, L.
Gladwyn, L.	Simon of Glaisdale, L.
Graham of Edmonton, L.	Somers, L.
Greenway, L.	Stedman, B.
Grey, E.	Stewart of Fulham, L.
Hampton, L.	Strabolgi, L.
Hanworth, V.	Taylor of Blackburn, L.
Harris of Greenwich, L.	Taylor of Gryfe, L.
Hayter, L.	Tavlor of Mansfield, L.
Hirshfield, L.	Tordoff, L. [Teller.]
Hooson, L.	Underhill, L.
Houghton of Sowerby, L.	Wallace of Coslany, L.
Howie of Troon, L.	White, B.
Hughes, L.	Wigoder, L.
Hunt, L.	Williams of Elvel, L.
Hutchinson of Lullington, L.	Wilson of Rievaulx, L.
Hylton-Foster, B.	Winchilsea and Nottingham, E.
Ilchester, E.
Jeger, B.	Winterbottom, L.
Jenkins of Putney, L.	Young of Darlington, L.
John-Mackie, L.	Ypres, E.
Kennet, L.

NOT CONTENTS
Alexander of Tunis, E.	Biddulph, L.
Allerton, L.	Birdwood, L.
Auckland, L.	Blake, L.
Bauer, L.	Boardman, L.
Beaverbrook, L.	Boyd-Carpenter, L.
Belhaven and Stenton, L.	Brabazon of Tara, L.
Bellwin, L.	Brougham and Vaux, L
Beloff, L.	Broxbourne, L.
Belstead, L.	Bruce-Gardyne, L.

Butterworth, L.	Luke, L.
Buxton of Alsa, L.	Lyell, L.
Byron, L.	Malmesbury, E.
Caithness, E.	Margadale, L.
Cameron of Lochbroom, L.	Marley, L.
Campbell of Alloway, L.	Marsh, L.
Campbell of Croy, L.	Marshall of Leeds, L.
Carnock, L.	Maude of Stratford-upon-Avon, L.
Clitheroe, L.
Cottesloe, L.	Merrivale, L.
Cowley, E.	Mersey, V.
Craigavon, V.	Milverton, L.
Crawford and Balcarres, E.	Monk Bretton, L.
Cromartie, E.	Morris, L.
Cross, V.	Murton of Lindisfarne, L.
Cullen of Ashbourne, L.	Newall, L.
Davidson, V. [Teller.]	Nugent of Guildford, L.
De La Warr, E.	Orkney, E.
Denham, L. [Teller.]	Orr-Ewing, L.
Derwent, L.	Pender, L.
Dilhorne, V.	Plummer of St Marylebone, L.
Drumalbyn, L.
Dundee, E.	Portland, D.
Elibank, L.	Rankeillour, L.
Ellenborough, L.	Rodney, L.
Elles, B.	Rollo, L.
Elliot of Harwood, B.	St. Davids, V.
Elliott of Morpeth, L.	Saltoun of Abernethy, Ly.
Erroll of Hale, L.	Sandford, L.
Faithfull, B.	Sempill, Ly.
Ferrier, L.	Skelmersdale, L.
Fortescue, E.	Strange, B.
Fraser of Kilmorack, L.	Strathcarron, L.
Gainford, L.	Strathspey, L.
Gardner of Parkes, B.	Sudeley, L.
Gormanston, V.	Suffield, L.
Gray of Contin, L.	Swansea, L.
Gridley, L.	Swinton, E.
Haig, E.	Teviot, L.
Hanson, L.	Thomas of Swynnerton, L.
Harmar-Nicholls, L.	Thorneycroft, L.
Hesketh, L.	Tranmire, L.
Hives, L.	Trefgarne, L.
Holderness, L.	Trenchard, V.
Home of the Hirsel, L.	Trumpington, B.
Hooper, B.	Vickers, B.
Kaberry of Adel, L.	Vivian, L.
Kimball, L.	Ward of Witley, V.
Kinnaird, L.	Whitelaw, V.
Lane-Fox, B.	Wolfson, L.
Lauderdale, E.	Wynford, L.
Layton, L.	Young, B.
Long, V.	Young of Graffham, L.
Lothian, M.

Resolved in the negative, and amendment disagreed to accordingly.

4.55 p.m.

Lord Skelmersdale moved Amendment No. 4: Page 4, line 40, leave out ("Conclusive block grant calculations") and insert ("Any basic block grant calculation").

The noble Lord said: I trust that it will be convenient to the Committee if I speak also to Amendment No. 5 at the same time. These are both technical amendments to Clause 4(3) and, for the avoidance of doubt, I use the word "technical" in the narrow and not in the wide sense which other noble Lords would probably apply to the whole Bill.

The amendments are to make clear that when we make the conclusive calculations for the block grant for 1981–82 and 1982–83 for England and Wales and also for 1983–84 for Wales we take account of the education pooling adjustment in the way we were intending and in the way that local authorities expect. I commend the amendments to the Committee. I beg to move.

Baroness David

I should like to thank the noble Lord the Minister for having had the kindness to send me letters about the amendments which were put down. That was extremely helpful, but I have to comment about the number of government amendments, including several lengthy amendments to Schedule 3.

We do not want to oppose this amendment. We agree that it is technical, but I think we have a right to complain about the number of minor technical amendments, as the Minister describes them, which have been made and the increasingly complex and fragmented nature of the law relating to local government finance. It does not make it very easy for those having to operate the system if the changes are made, even at this very late stage. These amendments were put down only at the end of last week and the Bill has been in print since 18th December. While we accept the amendments, we want to protest that they have been tabled as late as this.

Lord Skelmersdale

Nobody is more aware than I of the complexity of local government finance. At least I can say that it is a good deal less complex since 1980 than it was when the party of the noble Baroness was in power.

Noble Lords

Oh no!

Lord Skelmersdale

It was so complex then that there was not a computer in this country to do the calculations and they had to go by satellite every time to Columbus, Ohio. That is what I call real complication.

Having said that, inevitably I must regretfully confess that a number of amendments have been put down late, right at the end of last week, because in our constant crawling over the existing legislation we have discovered that it is necessary to refer in this Bill to that legislation although originally we were unaware of that. I can only apologise to the Committee that this is so. While recognising that we shall reach other government amendments, which I think I am right in saying consist of only four blocks of which this is one, I am grateful to the noble Baroness for her reception of Amendments Nos. 4 and 5.

On Question, amendment agreed to.

Lord Skelmersdale moved Amendment No. 5: Page 5, line 1, leave out from ("a") to end of line 3 and insert ("basic block grant calculation is a calculation made for the purposes of section 66(2) of the 1980 Act of an amount of block grant payable, without taking account of section 63 of and Schedule 10 to that Act (education adjustments).").

On Question, amendment agreed to.

The Deputy Chairman of Committees (The Earl of Listowel)

Before I call Amendment No. 6 I must point out to the Committee that if this amendment is agreed to I cannot call Amendments Nos. 7, 8 and 9.

[Amendment No. 6 not moved.]

Baroness Robson of Kiddington moved Amendment No. 7: Page 5, line 13, leave out ("whether").

The noble Baroness said: At the same time I should like to speak also to Amendments Nos. 8, 18 and 19.

I am hopeful that the Government will consider this a very reasonable amendment. In the debates on the Bill, both at Second Reading and earlier this afternoon in debating Amendment No. 3, great concern was expressed on all sides of the Committee about the legal position of the Secretary of State and the fact that he cannot, in our view, be challenged in a court of law.

I know that the noble Lord, Lord Skelmersdale, said in reply to the debate on Amendment No. 3 that future decisions in court can be challenged. However, if we read Clause 4(6) we see that it says: Subsection (I) above shall have effect notwithstanding any decision of a court (whether before or after the passing of this Act) purporting to have a contrary effect.

What this amendment wishes to do is to remove the word "whether", and Amendment No. 8 seeks to remove the words "or after". In my view, that would still leave the Bill in the way that the Government wish to have it.

Clause 4 validates all past decisions by the Secretary of State in respect of the calculation of rate support grant and in respect of the calculation of expenditure limits and rate limits. But Amendment No. 7 puts on the face of the Bill the right of the courts to make decisions in the future about the Secretary of State's calculation of rate support grant. This amendment would allow authorities to take actions for judicial review of ministerial actions to court after the enactment of the Bill. I hope that the Government will feel this is an amendment to which they can agree. I beg to move.

5 p.m.

Lord Denning

I should like to support this amendment. It seems to me plain that after the passing of this Act the courts will go by the whole of the provisions and then our new subsection, as it will be, subsection (4), will come in. After the Act is passed the courts will decide according to the Act as passed. It seems to me quite wrong that this clause should in effect say that a decision is wrong after the Act has been passed. It is quite all right to take a decision before the Act is passed, but not after. Therefore I should like to support the amendment.

Baroness David

I should like to add my support. We have already expressed our anxiety about the blank cheque which is being given to the Government by this subsection. This is another effort by a different method from that of my noble friends to try to get this changed. I should like to support the noble Baroness.

Lord Skelmersdale

It is quite clear that the Government know what they want to achieve but it is not so clear that the rest of the Committee either agree with what they want to achieve or indeed are going to allow us to do so.

These amendments seek to modify the validation provisions of the Bill, one of which we have just accepted, relating both to rate support grant and to rate limitation. They would mean that we would no longer be able to cater for the eventuality where a court case was heard before the passing of the Bill and decided on the existing statute but judgment is handed down after the passing of the Bill. The possibility of such a situation is slim but any Bill must cater for even the most remote of eventualities.

The effect of the amendments would be that in a situation of the type I have mentioned the matters which were the subject of the court decision would not be validated. This defeats the very purpose of the Bill, which is to validate without doubt past decisions relating to rate support grant and rate limitation. In other words, the offending words to which the noble Baroness, Lady Robson, refers in Clause 4(6)—the ones in brackets— (whether before or after the passing of this Act) are for cases in the pipeline. I should also make the point that this Bill is concerned only in this validation respect with decisions of my right honourable friend taken before the Bill gets on to the statute book. Therefore I am not sure whether the noble Baroness's worries still pertain.

Lord Silkin of Dulwich

Before the Minister sits down, he seems to he saying that the words "or after" are necessary. Perhaps he could confirm that the Government are saying that. Why should they be necessary? The noble and learned Lord, Lord Denning, said quite explicitly and in my view rightly that after the passing of the Act it is the provisions of the Act which will have effect. You do not need to say a second time that they will have effect whether the litigation started before or after the passing of the Act, even if after the passing of the Act the court makes a decision which conflicts with the law. Why does the Minister say the words are necessary?

Lord Denning

May I add just a word? As it stands, it is not confined to cases which are in the pipeline: it applies to any cases after the passing of this Act, and so if it is going to be confined to the pipeline cases it ought to be put in a different way.

Lord Skelmersdale

I accept the point made by the noble and learned Lord, Lord Silkin, that after the passing of this Act it will become the law. That is quite natural and normal. But let us take a court case which is entered into today. By the very nature of things it is going to take three weeks or so for this Bill to get on to the statute book. It is quite likely, knowing the speed of the courts—and the noble and learned Lord will know of this much better than I do—that a decision handed down will not be given until after the passing of this Act although that decision will have been made on the position under the existing legislation. Therefore this is something else that quite clearly the Bill needs to validate, and the draftsman has chosen this particular way in which to validate it.

I shall have to study carefully in the Official Report what the noble and learned Lord has just said. There may be different words to express the intention of what I have just spoken about, in which case the Government will naturally consider the matter very carefully.

Lord Denning

I am glad to hear that, because clearly this is far wider than cases in the pipeline. In the case the Minister put forward, the court was actually hearing a case and was about to give judgment. Immediately after this Act is passed it ought to be brought to the attention of the court. I suggest that the clause be reconsidered so that it can be confined solely to cases in the pipeline.

Baroness Robson of Kiddington

In view of the Minister's reply, and particularly his last words, I think that the wording as it stands at the moment, at least to a layman, is dubious. I should be very grateful if the Government would think about rewording that clause; and in the expectation that they will, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 8 not moved.]

Baroness David moved Amendment No. 9: Page 5, line 14, at end insert ("after the laying before Parliament of a report by the Secretary of State setting out the effects of the operation of this subsection in relation to that decision").

The noble Baroness said: The purpose of this amendment is to enable Parliament to be made aware of the implications of subsection (6) at the time when it operates to override a court decision. The amendment would require a report to be made by the Secretary of State at the time when Clause 4 operated to override a court decision; that is, at the time of that decision. The report would not prevent the decision being overridden but it would enable Parliament to be made aware of the implications of the clause on each occasion that it took effect.

Clause 4 validates retrospectively anything done by the Secretary of State before the passing of the Act in relation to rate support grant from 1981–82 to 1986–87. Any decision of a court on these matters shall have no effect where they purport to have contrary effect to the purpose of the clause. The exclusion covers decisions made both after and before the passing of the Bill, as we have just been discussing.

At the time that a court's decision is given in favour of the plaintiff and then is taken to have no effect, the amendment would require a report to be laid explaining what had happened. In practice, the plaintiff would be likely to be local authorities or ratepayers who had sought to challenge an aspect of the Secretary of State's actions on rate support grant other than any decisions connected with definitions of total and relevant expenditure. Assuming that a court was willing to hear the case, in view of the exclusion of decisions from having effect, the decision would be valid where it upheld the Government but excluded from having effect where it did not.

There is some doubt as to whether cases could continue to be brought against rate support grant decisions by the Secretary of State for the years concerned after Royal assent. The Bill does not preclude the courts having jurisdiction but denies their decisions having effect where those decisions run counter to the Bill. There seems to be an element of farce in this, in that the authorities, or whoever it is, can take their case to court but the possibility of having a decision in their favour is no good because it can be overruled.

The operation of the legal exclusions in respect of Clause 6 has meant that the challenge brought by the London Borough of Greenwich against the Secretary of State has effectively been frozen by the Bill's publication; and your Lordships will hear more of this when we come later to Amendment No. 21. Where Parliament is so exercised about the powers that the Secretary of State is taking to himself—and it has been clear from the speeches this afternoon that a great many of us all round the Committee are exercised—it seems reasonable that a report should be available so that everyone can be aware of what is happening and how the Act is working. I beg to move.

Lord Skelmersdale

I am grateful to the noble Baroness for explaining the amendment so clearly, but, as I said in my intervention towards the end of the winding-up speech of the noble and learned Lord, Lord Silkin, in the second block of amendments which we considered this afternoon, all we are interested in validating are those reports which have already been made and those decisions leading up to making those reports. There is a whole list, which I think I am right in saying I gave on Second Reading, as to what still has to be done which will not be covered by this Bill.

It may or may not help the Committee if I read out that list. The future decisions on rate support grant relating to current and past years are as follows. For 1981–82 and 1982–83 we still need to make conclusive calculations of authorities' block grant entitlement; for 1983–84 it is intended to make one further supplementary report and thereafter the conclusive calculations; for 1984–85 it is intended to make one further supplementary report and thereafter the conclusive calculations; for 1985–86 it is intended to make a supplementary report immediately after Royal Assent to this Bill, a further supplementary report sometime later and thereafter the conclusive calculations; for 1986–87. it is intended to make a supplementary report immediately after Royal Assent to this Bill, a supplementary report early in 1987–88, two further supplementary reports and thereafter the conclusive calculations. None of these things will be touched by this Bill.

What it is important for everybody to realise, and realise clearly and with certainty, is what is and what is not validated. To that extent I agree with the noble Baroness. It may be wholly unclear at any time to what extent the provisions of Clause 4(1) have effect under this amendment. To ascertain this an investigation would need to be made of all relevant court decisions, of whether reports or orders had been made and of what would be the position if the order was prayed against. The complications, I suggest, simply do not bear thinking about.

I hate to use the expression—I cannot for the life of me at this moment think of another one—but at the end of the day no purpose would be served if things done before the passing of this Bill were not validated at certain times. I understand the objective of the noble Baroness in having a report laid before both Houses of Parliament—to provide absolute certainty. But the way she has chosen does not provide that certainty. Perhaps if she and I can get together before the next stage of the Bill—

Noble Lords

Oh!

Lord Skelmersdale

If the offer is going to be refused, then the offer will be refused. As I was saying, it' the noble Baroness and I can get together on this matter, perhaps with our advisers, we may achieve an end result with which we are all happy. But at the moment I am afraid that I must advise her that this is not the way ahead.

5.15 p.m.

Baroness David

I thank the Minister. He has it wrong if he thinks we were pouring scorn on what he was saying. It is a surprise and a pleasure when there is an offer of co-operation and another look at something.

This amendment comes at the end of subsection (6) of Clause 4, and so it applies to court decisions and not to the laying before Parliament of the supplementary reports which the Minister quoted at Second Reading and quoted again from col. 598 of Hansard for 10th February. I hope he will remember what I have just said about the amendment being to the subsection which deals with court decisions. But I shall be very happy indeed to have a talk with him and his advisers in the hope that we can produce something at Report stage which will satisfy everybody. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 4, as amended, shall stand part of the Bill?

Lord Silkin of Dulwich

As I said in my speech on the amendments, this is an extremely important clause. The provisions relating to validation are outstandingly important. They are, in particular, in subsections (1) and (6) of the clause read together. As a result of the other amendments that have been moved, the Minister has been good enough to agree to look again at some of the wording, and so we are in the position that this clause generally will be yet again reviewed or crawled over, to use the Minister's own term.

I hope that in the process of crawling the Minister and the Secretary of State will give emphasis to the discussion which we had on the amendments to subsection (1) and indeed to the very narrowness of the decision of the Committee upon it. It is clear that the Committee was evenly divided. I know that one is enough and in this case it was four times one, but four out of a total of some 240 is within the permissible margin of error, in terms that are frequently used these days on other matters.

At any rate, apart from statistics I hope that the Secretary of State will recognise the considerable force of the arguments that were put forward by very distinguished Members of the Committee from every quarter expressing their anxiety about subsection (1), and will look at it again on the basis that, even if the Government have reservations about my attempt to narrow down the issue; that subsection can be narrowed down and put into language which will plainly explain to local authorities what it is that is validated, as to which there is no need for them to go to law—they will not be successful if they do—and what is not validated.

In the course of his replies to a number of amendments, not only that one but others, the Minister gave a much clearer indication than we have had in the past of the matters which in his view would be validated and those which would not; those which would fall within the subsection and those which would not. It occurs to me that that would be extremely helpful. I do not say that we should regard it as satisfying our anxieties. However, it would go some way towards satisfying them and it would be helpful to the local authorities if the Government were to put down a new schedule which specifically set out those matters either one way, the other way or both ways. The matters I refer to are specifically those which they would regard as coming within the words "anything done" and those which would not. At least local authorities would then have the plain words of the statute and an itemised list of matters. They would not have to go to counsel every time a dispute arose to ask whether a matter fell within the deeming provisions of subsection (1). I hope that the Minister will consider those matters with his right honourable friend.

I now turn to subsection (6), concerning which the Minister promised to look at the wording again. I see no necessity for any wording that refers to decisions made after the passing of the Act. It seems to me that if a court makes a decision after the passing of the Act even in relation to litigation which began before the passing of the Act—litigation in the pipeline, as it was put—a court would be compelled to have regard to what the law was at the moment before the decision was made by the court. The court would therefore automatically be wrong if it made a decision, albeit based on what it conceived to be the law previous to the passing of the Act, which was in conflict with the Act. I therefore hope that the Minister's consideration of that subsection will be wider than that which he has promised.

I shall also go further to say that I did not move Amendment No. 6, which I asked the Committee to take together with the amendments which I did move and the corresponding amendments to Clause 6. However, I ask the Minister to look at the wording, as it seems to me that subsection (6) as it stands is really the wrong way round. We have a provision in subsection (1) that certain things are deemed to have been done in compliance with the provisions of the legislation. When we come to subsection (6) we are told that subsection (1) shall, have effect notwithstanding any decision of a court (whether before or after the passing of this Act) purporting to have a contrary effect". Why should that be necessary? That which the Act says shall be deemed to have been done, shall be deemed to have been done. It does not seem necessary to repeat that it shall still be deemed to have been done even if a court has made some earlier or later decision.

Perhaps the reality of the matter is that what we are concerned about is making it clear that a decision of a court, which may be rightly made before the passing of the Act or wrongly made after the passing of the Act, will have no effect after the passing of the Act. That is why Amendment No. 6, which I did not move, was put in precisely those terms. I ask the Minister to look at that matter.

I am not asking for a decision on any of these matters now. However, I am asking the Minister to look at the suggestions which we think might mean considerable improvement and the removal of uncertainty in the legislation. It is with that that we are all concerned, because we are not objecting to the principle of the legislation.

Lord Denning

Having expressed anxieties about Clause 4, which will no doubt pass the Committee stage, it seems to me that by careful drafting most of those anxieties could be removed and Clause 4 could be made acceptable. At the moment I retain the view that it is too wide. However, I hope that by Report stage it can be put in terms which are acceptable to everyone.

Lord Skelmersdale

I should not call it a vain hope. However, it is a very wide hope. What I actually promised to do was to look at two particular amendments and the speeches made by noble Lords regarding them.

The first matters for consideration were Amendments Nos. 7 and 8 and, by reference, Amendments Nos. 19 and 20 on the rate-capping side. Those refer to Clause 4(6) and in preparation for this debate I looked at the very point which the noble and learned Lord, Lord Silkin, has just raised. He raised the matter of the word "purporting" in Clause 4(6) and also in Clause 6(4). In those provisions the draftsman was addressing a problem which is a real and difficult one which my advisers describe as "semantic". I had always felt that there was a slight undertone of rudeness in describing arguments as semantic. Apparently I was wrong, as I often am.

Any decision of a court given after the enactment of the Bill would not have a contrary effect, although it might be delivered in terms of previous law, which is the point which the noble and learned Lord has just raised. Accordingly, I am advised that the word "purporting" is apt to describe the legal position. However, I readily accept that this is a matter upon which there is plenty of scope for argument, and I shall look at what the noble and learned Lord has said.

What the noble and learned Lord has just said shows that I was quite right to offer the noble Baroness and perhaps the noble and learned Lord himself a joint colloquy as to the exact nature of the validation provisions which we are now seeking in Clause 4. I am grateful to the noble and learned Lord, Lord Denning, for saying that he is sure that an acceptable solution will be found. Therefore, I think at this stage I can do nothing more than to ask the Committee to allow Clause 4 to stand part of the Bill.

Clause 4, as amended, agreed to.

Clause 5 [Further provision as to future]:

Baroness David moved Amendment No. 10: Page 5, line 41, at end insert ("and the Secretary of State shall pay compensation to local authorities for any additional expenditure incurred or expenditure rendered abortive by them as a consequence of the provisions of this section.").

The noble Baroness said: The purpose of this amendment is to require the Secretary of State to compensate the local authorities for the effects of the Bill in relation to accounting procedures. It is intended to highlight the question of the extent to which the Government are to blame for the difficulties caused to local authorities by the Bill.

Clause 5 retrospectively applies the definitions of total and relevant expenditure to the intermediate years, 1983–84 up to 1986–87. That includes the power of the Secretary of State to introduce adjustments in respect of particular authorities. In those circumstances, authorities could face additional costs arising from variations in accounting practices applied retrospectively up to four years afterwards.

While costs in terms of staff time or otherwise may not be substantial in most cases, they could be substantial in some cases and there is the question of principle, given that the Bill in no way arises from error by local authorities or still less by ratepayers. The question has now been resolved as to why the Government's initial legislation on block grant (which is the 1980 Act) failed to take proper account of a legal issue which has now arisen.

It is true that the Government somewhat reluctantly agreed to adopt the interpretation preferred by local authorites and that doubts existed at the outset about its correctness. It remains unclear why the definition adopted was not clearly set out, if necessary in amendment legislation. In that sense the Govenment have been prepared to take risks with this aspect of local Government finance for several years; and it is ultimately their responsibility.

After all, we have had plenty of Bills concerning local government finance since 1980. Even when the error was discovered last September the Government did not move with haste. Another month or so passed before the Attorney-General confirmed the initial legal view, and it was 16th December before the Secretary of State admitted the existence of the error. This was despite several meetings with local authorities at which the then current redetermination applications were discussed, and there were opportunities in the Commons, including a Private Notice Question from my honourable friend Dr. Cunningham, to clarify what was happening with the overdue block grant settlement.

When the Bill finally appeared, it went far beyond the limited claims made as to its purposes. The complexity and contentious nature mean that it is still before Parliament and is even now being used by the Government as their pretext for dropping the privatisation proposals. We do not mind so much about that. They are doing so because of the complexity of the Bill and the drafting of the Bill which from the debates we have had already this afternoon still seem so totally unsatisfactory. In the meantime authorities have been left in a state of uncertainty with their accounting practices as much as four years in arrears. The amendment seeks to place the moral responsibility and any financial cost for the situation on the Government. I beg to move.

5.30 p.m.

Lord Denning

I support the amendment by going back to our civil law. It has been the case for the past 20 years or so that if a person negligently gives advice which is erroneous, or negligently makes a statement which is erroneous on which another person acts to his deteriment, then he can recover damages in respect of that negligence. I am afraid that the Government have made a statute—and some people would say it was negligence—which is erroneous and has to be corrected; and local authority associations have done important work in correcting, as they were bound to do, the errors of the Government. On the principles of civil law, they ought to be compensated for the expense to which they have been put. That is the civil law. I do not say that it applies to our statute law; but, on the other hand, is there not a good moral case for this amendment to be accepted?

Lord Skelmersdale

In answering this amendment, perhaps I may make the general point that in my experience the law is rather like the mills of God: it grinds exceedingly slowly. I do not think that the noble Baroness should be surprised that lawyers have taken so long to make up their minds on the exact formulation that has been produced in this Bill.

Reverting now, after that very interesting Second Reading speech of the noble Baroness, to the amendment in question, I have to advise her that it contravenes Clause 15 of the Bill, which as I understand the point is by way of being a money resolution clause. Clause 15 states: There shall he paid out of money provided by Parliament any increase attributable to this Act in the sums payable out of money"— and this is the point— so provided under any other Act". In other words, as I read it and assuming that my advice is correct, if money was paid out under the 1980 and 1982 Acts which are directly relevant to this Bill, it is cricket to continue paying them out, albeit in a slightly altered form. But what the noble Baroness is proposing here is an increase, or rather a different form of payment, which is in none of the previous Acts relevant to rate support grant. Therefore, because of the money resolution, I am advised that this is slightly improper as an amendment. I have been trying to check up on this point; but, regretfully, I have not totally succeeded. However, that is what I understand the position to be.

Baroness David

I was lucky enough to meet the Minister after lunch before we came into the Chamber and he warned me that this would be his reaction to the amendment. I had time to look up Clause 15. My understanding of the clause is that it prevents this Bill from increasing grant payable under other legislation such as the Local Government, Planning and Land Act 1980. The last words of Clause 15 say, Out of money so provided under any other Act". However, this amendment is designed to provide for a small amount of grant to be payable under this Bill, not under any other Act.

My second point is that I have looked up the Notes on Clauses and I can find no guidance whatsoever on Clause 15. Perhaps I may read out Clause 15 as it appears in the Bill: There shall be paid out of money provided by Parliament any increase attributable to this Act in the sums payable out of money so provided under any other Act". I went to the Notes on Clauses for guidance and found that all they say about Clause 15 is this: This clause provides that there is to be paid out of money provided by Parliament any increase attributable to the provisions of the Bill in the sums payable out of money provided by Parliament under any other Act". The Notes on Clauses merely repeat the words of the clause and so that is not particularly helpful.

We put forward the amendment to test the principle. If the Government object to the drafting, we shall be happy to take it away and bring back another amendment at Report. However, it is, as the noble and learned Lord, Lord Denning, said, really a matter of moral responsibility. The Government have let local authorities in for this because they were willing earlier to accept the wrong interpretation of the 1980 Act. We feel that the wretched local authorities should have some form of compensation.

Lord Skelmersdale

Did I detect a certain sharpness in those last words of the noble Baroness, Lady David?

Lord Graham of Edmonton

I hope so.

Lord Skelmersdale

The noble Lord, Lord Graham, says that he hopes so. If I may be sharp in return, I do not recall that when the Clay Cross position was validated by the last Labour Government, any issue of compensation to local authorities was even thought of or considered by the party opposite, Therefore I do not think that compensation, which as I understand it has never been used in this way for local government in the past, has any justification for the future; and, after all, the Explanatory Memorandum says that this will not cost extra money.

Lord Pitt of Hampstead

I cannot allow the Minister to get away with that one. As we understood it, the whole purpose of the 1980 Act was to control local government expenditure and the way in which rate support grant was determined. During several debates we have had on local government expenditure the Goverment have always claimed that they were trying to help the local ratepayer. On this occasion the local ratepayer is disadvantaged. The amendment is saying that if the local ratepayer has been disadvantaged, he should be compensated. I cannot understand why the Government cannot accept such a simple principle.

Lord Skelmersdale

The Government do not accept that the local ratepayer has been disadvantaged.

Lord Dean of Beswick

I should like to take up a point that the Minister has made. He said that the last Labour Government had validated the action of Clay Cross. What did he mean by that? My recollection is that there was very little if any validating. In fact the councillors involved paid the full penalty under the law as prescribed and some of them are still disqualified from holding public office.

Lord Skelmersdale

I have forgotten the name of the Act in question but I believe it was the "something or other" Housing Act 1974.

Lord Dean of Beswick

The Opposition are entitled to a fuller explanation than that. My information—and like the noble Lord the Minister I am speaking off the top of my head—is that there was no retrospective legislation passed to protect the Clay Cross people. As I said, some of them are still paying the penalty for what they did.

Lord Skelmersdale

I have now been provided with the title of the Act. It is the Housing Finance (Special Provisions) Act 1975. The whole purpose of that Act was retrospectively to relieve councils who were liable to financial penalties but had not yet been surcharged. That is why I referred to that Act.

Lord Silkin of Dulwich

I am glad that the Minister has now identified the legislation because I have more than once said that when I die that title will be found to be blazoned across my heart. The distinction between that legislation and the present Bill, from the point of view of the amendment, is that in relation to that legislation there was no advice by the Government which caused the local authorities concerned to act illegally. There is no analogy at all.

Rather against the Government's own will, because at first sight they thought that the law was otherwise, and presumably after taking such advice as local authorities would expect the Government to take in the circumstances, the Government said, "Right, local authority associations want to interpret the legislation in this way and we are prepared to interpret it in this way". Not unnaturally, the local authorities accepted that. I am quite certain that in those circumstances if I were a clerk to a local authority I would say to myself "Well, the Government did not like the idea to begin with but now they have accepted the view that we have taken. They must have obtained proper advice on the subject and formed the opinion that they are within the law in doing so. Therefore we ourselves, in so far as any action is called for by us, are entitled to rely on the advice that the Government have taken and the view on the law that the Government are putting forward".

However, it now appears six years later that unhappily the Government were wrong and that they misled the local authorities. Perhaps there had been no additional expenditure and no expenditure was rendered abortive, but all we say in this amendment is that if there had been then the Government, having put the local authorities in that position, ought to see that they and the ratepayers do not suffer as a result.

I must say that I was surprised when, in his first reply, the Minister did not raise the point of principle which he raised during his previous two or three replies but instead dealt with the matter on a basis which he himself might describe as semantic, by reference to Clause 15. I do not know whether or not Clause 15 is amendable. If it is not amendable—and I confess my ignorance of the rules of this place in that repect—even though we have not yet reached it the Minister may be right. I do not know. However, if it is amendable I do not follow the semantic argument. It is the question of principle which is important and I hope the Minister will accept what my noble friend said and the support he has been very properly given.

Lord Skelmersdale

As I sought to explain in what the noble and learned Lord deigned to call my semantic initial argument, I understand that the amendment is improper because of that clause in the Bill. I attempted, off the top of my head, to explain that there are no compensation provisions in existing legislation. Therefore because of Clause 15 if it is unamendable (I suspect we will not have a definitive ruling on that until tomorrow) and if I am right in what I said to the Committee—I have no reason to believe that I was wrong—Amendment No. 10 would fall because of Clause 15.

However, I am not, I hope, an unreasonable man and if it is necessary to come back to the Committee tomorrow and apologise, and even more necessary to debate this again on Report, I am totally in the hands of the Committee and would expect to do both those things.

Baroness David

We have moved perhaps a little further as we have debated this point. The Minister said—twice, I think—that he was talking from the top of his head. Therefore I hope he will make inquiries to be absolutely certain that he is correct in what he said. Of course we shall also take advice on exactly what Clause 15 means and whether it is possible to amend it and therefore make Amendment No. 10 possible. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.45 p.m.

Baroness Fisher of Rednal moved Amendment No. 11:

Page 5, line 41, at end insert— ("( ) In the application by virtue of subsection (1) above of section 3 above in relation to an intermediate year, the Secretary of State shall not have power by virtue of subsection (1) or subsection (7) of that section to specify an adjustment to the relevant expenditure or total expenditure of a local authority by reference to an item of account being a debit or credit to any account of any fund established under paragraph 16 of Schedule 13 to the Local Government Act 1972 which has been approved by the auditors of the local authority.").

The noble Baroness said: Before I speak to this amendment, I am absolutely fascinated by the thought of the Minister crawling over the complexities of it. I wonder whether this is a new weekend leisure sport for Ministers.

Lord Skelmersdale

I did not say that I personally had crawled over it. I said that it had been crawled over, which is a different point, whether at the weekend or not.

Baroness Fisher of Rednal

Perhaps if the Minister himself had crawled a little it might not have been so complex. Perhaps the noble Lord will accept that as a bouquet for him.

When I spoke on Second Reading I said that my knowledge of local government finance would get me a C-minus. Since then, as the noble Lord may have noticed—or perhaps not—I have not been in the Chamber as often as usual. That has been for medical reasons, but it has given me an opportunity of doing a little more reading than I might otherwise have done. Local government finance has not been convalescence reading, by any stretch of the imagination. However, I think I now have some of it completely firmly in my mind. Clauses 1 and 2, where the Government describe the narrow basis for the interpretation of the general rate fund, are out of the way; and that is now clear in my mind. What was not clear previously was where the local authorities asked for the narrow basis and the Government initially thought that they needed a wider basis. We come back again to the phrase "narrow basis". It is complicated to understand. It might have been better if the Government had gone for the middle way and taken the middle lane when we would perhaps have had the best of both worlds.

However, understanding that and the fact that it takes place from 1st April 1987, I am now quite clear on relevant expenditure and total expenditure. The noble Lord, Lord Skelmersdale, has defined those clearly this afternoon. They must be the items in the account but also with the proviso that the Secretary of State can make amendments. Therefore I have those definitions firmly in my mind and no doubt the noble Lord the Minister will tell me if I am wrong.

When we come to the relevant expenditure I can see that point clearly and I hope I have that aspect right too: that the Government have this big cake that they intend to give out to local authorities. Local authorities of course think it is a very small cake. Nevertheless, there is this overall cake and so the total expenditure really is the slice of each part for each individual authority. I think I have that right.

Then the noble Lord, Lord Skelmersdale, talked about distributing the block grant. This means that individual authorities notify the Department of the Environment about the level of their budgets and then, as time goes on, about changes to the level of spending, ending with the final returns. What the Minister said was important. There are the conclusive entitlements to grants which have to be worked out some time after the year ends. It so happens that the noble Lord said that final conclusive calculations have only been valid for 1981–82 and 1982–83 for authorities in England. I do not know about Wales or Scotland; he did not make mention of those. Adjustments by way of supplementary rate support grants still remain to be made for other years.

I feel sure that noble Lords are not particularly interested in the rate support grant and that their conversation is perhaps a lot more interesting. Thank you! No doubt I do not speak loud enough! I can shout, of course!

Adjustments by way of supplementary rate support grants still remain to be made for other years. It is very easy for the Minister to say that, but all local authorities are concerned. They are in limbo. What we are talking about is not words on a piece of paper: it is finance. Finance to local authorities means money for services. One really needs to say to the Government that it is important that as soon as possible the adjustments by way of supplementary rate support grants are made. The Minister has assured us that they will be made but it would be interesting if he could tell us the actual date when they will be made so that local authorities will know how they have to plan within the next two years when they are looking long term.

Then we come on to Clause 5 of the Bill. I hope I have got this part of the Bill clear as well because to my mind this requires the new system of accounting to be applied to those years I have mentioned—1983–84, 1984–85, 1985–86 and 1986–87. Noble Lords will appreciate that many authorities have closed their books; they have had their books audited for those years. Therefore any change will mean that notional accounts will have to be created on the new basis because the system created by the Bill did not exist at the time. What a great difficulty that puts the local authorities in. It makes it more difficult to see whether they are getting all that they ought to get from the rate support grant.

In applying the new system to those years—the Bill calls them the intermediate years—the Secretary of State has indicated that he intends to use his new powers to take out of relevant and total expenditure so much of any contributions to special funds as exceeds any rate fund revenue account deficit for that year where that contribution does not relate to specific liabilities of the authority to third parties. He goes further than that. He is also going to deny those authorities which are concerned the benefit of using that contribution to reduce spending in later years.

The Minister talked about complexity. The wording of that letter denying the authorities the right to use their contributions to reduce spending in later years actually comes from the Department of the Environment itself. To clarify that, it sent out a letter on 16th December and had to send another letter on 18th December saying: I am afraid that the second sentence of the first paragraph was not properly addressed and should read". If the matter is complex and if the department cannot even get the letters right, are we sure we are getting this Bill right? It is important.

We then find that the practice of using special funds—I am going to speak about Birmingham later because I know the Minister loves me to speak about my beloved Birmingham—as a means of smoothing out differences in grant entitlements from year to year is well known. The Department of the Environment is fully aware of it and has been for a long time. Local authorities use it. It is a well-known practice.

The particular complaint of the Secretary of State is that in the case of Birmingham—there are some other local authorities; I think there are 11 local authorities chiefly concerned, covering all political complexions, and even hung councils—they allowed their rate fund revenue account to go into deficit in order that this result might be achieved. This is not accepted by Birmingham. I hope the Minister will accept that local government revenue accounts are kept on a receipts and payments basis during the financial year but, unlike central government, year-end accounts are drawn up on an income and expenditure basis, including debtors and creditors. It follows that a year-end deficit does not automatically mean a cash deficit.

It was quite wrong in the debate which took place in the other place for the Secretary of State to say that Birmingham's fund contribution in 1984–85, equal to the rate fund deficit, did not exist. That is completely untrue. The circumstances surrounding the fund contribution were fully examined by that very well-known firm Price, Waterhouse, who are the auditors, and the Audit Commission itself. They see nothing illegal about it. In fact, in May of last year Price, Waterhouse actually notified the Department of the practice that Birmingham was operating. In the Second Reading debate in the other House the legality of Birmingham was not challenged by the Secretary of State. In fact, as I said on Second Reading his words were that there was nothing illegal.

Therefore we find this great difficulty that has arisen. It is a great difficulty because the amount of money could be £8 million or £13½ million. What I am saying this afternoon so far as concerns Birmingham is that the Secretary of State has completely misunderstood the council's overall financial position in 1984–85 when there was a deficit on the rate fund. The council's overall cash position was not in deficit and it is wrong to suggest that the contribution made to the fund was somehow without real money.

As the noble Lord is no doubt aware, the subject was extensively discussed in the other place on 26th January. I refer him to cols. 67 to 83 of Hansard. The legal officers in Birmingham crawled all over the law. There were two different city treasurers. In fact, the first city treasurer left Birmingham to become what I believe is the highest paid treasurer in the country. He has gone to Kent, where perhaps they have a much better climate than in Birmingham, though I do not believe that people there can in any way be nicer. Some very eminent solicitors are employed by the city of Birmingham and no doubt the city treasurers are also eminent people. Moreover everybody knows that the chief executive officer of Birmingham is a man who for a long time has been working with the Association of Municipal Authorities.

There was nothing wrong with what they did. However, the powers in the Bill, and in Clause 5 in particular, bring into question the legality of Birmingham's actions. This measure is pure retrospection. The Secretary of State is giving himself powers to take away from the city a large amount of money which may come to between £8 million and £13½ million. I am aware that in the Department of the Environment a close study is being undertaken of this matter because of further information that has been sent to it arising from the Second Reading of this Bill in another place. I hope that this information will enable the Secretary of State to keep an open mind on the issue, as he said he would when he spoke during Second Reading, and to accept that Birmingham's fund contributions were properly made.

I have spoken primarily about Birmingham but I feel sincerely for all other local authorities which find themselves in the same predicament. It is not a case of bad accounting or a case of fiddling the books; it is a case of operating the Act as it was when they were given necessary powers that are now to be taken from them. I beg to move.

6 p.m.

Lord Dean of Beswick

I rise to join with my noble friend and colleague in support of this amendment. She has ranged fully through the purposes of the amendment. However, I was somewhat surprised when I heard the Minister say that my noble friend and colleague Lady David, who is leading for this side of the Chamber, had almost made a Second Reading speech. At least, reference was made to a Second Reading speech on a previous amendment.

The way in which the different clauses of this Bill are listed and the intentions of the Government in the Bill almost provoke Second Reading debates. For instance, earlier today a distinguished Cross-Bencher referred to centralisation by the Government and admitted to being rather surprised that a government of the colour of the present government should aim to carry out such a policy. There is no question but that this is happening in regard to this particular finance Bill. The rate support grant system will be that which the Secretary of State wishes it to be and no one will be able to alter it in any way whatsoever.

I shudder at the thought of what may happen sometime in the distant future when perhaps we have an elected government who are directly opposed to the aims of the present one and who have a more extreme way of thinking than many of us in this Chamber today. I wonder how they will use the powers that are asked for by the Secretary of State in this Bill. I think that they are very dictatorial powers indeed. In fact, one of the main purposes of the Bill is to deny local authorities the right to have recourse to the law as a final resort.

In this Chamber during debates, at Question Time and when discussing Bills such as this one there is continual reference to local authorities, and one would think that we were talking about a group of people who act on their own behalf in nobody's interests but their own. One would think that they were almost a self-elected corporate body. However, they are not. Most of the people who man these local authorities face the electorate more regularly than any other elected men and women in this country. Very often their decision on activities must be voted upon, and they are approved or disapproved accordingly. These local authorities are fighting to protect the interests of their ratepayers full stop.

The Government continually say that they have no money of their own; that the money they have is collected from the community on behalf of, the community and is apportioned to that community. That is the situation in local government. I think that the Bill before us is a bit strong, bearing in mind that from many sides of the Chamber—not only from these Benches but from the Alliance Benches and the Cross-Benches—there have been continual complaints about a succession of statements on rate support grant that, at least over the three and half years since I have been in this place, have become steadily more complicated and more difficult to understand, so that obviously the Government have had to come back and change them at the next drop of the hat.

This amendment, which deals with a major part of the Bill, makes sure that there will never be any need for a Secretary of State to make a statement on the rate support grant other than to inform us of what he wants to be in it. One can talk about consultation and negotiation, but those of us who have been involved know from past experience that when a decision is made as to the percentage there is little consultation. I wonder why the Government are insistent that local authorities should not have the recourse to law that is available to other individuals and sections of the community. Could that have its roots in the fact that the present Secretary of State for the Environment, in his earlier capacity as Minister for Transport, on more than one occasion had to go before the courts to account for some of his actions and it was found that he had misinterpreted his powers? He had in fact misinterpreted the law and corrective legislation had to be brought in retrospectively. He had broken the law, though probably unknowingly. The fact of the matter nonetheless is that he broke the law.

I think that it is a dangerous situation when, in the final analysis, the Government intend to tie up the law so completely that nobody has recourse to the law and people do not have the benefits of the impartiality for which our courts are famed. I think that it is a regrettable state of affairs. Sometime in the future the Government may cast their mind back and may well say that this was something they would rather forget. Nevertheless, the amendment is designed to prevent the Secretary of State from having power to disallow for block grant any contribution to a special fund, or expenditure financed from a special fund, prior to 1st April 1987.

This amendment deals with one aspect of this Bill which goes beyond putting the legal base of the rate support grant on to a sound footing. My noble friend Lady Fisher referred to the 11 authorities to which the Secretary of State has already written. I had a list of 13. There may be more by now, because my information is a little dated. There are nine Labour-controlled and four Conservative-controlled authorities among them. There is therefore a spread of political views and responsibilities. The Secretary of State has written to those authorities asking for further details of transfers that they had made to special funds and which have resulted in deficits on their rate funds. I understand that the letter also said that the Secretary of State proposed to use the powers contained in the Bill to put beyond doubt the fact that such transfers cannot be made for 1983–84 and subsequent years.

The objection to that proposal is that it is retrospective. The Government may pedantically say that, inasmuch as they will change the rules in future supplementary reports it will not be retrospective. However, the authorities have brought into account the grant that those transfers produced. Against that, the Government will say that the cash flow will not take effect until next year and therefore authorities can budget for it. The authorities undertook those transfers in good faith. Their actions were often backed by auditors' opinions. The Government will argue that those authorities are gaining grant by unfair means at the expense of other authorities. Against that, the Association of Metropolitan Authorities believes that those authorities should be paid the grant that they claimed on the basis of a bona fide interpretation of the law. The Government will argue that those transfers were illegal and that the grant would not have been paid on the basis of those transfers. It can be said that the fairest way to resolve that dispute would be to let the courts decide who had correctly interpreted the law.

There is a great deal in that last point. It encapsulates what this dispute is all about. Under the Bill, there will be no recourse to the law. The Secretary of State will determine what will happen. That is not the way that Conservative or Labour governments traditionally do things. I support the amendment.

Lord Bellwin

I shall make just one or two observations on what the noble Lord, Lord Dean, has said. The record has constantly to be put straight when we debate this subject. For my sins, I am one of those who well remember all this. The noble Lord expressed his anxiety at the power that the Bill may give an extreme government in the future. If we ever have such a government with a majority, he can be sure that they will do what they want. We should have no doubts about that.

Lord Dean of Beswick

That is no excuse.

6.15 p.m.

Lord Bellwin

I had to smile when the noble Lord talked about local authorities fighting to protect their ratepayers' interests. I wonder what the people who live in some of the inner London boroughs will say to that. They may wonder what kind of fighting is being done on their behalf. I suspect that they may think that the local authorities are only fighting to extract ever more money. The last thing one could accuse them of is fighting to protect their ratepayers' interests.

The noble Lord said that the rate support grant was becoming more and more complicated and difficult to understand. Complicated it is; and difficult to understand it is. I well remember the meetings that I attended to try to fathom out how the system worked. When we debated block grant in this place in 1980, we were told that the system was so obscure that no one could understand it. I said that I would sit down and give way to anyone who could explain how the system worked. Not one Member of this place stood up. I had to say ask how, if no one understood how the system worked, they could object to what was then being proposed. Nothing more was said. Complicated it is; but new it ain't. It is not getting easier, but it never was easy.

The noble Lord said there has been little consultation. That depends upon the view that one takes. I would only say that there is a darn sight more now than there ever was when I was involved. If that was inadequate, there it is.

I was interested to hear great concern expressed that we should all now go to court to have the issues decided. I have stood in this place to bring forward Bills. I was told that the last thing we wanted to do was to go to court. Suddenly there is a new-found wish to do so. That may be what the noble Lord and the noble Baroness would like, but it is not what I should like and I suspect that not many Members on this side of the Committee would like that.

As I said in the earlier debate, I am not without sympathy for the underlying theology of what is being said about retrospectively disallowing expenditure and such matters. It is not an ideal situation. No one has sought to say that it is. When trying to decide how it came about, all one can do is look at the interpretation of the 1980 legislation which the noble and learned Lord, Lord Denning, so effectively ridiculed earlier. That had merit, because of the way the legislation was set out. No one would deny that. The legislation was a genuine attempt by the Government to try to meet the wishes of the local authority associations. It seems that we just cannot win. We say either "Yes" or -No" or "We will" or "We will not". We cannot do right.

I hope that we shall not accept the amendment. I can understand why it has been brought forward. It was done with good intentions and in an attempt to try and limit central government's centralisation of local government. I am not without sympathy for that view. I understand it. If we must have this legislation, and I think everyone agrees that we must, it is just about as right as we shall get it.

Lord Dean of Beswick

I think that I should respond. I think the contribution of the noble Lord, Lord Bellwin, goes a little wide of the amendment. I was not suggesting that I wanted to hold up the eight inner London boroughs as an example of those fighting to protect ratepayers' interests. The noble Lord fully belaboured that point for about 20 minutes a couple of weeks ago. In contrast to those eight London boroughs, there are a mass of other authorities, including some of those I have read out which are Conservative-controlled, which have acted with discipline and reasonableness. But they find themselves on the receiving end. Those are the authorities which I was talking about. We should not let the way that the leaders of eight London boroughs have behaved blight the whole of local government.

Lord Bellwin

The noble Lord has a background in local government for which I have great respect. If he and others who speak on that side of this Committee would only join in the open condemnation of what those people do to the whole of local government, not only should we have more respect for the argument but I think it would help. That is all that I have sought to do in my observations on local government during the past couple of months.

Lord Dean of Beswick

If the noble Lord had been in his place during our last local government debate, he would have heard my criticism of my local authority in Manchester.

Lord Underhill

I was going to say the same as my noble friend Lord Dean. I am sorry to have to cross swords with my old antagonist the noble Lord, Lord Bellwin. He and I cut our teeth on either side of the Dispatch Box way back in 1980 and we have regarded ourselves as bosom friends since then.

We are almost having a Second Reading debate. As my noble friend said, we debated the whole question of the inner London authorities, exhaustively for hours and hours. My noble friend referred to a list, but when one looks at the list one finds that the authorities are not all in inner London authorities nor are they all Labour.

It may be appropriate for the Committee to hear the list, because the Secretary of State wrote to all 13: Birmingham, Warwickshire, Cambridgeshire, West Wiltshire (I believe that is solid socialist), Oadby and Wigstone, Hammersmith and Fulham, Lewisham, Liverpool, St. Helens, Wigan, Leeds. Leeds featured quite a lot in the debate in the other place, along with Birmingham.

I am not allowed to quote from speeches of non-Ministers from the other place, but I noticed in col. 73 of the Official Report of 26th January that the Secretary of State said: We can resolve the issue of what Leeds city council has done by the council coming to my Department and giving it the full details". That is what the Minister said. Perhaps Birmingham will note that.

Lord Bellwin

Let me just say that the Minister would never have written to Leeds during my time there.

Lord Underhill

For the benefit of the Committee, it is best that the noble Lord is here rather than staying in Leeds.

The Secretary of State went on: As I have explained, the deficit financing issue first came to light in a letter from the Birmingham auditors of 16 May". I thought my noble friend Lady Fisher explained the Birmingham position in detail. I hope Members of the Committee appreciated it. I almost regard Birmingham as my adopted city, as I lived there for 13 years during the reconstruction period; Birmingham does not have a lot of madmen; it does not have a lot of crazy Left-wing politicians. It has very responsible leadership. Birmingham is included in the list, and it feels it has been hard done by. My noble friend Lady Fisher explained the reasons for that.

As the association of which I am president has made perfectly clear—and I reiterate what my noble friend Lord Dean said—the authorities undertook the transfers in complete good faith, often backed by auditors' opinions. In the case of Birmingham I understand its action was definitely based on auditors' opinion. When local authorities' actions have been justified and backed by their auditors, it seems that consideration should be given to that. The AMA said that it believes that those authorities should be paid the grant which they claim on the basis of a bona fide interpretation of the law as it was at that time.

I do not think we should be sidetracked into considering the actions of inner London authorities. We should deal with the amendment as it stands, keeping in mind the details of the case of Birmingham which my noble friend Lady Fisher has given.

Lord Skelmersdale

Before I start to answer what has developed into a surprisingly lengthy debate on the amendment considering the scope of the subject—the length is principally about other matters—I must take a retrospective action. In answer to Amendment No. 10 I said that, as I understood the position, it contravened Clause 15 of the Bill and was covered by a money resolution. I am now advised that it may well not be within the scope of the money resolution, but if the amendment were adopted—as of course it still can be in the future—another place may decide to invoke financial privilege to reject it. That is not to say—this is where I am totally at fault, and I apologise most sincerely to the Committee—that it cannot be moved here. I promised earlier that I would make the position clear as soon as I reasonably could, and I hope that the Committee will accept this apology.

Baroness David

I am extremely grateful to the Minister for that handsome apology and for having cleared up the point. It is extremely helpful. In the light of what he said, we shall reconsider what to do at Report stage, knowing what the facts are. I thank him.

Lord Skelmersdale

I have absolutely no doubt that the noble Baroness and her team will consider most carefully what I have said and what actions they wish to flow from it.

Amendment No. 11 is about actions flowing from various things. I am extremely grateful to the noble Baroness for her exhaustive reading on the subject of local government finance when, unfortunately, she was recovering from an illness, about which I did not know. I hope that she has fully recovered and is back in fighting form, as her speech certainly shows.

I can confirm that what we have been talking about both on Second Reading and today is the narrow interpretation which maintains that status quo; in other words, what local authorities have always used for these calculations and what the Government have always used. There is nothing sinister in what we are doing. The argument that has been expressed both on Second Reading and today, as I understand it, has been about whether we are going about it fairly and properly.

As far as the cake is concerned, the noble Baroness is quite right, but I take issue with her on the local authorities' definition of meanness of the cake. An extra £3 billion being made available for the next financial year cannot be mean by any possible stretch of the imagination.

I thought that the debate would get to Birmingham sooner or later. Birmingham is a very good example of what the noble Baroness, Lady Fisher, was talking about. The position there appears to apply also to some other local authorities. Let me say at the outset that we have reached no final view of what those authorities have done. A number of them have written to us and we are considering carefully what they said. In the case of another authority, at its request it has a meeting with my honourable friend the Parliamentary Under-Secretary of State and on Thursday my officials are meeting Birmingham's treasurer, Mr. Caulcott, whom the noble Baroness did not name.

Baroness Fisher of Rednal

Mr. Caulcott is not the city treasurer; he is the chief executive. Mr. Farrer is the city treasurer.

Lord Skelmersdale

I apologise. I am grateful to the noble Baroness for the correction.

Much has been said about the Government overriding what auditors have accepted and trying to move the goal posts. Such comments betray a complete misunderstanding of the position. The issue is quite simply this. Should grant be paid on the basis of figures of total expenditure affected by contributions from the rate fund revenue to special funds which have created or added to a deficit on that account and which are not related to known specific liabilities, or not? This is a matter for my right honourable friend the Secretary of State and is quite different from the responsibilities auditors have in relation to the accounts. While my right honourable friend has reached no final view on this, and indeed he already has powers to reach such a view, he has indicated his first thoughts on these matters; namely, that he does not believe that this practice—which now is commonly termed deficit financing—is an equitable basis on which to pay grant. I am sure the Committee would agree with that sentiment.

Although my right honourable friend has reached no final view, Birmingham's papers, to which the noble Baroness referred, make the following matters clear. First, the council took a decision to put a certain sum into a special fund knowing that this would create a deficit on the general rate fund. It did this in order to gain an increased entitlement to block grant. Secondly, the Audit Commission, when asked about the proposed action, expressed considerable reservations and suggested that the city council's auditors draw it to the attention of my department. Thirdly, although the auditors took the view that the transaction was lawful, they agreed to draw it to the attention of my department to consider the rate support grant implications. They did this in the letter of 16th May 1986. Therefore, although it was legal, quite clearly everybody thought that it was questionable. It is on the fact that it is questionable that my right honourable friend has to make up his mind.

I am not sure that the noble Baroness, or any noble Lord, in this wide-ranging debate exactly used the expression, but the suggestion is about moving the goal posts. Nonetheless, the impression is around that this is what the Government intend to do. The present statutory position is that total deficit financing transactions are excluded from relevant and total expenditure, as are all transactions relating to contributions to special funds.

The Bill provides that in general contributions to or from special funds are included within relevant and total expenditure—in other words, what Birmingham was doing. However, it appears with a number of other authorities to be going slightly over the top. We therefore need a provision for the Secretary of State to deduct these transfers which cause a deficit on the rate fund revenue account.

The Bill also provides that it is open to my right honourable friend to make specifications which would enable him to exclude deficit financing transactions from relevant and total expenditure when we come to make further rate support grant reports and supplementary reports. Before making any such specification he will of course consider all representations received and will consult where required. The views of all authorities can be taken into account. There is no question of retrospection. Authorities such as Birmingham have made returns of expenditure for us to use when we come to make further supplementary reports, and any specification which my right honourable friend makes will apply to the future reports and estimates of grant entitlement that we make thereafter.

On going to court—which has been a concern in this short debate—if my right honourable friend makes a specification about deficit financing, that specification will be reviewable by the courts in the normal way, because it will have been an action taken after the passing of the Act. The amendment is designed to prevent my right honourable friend from making such specifications. The overall effect of not making such specifications will be that deficit financing transactions for the first time will be statutorily included in relevant and total expenditure. I am sure that the Committee will agree that it would not be appropriate so to amend the Bill that it would no longer be open to my right honourable friend to make specifications having the effect of excluding deficit financing. Therefore I hope that the noble Baroness will be able to see fit to withdraw this amendment.

I could dilate at length—although I hope that the Committee does not wish me to—on Birmingham and the differences in the positive and negative marginal grant rates that have existed over the last two years since it adopted this process. I am quite happy to go into Birmingham's finances as expressed in the letter of 16th May as much as anyone wants me to. But I hope that I have said enough to explain why my right honourable friend needs these powers.

6.30 p.m.

Lord Silkin of Dulwich

There is only one point that I wish to raise arising from what the Minister said. It concerns the relevance or otherwise of Clause 9(6), which provides: any power to specify"— under certain parts of the Bill— shall be exercised in accordance with principles to be applied to all local authorities". I wish to ask the Minister these questions on the subject of deficit financing, as it has formed a prominent part of what he has just said to the Committee. First, is subsection (6) applicable in relation to the amendment which we are now debating and to that part of the Bill which the amendment will affect; or is the Secretary of State able to make his decisions—still unmade, I gather from the Minister—without regard to the provisions of that subsection? In other words can the Secretary of State say, "The deficit financing of local authority A was"—to use the Minister's term—"rather over the top but that of local authority B was acceptable. I shall therefore act in relation to local authority A but not in relation to local authority B "; or is the Secretary of State required to say in effect, "I am against deficit financing wherever it may have occurred", or, "I am prepared to accept it wherever it may have occurred"; and depending on which of those views he accepts after receiving the necessary representations and consulting local authority associations as provided for by Clause 9(4), that is the decision and it is to be applicable to all local authorities which may either have acted or wish to act in the future by way of deficit financing?

That is obviously an extremely important question. The Minister has accepted that deficit financing is lawful. But he has used the term "questionable" in relation to it. In other words, it is not altogether desirable or proper, although lawful. There is nothing, I gather from what the Minister says, that could be complained about by a ratepayer as being unlawful. Indeed I suppose one would have to say to a ratepayer of a particular authority who complained, "This is lawful and we have done it in order to benefit you, the ratepayer, of our authority because we hope that we shall do better by the use of deficit financing than if we do not use it".

From the point of view both of those local authorities that have been using that system and of those that may be thinking about it for the future, it is of great importance to know the answer to that question. It does not bear directly upon the amendment. However, it bears upon the amendment by virtue of what the Minister told us. I hope that he will give us the answers.

Lord Skelmersdale

Yes, both subsections directly bear on the subject of this amendment and indeed any specifications that my right honourable friend may make under the Bill when it becomes an Act. At the top of page 8 subsection (4) says: Before exercising the power"— in other words, the power to make a specification— the Secretary of State shall consult such associations of local authorities as appear to him to be concerned and any local authority with whom consultation appears to him to be desirable". That is a perfectly normal formulation of consultation in local authority law.

If my right honourable friend decided to specify on a subject which is now being given the unholy title of "deficit finance", both that subsection and subsection (6) would apply. Subsection (6) simply means that any specification made under Section 2(4) or 3(1) of the Act and so on must have general effect for all local authorities. In other words, my right honourable friend will not be allowed under the law to pick different local authorities off the tree to suit his convenience. This would be totally unfair and improper. My right honourable friend does not intend to do it.

Baroness David

I should like to add one word in support of this amendment which is in the names of my noble friend Lady Fisher of Rednal and myself. This amendment deals with one aspect of the Bill which goes well beyond putting the legal basis of rate support grant on a sound footing. I hope that the Minister realised the strength of feeling particularly in Birmingham, although the amendment also refers to other authorities. There is very great deprivation in Birmingham. If this amendment is not accepted by the Government, Birmingham will lose millions of pounds of grant and there will be a great deal of deprivation for the people of that city and the ratepayers will suffer as a result.

Although I do not live in Birmingham I know a great deal about the situation which exists there because I have a daughter who works as a full-time social worker for Birmingham city council. I hear a great deal about what happens there. It is only fair that this situation should be put right and not be put aside by the Government. It is a very important consideration.

Lord Skelmersdale

The Government are not unfeeling and they are certainly not unaware of the situation in Birmingham to which the noble Baroness, Lady David, has made reference. I should like to remind her that this year's rate support grant for Birmingham is £30 million more than last year.

Baroness Fisher of Rednal

I should like to thank all noble Lords who have spoken in support of this amendment. The thinking behind the decision of the Birmingham city council—which was agreed to by all members on the advice of its officers—was not to increase the block grant as the Minister said. I should like to correct him and say that it was in order to avoid penalties. Penalties affect a large local authority such as Birmingham in that a 3 per cent. overspend (that is £11.6 million overspend) would cost £42 million worth of grant loss to the city on a penalty because they had overspent by 3 per cent.

As the noble Baroness, Lady David, said, it was only a few weeks ago in this House that we had the very moving debate which was initiated by the noble and learned Lord, Lord Scarman and the most reverend Primate the Archbishop of Canterbury in which they spoke very movingly about inner cities. For that reason (and also because for a number of years I was a member of the city council and, in another place, a Member for an inner city area). I feel so strongly that the penalties that this Government are putting down are penalties which such authorities cannot take. The Minister says that the Government care, but I say that they do not care enough.

In so far as concerns Birmingham and other such local authorities, they operated the law as it was. There was nothing wrong in what they were doing. The Secretary of State does not say that they were doing anything illegal. In the debate in another place he said that there was nothing illegal. I am a magistrate and if an accused person comes before me in the court and at some stage the clerk says that there is no case to answer, there is no contravention of the law, then the accused is discharged. He walks out free. This is the situation here: nothing illegal has been done and there is no case to answer. I am not so eminent as the noble and learned Lords, Lord Silkin and Lord Denning, or the noble Lord, Lord Foot, who is not in his place at present. I speak as a lay-magistrate and the way that I have to interpret the law. One would have thought that the law was the law. If you have not done anything illegal, you have done nothing wrong. Therefore the Birmingham city council and the other local authorities that have been mentioned have done nothing wrong.

The transaction was completely open and above board. The facts were given first to one and then to another committee of the council which comprised Tories and Labour members. A course was precedented in previous years by the Tories when they were in control in 1982–83. They taught the Labour council a very good lesson. The Labour council thought, "well, if the Tories can get away with it, we will be able to get away with it". Obviously that is when the goal posts change and when people start acting in a different way.

The transaction was sanctioned by a firm of very well known accountants, and the auditors were beyond reproach. Nothing that the Minister has said this afternoon has convinced me that what took place was wrong. Therefore, I am going to test the opinion of the House. I hope that Members of the Committee will recognise that an injustice will be done if this amendment is not carried.

6.47 p.m.

On Question, Whether the said amendment (No. 11) shall be agreed to?

Their Lordships divided: Contents, 79; Not-Contents 128.

DIVISION NO.2
CONTENTS
Airedale, L.	Longford, E.
Amherst, E.	Lovell-Davis, L.
Attlee, E.	McGregor of Durris, L.
Beswick, L.	Mclntosh of Haringey, L.
Boston of Faversham, L.	McNair, L.
Bottomley, L.	Milner of Leeds, L.
Brooks of Tremorfa, L.	Molloy, L.
Campbell of Eskan, L.	Morton of Shuna, L.
Carmichael of Kelvingrove, L.	Murray of Epping Forest, L.
Cledwyn of Penrhos, L.	Nicol, B.
David, B.	Northfield, L.
Dean of Beswick, L.	Phillips, B.
Denning, L.	Pitt of Hampstead, L.
Diamond, L.	Ponsonby of Shulbrede, L.
Elwyn-Jones, L.	[Teller.]
Ennals, L.	Prys-Davies, L.
Falkender, B.	Rea, L.
Fisher of Rednal, B.	Ritchie of Dundee, L.
Fitt, L.	Robson of Kiddington, B.
Fletcher, L.	Rochester, L.
Gallacher, L. [Teller.]	Ross of Marnock, L.
Gladwyn, L.	Seear, B.
Grey, E.	Serota, B.
Grimond, L.	Shepherd, L.
Hampton, L.	Silkin of Dulwich, L.
Hanworth, V.	Stedman, B.
Harris of Greenwich, L.	Stewart of Fulham, L.
Howie of Troon, L.	Taylor of Blackburn, L.
Hutchinson of Lullington, L.	Taylor of Gryfe, L.
Jeger, B.	Taylor of Mansfield, L.
Jenkins of Putney, L.	Tordoff, L.
John-Mackie, L.	Underhill, L.
Kagan, L.	Whaddon, L.
Kennet, L.	White, B.
Kilmarnock, L.	Williams of Elvel, L.
Kirkhill, L.	Wilson of Rievaulx, L.
Kirkwood, L.	Winchilsea and Nottingham,
Listowel, E.	E.
Llewelyn-Davies of Hastoe, B.	Young of Dartington, L.
Lloyd of Kilgerran, L.	Ypres, E.
Lockwood, B.

NOT CONTENTS
Allenby of Megiddo, V.	Clitheroe, L.
Allerton, L.	Coleraine, L.
Ampthill, L.	Colville of Culross, V.
Auckland, L.	Cowley, E.
Bauer, L.	Cox, B.
Beaverbrook, L.	Crathorne, L.
Belhaven and Stenton, L.	Crawford and Balcarres, E.
Bellwin, L.	Davidson, V. [Teller.]
Beloff, L.	De La Warr, E.
Belstead, L.	Denham, L. [Teller.]
Bethell, L.	Dilhorne, V.
Biddulph, L.	Dundee, E.
Blake, L.	Elibank, L.
Boardman, L.	Elles, B.
Boyd-Carpenter, L.	Elliot of Harwood, B.
Brabazon of Tara, L.	Elliott of Morpeth, L.
Brougham and Vaux, L.	Elton, L.
Broxbourne, L.	Enniskillen, E.
Bruce-Gardyne, L.	Faithfull, B.
Butterworth, L.	Fanshawe of Richmond, L.
Buxton of Alsa, L.	Ferrier, L.
Caithness, E.	Fortescue, E.
Cameron of Lochbroom, L.	Fraser of Kilmorack, L.
Campbell of Alloway, L.	Gainford, L.
Campbell of Croy, L.	Gardner of Parkes, B.
Carnegy of Lour, B.	Gormanston, V.
Carnock, L.	Gridley, L.
Cathcart, E.	Haig, E.

Halsbury, E.	Nugent of Guildford, L.
Hanson, L.	Onslow, E.
Harmar-Nicholls, L.	Orkney, E.
Hesketh, L.	Pender, L.
Hives, L.	Peyton of Yeovil, L.
Holderness, L.	Plummer of St Marylebone,
Home of the Hirsel, L.	L.
Hood, V.	Rankeillour, L.
Hooper, B.	Redesdale, L.
Kaberry of Adel, L.	Renwick, L.
Killearn, L.	Rodney, L
Kimball, L.	Rollo, L.
Kinnoull, L.	Rugby, L.
Lane-Fox, B.	St. Davids, V.
Lauderdale, E.	Saltoun of Abernethy, Ly.
Layton, L.	Sandford, L.
Lindsey and Abingdon, E.	Shannon, E.
Long, V.	Sharples, B.
Lothian, M.	Skelmersdale, L.
Lucas of Chilworth, L.	Strange, B.
Luke, L.	Strathcarron. L.
Lyell, L.	Strathsclyde, L.
Mackintosh of Halifax, V,	Sudeley, L.
Malmesbury, E.	Swinton, E.
Margadale, L.	Thomas of Swynnerton, L.
Marley, L.	Thorneycroft, L.
Marshall of Leeds, L.	Tranmire, L.
Maude of Stratford-upon-	Trefgarne, L.
Avon, L.	Trumpington, B.
Merrivale, L.	Vickers, B.
Mersey, V.	Vivian, L.
Milverton, L.	Ward of Witley, V.
Monk Bretton, L.	Whitelaw, V.
Morris, L.	Wise, L.
Mottistone, L.	Wyatt of Weeford, L.
Munster, E.	Wynford, L.
Murton of Lindisfarne, L.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.55 p.m.

On Question, Whether Clause 5 shall stand part of the Bill?

Baroness David

We have had a good discussion on this clause, but I cannot let it pass without making one comment. The 13 authorities we have been talking about—I think my noble friend Lord Underhill read out which they were—will, as a consequence of the rate support grant order soon to be laid before the other place, receive less block grant than their entitlement. In the case of Birmingham, that amounts to millions of pounds of income that will have to be found from the ratepayers.

In Birmingham's case (and this may well be true of the other authorities) the authority's financial accounts have been closed and subsequently audited and approved by the external auditors—in this case Price, Waterhouse, as has been mentioned—and the Audit Commission, which expressed some doubts earlier on, accepted that this was all valid. It simply cannot be right that authorities should be retrospectively penalised for actions which were at the time clearly within the law and within the proper professional practices of accountancy. Those are the reasons why we do not like this clause.

Lord Skelmersdale

The noble Baroness has yet again managed to read more into the clause than the clause actually deserves. Subsections (1), (2), (3) and (4) provide for future years—that is, the financial year 1987–88 and those following—in both England and Wales until such time as we can get on to a new finance system for local authorities, which the noble Baroness and I have in recent weeks agreed is desperately necessary. However, what we are concerned with now is the situation we have at the moment.

Those subsections apply the new system back to the intermediate years. In other words, they create a notional rate fund revenue account for those years. As I seem to have said repeatedly this afternoon, local authorities have always kept traditional non-statutory main revenue accounts. Clause 5 provides that block grant will be paid on a notional rate fund revenue account which is essentially the same as the accounts local authorities have always kept.

I do not see this as penalising local authorities. If my right honourable friend finds the need—which he does not—to penalise local authorities, there are other methods. I can assure the noble Baroness that Clause 5 of this Bill is not among them.

Clause 5 agreed to.

Baroness Hooper

This may be a convenient moment to take a break in proceedings. In moving that the House now resume, may I suggest that we do not return to this Bill before eight o'clock? I beg to move that the House do now resume.

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

House resumed.