Local Government Finance Bill

HL Deb 05 March 1987 vol 485 cc725-76

3.33 p.m.

Report received.

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

Baroness David moved Amendment No. 1:

Page 3, line 18, at end insert ("and in doing so shall have regard to the practices.").

The noble Baroness said: My Lords, I beg to move Amendment No. 1. This amendment follows up the issues raised by Amendments Nos. 1 and 2 in Committee and which have also provoked some correspondence from the Minister. The questions raised concern the circumstances in which specifications may be made under Clause 2(4) as to kinds of expenditure or income which are to be regarded as revenue. The subsection is not limited by any requirement for the Secretary of State to observe the proper practices for accounting specified in Clause. 2(3).

On 23rd February, as appears in col. 13 of the Official Report, the Minister stated that the Government did not wish to overturn generally accepted practices, but to use the specification power in situations of doubt as to the accepted practices. The Government's explanation does not address the situation where a practice is specified which is not a proper practice at all, with the effect of overriding such a proper practice already in existence.

The Minister's letter to the noble and learned Lord, Lord Silkin, can be interpreted as seeking to offer some reassurance on that point. However, there is no requirement in the text of the Bill. The amendment, which is a very modest one, seeks to provide for these situations by requiring the Government to have regard to proper practices where they exist. Where there is a choice, the Government would clearly have to act reasonably and avoid a capricious specification in favour of a view supported by only a small minority. Where a proper practice existed, the Government would be required at least to take it into account in making any specification.

The amendment would not affect the Government's stated objective of giving themselves the power to choose between practices which were both regarded in roughly equal measure as proper ones. It would, however, place some safeguards and certainty on the face of the Bill. I have hopes that the Minister may be willing to accept this amendment. With that hope, I beg to move.

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

My Lords, as regards the particular matter of making specifications, we had comments from noble Lords opposite both on Second Reading and in Committee when an amendment was tabled on this subject. I have since then spoken privately to noble Lords, and I believe I am right in saying that I have written to the noble and learned Lord, Lord Silkin. Therefore, I understand that the concern which noble Lords opposite have about the possibility of specifications riding roughshod over proper practices is a real one. I have consistently said that the Government have no intention of making specifications which are contrary to generally accepted practices. The purpose of this power in the Bill is to make specifications to enable us to deal with situations where there is doubt as to what is required by proper practices.

By definition, this means that specifications cannot be subject to the proper practices. Clearly then, my right honourable friend cannot make specifications without knowing and understanding proper practices. I therefore accept the spirit of the amendment. Accordingly, I invite the noble Baroness to withdraw the amendment on the basis that I undertake to bring forward at Third Reading an amendment which would ensure that, while it would still be possible for specifications under Clause 2(4) to override proper practices, the Secretary of State would consider the proper practices referred to in Clause 2(3) before he made any such specifications.

Baroness David

My Lords, I am grateful for that reply from the Minister, and of course I shall withdraw my amendment in the light of it. Naturally, we shall see the amendment when it is tabled and our final response must wait until the Third Reading. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Lord Silkin of Dulwich moved Amendment No. 2:

Page 4, line 33, leave out ("for the purposes or) and insert ("under powers purporting to derive from").

The noble and learned Lord said: My Lords, I beg to move Amendment No. 2, and with the leave of the House I should like to speak to Amendments Nos. 3, 4, 10, 11 and 12.

These amendments form part of a series of amendments which are designed to deal with the problem on which there was much discussion on Clauses 4 and 6 at the Committee stage of the Bill. The House will recall that at the end of the day a vote was taken on the amendment then put forward by the Opposition, with widespread support in the House. That amendment was defeated by four votes out of a total of approximately 240.

The issue before the House was put quite clearly in the speeches of, among others, myself and the noble Lord the Minister. At Committee I said that in my view there could be no opposition to the view that, where a Bill of this kind was promoted with the purpose of validating decisions which had been wrongly made in the past by the Government—by the Secretary of State—while Parliament should be willing to give consideration to the Government coming forward to put matters right, so far as concerns the past, as a matter of constitutional practice the House should insist, in the absence of the strongest reasons to the contrary, that all retrospective legislation is specific and related to clearly defined areas.

At Committee stage I said that there had been no dispute on that principle up to the time when I moved the amendment. In his reply, at col. 28 of the Official Report of 23rd February, the Minister said, as regards the attitude of the Government: On the one hand die 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".

It seems time that on the basic issue the Government and those who are promoting these amendments are at one. The Government agree with us that the legislation should be as narrow as possible. We both agree that there will be some exception to that basic rule where, but only where, the circumstances can be held to justify an exception.

In support of that principle, on Committee the formula in the Bill gave rise to a very great deal of anxiety on the basis that it appeared to be far too wide. Clause 4(1) reads: Anything done by the Secretary of State before the passing of this Act for the purposes of the relevant provisions".

The only limitation is for the purposes of the relevant provisions".

Apart from that it can affect anything at all done by the Secretary of State. It is that which is deemed to be, or to have been, done in compliance with those provisions. That goes far wider than the purpose, the objective of the Bill as expressed in the Explanatory Memorandum which was attached to the original version that came before your Lordships' House, which quite clearly confined the objective of the Bill to putting right errors which had been made in the calculation of total and relevant expenditure.

That formula is to be found throughout the Bill. For example, it can be found in subsections (5)(a) and (b) of this clause. It was quite plain, and I hope the Minister will accept, that the Committee was very anxious about the formulation in the Bill. But for their anxiety, and quite apart from the fact that the anxiety was expressed by a number of noble and learned Members of the House, the vote would not have been anything like as close as it was. In the light of that I and my colleagues have been considering whether the amendment which we put forward may have been unduly restrictive for the purposes of the Government and whether some middle way could be taken which would meet the anxieties and at the same time meet the difficulties which the Government expressed.

Those difficulties can be summed up in terms that the Government wish, so far as possible, to avoid litigation; and no doubt that is a desirable objective. Of course it is possible to avoid all litigation by saying that there shall be no litigation at all. At the moment the formula in the Bill is very close to that. It could hardly be closer without destroying the whole objective of the Bill itself. I have no doubt that the Government do not wish to do that.

One has to look at the intermediate possibilities, accepting for the sake of argument that so far as possible the Government are right to try to avoid litigation. Accepting, as I hope is accepted, that the formula in the Bill is far too wide in pursuit of that objective, one has to look at what lies in between to see whether a satisfactory formula can be achieved. It seems to me that there are two possibilities. One possibility would be to go so far as to restrict the validation in Clause 4 to those acts which are in some way very closely connected with the calculation of relevant or total expenditure. For example, one could make use of a formula which has been suggested to me in this form: that the fundamental principle should be that action should be validated where the connection with the faulty definitions was so strong that at the time a court would have taken the view that the decision was unlawful if it had known of the legal misunderstanding.

Undoubtedly there is a very strong case for the view that one is entitled to go, and indeed should go, as far as that. However, to do so would certainly fall short of the kind of protection that the Government are seeking. Therefore we have looked for something which is not as tight as that but at the same time provides some limitation. We have been moved by the view that even though one might think that the formula goes too far in the Government's direction, nonetheless a formula which says that there must at least be some connection with the calculation of total and relevant expenditure—that being the whole objective of the Bill—is one which ought to meet the Government's objectives and difficulties and is acceptable (even if it is barely acceptable) by those who feel that the constitutional objections to the Bill in its present form are very strong indeed.

Having reached that point of view, we sought to draft amendments which would give effect to that consideration. They are Amendment No. 3 to Clause 4 and the similar amendments to Clause 6 which appear on the Marshalled List. Although we regard Amendments Nos. 2 and 4 as valuable amendments, the most important one is certainly Amendment No. 3. Amendment No. 3 and the corresponding amendment to Clause 6 seek to insert into Clause 4(1), after the word "shall" in the third line of that subsection, the words: to the extent that it consists of or is incidental to or consequent upon or is done for the purpose of the calculation of relevant or total expenditure of a local authority".

I do not think that it would be possible to find words which go beyond that in saying, in effect, that the actual question must have something to do with, the calculation of relevant or total expenditure of a local authority

which is the whole objective of this Bill. If any noble Lord can think of any other phrase which would add to the meaning of what appears in the amendment, I for one should be happy to consider it. However, frankly I take the view that if one adds "consists of ","incidental to", "consequent upon" and "done for the purpose of", then one has a wide enough collection of terms to mean, in effect, that the Bill must have something to do with the calculation of relevant or total expenditure. Therefore, I can commend that amendment in particular to the House. I hope very much that all Members of the House will seek to accept some formula—this is, I trust, a satisfactory one—which will remove the constitutional blemish from the Bill of validating a wholly undefined and indefinable collection of Acts, which is the present position.

If it be said that this amendment would open up litigation, then I can only say that any lawyer clever enough to find a way through the amendment would certainly be clever enough to find his way through "Anything done … for the purposes of", because what in the world that embraces and what it does not embrace, I should find difficult to determine. If the real argument is over the possibility of future litigation, then I say with complete confidence that this formula is a better formula than that in the Bill; it is one which is constitutionally acceptable as against one which is constitutionally unacceptable.

May I deal briefly with the other amendments which are bound up with this one, although, as I said, they are not vital. I think they improve the Bill, particularly Clauses 4 and 6. In line 33 those words that I have already referred to, "Anything done … for the purposes of" seem to be extremely wide. How one defines what is done "for the purposes of a wide stream of legislation as set out in subsection (2), covering a number of different subjects that bear upon, or have some connection, with the calculation of relevant or total expenditure, is not easy to see.

For the words "for the purposes of I suggest substituting "under powers purporting to derive from". At least that would mean validation taking place only where the Secretary of State has sought to act in accordance with the provisions of those sections rather than merely for the purposes of those provisions.

Finally, in subsection (6), we have at the moment words that were heavily criticised at earlier stages of the Bill. Those words are: Subsection (1) 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".

Again that is unclear. Why "purporting to have a contrary effect" and why a reference to "after the passing of this Act" when one knows that any legislation coming after the passing of the Act would affect the decision of a court given after that date? The reasons are not easy to see.

Subsection (6) seems to me to be the wrong way round altogether. The clause having said in subsection (1) Anything done by the Secretary of State

in certain circumstances shall be deemed to have been done in compliance with those provisions",

subsection (6) is really repeating the same thing only with a little more emphasis.

What is required is to look at the decisions of the courts and say that those decisions shall stand or not stand only to the extent that they are in conflict with the provisions of the Bill. That is what Amendment No. 4 does. It says: Any decision of a court, whenever made, which conflicts with subsection (1) above, shall to the extent of such conflict be of no effect".

The important words there are "to the extent of such conflict". Apart from conflict with the legislation, the decisions of the court are to have effect as they always would have effect.

Those three amendments and the corresponding amendments to Clause 6 go together. The Bill would be a much better Bill if all of them were incorporated into it. But the vital one is Amendment No. 3 and the amendment corresponding to it in Clause 6, Amendment No. 11. I beg to move.

4 p.m.

Lord Campbell of Alloway

My Lords, I wish to put the other side of the argument. I only hope that I can put it with the same measure of clarity as the noble and learned Lord, Lord Silkin of Dulwich. I wish to oppose all six grouped amendments. At the outset, in order to dispel the lurking sense of unease that Clause 4(1) is so widely drafted as to afford retrospective blanket immunity, may I seek your Lordships' indulgence to show why the attempt to identify the thing done by the Secretary of State as qualifying for validation under the deeming provisions is wholly impracticable and therefore unacceptable.

The justification—I agree with the noble and learned Lord that there must be strong justification—for Clause 4(1) standing as drafted is that it is in the interests of avoiding protracted and costly litigation, which can serve no useful purpose under any Administration, of whatever political colour, concerned with the present and the future and not with errors of the past—errors which are difficult to establish, and, when and if established, help little in the due performance of the proper functions of the executive by the Secretary of State.

It is my intention to be brief and to make, I hope, reasoned objection which may commend itself to your Lordships to Amendments Nos. 2 and 3. I agree with the noble and learned Lord, Lord Silkin, that Amendment No. 3 is the crucial amendment, but the reasoning is a general application to this grouped set of amendments which more or less hang together.

As to Amendment No. 2, the effect is to introduce on to the face of the Bill yet another avenue for litigation which falls directly within the ambit of judicial review. If your Lordships pause for even a moment to look at it, you will see that the question for decision is whether the Secretary of State was acting within, or under, a statutory power or a power which purported to derive from a statutory power.

What is a power which is not a statutory power but which purportedly derives from a statutory power? It is not a matter of cleverness of lawyers. I simply do not know. I do not know, unless the word "purporting" is intended to relate either to the circumstances of implementation or to the intention of the Secretary of State at the material time, or to both.

If one carries the analysis forward—I hope objectively, for such at least is my intention—to the circumstances of implementation, each rate support grant contains a myriad of decisions. There were three reports or supplementary reports for 1985–86, four for 1984–85, four for 1982–83, five for 1981–82 and one for 1986–87. As your Lordships know, each report contains determinations of a number of matters for each authority and there are over 400 authorities in England alone. Many other decisions are taken such as estimates for block grant payable to each authority and these are not even contained in the report.

The principles upon which these determinations were based as incidental to the implementation of total and relevant expenditure under the Act of 1980 are in doubt. The principles are in doubt. As pointed out forcefully by the noble and learned Lord, Lord Denning, at Committee stage, the statutory provisions are more or less unintelligible even to the cleverest of lawyers such as the noble and learned Lord. I will give but one example. Would close ending adjustments under Section 62 of the Act of 1980, or multipliers for the purposes now under Section 2(2) of the Rate Support Grants Act 1986 fall within the scope of the proposed amendment? I do not know. If "purportedly" relates to "intention"—the intention of the Secretary of State—this could be resolved by a certificate from the Secretary of State. But this would not dispose of the problem and no such proposal has been made.

Why would it not dispose of the problem? Because consideration of the circumstances of implementation compels the court to consider the incidence of principles which themselves are uncertain and in doubt. This group of amendments, if it were carried, would uncover a veritable mare's nest for litigation. There is therefore no other phrase, no other formula or form of words, no viable alternative to the validated provisions of Clause 4 as it stands. Any attempt to identify in these very exceptional circumstances, albeit an attempt to identify the thing done as qualifying for validation, is fraught with insuperable difficulty and haunted by the spectre of litigation.

As to Amendment No. 3, at a mere glance your Lordships would pick this up. Here the court, having resolved the first of the problems which arise under Amendment No. 2, if it could ever resolve it, then has to resolve those problems in the light of circumstances and intention—both or either. It would then under this amendment have to resolve two further problems. One is whether the thing done by the Secretary of State falls within the tailpiece to Clause 4(1) as proposed under this Amendment No. 3; then, if so, to what extent, for the purpose of the deeming provisions as to indemnity.

For the reasons already given on Amendment No. 2, owing to the incidence of these principles which are uncertain, these principles which are in doubt, the circumstances of implementation, the question of intention, any attempt at identification proposed by these amendments as a qualifying provision for validation would, I respectfully suggest, be wholly unacceptable. The hope is therefore that if this reasoning commends itself at all to the House, your Lordships will not accept any of these grouped amendments.

Lord Denning

My Lords, despite the arguments of my noble friend Lord Campbell of Alloway, I would ask your Lordships to support at least Amendment No. 3. Amendment No. 2 is neither here nor there because it seems to me more a matter of wording. The words "for the purposes of" and "under powers purporting to derive from" would give the same effect anyway.

The important amendment is Amendment No. 3. I suggest that Clause 4 as at present in the Bill is too wide and it offends our constitutional principles. Let me explain a little what has happened. The Explanatory Memorandum at the beginning of the Bill, when it was brought here, explained that a mistake had been made by the Secretary of State in his calculations as to the formula for relevant expenditure and total expenditure. I am not surprised that he should have made a mistake because the formula given in Part VI of the statute, Section 54(5), (I have the 1980 Act before me) has 10 complicated lines of statutes at the top of page 2229. Total expenditure has another 10 lines at the bottom of the following page and they are almost incomprehensible. I am not at all surprised that the Secretary of State and those below him made a mistake in making their calculations.

Perhaps I may tell your Lordships the nature of the mistake. When you are applying a formula like this, it is very difficult to get it right. What happened was that they discovered that in applying the formula as they understood it they had said, "Two and two make five". After some years they discovered, "Oh, we made a mistake. After all, two and two only make four; we must put in a new formula so as to make it clear that in the future two and two make four". They have done that in the first sections.

Then they had to say, "We must make our past calculations right. Ever since we started in 1980, we must put in all the calculations and say that through- out two and two make four. Then we shall get it right. At the beginning of our new statute, we shall say that in the future two and two are to make four and we shall do that for the past years also and say that in the past years two and two made four. So we must go through our calculations in the past so as to correct them and see that all the way through they are correct. We admit that we made a mistake before, but now let us put it right".

That is the whole object of this amendment and it seems to me that, whichever way you limit it, Amendment No. 3 is limiting it, to the extent that it consists of or is incidental to or consequent upon or is done for the purpose of the calculation of relevant or total expenditure of a local authority". In other words, to get all those calculations in the past put right in so far as they depended on the calculation of total and relevant expenditure this is a very simple formula to correct the mistake which ran through the years before and would have run through the years to come. Instead of limiting themselves to that one mistake, they have in the statute gone so far as to say that anything done by the Secretary of State for the purpose of the relevant position shall be deemed to have been done in compliance with those provisions.

Anything done in the past which had been done not in compliance shall be deemed to have been done in compliance. Anything done wrong shall be deemed in the future to have been done right. Any court may say that if anything comes before it, it shall have been done right. That is far too wide, because the relevant provisions in Clause 4 refer to Part VI of the 1980 Act. I have the Statutes at Large before me, including Part VI. The rate support grant provisions start at Section 48 and go right through to Section 68, covering some 18 to 20 pages. They provide that anything done by the Secretary of State under these sections, even if it has been done wrongly, has to be validated.

The first provision is that the Secretary of State may reduce the amount of support grant payable. The next is Section 45, where the Secretary of State makes an order. He may make a fresh determination of the amount, and this continues all the way through. The Secretary of State can do this, that and the other far wider than calculating and putting that one mistake right. The Secretary of State shall, out of the moneys provided by Parliament, do this, that and the other. There are 20 pages of all that the Secretary of State may do in pursuance of the exercise of Part VI of the 1980 Act.

The clause provides that anything done by the Secretary of State under all those sections shall be validated and made lawful, even where he has broken the law. Is that not going behind the courts of law and the rule of law in our country? If anything has been done wrongly by a Secretary of State or anybody else, an aggrieved citizen can bring that Secretary of State before the court and have the wrong put right. It is taking away the powers of the court and the rule of law for the Executive, the Minister, now to come before Parliament and to say that anything he has done wrong in breach of the law nevertheless will be overlooked and it will all be deemed to be right. It is quite unconstitutional to have a wide retrospective validat-ing provision such as that.

I do not mind a validating provision which corrects the main mistake that we know about, to which they confessed, as it corrects that for the past and for the future. But it should be limited to that. It should not go forward as validating every conceivable mistake made in the past. The Bill is far too wide. The amending provision is a genuine and well drafted attempt to try to limit the present position to what is the accurate constitutional position; namely, validating the mistake which the Government admit has been made. I support the amendment.

4.15 p.m.

Lord Harmar-Nicholls

My Lords, this is one of the rare occasions when the noble and learned Lord, Lord Denning, disappoints me. I am one of his greatest admirers, and I very much respect the recommend-ations he makes to this House. I admire him mainly because he has not only proved himself to be a great lawyer in the real sense of the word, but he is also able to bring a practical approach to interpreting the law. On this occasion he seems to have thrown overboard the factor that has made him one of our outstanding lawyers. He has thrown overboard completely the practicalities of the matter.

There is no doubt that if these amendments are interspersed they will provide loopholes which will be virtually asking for somebody to go to litigation. We know that litigation, particularly to do with local authorities, is not only expensive but time wasting and disturbing. I believe that now we have the opportunity to clear the decks for the future to avoid the possibility of such litigation arising from uncertainty. We should clear the decks.

I cannot agree with the noble and learned Lord about the provision not being lawful or being unconstitutional. If we agree the Bill as it stands, we are making it lawful. With our eyes open we are saying that we recognise that in certain circumstances past interpretations may make it appear that certain things ought to be done that are not being done. We are saying that we believe it is essential that we know where we stand for the future; that we want to clear away those uncertainties so that in the future there can be no doubts, with the chances of litigation, time wasting and the expense which go with them. The noble and learned Lord has always reflected that outlook. That is what has made the whole nation admire him so much in the past. He deviated from that a little in his argument today and I am sadly disappointed.

I believe that Clause 4(1) and (6) make it perfectly clear that what we want to do is to clear away all the uncertainties of the past so that in the future everybody will know where he stands and the inducement to litigate, and all that that means, will no longer be there. I am prepared to put that practicality in front of the doubts that the lawyers have about extra words being able to make absolutely certain you can win both the past and the future. You cannot win both. I believe the future is more important than any irrelevancies that may have arisen in the past.

It is for that reason that on this occasion, although I am usually with the noble and learned Lord, I hope that at this Report stage we do not accept his advice even on Amendment No. 3. I believe that as it stands the Bill is clear, sensible, practical and in the best interests of being able to deal with the intricate local government problems that will go on arising in the future as they have in the past.

Lord Simon of Glaisdale

My Lords, I support this amendment and I have put my name to Amendment No. 3. I have done so because the issue here far transcends the questions of local government finance which the noble Lord, Lord Campbell of Alloway, dealt with so well. It raises—as my noble and learned friend Lord Denning said and as the noble Lord, Lord Lloyd of Hampstead, said in Committee—an essential constitutional basis; namely, the rule of law on which our liberties depend. If we allow a blanket cover for all actions of a Minister (and they are multifarious, as my noble and learned friend pointed out) and oust the jurisdiction of the court, as this Bill does, we strike at the very basis of the rule of law. I venture to suggest that we also create a most dangerous precedent that may well be abused by those who do not value the rule of law in the same way as Members of your Lordships' House do today.

It is for that reason that I have put my name to the amendment. I shall try to show exactly how far the proposals in the Bill go in subverting the rule of law. The rule of law was largely settled at the beginning of the 17th century. Lord Chancellor Bacon said: the judges should be lions, but lions under the throne". They should not show their teeth at the executive. Coke, on the other hand, who was his great opponent, said that the liberties of this country depend on the law, on the independence of judges and on their power to judge between the citizen and the executive.

Lord Chancellor Bacon was dismissed by your Lordships and Sir Edward Coke's portrait hangs in a place of honour on your Lordships' premises. I venture to suggest that ever since then, up to a time that we can fix fairly easily, the rule of law has been unquestioned in this country. It made us the envy of the world in the 18th century; and Burke at the end of the century could say: Law and arbitrary power stand in dreadful emnity". There was really no question about this until just after the war. During the war we had necessarilly submitted to a good deal of dirigisme by the executive, and that was congenial to a great many people in government immediately after the war; but it became more and more irksome to the individual citizen that there should be the claim that the gentleman in Whitehall knows best and that the courts should be ousted by statutory expressions such as if it appears to the Minister that so that the courts were denied the chance of finding the facts independently; or, the decision of the Minister shall be final and conclusive". Such phrases, that were frequent during that period, became more and more intolerable.

Eventually, it came to an end with two things. The first was the Crichel Down affair, when the whole system of bureacratic dirigisme exploded in the face of the Government and a popular and able Minister loyally resigned, taking the responsibility for the abuse of power by his officials. The other thing was a notable pamphlet called Rule of Law, of which the noble Lord, Lord Renton, among others, was an author, together with the noble Lord, Lord Broxbourne, whom I see in the House. It is because I was a co-signatory that I felt it right to come out with my name on this amendment instead of, as last time, merely voting in favour of the amendment moved by the noble and learned Lord, Lord Silkin.

I should like to say a word about the avoidance of litigation, because that has been much stressed, and ably stressed, by the noble Lord, Lord Campbell, today and also by the noble Lord, Lord Harmar-Nicholls, and, at the Committee stage, by the noble Lord, Lord Bellwin. I myself, I hope, have always made it clear that though litigation is preferable as a means of resolving disputes to violence or the threat of violence, it is inherently not a desirable activity. But there must be some room left for it if the rule of law is to mean anything at all.

The citizen must be able to say "I do not agree with what you say are the facts", as at Crichel Down; or "I cannot accept that you should lay down the law"; or "I cannot accept that you should be judge in your own cause: I demand that our dispute should be submitted to the independent arbitrament of independent courts applying a continual code of law objectively. It is they in the end which will decide between us".

So although one should discourage litigation—and I myself have always tried to do so—it is inherent and unavoidable if the rule of law is to be maintained. Your Lordships may perhaps take the case of two traders who have a running account. Of course litigation can be avoided if one says, "There is no need for us to go to law: just give me a blank cheque". That is in effect what the Secretary of State is asking here.

It seemed to me that the noble and learned Lord, Lord Silkin, moved this amendment in notably moderate and cogent terms, and I have no hesitation in accepting it. I hope the noble Lord the Minister will accept it. If he does not and if the House is divided I shall follow the noble and learned Lord into the Division Lobby.

Lord Renton

My Lords, having listened with great interest and attention to the words of the noble and learned Lord, Lord Simon of Glaisdale, I endorse what he has said about my participation, along with others, in trying to establish a recognition of the rule of law in some years past. But on these particular amendments we are in a rather different position from the one so eloquently described by the noble and learned Lords, Lord Denning and Lord Simon of Glaisdale.

The situation is that on both sides of the House it is accepted that mistakes were made in the past and that Parliament has now to try to validate the situation in order to prevent further chaos. That is the purpose of Clause 4 and also of Clause 6, and of the amendments which the noble and learned Lord, Lord Silkin of Dulwich, has moved.

I must confess that when this matter was discussed at Second Reading and at Committee stage I was abroad. Perhaps I should also confess that I was in the Indian jungle for some days, and I came to the conclusion that the law of the jungle was sometimes better than the jungle of manmade law with which we are trying to cope this evening. However, having read the report of the Committee stage I should like to express my gratitude for the remarks of the noble Lord, Lord Lloyd of Hampstead, who so wisely pointed out that if drafting practices had been better and indeed had followed the recommendations of a committee of which I had the honour to be chairman when the previous legislation was going through, we might not be burdened with all this trouble this evening. But mistakes were made in previous legislation and it is now agreed that we must validate the decisions taken.

Clause 4 seems to me to be a straightforward, honest attempt to validate what is done, and it is now conceded on both sides that it has to be done retrospectively. The noble and learned Lord, Lord Silkin, said that when we have legislation to validate it should be drawn as narrowly as possible. However, I ask each of your Lordships to examine the amendments and to decide whether or not they narrow the effect of the clause. May I invite attention to Amendments Nos. 2, 3 and 4.

On Amendment No. 2, we are told that if the words "for the purposes of" are left out and replaced by the words, under powers purporting to derive from we are making the effect of the subsection narrower. I have some reason to doubt whether we should be doing so because, when we use the expression under powers purporting to derive from the court, if it comes to court, would have to consider who did the purporting. It is much better that the court should simply be asked to say, in interpretation of the previous legislation and of this Bill when enacted, whether anything done by the Secretary of State before the passing of the Act for the purposes of the relevant provisions was properly done or needed to be validated. I do not think, therefore, that Amendment No. 2 does anything to narrow or improve the wording of Clause 4(1).

We are asked in Amendment No. 3 to add to the wording of subsection (1), to the extent that it consists of or is incidental to or consequent upon or is done for the purpose of the calculation of relevant or total expenditure of a local authority". If those are intended to be words of limitation, it seems to me that they are very wide. Therefore, with deep respect to the noble and learned Lord, Lord Silkin, I have some doubt whether the amendment fulfils his intention. It certainly adds to the number of words that the court would have to interpret when applying the subsection if it should be required to do so. It would give rise to a great deal of argument and perhaps even difference of judicial opinion when it came to having to interpret the words in the extra two-and-a-half lines.

I turn now to Amendment No. 4, the least difficult of the three. Maybe my mind is too simple, but I cannot see that it is different in effect from what is already contained in Clause 4(6) of the Bill. If I have missed the point, perhaps the noble and learned Lord will have a chance to explain to me why I have missed it. In any event, I do not think that it has any narrowing effect at all on the operation of Clause 4.

Therefore, with the deepest respect to the noble and learned Lords who have spoken, and sharing the view that we have to be careful when legislating retrospectively, whatever the motive for doing so, I prefer the simplicity of the government's clause as it stands, and I would consider that it was best to leave it that way rather than accept the three amendments.

4.30 p.m.

Lord Kilmarnock

My Lords, my name also appears on Amendment No. 3. I will be very brief. Laymen perhaps should not step in where lawyers disagree, but laymen have as much concern for the constitutional proprieties as professionals because the constitution affects us all, and we all live under it.

The only arguments that seem to me to have been advanced against this series of amendments are those of the avoidance of litigation. As a layman, I was rather shocked by those arguments. As a layman, my understanding is that the courts are there to hear legitimate grievances, and such litigation is perfectly proper. Obviously, we do not want a cluttering-up of the courts, but the rationing of litigation advocated by the noble Lord, Lord Harmar-Nicholls, I must say fell rather badly on my ears.

I regret that I was unable to be present on the first day of Committee. Having read the debate on the then Amendment No. 3 and the speeches of the noble and learned Lords, Lord Silkin of Dulwich and Lord Denning, and my noble friend Lord Foot, I found myself as a layman again deeply disturbed by this further extension of the creeping powers of the Executive.

I also believed—noble Lords will correct me if I am wrong—that one of the prerogatives and duties of your Lordships' House was to safeguard the independence of the courts and that if, for example, the other place approved a resolution to remove a judge, the approval of this House was required and, if not forthcoming, that resolution would fall without the override of the Parliament Acts.

In this Bill the Government do not seek to remove any judge, but the Bill limits definitely the scope of the courts in so far as it confers immunity on the Secretary of State. To that extent, in my understanding, it erodes the proper role of the judiciary. The fact that this is a very slippery slope was recognised by your Lordships in Committee, when, as the noble and learned Lord, Lord Silkin, said, the amendment then before your Lordships was rejected by the narrow margin of only four votes.

The amendments before us today give the Secretary of State greater latitude than it was proposed to give him in the previous amendment. We would think it gives him quite as much as he requires. On the noble Lord, Lord Renton's point, that it gives him a considerable amount of latitude and might cause difficulties of interpretation, I remind your Lordships that it does not given him as much latitude as the phrase, Anything done by the Secretary of State", which is what appears in the statute at present.

Lord Renton

My Lords, the noble Lord has criticised those words, but in fact they will remain in the Bill even if the amendments are accepted.

Lord Kilmarnock

My Lords, I accept what the noble Lord tells me, but I should much rather have the rider that the noble and learned Lord, Lord Silkin, wants to add to the Bill.

On those grounds, we on these Benches support this batch of amendments. I only hope that noble Lords in other parts of the House will also see the danger signal and will vote for the amendments if the noble and learned Lord, Lord Silkin, decides to put them to the vote.

Lord Lloyd of Hampstead

My Lords, as one of those who ventured to speak in favour of the previous amendments of the noble learned Lord, Lord Silkin, and in view of the intensity of the argument that has been expounded on either side on this occasion, I feel justified in saying what I hope will be a brief word in favour of the revised amendments tabled by the noble and learned Lord, Lord Silkin.

As has been so eloquently demonstrated by the noble and learned Lords, Lord Denning and Lord Simon of Glaisdale, there is a vital question of principle here. That principle, to put it as shortly as one can, is whether the law is to be treated as greater than the fiat of a Secretary of State. I was interested to hear the intervention of the noble Lord, Lord Renton, whose visit to India recently apparently led him to the interesting reflection that the law of the jungle is perhaps sometimes to be preferred to the common law of this land or possibly that of other law-abiding countries—

Lord Renton

My Lords, I was not referring to the common law. I hope I made it clear that I was referring to the jungle of legislative law.

Lord Lloyd of Hampstead

My Lords, I am much obliged to the noble Lord. I am sorry if I misquoted him, but I quite accept the point he makes that it is to be preferred to the jungle of law that is, I suppose, the combined consequence of the common law plus a multitude of statutes. I recognise that there is no arguing with a tiger, and it may be that the Secretary of State would prefer to have his argument with a tiger, presumably on the basis that tigers can be assumed always to support Secretaries of State.

But whatever one may say on this matter, I venture to submit to your Lordships that avoiding litigation, though it is something which we no doubt all support in principle, also carries with it certain dangers. The notion that one should secure the position of a Secretary of State by making it absolutely impossible for anybody to challenge any decision that he may have made over a long period in regard, as the noble and learned Lord, Lord Denning, pointed out, to a very complicated series of provisions in a very complicated piece of litigation, is not something which is consistent with the rule of law as we understand it in this country.

On the previous occasion, the Government succeeded in defeating the then proposed amendments by what I think must be conceded was no more than a very slender majority. Therefore I should have thought that your Lordships would be fully justified in reconsidering this matter. I venture to hope that, as now resubmitted to your Lordships, you will come to the conclusion that justice would better prevail if, even perhaps by only a slender majority the other way, these revised amendments were accepted.

I quite agree that there is probaby not a great deal of difference in the amendments as now put forward by the noble and learned Lord, Lord Silkin, and it may even be arguable that to some extent the previous amendments were rather better. But in revising these amendments, as I understand it from his speech, he has desired to meet the Government to the maximum degree consistent with the principles that those of us who are on his side for this purpose are urging. Therefore I should like once again to express my warm support for this amendment, and if it is put a Division I shall certainly be one of those who will vote for it.

Lord Aldington

My Lords, may I as a layman among legal luminaries ask my noble friend to elucidate one point which has been worrying me as I have listened to the debate? As I understood it from listening to the noble and learned Lord, Lord Denning, his object was to limit the retrospective validation of the Secretary of State. That was his purpose. It is a purpose which I have wholly applauded right from my younger days when I learned my law and when I followed very carefully my noble and learned grandfather Lord Atkin, who spent most of his lfe trying to do precisely that. As I listened to the noble and learned Lord and to the noble and learned Lord, Lord Simon, my former noble friend, I was minded to think that they must be right.

Then I heard from behind me my noble friend Lord Renton saying that what is wrong with this amendment is that it is widening and not limiting the extent of the validation. I rise merely to ask my noble friend the Minister to elucidate who is right, because that will govern which Lobby I go into.

4.45 p.m.

Lord Skelmersdale

My Lords, I do not think I have ever had a better cue in your Lordships' House than that one. I am very grateful to my noble friend Lord Aldington. I have been extremely conscious throughout our consideration on this Bill of the concern of noble Lords on all sides of the House to ensure both that the validation is no wider than it needs to be and that it is clearly effective. I uttered that on Second Reading, I uttered it in Committee and indeed the noble and learned Lord, Lord Silkin, in introducing this block of amendments quoted my so doing. I am therefore most grateful to noble Lords on all sides of the Chamber for their endeavours to contribute to this aim by their careful and researched amendments and thoughts. Quite clearly, my noble friend Lord Campbell of Alloway, for example, has spent a lot of time with a wet towel around his head, as indeed have other noble Lords, on this particular, and I agree particularly worrying, provision in the Bill.

I am also aware that in this complex field of local government finance, it is always a difficult task to understand the need for these important provisions and also to explain why in the Government's view the provisions in the Bill are the only ones which will work. If I may, I should like to seek to explain both the role of the rate support grant report and supplementary reports, and also the rate limitation system—briefly, I assure your Lordships.

One of our difficulties, I believe, is that the rate support grant reports, because of their financial nature, are not considered in your Lordships' House, no doubt to some noble Lords' considerable relief. But this has not assisted our understanding of the Government's intention here. The noble and learned Lord, Lord Simon, said that this whole question far transcends local government law. I must take issue with him. This part of the Bill is about one thing and one thing only—actions to be taken for rate support grant and rate limitation purposes—

Lord Simon of Glaisdale

My Lords, if, as so many have said, the rule of law on which our liberties depend is involved, is that not an issue which far transcends the words of this particular clause?

Lord Skelmersdale

My Lords, that is a point—the noble and learned Lord is absolutely right—which I shall have to answer during the course of this speech. A noble Lord said that the gentleman in Whitehall—I suspect that it was the noble and learned Lord, Lord Simon, again—knows best. I submit that that is not the case here. What we are talking about is the gentleman in Whitehall admitting that he is wrong and saying in this Bill what he intends to do about putting the wrong right.

The rate support grant report for any year contains the Government's decisions for local authority finance. It is prepared after lengthy consultation with local government. It is the vehicle by which another place approves the payment of grant to local authorities. Block grant is paid so as to compensate for variations among authorities in the needs of their areas and differences in the rateable resources available to them to meet those needs. It is designed to supplement authorities' own finances in such a way that the rate in the pound which authorities need to levy relates to the standard of service which an authority has chosen to provide and the efficiency with which it provides it. Consequently, if a local authority's entitlement to block grant depended simply upon its total expenditure these objectives could not be achieved.

The way these objectives are achieved is as follows. Central government first determine for each authority, on the basis of common principles, the authority's notional total expenditure having regard to its functions—that is, an estimate of the total expenditure which that authority would need to incur if all authorities provided the same standard of service at the same level of efficiency, at a level consistent with the Government's view of what local authorities need to spend. This estimate has become generally known by its initials as GRE, grant-related expenditure.

The second stage is that the Secretary of State specifies principles by which a grant-related poundage for each authority is calculated. This is done by specifying in the first instance for each class of authority a grant-related poundage for spending at GRE. A formula is then specified whereby for any authority the authority's grant-related poundage is increased above its grant-related poundage for spending at GRE, as its total expenditure rises above GRE, or reduced as total expenditure falls below GRE.

This, I am afraid, is just an outline. The rate support grant report contains all the matters from which a local authority can ascertain its grant entitlement which depends upon the amount available for grants, its grant-related expenditure, any multiplier determined for it, any reduction for London authorities and the grant-related poundage principles. After the rate support grant report is approved, grant is paid to local authorities on the basis of their estimated total expenditure. As later and better information of total expenditure becomes available, fresh determinations, in particular of multipliers for certain purposes, and of the grant-related poundage principles are made, taking into account that informa-tion. These fresh determinations are made in supplementary reports.

Finally—and I think this is the answer to my noble friend Lord Aldington—not only do we have the supplementary reports but in the last of the supplementary reports are what are called conclusive calculations. I wonder whether the noble Lord, Lord Lloyd of Hampstead, appreciated that point when he and other noble Lords spoke of my right honourable friend putting himself above the law. No conclusive calculation has yet been made in any year since the 1980 Act, which is the basis of all this, became law. Subsequent supplementary reports and conclusive calculations are not validated by this Bill. They cannot be because they have not yet been made.

The rate limitation process is fortunately more straightforward. Authorities may be designated for rate limitation if in the previous year their total expenditure exceeds their grant-related expenditure and it is excessive having regard to general economic conditions. Once designated, the Secretary of State determines a level for each authority's total expenditure for the year. This is known as an expenditure level. Authorities may apply to the Secretary of State for a redetermination of their expenditure level.

As soon as practicable after the rate support grant report for the year has been laid before Parliament, the Secretary of State must determine a maximum rate or precept for each authority subject to rate or precept limitation. This must be determined by reference to the expenditure level, the block grant and any contribution from the London rates equalisation scheme. The Secretary of State may also take into account any financial reserves available to the authority. The maximum may be specified in a direction if it is agreed with the authority; otherwise it is prescribed by order.

"There must be room for litigation", said the noble and learned Lord, Lord Simon of Glaisdale, and I can tell the noble Lord, Lord Kilmarnock, that he need not be shocked: there is room for litigation. Anything done by the Secretary of State can be challenged by way of judicial review. The grounds could include the following: that the Secretary of State misdirected himself in law; that he took into account an irrelevant consideration; that he left out of account relevant considerations; or that he reached a decision that no reasonable Secretary of State could reach. Against this background my first proposition is that the nature of the rate support grant and rate limitation system is so complicated and the part played by total and relevant expenditure so obscure that we believe the validation which we have in the Bill is essential.

I now turn to the amendments before us. Amendments Nos. 3, 4, 10 and 12 seek to validate anything done, to the extent that it consists of or is incidental to or consequent upon or is done for the purpose of the calculation of relevant or total expenditure of a local authority". It is very unclear in this amendment what would or would not be validated. This could be done only by the courts. As I have said on numerous occasions, the whole objective of the Bill is clarity; in other words, it must say clearly and concisely what is and what is not validated.

Some examples will illustrate why there are doubts as to what it covers and why it does not cover some matters which need to be covered. The determination of the amount available for grants under Section 54(1) of the 1980 Act needs to be validated because Section 54(4) of the 1980 Act requires the Secretary of State to take into account the latest information as to the rate of relevant expenditure before determining it. Under general administrative law principles, if in taking a decision the decision-maker leaves out of account a consideration which he is bound to take into account, his decision is ultra vires. The effect of Section 54(4) of the 1980 Act is that the rate of relevant expenditure is a relevant consideration that the Secretary of State is bound to take into account before determining the amount available for grants. As the Secretary of State has, for example, wrongly been including transfers from the rate fund revenue account to other funds and accounts in relevant expenditure, the consideration which he has in fact taken into account has not been the rate of relevant expenditure as defined by the Act; it has been something else.

The determination of the amount available for grants does not consist of a calculation of relevant or total expenditure; nor is it done for the purposes of a calculation of relevant or total expenditure. It seems pretty clear that, in the word of one amendment, it is not "incidental to" a calculation or relevant or total expenditure. Is it then "consequent upon" a calculation of total or relevent expenditure? Whatever the rate of relevant expenditure is, the Secretary of State still has a discretion as to what the amount available for grants should be, so I do not see how the amount available for grants can be "consequent upon" a calculation of relevant or total expenditure.

Another example is grant-related expenditures, to which I have already referred. The Secretary of State's determinations of grant-related expenditures in the past have depended 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, grant-related expenditures have allowed for the need for transfers to special funds or the housing revenue account. Under the wide interpretation of the rate fund such contributions cannot be part of total expenditure. They are nothing more than internal transfers within the rate fund.

The grant-related expenditures have therefore been ultra vires because the Secretary of State has misdirected himself in law in thinking that these transfers were part of total expenditure. The grant-related expenditure represents the total expenditure which a local authority would need to incur in order to provide a standard level of service without inefficiency. It is a notional figure of total expenditure, not the actual total expenditure of a local authority. If that were the case—and as I have explained that is the difference between the notional figure and the actual total expenditure figure—it would not be validated by the amendments.

In the rate limitation field it is doubtful whether the expenditure levels would be validated. Do they consist of, the calculation of … total expenditure of a local authority"? What they are is the total expenditure which the Secretary of State thinks is the maximum which the local authority needs to incur in the following year. Unless the expenditure level does not consist of, to quote the amendment, the calculation of … total expenditure of a local authority", the rate limit itself would certainly not be validated by this amendment. Even if it were, I do not see how the rate limit can possibly be consequential on the expenditure level.

Amendments Nos. 2 and 11 seek to remove the words "for the purposes or' from Clauses 4 and 6 and to insert the words: under powers purporting to derive from". It is accepted that the Secretary of State has not been exercising his powers correctly because he misdirected himself in relation to the definitions of relevant and total expenditure. Where a decision is affected by a misdirection in law or the taking into account of irrelevant considerations or the leaving out of relevant considerations, it is ultra vires.

There are no powers and that is why we need to validate my right honourable friend's actions. So the amendment is wrong in that respect because it suggests that what has been done has been done by virtue of some powers. It is said that those powers are powers purporting to derive from the relevant provisions; in other words, the provisions in Clause 4(2) and Part I of the Rates Act 1984. I repeat that the short point is that what has been done has been done without powers.

5 p.m.

At some points in his speech I thought that perhaps the noble and learned Lord, Lord Silkin, meant that things purportedly done by the Secretary of State under the relevant provisions should be validated. But that is not what the amendment says and I agree with my noble friends Lords Renton and Campbell of Alloway on that point. The general concern of the noble and learned Lord was that things could not be done for the purposes of the relevant provisions if they had been done improperly. He need not have that fear. It would be quite nonsensical to construe this provision in that way. If the thing had been done properly what need would there be to validate it? Clearly the provision is dealing with things that have not been properly done.

My noble friend Lord Campbell of Alloway was quite right. We could not confidently identify every decision that needed to be validated. There are particular difficulties in identifying decisions which have not been specified in reports. It might be necessary to have some power to make subordinate legislation to add to the list. I do not believe that that would be right in principle, nor would it provide certainty for local authorities. After careful consideration, we concluded that the suggestion of the noble Lords opposite in these amendments was not a satisfactory one.

A fact that may have escaped even the eagle eye of my noble friend Lord Campbell of Alloway is that if a past decision were to be succesfully challenged in the courts after the passing of this legislation, the result would be chaos and uncertainty. The position would be extremely unclear and we might have to take away grant from some authorities and give it to others. No wonder my noble friend talked of a whole maze of litigation! It defeats the whole object of the Bill to validate actions already taken by my right honourable friend.

The noble and learned Lord, Lord Denning, quoted from the Explanatory and Financial Memorandum that was circulated with the Second Reading copy of the Bill in the normal way and perhaps I may do the same: Clouse 4 validates things already done for rate support grant purposes". Neither that sentence, nor indeed anything else in the description of Clause 4, mentions either total or relevant expenditure.

I think that my answer to the very persuasive remarks of the noble and learned Lord, Lord Simon, and the noble Lord, Lord Kilmarnock, is much the same as that given by my noble friend Lord Renton, to whom I am extremely grateful. We are not seeking to validate decisions that are yet to be taken. When one considers that we have not yet closed the books on any year since 1981 (a year for which we still have to make the conclusive calculation, which is itself challengeable) and that future decisions are still required on all those years, one realises how many opportunities there will be to challenge and reopen consideration of those previous years.

Therefore, I say in response to the noble and learned Lord, Lord Simon, that the key point is that we are not doing anything further which will be covered by the validation. We are only talking about the past. We are not seeking draconian powers but the avoidance of doubt in a highly complex area. The opportunity to litigate about decisions which are yet to be made will still be available.

These amendments defeat the principal objective of the Bill, which I have described over and over again in Committee; namely, certainty for local authorities. That certainty can only be achieved by starting with a clean sheet—as my noble friend Lord Harmar-Nicholls has said—so far as past decisions on rate support grant matters are concerned the moment the Bill receives Royal Assent. I have to tell the House that only the words in Clauses 4(1) and 6(2)—"anything done"—produce that clean sheet. I have to say that after the most exhaustive enquiry the formulation given in these amendments does not achieve that objective. There will always be room for doubt until each of the little decisions has been tested in the courts. This simply cannot be to the benefit of local authorities. Therefore, I must ask the House to reject the amendment.

Lord Silkin of Dulwich

My Lords, I am grateful to those noble Lords who have taken part in this discussion and particularly to the noble and learned Lords on the Cross Benches, whose speeches have been extremely helpful. So far as concerns the speech of the Minister on behalf of the Government, I have to say with all respect to him that there were times when I wondered whether we had emerged from the jungle from which the noble Lord, Lord Renton, has recently emerged. I felt that if the case for this amendment had to be put in so complicated a way, nothing that we could put forward to improve the Bill could do other than simplify it.

Having said that, I shall try to answer the very pertinent question that was raised by the noble Lord, Lord Aldington. Surely the simple issue is that which has been referred to and spoken to by the noble and learned Lords, Lord Denning and Lord Simon, in particular. In the past mistakes have been made by ministers, and they are perfectly entitled to come to Parliament and say, "Let us have those mistakes put right for the future". They are entitled to come here and say, "Some of those mistakes that we have made in the past, if we are not forgiven for them, will cause great distress and great difficulty, and therefore we should be forgiven for those as well". However, every time that Parliament forgives past mistakes of that kind it is saying that the citizen who would have had a right to obtain justice in the courts is to be deprived of that right. That is the reality of the matter.

Let us not regard this as some kind of battle of the giants, a battle between the Secretary of State and the local authorities. It is the interests of the citizen that are to be protected both in this Bill and in any future Bill that may be brought before Parliament on the precedent of this one. We have to ask ourselves whether one can justify going so far as the Government propose to go. One has to look at the words which say: Anything done by the Secretary of State … for the purposes of the relevant provisions". I hope that the noble Lord, Lord Aldington, will agree totally with me, but if not then perhaps at least he will agree with me to this extent, that no words could possibly be wider that those words in cutting out the right of the citizen to obtain justice.

One turns to consider the wording that we seek to use in this amendment. As one noble and learned Lord has said to the House, we are seeking to move as far as we can in the direction of the Government's wish to minimise litigation with the words that we have put forward in the amendment, and those words are words of limitation. I accept that they may not limit much because we tried as hard as we could to see the force of the Government's view, put forward a moment ago by the Minister, that there may be difficulties if the citizen's right to go to the courts was totally unrestricted.

What we have sought to do, and what I think we have succeeded in doing, is to say that there should be a restriction on litigation to where it has some connection—never mind if that connection is relatively remote or very remote—with where the Minister went wrong in the first place; that is, in the way in which he construed the legislation relating to calculation of relevant or total expenditure. There must be a connection. That is why we have used words which, on the face of it, may seem wide—"consist of", "incidental to", "consequent upon", and "done for the purpose". Added together, they mean that there must be some connection with that essential matter.

It is that upon which we say that the House should take the view that the wording put forward by the Government is far wider than could possibly be justified in any Bill, including a validation Bill of this kind. Any words which cut that down and give the citizen the additional right to go to court if wrong has been done to him are words that can be justified. Those words, however much we may have liked to strengthen them, at least do that.

In the light of the debate, and what has been said about Amendments Nos. 2 and 4 and the corresponding amendments to Clause 6—I do not wholly agree with what the noble Lord, Lord Renton, said about them—I should say that I never put them forward as essential. I have always put forward Amendments Nos. 3 and 11 as the essential ones. I shall not therefore trouble the House further to consider Amendments Nos. 2, 4, 10 and 12. I feel that the matter is so important that the House should record its view on the constitutional proprieties by supporting Amendments Nos. 3 and 11. I intend to press for the opinion of the House on that.

Amendment, by leave, withdrawn.

Lord Silkin of Dulwich moved Amendment No. 3:

Page 4, line 34, after ("shall") insert ("to the extent that it consists of or is incidental to or consequent upon or is done for the purpose of the calculation of relevant or total expenditure of a local authority").

The noble and learned Lord said: My Lords, I beg to move.

5.13 p.m.

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

Their Lordships divided: Contents, 119; Not-Contents, 121.

DIVISION NO. 1
CONTENTS
Airedale, L.	Boston of Faversham, L.
Amherst, E.	Bottomley, L.
Annan, L.	Brockway, L.
Ardwick, L.	Bruce of Donington, L.
Attlee, E.	Buckmaster, V.
Aylestone, L.	Campbell of Eskan, L.
Banks, L.	Carmichael of Kelvingrove, L
Barnett, L.	Cledwyn of Penrhos, L.
Beswick, L.	Craigavon, V.
Birk, B.	David, B.
Blease, L.	Davies, L.

Dean of Beswick, L.	Mayhew, L.
Denington, B.	Meston, L.
Denning, L.	Milford, L.
Diamond, L.	Milner of Leeds, L.
Donaldson of Kingsbridge, L.	Mishcon, L.
Elwyn-Jones, L.	Molloy, L.
Ennals, L.	Morris of Kenwood, L.
Ewart-Biggs, B.	Mulley, L.
Ezra, L.	Munster, E.
Falkender, B.	Nicol, B.
Falkland, V.	Ogmore, L.
Fisher of Rednal, B.	Oram, L.
Fitt, L.	Paget of Northampton, L.
Foot, L.	Perry of Walton, L.
Gallacher, L.	Phillips, B.
Gladwyn, L.	Pitt of Hampstead, L.
Graham of Edmonton, L.	Ponsonby of Shulbrede, L.
Greenway, L.	[Teller]
Gregson, L.	Porritt, L.
Grimond, L.	Rathcreedan, L.
Hanworth, V.	Reilly, L.
Harris of Greenwich, L	Ritchie of Dundee, L.
Hatch of Lusby, L.	Robson of Kiddington, B.
Hayter, L.	Rochester, L.
Henderson of Brompton, L.	Rugby, L.
Henniker, L.	Seear, B.
Hirshfield, L.	Sefton of Garston, L.
Houghton of Sowerby, L.	Shaughnessy, L.
Hughes, L.	Silkin of Dulwich, L.
Hutchinson of Lullington, L.	Simon, V.
Hylton-Foster, B.	Simon of Glaisdale, L.
Irving of Dartford, L.	Somers, L.
Jeger, B.	Stallard, L.
Jenkins of Putney, L.	Stedman, B. [Teller.]
John-Mackie, L.	Stewart of Fulham, L.
Kennet, L.	Stoddart of Swindon, L.
Kilbracken, L.	Strabolgi, L.
Kilmarnock, L.	Tordoff, L.
Kirkhill, L.	Underhill, L.
Lawrence, L.	Wallace of Coslany, L.
Leatherland, L.	Wedderburn of Charlton, L.
Listowel, E.	Whaddon, L.
Llewelyn-Davies of Hastoe, B.	White, B.
Lloyd of Hampstead, L.	Wigoder, L.
Lockwood, B.	Wilson of Langside, L.
Longford, E.	Winchilsea and Nottingham
Lovell-Davis, L.	E.
Mclntosh of Haringey, L.	Winterbottom, L.
McNair, L.	Ypres, E.
Masham of Ilton, B.
NOT-CONTENTS
Ampthill, L.	Colville of Culross, V.
Astor of Hever, L.	Colwyn, L.
Auckland, L.	Cottesloe, L.
Bauer, L.	Cranbrook, E.
Beaverbrook, L.	Cullen of Ashboume, L.
Belhaven and Stenton, L.	Davidson, V. [Teller.]
Beloff, L.	De Freyne, L.
Belstead, L.	Deedes, L.
Bessborough, E.	Denham, L.[Teller.]
Blakenham, V.	Derwent, L.
Borthwick, L.	Dundee, E.
Boyd-Carpenter, L.	Eccles, V.
Brabazon of Tara, L.	Eden of Winton, L.
Brougham and Vaux, L.	Ellenborough, L.
Broxbourne, L.	Elles, B.
Bruce-Gardyne. L.	Elliot of Harwood, B.
Burton, L.	Elliott of Morpeth, L.
Butterworth, L.	Elton, L.
Byron, L.	Enniskillen, E.
Caithness, E.	Faithfull, B.
Cameron of Lochbroom, L.	Fanshawe of Richmond, L.
Campbell of Alloway, L.	Fraser of Kilmorack, L.
Campbell of Croy, L.	Gainford, L.
Carnegy of Lour, B.	Glenarthur, L.
Carnock, L.	Gormanston, V.
Chelwood, L.	Gray, L.
Coleraine, L.	Gridley, L.

Hailsham of Saint	Penrhyn, L.
Marylebone, L.	Perth, E.
Hardinge of Penshurst, L.	Plummer of St. Marylebone,
Harmar-Nicholls, L.	L.
Hesketh, L.	Portland, D.
Hives, L.	Rankeillour, L.
Holderness, L.	Reay, L.
Home of the Hirsel, L.	Reigate, L.
Hooper, B.	Renton, L.
Inglewood, L.	Rodney, L.
Killearn, L.	Romney, E.
Kimball, L.	Skelmersdale, L.
King of Wartnaby, L.	Strange, B.
Kinnaird, L.	Strathcona and Mount Royal,
Kinnoull, E.	L.
Knollys, V.	Sudeley, L.
Lane-Fox, B.	Suffield, L.
Layton, L.	Swansea, L.
Lindsey and Abingdon, E.	Swinfen, L.
Lucas of Chilworth, L.	Swinton, E.
Lurgan, L.	Terrington, L.
Lyell, L.	Teviot, L.
Malmesbury, E.	Teynham, L.
Marley, L.	Thorneycroft, L.
Merrivale, L.	Torrington, V.
Mersey, V.	Trumpington, B.
Molson, L.	Vaux of Harrowden, L.
Montgomery of Alamein, V.	Vickers, B.
Mottistone, L.	Ward of Witley, V.
Mowbray and Stourton, L.	Whitelaw, V.
Murton of Lindisfarne, L.	Wilberforce, L.
Norrie. L.	Wise, L.
Nugent of Guildford, L.	Wolfson, L.
Orr-Ewing, L.	Wyatt of Weeford, L.
Pender, L.	Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

5.21 p.m.

[Amendments Nos. 4, 5, and 6 not moved.]

Baroness David moved Amendment No. 7:

Page 5, line 16, 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: My Lords, this amendment, which was tabled at Committee stage, has been tabled again for two reasons. First, the Minister suggested in cols. 40 and 41 of the Official Report of 23rd February that he would be prepared to discuss this matter with the Opposition. Secondly, the amendment is intended to be simpler in its effect than the Minister seemed to anticipate in his reply at Committee stage. Although we have seen the Minister, he had no suggestions to offer us about this amendment. He seemed to have forgotten that he had said he would talk about it. In the circumstances, we can only renew the point in the form already proposed.

The purpose of the amendment is to enable Parliament to be informed of the consequences of Clause 4(6) as it may operate in any particular case. The subsection operates to override any decision of a court which has been given in a matter covered by the clause and which purports to have a contrary effect to it. As I said, it is simpler than the Minister suggested.

In reply, at col. 40 of the Official Report, the Minister suggested that the amendment would make unclear the extent to which the retrospective validation in Clause 4(1) would have effect. This is not the case. It may be objected that a requirement for a report could introduce a considerable delay. But it seems highly unlikely in practice that the Government would be unaware of the likely operation of Clause 4(1) in respect of a court case that they were actively defending. As a consequence, they should have more than adequate warning of the need for any report, the contents of which will no doubt spring directly from the case which they argue in court.

The amendment is designed simply to ensure that a statement is made when a court is overridden of (1) the fact that the subsection has operated; (2) the practical effect of that operation as contrasted with the effects which would otherwise have flowed from the court's decision; (3) the point of law at issue in relation to the actions validated retrospectively by the clause; and (4) any other matters put before the court which the Secretary of State considers may be relevant to the situation after the decision has been overturned.

Are the Government prepared even at this stage to consider bringing forward proposals along those lines? Without such a provision Parliament cannot know at this stage what cases may be heard or what the practical consequences of the subsection may be. There is no mechanism in the Bill for informing Parliament as instances arise, notwithstanding the important constitutional questions raised by the clause.

The unusual power that the Secretary of State has given himself in the Bill should be monitored. The amendment provides one way of so doing. I beg to move.

Lord Skelmersdale

My Lords, I am grateful to the noble Baroness for the way in which she introduced this amendment. Quite clearly both her explanation on introducing it and my responses in reply in Committee require elucidation. I have considered her amendments most carefully, as I promised at Committee stage.

The noble Baroness told me in discussion that the purpose of the amendment is to ensure that Parliament receives a report on any contrary decisions of a court. The effect of the amendments as drafted, however, goes further than that. The words added by the amendment would mean that Clause 4(1) or Clause 6 would not have effect in certain circumstances. The House is probably as bored with hearing this as I am of saying it over and over again, as I have done at all stages of this Bill. In the validation provisions we want to put beyond doubt the past decisions which are now in question because of the misinterpretation of total and relevant expenditure.

There is no virtue in these decisions not being validated or in their being validated—as is the effect of the amendment—at some times but not at others. That would just create uncertainty. I ask the noble Baroness this question. What would happen until the report was laid and Clause 4(1) or Clause 6 had effect again? Could block grant, which is what we are all interested in throughout this Bill, still be paid?

This amendment could mean that a past decision was initially validated, not validated and then validated again. This could happen if a court handed down judgment after the passing of the Bill on a matter which it had heard before Royal Assent. Once judgment was handed down—which on the basis of existing law held that a past decision was invalid—it would then no longer be validated until the report was made. That must clearly be an unsatisfactory situation. I therefore ask the noble Baroness whether she is prepared to withdraw the amendment.

Baroness David

My Lords, I am still not quite sure that the Minister has fully understood the purpose of the amendment, that Parliament should be informed of what is going on when this very extraordinary power in Clause 4(1) and Clause 4(6) has been used. However, I shall read carefully what he has said again and reserve the right to come back yet again at Third Reading if I feel that he has misunderstood me or that I have misunderstood him. At the moment I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 [Further provision as to future]:

Baroness David moved Amendment No. 8:

Page 5, line 43, 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: My Lords, this amendment is identical with Amendment No. 10 which I moved and withdrew at Committee stage, because there was some query by the Minister as to whether the amendment was in order. Later he said it was. We therefore bring it back, together with the consequential amendment to Clause 15, which is Amendment No. 18.

The amendment raises the issue of compensation for local authorities for any marginal costs which may be incurred by them as a result of the retrospective application of the definitions in Clause 3 for the years 1983–84 to 1986–87. The Minister stated initially—at col. 45 of the Official Report of 23rd February—that the amendment was "slightly improper" as it contravened the money resolution by providing for a new form of payment not covered in previous legislation. He made it clear, however, that he had not received definitive advice as to whether Clause 15, dealing with expenses, would be amendable. Later (at col. 56) he revised his position in the light of advice and said that the amendment might well not fall within the scope of the money resolution. It was open to the House to debate and adopt the amendment. It would be possible, however, for the Commons to invoke financial privilege to reject it. The amendment is retabled, not to test the procedural issue, but to make a serious proposal which the House may wish the Commons to consider.

The arguments of principle were rehearsed in Committee. First, local authorities are not to blame for legal misinterpretation by the DoE who examined the question and agreed to adopt the authorities' preferred interpretation without apparently considering that the legislation needed to be clarified. Secondly, the uncertainty for the local authorities has continued even after the discovery of the legal mistake because the Bill is so complicated and contentious. Thirdly, as the noble and learned Lord, Lord Denning, said in Committee (as appears in the Official Report at col. 44) the principle behind the amendment is analogous to the payment of damages in respect of negligence.

The amounts involved are unlikely to be large and the issue essentially concerns the question of principle. There is a good moral case, as the noble and learned Lord, Lord Denning, said. The Minister did not deal with that issue in his reply, preferring to rely on the procedural argument which he subsequently withdrew.

The amendment to Clause 15 is intended to reflect the payment of compensation under the Bill which would arise from the main amendment. The expenses clause, as amended, would provide for increases to be paid both in grants under the 1980 Act and other legislation as presently drafted, and for the payment of any increase arising from the compensation provisions inserted by the amendment. It should be stressed that there is no intention in these amendments to test the relative position of the two Houses. It remains legitimate, however, for the Upper House to draw attention to an apparent issue of principle in its proper revising role. I beg to move.

5.30 p.m.

Lord Denning

My Lords, I should like to add a word in support of this amendment. It is quite plain and it is admitted that the Secretary of State and the Government made a mistake in their calculations. As a result of that mistake, the local authorities have been put to expense. That is not at all the fault of the local authorities; it is the fault of the Government. Is it not fair that the local authorities should be reimbursed for the expense to which they have been put by the Government's mistake? I believe that it is a simple question of justice. From our last discussion I gather that the Minister and the Government are to reconsider the matter.

Lord Skelmersdale

My Lords, what I said at our last discussion was, as I admitted on the subsequent amendment, totally and completely wrong, and I apologised at the time.

As the noble and learned Lord suggested, I am now able to give a considered view on this amendment. The amendment seeks to require my right honourable friend to make payments to local authorities to compensate them for any additional expenditure incurred, or expenditure rendered abortive by them, as a consequence of the provisions in Clause 5 of the Bill.

The noble and learned Lord suggested that local authorities either have been or would be put to expense because of that. However, that is not the case. This Bill maintains the status quo on relevant and total expenditure, and the noble and learned Lord is quite right. As we have admitted on several occasions, we got that wrong. Clause 5 provides that for the intermediate years, relevant and total expenditure is to be calculated by reference to a notional rate fund revenue account. These notional accounts will be very similar to, if not the same as, the actual non-statutory rate fund revenue accounts which authorities actually kept during those years. The provisions of the clause simply will not result in authorities having to embark on expensive re-presentation of their accounting information.

I am therefore saying that, although I understand the compensation provisions which the noble Baroness seeks to put into the Bill, this certainly is not the right place to put them.

Lord Silkin of Dulwich

My Lords, before the noble Lord sits down I should like to look at one aspect of the matter. Supposing that we have decisions which are rendered null and void as a result of the validation provision in this Bill, who will pay for the litigation?

Lord Skelmersdale

My Lords, they are not exactly rendered null and void. They say that that was the position up to the time of Royal Assent. That will continue to be the position, notwithstanding any decision of a court of law. Therefore, since grant has already been paid out under those provisions, there cannot possibly be any cost to local authorities under this Bill.

Lord Silkin of Dulwich

My Lords, I am talking about the costs of litigation which, as the noble Lord may know, can be very heavy. Indeed, in their arguments on Amendment No. 3 his noble friends rested a good deal of their case on the desirability of not having litigation. For all we know, we may have had that litigation already and it is rendered of no effect. Whatever words the Minister may wish to use, that is the position. The local authorities concerned, on behalf of their ratepayers, will have expended perhaps considerable sums of money. I am asking whether or not they are to continue to bear the cost of the litigation.

Lord Skelmersdale

My Lords, the amendment reads: compensation to local authorities for any additional expenditure incurred or expenditure rendered abortive by them as a consequence of the provisions of this section". As I have said, Clause 5 has nothing to do with the reason whereby local authorities might need to be compensated. The illustration that the noble and learned Lord has just given would be litigation concerning the validation provisions of Clauses 4 and 6, because those are the validation provisions in the Bill. This amendment is to amend Clause 5, and it is unnecessary for the purposes which the noble Lords opposite have adduced.

However, I cannot speak again, either with the leave of the House or not, because we are now on Report stage.

Baroness David

My Lords, I am not at all convinced by the Minister's answer. It seems that I must bring positive evidence before the House and I do not have that evidence with me at the moment. However, I am absolutely convinced that expenditure has been caused to local authorities and I hope to come back at Third Reading with positive evidence to show that that has happened. In the meantime, without that evidence, I am forced to withdraw the amendment.

Amendment. by leave, withdrawn.

Baroness Fisher of Rednal moved Amendment No. 9:

Page 5, line 43, 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 amount of any fund established under paragraph 16 of Schedule 13 to the Local Government Act 1972 which as been approved by the auditors of the local authority.").

The noble Baroness said: My Lords, noble Lords will be aware that the Bill has been introduced to correct what the Government see as an error in the way in which expenditure has been calculated for block grant purposes, accepting that there is an error there. This amendment is designed to prevent the Secretary of State having power to disallow for block grant any contribution to a special fund, or expenditure financed from a special fund. I do not intend to repeat all the arguments that I put forward when moving a similar amendment on the first day of Committee. There was a long discussion involving many noble Lords and much detail was put forward.

The amendment relates primarily to Birmingham as the largest local authority but it also affects 11 other authorities. As regards past action, the noble Lord, replying to the amendment on which we voted, used the words, "were properly done in the past". That is exactly what those local authorities, including Birmingham, did. The action was properly done in the past.

I read quite closely the noble Lord's reply to me on the first day of Committee. He said: 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".—[Official Report, 23.2.87; col. 58.)

His reply was rather muddling. After saying that what was being done was legal, his final comment was that it is perhaps questionable. At col. 58 he said: It is on the fact that it is questionable that my right honourable friend has to make up his mind".

With due respect, having said that it was legal—I want to repeat this—why does somebody then question it again, when it has been defined by the Secretary of State as being legal? Why does he then have to question it again?

In his reply the noble Lord said that the Under-Secretary of State was meeting with the city treasurer of Birmingham. Has any final decision been made regarding the application of this clause to Birmingham and to the other 11 authorities? If not, how much longer do these authorities have to wait? It was disquieting when the noble Lord, in replying to a past debate, said that it was going back as far as 1981–82. With all due respect, local authorities have to make budgets and provide services. It is important that they are aware of the amount of money which they are to receive. If they are not to receive it after this Bill, obviously it will put them in deficit on some other account or make them borrow more.

Before I sit down, I ask the noble Lord, arising from the meeting with the Under-Secretary of State in the week of 23rd February, what replies are now being given to Birmingham and other local authorities on what he would call a "questionable", but nevertheless a legal, practice.

Lord Skelmersdale

My Lords, the noble Baroness is quite right in her reading of what occurred at the Committee stage during a debate in which she not only participated but also introduced. I described the practice as "questionable". I also said in another part of my remarks that it was not illegal. I can well appreciate why the noble Baroness is pressing me to expand on these points.

When the department picked up that this was going on in some local authorities, Birmingham behaved extremely honourably and sent us papers explaining what it had been doing. Those papers make the following points 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 revenue account. Whether or not it did this in order to gain an increased entitlement to block grant, the effect was it did just that. 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 right honourable friend. Thirdly, although the auditors took the view that the transaction was lawful, they agreed to draw it to the attention of my right honourable friend to consider the rate support grant implications. This they did in the letter of 16th May 1986.

The issue that the practice of deficit finance raises is whether it is right and equitable that the Secretary of State should agree to pay grant on figures for total expenditure affected by this practice. Deficit financing is a game that any authority can play. It requires no money. Is the noble Baroness suggesting that the distribution of grant should be at the whim of authorities that choose to adopt this practice to any extent they please?

If it had not been £8 million but £80 million, Birmingham would have attracted even more grant. It cannot be right that grant can be obtained in this way. In answer to her questions, I have to tell the noble Baroness that no decisions have yet been taken on this matter. We have written to local authorities telling them that we are intending to consult on proposals for making specifications outlawing deficit financing. Specifications if made, will apply to future supplementary reports. Therefore, they will be attackable in the normal way in the courts. The assurance which the noble Baroness was seeking and which I shall certainly give her now is that the specifications will not—repeat, not—be retrospective.

Baroness Fisher of Rednal

My Lords, I thank the noble Lord for that reply. In his last sentence he said the specifications will not be retrospective. I want to be clear that the Minister is saying that the Government will look kindly upon local authorities that have not been doing anything that was not legal. I may be quite wrong in coming to that conclusion. If I am wrong, I am disappointed with the reply. If I am right, I am grateful to the Minister.

5.45 p.m.

Lord Skelmersdale

My Lords, perhaps I may be allowed to respond to that slightly indecisive winding-up of the noble Baroness's amendment. When I said, and said positively, that specifications will not be retrospective I meant that if deficit financing was carried out in this financial year, 1986–87, and the specification was made in the next financial year, 1987–88, then accounts for 1986–87 would not be covered by specification, and therefore the situation regarding the local authority which had practised it in that year would remain exactly the same as it was when it was practising it.

Baroness Fisher of Rednal

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 10 to 15 not moved.]

Clause 7 [Restrictions on rating and precepting]:

Baroness David moved Amendment No. 16:

Page 6, line 30, at end insert ("but the Secretary of State may, if he thinks fit, raise the maximum limit calculated by reference to the formulae specified in Schedule 2 to take account of the following factors—

1. (a) any adverse movement in the estimated balances of an authority for the financial year 1986–7 which have been calculated since 18th December 1986;
2. (b) an increase in costs relating to a higher than anticipated expenditure on provision for homeless persons;
3. (c) any difference of costs relating to provision of services formerly made by the Greater London Council or a Metropolitan County Council:
4. (d) any loss of subsidy on education posts initially funded through section 11 of the Commonwealth Immigrants Act 1962;
5. (e) additional costs estimated to be incurred as a consequence of the introduction of the General Certificate of Secondary Education examination;
6. (f) any adverse changes to the level of housing subsidy receivable arising from the Department of the Environment's letter of 18th December 1986: "Housing Subsidy: General Determination of Reckonable Expenditure (Management and Maintenance) 1986/7 and 1987/8";
7. (g) any adverse financial changes arising from the adjustments to Sinking Fund Rates specified in the Department of the Environment's letter of 17th February 1987;
8. (h) any other factor which the Secretary of State determines as being appropriate to take into consideration.")

The noble Baroness said: My Lords, the basic purpose of the amendment is to allow for a revision of expenditure limits and for some flexibility in the final setting of rate precept limits, as was normal practice under the workings of the Rates Act 1984. This revision of expenditure and rate limits would take place after enactment of the Bill and would be entirely dependent on a decision by the Secretary of State to allow the raising of the limit. The purpose of the amendment can be summarised as allowing the Minister, and him only, to raise the limit; allowing the Minister to consider financial factors in relation to the individual circumstances of authorities which cannot have been known—I repeat, which cannot have been known—or appreciated in full on 18th December 1986 when the Bill was published. These are listed in the amendment at paragraphs (a) to (h).

Why is the amendment important? As noble Lords know, the Finance Bill suspends for 1987–88 the normal processes of considering representations from designated authorities in respect of their expenditure limits and final rate or precept limits. I explained at Committee stage what those normal processes were.

After the Secretary of State has served a notice on each designated authority specifying the maximum rate precept which he proposes to issue as the maximum for that authority, authorities may then come back to the Secretary of State to argue for a different maximum, no doubt on the grounds that the Minister has not taken into account particular factors over which there may be some arithmetical dispute, or dispute over block grant entitlement, or receipts, or payments by the authority in question from or to the London rates equalisation scheme.

Significantly, Section 4(2) of the Rates Act 1984 lays a power on the Secretary of State to consider the size of financial reserves in the following terms: and in determining that maximum [rate precept] the Secretary of State may take into account any financial reserves available to the authority".

The Secretary of State then issues a direction to each designated authority specifying the final maximum he will allow the authority to levy as a rate or precept.

The problems which arise as a consequence of the suspension of this process specified in statute are as follows. Several forms of appeal have been abolished. They are: (1) the appeal through the formal redetermination process of a designated council's expenditure limit; (2) the appeal possible to Ministers against an unsatisfactory or miscalculated interim rate precept level; (3) the appeal against the final rate precept limit possible through debate on the parliamentary order necessary under Section 6(4) of the Rates Act. Three separate forms of appeal have thus been lost.

Local authorities could not have known when making decisions whether or not to apply for redetermination that their applications would not be considered properly by Ministers. Schedule 2 of the Bill, which specifies the mathematical formulae on which expenditure limits and rate precept limits are structured, deals with authorities by classes or sections of classes and not on a case by case basis. This can only mean that Ministers have taken an attitude of achieving a golden mean so far as maximum expenditure levels and limits are concerned rather than dealing with the specific and distinct problems of individual authorities.

The ministerial decisions on expenditure levels and, by extension, maximum limits were made so early as to make it impossible for proper account to be taken of financial factors which would have impinged on the local authority budgeting process in the final months of the financial year. It is these factors which lie at the heart of our concern to amend Clause 7.

The amendments propose factors which the Secretary of State might take into account. It is perfectly proper for Parliament to ask Ministers to take into account factors which they cannot have considered, or do not appear to have considered, when making decisions on maximum limits three months before the end of the financial year and the end of the local authority budget process. The factors which the amendment considers as relevant to ministerial consideration are, in paragraph (a): any adverse movement in the estimated balances for … 1986–87 … calculated since 18th December 1986".

This provision is designed to enable the Minister to assess changes in estimated balances of an authority.

On 18th December, the date the Bill was published, the Minister cannot have known with any precision the sums which might be in an authority's balances by the end of the year and which therefore could be available as income to the authority's rate fund account in 1987–88 and thus capable of shading off the rate that would otherwise have to be charged in order to meet expenditure.

Between 18th December and today major changes could have taken place to the balances potentially available. For example, the spend position of the authority's programmes could have improved so that the potential balances due to underspend were lower. Spending on unforeseen items, such as unavoidable contractual or statutory commitments newly identified, could have taken place, thus lowering balances. Spending on seasonal items such as snow clearance and road maintenance could have greatly exceeded estimates and hence reduced balances—and indeed that happened in January—given the severity of winter weather. Items such as interest rate charges at a higher level than budgeted could have reduced balances too. Our argument is that in circumstances where the balances available to an authority are genuinely and substantially below that which was expected by Ministers before and on 18th December, there is a case for revision of these estimates and revision of the maximum limit. Paragraph (b) states: an increase in costs relating to a higher than anticipated expenditure on provision for homless persons".

It is well known that these duties laid upon housing authorities by the Homeless Persons Act 1977 are growing. Most rate-capped authorities are housing authorities. Demand is growing so rapidly in some authorities that estimates made of expenditure on statutory provision under the 1977 Act could have been revised upwards dramatically. This is not discretionary expenditure for authorities. The vast majority of it is unavoidable and involves housing authorities in expenditure over payments for bed and breakfast accommodation.

As an example of the difference between budgeted and outturn expenditure, one London borough's spend pattern is as follows: 1985–86 budgeted spend, £1.3 million; 1985–86 outturn spend, £4.6 million; 1986–87 estimated spend, £12 million; 1987–88 estimated spend, £14 million. These increases, driven by demand and statutory obligations, ought properly to be taken into account by Ministers when setting maximum limits and may not have been on 18th December. If any authority's costs have risen substantially on this point recently either for 1986–87 or 1987–88, Ministers ought to have power to reconsider their sums.

Paragraph (c): any difference of costs relating to provision of services formerly made by the Greater London Council or a Metropolitan County Council".

The costs of running former GLC or MCC services are much higher than the successor authorities had been led to expect. One successor authority is finding actual costs to be nearly £6 million per annum greater than anticipated. This is the first financial year in which the transition to the new system of local government in London and the metropolitan areas has been tested, and it is only right that Ministers should be able to review the position in terms of legitimate cost changes in the light of experience. Such costs can be better estimated now than three months ago.

Paragraph (d): any loss of subsidy on education posts initially funded through section 11 of the Commonwealth Immigrants Act".

The Government have recently changed their practices in relation to such posts and have withdrawn subsidy initially approved, leaving authorities to foot the bill themselves.

Paragraph (e): additional costs estimated to be incurred as a consequence of the introduction of the General Certificate of Secondary Education examination".

If the introduction of the new system is to be a success, training and staffing levels must be appropriate. It is only right that any urgent representations from rate-capped education authorities should be capable of being considered.

Paragraph (f): any adverse changes to the level of housing subsidy receivable arising from the Department of the Environment's letter of 18th December",

on management and maintenance costs. This letter, sent to housing authorities on the same day as publica-tion of the Bill, has had a significant impact on the budgets of certain housing authorities; £11 million and £12 million in two particular cases.

It was announced recently—mid-February, in fact—that the changes will be operative from the beginning of 1987–88. Such large changes in financial regime were not taken into account in terms of the limits in Schedule 2 of the Bill, and the Secretary of State must be given powers to review limits in the light of this policy change by his department.

Paragraph (g): any adverse financial changes arising from the adjustments to Sinking Fund Rates specified in the Department of the Environ-ment's letter of 17th February".

The DoE indicated in September last that for the purpose of calculating housing subsidy it was considering changing the method of calculating loan charges. In the letter dated 17th February the department indicated that it was to introduce such changes as from 1st April, which substantially reduces the subsidy payable to seven authorities.

The DoE has argued that these changes were taken into account when calculating the formulae in Schedule 2 but all authorities of a class or part of a class are treated in the same way in the formulae, whereas the sinking fund changes affect some authorities severely and others not at all. The Minister ought to have power to revise maximum limits in the light of information concerning the differential impact of the sinking fund changes.

Paragraph (h) states: any other factor which the Secretary of State determines as being appropriate to take into consideration".

This power is necessary to take into account the genuinely different and idiosyncratic position of 40 authorities. It speaks for itself.

Time is of the essence. Precepting authorities have to make a precept by the 10th March and rating authorities by the 1st April. The Minister can still take these factors into consideration and issue maximum limits in time for authorities to comply with Clause 8 of the Bill. I beg to move.

6 p.m.

Lord Kilmarnock

My Lords, the noble Baroness has introduced this amendment extremely fully. What she has proposed to the House is in effect a sort of shopping list. One has to recognise however that this shopping list is permissive on the Secretary of State. It is not obligatory on him but it would at least enable him to take account of one or more of the factors listed in the amendment. This, of course, he cannot do at the moment because he has made himself a prisoner of his own formulae. He has boxed himself in—deliberately of course—but I very much question whether this sort of rigidity is desirable.

I have referred to the amendment as a shopping list. Obviously, everyone has preferences on lists of this sort. But I am bound to say that some of the headings seem to me to be eminently reasonable. Paragraph (a) deals with estimated balances. These are obviously a moveable factor, a variable factor, which can be affected by seasonal items such as snow clearance and road maintenance depending on the weather, and which no one could possible foresee. Such items could introduce quite a difference in the balances which would be available.

Paragraph (b) which deals with the increase in costs relating to higher than anticipated expenditure on provision for homeless persons is extremely important. The noble Baroness gave some figures but the homeless persons Act is, of course, a statutory obligation on local authorities. They cannot possibly know in advance those people who are going to move into their areas or become homeless. Indeed, I see from The Times today that Mr. Ridley recommends that people, rather than sleeping rough in London, should go into areas where there are empty houses. He talked of 750,000 empty houses; but, of course, they are not habitable. If people followed his advice and went to different boroughs, they would be very likely to find themselves homeless and the local authority would be obliged to house them. Those are factors which cannot possibly be foreseen. It seems to me highly desirable that the Secretary of State should have some flexibility to deal with that sort of eventuality.

Paragraph (e) refers to additional costs estimated to be incurred as a consequence of the introduction of the GCSE examination falling on local education authorities. The Government have provided some money but it is widely regarded as being insufficient. I would remind the House that children sitting this examination will be taking the first version of it in the summer of 1988. If adequate expenditure has not been made to ensure that they can be properly taught according to the new system, with the necessary books and everything else, they may face a very dusty proposition in that examination. That is another important element in local authority expenditure which is not taken account of by the extremely rigid formulae in Schedule 2 of the Bill.

I shall not go any further down the shopping list. I have mentioned what seem to me to be three eminently worthy causes to which the Secretary of State might in the future want to direct his attention and for which he might make some variation. As the Bill is drafted, he is unable to do so. On those grounds, without saying any more, we on these Benches would like to support the noble Baroness's amendment.

Lord Skelmersdale

My Lords, I would point out to the noble Lord, Lord Kilmarnock, that because the amendment is to Clause 7, it is only relevant to rate-capped authorities. If the noble Lord wishes to persuade the Government to put money for homelessness into local authorities, I suggest that this would be a very odd way to do it. The manner in which the money was spent would have much wider implications than for the rate-capped local authorities alone.

Lord Kilmarnock

I am fully aware that Clause 7 and the schedule attached to it deal with rate-capped authorities. But can the noble Lord tell me that it is any less likely that homeless people will move into a rate-capped authority and become a burden on it rather than an un-rate-capped authority, or that children in a rate-capped authority do not have to prepare for GCSE as well as those in other authorities?

Lord Skelmersdale

Clearly. the homeless person is no more likely, or less likely, to go to a rate-capped or non-rate-capped local authority. This is why, if you are dispensing the largesse which the noble Lord, Lord Kilmarnock, requests of the Government, this must be done equally and not just for the rate-capped authority.

However, perhaps having got that small point out of the way, we might turn to the amendment itself. I find it quite ingenious. The amendment attempts to modify the means of deriving rate and precept limits presently in the Bill, as represented by the formulae in Schedule 2. The effect of the proposal is to create unnecessary delay and continuing uncertainty about what rate and precept limits in the areas of designated authorities will be.

As we explained in earlier debates, it would simply not have been possible to carry through the normal Rates Act procedures, given the need for this Bill. I must remind the House that the need for the Bill has never been in doubt and that it was very well trailed. Authorities have known of the position since 16th December when my right honourable friend made his statement.

Our aim throughout has been to give authorities as much certainty as possible in fixing their rates and precepts. We have therefore provided that authorities will be notified as soon as is reasonably practicable after the rate support grant report for 1987–88 is laid before another place of the rate and precept limits which will apply to them.

In deciding on the formulae in the Bill, my right honourable friends took into account the information available to them about financial reserves. Figures for 31st March 1987 were provided by the authorities themselves in almost all cases. All redetermination applications were very carefully considered before the formulae were set.

We have, as I have said, provided that the limits are to be determined in accordance with the formulae specified in the Bill which incidentally was published on 18th December last, so local authorities have had some time to get used to them. In reaching their decisions, the Secretaries of State did exactly the same as they do in any other year. They took account of all the information available to them about the designated authorities. And they took particular note of the applications for the redetermination of expenditure levels. The presentations made at meetings about those applications were carefully considered. Of course, given the need for the formula approach, limits cannot be precisely tailored to individual circumstances as in a normal year. But, so far as is possible, they reflect decisions which would have been taken under Rates Act procedures.

We spent considerable time in Committee considering whether these formulae were correct. We concluded that but for the case of Newham, on which there was genuine doubt, they were correct. The effect of the process now being proposed by the amendment is that authorities will not know until after the Bill is enacted, possibly long after, what their rate or precept limit will be. Ratepayers will not know how large their bills will be. I do not accept that the flexibility in the rate limits which noble Lords opposite are seeking through this amendment is either necessary or desirable.

To give an example that the noble Lord, Lord Kilmarnock, has just prompted me with on the GCSE examination, the Government believe that the rate-capped education authorities should have scope to find the necessary funds for the new examination within the limits obtained from the formulae. I remind the House that my right honourable friend the Secretary of State for Education and Science is making available specific grants to assist authorities in providing for these new examinations. Those specific grants are outside the formulae, as indeed are all specific grants.

The amendment mentions a whole list, paragraphs (a) to (h), covering specific points. If it would assist the House I could expand on any of them, but for the moment I hope I have said enough to show that everything that could be considered has been considered and that therefore the amendment is not necessary.

Baroness David

My Lords, I think that is an unsatisfactory reply. The 40 or so authorities concerned would not be so upset and agitated about the Bill if they were not going to be adversely affected by the lack of the usual processes that they could go through under the Rates Act 1984. The amendment states: the Secretary of State may, if he thinks fit". It does not put an obligation on him. But if there are some authorities that are particularly badly done by in one or other way, then its seems only fair that there should be some sort of chance for them to have their grants considered again.

Concerning the homeless, the rate-capped authorities are the recipients of more homeless than any others. It is quite unlikely that I shall convince the Minister of the rightness of our cause and that natural justice is not being done, so I shall ask the House to divide on this amendment.

6.12 p.m.

On Question, Whether the said amendment (No. 16) shall be agreed to?

Their Lordships divided: Contents, 71; Not-Contents, 115.

DIVISION NO. 2
CONTENTS
Airedale, L.	Lawrence, L.
Ardwick, L.	Listowel, E.
Attlee, E.	Llewelyn-Davies of Hastoe, B
Aylestone, L.	Lloyd of Hampstead, L.
Beswick, L.	Lockwood, B.
Birk, B.	Longford, E.
Boston of Faversham, L.	Lovell-Davis, L.
Bottomley, L.	Meston, L.
Brockway, L.	Milner of Leeds, L.
Campbell of Eskan, L.	Morris of Kenwood, L.
Carmichael of Kelvingrove, L.	Mulley, L.
Cledwyn of Penrhos, L.	Nicol, B.
David, B.	Ogmore, L.
Denington, B.	Oram, L.
Denning, L.	Perry of Walton, L.
Diamond, L.	Phillips, B.
Elwyn-Jones, L.	Pitt of Hampstead, L.
Ennals, L.	Ponsonby of Shulbrede, L.
Ezra, L.	[Teller.]
Falkender, B.	Ritchie of Dundee, L.
Falkland, V.	Robson of Kiddington, B.
Foot, L.	Seear, B.
Gallacher, L.	Silkin of Dulwich, L.
Graham of Edmonton, L.	Simon, V.
Grimond, L.	Stewart of Fulham, L.
Hanworth, V.	Stoddart of Swindon, L.
Hayter, L.	Strabolgi, L.
Henniker, L.	Tordoff, L.
Howie of Troon, L.	Underhill, L.
Hughes, L.	Wallace of Coslany, L.
Hutchinson of Lullington, L.	White, B.
Irving of Dartford, L.	Wigoder, L.
Jeger, B.	Winchilsea and Nottingham,
Jenkins of Putney, L.	E.
John-Mackie, L.	Winterbottom, L.
Kilbracken, L.	Ypres, E.
Kilmarnock, L. [Teller.]
NOT-CONTENTS
Aldington, L.	Broxbourne, L.
Astor of Hever, L.	Buckinghamshire, E.
Bauer, L.	Butterworth, L.
Beaverbrook, L.	Byron, L.
Belhaven and Stenton, L.	Caithness, E.
Belstead, L.	Cameron of Lochbroom, L.
Bessborough, E.	Campbell of Alloway, L.
Birdwood, L.	Campbell of Croy, L.
Blyth, L.	Carnegy of Lour, B.
Boardman, L.	Carnock, L.
Borthwick, L.	Chelwood, L.
Boyd-Carpenter, L.	Clitheroe, L.
Brabazon of Tara, L.	Coleraine, L.
Brougham and Vaux, L.	Colville of Culross, V.

Craigavon, V.	Masham of Ilton, B.
Craigmyle, L.	Merrivale, L.
Cranbrook, E.	Mersey, V.
Cullen of Ashboume, L.	Molson, L.
Davidson, V. [Teller.]	Montgomery of Alamein, V.
Deedes, L.	Mottistone, L.
Denham, L. [Teller.]	Mowbray and Stourton, L.
Derwent, L.	Munster, E.
Dilhorne, V.	Murton of Lindisfarne, L.
Dundee, E.	Napier and Ettrick, L.
Eden of Winton, L.	Norrie, L.
Elles, B.	Onslow, E.
Elliot of Harwood, B.	Orr-Ewing, L.
Elliott of Morpeth, L.	Pender, L.
Elton, L.	Penrhyn, L.
Enniskillen, E.	Plummer of St. Marylebone,
Erroll, E.	L.
Faithfull, B.	Portland, D.
Fraser of Kilmorack, L.	Rankeillour, L.
Gainford, L.	Reigate, L.
Geddes, L.	Renton, L.
Glenarthur, L.	Renwick, L.
Greenway, L.	Rodney, L.
Gridley, L.	Romney, E.
Hailsham of Saint	Russell of Liverpool, L.
Marylebone, L.	Sandford, L.
Harmar-Nicholls, L.	Skelmersdale, L.
Hesketh, L.	Strange, B.
Hives, L.	Strathclyde, L.
Holderness, L.	Strathcona and Mount Royal,
Home of the Hirsel, L.	L.
Hooper, B.	Sudeley, L.
Hylton-Foster, B.	Suffield, L.
Inglewood, L.	Swinfen, L.
Killearn, L.	Teynham, L.
Kimball, L.	Thomas of Swynnerton, L.
Knollys, V.	Thorneycroft, L.
Lane-Fox, B.	Trefgarne, L.
Layton, L.	Vaux of Harrowden, L.
Lucas of Chilworth, L.	Vickers, B.
Lurgan, L.	WardofWitley, V.
Lyell, L.	Whitelaw, V.
Mackintosh of Halifax, V.	Wolfson, L.
Malmesbury, E.	Wyatt of Weeford, L.
Marley, L.	Young, B.

On Question, amendment agreed to.

6.20 p.m.

Baroness David moved Amendment No. 17:

Page 6, line 43, at end insert— ("( ) If a designated authority (whether designated by the Secretary of State or deemed by virtue of section 68(6) of the Local Government Act 1985 (new authorities) to have been designated) incurs any expenditure as a result of any change between 14th January 1987 and the laying of the report under section 7(5) above in the information provided to it by the Secretary of State to enable it to calculate BG (a component of the maximum limit to be determined in accordance with Schedule 2 to this Act), the Secretary of State shall reimburse the authority for that expenditure.").

The noble Baroness said: My Lords, this amendment seeks to draw attention to the administrative chaos caused by the DoE's revision of local authorities' probable grant entitlements for 1987–88, which revisions were notified to the authorities in a letter posted on the 23rd February 1987. That day of course was the first day of this Bill's Committee stage. The matter was raised in Committee on the 24th February and the Minister made light of the changes, saying (in col. 125 of the Official Report) that the changes in the determinations of rate and precept limits were small, and that the Tyne and Wear Fire and Civil Defence Authority had not "issued" its precept. That was at col. 126.

I have copies of letters from three authorities which have been procedurally affected by the Government's late amendments to block grant figures. Hounslow estimate their costs of having to resubmit papers to a Committee as £700; the effect of the change contained in the 23rd February letter was to increase Hounslow's maximum rate from 205.97p to 206.81p, an increase of 0.84p. Sunderland, on behalf of the Tyne and Wear Fire and Civil Defence Authority, put their abortive expenditure at "in excess of £500". In relation to TWFCDA, the Minister was correct in saying the precept had not been "issued", but the point was that the TWFCDA had met on Monday, 23rd February and made this precept; an extraordinary meeting of TWFCDA had therefore to be held to make the precept at 10.54p, instead of 10.55p in order to comply with the Rates Act 1984.

The third is a copy of a letter from Newcastle to the Secretary of State. Although Newcastle have not costed the administrative effects of the change, they point out graphically the effect of receiving notification of the change three hours before the Finance Committee met to recommend a rate to the City Council. But Newcastle's letter raises a more serious point. It would seem that if the DoE spot any more errors between now and the making of the Rate Support Grant Report they will have to correct those errors in the RSG Report: that is to say, the figures notified to authorities—first on 13th January and then on 23rd February—could be subject to more changes. If those changes reduce the maximum rates and precepts set out formulaically in Schedule 2, the provisions of Clause 8 come into force.

Precepting authorities have to issue their precepts by 10th March—that is, next Tuesday. The Secretary of State cannot lay the RSG Report until after this Bill receives Royal Assent. Therefore, on present timing, designated precepting authorities are going to have to issue their precepts in accordance with the latest information from DoE—which information might be changed before the RSG Report and the notice required under Clause 7(5).

This amendment deals with that eventuality. The costs already outlined refer to only two authorities at an early stage in the rate and precept-making process. But as time proceeds the costs of making substituted precepts will become higher; for instance, if rate demands need to be changed.

All of this administrative nightmare is the result of the Secretary of State's and DoE's mal-administration—the need for this Bill, the choice made in this Bill to adopt statutorily-defined rate limits, the changes to RSG figures—and the Secretary of State, not local authorities, should pay for it.

That is what this amendment asks for. I did give the Minister warning that I should be raising the question of what the Government intended to do as a result of Greenwich winning their case last Thursday. I asked: would a new rate support grant settlement have been made? A Statement has been read in another place—we did not take it as we were dealing with the Local Government Finance Bill—and in it I read that the Secretary of State is to appeal against the court judgment. I quote from the Statement: That judgment would mean that I could not correct an acknowl-edged error in the 1986–87 settlement, which deprived some London authorities of their full grant entitlements. As a result of that judgment, it is necessary now to amend the rate support grant figures I announced in January for 1986–87 and 1987–88, so that grant can be paid from the beginning of April. I have sent the revised figures to local authorities today.

It is really a most shocking affair that the Secretary of State should have to alter these three times, or should have made three statements on 13th January, on 23rd February, and now a further letter is here. I have copies of the letters which have gone out. The letter to the chief executive of rate-capped authorities reads as follows: The letter which I have sent to all chief executives today gives details of modifications which the Secretary of State has had to make to the figures for the intended 1987–88 RSG Report notified on 23rd February. Those modifications affect the data enclosed with my letter of 23rd February to designated authorities, which it was intended would be used, under the terms of the Local Government Finance Bill, for the purpose of setting rate limits. I now enclose two further tables of data".

There are pages of data. That was the letter sent to the authorities which are rate-capped, and there is a similar letter announcing the changes to the chief executives of the other authorities.

This really is a sign of gross incompetence it seems to me. The deadline is approaching very quickly and I gather that in fact it is going to be quite politically embarrassing to the Secretary of State because Tory boroughs are the ones which are going to be the worst affected by this. I hope that in the light of the Statement, the additional mistakes and everything else, the Minister will look kindly on this amendment and realise that local authorities have had to put up with a great deal of trouble, expense and uncertainty. Certainty, the Minister said, was what we wanted. Uncertainty is what we have got. I beg to move.

Lord Underhill

My Lords, perhaps I may just add a word in support of my noble friend. She referred to three letters, including one from the Tyne and Wear Fire and Civil Defence Authority. I have the original letter here, and it will be recalled that I raised the position of that authority when we met in Committee on the 24th February. On that occasion the Minister referred, and has repeatedly referred on other occasions, to the need for certainty and to the need to remove uncertainty. As my noble friend has revealed, we now have evidence which shows that there is even more uncertainty for a number of local authorities. Although the Minister, when I raised this matter, tended to brush it off as only affecting.01p in the pound, the fact is that it involved members meeting again and giving up time in order to have a further meeting to set the revised precept in Tyne and Wear.

My noble friend referred to the fact that the costs involved in changing the precept to the authority will be in excess of £500. I thought it might be useful to read the last paragraph of the communication that I have received from the finance officer of the authority: I thought you should be advised of this position both in terms of the waste of public expenditure and also further potential wastage which could result from any further changes in the rate support grant report before it is finalised". We have just heard that there have been further changes. It is perhaps ironic that the rate limitation process, which is supposed to curb public expenditure wastage, has created this position". Then the authority hoped that I would make reference to this on Report.

That is just one authority. Now we have the evidence that my noble friend has brought to us of the Statement made in the other place affecting further authorities. I hope that the Government will not refer to the removal of uncertainty again in the course of discussing the Bill.

6.30 p.m.

Lord Skelmersdale

My Lords, the amendment seeks to require my right honourable friend to pay compensation to designated authorities for expenditure incurred by them as a result of any changes to the firm intentions for the coming RSG settlement, which my right honourable friend announced in January.

At the outset let me make it quite clear that I believe the amendment to be wrong both in principle and as a matter of necessity. It is wrong in principle because it would mean that central government would be contributing towards expenses that are properly the responsibiiity of individual local authorities. Such matters as the making or issuing of rates or precepts are clearly the responsibility of the authority involved. The expenses of exercising these responsibilities should fall on the authority, and it would not be appropriate for the Government to make specific contributions towards them as would be the case if the amendment were accepted.

Lord Silkin of Dulwich

My Lords, will the Minister answer one question that occurs to me in that context? If a ratepayer of one of the affected authorities, having to pay higher rates as a result of the additional expenditure that his authority has incurred because of the errors of the Secretary of State or his department, should think fit to complain against that situation to the Parliamentary Commissioner for Administration on the grounds that the expenditure has been the result of maladministration, not by the local authority but by the Government, would he not have a good claim?

Lord Skelmersdale

My Lords, the local authority ombudsman is not an officer of the Government. I am not prepared to speculate what he will find in any particular case.

I was going on to suggest to the House that the amendments are unnecesssary although there are indeed changes to the firm intentions. On 23rd February the department wrote to the authorities telling them of certain corrections to the firm intentions and, as the noble Baroness has just said, my right honourable friend today announced in another place that he is appealing against the court judgment in a case brought by Greenwich Borough Council and that, subject to the outcome of the appeal, it is necessary to amend the firm intentions. That judgment, incidentally, prevents my right honourable friend correcting an acknowledged error in the 1986–87 settlement. Therefore that matter has to be sorted out.

I accept that these changes to the firm intentions are as unwelcome to local authorities as they are to the Government. I very much regret any inconvenience that they have caused. However, I think that it is only fair to remind the House that noble Lords on the Opposition Benches have been, and are today, quite happy to see changes to the intended figures for rate and precept limits. Indeed, we have only just voted on the subject. If they were not, they would not have tabled the amendment that we have discussed. Would they have the Government or indeed themselves compensate for those changes? I really think that we ought to keep a sense of proportion.

While the effect of the changes in the firm intentions has been to vary the intended limits, the changes have not affected designated authorities' ability to incur expenditure. The changes have not remotely required the authorities to rethink their budgets to any significant degree. I do not accept that the changes may lead in certain cases to authorities having to reconvene meetings. But the need for further budget meetings is now unknown, given the uncertain world in which we live. Of course we want certainty. We have tried to give as much certainty as possible, given the difficult circumstances created by the need to deal with the total expenditure problem.

I should perhaps point out that it was as a result of legal advice—though it was not of course as a result of a decision of the court—that we have the Bill at all. The Secretary of State has appealed against the Greenwich judgment, as I said. In the interim, he has to act on the basis of the judgment as it stands. The Bill is designed to give as much certainty as is possible, as I have said on countless occasions when we have been debating amendments by noble Lords on the Opposition Benches to provisions on rate limitation which would have resulted in just the opposite effect; in other words, increased uncertainty. I simply do not see how the amendment helps that certainty or uncertainty. It would not give the certainty that we are looking for.

The noble Baroness, Lady David, talked about a shocking affair. Clearly the Secretary of State had to respond to the judgment of the court once it was known. I hope that the noble Baroness is not suggesting that my right honourable friend should have ignored it.

The matter of South Yorkshire Fire and Civil Defence Authority was brought up both today and in Committee by the noble Lord, Lord Underhill.

Lord Underhill

My Lords, I raised today the question of Tyne and Wear Police Authority.

Lord Skelmersdale

My Lords, in that case I misinterpreted what the noble Lord said, which fills me with a certain amount of embarrassment. In the meantime, it may be helpful to the noble Lord and to South Yorkshire Fire and Civil Defence Authority if I say what I was going to say, though the noble Lord did not ask me to do so.

Lord Underhill

I did last time.

Lord Skelmersdale

The noble Lord did last time. He is very generous.

My noble friend Lord Caithness met the authority on 2nd February. He carefully considered its case, but remained satisfied that the precept limit obtained from the formula in the Bill was appropriate and would enable the authority to maintain existing levels of service. I have no doubt that, despite the fact that the Statement was not repeated in this House, noble Lords would like to question me in some detail about it. However, our procedures on Report make this a little difficult.

It may be helpful to noble Lords if I say that the effect of the court judgment is that my right honourable friend has no alternative but to revise grant entitlements for 1987–88 and 1986–87 if he is to bring forward rate support grant reports for approval in another place before the start of the financial year. As I said earlier on behalf of the Government, I regret the effect on authorities of the late changes, but our hands are tied by the timing of the High Court decision.

To return to Tyne and Wear, I accept that the authority had to reconvene its budget meeting because of changes. As I said earlier, this is by no means an unusual happening. Indeed, the noble Lord, Lord Underhill, was good enough to agree with me in Committee when I said that. Returning to what I originally said on this amendment, I believe that it is both wrong in principle and unnecessary for the reasons I have given. Therefore, I recommend the House to reject it.

Baroness David

My Lords, I congratulate the Minister on trying to make something of what is a very bad case indeed. Nobody could possibly say that what has been going on in local government, between local government and central government, has been anything but unhelpful, messy and uncertain. I shall not divide the House on this amendment at this time of night, but I shall get fuller information from authorities, as the Statement has been made only today, as to what will happen as a result of what has occurred today and what will happen if the appeal is not granted when the court—is the Minister listening?

Lord Skelmersdale

Yes, my Lords.

Baroness David

Good. On the previous amendment the noble Lord said that I was trying to change the grant to the authorities that had been rate limited. It is one thing to ask to have some more and to get it, but it is quite another not to know where you will be for the next year. That is the position into which the department has put local authorities. As I said, I shall get more information, but I think we shall certainly be back with this amendment at the next stage of the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 18 not moved.]

Schedule 2 [Rates: maximum limit]:

Lord Renton moved Amendment No. 19:

Page 11, line 34, at end insert ("set out in paragraph 4A below. The symbols used therein are described in paragraph 3 and 4 below.").

The Noble Lord said: My Lords, I suggest that Amendments Nos. 20 and 22 should be considered with this. The purpose of these three amendments is to make the second schedule easier to read and understand by putting the paragraph which contains the definitions of the symbols before the paragraph which contains the formulae. Noble Lords will remember that at the Committee stage I drew attention to the difficulty of understanding the formulae without having first read the definitions, and I am glad to say that the noble Baroness, Lady David, said at col. 144 of Hansard of 24th February that she agreed with me. In drafting the three amendments I have not changed the wording in the Bill at all, except by adding some words which are set out in Amendment No. 19, which is a necessary paving amendment.

Owing to the strange rigidity of our rules for tabling amendments, it was not permissible for me either to table one which merely altered the order of the paragraphs or to set out the whole schedule in the improved order, as I suggest that it is, resulting from changing the paragraphs round. I was advised that what I had to do, having tabled the paving amendment, was to leave out paragraph 2 which contains the definitions of the symbols, and that is done by Amendment No. 20. Then I was told that I should reintroduce it in full as a new paragraph, which on the Marshalled List has become paragraph 4A and is in exactly the same terms as paragraph 2 is in the Bill. That is done by Amendment No. 22.

If these amendments are accepted, as I sincerely trust they will be, the paragraphs will have to be renumbered in the usual way by the Clerks and it may well be that a cross-reference from one paragraph to another will have to be altered. I think that can also be done by the Clerks, but I am not sure. I hope for support on both sides of the House for these amendments. Accordingly, I beg to move Amendment No. 19.

Baroness David

My Lords, I shall be very glad to support the noble Lord. I said in Committee that I thought he had a very good point and he seems to have coped with it well in this amendment.

6.45 p.m.

Lord Skelmersdale

My Lords, the House may or may not remember that my noble friend Lord Renton bounced me with this idea on Schedule 2 stand part in Committee. What I did very naturally, as even such a bad cricketer as I am does with a bouncer, was to duck very smartly indeed. Having done that, I then had to spend some time considering the words in Hansard, which I promised my noble friend I would do at that time. I must say that on consideration and after consultation the Government are prepared to accept my noble friends's very persistent—as one might say from what he has just said—amendment and I congratulate him on his persistency.

As my noble friend has explained, this amendment is about the order of Schedule 2 and is solely about the order. It is the first time in my experience, certainly when I have been involved in a Bill, that we have had a pure drafting amendment from behind me, and I found this a very exciting occasion. My noble friend's expertise in the field of drafting is well known and I am very grateful to him on behalf of the Government for his efforts here. He has clearly recognised that there is a little further work to do on the amendment, which, if it is not done in the printing, the Government will be delighted to do for him in the way of consequentials. I therefore commend this amendment to the House and hope that my noble friend has enjoyed moving it.

Lord Campbell of Alloway

My Lords, I briefly congratulate my noble friend the Minister—not an unusual position, perhaps—on having kept an open mind and having borrowed from the important expertise of my noble friend Lord Renton in order to improve the quality of legislation, which point is, at times, overlooked in your Lordships' House, in particular, in terms of intelligibility. My noble friend the Minister was able to help us discharge the revisory role to some degree. I take the view that this ought not to be taken for granted and it is much appreciated. I hope your Lordships might think that the rigidity of the rules—the question which troubled my noble friend Lord Renton—might warrant the attention of the Procedure Committee of your Lordships' House.

Lord Renton

My Lords, I thank my noble friend the Minister for accepting these amendments and fore the spirit in which he has done so. I am also grateful for the support that has been given by the noble Baroness and my noble friend Lord Campbell of Alloway. I think that his suggestion that this rigidity in our rules for tabling amendments might well be considered by the Procedure Committee is one which should be pursued.

Lord Renton moved Amendment No. 20:

Page 11, line 35, leave out paragraph 2.

Lord Elwyn-Jones moved Amendment No. 21:

Page 12, line 19, leave out sub-paragraph (2) and insert—("(2) EL is—

1. (a) in the case of an authority whose maximum limit is determined by reference to paragraph 2(2) above, the higher of—
   1. (i) the level for the authority's total expenditure in the relevant financial year which before the passing of this Act was determined and notified to the Authority under section 3(1) and (3) of the 1984 Act, or
   2. (ii) its GRE is for the financial year 1987/88 plus 7.5% where GRE is the amount shown as the grant related expenditure in relation to the authority in the Rate Support Grant Report for England for the financial year beginning in 1987; and
2. (b) in the case of all other designated authorities the level for the authority's total expenditure in the relevant financial year which before the passing of this Act was determined and notified to the authority under section 3(1) and (3) of the 1984 Act.").

The noble and learned Lord said: My Lords, I greatly hope that the noble Lord will be as accommo-dating in regard to my amendment as he was on the last two. Your Lordships may recollect that on 24th February I moved an amendment similar to that which I now move. Since that time, the Minister for Local Government has made what I have had described to me as a most friendly visit to my old constituency of Newham. I understand that there he had full discussions about Newham's financial and other problems and about the positive way in which the authority has sought to tackle them. Accordingly, I should be most grateful if the noble Lord could indicate at this stage what is in the Government's mind in the light of the Minister's visit and the discussions which took place. It may well be that the answer to my request will shorten our proceedings.

Lord Skelmersdale

My Lords, as has been made clear by the noble and learned Lord, this amendment is primarily designed to assist the London Borough of Newham. I told your Lordships when we were considering the Bill in Committee that my honourable friend the Minister for the Environment, Countryside and Local Government would be going to visit Newham to investigate matters. He did so last Friday and heard about and saw the position. He reported his findings to my right honourable friend the Secretary of State. My right honourable friend has now considered once again the formulae in the Bill, taking into account the latest available information, including my honourable friend's findings.

As I said in a previous debate, in general we remain satisfied that the formulae in the Bill are appropriate but we believe that for newly selected authorities it would be appropriate to give them within their rate limit headroom to spend up to at least a level equivalent to their grant-related expenditure plus 9 per cent., and not the 7.5 per cent. as in the amendment on the Marshalled List.

Accordingly, I invite the noble and learned Lord to withdraw his amendment and I undertake to bring forward at Third Reading an amendment to Schedule 3 which would provide for newly selected authorities for which the figure of GRE x 1.09 is higher than EL x 1.02. The formula in paragraph 2(2) will apply with the addition of a new factor R. In passing, I point out that I would have to incorporate the new factor R into the drafting proposed by my noble friend Lord Renton.

Factor R is the additional amount which the authority would need to levy on its ratepayers if it were to increase its total expenditure from EL x 1.02 to GRE x 1.09, taking account of the effect on its block grant of so doing. The effect of the amendment would be the same as if the formula were on the basis of an assumed permitted level of spending either at a level of 2 per cent. uplift on expenditure level or GRE plus 9 per cent., whichever is the higher. The amendment would also reflect the fact that for spending differently from expenditure level plus 2 per cent. an authority would have a different block grant entitlement.

I am grateful to the noble and learned Lord for bringing to the attention of the House the position of newly selected authorities. I trust he will find that what we are proposing is a fair solution to the problem which he helpfully brought to our attention during Committee. I should say that this amendment would also affect Gateshead, but, I am advised, no other authority.

Lord Renton

My Lords, perhaps I may acknowl-edge that my noble friend made an important point when he said that there would have to be a further amendment to the amendments which I proposed and which have been accepted by the House. I did not dare to pre-empt the Government's decision on Amendment No. 21 because I had not a clue what it was going to be. As I am on my feet perhaps I may say that the statement made by my noble friend is typical of the open-minded generosity displayed by the Government from time to time, and the difference between the 9 per cent. that he has mentioned and the 7.5 per cent. put forward by the noble and learned Lord, Lord Elwyn-Jones, is some evidence of that. At the same time I should like to congratulate the noble and learned Lord both upon his success in getting this accepted on behalf of his former constituency and upon his habitual modesty in claiming only 7.5 per cent.

Lord Oram

My Lords, the Minister will recall that when my noble and learned friend moved his amendment at Committee stage he indicated that three boroughs were particularly affected by the formula—namely, Newham, Brighton and Gateshead. My noble and learned friend particularly pointed to Brighton because he is a resident there. I am too and I share his concern for Brighton's welfare.

At the same time, since I also represented a Newham constitutency in partnership with my noble and learned friend, I am delighted to hear from the Minister what sounds like a satisfactory solution from Newham's point of view. On the other hand, I was puzzled by his concluding sentence. He said that the new formula will affect Newham and Gateshead but he did not mention Brighton. I understood that three boroughs were especially affected under the formula. I wonder whether either now or at Third Reading the Minister will explain why Brighton was left out of the speech to which we have just listened.

Lord Skelmersdale

My Lords, with the leave of the House, it might be appropriate to respond to the noble Lord. I said that I was given to understand that the amendment I had proposed refers to Newham and to Gateshead but not to Brighton. I shall have to write to him with the details. My point was that that was my understanding of the amendment that I was proposing to bring forward at Third Reading.

Lord Oram

My Lords, I am grateful to the Minister for offering to write to me. Will he be able to do so by, shall we say, Monday morning in case I wish to prepare a case for statement on Tuesday?

Lord Skelmersdale

I very much hope so.

Baroness David

My Lords, perhaps I may make just a brief comment. Naturally I am extremely pleased that the Minister has been able to give us better news about Newham but that seems to me to give some justification for the amendment which I moved earlier, Amendment No. 16, which aimed to show that there was unfairness in the way rate-capped and rate-limited authorities were treated. The fact that there has been a change in regard to two authorities is very good but I think it demonstrates that I had quite a good case when I showed that in the interests of natural justice they all should have had a chance to have their circumstances looked at.

Lord Elwyn-Jones

My Lords, it would be churlish if I were not to say thank you, but I would say so with more enthusiasm if I could exactly satisfy what I am pleased to call my mind as to the financial implications of what is now offered.

As I understand it, it will be an improvement over what is at present proposed, which would have resulted in a cut of an additional £9 million to the Newham authority. Accordingly, I should like the opportunity to study and be advised upon this complex matter between now and the next stage. I should like to join in supporting the plea of my noble friend in respect of Brighton. It is indeed a happy coincidence that the two authorities are so eloquently represented, if I may say so, in your Lordships' House.

I am grateful for what has been said by the noble Lord. Will he now put down appropriate amendments; and if so will there be an opportunity for us to see the outcome of the high-powered brain effort that will be involved if we are not satisfied so that we can come back again with an amendment before the Third Reading of the Bill? If that can be done we shall be most grateful. I am sorry to impose these requests on him but I know that he will understand the feeling of responsibility that I have for what is indeed one of the most hard pressed authorities in the country.

7 p.m.

Lord Skelmersdale

My Lords, again with the leave of the House perhaps I may say that I shall certainly do my best, but I do not think that it will be possible to have—what is the word?—a colloquy or an exchange with noble Lords opposite before Monday morning. If that will suit, I shall undertake to do that.

Lord Elwyn-Jones

My Lords, that will give us time, and I am most grateful. The noble Lord referred so charmingly to a colloquy. We are dealing with words just now in the House and that is not a word we hear very frequently; so may I ask him whether the colloquy will take the form of a communication to us by letter or whether it will be more convenient for the noble Lord, if he were still willing to do so, to meet us in the flesh, to coin a phrase? I have just been told that we cannot meet.

Lord Skelmersdale

My Lords, again with the leave of the House—for the last time, I hope—perhaps I may say that a colloquy cannot be written.

Lord Elwyn-Jones

My Lords, after having complained last night about impurities in the English language, I am hoist with my own petard. I am most grateful. We shall make arrangements to meet not in colloquy but in conversation on Monday.

Amendment, by leave, withdrawn.

Lord Renton moved Amendment No. 22:

Page 13, line 11, at end insert— 4A.—(1) In the case of an authority actually designated by the Secretary of State (as opposed to one deemed to have been designated) the appropriate formula is, if the authority was also designated under section 2 of the 1984 Act in relation to the financial year beginning in 1986— ((EL-(BG+E))x100/RV)+T

1. (2) In the case of an authority actually designated by the Secretary of State (as opposed to one deemed to have been designated) the appropriate formula is, if the authority was not also designated under section 2 of the 1984 Act in relation to the financial year beginning in 1986— ((EL × 1.02)-(BG+E))x100/RV)+T
2. (3) In the case of a metropolitan county police authority or the Northumbria Police Authority the appropriate formula is— ((ELx1.04)-BG)x100/RV
3. (4) In the case of a metropolitan county fire and civil defence authority or the London Fire and Civil Defence Authority the appropriate formula is — ((ELx1.025)-BG)x100/RV
4. (5)In the case of a metropolitan county passenger transport authority the appropriate formula is— ((ELx1.02)-BG)x100/RV
5. (6) In the case of the Inner London Education Authority the appropriate formula is— ((ELx1.006)xBG)x100/RV")

Schedule 3 [Rate support grant: special provisions]:

The Deputy Speaker (Lord Hayter)

My Lords, I understand that in Amendment No. 23, in subsection (3) there are some words left out. It should read: For the purposes of this paragraph relevant reports are etc.

Lord Skelmersdale moved Amendments Nos. 23 to 27:

Page 17, line 34, at end insert—

("Rateable values 1985–86) 6A.—(1) In doing any of the acts mentioned in sub-paragraph (2) below the Secretary of State shall—

1. (a) take into account information relating to hereditaments in the area of an English local authority and their rateable values if the information falls within sub-paragraph (4) below, and
2. (b) leave out of account information relating to such hereditaments and their rateable values if the information does not fall within sub-paragraph (4) below.

(2) The acts are—

1. (a) making any determination or doing any other thing after the passing of this Act for the purposes of any relevant report, and
2. (b) making under section 66(1) of the 1980 Act the first estimate and notification to be made after the passing of this Act as regards the authority concerned for the year beginning in 1985.

(3) For the purposes of this paragraph relevant reports are 1(4)(a) above, and

1. (a) the report mentioned in paragraph 1(4)(a) above, and
2. (b) any report proposed to be made in substitution (directly or indirectly) for the report mentioned in paragraph 1(8)(a) above.

(4) The information referred to in sub-paragraph (1) above is that which was taken into account in making the last supplementary report made before the passing of this Act for England for the year beginning in 1985.").

Page 17, line 48, leave out ("1985 or that beginning in").

Page 18, line 2, leave out (" 1(4)(a) above and that mentioned in paragraph").

Page 18, line 5, leave out ("1(8)(a) above or that mentioned in paragraph").

Page 18, line 9, leave out from ("year") to end of line 10 and insert ("beginning in 1986").

The noble Lord said: My Lords, I trust that it will be convenient for the House if I move Amendments Nos. 23 to 27 en bloc. These amendments relate to the provisions of Schedule 3 to the Bill, which deals with information about rateable values to be used for the purposes of the 1985–86 and 1986–87 supplementary reports which are intended to be made shortly after Royal Assent has been given to the Bill.

The amendments are necessary if the information on rateable values used for those reports is to be the same as that used when my right honourable friend the Secretary of State announced on 13th January 1987 his firm intentions for the reports. The present provisions of Schedule 3 require my right honourable friend to use for the purposes of both the 1985-86 and the 1986–87 supplementary reports the rateable value data which were used in the main reports for the year concerned.

Last week the Association of District Councils pointed out that for 1985–86 only the rateable value data used in previous supplementary reports for that year and in the firm intentions were not the data used in the main report but those data as updated for use when the first estimate of grant entitlement was made after the main report. Accordingly, we are seeking to amend Schedule 3 in order to make the supplementary report for 1985–86 on the basis that we intended and that local authorities expect. I therefore commend the amendments to the House.

Baroness David

My Lords, we do not want to oppose the amendments but I gather that the require-ment for them comes from an oversight in the department which was spotted by the Association of District Councils. What was believed to be common practice for 1985–86 and 1986–87 proved not to be so. While accepting that, all we can say is that we hope there will not be further examples of oversights in the department and that further tidying up amendments will not be needed.