HL Deb 14 May 1987 vol 487 cc716-9

3.5 p.m.

Lord Boyd-Carpenter

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

The Question was as follows:

To ask Her Majesty's Government whether they have any responsibility for the interest on, or repayment of, loans obtained by local authorities.

Baroness Hooper

No, my Lords. A local authority's debt, both principal and interest and its creditworthiness have always been that authority's own responsibility. As my right honourable friend made clear in another place, the Government do not stand behind local authority debt. The great majority of local authorities understand the importance of maintaining their creditworthiness and behave in accordance with the rules of financial good practice.

Lord Boyd-Carpenter

My Lords, I thank my noble friend for that clear and comprehensive reply. Am I right in assuming that it means that those foreign banks who provide loans for British local authorities, for whatever reason, do so on their own assessment of the creditworthiness of the borrower?

Baroness Hooper

My Lords, absolutely so. They took upon themselves the business of lending to these local authorities on normal commercial terms.

Lord Renton

My Lords, can my noble friend give some indication of the extent to which local authorities mortgage their properties as security for these loans and whether any of these properties are at all at risk of passing into the hands of the lenders?

Baroness Hooper

My Lords, I regret that I cannot provide my noble friend with details on the number of such arrangements. In terms of protection for creditors and for anybody else who lends on this basis, of course the normal preference rules apply.

Lord Harvey of Prestbury

My Lords, is my noble friend aware that what she has said could be disastrous for British trade in countries like Switzerland? What can be done about the situation?

Baroness Hooper

My Lords, what can be done, we hope, is to persuade local authorities not to behave in this extravagant and outrageous manner.

Baroness David

My Lords, is the Minister aware that the problems of deferred purchase (which of course is what is being referred to) are not confined to Labour authorities? I have here a list of 84 authorities which went into deferred purchase arrangements between 1974 and 1984, and a great many of them are Conservative councils.

Is the noble Baroness aware of the Harrogate case, where the authority, which was a Tory one, used deferred purchase for the building of a conference centre to the tune of £20 million in 1977, and the Secretary of State bailed out the authority, if I may use that expression, in 1982 by turning the deferred purchase into ordinary loans to the tune of £16 million to be repaid over a conventional period? That is exactly the proposal that the Labour Party has in its plans for the reform of local government.

Baroness Hooper

My Lords, the Government have taken action to deal with a number of devices used by local authorities, including deferred purchase arrangements. The measures we have taken will apply equally to all authorities. Of course I am aware of the case of Harrogate Borough Council. It entered into a deferred purchase arrangement in 1977 to finance the construc- tion of a conference centre. This was just the sort of one-off project for which it is reasonable to use deferred purchase, but costs escalated for unforeseen reasons.

The arrangement was terminated in 1982, with the assistance of an approval for additional conventional borrowing by my right honourable friend the then Secretary of State. At a time of substantial capital underspending by local authorities nationally, the approval was given in recognition that the borough council was facing unforeseen financial difficulties as a result of its commitment to the conference centre project. These were, we feel, rather special circumstances.

Baroness Gardner of Parkes

My Lords, can my noble friend tell us where the ratepayers stand in this? Is there any possibility of these debts falling back on them or are they protected under the rate-capping legislation?

Baroness Hooper

My Lords, my understanding of what happens in these situations is that, first, the local authorities must apply to the Public Works Loan Board, and if the board finds that it cannot meet the liability the auditor can institute proceedings surcharging and disqualifying councillors, and the responsibility is that of the councillors themselves.

Lord Molloy

My Lords, can the noble Baroness say whether the Government might consider reconstituting and updating the Public Works Loan Board, which was very effective and might be able to help all local authorities with some of the difficulties which they face?

Baroness Hooper

My Lords, in present circumstances the Public Works Loan Board could not lend to an authority which chose to act illegally or which appeared unable to service and repay debt, even under its lender of last resort facility. We have no present plans to alter this arrangement and I trust that the authorities which are so vigorously mortgaging the future will recognise this fact.

Lord Harmar-Nicholls

My Lords, does not the Minister agree that the Government must find words even more categorical than those which she used today in answering the Question on the Order Paper to make certain that the British Government will not pick up this tab? So long as there is any doubt about the matter, the chances of lenders being misled into lending is a problem for the future.

Baroness Hooper

My Lords, we are well aware that a number of authorities have used creative accounting devices simply to flout the Government's expenditure controls. They have knowingly mortgaged their future at the expense of their ratepayers and have entered into these schemes with their eyes open. We have made it abundantly clear to both them and to the City that we shall not bail them out.

Lord Williams of Elvel

My Lords, will the noble Baroness confirm that if—

Noble Lords


Lord Diamond

My Lords, I am most grateful to the noble Lord for giving way. When the Government set a precedent by giving assistance to Harrogate, were they careful to make quite clear the fact that that was not creating a precedent?

Baroness Hooper

My Lords, I believe that that has always been the aim of the Government in these circumstances.

Lord Williams of Elvel

My Lords, perhaps I may now ask my question. Will the noble Baroness kindly confirm that, provided local authorities behave legally, the Public Works Loan Board is a lender of last resort? Will she also confirm that the Treasury has a number of outstanding exchange rate guarantees on local authority foreign borrowings and that they will also be met?

Baroness Hooper

My Lords, the Public Works Loan Board will not perform its function only if local authorities are acting illegally. Any arrangements and guarantees into which the Government have entered will be honoured.

Lord Dean of Beswick

My Lords, is the Minister aware that despite the positive arrangement made by the Government to deal with the Harrogate situation, both Her Majesty's Leader of the Opposition—the Leader of the Labour Party, Mr. Neil Kinnock—and the Shadow Secretary of State for the Environment, Mr. John Cunningham, have for some time made clear in quite definitive statements that under no circumstances will a future Labour Government bail out any local authorities, whatever their political colour, which indulge in creative accountancy?

Baroness Hooper

My Lords, I am glad to hear that and I hope that the local authorities will hear it too.