Local Government Bill (Hansard, 14 May 1987)

§ Baroness Hooper
My Lords, on behalf of my noble friend Lord Skelmersdale, I beg to move that the Bill be now read a second time.
This is a short but important Bill containing two provisions. First, it contains provisions to prevent 799 authorities using advance and deferred purchase schemes to avoid the Government's capital expenditure controls and store up major financial liabilities for the future. Secondly, it makes minor adjustments to the arrangements for paying block grant relating to expenditure on further education.
Advance and deferred purchase schemes have a long and reasonably respectable history, but recently they have been transmuted by a minority of authorities into creative accounting devices as a means of evading the Government's spending controls on a grand scale. In that guise such devices are just borrowing masquerading as expenditure.
My right honourable friend the Secretary of State announced in another place last July that he would be bringing forward legislation to stop this abuse. These schemes make use of a bank or other intermediary to transfer expenditure artificially from the year when work is done and would normally be paid for in an earlier or later year. The interest is rolled up and the first payments deferred, usually for at least three years.
If indulged in on any scale, as in some authorities, these devices store up massive problems for ratepayers, regardless of future election results. The Audit Commission Report on the management of London's authorities, published earlier this year, identified eight boroughs that have entered deferred purchase arrangements amounting to over £550 million.
The Government deplore the use of any creative accounting device which leaves ratepayers facing huge bills in the future. No doubt some authorities are relying on an incoming Labour Government to bail them out of the financial consequences of using these devices. I feel I must say that I think they will have to wait a long time.
This sort of device has to be curbed. To deal with this problem, Clause 1 and the schedule to the Bill define the time at which an authority will be treated as incurring expenditure against its spending ceiling by reference to the time at which works are carried out, regardless of when payments are actually made. The new provisions apply to all works carried out under arrangements to which an authority became or becomes committed after 22nd July 1986.
Regulation-making powers will enable my right honourable friend to make exemptions from the provisions in the Bill, or to modify them in other ways, if that proves necessary. My right honourable friend promised an exemption to allow authorities to continue to use deferred purchase schemes prudently for their original purpose; that is to say, for an occasional, one-off project, which would be difficult to accommodate within their spending ceiling for a single year.
My honourable friend, the Minister for Local Government announced details of the exemptions during Committee stage in another place. All authorities in England and Wales will be able to use deferred purchase schemes to finance one project each, up to £3 million in cost, beginning in any one period of five consecutive years. We shall make the necessary regulations as soon as possible after Parliament reassembles.
800 Also, all authorities will be able to continue to carry out their "building under licence" and "improvement under licence" housing schemes. Without this exemption, a number of housing projects were likely to be prevented or at least delayed in the period before Royal Assent. For this reason, we decided that the exemption should be backdated to 23rd July 1986, the date on which these provisions of the Bill come into effect.
During the Bill's consideration in another place, my honourable friend accepted Opposition amendments to improve the drafting of this part of the Bill. He was also able to agree that my right honourable friend should consult before making any directions about the method of calculating the value of works, should he choose to use his powers in the Bill to make such directions. The Opposition in another place argued that in such a complex and technical area consultation was desirable. We agree with that and the Bill has been amended accordingly.
The remainder of the Bill deals with education pooling. There is a technical amendment to the provision which allows for an adjustment between England and Wales. Then there is a provision to allow my right honourable friend the Secretary of State for Education and Science to recalculate allocations from the advanced further education pool for 1981–82 in the manner originally intended. These provisions are uncontroversial and have the agreement of the local authority associations. Your Lordships asked during the consideration of the Education Act last year that an amendment on these lines be included, and I am happy to be able to bring a suitable provision before your Lordships' House today.
As your Lordships know, the Government have decided in present circumstances not to proceed with the housing provisions which were originally in this Bill in the present Session of Parliament.
However, we intend to reintroduce in the new Parliament provisions which will give local housing authorities an explicit new power to give financial assistance in connection with the provision of privately let housing. We also intend to reintroduce the provisions requiring the Secretary of State's consent for the exercise of this or any other power by local housing authorities or county councils to provide financial assistance or a gratuitous benefit in this connection except in the circumstances originally set out in this Bill. The need for consent will be made retrospective to 6th February 1987, as it was in the present Bill. The new Bill will also, as in this Bill, provide that any transaction entered into after 5th February in contravention of the requirement for the Secretary of State's consent will be void.
Meanwhile, we intend to continue to issue general consents and special consents for individual projects submitted to us where appropriate. These consents will be issued as if the new Bill were in force. We shall ensure that general and special consents already issued continue in force. The Department of the Environment has written to all the authorities affected, drawing their attention to this announcement, in order to prevent any misunderstanding. Indeed, that is why I have explained the intentions of the provisions as clearly as possible now.
801 We have also withdrawn for the time being the provisions to improve the operation of the land registers system. Again, we shall return to the matter in the new Parliament.
This is a short Bill, but it contains important provisions to protect the ratepayer. The Opposition in another place expressed the view that it was desirable for this Bill, in its abbreviated form, to reach the statute book before Parliament is dissolved. With that aim, I commend it to your Lordships.
I beg to move.

§ Baroness David
My Lords, I thank the Minister for her explanation of the Bill. It is a very different Bill from the one that was proposed very much earlier in the year when all sorts of privatisation measures, contract compliance and so on were intended. It is also a very different Bill from the one that was introduced in February. I think that it is the forty-third piece of local government legislation in the last eight years and the third this year. But we are agreed that there has been a fairly satisfactory compromise reached.
Of course there was a good deal of feeling about the deferred purchase clause—Clause 1, and Schedule 1 that went with it—but I know that my honourable friends in another place decided that, with the amendments that were agreed at Third Reading, which had been proposed by my honourable friends in Committee and to which the Minister agreed, it was probably sensible to accept Clause 1. Local authorities had been acting as if it were the law, and to remove uncertainty it was thought that it was probably wise to accept it in the circumstances.
We are delighted that the clauses on the housing provisions and on the land registers have been removed. I think that all parties agreed that the pooling matters on education should be agreed. That was a clause that was accepted. With those comments, we shall agree to the passage of this Bill.

§ Baroness Hooper
My Lords, I am most grateful to the noble Baroness for her comments and support.