HL Deb 24 July 1989 vol 510 cc1208-89

House again in Committee on Clause 32.

[Amendment No. 115C not moved.]

Lord Graham of Edmonton moved Amendment No. 115D:

Page 39, line 10, at end insert— ("(aa) the creation or protection of opportunities for training with any such undertaking or with any commercial, industrial or public undertaking opportunities for employment with which have been or appear likely to be made available to persons living in that area;").

The noble Lord said: This amendment also has a strong local employment enterprise initiative aspect. The skills of an area's population are seen as increasingly important for promoting local government development. They secure the expansion and success of existing firms and act as a bait for securing new mobile investment. Many local authorities are closely involved with the local business community in training or retraining the employees of local firms. They run training courses at local colleges or ITECs in skills such as electronics and computing which are in short supply. Local authorities also train in advance of demand in key skills which are nationally in short supply; for example, clerical work and typing. Some local authorities and metropolitan areas in the early 1980s realised the importance of skills to the regeneration of their local economies and undertook to finance the off-the-job training of apprentices in local colleges after their sponsoring firms had gone into liquidation. The wisdom of such an initiative is seen today when there is a famine in key industrial skills.

Training is an important activity carried out by local authorities and direct reference to that point should be included in the Bill. Some direct reference should be made to training as not all local authorities undertaking training are education authorities which are able to justify their training activities by virtue of education Acts.

I simply ask this question of the Minister: will those district councils which wish to improve the skills available to local employers be able to continue to do so if no specific reference to training is made in the Bill? We believe that local authorities play a vital role in identifying gaps in current provisions and funding innovative schemes to plug those gaps. In the context of sectoral restructuring in local economies and the substantial barriers to labour mobility, training and retraining is critical to local economic development.

Local authorities have sought to develop and enhance the quality of training provided under the government national schemes while others have organised their own training and retraining courses to meet the specific needs of the local labour market. Small employers are not always in a position to invest in training and a number of local authorities have sponsored apprenticeship training. Great Yarmouth Borough Council encourages smaller engineering firms which are outside the Engineering Industry Training Board levy by giving grants to pay the wages of apprentices for time spent in off-the-job training. It has now been extended to encourage other types of training in small firms.

Many authorities are involved with business training schemes for occupants in small units or starter units. Bournemouth Borough Council has recently been successful in obtaining much in funding from the European Social Fund for its project. That has enabled it to give free training to all unit occupiers in two enterprise centres and it is hoped that around 60 people will take advantage of that training. The conversion costs relating to the Bournemouth enterprise centre were £40,000. Revenue costs amounted to around £23,000 per annum.

Many local authorities have addressed the training needs of the disadvantaged. Sheffield City Council has a technical training workshop which provides vocational training in micro-electronics and computing for women over 25 years of age who wish to return to work. Brighton Borough Council has, in conjunction with the Brighton Friend Centre, targeted a £10,500 training programme at the specific needs of ethnic minority workers and the skills requirement of the financial services sector.

Given the central role of training in local authorities' economic development strategies, it would be wrong for local authorities to have to rely on financially restricted discretionary powers. The aim of the amendment is perfectly simple. It seeks the creation or protection of opportunities for training with any such undertakings or, with any commercial, industrial or public undertaking and opportunities for employment which have been or appear likely to be made available to persons living in that area. It is not an isue that the Government have overlooked, but it is, I am sad to say, something for which they have not made provision. I beg to move.

Lord Hesketh

In the last set of amendments we discussed whether there should be any restrictions on the use of the economic development power. This amendment, and those that follow, attempt to ensure that certain activities are included in the Bill as pertinent to economic development by local authorities.

Clause 32 gives the power for local authorities to take steps they think fit to promote economic development. Subsection (2) specifies what those steps can include. The power is deliberately drafted in very wide terms to cover everything that might be relevant. Subsection (2) puts beyond doubt what the power can cover, but it is not exhaustive. A local authority can do anything that it reasonably thinks will promote economic development, even if it is not in the list in subsection (2), provided that it is not prohibited by the regulations. To that extent, it is unnecessary to add further specific activities to the list.

Amendment No. 115D proposes that the creation of opportunities for training should be added to the list. Amendment No. 115E proposes a similar addition; namely, the provision of training, including training to enable persons to take up employment". Let me make it quite clear from the outset that it is our firm intention that training should be regarded as one of the activities that all local authorities can support under the terms of the new power. That is without question. Assurances on this have been given in another place and in meetings between officials and the local authority associations. I can do no better than to repeat those commitments and to confirm that any guidance issued by the department will state that training is an appropriate activity for the new power. I can see no reason why the categories of training listed in these two amendments should not be included among local authorities' economic development plans.

Understandably, we do not wish local authorities which are not education authorities to set up in competition with those which are, but we think that any potential conflicts there can be overcome by the authority seeking the agreement of the education authority before going ahead.

Given those assurances, I do not believe that it is necessary to place training on the face of the Bill. There is a great variety of activities that will fall under the umbrella terms of subsection (2) and we could not hope to put all those on the face of the Bill and at the same time ensure that no worthwhile activity was omitted from the list. For those reasons, we urge rejection of the amendment.

Lord Graham of Edmonton

I am satisfied that it is the Minister's intention that those activities will be covered by the Bill, but I shall need to look carefully at what he has said. There is only a slight doubt in my mind as to whether all areas will be covered by local authorities which study the local situation to ensure that training facilities are available for the undertakings that we have in mind.

I am grateful to the Minister. He seems to have indicated not only that the amendment is unnecessary but that he wants training to be encouraged as part of the activities undertaken by a local council in pursuit of its local economic imperatives. That certainly satisfies me at this stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 115E and 115F not moved.]

8.30 p.m.

Lord Graham of Edmonton moved Amendment No. 115G:

Page 39, line 34, at end insert— ("(gg) provide a subsidy in respect of the remuneration of any employee of that person;").

The noble Lord said: I move this amendment which stands in the name of my noble friend Lord McIntosh of Haringey. As is proper when dealing with this part of the Bill, the amendment deals with the local economy.

Many local authorities provide wage subsidies or give recruitment grants to firms taking on school leavers or the long-term unemployed. That activity should be specifically referred to in the Bill. The subsidies last for a limited period, generally six to 12 months, and are conditional upon the job being a new one (so that there is no displacement of existing employees) and permanent. These temporary subsidies are important in influencing firms to take on employees in areas of high unemployment, effectively reducing the cost to firms of new recruits for an initial period when they are at their least productive.

The effect of these subsidies on competition is very limited. The grants average only about £1,000 to £1,500 per new employee and do no more than cover the extra cost of taking on "green" or brand new employees. Many of these wage subsidy recruitment grants are directly supported on a matching basis by the European Social Fund.

I understand that in discussions between the DoE and local authority associations the department's officials have indicated that they would support the provision of wage subsidies by local authorities provided that they are for a limited period. The recognition of the important role that local authorities play in making available temporary wage subsidies should be reflected on the face of the Bill. I commend the amendment to the Committee.

Lord Hesketh

Amendment 115G is similar in intention to the previous one in that it would insert an extra category into the list of activities which can be regarded as financial assistance. In this case it suggests providing subsidy in respect of remuneration of any employee. In other words it proposes that wage subsidies be regarded as an element of fostering economic development.

Again, unless the regulations that we propose making specify that an activity is inappropriate, the assumption must be that a local authority can reasonably do what it thinks will promote economic development. As regards wage subsidies the Government's opinion is that it would be inappropriate in general to pay grants which were to meet part of the costs of a commercial or industrial undertaking being conducted with a view to profit, and we propose to say so in regulations.

There are, however, a number of very important exceptions to that which I suggest will meet the concerns that are reflected in this amendment. The exceptions are, first, grants towards the cost of employing persons who have been unemployed immediately before becoming employed by the recipient of the grant, provided that the grant does not continue for more than one year; secondly, grants towards the cost of employing trainees during their training period; thirdly, grants towards employing not more than three people with particular skills to act as trainers; and lastly, grants which form some part of a scheme supported financially by a government department or the European Community.

We believe that this covers most of the areas where local authorities are active in filling the short-term gaps that can sometimes arise, particularly where some other body is unable to cover the full cost of some initiative. Finally, it is worth emphasising that grants to non-profit-making bodies for wages or salary cost will not be prohibited, nor grants to meet the costs of consultancies.

These matters will all be set out quite clearly in the consultation document that we hope to issue shortly on the detailed use of the new power. Given that undertaking, I ask the Committee to resist the noble Lord's amendment.

Lord Graham of Edmonton

I am heartened by what I believe is the Minister's desire to assist an authority that genuinely wants to encourage employers to provide work for people. He said that the general ability to do that would not be given but that there would be exceptions. One of those exceptions was people who were unemployed immediately before becoming employed by an employer who is to receive the grant.

I am sure that the Minister has taken on board that such expenditure is not given lightly. A local authority which, at budget time, is faced with many calls upon its money has to say for example, "We shall put £10,000 or £100,000 aside to encourage local employers to take currently unemployed people off the local unemployed register and provide them with work". According to my information, if the average grant lies between £1,000 and £1,500 it is really a question of an employee who would be in receipt of a wage of about £120 a week being offered employment because the employer will receive a local grant of £25 or £30. I believe that the Minister also said that he had in mind to propose that this would be time-barred after 12 months.

I have been satisfied that the generality of the provisions of this additional paragraph is not acceptable because it is too wide, too sweeping and too capable of being applied to anybody.

The intention behind the amendment is not simply to make employment cheap from the employer's point of view. The purpose was for employers to be encouraged to provide work for those who sadly have not been offered a job over a period of time. However, I am grateful to the Minister. I shall read very carefully what he has said. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 115H and 115J not moved.]

Clause 32 agreed to.

Clause 33 [Restrictions on promotion of economic development]:

Lord Graham of Edmonton moved Amendment No. 115K: Page 40, line 2, leave out ("and their powers by virtue of other enactments,").

The noble Lord said: In moving this amendment which is tabled in the name of my noble friend, Lord McIntosh of Haringey, I shall also speak to Amendment No. 115L.

The purpose of these amendments is to remove the Secretary of State's right to impose limitations on local authorities by way of regulations, hindering them from making full use of the economic development powers and opportunities which are conferred by other Acts of Parliament. Examples of the powers that would be constrained include the Local Authorities (Land) Act 1963, which enables local authorities to develop land and promote development by building advanced factory units; or the Local Government (Miscellaneous Provisions) Act 1982 which enables local authorities to finance employment training activities.

This provision places an acceptable limitation on the lawful exercise by local authorities of their existing economic development powers. If the Secretary of State intends to continue the use of this provision, he should be asked to clarify specifically when such a power will be used. I commend the amendment to your Lordships.

Lord Hesketh

These amendments seek to remove the words "and their powers by virtue of other enactments" whenever they appear in this clause, which establishes the restrictions to apply to economic development activity. The effect would be that restrictions under this Bill, or regulations ensuing, would apply only to economic development under the new power. They would not apply to economic development activities funded through other powers.

These amendments were also tabled in the other place and were, I think, the result of the same misunderstanding. The new power, as we have discussed, is not, in essence, new: it is a rationalisation of the existing position whereby local authorities rely upon a large number of different powers for the pursuit of economic development activities. There is therefore a need to establish a single, clearly defined power which is general in scope and which will help local authorities to direct their activities for the maximum benefit.

The new power will give individual local authorities a good deal of discretion in the way in which they chose to promote economic development in their areas. This however cannot be granted without restrictions covering inappropriate activities. These restrictions will not frustrate important local initiatives but will instead ensure that resources are directed to those areas where they can be of most benefit to the economy.

As I have said, there are at present a number of powers which permit certain forms of economic development. If the new arrangements are to be successful they must apply to enconomic development in toto, irrespective of the power used to authorise expenditure. The new power does not repeal existing powers; but it will exist alongside them. To prevent confusion therefore, and to ensure that there is a single system to cover all activity undertaken for the purposes of economic development, the same restrictions will apply to uses of existing powers for economic development as to the new power.

Let me make it quite clear that we are not placing any restrictions on other functional powers, where these are used for any purpose other than economic development. For example, a power to provide employment opportunities for the disabled in sheltered workshops, if used for the benefit of the disabled and not to promote economic development will be unaffected by these proposals. The restrictions apply only to economic development.

If the new power is to provide the framework for local economic development which we seek, it is essential that the provisions apply to all economic development activity irrespective of the power used. Without such a provision, the situation will in effect remain unchanged and this power, which has been widely welcomed from all quarters, will be weakened. That is why we urge the Committee to resist the amendment.

Lord Graham of Edmonton

Will the Minister give us the long list of bodies which are included in the phrase "all quarters"? He says that the power has been welcomed in all quarters. The night is young. I believe that we can with profit listen to the list of bodies—which I hope are very representative and authoritative—that agree with what the Minister has said.

I well understand the desire of the Minister and his colleagues to use the phrase that the restrictions apply only to economic development. He then stated that it was essential that the provisions apply to all economic development. What do the Government have against a local authority engaging in local economic development initiatives that are designed to provide work, stimulate the economy, and improve the infrastructure at a local level?

The Minister is making very heavy weather of denying the charge that the Government are continuing the vendetta against local government down to the last dot and comma in the Bill. I was a local government man before I had the opportunity and privilege of working at a national level. I can tell the Minister that it is this niggardly, nit-picking attention to the minutiae of the task of local government—looking after its local people—that is resented very much by members of his own party, a resentment shared from time to time by members of my party. Can the Minister tell me the bodies represented by "all quarters" which approve of his action of centralising in the hands of the Secretary of State the ability to take economic initiatives?

Lord Hesketh

The noble Lord, Lord Graham, tends slightly to confuse the issue. When I say that economic development has been welcomed, it certainly has. The noble Lord does not like Clauses 33 and 34. He combines them with Clause 32 and says that nobody likes such provision. Just before retiring for dinner earlier this evening, we discussed the fact that in order to provide the most flexibility the Government have to have some form of control. The noble Lord does not like it but it has to be there. All governments would have had to put in some form of control. We believe that it is a sensible move in order to provide opportunity for local authorities. The noble Lord, Lord Graham, tries to persuade the Committee that the intention is something different. I am perfectly sound in my belief that that is what we are trying to do.

Lord Dormand of Easington

Answer the question.

Lord Graham of Edmonton

My noble friend Lord Dormand of Easington asks the noble Lord in very persuasive tone to answer the question. The Minister did not answer the question. I share the Minister's support for initiatives that are designed to improve the local economy. However, when he spoke of the amendment—which refers not only to the present Bill but also widens the net to take into account all other economic initiatives covered in other Bills—the Minister said that in that respect the clause was widely welcomed. I have asked him which bodies widely welcome the neutering of their existing economic powers, putting them into a straitjacket. Obviously the Minister—I say this with great respect, and no disrespect—speaks from a brief which indicates to him that what he has told the Committee is widely welcomed. There are people not a million miles away from here who have an obligation to support the Minister, and to tell the Committee who those people are who are in favour of this straitjacketing of their current economic powers.

Lord Hesketh

Local authorities of all kinds have welcomed the proposals of the Government. I do not have with me at this moment a list of the individual local authorities. However, I shall be more than happy to furnish in a letter to the noble Lord, Lord Graham of Edmonton, further details on the point that he has raised.

8.45 p.m.

Lord Graham of Edmonton

I have in mind the difficulties of the Minister. He is the one who has confused the issues. I have never said that local authorities do not widely welcome measures by central government which enable them to stimulate the local economy. There is no dispute there. But the Minister runs that into my criticism that we are not disputing the support of local economic initiatives but the Minister's intention in the Bill to neuter currently held powers and put them into the straitjacket of this clause.

I am grateful for the Minister's promise that he will write to me further on the issues. When he and his advisers read the record, I believe that they will see that we have been at cross-purposes. Perhaps I may have stated inadequately what I wanted. I look forward to hearing from the Minister. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 115L not moved.]

Lord McIntosh of Haringey moved Amendment No 115M: Page 40, line 12, at end insert ("save that no such regulations shall prevent, restrict or impose conditions on the exercise of such powers by any relevant authority on the grounds that the area of the authority, or part of it, falls outside an area recognised by the Secretary of State as having special economic needs, such as an assisted area, rural development area, derelict land clearance area, urban priority area or other similar designation.").

The noble Lord said: In many ways this is the most important way in which the Government are seeking to appear to recognise—as they have in Clause 32—the importance of economic development activities by local authorities and then to take the powers away in subsequent clauses.

In the subsequent clauses we discover bit by bit the extent to which these provisions restrict the power of local authorities to carry out very important economic development work. The most important single restriction is of the power to do economic development work on a geographical basis according to the diktat of the Secretary of State. The way in which it is achieved—I suppose that it is quite neat—is that the economic development powers are to be exercised only in assisted areas and travel to work areas which have above average unemployment. In all other areas, the permission will not be given.

It is not the Labour-controlled local authority associations which are objecting to that. It is the Conservative-controlled associations, and in particular the Association of District Councils, which has calculated, on the basis of a survey by the Institute of Local Government Studies in Birmingham, that no fewer than 40 per cent.—that is, 139 local authorities mainly shire county district councils—will be excluded from the power which they now have under Section 137 to undertake economic development activity. Those district councils are far more likely to be Conservative- controlled than Labour-controlled, it is the Conservative-controlled associations, through the Association of District Councils, which are leading the objection to these provisions.

I can give the Committee examples of the way in which this restriction to assisted areas and travel-to-work areas will work in practice. I start with the travel-to-work areas. I wonder how many people realise, because of the nature of the London labour market, that London consists of only two travel-to-work areas: London and Heathrow. In both unemployment is on average, over the whole travel-to-work area, either average, or in the case of Heathrow below average. It is well known that within the London travel-to-work area substantial parts of inner London—I cite Haringey because it is nearest—have vastly higher unemployment than the average, but because they are in the same travel-to-work area as the richer parts of London, they will be excluded from the powers to carry out economic development activities.

Let me take an example further away from London: on Humberside. The whole travel-to-work area of Bridlington and Driffield has unemployment at about the average and therefore would be excluded by the Secretary of State; but Bridlington has an unemployment rate of 19 per cent. The local council can do nothing about it because it has been excluded on geographical grounds.

As if that were not enough, the way the Government have planned economic development powers ignores the fact that the powers are not necessarily exercised directly in the local authority area for which the statistics apply. Very often to deal with unemployment levels that are unacceptably high, the powers are exercised by stimulating an adjacent area. That too will no longer be possible.

There are considerable concerns about the ability to carry out relatively minor economic development activities in rural areas. Again these are Conservative-controlled rather than Labour-controlled. In North Bedfordshire there has been considerable activity in the form of employment grants for small companies. That would all have to go if the Government's intentions go through. In South Norfolk the local council has had quite an imaginative scheme for converting barns into workshops and other places of employment. That will all have to go.

Another consideration that has been totally ignored by the Government and does not have any effect on their plans is the need for, let us say, workshops in areas of high land value. In large parts of central London and in most of the central parts of our cities there is a very local need (sometimes a neighbourhood need) for employment in the form of small workshops. My own borough of Haringey has been very good about providing some of these. They are necessary, not because there are no premises available, but because the land values and the rental values available are too high to make it economical for it to be done on a commercial basis. Therefore a very proper use of local authority pump-priming power has been to provide workshop premises to pay for the conversion and to provide premises at an affordable rent.

I have given only a few examples of the kinds of things that can be done, but I remind the Committee—I believe our new procedure committee does not allow us to display items and to show maps, but I hurriedly pass them to the Minister—that very large parts of London and South-East England are excluded from the powers which now exist under Section 137 of the Local Government Act. Although the Government appear to be giving recognition to ecnomic development powers, in practice they are doing no such thing. For considerable parts of the country those powers are now being taken away. We do not believe that that is the right way to approach something that has been a success in pump priming, in collaboration between the public sector and the private sector and has been a success in terms that this Government have constantly encouraged. We hope that the Government will see the good sense behind the amendment and they will feel able to give it the support that we wish it to have and the Committee feel the same. I beg to move.

Lord Hesketh

This amendment seeks to put in the Bill a stipulation that nothing in tie regulations issued under this clause will restrict the economic development activities of a local authority if part of that authority's area falls outside of those areas recognised as having some form of central government priority.

The new economic development power encompasses a wide range of activities. It is very important to realise that there is only one aspect of the new power which the Government feel ought to be restricted. This is the proposal, announced in December last year with the introduction of the new power, that economic development in the form of cash grants, cash loans and guarantees of borrowing to profit-oriented businesses should be restricted to those areas most in need of such assistance. We have said that those areas will include at least those areas currently recognised by some for of central government priority. These include all development areas, intermediate areas, rural development areas, urban programme areas and derelict land clearance areas. It has, however, always been the intention that other areas would also qualify. An additional category of areas therefore will be those with unemployment above the national average.

The department will be issuing a consultation document in the next couple of days which will give further details of this. We have already had a series of meetings with the local authority associations and have repeatedly invited their suggestions for other areas which might suitably be included. There is no question therefore of the Government trying unduly to restrict the availability of this power.

There is however a very real need to give special consideration to disadvantaged areas, and this is what we are trying to achieve here. Instead of working on the principle which the proposers of the amendment seem to have in mind—to those that hath, give more—we are aiming to focus this type of support on areas of greater need. To permit financial assistance of this nature across the board would be to risk significantly increasing existing regional disparities.

Of course we recognise that the application of this strict rule would not be appropriate for all levels of grants given under the new power. We propose therefore to have a de minimis limit for such financial assistance outside of the recognised areas. Current thinking favours a figure about £10,000 per annum per recipient; but this will of course be the subject of further consultation. I am sure that this will be welcomed by the local authorities as a useful addition to their powers.

It cannot be stressed enough that the proposed geographical restriction would apply only to the giving of grants, loans and guarantees to profit-oriented business. It would not affect other forms of economic development, such as assistance for training, the development of sites, concessionary rents or indeed the provision of such financial assistance to the voluntary or charitable sector where the recipients are non-profit-making.

In the light of these comments, I am sure that the Committee will agree that this is a sensible and necessary directing of valuable aid to areas of the country most in need of it. There is flexibility built in; and for that reason, and for the reasons I have already outlined, we hope that Members of the Committee will resist the amendment.

9 p.m.

Lord Ross of Newport

I do not know how the noble Lord, Lord McIntosh, will respond to the Minister's reply. However, it is important that such aid as the noble Lord outlined should be allowed to continue and that there should be flexibility. Having fought successive governments over the designation of assisted area of rural development area status where part of one's constituency was inside but another was not, I know that the local authority knows where the stimulus and help are needed. Some of the schemes outlined by the noble Lord, Lord McIntosh, are worth while and it would be tragic if they were put at risk. Parts of the Minister's reponse gave me hope, and I hope that the noble Lord, Lord McIntosh, will pursue the matter.

Lord McIntosh of Haringey

It was interesting to learn from the Minister that a consultation document will be produced within the next couple of days. In the light of our debate on statutory instruments relating to the Water Act, it is an extraordinary piece of bad timing that the Government have chosen to issue a consultation document two days after the matter has been considered in this Committee. It must raise the question of whether the Government want the Bill and the whole issue to be debated properly in this Committee. How are we to take on trust something that will be issued in two days' time when we have not seen it and do not know of its intentions? It is simply an invitation to us to withdraw the amendment but to bring it back at the Report stage. We certainly cannot be satisfied with the vague assurance that there will be a consultation document and that local authority associations are being consulted; we know that. It is because they are not satisfied with what is being said to them that they are encouraging us to table these amendments.

I should like to ask the Minister some specific questions which he may now be able to answer. Presumably he has a draft of the consultation document which we are not privileged to see. First, can he assure us that the rate of unemployment which is used as a basis of restriction will not be the whole travel-to-work area, as in my example of London and Heathrow, but will be substantially smaller? At the maximum it should be the borough or district, but rather it should be the small areas in which there are serious pockets of unemployment.

Secondly, what will be the threshold unemployment rate at which authorities will not be permitted to make loans, grants and guarantees? I suggest to the Minister that the threshold should be substantially lower than the national average unemployment rate so that there is no sudden reduction in the number of local authorities which are able to give grants. Certainly it should not be the case that the list of local authorities unable to make grants varies from month to month and year to year according to the unemployment rate.

Thirdly, let us look at the list of restricted areas. In his reply the Minister gave examples but it was not a complete list. Can we be assured that the list of eligible areas will include enterprise zones, urban development corporations and free ports? Can we be sure that it will include not only all of the DTI's assisted areas, including the development and intermediate areas? Will it cover derelict land clearance areas and rural development areas? Will it cover the European Commission's objective 2 and 5B areas or areas in receipt of special European Commission assistance counteracting employment run-down in basic industries such as coal, steel, shipbuilding and textiles?

All those are specific points which have been the subject of negotiation between the local authority associations and the Government. If a consultation paper is to be issued in two days' time the Minister should have specific answers to those points. Can the Minister confirm that if part of an authority's area is included in a designation the economic development powers will be available throughout the district or borough? They ought to be because, as I previously argued, one must often provide employment and help anti-unemployment schemes in adjacent areas or areas with suitable sites rather than in small area where there is a particular problem? Will there be a specific provision enabling more non-qualifying local authorities which use the grant loan or guarantee powers to continue to do so? In other words, will there be any transitional provision?

The Minister ought to be able to answer those questions because they should be answered in the consultation document. Can he confirm that all authorities in all parts of the country will have the option to provide financial assistance to defined limits? In other words, will there be some kind of de minimis power which will apply in the areas where other powers are no longer to be available?

I have not been able to give the Minister notice of those specific questions. However, he has told the Committee that the thinking of the department is well advanced so I am sure that he will be able to answer them. I am also sure that he will encourage us to think that the Government are treating the matter with the seriousness it deserves and that we shall be able to withdraw the amendment as he suggests.

Lord Hesketh

I suspect that I am in error for having used the phrase "a couple of days". It was too specific and has led the noble Lord, Lord McIntosh, to believe that I have a copy of the consultation document with me. Perhaps I was rather too hopeful but the fact is that I do not have a copy of the document. I should have said "a few days".

The noble Lord, Lord McIntosh, asked about the rate of unemployment and the travel-to-work area. The difficulty that we face is that there are no statistics for less than the whole travel-to-work area which leads to certain problems—

Lord McIntosh of Haringey

The Minister has been badly briefed about employment statistics. Of course, they are brought together in travel-to-work areas, but I hope that he is not seriously telling us that in the whole of London only one employment rate is available for London and a second for Heathrow. That is not the case. Traditionally unemployment statistics were collected by what was called "employment exchange areas" which are now much smaller. There is no shortage of statistics about employment in areas much smaller than travel-to-work areas.

Lord Hesketh

I believe I am correct in saying that there are estimates for the smaller areas but there are not statistics. I believe that to be the case. If I am wrong I will certainly let the noble Lord, Lord McIntosh, know and will apologise to him.

The noble Lord asked whether the areas would be confined to travel-to-work areas chosen on the level of unemployment. Of course, there will be inner-urban priority areas such as Haringey which will be included. There will be other tests. The district covering Bridlington, for example, will also be covered. We feel that the noble Lord should not jump to conclusions. He should see the full proposals before condemning them. We might benefit from waiting for the arrival of the consultation document rather than discussing it in absentia.

Lord McIntosh of Haringey

The only answer to that is that we should now adjourn because it is clear that the proceedings in Committee are incomplete. Are we seriously being told by Ministers on the Government Front Bench in this Committee that we must sit tight and wait and have faith in something that is known already but we cannot be told about?

The consideration of this Bill in Committee is supposed to be the most detailed examination of the legislation, but it is simply incomplete because the Government do not have their act together and cannot produce the consultation document. We are told, first, that it is to be available in a couple of days. Now we are told that it will be available in a few days. I suppose we will find that it is produced immediately the House rises for the Summer Recess. If so, we shall not have a chance to raise the matter in any other parliamentary way.

This is not the way to treat such legislation. It is simply not good enough for us to be brushed aside in this way. I am accused of refusing to believe what the Government say. I am told that must accept assurances based on something I have not seen. That is not the way we should be proceeding. I did not intend to divide the Committee on this amendment but I must now do so.

9.10 p.m.

On Question, Whether the said amendment (No. 115M) shall be agreed to?

Their Lordships divided: Contents, 32; Not-Contents, 53.

Addington, L. Mason of Barnsley, L.
Airedale, L. Nicol, B.
Cledwyn of Penrhos, L. Ponsonby of Shulbrede, L. [Teller]
Cocks of Hartcliffe, L.
Darcy (de Knayth), L. Ross of Newport, L.
David, B. Russell, E.
Dean of Beswick, L. Seear, B.
Dormand of Easington, L. Stedman, B.
Elwyn-Jones, L. Strabolgi, L.
Graham of Edmonton, L. [Teller.] Taylor of Blackburn, L.
Thomson of Monifieth, L.
Hayter, L. Tordoff, L.
Hylton, L. Underhill, L.
Lockwood, B. Walston, L.
McIntosh of Haringey, L. Whaddon, L.
Mackie of Benshie, L. Williams of Elvel, L.
McNair, L. Winterbottom, L.
Arran, E. Hesketh, L.
Balfour, E. Hives, L.
Bauer, L. Hooper, B.
Beloff, L. Jenkin of Roding, L.
Belstead, L. Johnston of Rockport, L.
Blatch, B. Joseph, L.
Borthwick, L. Kaberry of Adel, L.
Boyd-Carpenter, L. Kinnoull, E.
Caithness, E. Lawrence, L.
Carnegy of Lour, B. Long, V. [Teller.]
Carnock, L. Mackay of Clashfern, L.
Craigavon, V. Margadale, L.
Davidson, V. [Teller.] Mersey, V.
Dundee, E. Monk Bretton, L.
Elliot of Harwood, B. Monteagle of Brandon, L
Ferrers, E. Mottistone, L.
Fraser of Carmyllie, L. Mountevans, L.
Greenway, L. Napier and Ettrick, L.
Gridley, L. Norfolk, D.
Hailsham of Saint Romney, E.
Marylebone, L. Sanderson of Bowden, L.
Henley, L. Skelmersdale, L.
Strange, B. Trumpington, B.
Strathclyde, L. Ullswater, V.
Sudeley, L. Windlesham, L.
Thomas of Gwydir, L. Wynford, L.
Trafford, L. Young of Graffham, L

Resolved in the negative, and amendment disagreed to accordingly.

9.17 p.m.

Lord McIntosh of Haringey moved Amendment No. 115N: Page 40, line 13, leave out subsection (3).

The noble Lord said: This amendment refers to Clause 33(3) which is quite an extraordinary subsection. Let us look for a moment at the existing powers that local authorities have to promote economic development. Under Section 111 of the Local Government Act 1972, local authorities have a subsidiary power including expenditure, borrowing or lending and the acquisition or disposal of property or rights calculated to facilitate, or to be conducive to or incidental to, the discharge of local authority functions.

Under Section 120 of the same Act local authorities have power to acquire land pursuant to their functions or for the benefit, improvement or development of their area. Under Section 142 they have power to provide information and to publicise services in a local authority area. Section 144 provides powers to encourage visitors and to provide conference and other facilities. Section 145 gives powers to provide entertainment including the promotion of arts and crafts. Section 65 of the Health Services and Public Health Act 1968 gives local authorities power to grant aid and to make available furniture, equipment or other practical assistance for voluntary organisations providing services for the needy.

Under the Local Authorities (Goods and Services) Act 1970 local authorities have the power to make available bulk purchase materials and technical or professional assistance. Under the Local Authorities (Land) Act 1963 they have power to develop land and promote development by making advances for the erection of buildings. Under Section 45 of the Local Government (Miscellaneous Provisions) Act 1982 they have power to enter into arrangements under the Employment and Training Act 1973. All of these are powers which local authorities have effectively brought together and used for something which has not only been an important part of their functions over a considerable period of time but is now in theory recognised by the Government in Clause 32 of the Bill as being an appropriate activity for local authority areas.

Not only do the Government seek to restrict, as they did in the previous amendment, the geographical scope of these activities and to do so in a peculiarly restrictive and overbearing way, but now, under subsection (3) of Clause 33, they propose that: The Secretary of State may by order made by statutory instrument impose such a financial limit as may be specified in or determined under the order on the following expenditure, that is to say, such expenditure as", is intended under Clause 32. I shall not read the rest of the subsection. It is available for Members of the Committee.

Local authorities have responsibly and successfully used these varied powers before, and now the Secretary of State has the power to impose a cash limit on all of this expenditure which in effect can be whatever he likes. On 21st December 1988, the Minister said: The Government have considered the question of a financial limit on the use of the new power, to which they referred in the White Paper. They do not consider that the new power should lead to any significant change in the level of local authority activity in this field, since it is intended merely to simplify the framework within which this activity takes place. In these circumstances, they have concluded that it would be inappropriate to set any general financial limits on the use of the power: the general financial disciplines to which local authorities are subject will be sufficient".

What has happened since then? Bureaucracy in Marsham Sreet has taken over more and the idea that local authorities can act responsibly in control of their own expenditure has been cast on one side in this as in so many cases. We now find that, under regulation and by statutory instrument, the Bill gives the Secretary of State the ability to exercise any power he likes, with reference to Parliament but not in a way that Parliament can change, to cut down on what is universally recognised to be a valuable and responsible part of the activities of local government. It is another example—it may not be the worst—of the hatred which some people in the Executive have for local government and for local democracy. It may not be the worst, but it is bad and should not be allowed. Subsection (3) should not be part of the Bill. I beg to move.

Lord Jenkin of Roding

The noble Lord seeks to persuade us as he has done through this and earlier amendments that the mischief which prompted the establishment of the Widdicombe Committee and prompted a great many of its recommendations is a thing of the past. To the Government, the noble Lord says, "You are shutting the stable door after the horse has bolted". I have no doubt that the noble Lord, who had long and distinguished service in local government until it was abruptly terminated, and his respected leader in another place, Mr. Kinnock, both passionately wish that that were true, that the kind of excesses that were going on in some authorities in the late 1970s and earlier 1980s were a thing of the past, that somehow all that had now been exorcised and that we should never again see the kind of problems which I faced as Secretary of State for the Environment between 1983 and 1985. The Committee would be very unwise to base its decisions on this legislation on the belief that that kind of thinking is founded in reality.

The noble Lord, Lord McIntosh of Haringey, knows as well as anyone that there were—and, for all I know, there still are—in local government a number of people who regarded local authorities as political instruments with which to challenge central government. They never accepted that the powers of local authorities themselves derive from Parliament and that therefore the proper relationship is one where Parliament lays down the broad framework and local authorities agree by convention to live within that framework. That used to be the pattern and it was never challenged. However, it has now been challenged and has been challenged, if I may put it this way, to destruction by a number of local authorities. The noble Lord repeatedly referred to Haringey. I can tell him that that was one of the thorns in my flesh.

It may be that under the influence of the Widdicombe Committee, under the influence of the knowledge that this Bill was forthcoming and, perhaps even more, under the influence of the Labour Party which really believes that it can be elected if only the loony Left would keep its head down and keep quiet, people believe we do not need this legislation. We do. It is absolutely right that we should change the framework and regularise the framework within which all these powers have been exercised.

When I come to move the amendment tabled in my name, I shall want to make it clear that there are many such powers which are entirely acceptable. It is right that they should be put into a proper framework, that they should not rest on old legislation which may have been passed with an entirely different intention and that they should be subject to proper control.

I have some sympathy with the noble Lord when he says that too much is being left to regulations. The problem is that if we tried to spell it all out in the Bill, we would end up with a Bill which would be a thousand clauses long. I am sure that the noble Lord would be the first to complain about that. It is not of the volition of the Conservative Party, or of this Government, that they have been forced to legislate in far greater particularity than any previous government; it is because they were confronted up and down the country with local authorities which seemed to be determined to use every possible way to challenge the accepted conventions by which—and I say this with complete sincerity—the majority of local authorities have always been perfectly happy to abide.

But, unfortunately, it was a case of the bad driving out the good in a sense in that the excesses of the extremists have required the regulation of the vast majority of moderate, sensible authorities. I regret this as much as anyone else. Subsection (3) is a good example of the kind of control which has now become necessary. The Committee would be deluding itself if it believed with the noble Lord, Lord McIntosh, that this is all a thing of the past and that we do not need any of these powers. Regretfully, I have to say that we do. I hope that my noble friend on the Front Bench will stand firm on the matter.

Lord Hylton

Of course there have been abuses in local government, and no doubt some of them go back a very long time. Nevertheless, it is not possible to deceive every electorate indefinitely; eventually they see when local authorities are exceeding their brief or are using local questions to conduct national campaigns.

If this Government persist, as they seem to do, in pruning, clipping and restraining the powers, the discretion and the responsibility of local authorities, very soon they will find themselves in a position where no valid candidates, no excellent citizens, are prepared to put themselves forward for election to local authorities, and where the quality of local government officers will deteriorate from year to year. When that process has—alas and unfortunately—gone far enough forward, it will then be necessary to recast the whole system. We shall need some form of regional government, perhaps on the West German model.

9.30 p.m.

Lord Hesketh

The amendment seeks to delete the power in Clause 33(3) for the Secretary of State to impose a financial limit on expenditure by an individual authority under the new economic development power.

Let me assure the noble Lord that that is very much a reserve power. Its sole effect is to enable the Secretary of State to deal with any problems arising from excessive expenditure by a particular local authority, or authorities, if such a situation should occur. When the new power was announced, the Minister said that we knew of no situation at present which would justify the use of the power; that remains the case.

The new economic development power is very general in its scope and is free from the financial limits which some would like to have seen imposed. We feel that the introduction of a reserve power strikes the right balance between, on the one hand, the Government's desire not to frustrate local economic development initiatives and, on the other, the very sensible desire to guard against possible abuse. It would, for example, be extremely foolhardy if we were to find ourselves unable to intervene in a situation where one local authority was spending an inordinate amount of money on employment creation within its own area with a disproportionate effect of undermining the situation in neighbouring areas.

We are not introducing the new power with a view to increasing local government's expenditure on economic development. I repeat that this is a rationalisation exercise. We do not want to be saying to local government, "We are replacing your old, financially restricted powers with a new power with no financial limit", as that would clearly send the wrong message with regard to the level of overall expenditure. What we are in fact saying to local government is, "Steady as she goes". If local authorities recognise that message, then there will be no occasion to resort to the reserve power.

It is essential therefore that the reserve power is included in the Bill. I strongly urge the Committee to reject the amendment.

Lord McIntosh of Haringey

I am always grateful to the noble Lord, Lord Jenkin of Roding, for his reference to my career in local government. He seems to be stuck on one point. He seems to know nothing else; but, nevertheless, it is nice to hear that he has absorbed that fact. His contribution was extraordinary. He seems to believe that it is in the Labour Party's interests to pretend that abuses in local government have disappeared and that there is no problem over abuses of power by local authorities. He has forgotten that the classic example of the abuse of power by a local authority is the current example, which is that of the City of Westminster.

When we considered Clause 4 last week, I wondered why the Government were being so restrictive. The only answer which occurred to me when we were considering the role of the head of the paid service was that the Government had already anticipated that Lady Porter and the Westminster City Council would come under the deserved, justified and well-documented fire of television and of investigations into the propriety of their sale of the cemeteries for £1 which they are now seeking to buy back at £5.5 million. Oh yes! There are abuses by local authorities, and especially in the local authority in which we are now situated.

Rather than seek to drag up history and make political capital, it would be better if those on the Government Benches here and in another place were to look at what is happening around them.

I shall return to the more substantive issue, which is the reply. He quoted what the Minister said on 21st December 1988; that the power was intended as a reserve power since the Government were not aware of any current circumstances which would justify the use of such a power. Will the Minister tell us under what circumstances he sees the use of such a power? Eight months have passed since that statement was made. Surely they have been collecting a dossier of abuses of power, particularly by Labour local authorities. There must be Labour local authorities which are abusing the powers to create a better economic life for the citizens in their area. I do not want many examples—just a few—of abuses of the power to promote economic development. I shall gladly give way to the Minister. It is clearly his responsibility to show us what abuses there are.

Lord Hesketh

We have to take Clause 33 with Clause 32. It is perfectly clear that it will be rather hard to have a dossier concerning an abuse of power under the new situation that will pertain after the Bill becomes an Act. It is rather difficult to create a dossier before the Bill becomes an Act, and we live in the new world of enlightenment.

Lord McIntosh of Haringey

That is very nice to know. How are we to be assured that this subsection provides only a reserve power? It does not say anything about a reserve power. It says: The Secretary of State may by order made by statutory instrument impose such a financial limit as may be specified … on"— not only such expenditure as— is of a description so specified or determined". In other words, the statutory instrument will say, "This is the kind of expenditure we don't like. This is the amount of expenditure we're going to permit and no more". But then it goes on to say, not only, by virtue of section 32 above"— which is what the Minister referred to—but, or any other enactment". Retrospective legislation? Any examples of other legislation to which I referred which has been legitimately, properly and responsibly used by local authorities for a period of 20 years can be taken out by a regulation made by the Minister by statutory instrument. He can amend not only this Bill but all other Acts as he thinks fit. Is that a precedent which we should like to see pursued—to have a regulation-making power given to a Minister to amend not only this Act but any other enactment? I am glad to hear a defence of this new constitutional principle.

Earl Lytton

When the Minister comes to reply, perhaps he would like to say what is the meaning of "any financial year". How far back can it extend or how far forward?

Lord Hesketh

We seem to have strayed some way from reality, I fear. We have now forgotten about parliamentary control itself. As I pointed out in my original reply to the amendment, it is a fact that it would be very foolhardy of the Government if they got themselves into a position where they could not intervene in a situation where one local authority was spending unlimited sums of money. That has always been the case. When we discussed this before dinner my noble friends Lord Jenkin and Lord Renton pointed out that we could not possibly introduce the flexiblity that we have endeavoured to achieve without control.

Lord McIntosh of Haringey

There are two overwhelming answers to that. The first is that of the noble Lord, Lord Hylton, who said that in the end there is no free ticket to over-expenditure. Those who spend too much money will have to face the ballot box in the end; they will have to face re-election. If they have behaved wrongly in their electors' view, they will be kicked out. That is the first answer.

The second answer is that there are very extensive capital controls in Part IV of the Bill—those are enormously complicated powers based again on regulation-making. In Part IV there are 15 new regulatory powers for the Secretary of State which control local authority expenditure. In the view of the Minister, those are not enough to make it possible for him not have what he calls reserve powers. They are not reserve powers, they are dictatorial powers given to the Secretary of State to override not only the Bill before the Committee but also any other enactment. That cannot be acceptable. I commend the amendment to the Committee.

9.40 p.m.

On Question, Whether the said amendment (No. 115N) shall be agreed to?

Their Lordships divided: Contents, 23; Not-Contents, 45.

Airedale, L. David, B.
Cocks of Hartcliffe, L. Dean of Beswick, L. [Teller.]
Darcy (de Knayth), B. Graham of Edmonton, L.
Hayter, L. Ross of Newport, L.
Hylton, L. Russell, E.
Irving of Dartford, L. Seear, B.
Lawrence, L. Stedman, B.
Lockwood, B. Thomson of Monifieth, L
McIntosh of Haringey, L. Underhill, L.
McNair, L. Walston, L.
Mason of Barnsley, L. Whaddon, L.
Ponsonby of Shulbrede, L. [Teller.]
Arran, E. Carnegy of Lour, B.
Balfour, E. Carnock, L.
Bauer, L. Davidson, V. [Teller.]
Beloff, L. Denham, L. [Teller]
Blatch, B. Dundee, E.
Borthwick, L. Elliot of Harwood, B.
Boyd-Carpenter, L. Fraser of Carmyllie, L
Glenarthur, L. Mottistone, L
Gray of Contin, L. Napier and Ettrick, L.
Harmar-Nicholls, L. Norfolk, D.
Henley, L. Romney, E.
Hesketh, L. Sanderson of Bowden, L
Hives, L. Skelmersdale, L.
Hooper, B. Strange, B.
Jenkin of Roding, L. Strathclyde, L.
Johnston of Rockport, L. Sudeley, L.
Joseph, L. Thomas of Gwydir, L.
Kinnoull, E. Trafford, L.
Long, V. Trumpington, B.
Mackay of Clashfern, L. Ullswater, V.
Mersey, V. Wynford, L.
Monk Bretton, L. Young of Graffham, L.
Monteagle of Brandon, L.

Resolved in the negative, and amendment disagreed to accordingly.

9.48 p.m.

[Amendments Nos. 115NA to 115Q not moved.]

Clause 33 agreed to.

Clause 34 [Guidance and consultation about promotion of economic development]:

Lord Jenkin of Roding moved Amendment No. 115R: Page 40, line 46, leave out from second ("to") to end of line 49 and insert ("persons and bodies appearing to it to be representative of persons subject to non-domestic rates under sections 43 and 45 of the Local Government Finance Act 1988 as regards hereditaments situated in the authority's area and to such other persons carrying on commercial, industrial or public undertakings in their area as they consider appropriate;").

The noble Lord said: We come now to the clause sidelined and accurately described as: Guidance and consultation about promotion of economic development". It may be for the convenience of the Committee if at the same time we discuss Amendment No. 115S.

The arrangements for consultation of, if I may use a compendious phrase, the representatives of industry and commerce on the economic development plans of a local authority are, for some reason which I have to confess I do not understand, markedly different from those spelt out in a Bill we considered in the last Session which became the Local Government Finance Act in relation to consultation on the levels of expenditure and the national non-domestic rate.

The Government would acknowledge, I believe, that commerce very much welcomes the clarification of the powers of economic development which are contained in this group of clauses. This has been an area of great uncertainty and, as I indicated in a brief intervention a moment ago, a good deal of controversy and acrimony.

So far as concerns Clause 34, representatives of industry and commerce very much welcome the fact that local authorities will now have to draw up an economic development programme in a specific document. The noble Lord, Lord Graham of Edmonton, complained a few moments ago that it would be difficult and that they had to react quickly. He asked how they could do that. All that is wanted here is a framework. As any businesman would argue, if a local authority starts spending significant sums of money, it must have objectives and a clear framework within which to make plans.

Secondly, the representatives welcome the fact that, as the clause provides, the expenditure is to be attributed to specific proposals in the programme. Perhaps most important of all, they have to set out what the expenditure is intended to achieve. One of the lessons that I learnt in government is the setting of objectives. It is widely practised in industry. One cannot decide whether one has achieved one's purpose unless one has spelt it out at the beginning and can therefore test the results against the objectives. In all those respects, therefore, Clause 34 seems a great advance on what has gone before.

However, when we come to the provisions dealing with consultation I must say that I share the view that the clause is flawed. Everything that has been said on both sides of the Committee in discussing Clause 32 and the following clauses is that economic development in a local authority area must be carried out in partnership between the public and private sectors. Part of the objection to the way in which some authorities use their powers is that they seem to do so, as it were, in the teeth of the private sector, ignoring and in some cases virtually thrusting it aside. As I understood it, the noble Lord, Lord McIntosh of Haringey, argued that that was not the right way to do it and that local authorities must have their powers in order that they may collaborate effectively with the private sector. One of the more encouraging features of developments in the last two or three years is that that has become very much the pattern in most local authority areas.

If that is the case, the plans when drawn up must clearly be the subject of effective consultation with the local business community. The sums of money involved may be quite substantial. Perhaps more than in some other aspects of local government spending, they have a direct and immediate impact on the conduct of business by firms in their area. The case for consultation is particularly strong in relation to economic development. If we are talking about the development of the local economy, businesses may have a great deal of advice and wisdom to offer to local government in deciding the best way forward.

Given that fact, it is perhaps not unreasonable that one might have expected to see the consultation clause drawn up closely in parallel with what is now Section 134 of the Local Government Finance Act which provides for consultation on expenditure generally and on the national non-domestic rate. Those provisions were drawn up in the light of experience with the statutory rates consultation. That was part of the Rates Act of 1984 which I introduced and took through the other House.

However, Clause 34 does not follow the Section 134 provisions in three respects. First, under Clause 34, there is no duty to consult; it is discretionary. That seems to me to be quite inexplicable because economic development involves the business community perhaps more than other areas of local government spending. Secondly, unlike Section 134, it does not spell out that the consultation should be with bodies representative of industrial and commercial undertakings in their area. That seems to be the normal way. Chambers of commerce and chambers of trade may be involved and, in a large city, there may be branches of the CBI or other employer organisations that have a great deal to offer. This clause simply suggests that the local authority should consult with those who appear appropriate for such consultation.

Thirdly, the clause does not provide, as does Section 134, that the practice of consultation should be underpinned by guidance from the Secretary of State. In short, these clauses are far too permissive. They enable authorities to make their economic development programmes simply: available to commercial [and] industrial … undertakings in their area as they consider appropriate and to such other persons as they think it desirable to consult".

That is simply not acceptable to the business world, which is very anxious to collaborate with local authorities, who recognise that this partnership for economic development has very great value. There are some marvellous examples to be found around the country. However, this clause does not give the necessary and appropriate degree of protection.

There is a reference in the clause to guidance but it relates to the purposes of the expenditure and not to the method, timing or manner of consultation. Section 134 of the Local Government Finance Act sought to spell that out with greater particularity.

Somebody might ask: "What is wrong with using the Section 134 power to consult?" The fact of the matter is that a local authority would not be bound to bring an economic development programme as such within the ambit of the consultations or to distinguish spending under this head from the generality of an authority's spending when it is setting its budget.

I think that business might reasonably have expected that there would be a parallel power or duty to consult with the same kind of people. If the local authority wishes to consult more widely then by all means let it do so; no one will quarrel with that. But there should be a duty to consult with those who are representative of the business interests in their area and that might well be additional to the generalised power contained in Section 134 of the 1980 Act.

The present proposals in fact do neither of those things. The two amendments with which we are now dealing are intended to amend the Bill so that the duty to consult in relation to economic development is, if I am allowed to use the phrase, mutatis mutandis, the same as the power to consult on rates and expenditure. For the life of me I cannot see why it should be different.

Local authorities have now become very accustomed to the statutory consultation procedure on expenditure and on rates. I cannot see why they would object to the idea of having the same kind of procedures operating in relation to their economic development plans. I therefore hope that my noble friend on the Front Bench will perhaps undertake to look at this matter again and come back on Report with something that reflects more clearly the wishes of bodies such as the Association of British Chambers of Commerce and others which have been pressing the Government to make this change. I beg to move.

Lord McIntosh of Haringey

I rise only to welcome what the noble Lord has said about the co-operation between local authorities and the private sector. I hope that he will be in his place for the rest of this evening and on Wednesday afternoon when we discuss Part V of the Bill. It is our view that Part V of the Bill creates very major obstacles to the kind of collaboration with the private sector, and indeed with the voluntary sector, which I believe that he and we all wish. I hope that he will support the amendments that we shall put forward to improve collaboration between local authorities and the private sector.

10 p.m.

Lord Ross of Newport

I have no objection to these amendments. However, I have to say to the noble Lord, Lord Jenkin, that to oblige authorities in some areas to discuss with chambers of commerce that are totally moribund is a bit much. I set up an enterprise agency. I was advised by the industries involved in the enterprise agency—I wanted it to be taken over by a chamber of commerce—that no such thing should happen. The chamber of commerce was so decrepit that it was not worth consulting. I am a non-domestic ratepayer. To say that we have to consult people whom we know have very little to contribute is not very clever. They may be stronger in some areas but that is not my experience.

What is wrong with the trade unions and work councils? Can they not be consulted too?

Lord Jenkin of Roding

Perhaps I may respond to the noble Lord. The trade unions are a different case. This clause is concerned with the consultation with the representatives of industry and commerce, and of employers. Section 134 of the Local Government Finances Act 1988 states: A relevant authority shall consult under this section persons or bodies appearing to it to be representative of persons subject to non-domestic rates". One has obviously to have different words because people will be affected by the economic development plans of the authority. But that provision seems perfectly adequate to relieve a local authority from any obligation to consult a completely moribund chamber of commerce or chamber of trade. It would have to find out who was representative of the people who were interested and consult them.

This provision imposes on the authorities a reasonable duty. It is a good deal clearer and more specific than the very vague words which are in the clause at the moment.

Lord Hesketh

These two amendments bring us to Clause 34 of the Bill, which provides for local authorities to decide before the beginning of each financial year whether or not they are going to undertake any expenditure under the economic development power. If they decide to do so then they are required to draw up a programme of their proposed activities and consult those carrying on commercial, industrial and public undertakings in their area and anyone else they wish to about their proposals. We feel that the opportunity to consider a programme of activities and to discuss it with those whom it will affect will be a useful exercise for local authorities and should lead to a properly planned and well-focused use of the new power. In fact, we suspect that in many cases local authorities already undertake such preparatory work, and by putting this on the face of the Bill we are merely asking them to build on current good practice.

The amendments address a particular aspect of the consultation programme—who should be consulted? As it stands, Clause 34(3) says that local authorities should make their programme available for consultation to, such of the persons carrying on commercial, industrial and public undertakings in their area as they think appropriate and to such other persons as they think it desirable". The onus is on the local authority as being best placed to decide who should be consulted as representative of the area's interests in economic development.

The amendments align the consultation process more closely to that of the consultation procedures that are to take place on the non-domestic rates under Section 134 of the Local Government Finance Act 1988 to which my noble friend Lord Jenkin drew our attention. Thus it widens considerably the categories of those who are to be consulted. The amendments would require authorities to consult all those considered to be representative of the non-domestic ratepayer. This would include not only members of the local business community, who must surely have the main interest in economic development, but also other important non-domestic ratepayers such as health and education authorities, which are not involved in commerce and industry.

During the Committee proceedings in another place the question of who should be consulted was raised on behalf of the chambers of commerce. I understand that this amendment has been tabled with the same point in mind. I would be the first to recognise that a good, well-organised chamber of commerce would be the ideal forum to use to discuss proposals for promoting economic development in an area. It would have the local knowledge plus the business expertise to see exactly what would be in the best interests of the area.

The clause as drafted leaves it to local authorities to decide who they should consult as representative of the business community. I am sure that in those cases where it is appropriate they will consult their local chamber of commerce. Nevertheless, the noble Lord has a good point, though I am not quite sure that these amendments as drafted would achieve what he is aiming for. I should like to take away his suggestions to see what solution might be arrived at to ensure that chambers of commerce will be consulted as a matter of course on local authorities' proposals.

It would also be opportune for me to say a few words about the relationship between this consultative process and that required under the Local Government Finance Act 1988. There is obviously scope for overlap here, although there will in fact be more detailed guidance in regulations on the non-domestic rate procedures. If local authorities did want to combine the two exercises, I can see no reason why they should not as inevitably some of the same expenditure plans will be under consideration with the same people. Again, it is for local authorities to decide what is most appropriate for their circumstances. I assure the Committee that any circular we may issue on the proposals will remind local authorities that it would be sensible housekeeping to combine the two exercises at the same time, so far as they are able. I hope that with those reassurances my noble friend will feel able to withdraw the amendment.

Lord Jenkin of Roding

I am indebted to my noble friend for his forthcoming reply. The idea that the consultation might proceed in parallel is very good. I should like to take advice on that. I am grateful for his undertaking to consider whether there is some way in which the point can be met, and no doubt we shall be able to return to this matter on Report. With that, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 115S to 115U not moved.]

On Question, Whether Clause 34 shall stand part of the Bill?

Lord Ross of Newport

I regret that I did not give notice that I wished to speak on Clause 34 stand part. I apologise for doing so at this late hour. I draw attention to what I believe is a total nonsense in Clause 34(2) where it reads as follows: It shall be the duty of a relevant authority, before the beginning of each financial year, to determine whether they will take any steps in that year for the promotion of the economic development of their area". As I said earlier, closures happen very suddenly and a local authority may have decided that it did not intend to play any part in economic development. I believe that subsection (2) is wrong. I do not propose to pursue that now, but I give notice that I wish to raise this matter on Report and perhaps the Government will consider it in the interim.

Lord Hesketh

I believe that I can put the mind of the noble Lord, Lord Ross, at rest, which would prevent him having to think about it as we approach Report. What he has in mind is the unforeseen event such as the closure of a major employer in a locality. In such a case local authorities may quite properly wish to help in a number of ways. They might wish to support retraining for redundant personnel or fund redevelopment of a vacant site for other industrial purposes. They may wish to encourage other business interests in the area, and that too could be done in a number of ways. I cite in particular one example which was mentioned in another place where the council as a rating authority remitted payment due from an undertaking in respect of non-domestic rates. I believe that Clause 34 as drafted does not prevent that.

The duty imposed by Clause 34(3) is a duty to draw up a programme of proposals which it would like to undertake and consult on with those whom it feels to be representative of the local business community. This does not imply that some activity which is required during the course of the year cannot take place as the authority would still have satisfied the requirement to consult on the proposals that it had in mind at the beginning of the year.

Lord Ross of Newport

I am grateful for that assurance. I shall not be raising this matter on Report.

Clause 34 agreed to.

Clause 35 [Amendments of existing power to incur discretionary expenditure]:

Lord Hayter moved Amendment No. 115V: Page 42, line 19, after ("(4AA)") insert ("Subject to subsection (4AB) below,").

The noble Lord said: This amendment is associated with the other amendment with the rather frivolous number of 115ZZ. That amendment explains what we are trying to achieve. We want to persuade the Minister that transitional protection should be available for the local authorities who are losers in the amount of the Section 137 money that they can spend after the new system is in operation. Under my proposal, they would be able to spend up to the old limit for three years thus enabling them to control their funding programmes more sensibly.

Those Members who are involved with voluntary organisations—which I represent today—will know that Section 137 of the Local Government Act 1972 was of great importance to them. The discretionary funding power enables local authorities to incur expenditure which in their opinion is in the interests of their area. However, expenditure under that power is limited to the product of a 2p rate.

Section 137 is so important because it enables local authorities to fund new projects outside their statutory powers. One of the great virtues of voluntary organisations is that they are able to identify gaps in the current provisions and to highlight those needs. They can also devise new ways of delivering services. In other words, they are often ahead of the legislative framework within which local authorities function.

I shall not elaborate; but, for example, the information technology centres provide training in new technology. They were started 10 years ago by a voluntary organisation with the help of the London Borough of Hammersmith and Fulham. The organisation has been taken up by the Government and today there are more than 100 such centres.

The economic development about which we have been talking for a long time this evening was not at first a statutory function of local government but it is now. Therefore, the Government have accepted it. Both those examples show how important Section 137 is to the voluntary sector. It would be most unfortunate if in any way the Bill undermined the ability of local authorities to exercise their discretionary power.

My concern is shared by many voluntary organisations. It is that perhaps inadvertently Clause 35 could have that effect, particularly in the short term. For that reason, I propose the transitional period of three years. I believe that it would be a prudent step to take and one which would bring a great relief to a number of voluntary organisations.

Clauses 32 and 35 introduce many changes, as we have already heard. It will take a great deal of time before those changes improve the situation; some may well make it worse. Not surprisingly, the changes are causing great uncertainty and confusion in voluntary organisations and in local authorities which are concerned that they may have to cut funding to the organisations because of the overall reductions in their spending limits.

Therefore, what is needed by the local authorities is more time. They need time to examine all the different powers which are available to them and to make absolutely certain that they are not using Section 137 when they should be using another power. They need time to clarify the precise nature of the work which the voluntary organisations are carrying out so that they can apportion their grants between all the relevant powers available to them. They need time to compile their community charge registers so that they can calculate the number of adults in their area and work out the Section 137 spending limit—and that is a sensible suggestion! They need time to build all those processes into their budget-making cycle. And they need time to give the voluntary organisations ample warning to make alternative arrangements or to give staff notice if it turns out that the new limits mean that the local authority cannot continue to fund them.

Without sufficient time local authorities must make rushed decisions on inadequate information and with no consultation. The victims of that process will be the voluntary organisations. Therefore we are asking for more time.

I remember that when we discussed the community charge Bill I saved the Government a lot of money by abandoning the transitional arrangements for the City of London and several London boroughs. Now in return, and in a more minor sphere, I ask the Government to give to the voluntary organisations that transitional arrangement under this Bill. I have been advised by, among others, the National Council for Voluntary Organisations. I can assure the Committee that it is anxious about the position. I hope that the Minister will be able to relieve that anxiety. I beg to move.

10.15 p.m.

Baroness Stedman

I support these amendments so ably moved by the noble Lord, Lord Hayter. In many parts of the country the new proposals to replace Section 137 money will not create problems for voluntary organisations but some authorities, particularly the inner-London boroughs and some of the shire district authorities, who fund a large number of voluntary bodies will have problems. There will be problems especially when one tier of local government decides to fund projects which are the responsibility of another tier of local government. I am thinking, for example, of some cases of sheltered housing, some aspects of transport and, indeed, crime prevention.

Discretionary funding power is extremely important. It gives to authorities the power to be flexible, to innovate and to be able to respond quickly to the changed circumstances in their areas. A clear case was made by the noble Lord, Lord Hayter, for this transitional protection to enable the voluntary organisations to know where they stand and to be able to adjust their plans accordingly.

The impact of the changes on the parish councils will vary considerably. Nationally, the spending limit will be broadly as it is with the 2p rate limit, but the local councils—the parishes—who will suffer most will be those with high business rates. Under the Section 137 powers they will lose out in terms of actual income. That in turn will have an impact on those voluntary organisations which are funded by the lower tier authorities. The London boroughs and the shire district councils with high rateable values now but low populations will suffer the most. For places like Brighton, Harlow or even Leicester, the change from a high rateable value-based calculation to a population-based calculation will hit them hard.

The Government have said that they do not want the changes to Section 137 to result in cuts. If the Government want to guarantee that that does not happen they should support these amendments and accept them for the transitional protection that they give to the voluntary organisations.

Lord Hylton

I support these amendments so well moved and explained by the noble Lord, Lord Hayter. I speak as chairman of a local charitable foundation in a rural area. Some years ago now we invented a new type of person to meet a particular need. That person is called the village contact person—a kind of miniaturised CAB, scaled down to what is needed in a village. This is particularly useful when one lives on the borders of three district councils, three counties, one health authority and one police area with overlapping and conflicting boundaries and catchment areas.

This new invention has been able to point perplexed citizens in the right direction to obtain assistance where needed. The concept has been accepted by the local authorities in question and it is even beginning to be studied and imitated in other areas. Transitional protection is needed and I urge the Government to accept the amendment.

Lord McIntosh of Haringey

It is sometimes said that in times of economic hardship the rich are uncomfortable, the middle class suffer and the poor starve. At times of fiscal uncertainty and uncertainty in public expenditure, central government are uncomfortable, local authorities suffer and the voluntary organisations starve. I hope that the Government will look sympathetically at these important amendments, which are not enormously costly and which were so well moved by the noble Lord, Lord Hayter.

The Earl of Balfour

I wish to raise a matter that concerns me very much. Clause 35(9) applies to Scotland and that is why I looked at it rather carefully. What intrigues me here is that a purely English Act is amending a purely Scottish Act. At the top of page 42 the Scottish Act is amending the English Act. From what I can gather the idea of this clause is to try to bring the legislation north and south of the Border into line, and the idea arose from the problems of the Lockerbie air disaster.

As I understand the situation, as legislation exists in a different way north and south of the Border, English local authorities could not contribute to the fund unless they were sponsored by someone in England. Under Section 137 of the English Local Government Act 1972, the people who can begin a voluntary fund are, the Lord Mayor of London or the chairman of a principal council or by a committee of which the Lord Mayor of London or the chairman of a principal council is a member". As I say, I am not familiar with English legislation. I am not quite certain whether a parish or community council would be regarded as a principal council. Under Section 83(3)(c) of the Local Government (Scotland) Act 1973, the people concerned are the, chairman of a regional, islands or district council, a chairman of a community council". In England and Scotland community councils are rather different. In Scotland they have no statutory functions, and, so far as I know, in England they have functions.

So far as I know, there are Lord Lieutenants in England and Scotland. I do not know whether they have different functions. If this is the case then it is rather nice to know that they are being brought in equally on both sides of the Border. Another qualified body is that of which, any of these persons is a member". I believe that in law there is a difference between a person being a member of a body and a committee member of a body. I think there may be a difference in legislation.

I realise the principles that an attempt is being made to achieve in this clause. It is very good because provision on both sides of the Border should be the same, and so far as I am concerned that should also apply to England, Wales, Scotland and Ireland. The clause has been drafted in such a peculiar way. When I have been in Scotland, on many occasions I have had tremendous help from the officials of my own East Lothian District Council.

However, we cannot make head or tail of the clause. Today I have managed to get some information; but I wonder whether the drafting of the clause is such that it will lead to confusion. What will happen with a disaster or charitable fund or a development fund of some kind which is set up, for argument's sake, south of the Border and to which the Scots would like to contribute, or north of the Border to which English people would like to contribute? When one reads the clause as it stands in regard to the position of the two countries, one becomes lost.

Lord Hesketh

The purpose of these amendments is to insert a new subsection (4AB) which would provide that where the financial limit on the new per capita basis for calculating the annual limit of local authority expenditure under Section 137—set out in subsection (4AA)—is less than that obtaining in the financial year commencing 1st April 1988, the former limit shall continue to be the limit for a period of three years from the commencement of these provisions. I think it may assist the Committee in considering the merits or otherwise of the amendment if I first explain how the new financial limits were arrived at. The change to a per capita limit is of course intended to bring the Section 137 power in line with the way in which the community charge is calculated. It will bring to the expenditure under this power the same benefits as the community charge will bring to local authority expenditure generally. It will relate more closely to the needs of the area than a system based on rateable values which may give a distorted spending limit in relation to the needs of an area's population.

The precise sums that we have proposed for the limits take into account a number of important factors. First and foremost the limits reflect the parallel proposals in Part III of the Bill to introduce a new general power for local authority economic development activity, which we have already discussed. That new power will, as the Committee knows, not be subject to any general financial limits. It is worth noting that economic development activity has in recent years accounted for a significant proportion of expenditure nationally under Section 137. In fact, the Widdicombe Committee's research revealed that in 1984–85 economic development accounted for about two-thirds of Section 137 spending. We have no reason to suspect that the proportions have changed significantly since then. The removal of this large amount of activity from Section 137 to a new general power not subject to annual financial limits makes a real difference to the figure appropriate for the Section 137 limit.

Secondly, we have been concerned for some time about the extent to which Section 137 powers have been used by some local authorities for certain peripheral activities that appear unconnected with their functions. We recognise the importance of Section 137 powers for local authorities to be able to respond to local circumstances for which they have no specific powers. By nature the power gives local authorities a degree of competence over and above that provided specifically by Parliament. That is why annual expenditure is restricted by a financial limit.

Most local authorities do of course use the power, not as a means of extending their powers but to respond in a limited way to particular local needs. This is supported by information collected centrally by the Department of the Environment which shows that in 1984–85 average expenditure under Section 137 was only some 32 per cent. of the total national headroom available. Moreover, in that year only 21 out of 511 local authorities spent more than 80 per cent. of their limit. In 1986–87 a similar picture emerges, with only 26 authorities of the responding authorities spending more than 80 per cent. of their available headroom. Again, I stress that much of this was on economic development which will in future be outside Section 137.

In the light of these considerations we have proposed that the national aggregate headroom for Section 137 should be regarded as some £200 million for principal authorities. This provides for a limit of £5 per head of adult population in all areas of the country. Bearing in mind what I have already said about economic development activity being removed from the scope of Section 137, and the fact that fewer than five per cent. of authorities have spent anywhere near their limits, I can only suggest that we have the proposed limits about right.

There will of course be some local authorities who will lose some Section 137 headroom under the new arrangements, and this is the thrust of this amendment. This reveals however the disparity between the two arrangements. Under the existing arrangements an area with a high rateable value would have a high Section 137 limit irrespective of the level of population making demands on the power. The areas which may lose headroom under the new arrangements will almost certainly be those which previously benefited from an artificially high limit because of a high rateable value. Our proposals will remove the anomaly.

Nevertheless, we are prepared to look closely at any local authorities who think that the new limits will cause them particular difficulties. I can assure Members of the Committee that, although the proposals have been public for over a year, no local authority has asked for any transitional arrangements. No such representations have been made to date. We believe that the Bill as drafted already provides sufficient flexibility to provide transitional arrangements if any should be needed.

I also suggest that the transitional arrangements proposed in the amendment are not suitable. They allow spending to continue at the 1988 level for three years and then impose a sudden change. Any transitional arrangements should surely allow for a smooth change rather than simply postpone a sudden change. I therefore suggest that the amendment is not appropriate. The proposals in the Bill relate headroom for spending more precisely to need. Local authorities have to date not asked for any transitional arrangements. If they do, their case will be considered and provision can be made under the Bill as it stands.

10.30 p.m.

Lord Hayter

I am much obliged to the Minister for his thoughtful and very full explanation of the Government's attitude towards this proposal. However, I think I made it clear that I was thinking more of the voluntary organisations than the local authorities. I think therefore that I should consult with the voluntary organisations to ascertain what they feel as a result of the Government's statement. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 115W: Page 42, line 20, leave out ("different") and insert ("higher").

The noble Lord said: This is the First of two sets of amendments which are concerned with the actual limits for expenditure proposed as a replacement of the old Section 137 powers. I remind Members of the Committee that this is the amount of money which can be spent and which has been spent—I would almost say from time immemorial—for many years by local authorities, not in accordance with any particular powers but in accordance with their rights to spend money in the interests of their neighbourhood.

When I say "many years", the original figure used to be the old sixpenny rate but with decimalisation it became a 2p rate. It is certainly true that the original Section 137 power included provision for the Secretary of State to vary the figure by order either upwards or downwards. But to the best of my knowledge it has never been varied downwards. When the Widdicombe Committee came to look at the figure, it undertook an inquiry, especially in the light of the abolition of the GLC and the metropolitan counties. The committee came to the conclusion that the figure set in the 1976 Act was about right.

A considerable number of local authorities spend very much less than their Section 137 powers will allow. I am sure that noble Lords from Scotland will forgive me if, for the sake of simplicity, I use the English example rather than the Scottish one contained in the 1973 Scottish Act. About 20 per cent. of local authorities spend 80 per cent. or more of the amount allowed by their powers. That fact, and the research carried out, led the Widdicombe Committee to conclude that the level set out was about right.

The committee then suggested that the level should be varied for the new single-tier authorities which were to be set up after the abolition of the GLC and the metropolitan counties. But the committee wanted to ensure that the total amount available, especially regarding voluntary organisations about which we have been talking, did not decrease.

As I said, the Government have never actually reduced the figure, despite having the power to do so. We should now like an assurance, preferably on the face of the Bill although we should be happy to hear it from the Minister, that the Government do not plan to use the powers they will be given to reduce the amounts of money involved, either in real or money terms, unless there were wholly unforeseen circumstances. I hope that the Minister will be able to give such an assurance and so enable me to withdraw the amendment. I beg to move.

Lord Hesketh

Amendment No. 115W concerns the financial limits for expenditure under Section 137 of the Local Government Act 1972. That is the discretionary spending power available to all local authorities, including parish councils, to incur expenditure on anything which they consider to be in the interests of their area or to all or some of their inhabitants but for which they have no specific powers. Annual expenditure is subject to a financial limit currently based on the product of a 2p rate. That is to be replaced by a financial limit calculated on a per capita basis to be consistent with the community charge.

Amendment No. 115W concerns specifically the power of the Secretary of State to vary the financial limits under Section 137 of the Local Government Act 1972. Subsection (7) of Clause 35 inserts a new subsection (4AA) to Section 137 so that the Secretary of State can make an order to specify a different sum for a particular description of authority. Amendment No. 115W proposes that the Secretary of State should be empowered only to specify a higher sum.

The amendment limits the flexibility of the Secretary of State to vary the financial limits. Let me reassure the Committee straight away by saying that I can see no reason under present circumstances for the power to be used for a general reduction in the financial limits under Section 137. The Secretary of State has had the power to vary Section 137 limits up or down since 1972 and has never used it. I think that that is proof enough of our good intentions.

The Committee will, however, be aware of a particular case which arises from the passage of the Bill through another place which will require the Section 137 limits to be altered. That is the decision to change the limits in the London boroughs and metropolitan districts only to reflect spending under Section 48 of the Local Government Act 1985 which in any other parts of the country would be authorised under Section 137.

We shall be discussing that aspect in more detail when we discuss a later amendment. Very briefly, however, we propose to make an adjustment to Section 137 limits of those authorities who are within Section 48 scheme areas broadly equivalent to their expenditure under Section 48 which otherwise would have had to score against their Section 137 limit. That is administratively simpler than our original proposals and reflects our wish not to place unnecessary administrative burdens on Section 48 support of voluntary organisations.

If Amendment No. 115W were accepted, that approach would not be possible. Local authorities who administer Section 48 schemes have welcomed the Government's new approach and it would be a pity if we needed to look for an alternative solution which would certainly have additional administrative consequences for the land districts of those sectors. That is just one example of the need for flexibility in such matters and I would not wish it to be jeopardised by an amendment such as this. For those reasons, we resist the amendment.

Lord McIntosh of Haringey

I am reasonably satisfied by that reply. I am glad to learn that there are no foreseeable circumstances under which the Secretary of State would exercise his power to make a general reduction in the limits. I am also interested by what the Minister said about the Section 48 position. That may enable us to cut short the debate on Amendment No. 116A. Without further ado, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 115X: Page 42, line 23, leave out ("£2.50") and insert ("£4.00").

The noble Lord said: I should like to speak also to Amendments Nos. 115Y and 115Z. The amendments again, refer back to Widdicombe's research on the scale of Section 137, or Section 83 of the Scottish Act, spending. As I hinted earlier, it was indicated that the average expenditure under those powers was only 32 per cent. of the ceiling. So we do not in general have local authorities pushing against that ceiling. Twenty-one authorities were spending more than 80 per cent. of the permissible limit. If we do our sums correctly, and work back to the position when Widdicombe did his research, we would come to a rather higher figure than that which has been provided by the Government in Clause 35. The calculation which was the basis of Widdicombe's recommendation was that there should be permitted expenditure in 1984–85 of about £3.70 per head of population, which was equivalent to £4 at current prices—in other words, current prices when the Widdicombe Report was produced. Consequently, if we consider it in the light of inflation from that time, we should have a figure on page 42, line 23 of £4, in line 25 of £8 and line 28 of £4, rather than the figures which are at present on the face of the Bill.

I hope that the Government will feel that they ought now, in the middle of 1989, to give a full uprating of Widdicombe's figures. It was very detailed research, rationally thought out, and I have indicated the results if he were reporting now. I beg to move.

Lord Hesketh

Perhaps I may make a break from precedent and apologise to my noble friend Lord Balfour who raised a lengthy and complex technical matter not entirely to do with the amendment which we were previously discussing. I suggest that perhaps I may write a letter to him covering his fine point. I apologise for not having answered him on the last amendment.

These amendments concern the financial limits for expenditure under Section 137 of the Local Government Act 1972. The amendments seek to replace the financial limits proposed for each description of authority set out in Clause 35 with higher limits. These higher limits are those recommended by the Widdicombe Committee. Those limits were based on existing spending power without any adjustment for the introduction of the new economic development power. Our lower figures allow for the fact that most of what is now spent under Section 137 will in future not count against the limit. As this represents over two-thirds of the Section 137 limit a reduction of just three-eighths of the Widdicombe Committee's proposed limits seems very reasonable.

The limits proposed by the Government would provide £5 per adult for principal authorities. This will be shared equally between district and county councils in areas where there are two tiers of administrative authority. This will of course remove the existing disparity between single and two tier authority areas. At present, London and the metropolitan areas are at a theoretical disadvantage compared to other areas in the country because they have not had the benefit of two tiers of Section 137 expenditure since 1986, although the provisions of Section 48 of the Local Government Act 1985 have largely compensated for this.

The new per capita arrangements with £5 per adult available across the country will ensure that all principal authorities are put on an equal footing. There will be a further sum of £3.50 per adult for parish and community councils. However, as we have explained in another place, we think that an adjustment to take account of the continuing powers under Section 48 is appropriate.

We remain firmly of the view that the figures we have proposed are correct. While I do not wish unnecessarily to go over the same ground again, I think some points are worth re-emphasising. First, it should be noted that when the original 2p rate limit was introduced, it represented a significant increase over previous limits. To date, the total available nationally under the limits has never been approached. I feel that the rates proposed in the Bill continue to represent a similar level of generosity, particularly when one considers that economic development expenditure—which in recent years has accounted for some 67 per cent. of Section 137 spending—is being removed totally from Section 137 limits to a new power that will not be subject to any general financial limits. I can see no need or justification for increasing the limits when less than 5 per cent. of authorities spend anywhere near their limits, even including the present substantial economic development spending.

We recognise of course that Section 137 is an important power and that many local authorities use it very sensibly, often to support the voluntary sector. I think this Committee is at one in seeking to ensure that the invaluable work carried out by voluntary organisations is not jeopardised. I can reassure the Committee therefore that there is absolutely no reason to suspect that local authority support for the voluntary sector will be jeopardised by the Government's proposals.

There are many functional powers which can be used to support voluntary organisations. Section 137 powers should in fact only be needed in very few instances. Our experience has revealed that if authorities considered the full scope of their available functional powers they would probably relieve considerable pressure on their own Section 137 limits.

I think therefore that there is no case at present for increasing the limits proposed in the Bill which, as I have explained, are in excess of the usage made by nearly all local authorities. If the position should change, however, the Bill provides for the Secretary of State to vary the limits by order. The position will of course be kept under review, and I am sure that if problems arise they will quickly be notified to us. I think the Bill as drafted provides an adequate degree of flexibility to suit such changing circumstances. I hope that the Committee will be able to resist the amendment of the noble Lord, Lord McIntosh.

10.45 p.m.

Lord McIntosh of Haringey

It is certainly true that the removal of the economic development expenditure from the Section 137 expenditure makes a substantial difference in the short term to the amounts of money which local authorities are going to require. It is also true, as I made clear in my own introduction of the amendments, that most local authorities do not come anywhere near the ceiling and that the average take-up is only 32 per cent. of the ceiling.

However, I think the Minister is ignoring the fact that in the longer term there will be considerable pressure for local authorities to do more and more of their work in conjunction with voluntary organisations. This is not a pressure which we are in any way resisting. That means that much of the expenditure which would in the past have come under other powers will now probably come under the Section 137 expenditure, or Section 35 as it will be now.

I think that in the longer term there may well be more pressure against the upper limit than has been anticipated either in the calculation of these figures or in the Minister's reply to this amendment. However, I concede that there is power to raise the limit afterwards, and I think it is probably better if we leave the matter there. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 115Y to 115ZZ not moved.]

Lord Dean of Beswick moved Amendment No. 116:

Page 42, line 42, at end insert— ("(10) After subsection (4B) there shall be inserted the following subsection— ("( ) It is hereby declared that the power of a local authority to incur expenditure under subsection (1) above includes power to do so for the purpose of undertaking or promoting twinning or linking arrangements with a local authority outside the United Kingdom, including activities for—

  1. (a) the promotion of educational, social and cultural links;
  2. (b) the promotion of economic or trading links;
  3. (c) the promotion of humanitarian aid and technical assistance; and
  4. (d) the encouragement of understanding and goodwill between the peoples of different localities.").

The noble Lord said: This amendment has been moved to facilitate local authorities in their desire to twin or have a relationship with overseas authorities, mainly in the promotion of educational, social and cultural links, economic or trading links, humanitarian aid and technical assistance and the encouragement of understanding and goodwill between the peoples of different localities. Quite a number of these twinning arrangements, partnerships, or whatever one wishes to call them, exist at present and have existed for some time to the mutal benefit of the peoples of both the areas involved.

Local authorities have invariably established twinning links at the social and cultural level. This provides an excellent platform on which to build prospects for economic twinning. Local authorities will of course have a certain knowledge of the key personalities and the organisations involved and will have a knowledge of how things get done in their twinned locality. Training arrangements have proved to be a good means of establishing transitional working relationships between companies. Local education authorities fulfil a strategic training function and are well placed to co-ordinate such activity. Executives with experience and an awareness of European business practice will play a vital role in the 1990s.

It is now accepted that mergers and takeovers will not be as dominant a consequence of 1992 as was originally thought. Alliances between companies will be commonplace. Local authorities, through their civic twinning, language resource and training responsibilities, are well placed to provide the most favourable climate for such alliances to occur.

There is a fear that in the early years of the operation of the single European market there may be a significant increase in unemployment. There is also a fear that small companies will be particularly affected. Local authorities are well placed to provide a framework of support for local economies dominated by small firms as they struggle to come to terms with the new order.

The amendment is tabled to suggest a proper power to twin towns under Section 137 expenditure. The notes on clauses, explaining the new direct benefit testing introduced by this Bill, referred to town twinning as an activity that would cease. The Government should explain the provision further and think again in the light of the good work undertaken to the benefit of local government here and links abroad, particularly in the developing countries.

The benefits gained are educational, social and cultural links and programmes of activities, which are usually of mutual benefit, though some activities may benefit one partner and some the other. Most links are within Europe but an increasing number are worldwide. Economic and trading links are usually beneficial to both parties but individual initiatives may bring benefits to one or other of the parties. Local authorities spend money on exhibitions, seminars, missions abroad, reception of visitors, pump-priming of new arrangements. Examples are links between Cardiff and Xiamen, and Cheltenham and Weihai. Salford has an arrangement with Khartoum to provide technical assistance to trade and material help, Birmingham with the Gambia on a similar basis, East Sussex with Addis Ababa and Strathclyde with Kampala.

I recall that before I became leader of the council in Manchester the city was twinned, after the war, with Leningrad. That arrangement is still in being and has been of great benefit. Mutual visits were made—business, educational and cultural. Twenty-five years ago 16 year-old schoolchildren from Leningrad visited Manchester. Such visits were unheard of in those days. It was unfortunate that the youngsters were harangued by a group of people who were anti-Soviet which cancelled out the goodwill of the visit. However, as a result of the twinning, Manchester arranged for dancers of the Kirov Ballet to perform. The botanical gardens of Manchester and Kirov exchanged plants. There were also business contacts.

I do not want to go into the subject in greater detail tonight. We have had a long day. I believe however that the amendment is worthy of serious consideration. I should like to think that the Minister might be sympathetic towards it. I beg to move.

Lord Hesketh

As noble Lords will be aware, Section 137 is a discretionary spending power. In using it, local authorities must be content that expenditure is in the interests of their area or any part of it, or all or some of its inhabitants. Furthermore, the power encompasses expenditure on contributions to the funds of charities and other non-profit making public service bodies for their work in the United Kingdom, for public appeals by civic heads in connection with a particular event affecting UK residents, and, as it presently stands, for the purpose of promoting economic development.

The use of Section 137 was looked at by the Widdicombe Committee of Inquiry into local government, which found that misunderstandings about the precise scope of Section 137 were not uncommon. The Government considered that some changes in the formulation of the section would go a long way to resolve those misunderstandings. In particular, we were anxious in drafting the clause to make it quite clear that one of the tests that must be satisfied before a local authority could embark on expenditure under Section 137 was that the benefits arising therefrom should clearly be in the interests of the area or its inhabitants, or part of it or some of them. Additionally, it needed to be made clear that the power could be used only where authorities were certain that no other relevant powers existed. We think that Clause 35 achieves that clarification.

So, in considering any amendments to Section 137, we would need to look carefully at any suggestions to bring other types of activity within its scope. Would they be strictly only in the interests of the area or its inhabitants and would no other powers be available to the local authority to carry out those things? I think in the case of the activities listed in this amendment the answer is most definitely no. The amendment is clearly designed to widen not only the type of activities carried out under Section 137 but also the geographical coverage of the power so that money could be spent not only for the benefit of those outside the area of the authority in the UK but also for those overseas. That was certainly not the original intention of Section 137 and was not the intention of the Widdicombe Committee, which reaffirmed the principle that, local authorities should continue to have a financially limited discretionary power to spend in the interests of their area". The purpose of Section 137 aside, such an amendment is still not necessary. The Government fully recognise that town twinning and its associated activities are valuable tools in widening horizons and promoting international friendship, primarily at a local level for the benefit of local people. In recognition of that, every local authority already has adequate powers to spend any money that is necessary to launch, encourage or support twinning arrangements.

As regards the encouragement of understanding and good will between people of different nationalities and localities, local authorities may, under Section 176 of the Local Government Act 1972, meet the costs of making and receiving official visits to and from overseas and incurring necessary incidental expenditure. Again, local authorities have powers under Section 144 of the 1972 Act to use advertisements to encourage people to assist their area for recreation or conferences and they can provide or contribute to facilities for conferences or exhibitions.

Moreover, the new economic development power in Clause 32 of the Bill can also be used to some extent in the international context where the power is being used for providing economic development. As noble Lords will be aware, local authorities support the work of the regional development bureaux that are scattered around the country and which promote the interests of their areas abroad. The work of the boards has often proved useful in attracting foreign investment to a particular locality and there is nothing in the new power to prevent that type of support continuing.

The list of powers available is extensive, but I think those that I have quoted to the Committee give a flavour of the flexibility that already exists for local authorities. That is why the Government resist the amendment.

Lord Dean of Beswick

I am grateful to the Minister for that detailed reply. His answer appears to go a long way towards allaying some local authorities' fears about the Bill. There is one small point that I should like to raise with him, although, given the lateness of the hour, he may not wish to answer it tonight. He referred to the boundaries or periphery to which certain parts of the permission to spend may be restricted. Perhaps he will take this point on board and give us the Government's view at a later stage.

The Widdicombe Report has been mentioned. Did that committee cast its mind forward towards 1992, which is a much wider area than was originally envisaged in local government? I do not expect an answer now. That is just one point. Having heard what the Minister said, I should like to look at it, as no doubt will the people involved. In view of the further point that I have made, beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 35 agreed to.

11 p.m.

Lord McIntosh of Haringey moved Amendment No. 116A: After Clause 35, insert the following new clause:

("Review of section 48 spending.

.—(1) The Secretary of State shall, within two years of the coming into force of this section, consult the local authority associations, organisations representative of voluntary organisations and such other bodies as he considers to be concerned, with respect to the impact of the provisions of section 35 above on any funding scheme established under section 48 of the Local Government Act 1985.

(2) The results of any investigation under this section, together with any recommendations which the Secretary of State may consider appropriate in relation to any Order under section 137 (4AA) of the Local Government Act 1972 as amended shall be laid before Parliament.").

The noble Lord said: I think I can be fairly brief in speaking to this amendment because the Minister referred to it when responding to my Amendment No. 115W. I realise that there must be further thinking by the Government on this matter. They accepted an amendment from Sir George Young at Report stage which seemed to imply that Section 48 spending by metropolitan boroughs would have a secure future. The purpose of this amendment is to build on the agreement reached in another place, in the hope that the Government will be able to undertake a review after a short period, as the amendment proposes, in order to ensure that local authorities have an opportunity to fund voluntary organisations in London and in the most deprived parts of London where working with voluntary organisations is of the utmost importance.

I sensed from the Minister's remarks earlier that he would not be unsympathetic to such a proposal. I beg to move.

Lord Hesketh

The purpose of this amendment is to place a requirement on the Secretary of State to consult, within a period of two years of the coming into force of the section, the local authority associations, voluntary organisations and others considered appropriate, about the impact of the provisions in Clause 35 as regards the funding of schemes under Section 48 of the Local Government Act 1985.

The amendment further proposes that the results of any such investigation and any recommendations considered appropriate in relation to any other orders under Section 137 (4AA) of the Local Government Act 1972 should be laid before Parliament.

I can sympathise with the noble Lord's desire to ensure that the impact of the Government's proposals is kept under review. There is no need, however, to do so in the form of this amendment.

I think there is little doubt that we are at one in seeking to ensure that the Government's proposals do not have an adverse effect on voluntary organisations who receive funding under Section 48. We recognise the importance of this power and are fully committed to ensure that voluntary organisations are not unfairly hindered in their activities.

We shall be discussing with the relevant authorities the reductions that we shall be making to Section 137 limits to reflect Section 48 spending which would otherwise be authorised under Section 137. Once we have agreed the appropriate sum we will of course be keeping the position under close scrutiny. I am sure that if any difficulties are encountered, local authorities and individual voluntary organisations will be very quick to make representations to the Secretary of State. The Secretary of State has the power to vary the limits by order for any particular description of authority. This power is there to be used and will be used if it is necessary. These powers provide an important level of discretion and flexibility for local authorities. We do not wish to see that jeopardised, and the Government will be prepared to respond to changing circumstances if the need arises.

I do not think, however, that it is necessary or desirable to place a requirement on the Secretary of State to conduct a review within two years of the introduction of the provisions. The two-year period is arbitrary. We believe that it is far better for the position to be reviewed if and when the need arises.

If the purpose of these amendments is to ensure that changes can be made to the provisions and if the introduction of the Bill has an adverse effect on the voluntary sector, then they are not necessary. As I explained when speaking to the earlier amendment, any changes necessary can and will be made under the provisions of the Bill as it is presently drafted. On that basis we resist the noble Lord's amendment.

Lord McIntosh of Haringey

That sounds quite hopeful. The Minister said that the Government are negotiating now with the local authorities. Can he tell us whether the negotiations are likely to be concluded before we come back to this matter at Report stage?

Lord Hesketh

The answer to that question is yes.

Lord McIntosh of Haringey

I am delighted to hear that reply. If there is anything further that we need to say when the negotiations are concluded, we shall do so. In the meantime I think we accept that scrutiny is as good as review, although I am not quite sure that I completely understand the difference. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 agreed to.

Baroness Strange moved Amendment No. 116B: Before Clause 36, insert the following new clause:

("Discretionary spending on advice services.

.—(1) Section 142 of the Local Government Act 1972 (provision of information etc. relating to matters affecting local government) shall be amended in accordance with this section.

(2) In subsection (1), after the word "otherwise" in the third line, there shall be inserted "(a)", and after "authority" in the seventh line, there shall be inserted "; and (b) information, advice or other assistance about their rights and responsibilities.".")

The noble Baroness said: The purpose of the amendment is to make specific provisions for funding of advice services such as the citizens' advice bureaux by local authorities, should they so wish. At the moment local authorities have no specific powers to fund such services and have to rely on more general powers, such as Section 137 of the Local Government Act 1972. They also have to depend on Section 142 of the 1972 Act, which is a general power to fund information but limited in its application.

Money advice about increasing debt problems often involves the advice worker in time-consuming negotiations with creditors.The Disabled Persons (Services, Consultation and Representation) Act 1986 recognises the need for disabled people to be accompanied at meetings and permits the use of representatives to ensure that they have access to the full range of services.

The amendment seeks to amend Section 142 so that it is appropriate to the needs of the present day. Other local authority powers allow them to fund advice in specific areas. For example, Section 69(5) of the Weights and Measures Act 1985 allows counties—but not districts—to fund consumer advice. Other provisions cover housing advice and advice to prevent children from being taken into care, but this does not cover all the subject areas that a citizens' advice bureau will cover.

The amendment is likely to be welcomed by local authorities in view of other provisions contained in Part III of the Bill, in particular as they will need to be more rigorous in future about identifying the powers that they are using when they fund voluntary organisations. Advice services have always created something of a dilemma for local authorities seeking to fund them simply because there has been no specific power available. Local authorities have had to divide their funding advice services between different powers. The amendment aims merely to clarify the position and to spell out that Section 142 is available to local authorities wishing to fund local advice agencies.

For many people caught up in some difficulty, and unable to decide or indeed to know what they ought to do, local advice services are like the Pickwick, the Owl and the Waverley pen—they come as a boon and a blessing to men.

The amendment is simply an enabling amendment. It does not commit local authorities to any increased expenditure. It merely gives them the powers so to do should they so wish. I beg to move.

Lord Dean of Beswick

I wish briefly to support the amendment of the noble Baroness. She has covered all the points required. It is a very worthy amendment because of the breadth of help that such advice centres give to different sections of the community. We should like to think that the Minister is sympathetic to the amendment so ably moved by the noble Baroness.

Baroness Seear

We on these Benches would like to support the amendment.

Baroness Blatch

I am in some difficulty with the amendment. I agree with the principle that the local authorities should have the freedom to make judgments about their local advice-giving services, and to fund them. I have seen no difficulty in the past. I should like to plead for the right for a local authority to make judgments about the quality of that advice-giving service, and to make up its own mind about whether or not it wishes to fund and to what level.

I can see nothing in the Bill as drafted that prevents a local authority from making that judgment about advice-giving centres, and to make grants as appropriate. Therefore I am not absolutely certain what is being provided by this amendment. From a superficial reading of it, it seems that one is asking for powers specifically to grant aid to advice-giving centres. But there are many organisations which come to local authorities for grants. It seems to me that it should be left to the local authority to make a determination about whether it wishes to grant aid based on its judgment about the quality of that service. Therefore, I am in some difficulty because I cannot see in the Bill as drafted what precludes a local authority from fund-aiding its CAB, its law centre or whatever. Therefore I need to be convinced by the Minister that the amendment is necessary.

Lord Hesketh

The amendment seeks to insert a new clause into the Bill. Section 142 of the Local Government Act 1972 would be amended so that, in addition to the provision of information on request from members of the public, local authorities would be able to make arrangements for providing information, advice or other assistance about their rights and responsibilities.

Let me straight away assure the noble Baroness that I have great sympathy for the views that she has expressed. The provision in the 1972 Act that she seeks to amend dates back to the Local Government Act 1948 when it was thought to be an adequate power to fund such things as the citizens' advice bureaux. Our views have developed since then, and we believe that this is a convenient point at which to review them. I shall be glad to take away this amendment to see if we can develop a suitable response to the problems raised by the supporters of the amendment.

I hope with that assurance that my noble friend will feel able to withdraw the amendment.

Baroness Strange

I thank my noble friend very much indeed for his kind and thoughtful words with which I am delighted. I shall look forward very much to seeing what he brings forward at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 36 agreed to.

The Earl of Balfour

In Clause 47 I should like to make quite certain that the "n" in the formula is intended to be a power and not a multiple. Let me give a simple example. Let us suppose that the value of "r" was 10. Then the figure within the brackets would be 1.1. If "n" is a power, and let us say it is 3, then the answer to what is below the line is 1.331. If it is a multiple it is 3.3, which is quite a difference.

I go one stage further and again assume a simple figure. Let us suppose that "x" is 100 and "n" is a power from the figures I have just given. The answer then is 75.1. But if it is a multiple then it is 30.3. I should like to make quite certain that "n" is intended to be a power and not a multiple. It is a purely mathematical point.

Lord Hesketh

It is certainly true that my noble friend Lord Balfour has one over on me here! The noble Earl may not be aware that there is a slight confusion which is that Part IV of the Bill is being dealt with on Wednesday, which appears somewhat illogical. The reason for doing this is for the benefit of the Opposition as well. Because of that, I can understand why the noble Earl feels quite logically that we should be dealing with Part IV, but we have rushed off to Clause 64, which is Part V, because it was felt for the ease of the progress of the Bill in terms of certain other matters of logic to return on Wednesday to Part IV. I hope, in the light of that explanation, that the noble Earl will understand why I am unable to answer his question now.

The Earl of Balfour

I am sorry to confuse the Committee.

11.15 p.m.

Lord Dean of Beswick moved Amendment No. 116C: Before Clause 64, insert the following new clause:

("Commencement of Part V.

.—(1) The Secretary of State shall, within three months of the date of Royal Assent, by order made by statutory instrument specify the days on which this Part is to be brought into force, in accordance with the requirements of this section.

(2) No day shall be appointed for the coming into force of sections 65 or 66 below before a day six months after the date of the order.

(3) No day shall be appointed for the coming into force of sections 67 or 68 below a day one year after the date of the order.

(4) The provisions of section 164(2) below shall have effect subject to the provisions of this section.").

The noble Lord said: The purpose of the amendment is to provide adequate transitional arrangements. It is accepted that whatever amendments are negotiated, either within the Bill or through undertakings relating to regulations to be issued under the Bill, the Government's intention is to ensure that some companies currently owned by local authorities, or in which local authorities are substantially or marginally involved, will fall within specific categories. Parts III, IV and V of the Bill are inextricably interlinked. It is the Government's intention that many companies will be caught by the new financial control regime. The purpose of the amendment is to ensure that time and effort are not wasted by categorising companies which are in the process of being restructured in the light of the legislation.

The amendment anticipates that it will be the intention of the Government to introduce a statutory instrument specifying the dates on which various parts of the legislation will be brought into force. It is suggested that controlled companies should not be brought within the scope of the legislation for at least six months after the relevant date and that influenced companies should have a minimum period of grace of one year.

Taking these in reverse order, it will be appreciated that many of the influenced companies will probably be caught only by means of a technical accident. Local authorities will be anxious to disentangle both these and other influenced companies to ensure that there is absolutely no question of the companies being affected by the provision in Part IV of the Bill before the company has been restructured, reduced in size or subjected to such other action as may be appropriate to ensure that it is outside the limits of borrowing controls.

The situation in relation to controlled companies may be somewhat different by virtue of the numbers involved and the scope for adjustment. But, again, there is no doubt that local authorities will wish to consider the need or desirability of restructuring these companies. The minimum six-month period is proposed from the date of the order introducing the statutory instrument to enable the appropriate action to be taken. It may be that, in both categories where government are satisfied that changes are being made to the constitution of a company which will affect the impact of any part of the Bill, the Secretary of State should be enabled to extend the period of grace proposed in the amendment. Those are the points which I wish to make in relation to the amendment. I hope that the Minister will be sympathetic.

Baroness Lockwood

I should like to support my noble friend's amendment and at the same time attempt to elicit more information from the Minister. The restrictions which the Bill would impose on some controlled companies are causing a number of them to look at their structure and decide whether they need to remain a controlled company and whether they should become an influenced company. They will need plenty of time to change their constitution and structure if they are to become an influenced company.

Can the Minister give more information about the difference between a controlled company and an influenced company? The exact difference is not made clear in the Bill. I particularly have in mind the Yorkshire mining museum which at present is a controlled company but has already been advised by the Minister in another place that it might be advisable to consider restructuring. But would restructuring mean for such a company that the restrictions and controls imposed upon it would relate only to the borrowing controls? Would all other financial controls be removed from such an influenced company?

Would an influenced company still be eligible for a share of local authority provisions through the European Community? Would such a company be able to continue to take advantage of the services of a local authority such as specialised legal, financial, administrative and personnel services? More information on these matters would facilitate the decisions of present local authority controlled companies on what their future position should be.

Lord Hesketh

As this is the first amendment to Part V it might be of assistance if I begin by explaining the thinking that underlies the proposals of this part. I hope that the Committee will understand if this takes a moment or two.

Local authorities can use companies in various ways. A local authority may own a company and control it in the same way as a holding company owns and controls its subsidiaries. A local authority may have a half share in a company as a joint venture with the private sector. A local authority may have a minority interest in a company. Finally, a local authority may have a more complex relationship with a company which gives it substantial influence over it without actually controlling it.

At present there are no rules on the way in which a local authority should behave in relation to companies in which it has an interest, other than the basic fiduciary duty to which any local authority is subject. I should explain that company law does not provide these rules because company law is concerned to make companies responsible to shareholders and to protect those who deal with companies. It is not concerned with questions of responsibility of shareholders to others over what they do with their rights in a company.

That is the area we need to address. A local authority that is a shareholder or has other rights over a company has more or less unrestricted discretion as regards how it uses those rights. For example, I cite the appointment of the auditor of a company controlled by a local authority. Like any other company, the auditor of a company controlled by a local authority is appointed by the shareholders; that is, by the local authority. Since it is the local authority that is controlling the company, it is in a sense appointing its own auditor.

Contrast that with the position of the local authority's own auditor who is appointed by the independent Audit Commission. We think that on this point the public are entitled to expect guarantees that the auditor of the company controlled by the local authority is genuinely independent. That is one example of the kind of question on which we felt it necessary to set out a framework within which the rights of local authorities over companies are to be exercised.

The proposals in Part V, therefore, make no change to company law. They provide rules on how local authorities shall use their rights and influence over companies that are so closely connected with them that it is right to treat the companies as part of the local authority sector.

The first step is therefore to define what companies are so closely connected with local authorities that they should be treated as part of the local authority sector. This task falls into two parts. First, there are those companies where the local authority has formal rights which enable it to control the company. Here the task is to define what those formal rights are. That is done by Clause 65.

Secondly, there are those companies over which a local authority does not have formal rights of control but has the means to exercise a dominant influence. Here the task is to define what should be regarded as giving such influence. That is done by Clause 66.

Having defined what companies are to be regarded as part of the local authority sector, it is necessary to provide powers to establish the rules to apply to local authorities in exercising their powers over these companies. That is done by Clause 67.

Clause 67 also deals with the way in which companies in the local authority sector fit into the new system of capital finance for local authorities. There will be in addition companies over which local authorities do not have control or a dominant influence. Two aspects of such participation call, in the Government's view, for regulation. The first is the question of companies in which local authorities may participate. The second is how to deal with some questions such as the making available of information about that participation. Both these questions are addressed by Clause 68.

I hope that this explanation of the basic scheme of Part V will help the Committee to see how the various clauses fit into our overall scheme of proposals. The new clause which is the subject of Amendment No. 116C is concerned with the programme for bringing Part V into effect. The new clause would require the programme to be specified in an order within three months of Royal Assent and make it impossible to bring the rules on controlled and influenced companies into effect for six months after that order, or the other controls for a year after that order. Since Royal Assent will not be before 1st October, and since there would be problems in bringing some aspects into effect part way through a financial year, the new clause would effectively postpone Clauses 65 and 66 to 1991 and the rest to 1992.

In so far as this amendment is probing the question of our proposed timetable for implementing Part V, it may help if I explain what we intend. We hope to send to the local authority associations in the course of next month a draft explaining our intentions as precisely as possible. Like the document which we have already sent about Clauses 15 to 17, we envisage this as a draft of a circular explaining the whole proposed scheme including the way in which the order will complete it.

We shall then hold consultations with the local authority associations on the basis of that document to resolve any points that they wish to raise. We hope that these consultations will at least have started before the next stage of this Bill in your Lordships' House. Thereafter we will proceed to draft the order and shall again consult on the text of the draft order. Assuming Royal Assent later this Session, our aim would be that the order should be made by about the end of the year and would come into force on 1st April 1990.

In so far as the new clause is trying to postpone the introduction of the proposals, we do not think that that is acceptable. We see these proposals as, in part, complementary to the proposals in Part IV, and we think that they should desirably come into effect together. I hope that the indications on our proposed timetable that I have given will be helpful.

The differences between a controlled company and an influenced company were set out in our initial consultation document last year. They will be spelt out in our forthcoming consultation document which should be produced within the next month. On the basis of what I have previously said, these are the reasons why we wish to resist holding up the timetable as proposed in Amendment No. 116C.

Lord Dean of Beswick

The Minister has given a long and detailed reply. I intend to withdraw the amendment is tabled at a later stage, which is what I believe he was saying, will he give an undertaking —

Lord Hesketh

I was referring to the consultation document.

Lord Dean of Beswick

I believe that there is some misunderstanding on my part as to what the Minister said. When he refers to a controlled company and an influenced company, am I over-simplifying it by thinking that the controlled company is one where the local authority has the controlling shares and an influenced company is where it is the minority shareholder?

Lord Hesketh

A controlled company can be where the local authority has the majority of the shares. It may also be where it has a majority of the business.

Baroness Lockwood

Before my noble friend decides what to do about the amendment, can the Minister assure me that the specific questions that I posed will be included in the consultation document? Can the Minister say whether the process of consultation will be completed before we come to the Report stage of the Bill?

Lord Hesketh

The order that will be the eventual outcome of the consultations will not be ready until December.

Baroness Lockwood

But the noble Lord said that a consultation document would be issued within the next month. Will the consultation document cover the specific points I put to him in my earlier remarks?

Lord Hesketh

Indeed, it will.

Lord Dean of Beswick

My noble friend and colleague Lady Lockwood expressed far better than I could our worry about the consultation document. We shall look at what the noble Lord said. If action needs to be taken we shall take it. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

11.30 p.m.

Lord McIntosh of Haringey moved Amendment No. 116D: Before Clause 64, insert the following new clause:

("Promotion of economic development by companies.

.—(1) The following provisions of this Part shall have effect subject to the provisions of this section.

(2) A company shall be an exempt company for the purpose of sections 65 or 66 below in relation to the area of a particular local authority where—

  1. (a) the authority has exercised its powers under sections 32(2) or 32(3) above (or under any other enactment for the purposes of economic development) in relation to that company; or
  2. (b) the principal aims of the company include the protection or promotion of employment or training in the area concerned; or
  3. (c) the company is a company established for the purpose fulfilling one or more of the functions of the authority; or
  4. (d) the company is a company which is in receipt on behalf of the authority of funding from the European Regional Development Fund, or any other source, for the purposes of the protection of employment or training in the area.

(3) The Secretary of State shall, in exercising his powers under sections 65(1), 66(1) or 67(1) below, have regard to the likely effect of such exercise on the protection or development of employment or training in the area.").

The noble Lord said: With Amendment No. 116D, I should like to speak also to Amendments Nos. 116E, 116F, 119A and 119B. These amendments are tabled in the hope of eliciting further information about the provisions of Part V of the Bill. We are grateful for the extensive exposition of the structure of Part V which the Minister gave in response to the previous amendment. However, it is still not clear that there are not conflicts between Part III and Part V of the Bill. Indeed, that is one of the reasons why we asked the Government to take the two parts in succession.

I shall give one example. When we were considering Part III earlier this evening the noble Lord said that none of the restrictions applies to training. The Minister in another place said that there was nothing in the Bill to restrict spending money on training. That may well be so, but it is not clear from the Bill that that is the case. It sounds as though the promotion of training through the formation of both controlled and influenced companies, which is after all a common and effective way of encouraging training, is brought under the scope of Part V and will be subject to all the restrictions which we have been told are involved in Part V.

The impetus behind Part V still seems to be that the use of controlled and influenced companies is somehow wicked and is an attempt by local authorities to get round other expenditure controls, in particular capital expenditure controls. Where we see in Part V the restrictions on controlled and influenced companies and the restrictions on the links that they may have with the council, we cannot help but think that these restrictions apply to companies where training is the principal or just one of the objects of the association with a company.

I turn now to Amendments Nos. 116E and 119A. One of our difficulties with the Bill is that so much of it is left to regulation that we really cannot tell on what basis there will be criteria to exempt individual companies or categories of company. We could deal with this problem by listing a whole series of types of company or individual companies and then ask whether they are exempt. I do not think that that is a sensible way to tackle the provisions of the Bill.

We would prefer it if the Government could give us some basis on which we can understand what kinds of companies will be exempted. Does the noble Lord have any exemptions in mind, and do they relate to individual companies or to categories of company? Have any of the exceptions been discussed with outside interests? We have heard about the consultation paper which the noble Lord will issue within the next month. Will it cover this point? Will the consultation on categories of companies to be exempted be discussed with the local authority associations before directions are made? What will be the form of parliamentary scrutiny? Will they be reported for affirmative or negative resolution?

There are exemption powers under Clauses 57 and 58, as well as those contained in Part V. But why do they appear in two different parts of the Bill? Is there any significance in the fact that they are in different places? Moreover, are the Government clear in their own mind that they are working in the same direction in the two parts of the Bill?

There are a number of other questions which one could ask. For example, will the Minister agree to an automatic exemption when both the local authority and the company certify that the control which has been identified is either accidental or unimportant to either side? Further, will the directions given for exemption be on the basis of common criteria, will they be in categories of companies or will there be some kind of consultation on the classification of types to be exempted?

All of those points may be covered in the consultation paper to which the noble Lord referred. I do not know whether they will be. But, if they have not been covered, or if they are not to be covered in the consultation paper, we would very much like to hear his assurance that they will be.

I appreciate that I have asked a considerable number of questions at, possibly, a high speed. I did so because it is late at night. Of course I appreciate that the Minister may not be able to respond to every single point. Nevertheless, I hope that he will be able to give us some help so that we may be able to understand the thinking behind the exemption policy and therefore have a better judgment than we have at present as to whether this policy is reasonable and acceptable. I commend the amendments to the Committee.

Lord Hesketh

These amendments would introduce a new category of "exempt company" which could never become subject to the controls over controlled or influenced companies proposed in Part V. Such companies would be those where the local authority had given assistance to it as part of its economic development programme; the company's main aim was promoting employment and training in the area; the company was established for the purpose of discharging a function of the authority; or the company was in receipt of grants from any source to promote employment of training in the area.

The amendments would also require the Secretary of State in using his powers under Part V to have regard to the employment or training in the area. Finally, the amendments would remove the Secretary of State's power to exempt categories of companies or specific companies.

This is an interesting set of proposals. In order to explain why the Government must advise the Committee not to accept them, I propose to take each element separately. I shall deal first with the proposal that a company could never be subject to the rules on controlled or influenced companies if it came into the categories listed in the new clause. There are two distinct points here: the first is what the new clause actually does; the second is what it might have been intended to do.

What the new clause actually says is that a company which has, for example, been assisted under the economic development power can never be subject to the rules on controlled or influenced companies. In other words, no matter how great the degree of control or influence exercised by the local authority, the rules shall never apply. A company which was 100 per cent. owned by the local authority could never be subject to the controls, provided a grant of £1 had been made to it under the economic development power.

We do not think that such a position can be sustained. The proposals of Part V are intended to make sure that the rules for local authorities apply to companies which are properly regarded as part of the local authority sector. We do not think that it is reasonable to say that the rules shall not apply to a company which is clearly under the control or influence of a local authority just because it has received assistance under a specific power.

Therefore, the amendment means that local authorities would be free to set up a company as a wholly-owned subsidiary to compete in any industry or trade, and that company would be outside all the controls which apply to local authorities, including those on capital finance. We believe that the new clause is therefore a charter for municipal socialism on a grand scale. We find that that is unacceptable.

It may be that the clause had a limited or more limited aim, and I should therefore address it on that basis, rather than simply confining myself to what it actually would do. First, it may be that the clause is intended to ensure that local authorities can participate in companies to which they have given assistance for purposes of economic development.

There is here a fairly basic difference between the Government and the Opposition. Like them, we can see no reason why local authorities should not give assistance to private sector companies in the form of equity finance; but, unlike them, we do not think that when they do so they should also take part in running the company. We do not think that local authorities are well placed to do so. So we think that there should be restrictions on their taking voting shares and on appointing directors of normal private sector companies. The objections do not, however, extend to non-voting equity or appointing someone to attend and observe what the directors are doing, without the right to vote. The provisions that will be made under the Bill will therefore enable this to happen.

Secondly, it may be that the clause is intended to ensure that local authorities can play a proper part in local enterprise agencies. Again, we are clear that local authorities should be able to do so. However, where the local authority controls, or has the power to dominate, a local enterprise agency, we think that some at least of the controls appropriate to the local authority sector should apply.

Thirdly, it may be that the clause is intended to ensure that a local authority can use a company to facilitate the discharge of its functions. There can be no objection to that, and we are clear that the provisions to be made under this part will do so. What the clause would also do, however, and what is unacceptable, is to say that where a company is used for that purpose the controls of the local authority sector should never apply, even if the local authority has 100 per cent. control. That cannot be right.

There is also one effect of the clause 'which I doubt the noble Lord intends. Because it would take those exempt companies out of Clause 65, it would have the effect of bringing them into the controls under Clause 68. I am not sure whether he intended that.

Finally, the new clause has a separate provision requiring the Secretary of State to have regard to the effects on employment and training. We have had those questions very much in mind throughout our development of these proposals. The Department of Employment has been consulted at all stages. We believe that our proposals are entirely consistent with the Government's other policies in these fields, and thus the provision is unnecessary.

I turn now to Amendments Nos. 116E and 119A, which would remove the power of the Secretary of State to exempt companies. On the question of whether it is reasonable to give the Secretary of State a discretionary power, I must point out that any such power must, according to the general principles of administrative law, be used rationally and in accordance with the general purpose of the legislation. This is no arbitrary power for the Secretary of State to do as he likes. He must have good reason for granting an exemption, and he must have good reason for refusing an exemption if a local authority or a company asks him to grant one; and that reason must be one that is relevant to the general purposes of the legislation to establish a framework of regulation for local authority interests in companies.

On the question of whether the mere fact that we are seeking a power to adjust the definitions at the margin shows that our definition is inadequate, I must say that to oppose such a power shows a misunderstanding of how wide a variety of cases involve local authority participation in companies. There is bound to be a number of cases where, despite the greatest possible subtlety in the definition, the circumstances which point to the fact that a company ought to be regarded as controlled or influenced by a local authority are outweighed by other circumstances, special to that one case, which point decisively to the other conclusion.

Let me give some instances. We have already made it clear that we would intend to use these powers to exempt the various local groundwork trusts from being regarded as within those definitions. The reason for this is that the trusts have been set up in a variety of ways. Some are probably within the definition of a controlled company, some are probably within the definition of an influenced company, and some are probably within neither category. All, however, are substantially dependent on department grants, and while they are there is little likelihood of their being used to circumvent the rules appropriate to the public sector. We think that it therefore makes sense to put them all on the same footing—outside these definitions. The power to exempt will ensure that we are able to do so.

Again, there is the National Housing and Town Planning Council. That is a body where membership is open to both local authorities and private persons. By chance, at present the number of local authorities is greater than the number of private persons who are members. In theory, the local authorities could combine to control the company. In practice, in the circumstances of that company, we accept that this is so unlikely that we can disregard the possibility. On the other hand, it is not impossible that a similar number of local authorities, which shared a common purpose, could get together to set up a company to avoid some of the controls to which, as local authorities, they are subject—say, those that we shall later discuss on capital finance.

A third example is the Sheffield Combined Heat and Power Company. This is a praiseworthy attempt to promote energy efficiency. Because of the geography of Sheffield and the location of the site owned by the city council, it seems that it will be inevitable that, to begin with, the majority of the company's business will be with the city council. We think it likely, however, that this will be a transitional situation, and we are likely to agree to the company being exempted during that transitional period. We must, however, be able to distinguish between that sort of case and the sort of case to which I have already alluded where a company is set up as a device to provide, outside the rules that would otherwise apply, some capital asset for the local authority, and for the local authority alone.

We therefore think that we need a power to distinguish between those where all the circumstances of the case point to the fact that a theoretical power of control or influence will never be used, and those where it might. We want to be able to exempt bodies such as I have described, but we do not think that it will always be possible to lay down in general legislation every detail that will be relevant to the judgment whether a company is properly treated as part of the local authority sector or not. For these reasons, therefore, we think that we need the flexibility given by the exemption powers that these amendments would delete.

I apologise to the Committee for taking a considerable period of time, but I wanted to cover the amendments in some detail. I urge the noble Lord, Lord McIntosh, to withdraw his amendment.

Lord McIntosh of Haringey

I am grateful to the noble Lord for that detailed explanation, which was necessary even at this late hour of the night. I was particularly flattered that he should describe my amendments as "municipal socialism on a grand scale". I shall not let him have my copy of that great book by Bernard Shaw, The Common Sense of Municipal Trading. However, if I can find another copy in the bookshops I shall certainly be glad to inscribe one to the noble Lord personally so that he can understand the benefits of municipal socialism on a grand scale.

The Minister has been good enough in discussing this group of amendments to give some practical examples of exemptions that there might be. We are grateful for those because they help us to understand the way in which the Secretary of State's mind is working. Perhaps I may draw the Minister's attention to one outstanding example of collaboration between a city council and the private sector and see whether I can take him along with me a little way on that issue.

There is the example of the National Exhibition Centre in Birmingham. I do not know whether the Minister has been briefed on that, but he will know that the National Exhibition Centre in Birmingham is an extremely successful enterprise in which Birmingham City Council has played a major role since the start in 1973. There are now 125,000 square metres of exhibition space, either funded directly by Birmingham City Council or funded by loan stock underwritten by the city council.

The situation is that it is absolutely essential that the National Exhibition Centre should be extended and there should be at least another 20,000 square metres of exhibition space. In the longer term, to maintain the comparison with the other major European exhibition centres, say in Hanover, Frankfurt, Milan or Paris, the space probably ought to be of the order of 200,000 square metres. But it will take a long time and will involve investment of such a long gestation period that the private sector finance will probably not find it attractive unless there is either a contribution from Birmingham City Council, as there has been in the past, or loan stock underwritten by Birmingham City Council.

There may well be start-up losses which will undoubtedly, if the initial investment is anything to go by, be recouped. But the problem at the moment is that any investment by Birmingham City Council in the National Exhibition Centre could be counted against its capital allowances. Therefore it could cause the city council to lose the ability to do other things which it considers necessary in the form of capital investment.

I know that Birmingham City Council is in negotiation with the department about this matter and I appreciate that the Minister may not be able to give me an immediate reply. I should like to propose to him something quite modest. I understand that he is now the only Minister in the House in the Department of the Environment. Would he be prepared to meet me and Sir Dick Knowles, the leader of Birmingham City Council, before the Bill comes to a later stage, so that we can discuss the future of the National Exhibition Centre?

Baroness Blatch

Does not the noble Lord agree that if the Birmingham exhibition centre is to work in either the short, the medium or the long term, there is no reason why it should not attract private finance? If it is not going to work in either the short the medium or the long-term, should the Birmingham City ratepayers or community charge payers be left to pick up the bill?

Lord McIntosh of Haringey

The answer is that, historically, it has worked by dint of public investment in the first place when private investment was not available. The public investment has proved to be justified. The first 125,000 square metres of the Birmingham international exhibition centre is profitable. It is a successful example of municipal trading. What we are now looking for is an assurance that it can carry on to the next stage to enable it to continue to compete successfully in the international exhibition centre market. So the answer to the noble Baroness is that there is every reason to suppose, first, that it needs public investment and, secondly, that public investment works. That has proved to be the case from historical fact.

Lord Hesketh

I am pleased to say that I think I can go a little further than the noble Lord, Lord McIntosh, who very kindly suggested that we should have a meeting. The Secretary of State has agreed to meet Birmingham City Council to discuss this matter. I suspect that the noble Lord, Lord McIntosh, kind as he is to me, will consider that an even better proposition than a meeting with just me. That was the case as of this morning. I have no doubt it will be the case as of tomorrow morning, although the date may have to slip by a week or so.

Lord McIntosh of Haringey

I am not entirely surprised to hear that, but the Minister will know that Mr Ridley, the former Secretary of State, agreed to meet Sir Dick Knowles last Wednesday. However, he was not able to do so. When the meeting was cancelled no further date was set. If Mr Patten is able to meet Sir Dick Knowles, that will of course satisfy us entirely. We are very pleased to hear that news. However, I hope the general point is well-established that this is one example of a joint venture—I could produce many more, and the Minister has produced examples himself—despite the misgivings of the noble Baroness, Lady Blatch, has proved successful, but which continues to need a public sector involvement. Like the National Exhibition Centre, these joint ventures may be involved in the economic development of an area, they may be concerned with training or many other aspects of the economic and social life of our cities and districts.

However, in order to survive they must not only not be discouraged by legislation but they must be encouraged, and local authorities must be encouraged to work through them. That is in conflict with the provision that local authorities will lose their capital allocation if they put money into these companies. That is the fundamental point which we have to bear in mind. Nevertheless, I think we have made some progress in understanding the Government's position, and particular progress as regards the assurance that there will be a meeting between the new Secretary of State and the leader of Birmingham City Council. I hope I shall not have to ask for further meetings with others who have expressed great concern about these matters. We shall await the results of these meetings and of the negotiations that are taking place before we decide what we have to do at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 64 agreed to.

Clause 65 [Companies controlled by local authorities and arm's length companies]:

[Amendments Nos. 116E to 116G not moved.]

Lord Hesketh moved Amendment No. 117:

Page 71, line 21, after ("above") insert— ("(a) may be limited in time and may be made conditional upon such matters as appear to the Secretary of State to be appropriate; and (b)").

The noble Lord said: In moving Amendment No. 117, I should like also to speak to Amendment No. 120.

Clause 65(1) gives the Secretary of State a power to direct that a company under the control of a local authority may be exempted from the controls imposed by Part V. Amendment No. 117 is intended to clarify the scope of the exemption power. Amendment No. 120 does exactly the same in relation to the power to exempt companies that would otherwise be classified as subject to local authority influence.

This power has been generally welcomed as providing a useful element of flexibility. We have already shown our good intentions in this direction, but we feel that as it stands the clause may not allow us to address the full range of possible exemptions that the Secretary of State may wish to make. As drafted, it clearly permits a once-and-for-all exemption for a company or type of company. There may however be cases where a once-and-for-all exemption might not be appropriate, but an exemption qualified in some way might be.

One example might be where a local authority had set up a company to take over an activity previously carried on by the authority with the intention that in due course the company would be sold to the private sector. It may therefore only be controlled by the authority for a limited period while it was building up the private sector involvement and divesting itself of the local authority interest. Where such a clear programme existed, it might well be appropriate to say that that company could be exempted from Part V for the period planned for that transition. If the only possibility was a once-and-for-all exemption that would not allow the matter to be reconsidered if, for any reason, the transition to the private sector did not proceed. That might make it difficult to give such a once-and-for-all exemption.

Similarly, there might be a situation in which the status of a company was such that, although it was technically a controlled company, its independence from the local authority could be virtually guaranteed. While those conditions prevailed, an exemption might be guaranteed on condition that the company's status did not change.

It can be argued that the clause as presently drafted conveys such a power, but it can be argued with equal or greater force that it does not. These amendments will clarify the situation and will allow the Secretary of State to cater for both these and other types of situation when he considers that it would be helpful to grant an exemption subject to a time limit or certain conditions being met.

I commend this amendment to the Committee as a useful addition to the flexibility of the exemption power. I beg to move.

Lord Graham of Edmonton

The sense of what the Minister has said is understood and accepted. However, will he take on board some of the anxieties of the National Federation of Housing Associations? I understand that assurances have been given by the Secretary of State in respect of the powers of direction which would be used to exempt registered housing associations from the provisions of these clauses and that discussions are taking place. Nevertheless, the federation is concerned.

Can the Minister say whether Amendments Nos. 117 and 120 have any implications for the promised exemptions for registered housing associations? In particular, I should be concerned if the exemptions were subject to a time limit or conditions, as that is not part of the undertakings given by the government spokesman to the national federation.

The provisions of the amendment could be used in a positive fashion to exempt organisations which, although not registered housing associations, are vital to their work. For example, care and repair organisations are established by housing associations, often in partnership with local authorities, to assist elderly owner-occupiers to remain in their own homes and to carry out necessary renovation work. For such organisations registration with the Housing Corporation has been unnecessary and it would seem cumbersome for them to have to register in future simply to avoid the provisions of Part V of the Bill. Similar considerations apply to some of the consultancy schemes which have been established to assist in the management of special needs projects.

There is another area where the National Federation of Housing Associations would welcome the positive use of the provisions in the amendment. That is where registered housing associations and voluntary organisations enter into partnership for the management of special needs and other housing schemes if, inadvertently, for some reason the voluntary partner was held to be a local authority-influenced company.

The Minister will have sensed from the tenor of my remarks that we are seeking clarification, not commitments. The Minister could help both the National Federation of Housing Associations and me in this respect. I shall be grateful for the Minister's comments.

Lord Hesketh

I shall certainly cover the point about registered housing associations. They will be exempted while they are registered. We do not propose any other conditions. I do not have to hand an answer to the point raised by the noble Lord about care and repair.

Lord Graham of Edmonton

Here comes the answer now!

Lord Hesketh

Care and repair organisations would be covered by Part V of the Bill only if they are controlled or influenced companies. So, if they are not controlled or influenced companies, they will not be covered by Part V.

Lord Graham of Edmonton

I am grateful to the Minister. Those outside the Committee will read what he has said.

On Question, amendment agreed to.

12 midnight

Baroness David moved Amendment No. 117A: Page 71, line 23, at end insert ("and may provide that the company or companies covered by the direction are to be exempted from some or all of the provisions of this Act which would, but for the direction, apply to them.

The noble Baroness said: The amendment seeks to deal with the serious and uncertain effects of the Bill on the public library service. This part of the Bill applies new controls on companies which are either controlled or influenced by local authorities. Clause 65 allows the Minister to exempt any company or class of companies from the provisions. I ask that serious consideration be given to exempting those public library regional systems which happen to have the status of companies.

Although each local authority charged with public library responsibilities acts separately, all the local authorities in England and Wales band together into regional library systems. They do so principally to provide inter-library lending services, thus saving local authority expenditure and maximising the use of books and other materials for the benefit of the total population.

That is an essential feature of the British library scene. The need for access to materials outside the stock of any single public library authority was recognised in the present legislation governing public libraries in England and Wales (the Public Libraries and Museums Act 1964). Section 3 of that Act laid on the Government an obligation to designate those regions. That was not simply a power to do so, but a statutory duty.

Unbelievably, successive governments over the last 25 years have simply ignored that statutory duty. Some of those regions still have no legal status at all. That presents problems because it means that the officers running the systems are personally liable for their financial affairs. It was to overcome those difficulties that, in the absence of action by government, two of the systems made themselves into companies. Those are London and South Eastern Library Region, known as LASER, and the North Western Regional Library System, NWRLS—not such a convenient acronym.

The Government argue that, since those companies are performing functions that would otherwise have to be discharged by each local authority separately, they should be governed by the provisions of Part V of the Bill. That presents problems and provokes questions to which the Government have so far provided no answer. In LASER, for example, there are 42 participating local authorities, and getting the agreement of each to every act of borrowing would present major organisational problems and cause long delays. It would need the full council to give permission for every sum of borrowing and those amounts could sometimes be as small as £147.

The principal control introduced by the Bill on companies controlled by local authorities is control over borrowing for capital expenditure. The interlending system these days is highly dependent on computerised facilities and the regional systems will therefore require from time to time to acquire expensive new computer systems. The library regions have no capital reserves for those purposes. The borrowing required for that purpose would have to be allocated between participating authorities and it might well, at any point in time, dwarf any borrowing for library purposes which each local authority then had to undertake. Borrowing is normally only required for library purposes for the construction of new library buildings.

Increasingly, interlending systems have international connections. The European Commission is actively promoting the development of such systems as part of its programme for the encouragement of information technology usage in the Community. The European Commission is likely to make grants to at least some of the regional systems to meet part of the cost of the acquisition of new facilities. How is any contribution from the Commission to be dealt with under the provisions of the Bill?

The best course would therefore appear to be to exempt from the provisions of the Bill those regional library systems which are companies. Since, however, the Government so far show no signs of accepting the need for exemption, I suggest that it would be useful to amend the Bill in order to allow the Minister to exempt for some purposes but not for others. At present he has to exempt for all purposes or for none.

That would allow the Minister to free regional library systems from the complex procedural requirements on authorisation of borrowing, but still ensure that such borrowing had to occur within total local authority limits. Amendment No. 117A would do that.

I do not know whether the amendment that the Minister recently moved would have any effect on what I have been speaking about, but I hope that he will look favourably on this amendment. I think that the present provision will raise a very serious difficulty for local authorities which have these regional library systems which are companies and will have a very bad effect on the possibilities of the general public borrowing from them through the inter-library lending service. I beg to move.

Lord Hesketh

This amendment would increase the flexibility of the power of exemption given to the Secretary of State. Instead of making the question simply whether or not the company is exempted, it would allow exemptions from some controls but not from others. The flexibility which the amendment would give would have its advantages. However, we think that there is already sufficient flexibility built into Part V, and that to add a power to vary the extent to which controls apply case by case would be wrong.

Clause 64(4) gives power to prescribe, in the order which will lay down the details, different rules for different cases. Where it is appropriate for the rules to apply differently to some companies, provision can be made in the order. The order will be a statutory instrument subject to debate in both Houses of Parliament. That seems to us to be a better way of making any such variations for different classes of company than using a direction by the Secretary of State.

Directions will simply exclude companies entirely from the scheme of controls. If there is no direction, and they meet the definitions, the authorities concerned will be bound by the appropriate set of rules set out in the order.

Regarding public library regional organisations, if these organisations are part of the public sector by being controlled by the local authorities, then these companies should be controlled as part of the public sector. The organisations proposed by the 1964 Libraries Act would have been treated as part of the public sector. If the company is borrowing on behalf of the local authorities who are all members, then the borrowing itself should be treated as part of the borrowing for the local authorities concerned.

It is for those reasons that we resist the noble Baroness's amendment.

Lord Graham of Edmonton

Before my noble friend replies, is the Minister saying that although he resists the amendments, what they seek to achieve is capable of being achieved by other means? In other words, in the order-making process if the orders that are made are made in such a way that they will meet the points that have been raised by my noble friend, I imagine that she will be satisfied. But what if what was a very reasonable case based upon real fears will not be achieved? Frankly, it is nonsense for the Minister to talk about the Secretary of State having flexibility, if a desire for that flexibility to be exercised sensibly and moderately is pointed out to him by a genuine case and he has to make out a case against it.

Lord Hesketh

The noble Lord, Lord Graham, is correct in his assumption.

Baroness David

I shall have to read what the Minister said and consult my friends in the Library Association. They are extremely worried about what may happen and they feel that there may be a total collapse of this service if flexibility is not there. They have one other proposal which the Minister might consider. It is that the Minister could use his powers to exempt all companies with a turnover below a certain threshold—a de minimis provision—so that companies under the multiple control of local authorities would be exempted provided their borrowing requirements fall below a certain figure. Perhaps the Minister can consider that possible alternative when he is thinking about these proposals and write to me.

There is great anxiety about what could happen. I shall certainly read very carefully what the Minister has said and consult with the people who have advised me. I shall probably come back with some proposal at the next stage of the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hesketh moved Amendment No. 118: Page 71, line 40, leave out ("736") and insert ("736A").

The noble Lord said: In moving the amendment, I speak also to Amendment No. 119. Both amendments are purely drafting. Their purpose is simply to make changes to Clause 65 so that references to sections in the Companies Act reflect accurately the revisions to the Act being made by the Companies Bill which has recently completed its Committee stage in another place. I beg to move.

On Question, amendment agreed to.

Lord Hesketh moved Amendment No. 119: Page 71, line 42, leave out ("subsections (4) and (5)") and insert ("the following provisions").

On Question, amendment agreed to.

Clause 65, as amended, agreed to.

Clause 66 [Companies subject to local authority influence]:

[Amendments Nos. 119A to 119F not moved.]

Lord Hesketh moved Amendment No. 120:

Page 73, line 10, after ("above") insert— ("(a) may be limited in time and may be made conditional upon such matters as appear to the Secretary of State to be appropriate; and (b)").

On Question, amendment agreed to.

12.15 a.m.

Lord Hesketh moved Amendment No. 121: Page 73, line 14, at end insert ("the condition in any one or more of the following paragraphs is fulfilled").

The noble Lord said: With these amendments we come to the question of whether there is such a close business relationship between a company and a local authority that, taken with the personnel links that we have already partly discussed and to which we shall return, we should say that the company is subject to the influence of a local authority. I believe that it will also be convenient to consider Amendment No. 123A.

Amendment No. 121 is a very straightforward drafting amendment. It might be argued that the present wording permits the inference that all the tests have to be satisfied before a close business relationship is held to exist. This is certainly not the intention. The possibilities are manifold and subsection (3) covers them: any of the possibilities listed would constitute a close business relationship. This amendment makes that clear.

Amendments Nos. 123 to 128 deal with one of the tests of whether there is a close business relationship between a local authority and a company. The situation in question is where the local authority has provided half or more of the capital employed by the company. Normally, of course, where more than half the capital is provided in the form of voting equity, the local authority will control the company and Clause 65 will apply. However, there may be circumstances in which the local authority will have provided half or more of the capital without taking the corresponding votes. If that is coupled with a significant personnel link, we think that the company should be treated as under the influence of the authority.

The problem is to define precisely what constitutes providing half or more of the capital. There was a flaw in the original definition in the Bill as introduced and an amendment was made at Committee stage in another place. However, a problem has become apparent after further consideration of that amendment. We had noticed it and a number of local authorities have also drawn it to our attention. We are grateful especially to Kirklees and Tameside for their help in this respect, even though the proposals in our amendments are not exactly what they would wish to see.

The problem with the Bill as it stands is that it requires a comparison to be made between the capital provided by the authority and whichever is the less of two sums. One of those two sums is basically the company's borrowing. If no borrowing is outstanding, then that sum is nil, and the test would be satisfied in the local authority had provided even £1 by way of capital. This is clearly unsatisfactory.

We have therefore decided that the right way to proceed is to divide the test that is in Clause 66(3)(c) of the Bill into two. The first of the new tests will be introduced by amending the existing paragraph (c). This will make it deal with the case where the local authority has provided share capital or capital grants which amount to half or more of the net assets of the company. Where a local authority has provided half or more of the risk capital of the company, we think it reasonable to say that there is a close business link.

Amendment No. 125 then introduces paragraph (cc) which sets out a test to cover cases where the local authority has guaranteed borrowings of the company from third parties. Here one compares the capital for which the local authority is responsible, either directly or (through the guarantee) indirectly, with the total assets of the company.

We think that these amended tests now give a clear and workable definition of the type of relationship where the local authority is providing the bulk of the company's capital.

I should tell the Committee that the local authorities who have been in touch with us have raised some further points. First, they have suggested that we should concentrate on finance provided rather than assets, because this would take better account of any losses incurred by the company.

We have considered this carefully, but have concluded that we should not adopt this approach, because the tradition of local authority finance is against allowing the capitalisation of revenue expenditure. This is to prevent one generation of ratepayers or chargepayers running up deficits to be paid for by future generations. Given this tradition, we think that we should stick by our approach based on the actual assets.

Secondly, they have suggested that the tests in Clause 66 should refer to "more than a half" rather than "half or more". We have not yet reached a conclusion on this point. We can see the case for allowing partnerships that are precisely 50–50, but we are not sure whether the tests as at presently drafted will stand in the way of such partnerships. We shall consider the case further, and if necessary return to the question later.

Thirdly, I should mention Amendment No. 123A which reflects the concern by these authorities that paragraph (c) as amended will be restrictive. We do not think that it will be restrictive. My officials will be glad to discuss this further with those concerned. For these reasons I commend the amendments, except Amendment No. 123A, to the Committee.

On Question, amendment agreed to.

The Earl of Arran moved Amendment No. 122: Page 73, line 21, at end insert ("or, if there is no such account, as estimated by the authority for the period of twelve months preceding the date of the estimate or for such part of that period as follows the formation of the company")

The noble Earl said: On behalf of my noble friend, I beg to move Amendment No. 122 and at the same time I speak to Amendment No. 129. Clause 66 defines the two tests for determining the personnel and business links that must be established for a company in which a local authority has an interest to be classed as a local authority influenced company for the purposes of these provisions. Amendments Nos. 122 and 129 deal with the latter of these: the business association test. That test is satisfied when a company has over half of its business with local authorities under various definitions which are set out in Clause 66.

Subsection (3)(a) deals with the case where such a business link is represented by the aggregate of payments made to a company from local authorities within a period of 12 months. A business link test is satisfied when these payments represent not less than half of the company's turnover as shown in its most recent audited profit and loss account.

Similarly, under subsection (3)(c), as drafted, one of the factors that the business link test is required to take into account is the net assets of the company. Subsection (4) provides that the net assets should be determined on the basis of the most recent balance sheet of the company on which the company's auditors have made a report.

Amendments Nos. 122 and 129 provide for cases where a profit and loss account or balance sheet is not available for the previous year simply by requiring that where audited accounts do not exist the local authority should estimate for the preceding 12 month period or for that part of the period that follows the formation of the company. Where balance sheets do not exist the relevant comparison should be made on the basis of an estimate made by the local authorities concerned for the period in question.

These are important technical amendments. I therefore commend the amendments to the Committee.

Lord Graham of Edmonton

Can the Minister say what kind of consultation took place at a later date on these matters? I know that wide consultation took place earlier when the Bill was conceived. However, the Government have introduced these amendments at a late stage in your Lordships' Committee.

The Minister has made out the case that the basis for the amendments is sound. Can he say what consultation has taken place with those involved in local government on the appropriateness of these technical amendments?

The Earl of Arran

We have not consulted further because we believe that the amendments are entirely logical as they stand.

Lord Graham of Edmonton

So people outside the Committee will be seeing the amendments for the first time. There has been no consultation and no explanation whereby everyone can understand that the Government are doing them a favour. After such people have read what the Minister has said it is possible that we shall come back at a later stage with amendments to his amendments.

On Question, amendment agreed to.

Lord Hesketh moved Amendment No. 123: Page 73, leave out lines 32 and 33.

On Question, amendment agreed to.

The Chairman of Committees

If Amendment No. 123A is agreed to I cannot call Amendment No. 124.

Lord Graham of Edmonton moved Amendment No. 123A: Page 73, leave out lines 38 to 41 and insert ("exceeds one-half of the aggregate of the company's nominal share capital, the company's liabilities on capital account, exclusive of shareholders' funds, and capital grants received by the company.").

The noble Lord said: If the amendment is agreed to I shall be speechless and so will the rest of the Committee. The Minister has already said that he cannot accept the amendment. However, will he confirm that he has either told us that he will be happy to have consultations or that these are already on course? There is no point in making out a technical case merely for the Minister to read out what his advisors have told him. Neither of us will be any the wiser. I believe that in referring to Amendment No. 123A earlier this evening he said that he would be willing to have consultations with the appropriate people. Will the Minister confirm that?

Lord Hesketh

The noble Lord, Lord Graham, is correct. I said then and I repeat now that my officials will be glad to discuss the matter further.

Lord Graham of Edmonton

On the basis of that offer which I understand to be genuine and sincere, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hesketh moved Amendments Nos. 124 to 126:

Page 73, line 38, leave out ("whichever is the less of").

Page 73, line 39, leave out from ("company") to end of line 41 and insert— ("(cc) the aggregate of—

  1. (i) grants falling within paragraph (c)(1) above,
  2. (ii) loans or other advances made or guaranteed by the authority or by a company under the control of the authority, and
  3. (iii) the nominal value referred to in paragraph (c)(iii) above,
equals or exceeds one-half of the fixed and current assets of the company").

Page 73, line 45, leave out ("or") and insert ("and").

On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No. 126A: Page 73, line 46, leave out paragraph (e).

The noble Lord said: The amendment refers to the whole concept of a business relationship. It would remove from the category of business relationship the proposal in Clause 66(3) that such a relationship would exist where the company intends to enter into a transaction which, if completed, would give rise to such a relationship. The whole concept of the intention of entering into a transaction which would give rise to a relationship is a complex almost metaphysical idea.

Clause 66(3) is a long subsection extending for more than half a page. It sets out all the circumstances in which a business relationship is thought to exist between the company and the local authority. They then form the criteria for determining whether the company is an influenced company. They are supplementary criteria to the 20 per cent. of voting rights which are the subject of subsection (1) of the clause.

All of these conditions in subsection (3)—whether the aggregate of payments to the company exceed half its turnover in a 12-month period; the grants and loans made by the company; whether the nominal value of the shares held by a company equals or exceeds one-half of the net assets of the company and its liabilities on capital account—are clear enough, even if sometimes companies do not actually work that way and they exist to provide services or to assist local employment.

However, paragraph (e) is altogether more metaphysical. It states: the company intends at that time to enter into (or complete) a transaction and, when that is done, there will then be a business relationship between the company and the authority by virtue of any of the paragraphs (a) to (d) above". I presume that what the Government mean is to stop people making transactions which would then lead to paragraphs (a) to (d) of subsection (3).

That is a bit tough. For example, let us suppose a cleaning company is bidding for contracts under the compulsory competitive tendering procedure of the Local Government Act 1988. If the company is set up in order to go in for contract cleaning one of the major sources of revenue is likely to be local government because these are contracts which will be let systematically over a period of time and it is a matter of chance whether a significant part of the company's turnover is with local authorities or health authorities or with the private sector.

What is the intention? Does the intention only come in when the local authority wishes to award the tender? It is unclear how we are to interpret the idea of intention. In a large company the contracts which could give rise to this condition could be made by middle ranking management. The directors of the company may know nothing about it and suddenly find themselves, because of the activities of their staff, an influenced company. It seems to me to be extremely complicated from the point of view of companies, quite apart from the local authorities.

Under Clause 70(1) a company which does business with more than one local authority will become an influenced company where, if the various segments of business were added together, they would fall within the rules in subsection (3) in relation to any of the authorities concerned. Therefore, to return to our example, a cleaning company which tenders for work in different parts of the country could easily become influenced without even noticing that it was happening.

What does the Minister think the effect will be on the 1988 Act? Was it the Government's intention when the 1988 Act was introduced that those tendering for this kind of work should be subject to the restrictions of influenced companies? In effect, we are suggesting in this amendment that this subsection is unworkable. Contract law depends on the completion of the process of offer and acceptance, not on intention. It is up to the Government to explain how the concept of intention fits into the Bill. Unless they can do so they ought to take out this paragraph and think about it again. On the face of it, it seems to be contrary to the original intentions in the 1988 Act. Much as we dislike some parts of the 1988 Act, it is wrong that those who try to abide by it should be drawn into the morass of metaphysical legislation which is implied by paragraph (e). I beg to move.

12.30 a.m.

Lord Hesketh

The amendment would delete the last of the tests of whether there is a close business relationship between a local authority and a company. I should like to take the Committee through the arguments which have convinced us that this provision is necessary. I start by drawing the Committee's attention to the proposals in Clause 67 about the ways in which the rules proposed for companies, subject to a local authority's influence, would be brought to bear. By definition we are dealing with a situation in which the local authority lacks any power of control over the company: otherwise, the company would be a controlled company. We therefore must approach the question by concentrating on the transactions between the company and the local authority.

As the Committee will see, Clause 67(3) proposes that local authorities will be under a duty to impose certain conditions in any transaction that they may have with a company which meets the definition of a company subject to local authority influence. In a situation like this it is necessary not only to look at the position as it is, but also as it will be when any transaction being considered is complete. If one does not consider transactions which are not yet complete, then the point in time at which a condition can be applied may have gone, and may not recur for many years.

Consider the case of a company which meets the test for a personnel link, and with which a local authority is going to sign a long-term contract, which will constitute practically all the company's business. When this is signed, the company will clearly meet the test in paragraph (a), and will therefore be a company subject to local authority influence. But unless the conditions are attached to that contract when it is signed, there will be no opportunity to attach the conditions for the duration of the contract. We therefore think that it is essential that one should take into account not only situations already in existence, but also those where, when a transaction under negotiation is completed, the test will be met.

There is one further point which I should make. We have been asked how the proposed application of the capital finance controls to influenced companies will be applied to those which meet the business relationship test only through this forward-looking test.

The answer is that it would not be a good idea to treat as part of the local authority sector for the purposes of the capital finance controls, a company which is within the definition only because of this forward-looking test. The order under Clause 37(5) will therefore make it clear that only those companies where a condition has actually been attached to a transaction under this requirement will be treated as part of the local authority sector for these purposes. Companies therefore that meet the test for influenced status only by reason of the test in paragraph (e) will be treated differently for capital finance purposes until the transaction in question is completed. For these reasons we oppose this amendment.

Lord McIntosh of Haringey

If the Minister were to read his own reply in the cold light of day he would realise that the Government have become so clever that they have caught themselves coming back. It is all very well to say that there are only fleeting occasions when you can catch companies of this kind. If that is the case then what we are doing is revealing a profound over-complexity in the Government's thoughts. If they are reduced to the concept of intention in order to catch influenced companies and to place restrictions on them, then they have allowed their overpowering desire to control every aspect of local government activity to get the better of them. I am sorry to hear that reply. It is not appropriate to divide the Committee. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hesketh moved Amendments Nos. 127 to 129:

Page 74, line 1, leave out from ("subsection") to ("to") and insert ("(3) above— (a) the reference in paragraph (c)").

Page 74, line 3, after ("and") insert— ("(b) the reference in paragraph (cc) to the fixed and current assets of the company shall be construed in accordance with paragraph 77 of Schedule 4 to that Act, and, in either case, the reference").

Page 74, line 5, at end insert ("or, if there n no such balance sheet, as estimated by the local authority for the time in question").

The noble Lord said: I beg to move these amendments en bloc.

On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No. 129A: Page 74, line 8, after ("of") insert ("and was appointed by").

The noble Lord said: In moving this amendment, I also wish to speak to Amendment No. 129C. It is a very simple point. Subsection (5) says that a person is associated with a local authority if he is a member or an officer of the local authority. The amendments say that if the membership or the status as an officer is not relevant to his position in the company—in other words, he was not appointed by the company—the restriction should not apply. Widdicombe made a link between restrictions and responsibility; but the Government appear to be saying that even if the councillor or officer is acting in a purely private capacity, he will influence whether the company is in turn influenced and whether it is subject to all the local authority capital controls. That is not what Widdicombe intended and it is not what common sense intends. I hope the Government will feel that they have gone too far on this occasion. I beg to move.

Lord Hesketh

These amendments would restrict the categories of those who are regarded as associated with a local authority for the purposes of the tests whether a company is under the influence of a local authority. Amendment No. 129A would limit the category of those who are members of the authority and involved in the company to those appointed by the authority. Amendment No. 129C would do the same for officers of the authority.

These amendments have a very understandable purpose. They aim to exclude from the reckoning of those associated with a local authority members and officers of the authority who play a role on the governing bodies of a company, but who were not appointed to their position by the authority. At first sight, this proposal sounds very reasonable, but it does not take sufficient account of the way in which companies are set up, nor of the facts of company law.

Let us consider first those who are officers of a company which may be subject to local authority influence. The directors of such a company will normally be appointed by the company itself in a general meeting. It is, I agree, possible that the appointment may be given to some outside body—such as the local authority—but there is no need for that to be done; and usually it is not.

The effect of the noble Lord's amendment therefore would be that no member or officer of a local authority would be regarded as associated with the local authority if he was appointed director by the company general meeting, even if the meeting's intention clearly was that he would speak for the interests of the local authority.

Turning to the question of those who are members of the company and have a vote at the company's general meeting, the position is similar. It is very common, particularly in companies set up by local authorities, to make the membership of the company technically quite separate from the local authority. A typical example would be that the directors of the company and the members of the company are the same group of people, and recruit themselves by co-option. A new person is brought in by the directors voting to admit him or her as a member, and then for the enlarged membership to elect him or her as a director. The local authority as such plays no part in the process. But if the existing members and directors are largely members or officers of the local authority, and the new member and director is one or the other, I have no doubt that he or she will be linked with the local authority.

The noble Lord's amendment proceeds on the false assumption that the qualification that he seeks to introduce is one which it is not possible in practice to introduce. We think that if a member or an officer of a local authority is involved in a company which is at the same time financially dependent on the local authority, the conditions necessary for the local authority to have influence are fulfilled and the company should, in the absence of other indications, be treated as subject to that influence. That is why we resist the amendment.

Lord McIntosh of Haringey

It would not be so bad if the position of being an influenced company did not then start to lead this company to be subject to the capital controls on local authorities. Despite the tortuous argument advanced by the noble Lord, it is difficult to see why so many members and officers of local authorities should be excluded. After all, they have other interests. They are human beings. They take a part in their local communities and get involved in undertakings which may be purely voluntary and charitable and concerned with enterprise. To exclude them simply on the basis that they happen to be members or officers of local authorities seems to be starving to an unacceptable extent the voluntary sector and starving the sector of companies co-operating with local authorities. We may wish to return to this matter at Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 129B: Page 74, line 8, at end insert ("who is a member of a political group within the meaning of section 15 of this Act, another member of which is Chairman of a decision making committee or sub-committee, or Leader or Deputy Leader of the authority.").

The noble Lord said: In moving this amendment, I should like to speak also to Amendments Nos. 192D and 130A. These amendments seek to restrict the definition of persons associated with an authority—that is, in respect of members, their spouses, business partners and political nominators—to those who are members of the majority party (that is the significance of Clause 15 of the legislation) or, in a hung council, the current coalition or administration.

It seems to us to be quite inconceivable that members of minority parties who are members of the board could be acting for the council or pursuing its ends. It is only a peculiarly conspiratorial view of local government which leads central government to think that this is the way such arrangements may work.

In my area, in Haringey, where the Conservative Party has been in opposition now since 1971, there have been Conservative councillors who played an active part in local activities—and a very valuable part—for many years. They have inevitably been involved in dealing with the council in order to promote those activities. Such activities could be dealing with housing, local enterprise or voluntary activities. Why not? Why should the council be restricted by its dealings with those companies when the Conservative councillors involved in a Labour area are clearly not associated, and would be horrified if it were so suggested, with the policies of the council as a whole.

Therefore we suggest that to make such restrictions apply to all members of the council, whether they are in opposition to the majority who are in control of the council, is going too far. I beg to move.

Lord Hesketh

These amendments are directed to the test of whether there is a link between the personnel associated with the local authority and the personnel in the controlling organs of a company. Amendment No. 129B would limit those regarded as linked to the local authority by virtue of membership of the local authority to those on the controlling political group of the authority. Amendment No. 130B would limit those regarded as linked to the local authority through holding office in a political party represented on the council likewise to those linked to the controlling political group on the council.

Amendment No. 129D would say that members should only be regarded as linked to the council for the period since the last ordinary election of councillors. It would also have the effect that officers would cease to be regarded as being associated with the local authority as soon as they cease to be in office.

Amendments Nos. 129B and 130A assume that members of local authorities are always divided into two camps so hotly opposed that the one not in control will never share any aim with those who are in control. This appears to be wide of the situation of many local authorities. It is not at all common for local authorities to have, at least on some subjects, policies which are supported by the overwhelming majority of members of the council, including those in political groups which do not hold any committee chairs.

The effect of this amendment would therefore be that where there was such general agreement, the local authority could arrrange matters so that a company that would otherwise be regarded as subject to its influence would be excluded from the category. They would do this by arranging it so that sufficient of the members of political groups, who did not hold committee chairmanships, represented the authority in the company that the thresholds for the test were never met.

It seems to us unjustified to build such a loophole into the definition. We do not think that whether or not a company is in the local authority sector should be determined by whether there is all-party support for what it is doing, with it being outside the local authority sector if there is, and inside if there is not. For this reason the Government must recommend that the amendment be rejected.

I turn now to Amendment No. 129D. This would shorten the period during which a councillor remains regarded as associated with the local authority to the period since the last ordinary election of councillors. It would also mean that officers were not regarded as linked with the authority once they have left the authority's service.

I must address first the question of why there should be any period at all after someone has ceased to be a member or an officer of an authority that they should be regarded as associated with the authority. We think that it is common sense to regard such an association as continuing for some period. We must remember that we are here considering only those companies which have close business relationships with the authority. That means that the business of a company is very closely bound up with the authority. In those circumstances, it is realistic to think that a former member or officer will not be in touch with his former colleagues. We think not.

We also have to remember that in some cases there may be a temptation to use a company as a means of avoiding some control to which the local authority is subject—particularly in the field of capital finance. Regrettably, the experience of the past decade shows that we cannot ignore such cases if we wish to have an effective form of control over the proportion of the available capital in the economy taken up by local authorities.

A local authority seeking such a form of avoidance might well regard a company in which recent past members of the authority played a significant role as a convenient solution. Even more so, it might be able to invite officers to resign from the service of the authority and take up an equivalent position with the company. We therefore think that some control of this kind is essential for both members and officers. We cannot therefore accept Amendment No. 129B, and we resist the other amendments.

Lord McIntosh of Haringey

In the light of the Minister's last comments I invite him to look at the position in the Conservative-controlled London Borough of Bexley which is doing what Ministers in his department have urged it to do; namely selling all its housing stock to a new company formed for that purpose. As I understand it, the director of housing, the principal projects officer of housing, a senior officer in the finance department, and one other whose position I do not know, propose to be the managers and even the directors of that new company. I invite the Minister to look at the famous City of Westminister where the senior officers of the cleansing department tendered successfully for the cleansing contract. Ministers continue to refer to allegations of abuses by Labour-controlled authorities. They forget that it is above all Conservative-controlled councils which involve themselves in such deals.

Our amendments would not go as far as any of the things which the Minister has alleged. It is only because of his conspiratorial view of local government that he allows himself to say the things that he does. What is so terrible about a council having the overwhelming support for its policies as he says, of members of other parties? Why is that such a wicked thing? Why should they not then agree, if that is the wish of all their electors and not just the majority party, to do things which they consider to be to the benefit of the ratepayers?

It is only the view that "Marsham Street knows best" under all circumstances, even if there is overwhelming support locally for a policy, which leads the Government to resist an amendment of this kind. I am sorry to find that kind of resistance. When the Minister reads what he has said, he will not like it much. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 129C to 129E not moved.]

Lord McIntosh of Haringey moved Amendment No. 129F: Page 74, line 31, leave out paragraph (f).

The noble Lord said: This is a relatively simple point and one which can be readily understood. Do we have to have spouses (husbands and wives) in the category of association? In Clause 66 we already have two kinds of criteria for a company to be influenced. One of those criteria is if 20 per cent. of the voting rights are held by persons who are associated with a local authority and the other is if there is a business relationship relating to over 50 per cent. of the company's turnover. Subsection (5)(f) proposes that the spouse or business partner of a person who is a member of a local authority should also be considered to be associated.

The Minister has resisted the idea that there might be members of minority parties who do not agree with the council's policies. Will he also resist the idea that there might be spouses who do not agree with the opinions of their partners who may be directors of the company or have voting rights at a general meeting through holding shares? Why should we assume that the spouses of local authority members have the same views and are prepared to act on behalf of their local authority as though they were the members themselves? Spouses do have different political views, and even if they do not, they may well have an independent attitude towards the public work that they undertake.

We are talking about public work, not about a vast conspiracy to defraud the Government of their rights. It is deeply insulting to the spouses of members of local authorities to assume that they are simply puppets of their spouses. I hope that the Government will realise that this is a very offensive—

Baroness Seear


Lord McIntosh of Haringey

The noble Baroness says "sexist". I am not sure that I could say that. Clearly "spouses" works in both directions. I think it is offensive to both men and women; I agree with the noble Baroness. It is offensive to both men and women to assume that their actions and opinions will be the same as those of the women and men to whom they are married. I hope that the Government will look favourably upon this amendment.

Lord Hesketh

This amendment again addresses the question of who should be regarded as associated with the local authority for the purposes of establishing a personnel link between a company and an authority. The amendment would delete any link through the spouse of a member of the authority.

Ever since legislation has addressed the question of councillors' pecuniary interests, the law has regarded a pecuniary interest held by a councillor's spouse as being as significant as an interest held by the councillor himself or herself. In this we think that the law is merely taking a commonsense view of things. We therefore think that it is appropriate to reflect this long-standing provision when we come to consider who should be regarded as closely associated with the authority.

We must remember that the pesonnel link is only one of the two tests to be considered. Both must simultaneously be considered. We are therefore only dealing with companies where the company's business is predominantly associated with the local authority. In such cases we think that it is necessary to consider whether, if a councillor's spouse is concerned in the running of the company, there is likely to be an influence on the company from the authority. We think that there is, which is why we are resisting the amendment.

Lord McIntosh of Haringey

Even if that were true, which it is not, what does the Minister think about the possibility of enforcing a provision of this kind? Who are the thought police who will spy into the marital relationships of councillors and officers of authorities? Is this not an open invitation to live in sin in order to avoid the conditions of Clause 66 of the Bill? Who in their right minds will enter into the holy estate of matrimony if they are to be accused of not just loving and honouring but of agreeing with every single thing that their spouse says? The situation is absurd. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman of Committees

If Amendment No. 129G is agreed to, I cannot call Amendments Nos. 130 or 130A.

Lord McIntosh of Haringey moved Amendment No. 129G: Page 74, line 34, leave out paragraph (g).

The noble Lord said: Again, we are back with the thought police. I ask how anyone could have written down this provision seriously without cracking up. The proposal is that office holders in a political association specified on the nomination papers of a local authority—councillors—are considered associates of that authority. So if some member of a ratepayers' association is an office holder of the ratepayers' association and perhaps the only ratepayer councillor on the council—this could be the assistant minutes secretary of the ratepayers' association—because there is one ratepayer councillor, the association is considered to be associated and the whole of the company is brought into all the restrictions of the influenced category. It is farcical. We are getting to a stage where I ought not to be laughing; it is extremely serious.

Why is the paragraph not more restrictive? It could easily be more restrictive. It could relate only to the political party of the majority in control of the council, for example. That would be very easy to achieve. But it is farcical to apply the provision to every single office holder of every single political party or organisation which succeeds in getting one councillor elected on a local authority—it could well be the Monster Raving Loony Party—so that the person then becomes an associated person which makes a company an influenced company. I beg to move.

Lord Hesketh

In addressing Amendment No. 129G, it will be difficult not to comment at the same time on Government Amendments Nos. 130 and 131; but I quite understand the noble Lord's wish to debate these separately.

This amendment would leave out another one of the possible ways in which an association would be established between those connected with a local authority and those involved in running a company. This one is where the people concerned hold office in a political party represented on the council.

I remind the Committee that we are considering only cases where a company meets the business relationship test; that is to say, where the business of the company is predominantly bound up with the authority. In those circumstances, it seems common sense to say that if an office-holder in a party represented on the council holds votes on the board of the company, or at a general meeting of the company, there is a probability that an influence over the company's activities can be exercised.

I also remind the Committee that we have to consider the likelihood, given the experience of the past 10 years, that some local authorities will seek ways of avoiding controls—particularly controls over capital finance. We think that it is important to ensure that there is a proper system of control over local authority capital finance, as part of the general system of controlling the demands which the public sector makes on the economy. We should not therefore be quick to allow arrangements with clear possibilities for avoidance.

We therefore think that we need to consider the case where a company whose business is predominantly bound up with the local authority has as a director or member the chairman or other office-holder in a party linked to the council.

We therefore advise against accepting Amendment No. 129G. However, we think that the definitions in paragraph (g) can be improved. These improvements are contained in Amendments Nos. 130 and 131. They stem directly from amendments put down, but not moved, by the Opposition in another place. We think that they will be an improvement, and in due course, I shall commend them to the Chamber. I cannot however commend this amendment.

Lord McIntosh of Haringey

I think it would have been better if the Minister had cut the Gordian knot and removed the subsection as a whole, rather than seeking to amend it. However, I shall listen carefully to the Minister's arguments on Amendments Nos. 130 and 131. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hesketh moved Amndment No. 130: Page 74, line 34, after ("holds") insert ("a relevant").

The noble Lord said: Thse amendments deal with the test of whether there is a personnel link between a local authority and an influenced company where the link is established because a person holds office in a political association or other body to which any elected member of the authority affiliated himself in his nomination papers.

On Report in another place, Opposition Members moved an amendment to Clause 66(5)(g) so that such links should be limited to local political organisations. The Government can see some merit in this, and there is certainly force in the argument that the holding of an associaton office in one political party in, say, Hertfordshire should not count as a link with a London borough simply because both local authorities have members who stand for the same political party.

Amendments Nos. 130 and 131 therefore make it clear that the personnel link under Clause 66(5)(g) will only be established in the following circumstances. In the case of a political association or body which is active only in the area of the authority, the holding of any office will be deemed to be relevant in establishing the link. In every other case, including where the political association is based outside the area of the authority or is also active in another area, the office held is only relevant for the purpose of establishing a link with the authority if it is a branch or other part of the association or body which is active in the authority's area.

Amendments Nos. 130 and 131 will therefore limit the criteria for establishing a personnel link by virtue of holding office in an apolitical association to those cases where the association is active in the authority's area. We believe that that fully meets the concerns of the Opposition in another place. I therefore commend the amendment to the Committee. I beg to move.

Lord McIntosh of Haringey

It is better than nothing.

On Question, amendment agreed to.

[Amendment No. 130A not moved.]

1 a.m.

Lord Hesketh moved Amendment No. 131:

Page 74, line 36, at end insert— ("(5A) For the purposes of subsection (5)(g) above, an office in a political association or body is relevant to a local authority in the following circumstances—

  1. (a) if the association or body is active only in the area of the local authority, any office in it is relevant; and
  2. (b) in any other case, an office is relevant only if it is in a branch or other part of the association or body which is active in the area of the local authority.").

On Question, amendment agreed to.

Clause 66, as amended, agreed to.

Lord McIntosh of Haringey moved Amendment No. 131A: After Clause 66, insert the following new clause:

("Registered and Unregistered Housing Associations.

Nothing in this Part shall apply in relation to a registered or unregistered housing association.").

The noble Lord said: We have already had reference to the subject of registered and unregistered housing associations in relation to an earlier amendment. There appears to be a distinction between the Government's proposals relating to registered housing associations as compared to unregistered housing associations. I should like to move the amendment simply to give the Government an opportunity to say what their position is in relation to unregistered housing associations and to confirm what was said earlier about registered housing associations. I beg to move.

Lord Hesketh

New subsection (1A) would exempt "independent voluntary association companies". New subsection (1B) defines a voluntary association company by reference to Section 137 of the 1972 Local Government Act. New subsection (1C) defines independence by two tests, one of which would require that the company receives no financial assistance from the local authority and the other that any financial assistance is not given for the purpose of avoiding restrictions.

I believe there is very little between the movers of the amendment and the Government as to the substance of what we want to achieve. Such differences as there are concern the most effective way of achieving what we want. Perhaps I may remind the Committee that the definitions that we propose for what is to be regarded as a company subject to local authority influence requires that the company meets two tests simultaneously. The first is that there is a close business relationship and the second that there is a substantial overlap between the people associated with the authority and the members of the company's governing organs.

The two main forms of the business relationship test would be that the company derives half or more of its turnover or half or more of its capital from a local authority. The Committee will therefore see that that test addresses the same points as paragraph (a) of the proposed new subsection (1C). Paragraph (a) of the amendment would exempt a company that receives no financial assistance from the local authority. Before the tests set out in the Bill could be satisfied a company would have to receive not merely some financial assistance but more than half of its turnover or capital from the local authority. Paragraph (a) therefore seems to be aimed at exempting companies which could never come within the definition.

Lord McIntosh of Haringey

I think that the Minister is responding to Amendment No. 131B rather than to Amendment No. 131A, which is a new clause after Clause 66. It is very interesting to have the Minister's speech, which will appear in Hansard and will help the noble Lord, Lord Hayter, in moving Amendment No. 131B on Wednesday afternoon, but it is not strictly relevant.

Lord Hesketh

I apologise. I can only blame the late hour. I have some very much more relevant information.

This new clause would exempt both registered and unregistered housing associations. The considera- tions which apply to the two cases are different, and I must address each separately. On registered housing associations, I do not think that there is very much between the noble Lord and the Government on the substance. The differences are purely about the most convenient way of achieving our objective.

We have made it clear that we do not intend it to be possible for a registered housing association to be treated as a company subject to local authority influence. We shall use the power of exemption given by Clause 66(1) to exempt all registered housing associations from its scope. Since we do not think that there are any registered housing associations that are formally controlled by a local authority, this should ensure that no registered housing association is affected by the controls over controlled or influenced companies.

We have also made it clear that we shall use the powers to be given by Clause 68 to ensure that a local authority can participate in any registered housing association active in its area. We do not, however, think that it is appropriate to exclude registered housing associations entirely from Part V. We think that it is appropriate to retain, for example, the requirement in Clause 68(5) which will give a right to councillors to ask those appointed by the authority to the housing association about the activities of the association. Thus, for registered housing associations we shall ensure that Part V operates in such a way as to cause no problems to registered housing associations.

For unregistered housing associations, however, the position is different. I assume that the reference to an unregistered housing association is as defined in the 1985 Act. If noble Lords look at that definition, they will see that the only requirements that an unregistered association must meet are that it does not divide profits among its members and that it must include among its objects the provision of rented housing. I stress the word "include" because that is crucial to the reason why we do not want to exempt unregistered housing associations in the same way as registered ones.

Because the definition merely says "include", the requirement is satisfied if the appropriate object appears in the memorandum of association. The association does not have to do anything towards that object. It could devote all its activities to some completely different purpose—say, running a chain of greengrocers' shops. In such activities unrelated to housing, there would be no controls whatever such as apply to registered housing associations.

To exclude unregistered housing associations would therefore be to create a large loophole in the system of control. If a local authority wanted to use a company outside the controls of Part V, it would simply have to set it up as an unregistered housing association.

We think that the clause is unnecessary as it applies to registered housing associations since we have given undertakings that we shall use the powers in the Bill to ensure that there is no adverse effect on them. We believe that it is dangerous as it applies to unregistered housing associations since it would create a major loophole in the controls. That is why we resist the amendment.

Lord McIntosh of Haringey

I am delighted to welcome the noble Lord into the group of the Ministers who read out the answer to the wrong amendment. The noble Baroness, Lady Trumpington, has the prize for that because not only has she been known to read the wrong answer, but no one noticed until afterwards.

On this occasion, we are grateful for both the half reply that the Minister gave to a subsequent amendment and for the full reply that he gave to this amendment. I am grateful for what he said about registered housing associations. I am not convinced that he has given an adequate answer on unregistered housing associations. That may be a matter to which we shall have to return. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Arran

I beg to move that the House do now resume.

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

House resumed.