HL Deb 28 June 1999 vol 603 cc11-32

3.10 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Whitty.)

On Question, Motion agreed to.

House in Committee accordingly.


Lord Whitty moved Amendment No. 212A:

Before Clause 67, insert the following new clause—


(" .In section 30 of the Local Government Finance Act 1992 (amounts for different categories of dwellings) there shall be added at the end—

"(10) Where the major precepting authority in question is the Greater London Authority, subsections (2)(b) and (4) above shall have effect as if the references to sections 43 to 47 below were references to the appropriate Greater London provisions.

(11) In this section, "the appropriate Greater London provisions" means—

  1. (a) sections 70 to 75 of the Greater London Authority Act 1999 and section 47 below; or
  2. (b) in the case of calculations by way of substitute, sections 70, 71 and 73 to 75 of, and Schedule 6 to, that Act and section 47 below."").

The noble Lord said: I hope that I can set a good example by speaking to the amendment with some dispatch. The new clause simply corrects an oversight; it makes no substantive change or change of principle. Section 30 of the Local Government Finance Act 1992 sets out how a billing authority should calculate the council tax for different categories of dwellings. It has to calculate the aggregate of its own tax and that of its major preceptors. The new clause amends Section 30 of the 1992 Act to ensure that where the Greater London Authority is one of the preceptors it refers to the budget requirements and tax setting provisions in the Greater London Authority Act. It will therefore ensure that the amount of tax calculated by the GLA under the provisions of the Bill will be added to council tax bills in London. I beg to move.

On Question, amendment agreed to.

Baroness Hamwee moved Amendment No. 212B:

Before Clause 67, insert the following new clause—


(" .—(1) The Greater London Authority shall be empowered to adopt proposals for tax-varying powers by a two-thirds majority vote of the members of the Assembly voting.

(2) Before implementing proposals for tax-varying powers, a referendum of those entitled to vote in ordinary elections shall be held in which a simple majority of those voting shall be required to allow the tax-varying proposals to be implemented.").

The noble Baroness said: The new clause is to provide for the authority to be able to exercise tax-varying powers, but subject both to the agreement of two-thirds of the members of the assembly and, importantly, a referendum by Londoners.

Although the amendment is in the part of the Bill dealing with financial matters, we regard it as a question of general principle relating to the different spheres of government. In our view, the devolution of power should include financial matters. I have spoken previously in the Committee about the need for trust between central government and the new authority, not just as some sort of isolated principle, but with a view to the authority's working effectively because we believe that a relationship based on trust will produce the best results. The amendment is also about maximising the authority's financial freedom and about clear accountability in financial matters.

The amendment does not require immediate tax varying powers on the part of the authority. What it seeks to do is to allow for that possibility, subject, as I said, to the agreement of two-thirds of the members of the assembly, which is a substantial target to meet, and also to a majority vote in a referendum. Both are important.

I believe that the assembly will have very clear views, particularly as time goes on, as to how the authority will best operate. It will, after all, be in a prime position to assess the effectiveness of the authority in its role of scrutinising the mayor's actions, as a matter of common sense, because of where the assembly members come from, not just geographically, but with their background of representing constituencies and the whole of London.

The majority vote in a referendum is important as well. We believe that Londoners should have the opportunity to contribute to the style, powers and range of their authority. If they agree with a proposition seeking to permit the authority to vary taxes, that is a matter on which their views should be heard very clearly. But, as I said, it is not a matter for immediate implementation. The detail will have to be worked up. We accept that. We appreciate that the amendment is a matter of principle and does not set out the detail. It is the principle to which I ask the Committee to have regard.

There could nit be a debate within the authority, or with the people of London, about how tax-varying powers would operate without attention being paid to the tax base which is used. We on these Benches would prefer the authority to collect revenue through devolved income tax powers in the same way as is to happen in Scotland.

In financial matters, as in others, the authority should not be totally controlled by central government. The Bill provides for the sort of constraints which are applied to local government by way of constraints on capital spending, borrowing, the capping of revenue and so on. We believe that the authority should be able to set its overall budget and establish priorities—strategic priorities—within the budget. That, after all, is what the authority is being established for, not to act as a kind of counting house to pull together the aggregate of the functional bodies.

We believe that there will be a problem of accountability, or at any rate of transparency. It is difficult enough now with council tax bills where people tend to look at the amount charged and have a debate about the complexities of the impact of central government revenue grant, gearing and so on. It is not something that lends itself to easy conversation on the doorstep, in a queue at the supermarket or wherever. The need for transparency for the authority's success is important. The clearer the link between spending, tax and the input of Londoners themselves, the better.

There is a cynical argument that without considerable autonomy on the part of the authority it will not achieve very much. We prefer, at this stage certainly, not to be cynical but to put down a marker that the matter is important, a marker for the Treasury and for Londoners. I beg to move.

3.15 p.m.

Lord Dixon-Smith

My noble friend Lady Carnegy of Lour must have read the amendment with a feeling of considerable astonishment in view of the long time that was spent discussing financial matters in relation to Scotland. There was then a serious question as to whether the Scottish Parliament should have tax-varying powers, but the tax-varying power under discussion was certainly not on the basis of the general wording we see in the amendment. It was simply the power to amend the basic rate of income tax by 3p up or down.

The noble Baroness, Lady Hamwee, has many beliefs with which I can sympathise. If I am out of order in what I am about to say, or if it is unparliamentary, I hope the Committee will accept my apology in advance. The problem with all matters fiscal is that the devil is in the detail. It is the detail we need to be concerned about. The great problem with the amendment is that there is no detail. I accept that the noble Baroness said that the detail was to come. But if we put the clause in the Bill without the detail we shall be technically putting on the face of the Bill the power for the Greater London Authority to amend any tax that it chose. In my view, that would be quite extraordinary. On these Benches we could not support such an open-ended commitment.

It may well be that there is a case for reviewing the whole question of local government finance and the general tax basis on which local government is presently funded. But that is an entirely separate issue. The Bill is sufficiently large and complex already. If such a matter were introduced, I believe that the Bill would be talked out and would not be passed in this Session. I cannot support the amendment.

Baroness Carnegy of Lour

My noble friend is right. I was surprised by the amendment. The tax-raising powers in Scotland are defined in statute. They may not be adequately defined but they are defined and as time goes on we shall see how they work.

The noble Baroness, Lady Hamwee, made an interesting speech on Second Reading. She knows a great deal about London and has much experience of administration in London. I imagine that in tabling the amendment she is merely enunciating a dream which she and her colleagues on the Liberal Democrat Benches have; namely, that this authority in London will be able to do all sorts of amazing things and use public money to do them. The point about the Scottish Parliament is that it is a legislative Parliament and is to legislate on a wide scale in Scotland. It is possible that legislation may diverge considerably from that brought about in Westminster and that a little more money will be needed, or a little less money. That will be made possible by its tax-varying power.

This is a different sort of assembly. It is to be a strategic authority. Before the noble Baroness decides what she is to do with the amendment, she owes it to us to say what kind of taxation she has in mind for the assembly. For example, does she believe it would be acceptable for the London assembly to double income tax for people in London in order that its dreams could be fulfilled? London people already have to pay large sums to the councils. Does she envisage that they will have to pay more to the assembly? What is the scale of what she suggests?

It is a strange amendment. I do not suppose that the noble Baroness wants us to spend too long on it. I hope that in her reply she will tell us about the sort of thing she has in mind for those of us in London who would have to pay the tax.

Lord Whitty

I am not surprised by the amendment. I know where the Liberal Democrats are coming from. Far be it for me to stop people enunciating dreams in any event. However, the amendment covers old ground which we discussed during the referendum legislation. The result of that referendum was for a Greater London Authority which did not have the kind of tax-raising powers which the amendment suggests. Certainly as the noble Lord and the noble Baroness, Lady Carnegy, said, these are sweeping powers which are not appropriate in this context.

The referendum provided the mandate for the authority. We do not intend to depart from the result of that referendum by introducing tax-raising powers for the GLA. Council tax payers contribute to the costs of London-wide services now and will continue to do so when responsibility for those services transfers to the GLA. There will be a contribution towards the costs of the mayor and assembly. But it is not intended that the GLA should become a tax-raising authority, even to the extent of the Scottish Parliament.

The Bill sets out a responsible financial framework for the GLA, creating a single finance system which will give the mayor substantial scope to decide on the allocation of priorities between the GLA and the functional bodies. The mayor will set the GLA's consolidated budget, subject to the assembly's role in approving it, and will be able to allocate resources.

That framework will provide Londoners with the responsible, accountable authority for which they voted. The amendment would move it into an entirely different sphere. I am sure that the noble Baroness will recognise that she is attempting to create a body which is very different from that which we put to the people of London. Indeed, she will realise, even within her own philosophy towards tax-raising powers, that the amendment is extremely wide and would raise substantial anxieties were it to be pursued. I ask her to withdraw the amendment.

Lord Tope

My noble friend Lady Hamwee did not actually use the words, "I have a dream", as the noble Baroness, Lady Carnegy, suggested, but she might well have done. I too have a dream. I have a dream that one day we shall have a central government who trust local government. That goes to the heart of the matter.

My noble friend made clear that she was moving the amendment to raise the twin principles of financial freedom and accountability. Quite deliberately, we have not tabled amendments which tie that up in great detail. My noble friend referred to our preferred method of devolved income tax and so on. Those are important details which should be debated but those debates should take place once we have agreed the principle. Today, we wish to raise the principle of the matter.

The first principle is that of financial freedom. We are talking about electing a mayor and assembly for our capital city and an electorate of a little over 5 million. It is to be an authority which the Government keep telling us is not the same as local government but is not regional government either. Whatever it is, it is a substantial body which should be trusted by central government to have the financial freedom it needs to be able to implement the wishes of the people of London.

That takes me to the next principle; namely, accountability. We do not suggest for one moment, nor should we, that the authority and mayor should have an unfettered freedom either to raise or reduce taxation on a whim. We are talking about tax-varying, not tax-raising, powers. The accountability is considerable. First, the mayor is accountable to the electorate of London. It will be a foolish mayor indeed who seeks dramatic changes in taxation. Even should that happen, it must be authorised by an elected assembly which is also accountable to the people of London. We say that that should require the assent of a two-thirds majority of that assembly, which is no mean task, as my noble friend said. Therefore, there is a considerable degree of accountability.

Most important is the question of to whom, ultimately, the authority is accountable. The Government say that it is accountable to the Secretary of State. We say that the authority should be accountable to the electors of London, the people who put them there. That is why we say that any tax-varying powers should be subject to a referendum and only if a majority is obtained in that referendum may a proposal ahead. The Government say that the Secretary of State knows better than the people of London. We disagree with that very strongly.

The noble Lord, Lord Dixon-Smith, is right to say that the devil is in the detail. Certainly, were that principle to be agreed now we should be the first to accept that there needs to be much more detail and we should be delighted to have an opportunity to come back and propose some of that detail. But we raise this matter on the principle that the major authority in the country, in our capital city with its first elected mayor, should be given the financial freedom to do what the people of London wish to be done. The people of London should be asked, and be able, to give that authority through a referendum. If we can agree that important principle today, which is at the heart of these proposals, or at least indicate a willingness to agree it, we can then go into the detail which the noble Lord, Lord Dixon-Smith, is so keen to address.

3.30 p.m.

Baroness Hamwee

When we were discussing the scope that we might suggest is available to the authority my noble friend Lord Phillips of Sudbury whispered to me that the mayor could propose free ice-creams for the people of London. I suppose that if the people of London feel it correct to spend their tax on that, they can have the opportunity to say so. I am sad to say to my noble friend that I do not believe it is within the powers of the mayor to provide ice-creams or other types of physical sustenance of that sort.

My noble friend is absolutely right. We tabled this amendment in order to raise the principles inherent in it. I am disappointed that the responses have not addressed the principles. We agree with the noble Lord, Lord Dixon-Smith, that the Bill is already too complex. We made it perfectly clear why we think it is unnecessarily complex. I refer to the very detailed prescriptions of how the authority is to exercise its powers.

As my noble friend said, we believe in the twin principles of financial freedom and proper accountability. The type of tax, the scale, and so on, would be matters to be dealt with at the time, were such a proposal to be on the table. Indeed, the detail of any proposal might well lead to its being rejected by a careful assembly or the London electorate. As to whether or not it is appropriate for a body such as the GLA, the authority would and should have very clear views. The GLA will not be a legislative assembly in the same way as the Scottish Parliament; nevertheless, through its strategic and functional responsibilities, it may well have views either that more money needs to be raised or that less money should be spent.

The Minister said that this is not within the terms of the referendum which agreed that the Government should proceed with their proposals. I very much doubt whether anybody voting in the referendum anticipated a Bill of such length, complexity and detail. The points cannot be dismissed simply by saying that Londoners have already voted on the issue. If they have, what is to prevent them having the opportunity, once the authority is up and running, to reconsider the points we raise? That is all we raise.

These are important principles and I am sorry that they, at any rate, have not attracted a greater faith in Londoners; I put it no wider than that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 67 agreed to.

Lord Tope moved Amendment No. 212C:

After Clause 67, insert the following new clause—


(" .—(1) Section 14 of the Local Government Finance Act 1992 (administration, penalties and enforcement) shall be amended as follows.

(2) After subsection (1) there shall be inserted—

The noble Lord said: I beg to move Amendment No. 212C standing in my name and that of my noble friends. I believe this may be a less contentious amendment. If the Minister is to reply shortly that it is unnecessary. I hope that he or she will explain why.

The amendment proposes that a billing authority—in most cases, the London borough councils—when sending out council tax bills each year, will state clearly on such bills the amount of the precept from the Greater London Authority. That is currently the case with the fire authority and the police. Their precepts are shown separately, as are the other precepts. Clearly, that should be the case with the Greater London Authority, but we cannot see provision for that in this long and complex Bill.

The reason for the amendment is simply to be sure and clear that that will happen. Were it not to happen, that would be nothing much short of deceit. It is already the case that whatever we say in the detail of council tax bills, the public (who sometimes feel that the increase or even the amount is too great) understandably blame the billing authority which sent them the hill. In this case, we need to be clear that the responsibility lies where it belongs, with the Greater London Authority which set the precept. That should be clear on council tax hills when they are sent out.

Lord Whitty

The noble Lord anticipates me correctly. This amendment is unnecessary. Under existing legislation right across local government all council tax payers are sent a demand which is required, among other matters, to show details of any precept that forms part of the total amount. As a major precepting authority, therefore, the GLA precept will be identified separately on demand notices.

To ensure that that is done in an intelligible way, we intend to amend the Council Tax and Non-Domestic Rating (Demand Notices) (England) Regulations 1993, with which the noble Lord will be familiar, to accompany any demand notice. That w ill mean a need to show the total expenditure for the GLA and its functional bodies; total expenditure by class of service; total amount of specific earmarked grant, and the GLA's consolidated budget requirement, the budget requirement for the GLA and each functional body compared to the previous year.

I believe, therefore, that there will be plenty of information under existing regulations, clarified by that amendment to the regulations, to ensure that council tax payers throughout Greater London will know the amount of the precept and on what it is being spent.

Lord Tope

I am grateful to the Minister for that explanation. I suspected that that might be the case. I am relieved, as I am sure we all are, to know that the 1993 regulations are to be amended. This has been a useful, if brief, debate to clarify the position. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hamwee moved Amendment No. 212D:

After Clause 67, insert the following new clause—


(" .Chapter IVA of the Local Government Finance Act 1992 (limitation of council tax and precepts), as inserted by Schedule I to the Local Government Act 1999, shall not apply to the Greater London Authority.").

The noble Baroness said: I beg to move Amendment No. 212D standing in my name. This amendment inserts a new clause to provide that the chapter on capping, which will be brought into effect by the Local Government Bill, as it now is—it will no doubt become an Act—shall not apply to Greater London or to the Greater London Authority.

We have been told that the authority will not be regional government, nor local government; it is sui generis. The Secretary of State has considerable powers under the Bill. Much of the income depends on both the general grant and the transport grant under Clauses 85 and 86. There are provisions for credit approval and for redistributing the receipts of functional bodies.

During the passage of the current Local Government Bill, to which I referred, and on other occasions, for the reasons which we gave in the debate on the amendment concerning tax-varying powers and a referendum, we made it clear that we believe that in order to operate well, local government or, indeed, any sphere of government, should not be subject to the rigid, heavy control of the Secretary of State. For this purpose, I accept that the GLA is not local government, although local government financial provisions are, by and large, being applied to it.

I am well aware that the provisions in the Local Government Bill are intended to be reserve provisions. I am also only too well aware that there is no legislative assurance as to the circumstances in which those provisions will be applied.

We believe that if capping powers are to apply to the new authority, the Government must justify why they should do so. That is why we tabled the amendment.

Lord Dixon-Smith

It is interesting to discuss an amendment which seeks to remove the impact on the Greater London Authority of another Bill which is still proceeding through the House. But removing the impact of the Local Government Bill—it has been accepted for other purposes that the Greater London Authority should be included in that Bill as a best value authority—does nothing about Clause 26(8). That clause gives the Secretary of State power to, impose limits on the expenditure which may be incurred by the Authority by virtue of section 25(1)", and establishes the authority's powers. Nor does it do anything about Clause 71(5) which gives the Secretary of State power to alter the constituents of a budget.

I entirely agree with the principle that capping is obnoxious and I support the noble Baroness, Lady Hamwee, in her comments on this so-called "reserve" power. All those involved in local government have always been concerned about the potential for abuse in reserve powers. In my experience, for governments they are a bit like drug addiction; they are habit-forming. I therefore share the noble Baroness's concern about this general matter. But unless we are able to take fairly dramatic action on the content of this Bill, which so far we have failed to do though there are further stages when we may yet do so, simply accepting Amendment No. 212D would not alter the state of affairs very much. Therefore, at this stage I do not support the amendment.

Lord Whitty

The noble Lord, Lord Dixon-Smith, is right that we are still in discussion on the general issue on the Local Government Bill, and Amendment No. 212D is either an indirect way of getting back to those arguments to which we will no doubt return in any case, or it is a means of exempting the GLA from a financial regime which applies to the rest of local government.

We made it clear throughout our discussions on the GLA that it will be subject to the same arrangements for limiting council tax increases as local authorities generally. As we explained in the other context, the Government have a duty to protect local taxpayers and therefore must have those reserve powers. At the same time, we made it clear that we hope never to have to use those powers for the GLA or for any other local authority. But the GLA in this context is a local authority. A financial regime applies to it and this move to exempt it would not be appropriate. It would be contrary to what we put to the electorate in the referendum. I hope, therefore, that the noble Baroness will feel able to withdraw her amendment.

Baroness Hamwee

I am interested that the noble Lord, Lord Dixon-Smith, seems to feel that the clause is not wide enough. We can certainly attempt to extend it.

We were addressing the provisions which will almost certainly be included in the current Local Government Bill because we are realistic. Whatever this Chamber decides to do with those capping powers, we have seen well enough that such provisions would go back to the other place and no doubt be ping-ponged back here. It seems inappropriate not to make the argument which must be made; that is, that we believe—and I accept because I have a dream on this as well—that the Greater London Authority should not be controlled in the same way that often proved inappropriately restrictive in relation to local government. It is the nature of the powers, and the fact that they are described as reserve powers but parliamentary counsel appears not to have been instructed to articulate the reserved nature of the powers, that we find particularly distasteful. We will return to the matter, certainly on the Local Government Bill and quite possibly also on this Bill at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

3.45 p.m.

Clause 68 [Issue of precepts]:

Lord Whitty moved Amendment No. 212E:

Page 36, line 23, leave out from ("for") to end of line 25 and insert ("the reference to sections 43 to 47 below there shall be substituted a reference to the appropriate Greater London provisions:").

The noble Lord said: In moving Amendment No. 212E, I shall speak also to Amendments Nos. 212F and 212G. They are all technical amendments correcting aspects of the Bill.

At various points in the Bill the respective roles of the mayor and the assembly are set out so that their responsibilities are clear. Schedules 5 and 6 are two examples of that. Schedule 5 sets out the timetable and roles of the mayor and assembly for deciding the original component and consolidated budget requirements, and is given effect by Clause 72. Schedule 6 sets out the timetable and roles for substitute calculations of the budget and has effect whenever substitute calculations are to take place; for example, under Clause 80 if the Secretary of State sets a minimum budget requirement for the Metropolitan Police Authority.

Wherever there is a reference to "budget requirement calculations", Clause 72 should only be cited in the case of the original calculations. In the case of substitute calculations, there should be no reference to Clause 72; instead Schedule 6 should be cited.

These amendments will ensure that Section 40 of the Local Government Finance Act 1992, which concerns the issue of precepts, contains references to the correct provisions. I beg to move.

On Question, amendment agreed to.

Lord Whitty moved Amendments Nos. 212F and 212G:

Page 36, line 26, leave out from ("for") to end of line 28 and insert ("the reference to sections 43 to 47 below there shall be substituted a reference to the appropriate Greater London provisions:").

Page 36, line 34, a. end insert—. ("(10) In this section, "the appropriate Greater London provisions" means—

  1. (a) sections 70 to 75 of the Greater London Authority Act 1999 and section 47 below; or
  2. (b) in the case of calculations by way of substitute. sections 70, 71 and 73 to 75 of, and Schedule 6 to, that Act and section 47 below."").

On Question, amendments agreed to.

Clause 68, as amended, agreed to.

Clause 69 agreed to.

Clause 70 [Calculation of component and consolidated budget requirements]:

The Chairman of Committees (Lord Boston of Faversham)

In calling Amendment No. 212H I must tell the Committee that if this amendment is agreed to, I cannot call Amendment No. 212J.

Baroness Hamwee moved Amendment No. 212H:

Page 38, line 3, leave out subsection (7).

The noble Baroness said: We have just heard from the Chairman of Committees about the pre-emption point. I should be delighted if Amendment No. 212H were agreed to, but I shall speak also to Amendment No. 212J.

Clause 70 deals with the calculation of component and consolidated budget requirements. For each of the functional bodies, and for the authority itself, the amount is calculated taking account of estimated expenditure, reserves and so forth. Those amounts are totted up. Account is taken of income and if the aggregate expenditure will be less than the aggregate income then for the purposes of these provisions the budget for that body will be nil. Our amendments seek to ask why.

Is it intended as an efficiency incentive? That does not seem to be the case because the savings would go to accumulated reserves and so be counted the following year. Under subsections (4) and (5) of Clause 70, efficiency gains can be anticipated. Is it a matter of control on the functional bodies planning ahead? I hope not. I do not think so. Is it a control mechanism, the ring-fencing of budgets for each functional body? That is probably the case.

We on these Benches would prefer the authority to see the budget as a whole and not simply as a set of constituent parts. Amendment No. 212J provides that the excess will be repayable from the functional body to the authority. In our perhaps ambitious eyes, the GLA should be a body which looks at a number of strategic matters affecting London. It cannot provide certain services direct; its powers are limited and the matters to which it is to have regard are set out in detail. That does not mean the body should not be ambitious for the success of London and consider issues affecting London—I hope your Lordships will forgive the jargon in a holistic fashion. I prefer the word "holistic" to the term "joined up". I certainly prefer it to a joined-up London for the next millennium, which we are told to hope for in a number of policy areas.

For the authority to look at London's needs and Londoners' aspirations, it will wish to consider its budget as a whole, not as a set of component parts—and our amendments would allow it to do that. In another place, the Government objected to the proposed arrangements because they do not apply to local government finance. Although the authority is to be treated for some purposes as though it were a local authority, this is not local government. Still less are the individual functional bodies local government.

The Minister in another place said that local authorities whose income exceeds expenditure should not have to give away income to other bodies. Instead, they should consider how best it should be used to improve the services. Precisely. We see that as a matter for the authority, rather than having individual bodies squirreling away cash and protecting their budgets in a way that suggests they may be competitive with one another. We hope the various bodies that will undertake the plans for London of the mayor and the authority will be co-operative, not competitive.

The Minister in another place also pointed to clauses that allow each functional body, with the mayor's consent, to make payments to another body. That is the wrong way around: that would be a number of tails wagging the dog. We ought to be looking at the powers and effectiveness of the authority as a whole, not forgetting the whole and looking only at the functional bodies.

Lord Dixon-Smith

We have some sympathy with the principles enunciated in the amendments, even though we might not support them today. If one of the functional bodies happened to come up with a surplus—I presume that it is likely to be a small one—the fact would be well known and suitable adjustments would follow subsequently.

In the light of what happened when budgets were devolved to schools, I have some hesitation about manoeuvring. The noble Baroness, Lady Farrington of Ribbleton, will be all too familiar with the consequences of schools holding balances on their budgets, which could theoretically leave large sums of money prudently squirreled away by school governing bodies in the interests of some flexibility in future in the management of their schools. If local authorities had those locked-up funds available to them, perhaps they would be able to put them to better use than having them sit in a bank.

This is not a straightforward matter and I agree that we need to consider London's funding as a whole in the way that the amendment suggests. I am not sure, however, that the personnel structures that are established under the Bill would make that practicable and achievable. As the noble Baroness said, we need to consider the matter in the round and it is certainly a subject to which we will all be returning. At this stage, I note what has been said and look forward to hearing the Minister.

Baroness Farrington of Ribbleton

The amendments seek to allow for bodies to have negative budget requirements. Secondly, they would require functional bodies to pay any amounts calculated as negative budget requirements to the GLA.

Our main difficulty is that the amendments seek to change some key aspects of the local government finance regime for the GLA. While we have always been clear that there would need to be modifications to the standard system, we have been clear also that those would need to reflect its unique role.

The local government finance system does not provide for negative budget requirements for local authorities generally. It is not the intention to change that for the budget requirements of the functional bodies—as Amendments Nos. 212H and 212J seek to do. Local authorities whose income exceeds their expenditure do not have to give away their income to other bodies. Instead, they consider how best it can be used to improve the services they provide. The exception is legislation that has money being delegated to other bodies—as with schools, as the noble Lord, Lord Dixon-Smith, said. The same principle applies to the GLA and the functional bodies.

The noble Baroness and the noble Lord raised the point of why the budget requirement of a local authority would in theory take account of a negative budget generated by one or more of its service departments but the consolidated GLA budget would not. They are not comparing like with like. I have explained that the constituent bodies of the GLA are separate bodies with separate budget requirements. The GLA, following consultation with the functional bodies, would calculate a budget requirement for each functional body as the difference between that body's expenditure and income. The GLA then calculates the consolidated budget by adding together the budget requirements of each of the constituent bodies.

A London borough council, for example, has only one budget requirement. The education department and social services department do not calculate separate budget requirements under the applicable statutory provisions. A London borough council's budget is like a constituent body's component budget under the Bill.

I cannot envisage the circumstances in which the mayor would set a negative budget requirement for any of the functional bodies. That could theoretically happen only if the income of those bodies exceeded their expenditure. Ruling out negative budgets does not mean ruling out flexibility. The Bill provides a mechanism for any spare resources to be redistributed from one body to another. Clause 106 allows any of the bodies, with the mayor's consent, to pay revenue grant to another functional body. The mayor is firmly in the driving seat in setting the GLA budget. The budgetary practices that he or she establishes will be expressed in five component budgets. He or she will certainly take an overall view.

Clause 105 makes similar provision for grants for capital spending. That mechanism for ensuring that resources are used efficiently across the GLA and the functional bodies is much more appropriate than a rigid system of negative budget requirements.

For those reasons, the amendments are not acceptable. I ask the noble Baroness to withdraw them.

4 p.m.

Baroness Hamwee

The Minister referred to certain clauses, but the problem with them is that they require the mayor's consent which suggests that the mayor is not in a position to take control. However, before I respond any further, perhaps the noble Baroness can clarify one point for me. She explained that the financial provisions are to reflect the financial arrangements which apply to local authorities. The Minister's reply seemed to indicate—and perhaps she will confirm whether or not I am correct—that each of the functional bodies is the equivalent of a local authority. Looking at it as a whole, the model which the Bill sets out seems to me to read as if each functional body is an "arm" of the mayor, if I may stretch the physical analogy a little. In other words, it is the authority, comprising the mayor and the assembly, which is the equivalent of a local authority. However, the Minister seemed to be telling us that each functional body is a separate local authority for this purpose.

Perhaps I may expand on my argument—that is, if it needs expansion. The Minister talked about borough budgets. In a London borough, I accept that it is the council as a whole which would take a view as to the comparative priorities, to use her examples, of education and social services. That is precisely the sort of model we would like to see here, with the authority in the position of the council. The Minister said that boroughs have to act under their statutory provisions. We are at present discussing what statutory provisions will apply to the authority, so I think that that may be begging the question.

Baroness Farrington of Ribbleton

The noble Baroness has identified the difference. The difference between us is the fact that she would prefer a different model from that proposed in the Bill.

Baroness Hamwee

Yes, I would; I have made no secret of that fact. But that was not my question. I do not think we shall progress a great deal further on the matter today. Nevertheless, it is a matter of some importance. Perhaps the Minister has something further to say before I withdraw my amendment.

Baroness Farrington of Ribbleton

It may help the noble Baroness to know that, as I said earlier, the mayor decides the budget requirements but each functional body has its own budget. They are added together to form a consolidated budget requirement. I do not know whether that assists the noble Baroness.

Baroness Hamwee

I am grateful to the Minister but, sadly, I do not think it does. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 212J not moved.]

Lord Dixon-Smith moved Amendment No. 213:

Page 38, line 11. at end insert— ("(10) Notwithstanding any other provisions of this Act, the precept issued by the Authority for any financial year ("the relevant financial year") subsequent to the first financial year for which the Authority issued a precept shall not exceed the precept issued in the financial year preceding the relevant financial year by a percentage greater than the percentage by which the Retail Price Index increased in the year to the 31st December preceding the relevant financial year, except where this can be shown to be the consequence of a reduction in funding from central government.").

The noble Lord said: The Government have said that the GLA should not represent an oppressive financial burden on Londoners. Paragraph 6.7 of the White Paper on London promised that the finances of the GLA would, meet the Government's objectives of efficiency and value for money in public spending".

However, on the face of the Bill, the fulfilment of those pledges appears to be left to chance.

Experience elsewhere of powerful precepting authorities shows that, all too easily, they can escape the electoral consequences of their decisions because council tax payers fail to understand that their increased tax bill very often results from a decision by a precepting authority rather than a decision by a billing authority. This happens despite all the information that is sent out with tax bills. Indeed, experience in London during the time of the GLC also bore out that fact. I cannot believe that people in London would wish to return to such a situation.

There is another factor involved, which is mentioned in the amendment; namely, government finance. All too often, for a local authority setting its budget the greatest variable that it faces in its financial resources is the variation in the funding it receives from central government. At present, we are in a period of relative stability because the Government have said—I am grateful to them—they will not amend the relevant distribution formula for a period of three years. But that period of peace, quiet and correctness is, I suspect, likely to be followed by a more violent period of change as the formula is altered to catch up with the demographic shift that has taken place over a longer period of time. The blame for local tax increases must rest where the responsibility for it lies. Among other things this amendment seeks to help to bring that situation into being.

As far as I can see, there is no financial discipline in terms of Part III of the Bill as it stands, except the Secretary of State's powers of direction. This is a new type of authority and the dangers of irresponsible financial planning should be diminished, if not eliminated, in the drafting of the Bill. The Government's stated intention is that the authority should be financially responsible. If that is to be more than a pious hope, limiting the increase in its precept for each financial year to the percentage increase in the RPI to the previous December is not only desirable but perhaps also an indispensable protection for the people of London.

The proposal is a moderate one; but it also has to be said that it is not novel. We are suggesting that the precept should not outstrip inflation; that is to say, it should not rise more quickly than the RPI. We see many examples of this in practice. The Government expect the privatised utilities to abide by much more stringent price cuts. They operate in the private sector but because they provide a public service and are all too often in a monopoly situation it is deemed that these requirements are reasonable. They are often required to operate on RPI minus—in other words, their prices can increase at below the rate of inflation—and they are expected to maintain their profitability through increases in efficiency, and so on.

When we had a Conservative government and the idea of RPI minus as a formula was produced for the regulation of these utilities, the Labour Party said that it was not a sufficiently stringent discipline. I find myself asking this question: how, in reality, is the GL. A different from the privatised utilities? Of course, the same could be said of all government services indeed, we are to some degree involved in a philosophical debate at this point. However, the GLA is certainly a monopoly provider for many of its services. It is certainly in a monopoly situation.

The Government claim that the RPI minus formula is needed to encourage privatised utilities. So why should not the same argument be applied to the GLA.? Limiting its price rises to the retail prices index would encourage efficiency in London's public spending, which is exactly what the White Paper set out to do. Some people may say that local government is different; it provides services. But the privatised utilities are services. There is a parallel, if not a complete congruence, between the two.

The situation in London is exacerbated by a trend which is apparent at the moment of the Government tending to move resources from London and the south-east of the country into the west, the Midlands, the north-east and the north-west. We see that through the changes in the revenue support grant and the temptation for even wider changes than we have had so far. It must be borne in mind that London is already a huge net contributor to the nation's finances. If we are in the business of removing resources from the south-east, and from London in particular, we need to bear in mind that many parts of London are as disadvantaged as disadvantaged areas anywhere else in the country. Simply to use this resource shift to justify a different political need is not appropriate.

In a sense this amendment is exploratory. It explores the Government's attitude and philosophy on matters financial. I look forward to the Minister explaining how he sees the future of government services and government costs. Are they to be related to the normal cost increases which we have seen? If we had a period of deflation, would they still maintain that kind of relationship; or are we to expect that they might rise and expand—perhaps gently—in a way which absorbs an ever-increasing part of the community's total finances and resources? If that were to happen, I believe that it would be damaging.

This amendment seeks to impose a proper discipline on the Greater London Authority. It would, of course, render totally redundant the possibility of capping under the Local Government Bill because, were the Greater London Authority to be subject to this kind of a discipline, it seems to me that it would not fall foul of the Secretary of State at any time. I beg to move.

Lord Tope

I listened to the noble Lord, Lord Dixon-Smith, with considerable interest and some sympathy because I felt that his heart was not really in this amendment. Therefore I was not surprised to hear him say that the amendment was exploratory. However. I was astonished to hear him say that if the amendment were accepted it would do away with the need for capping. I thought that the noble Lord did not—

Lord Dixon-Smith

I said that it would do away with the need to cap the Greater London Authority.

Lord Tope

I stand corrected. As I say, I thought that the noble Lord moved the amendment with something less than enthusiasm because earlier today he told us that he opposed capping. I know from his days in local government that he opposed capping when it was first introduced by the previous government. He has always been clear and honest about that. Therefore I felt some sympathy for him in having to move this amendment which is similar to an even sillier one that was moved by his colleagues in another place.

This amendment seeks to impose on the Greater London Authority a limit which is tied to the retail prices index. Later the noble Lord can explain to me how that is not capping. It seems to me to be the crudest—and most universal in terms of the Greater London Authority—form of capping yet devised. The noble Lord—or probably his friends in another place—has chosen the retail prices index as a most inappropriate method of imposing a crude cap on an authority. I believe that that is entirely inappropriate. From all his years in local government the noble Lord knows as well as I—probably better than I do—that cost increases within local government do not relate that closely to the retail prices index. I am surprised that the noble Lord proposes the imposition of an arbitrary cap tied to the retail prices index by law for ever. At times the noble Lord appeared to confuse the increase in precept with, for example, fare increases under Transport for London. That is a different issue. Here we are discussing precepts.

The noble Lord also said that the amendment sought to place the blame where it lies—presumably with the Greater London Authority. However, it does nothing of the sort. It removes any possibility of blame from the Greater London authority because it has no power to decide that it wishes to impose a much higher. or for that matter a much lower, precept increase. We cannot support this amendment. I think that it is particularly silly. I return to the point I made earlier this afternoon; namely, the proper means of accountability for the mayor and the assembly of the Greater London Authority as regards whatever increase or decrease they want in a precept is to be properly accountable to the electors of London. Such a provision should not be imposed on them by law by means of some rather artificial index that does not relate to local government at all.

4.15 p.m.

Lord Whitty

I am glad that this amendment is both exploratory and philosophical. I think that we have swung from the total freedom of the Liberal Democrats to total constraint on the part of the Conservative Front Bench. The amendment seeks to restrict annual increases in the GLA's precept to annual increases in the RPI. The amendment refers to the GLA precept in the singular, although the GLA will, of course, issue a number of precepts, one to each billing authority. But leaving that aside, the noble Lord. Lord Tope, has made the case absolutely clear; namely, that local authorities have to take into account their responsibilities to their electorate, the resources available, changing circumstances and the priorities that they establish. We do not restrict any other local authorities to fixed increases or to increases which are related to a single RPI figure. We recognise that some flexibility is needed to decide how much local authorities need to raise from the council tax. We consider that there is a limit to that and therefore we have retained the reserve powers.

However, as the noble Lord, Lord Tope, has reminded us, in a different context the noble Lord, Lord Dixon-Smith, is opposed to those reserve powers. But his proposal would place a far greater constraint on the GLA. The GLA is covered by our "third way"; that is, a course between the total freedom of the Liberal Democrats and the total constraints of the Conservatives. Broadly speaking that brings the GLA within the local government regime. Not only will it be subject to that legislative provision; it will also have a common law fiduciary duty. Under the new legislation that we shall introduce, it will also be subject to best value. It is subject to auditors and the intervention of the Audit Commission. There are all kinds of pressures on the GLA to spend its money wisely within the freedoms that we shall give it under the local authority finance system. If an utterly outrageous increase is proposed, the reserve powers would come into play, but not until that point.

The noble Lord referred to changes in the allocation of revenue support grant and so forth. There are certain changes both within and between authorities, but the intention is to have a fairer distribution, not to take money away from London, as the noble Lord suggested. Some degree of stability is needed. We are looking at changes in the methodology of allocating grants. In the meantime the three-year stability that we have announced has been welcomed by local authorities generally, although it will be subject to some changes such as demographic changes which would need to be reflected in the distribution.

I do not think that this is a sensible amendment. It places far greater constraints on the GLA than are sensible. Our own approach, which has been attacked in the House as having reserved powers, has a far lighter touch than that proposed by the noble Lord. I hope that, on reflection. he will not press the amendment.

Lord Tope

Before the noble Lord, Lord Dixon-Smith. responds, the Minister referred a couple of times to "the total freedom proposed by the Liberal Democrats". I hope he will accept that winning a two-thirds majority from the assembly and then winning a simple majority at a referendum of 5 million London electors does not quite equate to "total freedom".

Lord Whitty

I was speaking in financial terms. Clearly there are political constraints—as always—and the noble Baroness's previous amendment would have put in place a severe political constraint. I accept that. The philosophy is that one should somehow maximise the financial freedom subject to those political constraints, whereas the noble Lord's amendment would minimise the financial freedom and not allow any political judgments to take place.

Baroness Hamwee

That is exactly right. We stand by that. We would add that the political constraints in the various proposals we have made should be with the authority concerned—in this case the Greater London Authority, but it is a point we make for local government generally. Each individual authority with any modicum of instinct for its own self-preservation will understand the needs of the political constraints, quite apart from the propriety of applying them. So, yes, political constraints—but at the right level and in the right sphere.

Lord Dixon-Smith

When one has dug oneself into a hole it is always good advice to stop digging. However, we should be quite clear that the reserve powers mentioned by the Minister would be irrelevant if the amendment were to be included in the Bill.

We should recognise that part of the purpose of debate at this stage of a Bill in this House is to test the intellectual strength of the Government's proposals. Although not everyone may agree, it seems to me that sometimes one has to reverse the argument that one would normally produce in order to do just that. At the end of the day, the proof is in what passes through the House. I do not apologise to the Committee for moving the amendment, with which, I admit, I have some philosophical difficulty.

However, the point behind it is serious. There will be problems with the Greater London Authority precept. I accept that political constraints ought to operate effectively on it. The lesson learnt over the years by those of us who have been involved in local government is that the assignment of responsibility for financial actions is extremely difficult to pin on the people who took the decisions that had an effect on the precept. It was with that in mind that the amendment was moved.

We have had a useful discussion. However, I do not think that I am a lot clearer about the Government's attitude to public financing generally as a result. That is probably my fault because I did not argue sufficiently clearly the point that I wished to make. For that I am sorry. If I have taken the time of the Committee ineffectively, I apologise, but that was the purpose behind the amendment. I shall study the Minister's reply to deduce what I can from it. If I can deduce sufficiently useful material, we shall not bring forward the amendment again. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 70 agreed to.

Clause 71 [Provisions supplemental to section 70]:

Baroness Hamwee moved Amendment No. 213A:

Page 38, line 44, at beginning insert ("With the agreement of the majority of the members of the Assembly voting").

The noble Baroness said: In moving Amendment No. 213A I shall speak also to Amendment No. 220E.

Clause 71(5) provides for the Secretary of Stale to alter the constituent parts of the calculation under Clause 70(4) and (5); Clause 73 provides for the Secretary of State to alter the constituents of the calculation under Clause 73(2), which deals with the calculation of council tax. We propose that the agreement of the assembly should be required to such alterations. If the Secretary of State is making sensible proposals, the assembly will no doubt agree. I have faith in the likely common sense of the assembly, particularly when one has to look to the majority of its members. These amendments are protections in case the Secretary of State is not sensible or goes against the will of the authority in a manner which the assembly calculates would not find favour with Londoners.

The amendments are consistent with the role of the assembly. The assembly will have an overview of various budgetary matters and, in particular, the detailed matters to which Clause 70, which deals with the component and consolidated budgets, will apply. We have spent some time this afternoon talking about the need for an overview. Even were I to accept—which I do not—the Government's view of how the budget will be put together, nevertheless the assembly's view, gathered from experience of working in the authority and the background of the individual assembly members, will be relevant. It should have a role in these decisions. I beg to move.

Baroness Farrington of Ribbleton

Amendment No. 213A is intended to ensure that the Secretary of State could exercise his powers under Clause 71 to make regulations to amend the rules governing the calculation of the GLA's component and consolidated budget requirements only with the consent of a majority of assembly members voting. Similarly, Amendment No. 220E would mean that the Secretary of State could exercise his powers under Clause 73 to make regulations to alter the rules for calculating the GLA's basic amount of tax only with the consent of a majority of assembly members voting.

The noble Baroness is clearly continuing the Liberal Democrat campaign to curtail and prune the powers of the Secretary of State and to confer what are usually executive powers on the assembly. Perhaps it would help the Committee if I explain why the Secretary of State's powers in Clauses 71 and 73 are needed. The Clause 71 power is needed so that the Secretary of State can include or exclude certain items from the budget requirement. The budget requirement is used in the tax-setting equation to determine the amount of revenue the GLA will need to raise from council tax after deducting revenue support grant, non-domestic rates, and so on. The Clause 73 power is needed so that the Secretary of State can alter the rules governing the calculations for the basic amount of council tax to accommodate the introduction of new grants or changes to the powers under which grants specified in Clause 73 may be paid.

Both of these powers are similar to the Secretary of State's powers in respect of local authorities generally in the Local Government Finance Act 1992. Any changes to the rules governing calculations would probably need to apply to local authorities generally and to the GLA. Those changes are made only following consultation with local government, and although we would certainly expect to consult the mayor and the assembly about changes, surely the noble Baroness does not seriously expect us to agree that the assembly, uniquely, should have the power to veto them. It is Parliament and not assembly members which rightly has this role in relation to regulations made by the Secretary of State. For these reasons, we invite the noble Baroness to withdraw her amendments.

Baroness Hamwee

All our amendments are serious, and I am sure that the noble Baroness understands that. Indeed, our campaign to prune the powers of the Secretary of State will continue. The fact that the powers are similar to those which the Secretary of State has in relation to local government does not seem an argument for applying the powers to the GLA, but rather to reducing the powers in connection with local authorities. I am sure the noble Baroness is not surprised by that reaction. We shall consider this matter further, but for the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 71 agreed to.

Clause 72 agreed to.

Baroness Farrington of Ribbleton

I beg to move that the House do now resume.

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

House resumed.